Combating terrorist financing: enhancement of national-level coordination and greater transparency of the non-profit sector.
The focus of this communication is to point to certain tools which could be useful in preventing terrorists from accessing financial resources. To that end, the communication seeks to ensure increased coordination between the responsible national authorities and to prevent the misuse of non-profit organisations ("NPOs") by terrorist organisations.
Commission Communication to the Council, the European Parliament and the European Economic and Social Committee of 28 November 2005 - The prevention of and fight against terrorism financing through enhanced national level coordination and greater transparency of the non-profit sector [COM(2005) 620 final - Official Journal C 122 of 23 May 2006].
This communication follows up the action directives mentioned in earlier instruments (see context) and analyses the shortcomings in terms of counter financing of terrorism (CFT) work:
- the problems of national-level coordination of the structures engaged in this fight - the different ministries, authorities and other actors concerned;
- the vulnerabilities of the non-profit sector to the financing of terrorism and other criminal abuse.
In an annex to the communication, the Commission recommends a Framework for a Code of Conduct to enhance transparency and accountability of NPOs and to reduce the risk of abuse of the non-profit sector.
National level coordination structures
The relevant actors in the public sector in countering financing of terrorism work are the Ministries of Finance, Justice, the Interior and Foreign Affairs, the Treasury, the Financial Intelligence Unit (FIU), the Financial Police, the prosecution services, customs authorities, tax departments, intelligence services, financial regulators and the Central Bank.
On the basis of consideration of horizontal best practices to strengthen coordination among allrelevant actors, the Commission makes a series of suggestions:
- create a national framework comprising all relevant actors, responsible for developing a Joint Counter Terrorism Action Plan, and for assessing the risks and threats or for organising meetings of these Actors in order to review investigation files;
- establish, in all Member States, a national framework connecting financial intelligence units and reporting entities with relevant public-sector actors;
- drafting minimum standards concerning the collection, analysis and dissemination of intelligence, and the processing of information.
As regards the coordination of certain relevant actors, the conclusions mention in particular:
- strengthening mutual cooperation through more efficient rapid information communication systems, secondment of personnel to the FIU or the establishment of a specialised unit within the FIU for the fight against the financing of terrorism;
- use of identification data ensuring immediate identification of terrorist-related suspicious transaction reports;
- awareness-raising among users of financial services.
Lastly, the communication also suggests that attention be paid to the coordination of public authorities and financial institutions, which are often in possession of sensitive information relevant to CFT. This coordination could develop through measures, such as the creation of a national register of bank accounts for the rapid identification of suspect funds and accounts, allowing competent authorities to know whether a person under investigation is or has been in possession of a bank account and what transactions have taken place on this account.
Recommendation to Member States and framework for a Code of Conduct to tackle vulnerabilities of NPOs to the financing of terrorism
The non-profit sector fulfils tasks which are vital and indispensable to the citizen. However, there is evidence that in several instances the non-profit sector has been used by terrorists and terrorist organisations to finance their criminal activities. In some cases, administrative freezing measures have even been imposed to prevent embezzlement and fund-raising, carried out under the guise of non-profit organisations (NPOs) *.
The Declaration of the Council of 13 July 2005 following the London bombings had already asked the Union to "agree a Code of Conduct to prevent the misuse of charities by terrorists." A Code of Conduct should protect NPOs against all forms of misuse for criminal ends, without however deterring benefactors from making donations.
The Communication aims to find an approach which minimises the risk of abuse without over-burdening the non-profit sector. Care must be taken to ensure that nothing is done that could undermine the work or reputation of the vast majority of NPOs operating legitimately at national, EU and international levels.
The annexed recommendation therefore suggests that Member States encourage NPOs to apply enhanced transparency and accountability measures in their daily management. Each country is urged to ensure that they have oversight of their non-profit sector. The oversight role could be entrusted either to a single public body or to existing authorities or to self-regulatory bodies.
Furthermore, these bodies entrusted with overseeing the NPOs should:
- operate publicly accessible registration systems for all NPOs operating on their territory and wishing to take advantage of preferential tax treatment, the right to public fundraising and access to public sector grants;
- provide guidance to NPOs on financial transparency.
To promote compliance with this code, the Member States should take into consideration the fact that registration, enhanced transparency and accountability standards confirm a visible status for NPOs and help to acquire and maintain public trust and credibility of non- profit work. Furthermore, private monitoring bodies or non-profit umbrella organisations should be encouraged to obtain certification.
As regards the investigations into the abuse of NPOs, cooperation and/or exchange of information should build:
at national level, if possible, on one of the competent authorities with responsibility for overseeing NPOs, and include tax authorities, the Financial Intelligence Unit, and law enforcement services;
at EU/international level, on a network of law enforcement single contact points with expertise in the field.
It is essential that the Member States and the NPOs be fully informed of the ways in which these bodies can be misused for criminal purposes. NPOs should be encouraged to assess their existing good practices. Privileged Tax Status, the award of public grants and the right to public fundraising could be offered to all NPOs fulfilling the registration requirement and complying with transparency and accountability measures. The Member States should also consider the usefulness of an awareness-raising initiative for the NPOs.
For their part, the NPOs should:
- pursue their mission using the funds provided ;
- draw up a document identifying the organisation, keep it available at the NPO's offices, send it to the registration authorities and keep it updated;
- follow proper book-keeping practice and produce annual financial statements of income and expenditure. All documents should be should be held for at least five years at the registered office of the NPO. Simplified accounting and reporting requirements should apply to small NPOs;
- use formal channels for money flows for all transactions, whenever there is a reasonable possibility of using the formal financial system, and keep full and accurate audit trails of funds transferred outside their jurisdiction and/or country;
- verify the identity and good faith of their beneficiaries and of the other NPOs with which they have direct links.
Context: counter financing of terrorism
In its action plan on the fight against terrorism of 15 June 2004, the Council of the Union focussed on the adoption of measures aiming to prevent the phenomenon of terrorist financing. Subsequently, the European Council of 25 March 2004 called on the Member States "to increase cooperation between the national competent authorities, Financial Intelligence Units, and private financial institutions to facilitate improved exchange of information on terrorist financing".
17. The Declaration also called on the Commission to consider improvements in the regulation and transparency of non-profit organisations ("NPOs"), in order to prevent the possibility of their being used by terrorist organisations to acquire or distribute funds.
In October 2004 the Commission presented a communication on the prevention of terrorist financing and, in December 2004, the Union's strategy designed to combat the phenomenon. This strategy, drafted on the basis of proposals made jointly by the European Commission and the Secretary-General/ High Representative of the Council, examines the measures taken in the field and formulates a list of recommendations to strengthen the action of the Union.
|Key terms used in the act|
|Act||Entry into force||Deadline for transposition in the Member States||Official Journal|
|COM (2005) 620 final||30.09.2005||-||JO C 122 of 23.05.2006|
Commission Communication to the Council and the European Parliament of 20 October 2004: Prevention of and the fight against terrorist financing through measures to improve the exchange of information, to strengthen transparency and enhance the traceability of financial transactions [COM(2004) 700 - Official Journal C 14 of 20 January2005].
Plan of Action to Combat Terrorism, 10586/04 of 15th June 2004 (Council Document).
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