With the deadline to submit progress to the Financial Action Task Force (FATF) on the status of South Africa’s grey listing, the Department of Social Development has announced the commencement of the de-registration of non-compliant non-profit organisations (NPOs) in a phased approach.
The department revealed this to Parliament’s Portfolio Committee on Social Development.
The FATF grey listed South Africa at its February 2023 plenary meeting held in Paris.
The FATF is the international standard-setting body that oversees global compliance with anti-money laundering rules.
It developed an Action Plan with 22 Action items linked to the eight strategic deficiencies identified in the country’s anti-money laundering and combating of financial terrorism regime.
The department noted that South Africa has made progress in five action items and has 17 outstanding items to which it must report progress by 2026.
“South Africa is required to address all 22 items in order to exit the grey-listing status. One of the action items relates to the risk of terror financing and money laundering by NPOs.
“FATF identified that NPOs can be used for terror financing and money laundering and recommended that South Africa develops an NPO Terror Funding Risk Assessment,” the department said in a statement on Thursday.
This assessment titled: “The Information on the South African Terrorist Financing Risk Assessment for the Non-Profit Organisations” found that there is a medium exposure to terror financing by the NPO sector in South Africa.
The risk assessment also identified some threats that NPOs can be exposed to relating to terror financing, such as:
• NPOs raising funds or other support for foreign terrorist groups
• NPOs facilitating foreign travel for terrorist causes, amongst others, and
• NPOs using the Internet and online media for fundraising, recruitment and propaganda
“The Department of Social Developing together with SARS [South African Revenue Service] and the FIC [Financial Intelligence Centre], are developing monitoring mechanisms to mitigate this risk.
“There are high, medium and low risk categories. The department has commenced with the deregistering non-complaint NPOs that do not fall in the high- risk category of NPOs as one of the mitigating monitoring mechanisms.
“Closer supervision and monitoring has been instituted by the department for NPOs identified to be at high risk of terror financing,” the department said.
As of October 2024, the department had 295 052 registered NPO and 167 103 of non-compliant NPOs.
Adequate standards of governance
The Department of Social Development through the Non-profit Organisations Act, 71 of 1997, as amended by General Laws Amendment Act (GLAA) provides for the registration of three types of NPOs, namely, Trust, non-profit company (NPC) and voluntary associations.
“Non-profit organisations play a crucial role in societal development and community welfare. However, some organisations fail to comply with regulatory frameworks, risking public trust and the integrity of the sector,” the department said.
The department said it has the responsibility to encourage NPOs to maintain adequate standards of governance, transparency, and accountability and to improve those standards.
The department explained that the need to deregister non-compliant NPOs is required by the need for the department to comply with the provisions of the NPO Act.
The FATF in the Mutual Evaluation Study indicated the need to implement the law in the form of the NPO Act as amended by the GLAA legislation.
“The risk of not deregistering/cancelling noncompliant NPOs is the likelihood of those NPOs being used by criminals for money laundering and terrorist financing.
Processes
“The department has a responsibility that NPOs that are not complying with provisions of the NPO Act are removed from the NPO Register as required in terms of section 21 (1) of the NPO Act deregistration or cancellation of NPOs is primarily about NPOs that fail to submit annual reports as required in terms of section 18 (1) of the NPO Act,” the department said.
Other instances that might lead to cancellation of registration status is when an organisation does not comply with the provisions of its own founding document. The department said the objective of the deregistration/cancellation is to identify NPOs that have failed to submit annual reports.
The department issues them with notices of compliance and subsequently remove them from the NPO register kept in terms of section 24 of the NPO Act.
The department will also provide deregistered/cancelled NPOs with an opportunity to appeal against the decision to remove them from the NPO Register.
The department will further raise its awareness program on the intention to deregister NPOs.
Steps taken:
• The process for deregistration/cancellation will start with the verification of compliance status.
• Once an organisation is found to be owing annual reports, it would be issued with a notice of compliance that would explain the annual reports that the organisation failed to submit.
• The organisation will be given 30 days to submit outstanding annual reports.
• Once an organisation fails to submit the required reports or fail to respond timeously to the issued noticed it would be cancelled or removed from the NPO Register.
• Deregistered/cancelled organisations will be afforded an opportunity to appeal against the decision of the Director to cancel the organisation’s registration status.
• The organisation would be required to submit a notice of appeal together with supporting documents.
• The notice of appeal together with relevant documents will be sent to the chairperson of the panel of arbitrators for distribution to the appointed arbitration tribunal for the adjudication of the appeal.
• The arbitration tribunal works independently and is appointed by the Minister in terms of section 9 (1) of the NPO Act.
• A lodged appeal must be considered with 3 months of receipt of the appeal.
• An appeal can either be denied or upheld. Once an appeal is upheld the department must reinstate the appellant and the organisation should be considered never to have been deregistered.
The department said that a denied appeal may take the matter on review with a competent court of law.
“The deregistration of non-compliant non-profit organizations is essential for maintaining the integrity and effectiveness of the nonprofit sector.
“By implementing a structured process, we can ensure that only organisations that meet compliance standards continue to operate, thereby protecting the interests of beneficiaries and the public at large,” the department said.
The department will deregister organisations according to the different financial years and it will be over a period of six to 12 months.
This is done with an intention not to cause alarm to the sector and give other NPOs time to respond to the call to submit annual reports.
The department said it will continue to support NPOs by creating an enabling environment for them to operate effectively and efficiently. – SAnews.gov.za
