Keron Oliver Burrell
Auditing the Non-Profit Organizations (NPOs) AML/CTF Framework in Jamaica
Is there a deficiency in the current legal and regulatory framework for the Jamaican banking sector when compared to the guidance given by the Financial Action Task Force (FATF) for Non-Profit Organizations (NPOs)? KERON BURRELL
White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
ABSTRACT The global economy continues to be plagued by concerns of money laundering (ML), terrorist financing (TF) and the proliferation of weapons of mass destruction (PWMD). As the global economy expands and changes so do the various AML/CTF/PWMD typologies. Therefore, these concerns pose added risks to the global financial system. The various jurisdictions across the world continue to grapple with this significant threat whether by themselves or through their various regional bodies. In this regard, the Financial Action Task Force (FATF) has become the standard bearer and standard setter in this global fight against ML/TF/PWMD. As it concerns AML/CTF/PWMD, FATF has issued 40recommendations (FATF 40) which are designed to guide countries as they implement their various frameworks. These methodologies and frameworks are primarily designed to guide countries, national supervisors, financial intelligence Units (FIUs), financial institutions (FIs) and designated non-financial business and professionals (DNFBPs) in identifying, assessing, understanding and mitigating ML/TF risks and PWMD. With respect to nonprofit organizations (NPOs) in particular, FATF has issued specific guidance through the publication of Recommendation 8 and a plethora of other guidance which further expound on matters relating to NPOs. The CFATF and a number of other FATF-style regional bodies (FSRBs) have developed and continue to develop policies and procedures as well as methodologies to adequately treat the issue of NPOs whilst satisfying the requirements of FATF. The issue of moment, however, for Jamaica and a number of other countries is how to develop the required legal and regulatory framework needed to fulfill the requirements of Recommendation 8, its attendant interpretive notes, methodology and immediate outcomes. This paper contemplates the question as to whether there is a deficiency in the current legal and regulatory framework for NPOs in the banking sector in Jamaica when compared to the Guidance given by FATF. The answer to this question might lead to the contemplation of a way forward and specific recommendations in order to advise policymakers at the Central Bank (Bank of Jamaica), FIU (Financial Investigations Division - FID), Ministry of Finance (MOF), Ministry of Justice (MOJ) and other stakeholders of the gaps in the current AML/CTF architecture in Jamaica and recommending possible solutions to the issues discovered.
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White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
Table of Contents
ABSTRACT ........................................................................................................................................... 1 ACKNOWLEDGEMENT ......................................................................................................................... 3 ABBREVIATIONS AND ACRONYMS ...................................................................................................... 3 EXECUTIVE SUMMARY ........................................................................................................................ 5 INTRODUCTION AND BACKGROUND................................................................................................... 9 DESCRIPTION OF THE FINANCIAL ACTION TASK FORCE (FATF) 40 RECOMMENDATIONS .................. 10 DESCRIPTION OF FATF RECOMMENDATION 08 - NPOs ..................................................................... 11 DESCRIPTION OF THE CURRENT LEGAL AND REGULATORY FRAMEWORK FOR NPOs IN JAMAICA .... 11 DESCRIPTION OF JAMAICA’S THIRD ROUND MUTUAL EVALUATION/DETAILED ASSESSMENT REPORT ANTI-MONEY LAUNDERING AND COMBATING THE FINANCING OF TERRORISM (MER) 2005 ........... 12 OTHER ACTIONS ................................................................................................................................ 18 CONCLUSION..................................................................................................................................... 19 BIBLIOGRAPHY AND REFERENCES ..................................................................................................... 20 Appendix I – Objectives of FATF and Table Listing FATF 40 Recommendations ................................ 23 Appendix II – Recommendation 8 and the Interpretive Note to Recommendation 8 (NPOs)............ 26 Appendix III – Methodology for Assessing Technical Compliance with Recommendation 8 ............. 34 Appendix IV – Immediate Outcome 10 ............................................................................................. 36 Appendix V – Description of the FATF Risk-Based Assessment Methodology ................................... 38
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White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
ACKNOWLEDGEMENT The researcher would like to acknowledge the work done and guidance provided by FATF and the FATF-style regional body, the Caribbean Financial Action Task Force (CFATF), of which Jamaica is a member. In particular, the FATF Guidance on Non-Profit Organizations (Recommendations 8), as well as FATF Recommendations (the International standards on combating money laundering and the financing of terrorism and proliferation 2012) and Methodology (for assessing compliance the FATF Recommendations and the effectiveness of the AML/CTF systems 2013) were extensively used to compare the Jamaican legal and regulatory framework. In addition, in order to advise the discussion as to whether the legal framework had any deficiencies, the Jamaica Third Round Mutual Evaluation/Detailed Assessment Report – Anti-Money Laundering and Combating the Financing of Terrorism (MER) of the Caribbean Financial Action Task Force was used. In addition, the follow-up reports subsequent to the final report were also consulted. The ensuing discussion draws heavily from the research conducted on the Mutual Evaluation Report and its attendant findings.
Finally, I would also like to thank the various authors of the aforementioned works including, the CFATF Secretariat (and its attendant assessors/authors of the MER). ABBREVIATIONS AND ACRONYMS AML/CFT Anti-Money Laundering and Combating the Financing of Terrorism (and the Proliferation of Weapons of Mass Destruction) BOJ
Bank of Jamaica
CFATF
Caribbean Financial Action Task Force
DNFBPs
Designated Non-Financial Businesses and Professions
FATF
Financial Action Task Force
FATF 40
FATF Forty Recommendations on Money Laundering, Terrorism Financing and the Proliferation of Weapons of Mass Destruction
FID
Financial Investigatory Division
FIU
Financial Intelligence Unit
FSC
Financial Services Commission
FSRB
FATF-Style Regional Body
IBRD
International Bank for Reconstruction and Development/World Bank 3
White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
IMF
International Monetary Fund
MLP
Money Laundering Prevention Regulations
ML
Money Laundering
MOF
Ministry of Finance
MER
Mutual Evaluation/Detailed Assessment Report – Anti-Money Laundering and Combatting the Financing of Terrorism
NAMLAC
National Anti-Money Laundering Committee
NPOs
Non-Profit Organizations
NRA
National AML/CFT Risk Assessment
NPOs
Non-Profit Organizations
POCA
Proceeds of Crime Act (2007)
PWMD
Proliferation of Weapons of Mass Destruction
RBA
Risk Based Approach
SRBs
Self-Regulatory Bodies
TF
Terrorist Financing
TPA
Terrorism Prevention Act (2010)
WMD
Weapons of Mass Destruction
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White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
EXECUTIVE SUMMARY
Money laundering (ML), terrorism financing (TF) and the proliferation of weapons of mass destruction (PWMD) continue to threaten the global financial system. As various jurisdictions grapple with these issues, each country continues to contemplate the various policies and processes which need to be implemented to mitigate the risk of ML/TF and PWMD. The Parisbased Financial Action Task Force (FATF), through the issuing of its 40 Recommendations and other guidance, continues to drive the global effort against ML/TF and PWMD. In particular, these 40 recommendations have been issued three times with current iteration absorbing the 9 special recommendations which were issued subsequent to the events of 9/11. Each iteration representing enhanced guidance over the previous one. This white paper seeks to provide solutions to advise policymakers at the Central Bank, Financial Investigations Division (FID) of the Ministry of Finance (MOF), Ministry of Justice (MOJ) and other stakeholders. As it concerns non-profit organizations (NPOs) in particular, the FATF has sought to provide guidance on how NPOs1 should be assessed and regulated through Recommendation 8, previously Special Recommendation VIII and the publication and issuance of several different pieces of guidance to further expound on matters relating to NPOs. Jamaica, as well as other jurisdictions, continue to contemplate the required legal and regulatory framework needed to satisfy the requirements of this recommendation and its attendant methodology and guidance.
