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Nonprofits and regulatory challenges

Nonprofits and Regulatory Challenges

The best one can say about civil society regulations these days is the news about the revised standards in Recommendation 8. Not many nonprofit know about Recommendation 8 – a regulation intended to protect the nonprofit sector from abuse through terrorist financing, developed by a global regulatory institution called the Financial Action Task Force, this regulatory body has the mandate for combating money laundering and funding of terror.

Through its Forty Recommendation and Special Recommendations on Terrorism Financing, the international standard for anti-money laundering measures and combating the financing of terrorism and terrorist acts were set.  Though FATF sets the principles for action, countries are allowed a measure of flexibility in implementing the standards according to their peculiarities and constitutional frameworks.

Of the Forty Recommendations, Recommendation 8 specifically targets the nonprofit sector.  It primarily focuses on reviewing laws and regulations that guide non-profit organisations so that they are not subject to exploitation by terrorist organisations. Nigeria has implemented Recommendation 8 with the establishment of the Special Control Unit on Money Laundering and SCUML’s directive asking nonprofits to register with it before they can operate or open bank accounts. Nonprofits are to also report their cash-based activities to SCUML.

Though the narrative of nonprofits being used as conduits for money laundering has been on for a while, no institution of government either nationally or globally has come up with empirical data to back this claim, it is still an assumption.  Though the spirit behind Recommendation 8 as of the time it was developed was well-intentioned, its implementation globally has been a challenge as many governments have used it to crack down on nonprofits especially those critical of government.

A review of the Recommendation is therefore badly needed. In its earlier form, it labelled the entire nonprofit sector as “particularly vulnerable” channel for terrorist financing. This labelling led to the entire nonprofit sector being seen as high risk by financial institutions and governments. For three years, a coalition of civil society organisations interested in protecting civic space including the Nigeria Network of NGOs advocated a review of Recommendation 8, due to the combined influence of nonprofits around the world. The blanket assumption of nonprofits being at risk of being used as conduit for terrorism financing has now been removed by FATF.

The new Recommendation 8 now tightens its focus to organisations found to be legitimately at risk rather than the blanket statement on all nonprofits being at risk. In the revision, countries are called on to ensure that responses to at-risk organisations are proportionate, effective and respectful of international human rights laws.

According to the FATF, “The revised standard aims to ensure that the implementation of Recommendation 8 … does not disrupt or discourage legitimate nonprofit activities.” Recommendation 8 now reads: “Countries should review the adequacy of laws and regulations that relate to nonprofit organisations which the country has identified as being vulnerable to terrorist financing abuse. Countries should apply focused and proportionate measures, in line with the risk-based approach, to such nonprofit organisations to protect them from terrorist financing abuse […]”

 

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