On 24 July the European Commission published the second version of its European risk assessment, to be used by ‘obliged entities’ like banks for their anti-money laundering (AML) and counter terrorist financing (CFT) policies. This second ‘supranational risk assessment’ (SNRA-2) puts the complete non-profit sector in the group of “products and services that are potentially vulnerable to money laundering/terrorist financing risks”.
Strangely enough the non-profit sector is in a “additional category of products and services relevant for the risk assessment” together with :
- cash-intensive businesses,
- virtual currencies,
- informal value transfer services
- privately owned automated teller machines
- professional football
- free ports
- investor citizenship and residence schemes
Non-profit in the Netherlands
As a consequence of SNRA-2 the complete non-profit sector in the Netherlands is considered to pose extra risks in relation to money laundering (ML) and terrorist financing (TF). A large part of the Dutch non-profit sector is publicly financed and/or is supervised by state authorities. Also there are several other supervision systems in place. This applies to e.g. schools, hospitals, housing associations and several other types of activities.
It is a mistake of the European Commission to treat public activities through private entities in the same way as shady entities found in the Panama Papers (and other ‘leaks’). This is damaging for all people working for non-profit organisations (NPOs). Possibly the Netherlands is not the only country where NPOs are wrongly shown in SNRA-2. It would have been better to differentiate more between NPOs and leave out publicly financed and supervised entities.
Collection and transfers of funds through non-profit organisations
For the definition of non-profit organisations SNRA-2  refers to a FATF definition, that does not adequately differentiate between the different types of NPOs. SNRA-2 cites FATF as follows :
A legal person or arrangement or organisation that primarily engages in raising or disbursing funds for purposes such as charitable, religious, cultural, educational, social or fraternal purposes, or for the carrying out of other types of “good works
There is nothing on the type of funding or on supervision in this definition. With such an unsatisfactory definition, the risk analysis made in SNRA-2 can’t be adequate.
Also SNRA-2 refers to a peculiar division FATF makes between “Expressive NPOs” and “Services NPOs” . Both types of NPOs in the Netherlands can be directly or indirectly state financed and supervised. This division may reflect the situation in other member states but is inadequate for the Netherlands.
There are several possibilities for better categorization of NPOs.
The Commission does not explain why NPOs should be treated different from other legal entities (like companies) when it concerns ML and TF. The Commission’s remark on the risk of infiltration by criminal or terrorist organisations for hiding funds or a beneficial owner, is incomprehensible and is not supported by evidence. When in certain cases rotten apples are found, this does not mean that all NPOs are vulnerable.
The Commission puts human aid organisations in the category of the ‘service NPOs’ that are vulnerable “due to the nature of their activity“, because their activities may relate to states on international black lists (like the AML/CFT black list of the European Commission and the black list of FATF). The Commission recognizes the importance of human aid and says – apparently in regard of human aid NPOs – the following:
To safeguard the legitimate objectives of such assistance, more information about terrorist financing risks is needed within non-profit organisations to improve risk awareness. The Commission will launch still in 2019 a call for proposals for a preparatory project on capacity building, programmatic development and communication in the context of the fight against money laundering and terrorist financing.
The Commission acknowledges that banks and other financial service providers may be reluctant to engage with certain non-profit organisations in order to de-risk, but does not attach any consequences to that observation.
The paragraph in SNRA-2 on NPOs is inadequate and ill-founded.
My recommendations are:
- Create a better system of types and categories of NPOs.
- Only pick out specific NPO-categories as types that need extra attention of obliged entities.
- If necessary take also differences between member-states into consideration.
As a consequence it will be necessary to amend other parts of SNRA-2 on the NPO-sector also .
This SNRA shows that it is very urgent to improve the quality of the supranational risk assessment in regard of NPOs.
Possibly one of the problems in producing of these kind of documents is that all AML/CFT-specialists responsible for the content have the same governmental origin and that there is no or not enough quality involvement of the private sector in the creation of this risk assessment and other AML/CFT documents. Also additional independent scientific research could challenge government officials in rethinking their concepts.
As AML/CFT legislation is of growing importance, I bring this to the attention of NPOs. It is advisable for non-profit organisations to urge the European Commission to take major steps in raising the quality of the SNRA in regard of their sector.
Footnotes, all referring to SNRA-2:
 Page 1, footnote 7.
 Paragraph 2.1.5.
 In footnote 17 on page 4.
 Page 4.
 Like on page 19, “(5) Collection and transfers of funds through a non-profit organisation”.