1
Non-profit organization or NPO refers to a legal person or arrangement or organization 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”.
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White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
Jamaica’s Application of Special Recommendation VIII now Recommendation 8 In the third Round, CFATF Mutual Evaluation of Report (MER) of Jamaica, issued in October 2005, Jamaica’s technical compliance with Special Recommendation (SR) VIII was rated as noncompliant. The assessors stated the reason for the rating was that the, “Terrorism legislation does not cover non-profit organisation and inadequate system for regulating the Non-Profit Organizations.2” Jamaica has sought to rectify this deficiency in SR VIII in the AML/CTF framework by implementing a legal and regulatory structure to comply with Special Recommendation VIII by enacting the Charities Act: As it pertains to the banking sector,3 the assessors stated in the MER, that there were certain gaps in the Jamaican legal and regulatory framework—one of which was that neither the Proceeds of Crime Act (POCA) nor Terrorism Prevention Act (TPA) included sections which substantially deals with the issue of NPOs. Under the new FATF recommendation and methodology, Jamaica is one such jurisdiction that has endeavored to comply with Recommendation 8 of the FATF Recommendations. With the promulgation of the Charities Act, the legal and regulatory gap was significantly closed.
ACTIONS REQUIRED TO ACHIEVE COMPLIANCE WITH RECOMMENDATION 8
These actions include:
2
Conducting a review of laws relating to NPOs
Conducting an AML/CTF/PWMD risk assessment of NPOs
Jamaica 3rd Round MER
3
With regard to this paper, banking sector means licensed Deposit Taking Institutions licensed, supervised and regulated by the Bank of Jamaica (the Central Bank of Jamaica) and includes commercial banks licensed under the Banking Act (BA), Financial Institutio ns (commonly called merchant banks) licensed under the Financial Institutions Act (FIA) and Building Societies licensed under the Bank of Jamaica Building Societies Regulations). The aforementioned suite of Act has been replaced by the Banking Services Act (2014) and which was enacted in September 2015.
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White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
Establishing
administrative
procedures
and
requirements
for
the
supervisory authority and the NPO.
Fully implement a risked-based approach (RBA) to the assessment of NPOs. Under the RBA there are two obligations for countries and financial institutions (and designated non-financial businesses and professions [DNFBPs])4. There are two stages involved under each obligation, that of risk assessment and risk mitigation. See Appendix V for a full explanation of the RBA.
In addition to the Charities Act, the Jamaican authorities should provide further guidance by amending the Bank of Jamaica Guidance Notes on the Detection and Prevention of Money Laundering and Terrorist Financing Activities to guide commercial banks, merchant banks, credit unions, cambios bureau de exchange, money transfer agents and remittance agencies (issued 2004, latest revision 2009). This Guidance Note has not yet substantially dealt with the issue of NPOs prior to the aforementioned Charities Act.
OTHER ACTIONS
The Jamaica authorities—whether through the Principal Acts, Regulations, Rules, Supervisory Guidelines, Standards of Sound Practice or otherwise—should contemplate implementing the following:
Implement sanctions that are effective, proportionate and dissuasive but are not onerous (the result should not negatively impact this sector) Create a publicly available and current list of all NPOs
4
FATF (2013), Methodology for Assessing Compliance with the FATF Recommendations and the Effectiveness of AML/CFT Systems, FATF, Paris, www.fatf-gafi.org.
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White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
Ensure that licensed deposit taking institutions (commercial banks, merchant banks and building societies) establish a current and up-to-date NPO database
Conduct a National AML/CTF Risk Assessment (NRA) at least annually.
Require NPOs to complete a written declaration of the identity and details of the natural persons who comprise executive management of the NPO.
Require the beneficial owners and directors of a NPO to file declarations of asset and income with the relevant authorities and provide a copy of these declarations to the deposit taking institutions with which they do business.
SUMMARY
ML/TF and PWMD continues to be an area of serious issue for countries and financial institutions. NPOs are one particular type of customer which pose specific risks as it concerns FT and PWMD. The FATF has given detailed guidance on NPOs especially through the issuing of Recommendation 8, and the attendant Interpretive Note and Methodology. The Jamaican authorities in their attempt to comply with the Recommendations and Standards set by FATF as it relates to NPOs have promulgated one principal piece of legislation, namely the Charities Act but have not amended the Guidance Notes nor have they issued the attendant detailed guidance to guide the banking sector in their assessment of the NPOs.
This white paper seeks to answer the question as to whether there is a deficiency in the current legal and regulatory framework for the Jamaican banking sector when compared with the Guidance given by FATF. When the assessment was done it was found that Jamaica was largely compliant with the FATF standards. To close this the gap, Jamaica would have to provide further guidance to the NPO and banking sector through a revision of the attendant legal and regulatory
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White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
framework. The jurisdiction would also have to develop and establish administrative procedures and requirements for the supervisory authority and the NPO. In addition, Jamaica should fully implement the risk-based approach to AML/CTF and PWMD. Recommendation 1 mandates countries to assess risks and apply a risk-based approach to implementing measures to prevent or mitigate ML/TF in relation to areas such as NPOs. The authorities would also have to implement other measures such as conducting regular NRAs (as per Recommendation 2) and the establishment of an up-to-date NPO register both by the Jamaican authorities and the deposit taking institutions. The full implementation of these actions would result in Jamaica being fully compliant with the guidance of the FATF as it regards NPOs. INTRODUCTION AND BACKGROUND This white paper seeks to provide solutions to advise policymakers at the Central Bank, Financial Investigations Division (FID) of the Ministry of Finance (MOF), Ministry of Justice (MOJ) and other stakeholders as it concerns ML, TF and PWMD. The aforementioned terms are, however, subject to various interpretations: a. Money laundering (ML) refers to the process by which criminals transform the proceeds of crime arising to legitimate assets and by disguising its source in order to make these proceeds appear to be derived from legal sources. ML is the process of transforming the proceeds of illegal activities into legitimate capital.5 b. On the other hand terrorist financing (TF) refers to the processing, provision or collection of assets (usually money) with the intention of using these assets in full or in part to sponsor or facilitate terrorist activity, terrorist organizations, terrorist objectives or tPWMD.
