Are Charity Organizations at Potential Risk of Money Laundering?


The financial sector has suffered great losses because of money laundering. The global amount of worldwide laundered money is 2% to 5% of the global Gross Domestic Product. After years of continuous efforts, financial institutions have developed strong prevention procedures against financial crimes. It is becoming harder for money launderers to use financial businesses for potential money laundering.

Now they have targeted other industries and businesses for it. As the motive is to conceal the original sources of the funds, they choose those businesses that have cross-border trades and can circulate cash easily. Like others, charity organizations are also used for potential money laundering.

Charity Organizations – At the risk of Money Laundering

Gone are the days where a charity organization operates within a state or country. Now some of the charities collect and donate funds to multiple countries. The procedure of money laundering is almost the same in all businesses. It involves three stages where funds are placed, circulated, and extracted through numerous ways. After money laundering is done, the ultimate beneficial owner (UBO) can use it easily in the system. Now he has all the supporting documents of the fund’s sources. It is also known as “moral laundering”.

Below are the signs of money laundering through charities:

  1. Unexpected and huge amount of donations from new people, business, or other resources also unknown to the trustees
  1. Donations having the condition of granting charity to specific groups or individuals who are unfamiliar with the charity organization
  1. Charity loans offered for a short time period which is to be returned to some other state’s bank account. The trustees are allowed to keep some amount from the loan to have a better chance of agreement
  1. Unexpected and strange request for repayment of a chuck or whole amount of donation by the donator
  1.  Call for recovering large amounts of funds using charity bank accounts and other information. In this case, the organization is given a small percentage of the recovered money
  1. Short-term loans to be paid through bank drafts of a different country or currency
  1.  Urged to use the charity bank account for cross-border transactions
  1. Offering expensive goods or services that are not well-regulated by
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If one of them occurs multiple times by the same group, the chances of money laundering become high. The charities should go for anti-money laundering solutions to prevent their channels from financial crimes.

Anti Money Laundering for Charities

Anti-money laundering is the collection of steps, procedures, and laws to combat financial crimes. There is also a hazard of terror financing through charity organizations. Modern AML Verification builds a barrier against terror financing also. To have a better mitigation program the donors should be verified through KYC first and then screened through AML watchlists. As money laundering should be blocked before it happens, a risk-based approach can be used.

Risked-Based Approach

Identify Risks

Recognize what are the possible risks, their impact, range, and scale.

Reduce Risks

Minimize the amount and shock of the earlier noted risks.

Monitor Risks

For this purpose, the charity organization needs to collect, analyze and investigate the financial records of the individual.

Record Keeping

This is the most significant level of a risk-based approach. It helps in making the approach more effective. The data of the individuals or groups should be stored and reanalyzed. The patterns of money laundering and additional fiscal offenses should be checked.

AML Screening

The names of the donors or the people behind a donating organization are screened against criminal lists. At this time where thousands of transactions process in a single day, the screening can’t be done by humans. Lucky AML solution providers use online software for that. The name is checked from all the databases having a massive number of high-risk entities. AML watchlist contains the data of high-risk entities being issued by local and global law enforcement agencies.

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Summing it Up

If an organization can’t control criminal activities, the license can be cancelled or it could be fined. NGOs can decrease the jeopardy of money laundering by adopting a risk-based approach first and AML screening later. This sector can clean its channels as financial institutions did.


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