Terrorism risk for charity funds downgraded by Treasury report from medium-high to low

This year’s National Risk Assessment of Money Laundering and Terrorist Financing says little use of charity funds to finance terrorist activity has happened

The risk of charities being used to fund terrorism has been downgraded from medium-high to low, according to a risk assessment carried out by the Treasury and the Home Office.

The National Risk Assessment of Money Laundering and Terrorist Financing 2017, published yesterday afternoon, says comparatively little terrorist financing is known to have happened given the size of the charity sector. It praises the Charity Commission’s work in this area.

But it warns that some charities, particularly those working abroad, are still vulnerable to this kind of abuse, and says the problem could intensify if banks continue to withdraw services from charities that operate in high-risk areas.

The last National Risk Assessment was published in 2015 and estimated the risk of terrorist financing using charities to be medium-high.

But the latest report deems the risk to be low, saying: “While the risks in the sector are unchanged, government and law enforcement agencies have conducted significant work since 2015 to increase understanding of the sector and the risks that it faces around terrorist financing.

“In comparison to the overall size of the UK charity sector, the amount of known abuse for terrorist financing is very low.”

The document says it is unlikely any charities had been set up specifically to finance terrorism.

But it warns that the 13,000 to 16,000 UK charities that operate internationally face “significantly higher risks”, particularly those operating in areas such as Syria and Iraq.

The 30 per cent of these charities with annual incomes of less than £10,000 are especially vulnerable to abuse because they are less likely to be receiving professional advice and could make honest mistakes or adopt poor practices that put them at risk, the report says.

Where charities have been linked to financing terrorism, the report says, “a significant proportion” have been legitimate charities that have fallen victim to internal abuse by employees, volunteers or trustees, or they have been looted in the country in which they operate.

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A number of aid organisations have had their bank accounts frozen or closed by banks in recent years because of concerns about operating in high-risk areas.

The report acknowledges this and warns: “If this trend persists, de-risking may have the effect of pushing charities out of more intensely regulated areas of activity and into higher risk ways of working, such as transacting through physical cash or unregulated money service businesses, thereby increasing the risks in the sector.”

In the UK, the charities most likely to be at risk are those operating in London, the Midlands and north-west England, according to the report.

The report says the Charity Commission’s outreach programme focusing on charities identified as high-risk has been effective and, with the commission’s guidance and regulatory alerts, was likely to have contributed to reducing the risk of abuse from within charities.

Michelle Russell, director of investigations, monitoring and enforcement at the commission, welcomed the report.

In a statement, she said: “It is essential that those charities that are at greater risk take steps to protect themselves so that charitable funds are not abused.

“Any trace of terrorist financing within the sector corrodes public confidence in charities and cannot be tolerated. One case is one too many, which is why we continue to work proactively with the subsection of the sector that remains at high risk.”

She urged charities to review the compliance resources available in the commission’s website and to ensured they had strong financial, due-diligence and monitoring controls in place to prevent terrorist exploitation.

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Extra funding for regulator ‘should not come from charging charities’, Treasury told

Four sector umbrella bodies have written to the Treasury to say the Charity Commission badly needs more funding, but there should be no ‘charity tax’

Four charity umbrella bodies have called on the government to provide more funding for the Charity Commission, but said this should not come from the regulator charging charities for its services.

A letter from the chief executives of the Charity Finance Group, the charity leaders body Acevo, the local infrastructure body Navca and the Small Charities Coalition, sent on Friday to Liz Truss, the chief secretary to the Treasury, asks for an increase in the grant given to the Charity Commission.

The regulator’s funding has been reduced by about £8m on the figure it received in 2010, and has been frozen at £20.3m a year until 2020.

The letter says effective regulation is crucial to effective regulation and to public confidence in charities.

“Unfortunately, the government is currently putting at risk the billions raised by the public and tens of millions of volunteering hours, by drastically cutting the Charity Commission’s budget over recent years and now freezing it until the end of the decade,” the letter says.

“This is despite rising demand for its services and inflation eroding the real-terms value of the grant given by government.”

It says the solution to the problem of declining resources is not what the letter calls a “charity tax” that “forces charities to hand over donors’ money to subsidise the regulator and threaten its independence in the eyes of the public”.

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William Shawcross, chair of the Charity Commission, said in September 2015 that it was inevitable charities would have to make a financial contribution to the regulator’s services.

He subsequently said in an interview, published in January, that charities in England and Wales might have to pay a levy of up to £3,000 a year to fund the regulator, with a consultation on the subject due “in the near future”.

The consultation has still not been published, due in part to delays caused by the snap general election earlier this year.

The letter from the four charity umbrella bodies says increased funding for the commission should be spent on more public outreach so people have greater confidence in the regulation of charities and to ensure that trustees are supported in understanding their responsibilities.

“The sums involved in funding the regulator from the government’s perspective are modest,” it says. “But the contribution made by the charity sector is substantial.”

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Social investment should not replace public funding, says shadow Treasury minister

Anneliese Dodds, MP for Oxford East, tells the Labour Party conference it should not replace statutory services that should be carried out by the public sector

Social investment should supplement, not replace, public sector funding for youth services and there is a “clash of cultures” between social investment and the charities it funds, a shadow Treasury minister has told delegates at the Labour Party conference in Brighton.

Speaking at a fringe event about social investment in the youth and community sector, Anneliese Dodds, the MP for Oxford East, said social investment was part of a “mixed economy” but should not be used to replace statutory services that should be carried out by the public sector.

“Where I am concerned is that sometimes some of the rhetoric seems to suggest this could actually shift into some statutory services, and for me the whole point is that it should be operating in areas where there is such a high level of risk that local authorities and public funding can’t cover it,” she said.

“I don’t think it should be moving into areas where ultimately we should have proper public provision and where we really need to have that stability of service quality, especially around statutory responsibilities.”

Dodds also highlighted a “clash of cultures” between the predominately business-oriented language used by the social investment sector and the actual role youth charities play in society.

“Even the language we use is really interesting,” she said. “We use the language of social entrepreneurs, but we are not talking about profit seekers but about people who are efficient in their use of constrained resources to get really good outcomes. Why do we attach the label ‘entrepreneurs’ to that?”

Other speakers at the event highlighted problems with the perceived complexity of social investment and about people’s understanding of how it worked.

Anna Smee, chief executive of UK Youth, said that acceptance of social investment was growing, but in the main because of charities’ problems in getting grant funding.

“Three or four years ago, people didn’t know what social finance was,” said Smee. “It was a really big and scary thing and seemed like this crazy David Cameron idea that would never happen.

“Now we are seeing much more acceptance of it, mainly because people have no choice – they’ve been driven down such a challenging funding route they were willing to consider everything.

“But most of the youth organisations we’ve spoken to still don’t know where to go. They’ve never heard of the key fund, they’ve never heard of Big Issue Invest, never heard of Nesta and all the infrastructure that has grown up over the past five years. They didn’t see it as something for them.”

Smee said that youth charities had typically struggled to collect good data and this needed to be improved. Best practice should be shared, she said, to help attract social investment.

Leigh Middleton, managing director of the National Youth Agency, said that many organisations were put off by the “significant complexity” of social investment agreements, and funders were still reliant on data and key performance indicators being met rather than more qualitative evidence about youth charities’ work.

Barry Williams, director of the youth charity membership body Ambition, said cynicism about social investment “is still out there” and he was concerned that some charities were hanging on for the return of grant funding rather than exploring alternative finance models.

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