5
Peter Alldridge, Money Laundering Law, Forfeiture, Confiscation, Civil Recovery, Criminal Laundering and taxation of the proceeds of Crime 2003.
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White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
In order to prevent the spread of ML/TF, several jurisdictions have sought to implement measures designed to prevent the spread of ML/TF in their respective jurisdictions. The policies that are designed to prevent and stem the spread of ML/TF have been coined AML/CTF and PWMD policies.
In 1989, the Financial Action Task Force (FATF) against ML, TF and PWMD was established at a G7 summit in Paris. FATF is the only international body dedicated solely to identify, deter and prevent ML/TF. Therefore, FATF leads the global collaborative effort in order to fight AML/CTF. Eight FATF-style regional bodies (FSRBs) have been established around the world to assist in the fight against ML/TF. The FATF-style bodies have adopted the FATF 40 and have a similar mandate as the FATF and impose their mandate on jurisdictions, which are members of their FSRB.
DESCRIPTION OF THE FINANCIAL ACTION TASK FORCE (FATF) 40 RECOMMENDATIONS
As was aforementioned, FATF is an inter-governmental body that was established with the objectives of setting standards and promoting effective implementation of legal, regulatory and operational measures for combating ML, TF and other related threats to the integrity of the international financial system (See Appendix I for a more comprehensive description of the objectives of the FATF). In order to guide jurisdictions in their establishment, development, implementation and assessment of their AML/CTF frameworks, FATF has established and issued 40 Recommendations. These recommendations were first issued in 1990 and revised in 1996, 2003 and 2012 (Typologies exercise). These recommendations are listed in Appendix I attached.
FATF has issued guidance on the treatment of NPOs through Recommendation 8, including the interpretive notes, Methodology and Immediate Outcome 10.
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White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
DESCRIPTION OF FATF RECOMMENDATION 8 - NPOs
FATF’s definition of NPO is a functional one, based on the activities and characteristics that put an organization at risk of terrorist abuse, rather than the simple fact that it is operating on a non-profit basis. Recommendation 8 does not apply to the entire universe of NPOs,6 but only to those who fall within the following definition: A legal person or arrangement or organization 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.”7
The aim of Recommendation 8 is to address only those NPOs falling within the FATF definition (i.e., those primarily engaged in raising or disbursing funds for the carrying out of good works). Such NPOs are a subset of the broader NPO sector that, by virtue of the activities it undertakes, faces a greater risk. (See Appendix II for a complete description of this Recommendation and its Interpretive Note, Appendix III for the Methodology and Appendix IV for the Immediate Outcome 10). DESCRIPTION OF THE CURRENT LEGAL AND REGULATORY FRAMEWORK FOR NPOs IN JAMAICA
The AML/CTF legal framework in Jamaica is primarily based on two pieces of statute, they are the Proceeds of Crime Act (POCA) 2007 and its attendant Money Laundering Prevention Regulations and the Terrorism Prevention Act (TPA) 2010 and Regulations. There was a gap in the Jamaican framework as both the POCA and TPA were void of a section that specifically dealt with NPOs. However, this gap was closed with the passage of the Charities Act 2013.
6
FATF, Combatting the Abuse of Non-Profit Organizations, 2015, available online at http://www.fatfgafi.org/media/ fatf/documents/reports/BPP-combating-abuse-non-profit-organisations.pdf. 7 FATF, “Interpretive Note to Recommendation 8” in FATF Recommendations, 2012.
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White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
The Charities Act, 2013, is “an Act to make provision for the regulation of charitable organizations in Jamaica and connected matters.” Some examples of connected matters are income tax, general consumption tax, special consumption tax, property tax, transfer tax, customs duty and stamp duty. The Charities Act further provides for the establishment of the Charities Authority which has the responsibility of regulating the Charitable Sector. Section 7 of the Act sets out the functions of the Authority. In addition to the aforementioned Charities Act, Jamaica has issued the Bank of Jamaica Guidance Notes on the Detection and Prevention of Money Laundering Terrorist Financing Activities to guide commercial banks, merchant banks, credit unions, cambios bureau de exchange, money transfer agents and remittance agencies but the Guidance Notes has not substantially dealt with the issue of NPOs.
DESCRIPTION OF JAMAICA’S THIRD ROUND MUTUAL EVALUATION/DETAILED ASSESSMENT REPORT ANTI-MONEY LAUNDERING AND COMBATING THE FINANCING OF TERRORISM (MER) 2005
Jamaica has been subject to three mutual evaluations. The last completed evaluation was done in 2005,8 however, at the time of this research Jamaica was undergoing its fourth Mutual Evaluation. At paragraphs 369 to 371 of the Third Round MER, the CFATF Assessors stated that:
NPOs in Jamaica are established under a number of statutes or instruments. NPOs may be established under the Companies Act (under section 16), or
8
It is important to note that at this time the assessment was based on the FATF 40 + 9 Special Recommendations methodology.
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White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
under the Friendly Societies Act, or pursuant to deeds/instruments of Charitable Trusts.
Both companies and friendly societies are required to maintain accounting records. Under the Friendly Societies Act, friendly societies are required to produce annual filings relating to members under section 22 indicating inter alia the number of members on its roll, including every person who at any time during the year was a financial member of the society or branch.
The public may access information on any Friendly Society through the Registrar of Co-operatives and Friendly Societies, through the provisions of the Access to Information Act. The companies established under the Companies Act may also be investigated by a nominee of the Minister pursuant to section 161 of the Companies Act.
The authorities have not conducted a review of the adequacy of the laws and regulations that relate to NPOs that can be abused for the financing of terrorism.
While the TPA has been enacted, it does not include NPOs within its ambit. Section 15 of the TPA defines entities subject to the TPA as including foreign companies in respect of their business in Jamaica relating to banking, securities, insurance, investment advice or trusts, financial institutions and any entity designated by the Minister.
There are no measures in place to ensure that terrorist organizations cannot pose as legitimate NPOs, including for the purpose of escaping asset freezing or seizing measures.
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White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
Other than the measures already mentioned for the registration of NPOs there is no formal oversight of the sector which could ensure that funds or other assets collected by or transferred through NPOs are not diverted to support the activities of terrorists or terrorist organizations.
