Regulator issues financing guidelines for NPOs

Published in Dawn, September 6th, 2018. 

 KARACHI: In order to protect non-profit organisations (NPOs) from terror financing abuse, the Securities and Exchange Commission of Pakistan (SECP) has issued guidelines to encourage financial accounting, usage of formal financial systems to transfer funds and increase due diligence and auditing functions of the sector.

“These guidelines are intended to assist NPOs licensed and registered as associations not-for-profit under section 42 of the Companies Act, 2017 to serve as a tool for prevention from money laundering and terror financing (ML/TF) abuses”, according to the guidelines issued on the SECP website. The guidelines seek to improve country’s overall outlook on increasing adherence to anti-money laundering and counter-financing terrorism (AML/CFT) standards set internationally in addition to improving the understanding of due diligence with respect to AML/CFT in the NPO sector.

Terror financing, as explained in the guidelines, is the “financial support, in any form, of terrorism or of those who encourage, plan or engage in terrorism.” It also includes raising, transferring and using funds to finance terrorism.

The risks associated with the NPOs are multifaceted since they enjoy high trust and confidence from the public and are subject to limited oversight. NPOs can be abused by raising funds in its name, using the non-profit to transport people, cash, weapons and terrorist propaganda, misuse of NPO from within and setting up NPOs for illegal or improper purposes.

NPOs in Pakistan are subject to a list of laws including Anti-Money Laundering Act, 2010, Anti-Terrorism Act, 1997, Companies Act, 2017, Associations with Charitable and Not-for-Profit Objects Regulations, 2018, Income Tax Ordinance, 2001 and Prevention of Electronic Crimes Act, 2016.

In addition to these, National Counter Terrorism Authority (Nacta) has also “drafted Model Charity Law which is in process of enactment and contains various provisions to ensure transparency and accountability, sharing of registration details amongst the provinces, and assessment mechanisms.”, according to the commission.

These guidelines will bring the laws governing the NPOs in line with the Financial Action Task Force (FATF) recommendations.

The amendments have presented a list of good practices for NPOs which includes adoption of best practices, good governance, knowledge on beneficiaries and partners, and adequate information on donors and employees.

The guidelines, in addition to the aforementioned measures, have also issued illustrative characteristics of high risk NPOs and provided key pointers on regulatory approach to mitigate ML/TF risks.

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