January 18, 2012

http://www.deccanchronicle.com/editorial/dc-comment/perils-laundering-money-508

Non-profit organisations (NPOs), or NGOs, as they are popularly known in India, play a vital role in a nation’s economy and social development. Their efforts supplement the activities of the government and the business sector in achieving various objectives, policies and plans. Though the term “non-governmental organisation” does not have a generally accepted legal definition, globalisation in the 20th century made NGOs very important as many problems needed to be addressed for which individuals had to look beyond the state apparatus. NGOs have developed to emphasise humanitarian issues, developmental aid and sustainable development. However, goals of such organisations also cover a broad range of political, social and philosophical positions.

The ongoing global campaign against terror financing has unfortunately demonstrated that terrorists and unlawful organisations are likely to exploit the vulnerability of this sector to raise and move funds, provide logistical support, encourage terrorist recruitment or otherwise support terrorist organisations and operations.

This sector is vulnerable to abuse for a variety of reasons, as they enjoy public trust and have access to considerable sources of funds. Furthermore, some NGOs have a global presence that provides a framework for national and international operations and financial transaction, often within or near those areas that are most exposed to unlawful activity. Protecting this sector from abuse is both a critical component of the global fight against terrorism and unlawful activities and a necessary step to preserving their integrity and people’s confidence in them.

This sector can be misused by the donor knowingly, as an effective vehicle for money laundering, particularly at the stage of layering and integration of crime money earned through drug peddling, human trafficking, smuggling, prostitution, corruption, terrorism, extortion, kidnapping etc. Such money can be transferred as a donation to the account of any NGO, thereby giving it a legitimacy and respectability. Money laundering is no more a local phenomenon — the crime can be committed in a particular country, crime money received in another and then parked/layered and integrated to the financial system in another country.

This way sometimes the criminals may be in a position to dictate to and control the NGOs/NPOs receiving the donation unwittingly. To thwart such damage and misuse, this sector requires a close monitoring under law and persons connected with their administration and operation in any capacity, should be made aware of the possible misuse of such entities. These apprehensions have led to global concern and strengthening of national anti-money laundering legislations.

In India, the government is trying to cope with this challenge through legislations like the Unlawful Activities (Prevention) Act, Prevention of Money Laundering Act and Foreign Contribution (Regulation) Act.

The Prevention of Money Laundering Act, 2002, was legislated keeping in view the global scenario and has been made operational in India keeping in view the serious threat money laundering poses to the country.

Budgets of this sector demands significant fund raising efforts on the part of most NGOs. Major sources of NGO funding are grants from international institutions or national governments, and private donations. Concerns arise when the origin of the donation is of transnational character, i.e. from a foreign state or a private donor, where the identity of the donor is shrouded in mystery. In recent decades, NGOs have grown in numbers and increased their range of activities to a level where they have become increasingly dependent on some selected donors. Consequently competition has increased for funding, as have the expectations of the donors themselves. Here runs the risk of donors adding conditions and restrictions for giving donation, which can threaten the independence of NGOs. As per available data, India is estimated to have more than three million NGOs and they appear to have collectively received foreign contributions of about Rs 49, 000 crore from 2005-06 to 2009-10. Foreign contributions for NGOs/NPOs appear to have come not just from developed countries, but also from countries like Afghanistan, Pakistan, Bangladesh, Nepal, Zambia and Congo. During 2009-10, India’s neighbours like Nepal contributed Rs 12 crore, China Rs 2.8 crore, Afghanistan Rs 1.9 crore, Pakistan Rs 1.2 crore and Bangladesh `86 lakh.

The Financial Action Task Force (FATF), the international anti-money laundering watchdog, has issued recommendations to member states suggesting that countries review domestic laws and regulations that relate to nonprofit organisations, undertake domestic reviews of or have the capacity to obtain timely information on the activities, size and other relevant features of their non-profit sectors for the purpose of identifying the features and types of NPOs that are at risk of being misused for terrorist financing by virtue of their activities or characteristics.

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 NPOs should follow a “Know your beneficiaries and associate NPOs” rule, which means that the NPOs should make best efforts to confirm the identity, credentials and good standing of their beneficiaries.

Measures adopted by countries to protect the NGO sector from abuse should not disrupt or discourage legitimate charitable activities. They 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 beneficiaries. A concerted approach to deal with such threat to the NGO sector is essential, given the diversity and geographical spread of our country, so as to ensure that legitimate charitable activity continues to flourish.