The
authorities
should
implement
the
requirements
of
Special
Recommendation VIII taking into consideration the measures set out in the relevant Best Practices Paper. The summary of factors underlying the rating in the Third Round Mutual Evaluation/Detailed Assessment Report Anti-Money Laundering and Combating the Financing of Terrorism (MER), stated that the “Terrorism legislation does not cover non-profit organisation and inadequate system for regulating the non-profit organizations.”
ACTIONS REQUIRED TO ACHIEVE COMPLIANCE (The required legal, regulatory and administrative frameworks needed to satisfy the requirements of Recommendation 08)
Country requirement:
Jamaican authorities should conduct a review of the laws relating to NPOs and enact subsidiary legislation which will augment the Charities Act.
Jamaican authorities should also conduct an AML/CTF Risk Assessment of the NPO sector identifying the risks and vulnerabilities and adopting appropriate measures in order to mitigate the same. This assessment should be periodically reviewed based on a date agreed, in order to ensure that all measures are in place to mitigate and prevent, inter alia, the NPO sector from, being used as a vehicle for TF and PWMD.
The results of this assessment should be made available to the supervisory authority for the sector and the NPO entities. These results should be published, and in this regard, it would be the decision of the government as to the format in which the results of the assessment are published.
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White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
The Jamaican authorities should establish and keep up-to-date a publicly available and current list of all legal persons designated as NPOs.
Administrative requirements of the Supervisory Authority for NPOs:
Outreach to the NPO sector should be conducted by the Supervisory Authority by means of hosting seminars, training sessions and providing information via the media and other open source means of promotion.
Guidance may be provided to the NPO sector by sourcing training for compliance officers and front line staff for them to have a better understanding of why they are required to perform such due diligence.
The supervisory authority and other government agencies should have control measures in place to ensure that all funds given to NPOs as grants or subventions are fully accounted for and are spent in a manner that is consistent with the purpose and objectives of the NPO’s stated activities.
The supervisory authority will be required to monitor the compliance of NPOs, and adopt proportionate and dissuasive sanctions for violations of the requirements by NPOs or persons acting on behalf of these NPOs.9
Authorities should investigate and gather information on NPOs through, inter alia, domestic cooperation, coordination and information-sharing among authorities or organizations that hold relevant information on NPOs.
Increase cooperation and collaboration between the various AML/CTF stakeholders, whether through the NAMLAC (National Anti-Money Laundering Committee or other prescribed authority).
The NAMLAC (or other relevant body) should conduct an annual national AML/CTF risk assessment (NRA).
9
The range of such sanctions might include freezing of accounts, removal of trustees, fines, de-certification, delicensing and de-registration. This should not preclude parallel civil, administrative, or criminal proceedings with respect to NPOs
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White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
Appropriate points of contact should be identified and known and procedures to respond to international requests for information regarding particular NPOs suspected of TF or other forms of terrorist support, should be identified.
Legislative and Regulatory requirement of the jurisdiction:
Amend or develop laws to legislate for the incorporation and supervision of the NPO sector which complies with Recommendation 8. These laws must be directed to mitigating the risk and vulnerabilities identified in the risk assessment of the sector and not legislation simply adopted to show technical compliance with the recommendation. However, the intention is not to hinder the growth of the NPO sector by adopting inflexible legislation.
A supervisory authority should be properly established in law and all persons in the NPO sector should be aware of the role and functions of the supervisory authority.
The law should further establish proportionate and dissuasive sanctions for violations of the requirements by NPOs or persons acting on behalf of these NPOs.
Subsidiary regulations are required to be used by the NPOs as a guide to the interpretation and implementation of the law.
Administrative requirements of the NPO:
NPOs should be licensed or incorporated in order to function as an NPO.
The NPO should maintain all information on: (i)
The purpose and objectives of their stated activities; and
(ii)
The identity of person(s) who own, control or direct their activities, including senior officers, board members and trustees.
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White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
Further to this, the NPO should: (iii)
Require executive management of NPOs to complete a written declaration of the identity and details of the natural persons who are the ultimately beneficial owners/directors NPO.
(iv)
Require the ultimate beneficial owners/directors of NPOs to provide a copy of the declaration forms filed with the relevant authorities.
NPOs should be required to develop a compliance program for AML/CTF when setting up operations. Within the program, policies to promote transparency, integrity and public confidence in the management of the NPO should be adopted. All staff, whether permanent or voluntary staff (including managers and directors) must be notified and become familiar with the NPO’s compliance program and any rules of doing business.
“Know your beneficiaries and associated NPOs” rules should be drafted to guide the employees in doing business when receiving and paying out funds.
Require NPOs to set up a company accounts in deposit taking institutions (whether commercial bank or otherwise). Therefore, the NPO should be required to receive funds in order to capture or properly record all monies coming in and going out of the organization.
Annual financial statements of the NPO should be filed with the supervisory authority or incorporating entity. These statements must provide a detailed breakdown of income and expenditure.
Develop internal audit procedures and send the report to the Internal Audit Committee.
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White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
All records of the NPO should be maintained, for a period of at least five years. This should include records of domestic and international transactions.10
NPOs will be required upon request by the appropriate authority to make available information maintained by the NPO.
OTHER ACTIONS Adopting and fully implementing a risk-based AML/CT approach (RBA) to AML/CT/PWMD.11 Under the RBA there are two obligations: one for Jamaican authorities and one for financial institutions and DNFBPs in Jamaica. There are two stages involved under each obligation, that of risk assessment and that of risk mitigation (see Appendix V for a full explanation of the RBA).
In addition to the Charities Act, the Jamaican authorities should provide further guidance by amending the Bank of Jamaica Guidance Notes on the Detection and Prevention of Money Laundering and Terrorist Financing Activities to guide commercial banks, merchant banks, credit unions, cambios bureau de exchange, money transfer agents and remittance agencies (issued 2004, latest revision 2009). This Guidance Note has not yet substantially dealt with the issue of NPOs prior to the aforementioned Charities Act.
The Jamaican authorities should enact, primary legislation, subsidiary legislation (regulations and/or rules), guidelines or otherwise, in order to implement the following:
Ensure that deposit taking institutions establish a methodology for determining NPOs that is consistent with the methodology developed by FATF.
Ensure that deposit taking institutions establish a current and up-to-date NPO database.
10
Such records should be sufficiently detailed to verify that funds have been spent in a manner consistent with the purpose and objectives of the organizations. 11 Recommendation 1 of the FATF40 and its associated Interpretive Note, Methodology and guidance for the banking sector substantially treats with this issue.
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White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
CONCLUSION
FATF was established at 1989, at the G7 Summit in Paris fulfilling a pledge given at the Toronto Summit of 1988. Since its establishment the FATF has been the only international body dedicated solely to identify, deter and prevent ML/TF/PWMD. FATF is, therefore, at the forefront of the fight against ML/TF and PWMD. FATF has provided tremendous guidance on several high-risk groups in their 40 recommendations, one of which is NPOs. In this regard, FATF’s guidance includes Recommendation 8 and its attendant Interpretive Notes and Methodology. Jamaica, Caribbean countries, as well as many other jurisdictions, continue to grapple with these issues and continue to formulate strategies to enhance their disparate frameworks in order to meet the requirements of FATF Recommendation 8.
