The importance of financial accountability and regulatory compliance in protecting non-profit organisations (NPOs) from being exploited for money laundering and terrorist financing came to the fore at the Department of Social Development’s (DSD) stakeholder engagement session.
One of the stakeholders at the session on the Financial Action Task Force’s (FATF) Recommendation 8, was the Chartered Institute for Business Accountants, who underscored this point.
The institute’s Technical Manager, Eszter Rapanos, outlined key interventions and innovations aimed at aligning regulatory frameworks with the FATF’s latest measures.
The FATF is the international standard-setting body that oversees global compliance with anti-money laundering rules.
Recommendation 8 of the Financial Action Task Force aims to protect NPOs from potential terrorist financing and money laundering abuse through effective implementation of risk-based measures.
She highlighted the institute’s role as a professional body in advancing these measures to protect NPOs from financial crime, emphasising its commitment to upholding financial integrity.
Rapanos addressed the unique challenges faced by South African NPOs, including limited access to technology, insufficient funding, and a lack of financial management skills, which make them particularly vulnerable to financial crimes.
“The risk-based approach must be applied throughout the process, ensuring that high-risk areas are targeted while avoiding unnecessary burdens on compliant NPOs,” she stated.
Among the significant regulatory changes, Rapanos pointed to the new requirement for compulsory registration of NPOs that operate across borders.
READ | Social Development issues notices of non-compliance to NPOs
In addition, organisations must now maintain detailed records of their beneficial ownership and enhance governance structures to prevent individuals with a history of financial crimes from assuming leadership roles.
“The increased governance and transparency requirements will ensure that NPOs maintain credibility, but it also places additional administrative responsibilities on them,” she noted.
Rapanos stressed that the new framework presents opportunities for collaboration.
“By working closely with regulatory bodies such as the Department of Social Development, the Financial Intelligence Centre, the Companies and Intellectual Property Commission, and the South African Revenue Service, we can align compliance processes and reduce duplications,” she explained.
The Chartered Institute for Business Accountants’ recommendations include implementing a tiered risk-based approach to compliance, where low-risk NPOs face fewer administrative burdens, while higher-risk organisations undergo more stringent oversight.
Rapanos also called for increased training and capacity-building efforts to help NPOs navigate the evolving regulatory landscape.
“The goal is to strike a balance between preventing illicit financial activities and allowing NPOs to continue their essential work without being overburdened by red tape,” Rapanos concluded.
On Monday, the Deputy Minister of Social Development, Ganief Hendricks, called on NPOs and the civil society sector to work with government in seeing South Africa exit the FATF’s grey list by year-end.
In his address, Hendricks cautioned government against using legislation to stifle the operations of legitimate NPOs that play a vital role in communities across South Africa.
“Our National Development Plan calls for active citizenry especially from the grassroots level. We must therefore guard overburdening and frustrating grassroots initiatives through the use of legislation.
“The objective of the NPO Act is to create an enabling legislative environment for the NPO sector to thrive and contribute to our national development agenda”, the Deputy Minister said at the time.
READ | Call for NPOs to work with government to address FATF challenges
At Monday’s session in Kempton Park, National Treasury said the FATF was not satisfied with the mere existence of national legislation, but also enforcement of administrative penalties for high-risk NPOs that fail to comply with the provisions of the law.
One of the FATF’s requirements is that Social Development, as the regulator of the NPO sector in terms of the NPO Act (Act No. 71 of 1997, as amended through the General Laws Amendment Act 22 of 2022), has to conduct more outreach and educational programmes with NPOs to promote better understanding of the global anti-money laundering and counter-terrorist financing standards.
The FATF grey listed South Africa at its February 2023 plenary meeting held in Paris. 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. -SAnews.gov.za