When the results of the third round MER of Jamaica were assessed it was discovered that the regulatory framework did not substantially address the FATF requirements as it regards NPOs. The Jamaican jurisdiction, in order to comply with the requirements of FATF has promulgated one principal Act, the Charities Act to meet the requirements of Recommendation 8. The Charities Act substantially ameliorated the aforementioned ML/TF/PWMD deficiencies as it concerns NPOs. The white paper seeks to answer the question as to whether there is still a deficiency in the current Legal and Regulatory framework for the Jamaican Banking Sector when compared to the Guidance given by FATF. Although the Jamaican jurisdiction has significantly closed the gap in its current framework as it concerns NPOs—to more comprehensively treat the issue of NPOs—Jamaica needs to review and augment the current legal and regulatory framework as it concerns NPOs. Jamaica also needs to establish and develop administrative procedures and requirements for the supervisory authority and the NPO sector. In addition, Jamaica should fully implement the RBA to AML/CT and PWMD specifically with respect to NPOs. In addition to this principal recommendation Jamaica can also seek to implement other initiatives such as to
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White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
update/revise the Guidance Notes, regularly perform (possibly annually) NRAs and establishing a current/updated and publicly available NPO database. If the Jamaican jurisdiction adopts the actions posited by this white paper, then the requirements of FATF Recommendation 8 would be more comprehensively dealt with.
BIBLIOGRAPHY AND REFERENCES
Bangko Sentral Ng Philipinas (2011), Updated Anti-money laundering rules and regulations,
Office
of
the
Governor,
circular
No
706.
www.bsp.gov.ph/downloads/regulations/attachments/2011/c706.pdf
Bester, H., et al (2008), Implementing FATF Standards in Developing Countries and Financial Inclusion: Findings and Guidelines. The FIRST Initiative. The World Bank, Washington, DC, United States of America. www.cenfri.org/documents/AML/AML_CFTandFinancialInclusion.pdf.
CFATF (2015), Mutual Evaluation/Detailed Assessment Report, Anti-Money Laundering and Combatting the Financing of Terrorism. Ministerial Finial – Jamaica.
Chatain, P-L., et al (2009), Preventing Money Laundering and Terrorist Financing: A Practical Guide for Bank Supervisors, The World Bank, Washington, DC, United States of America. http://lnweb90.worldbank.org/ext/epic.nsf/ImportDocs/823A21EF2A4AA930752575DD 00351A9
De Koker, L. (2006), Money laundering control and suppression of financing of terrorism: some thoughts on the impact of customer due diligence measures on financial exclusion, Journal of Financial Crime, vol 13(1). Emerald. pp. 26-50. 20
White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
De Koker, L. (2009) Identifying and Managing Low Money Laundering Risk: Perspectives on FATF's Risk-Based Guidance, Journal of Financial Crime, vol 16(4), pp. 334-352.
De Koker, L. (2009), The Money Laundering Risk Posed by Low-Risk Financial Products in South Africa: Findings and Guidelines”, 2009 Journal of Money Laundering Control, vol 12(4), pp. 323-339, www.emeraldinsight.com/journals.htm?articleid=1817094
FATF (2008), Guidance on Capacity Building for Mutual Evaluations and Implementation of the FATF Standards within Low Capacity Countries, FATF, Paris. www.fatfgafi.org/documents/documents/guidanceoncapacitybuildingformutualevaluati onsandimplementationofthefatfstandardswithinlowcapacitycountries.html
FATF (2009) Guidance on the Risk-Based Approach to Combat Money Laundering and Terrorist Financing – High Level Principles and Procedures (series of Guidance published between June 2007 and October 2009 by the FATF in collaboration with the professions that is subject to AML/CFT obligations under the international Standards) , FATF, Paris. www.fatf-gafi.org); www.fatf-gafi.org/documents/riskbasedapproach/
FATF (2010), FATF Report on Money Laundering Using New Payment Methods, FATF, Paris. www.fatfgafi.org/documents/documents/moneylaunderingusingnewpaymentmethods. html
FATF (2012), International Standards on Combating Money Laundering and the Financing
of
Terrorism
&
Proliferation,
gafi.org/recommendations.
21
FATF,
Paris,
www.fatf-
White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
FATF (2013), Methodology for Assessing Compliance with the FATF Recommendations and the Effectiveness of AML/CFT Systems, FATF, Paris, www.fatf-gafi.org.
FATF (2013), National Money Laundering/Terrorist Financing Risk Assessment, FATF, Paris.
FATF (2013), The Use of the FATF Recommendations to Combat Corruption, FATF, Paris.
FATF (2014), Guidance on the Risk-Based Approach – The Banking Sector, FATF, Paris.
FATF (2014), Risk of Terrorist Abuse in Non-Profit Organisation, FATF, Paris.
FATF (2014), Combatting the Abuse of Non-Profit Organisation (Recommendation 8), FATF, Paris.
FATF (2015), Emerging Terrorist Financing Risks, FATF, Paris.
International Monetary Fund (2012), Revisions to the Financial Action Task Force (FATF) Standard – Information Note to the Executive Board, Washington DC, United States of America.
Peter Alldridge, (2003), Money Laundering Law, Forfeiture, Confiscation, Civil Recovery, Criminal Laundering and taxation of the proceeds of Crime, 2003.
Schmid, Juan Pedro (2015), How Much Anti-Money Laundering Effort is enough? The Jamaican Experience, Inter-American Development Bank, Country Department, Caribbean Group, Policy Brief, No. IDB-PB-242.
Study Guide for the CAMS Certification Examination, Fifth Edition, (2012). Association of Certified Anti-Money Laundering Specialists. 22
White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
United Nations, (2004), United Nations Convention Against Corruption, United Nations Office on Drug and Crime.
Appendix I – Objectives of FATF and Table Listing FATF 40 Recommendations (Included for ease of reference and convenience of reader)
Objectives of FATF FATF has several objectives including the 12:
Promotion of Anti-Money Laundering, Countering the Financing of Terrorism and the Proliferation of Weapons of Mass Destruction AML/CFT networks;
Monitoring the implementation of the FATF Recommendations among FATF members. Implementation is monitored through a two-pronged approach;
o An annual self-assessment exercise where member countries are required to fill out detailed standard questionnaires on the status of their compliance with the Recommendations. This information is then compiled and analyzed, and provides the basis for assessing the extent to which the Recommendations have been implemented by both individual countries and the group as a whole.
o Each member country is examined by FATF on the basis of an on-site visit conducted by a team of three or six experts in the legal, financial and law enforcement fields from other member governments. The experts write a report assessing the extent to which the evaluated country has moved forward in implementing an effective 12
Study Guide for the CAMS Certification Examination, Fifth Edition, 2012.
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system to counter AML/CFT and to highlight areas in which further progress is still required.
THE FINANCIAL ACTION TASK FORCE (FATF) 40 RECOMMENDATIONS
DESCRIPTION
RECOMMENDATION
A - AML/CFT POLICIES AND COORDINATION Assessing risks and Applying a risk-based approach
1
National Cooperation and coordination
2
B - MONEY LAUNDERING AND CONFISCATION Money Laundering Offence
3
Confiscation and Provisional measures
4
C - TERRORIST FINANCING AND FINANCING OF PROLIFERATION Terrorist Financing Offence
5
Targeted Financial Sanctions related to Terrorism and Terrorist Financing
6
Terrorist Financing Sanctions related to proliferation
7
Non-Profit Organizations
8
D - PREVENTATIVE MEASURES Financial institution secrecy laws
9
Customer Due Diligence
10
Record Keeping
11
Politically Exposed Persons
12
Corresponding Banking
13
Money or Value Transfer Services
14
New Technologies
15
Wire Transfer
16
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Reliance on Third Parties
17
Internal Controls and foreign branches and subsidiaries
18
Higher-Risk Countries
19
Reporting of Suspicious Transactions
20
Tipping-Off and Confidentiality
21
DNFBPs: Customer Due Diligence
22
DNFBPs: Other Measures
23
E - TRANSPARENCY AND BENEFICIAL OWNERSHIP OF LEGAL PERSONS AND ARRANGEMENTS Transparency and Beneficial Ownership of Legal Persons
24
Transparency and Beneficial Ownership of Legal Arrangement
25
F - POWERS AND RESPONSIBILITIES OF COMPETENT AUTHORITIES AND OTHER INSTITUTIONAL MEASURES Regulation and Supervision of Financial Institutions
26
Powers of Supervisors
27
Regulation and Supervision of DNFBPs
28
Financial Intelligence Units
29
Responsibilities of Law Enforcement and Investigative Authorities
30
Powers of law enforcement and investigative authorities
31
Cash Couriers
32
Statistics
33
Guidance and Feedback
34
Sanctions
35
G - INTERNATIONAL COOPERATION International Instruments
36
Mutual Legal Assistance
37
Mutual Legal Assistance : Freezing and Confiscation
38
Extradition
39
Other Forms of International Cooperation
40
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Appendix II – Recommendation 8 and the Interpretive Note to Recommendation 8 (Included for ease of reference and convenience of reader)
DESCRIPTION OF FATF RECOMMENDATION 08 - NPOs
1. According to Recommendation 0813, Countries and financial institutions and countries should review the adequacy of laws and regulations that relate to entities that can be abused for the financing of terrorism. Non-profit organizations are particularly vulnerable, and countries should ensure that they cannot be misused:
(a) By terrorist organizations posing as legitimate entities; (b) To exploit legitimate entities as conduits for terrorist financing, including for the purpose of escaping asset-freezing measures; and (c) To conceal or obscure the clandestine diversion of funds intended for legitimate purposes to terrorist organizations. DESCRIPTION OF THE FATF INTERPRETIVE NOTE TO RECOMMENDATION 08 – NPOs
2. FATF gives further guidance through the Interpretive Note on Recommendation 08. According to the Interpretive Note:
a. Non-profit organizations (NPOs) play a vital role in the world economy and in many national economies and social systems. Their efforts complement the activity of the governmental and business sectors in providing essential services, comfort and hope to those in need around the world. The ongoing international campaign against terrorist financing has unfortunately demonstrated, however, that terrorists and terrorist organizations exploit 13
FATF (2012), International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation, FATF, Paris, www.fatfgafi.org/recommendations.
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the NPO sector to raise and move funds, provide logistical support, encourage
terrorist
recruitment,
or
otherwise
support
terrorist
organizations and operations. This misuse not only facilitates terrorist activity, but also undermines donor confidence and jeopardizes the very integrity of NPOs. Therefore, protecting the NPO sector from terrorist abuse is both a critical component of the global fight against terrorism and a necessary step to preserve the integrity of NPOs.
b.
NPOs may be vulnerable to abuse by terrorists for a variety of reasons. NPOs enjoy the public trust, have access to considerable sources of funds, and are often cash-intensive. Furthermore, some NPOs have a global presence that provides a framework for national and international operations and financial transactions, often within or near those areas that are most exposed to terrorist activity. Depending on the legal form of the NPO and the country, NPOs may often be subject to little or no governmental oversight (for example, registration, record keeping, reporting and monitoring), or few formalities may be required for their creation (for example, there may be no skills or starting capital required, no background checks necessary for employees). Terrorist organizations have taken advantage of these characteristics of NPOs to infiltrate the sector and misuse NPO funds and operations to cover for, or support, terrorist activity.
OBJECTIVES AND GENERAL PRINCIPLES
The objective of Recommendation 8 is to ensure that NPOs are not misused by terrorist organizations: (i) to pose as legitimate entities; (ii) to exploit legitimate entities as conduits for terrorist financing, including for the purpose of escaping asset freezing measures; or (iii) to conceal or obscure the clandestine diversion of funds intended for
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legitimate purposes, but diverted for terrorist purposes. In this Interpretive Note, the approach taken to achieve this objective is based on the following general principles:
(a) Past and ongoing abuse of the NPO sector by terrorists and terrorist organizations requires countries to adopt measures both: (i) to protect the sector against such abuse, and (ii) to identify and take effective action against those NPOs that either are exploited by, or actively support, terrorists or terrorist organizations.
(b) Measures adopted by countries to protect the NPO sector from terrorist abuse should not disrupt or discourage legitimate charitable activities. Rather, such measures should promote transparency and engender greater confidence in the sector, across the donor community and with the general public, that charitable funds and services reach intended legitimate beneficiaries14. Systems that promote achieving a high degree of transparency, integrity and public confidence in the management and functioning of all NPOs are integral to ensuring the sector cannot be misused for terrorist financing.
(c)
Measures adopted by countries to identify and take effective action against NPOs that either are exploited by, or actively support, terrorists or terrorist organizations should aim to prevent and prosecute, as appropriate, terrorist financing and other forms of terrorist support. Where NPOs suspected of, or implicated in, terrorist financing or other forms of terrorist support are identified, the first priority of countries must be to investigate and halt such terrorist financing or support.
14
Beneficiaries refers to those natural persons, or groups of natural persons who receive charitable, humanitarian or other types of assistance through the services of the NPO.
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Actions taken for this purpose should, to the extent reasonably possible, avoid any negative impact on innocent and legitimate beneficiaries of charitable activity. However, this interest cannot excuse the need to undertake immediate and effective actions to advance the immediate interest of halting terrorist financing or other forms of terrorist support provided by NPOs. (d) Developing cooperative relationships among the public, private and NPO sector is critical to raising awareness and fostering capabilities to combat terrorist abuse within the sector. Countries should encourage the development of academic research on, and information-sharing in, the NPO sector to address terrorist financing related issues. (e)
A targeted approach in dealing with the terrorist threat to the NPO sector is essential given the diversity within individual national sectors, the differing degrees to which parts of each sector may be vulnerable to misuse by terrorists, the need to ensure that legitimate charitable activity continues to flourish, and the limited resources and authorities available to combat terrorist financing in each country.
(f)
Flexibility in developing a national response to terrorist financing in the NPO sector is also essential, in order to allow it to evolve over time as it faces the changing nature of the terrorist financing threat.
MEASURES
Countries should undertake domestic reviews of their NPO sector, or have the capacity to obtain timely information on its activities, size and other relevant features. In undertaking these assessments, countries should use all available sources of information in order to identify features and types of NPOs, which, by virtue of their activities or characteristics, are at risk of being misused for terrorist financing. Countries 29
White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
should also periodically reassess the sector by reviewing new information on the sector’s potential vulnerabilities to terrorist activities.
There is a diverse range of approaches in identifying, preventing and combating terrorist misuse of NPOs. An effective approach, however, is one that involves all four of the following elements: (a) outreach to the sector, (b) supervision or monitoring, (c) effective investigation and information gathering and (d) effective mechanisms for international cooperation. The following measures represent specific actions that countries should take with respect to each of these elements, in order to protect their NPO sector from terrorist financing abuse.
(a)
Outreach to the NPO sector concerning terrorist financing issues i.
Countries should have clear policies to promote transparency, integrity and public confidence in the administration and management of all NPOs.
ii.
Countries should encourage or undertake outreach programmes to raise awareness in the NPO sector about the vulnerabilities of NPOs to terrorist abuse and terrorist financing risks, and the measures that NPOs can take to protect themselves against such abuse.
iii.
Countries should work with the NPO sector to develop and refine best practices to address terrorist financing risks and vulnerabilities and thus protect the sector from terrorist abuse.
iv.
Countries should encourage NPOs to conduct transactions via regulated financial channels, wherever feasible, keeping in mind the varying capacities
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White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
of financial sectors in different countries and in different areas of urgent charitable and humanitarian concerns.
(b)
Supervision or monitoring of the NPO sector
Countries should take steps to promote effective supervision or monitoring of their NPO sector. In practice, countries should be able to demonstrate that the following standards apply to NPOs which account for (1) a significant portion of the financial resources under control of the sector; and (2) a substantial share of the sector’s international activities. i.
NPOs should maintain information on: (1) the purpose and objectives of their stated activities; and (2) the identity of the person(s) who own, control or direct their activities, including senior officers, board members and trustees. This information should be publicly available either directly from the NPO or through appropriate authorities.
ii.
NPOs should issue annual financial statements that provide detailed breakdowns of incomes and expenditures.
iii.
NPOs should be licensed or registered. This information should be available to competent authorities.
iv.
NPOs should have appropriate controls in place to ensure that all funds are fully accounted for, and are spent in a manner that is consistent with the purpose and objectives of the NPO’s stated activities.
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v.
NPOs should follow a “know your beneficiaries and associate NPOs 15” rule, which means that the NPO should make best efforts to confirm the identity, credentials and good standing of their beneficiaries and associate NPOs. NPOs should also undertake best efforts to document the identity of their significant donors and to respect donor confidentiality.
vi.
NPOs should maintain, for a period of at least five years, records of domestic and international transactions that are sufficiently detailed to verify that funds have been spent in a manner consistent with the purpose and objectives of the organisation, and should make these available to competent authorities upon appropriate authority. This also applies to information mentioned in paragraphs (i) and (ii) above.
vii.
Appropriate authorities16 should monitor the compliance of NPOs with the requirements of this Recommendation.24 Appropriate authorities should be able to apply effective, proportionate and dissuasive sanctions for violations by NPOs or persons acting on behalf of these NPOs.
(c)
Effective information gathering and investigation i.
Countries should ensure effective cooperation, coordination and information sharing to the extent possible among all levels of appropriate authorities or organizations that hold relevant information on NPOs.
15
Associate NPOs includes foreign branches of international NPOs. Appropriate authorities refers to competent authorities, including accrediting institutions, and self-regulatory organisations. 16
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ii.
Countries should have investigative expertise and capability to examine those NPOs suspected of either being exploited by, or actively supporting, terrorist activity or terrorist organizations.
iii.
Countries should ensure that full access to information on the administration and management of a particular NPO (including financial and programmatic information) may be obtained during the course of an investigation.
iv.
Countries should establish appropriate mechanisms to ensure that, when there is suspicion or reasonable grounds to suspect that a particular NPO: (1) is a front for fundraising by a terrorist organisation; (2) is being exploited as a conduit for terrorist financing, including for the purpose of escaping asset freezing measures; or (3) is concealing or obscuring the clandestine diversion of funds intended for legitimate purposes, but redirected for the benefit of terrorists or terrorist organizations, this information is promptly shared with relevant competent authorities, in order to take preventive or investigative action.
(d)
Effective capacity to respond to international requests for information about an NPO of concern Consistent with Recommendations on international cooperation, countries should identify appropriate points of contact and procedures to respond to international requests for information regarding particular NPOs suspected of terrorist financing or other forms of terrorist support.
RESOURCES FOR SUPERVISION, MONITORING, AND INVESTIGATION
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White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
Countries should provide their appropriate authorities responsible for supervision, monitoring and investigation of their NPO sector with adequate financial, human and technical resources.
Appendix III – Methodology for Assessing Technical Compliance with Recommendation 8 (Included for ease of reference and convenience of reader)
Countries should:
(a) Review the adequacy of laws and regulations that relate to entities that can be abused for the financing of terrorism, including NPOs;
(b) Undertake domestic reviews of their NPO sector, or have the capacity to obtain timely information on its activities, size and other relevant features using all available sources of information, in order to identify the features and types of NPOs that are particularly at risk of being misused for TF or other forms of terrorist support by virtue of their activities or characteristics; and
(c) Periodically reassess their NPO sector by reviewing new information on the sector’s potential vulnerabilities to terrorist activities.
Countries should conduct outreach to the NPO sector concerning TF issues.
Countries should have clear policies to promote transparency, integrity, and public confidence in the administration and management of all NPOs.
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White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
Countries should apply the following standards to NPOs which account for (i) a significant portion of the financial resources under the control of the sector; and (ii) a substantial share of the sector’s international activities. Such NPOs should be required to: (a) Maintain information on: (i) the purpose and objectives of their stated activities; and (ii) the identity of person(s) who own, control or direct their activities, including senior officers, board members and trustees. This information should be publicly available either directly from the NPO or through appropriate authorities;
(b) Issue annual financial statements that provide detailed breakdowns of income and expenditure;
(c) Have controls in place to ensure that all funds are fully accounted for, and are spent in a manner that is consistent with the purpose and objectives of the NPO’s stated activities;
(d) Be licensed or registered17;
(e) Follow a “know your beneficiaries and associated NPOs” rule; and
(f) Maintain, for a period of at least five years, records of domestic and international transactions18, and the information in (a) and (b) above, and make these available to competent authorities upon appropriate authority.
17
Specific licensing or registration requirements for AML/CFT purposes are not necessary. For example, in some countries, NPOs are already registered with tax authorities and monitored in the context of qualifying for favourable tax treatment (such as tax credits or tax exemptions).
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White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
Competent authorities should monitor the compliance of NPOs, and should be able to apply proportionate and dissuasive sanctions for violations of the requirements by NPOs or persons acting on behalf of these NPOs 19.
Authorities should be able to investigate and gather information on NPOs, including through:
(a) Domestic co-operation, co-ordination and information-sharing among authorities or organizations that hold relevant information on NPOs;
(b) Full access to information on the administration and management of particular NPOs (including financial and programmatic information); and (c) Mechanisms to ensure that relevant information is promptly shared with competent authorities, in order to take preventive or investigative action, when there is suspicion or reasonable grounds to suspect that a particular NPO is: a front for fundraising by a terrorist organisation; or being exploited as a conduit for TF, including for the purpose of escaping asset freezing measures; or concealing or obscuring the clandestine diversion of funds intended for legitimate purposes, but redirected for the benefit of terrorists or terrorist organizations.
Countries should identify appropriate points of contact and procedures to respond to international requests for information regarding particular NPOs suspected of TF or other forms of terrorist support.
Appendix IV – Immediate Outcome 10 (Included for ease of reference and convenience of reader)
Characteristics of an effective system
18
Such records should be sufficiently detailed to verify that funds have been spent in a manner consistent with the purpose and objectives of the organisations. 19 The range of such sanctions might include freezing of accounts, removal of trustees, fines, de-certification, delicensing and de-registration. This should not preclude parallel civil, administrative, or criminal proceedings with respect to NPOs
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White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
Terrorists, terrorist organizations and terrorist support networks are identified and deprived of the resources and means to finance or support terrorist activities and organizations. This includes proper implementation of targeted financial sanctions against persons and entities designated by the United Nations Security Council and under applicable national or regional sanctions regimes. The country also has a good understanding of the terrorist financing risks and takes appropriate and proportionate actions to mitigate those risks, including measures that prevent the raising and moving of funds through entities or methods which are at greatest risk of being misused by terrorists. Ultimately, this reduces terrorist financing flows, which would prevent terrorist acts.
Note to Assessors: Assessors should also consider the relevant findings on the level of international cooperation which competent authorities are participating in when assessing this Immediate Outcome. Core Issues to be considered in determining if the Outcome is being achieved
How well is the country implementing targeted financial sanctions pursuant to (i) UNSCR1267 and its successor resolutions, and (ii) UNSCR1373 (at the supra-national or national level, whether on the country’s own motion or after examination, to give effect to the request of another country)?
To what extent, without disrupting legitimate NPO activities, has the country implemented a targeted approach, conducted outreach, and exercised oversight in dealing with NPOs that are at risk from the threat of terrorist abuse?
To what extent are terrorists, terrorist organizations and terrorist financiers deprived (whether through criminal, civil or administrative processes) of assets and instrumentalities related to TF activities?
To what extent are the above measures consistent with the overall TF risk profile?
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Appendix V – Description of the FATF Risk-Based Assessment Methodology20 Obligations and Decisions for Countries
Risk Assessment
Countries should identify and assess the ML/TF risks for the country;
Countries should designate an authority or mechanism to co-ordinate actions to assess risks;
Countries should keep the risk assessments up-to-date;
Countries should have mechanisms to provide information on the results of the risk assessment(s) to all relevant competent authorities and self-regulatory bodies (SRBs), financial institutions and DNFBPs.
Risk Mitigation Based on their understanding of their risks, countries should apply a risk-based approach to allocating resources and implementing measures to prevent or mitigate ML/TF.
Countries which decide not to apply some of the FATF Recommendations requiring financial institutions or DNFBPs to take certain actions, should demonstrate that:
There is a proven low risk of ML/TF; the exemption occurs in strictly limited and justified circumstances; and it relates to a particular type of financial institution or activity, or DNFBP;
20
FATF (2013), Methodology for Assessing Compliance with the FATF Recommendations and the Effectiveness of AML/CFT Systems, FATF, Paris, www.fatf-gafi.org.
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A financial activity (other than the transferring of money or value) is carried out by a natural or legal person on an occasional or very limited basis (having regard to quantitative and absolute criteria), such that there is a low risk of ML/TF.
Where countries identify higher risks, they should ensure that their AML/CFT regime addresses such risks, including through:
Requiring financial institutions and DNFBPs to take enhanced measures to manage and mitigate the risks; or
Requiring financial institutions and DNFBPs to ensure that this information is incorporated into their risk assessments.
Countries may allow simplified measures for some of the FATF Recommendations requiring financial institutions or DNFBPs to take certain actions, provided that a lower risk has been identified, and this is consistent with the country’s assessment of its ML/TF risks. Supervisors and FSRBs should ensure that financial institutions and DNFBPs are implementing their obligations under Recommendation 17 21.
Obligations and Decisions for Financial Institutions and DNFBPS Risk Assessment
Financial institutions and DNFBPs should be required to take appropriate steps to identify, assess, and understand their ML/TF risks (for customers, countries or geographic areas; and products, services, transactions or delivery channels). This includes being required to:
Document their risk assessments.
Consider all the relevant risk factors before determining the level of overall risk and the appropriate level and type of mitigation to be applied.
21
Keep these assessments up to date.
Reliance on Third Parties.
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Have appropriate mechanisms to provide risk assessment information to competent authorities and SRBs.
Risk Mitigation
Financial institutions and DNFBPs should be required to:
Have policies, controls and procedures, which are approved by senior management, to enable them to manage and mitigate the risks that have been identified (either by the country or by the financial institution or DNFBP).
Monitor the implementation of those controls and to enhance them if necessary.
Take enhanced measures to manage and mitigate the risks where higher risks are identified.
Countries may only permit financial institutions and DNFBPs to take simplified measures to manage and mitigate risks, if lower risks have been identified, and the relevant criteria are met. Simplified measures should not be permitted whenever there is a suspicion of ML/TF.
40
