The federal agencies that regulate US financial institutions have issued a joint fact sheet to guide banks and credit unions in the level of anti-money laundering and anti-terrorism financing due diligence they should perform on customers that are non-profit organizations and charitable entities.
The fact sheet, developed jointly by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Financial Crimes Enforcement Network, is not intended to alter the Bank Secrecy Act or other existing legislation. Its purpose is to clarify how banks should apply a risk-based approach. Noting that charities and other nonprofits generally do not present an unacceptably high money laundering risk, the agencies emphasized the importance of access to financial services for nonprofit organizations – particularly during a period of economic and social problems engendered by the coronavirus pandemic.
As for all of their customers, banks must adopt customer due diligence procedures that enable them to understand the nature and purpose of customer relationships in order to develop an accurate customer risk profile, continuously monitor in order to identify suspicious transactions and report them to the regulators, and maintain updated customer information. And the approach must be tailored to the level of risk posed by each customer. For example, US charities that operate domestically present a relatively low risk, while US charities that operate abroad may pose higher risks for terrorist financing or money laundering.
The fact sheet offers a list of the type of information that bank’s should collect as part of the due diligence process:
- The mission, objectives and programs of the non-profit
- The geographic locations served
- The organizational structure, including management, principals and system of internal controls
- Tax exempt status and corporate registration
- Participation in self-regulatory programs
- Audits and financial statements
- Funding sources and fundraising methods
- Information about the beneficiaries of the non-profit’s services
- Outside affiliations of the organization
In conclusion, the agencies reiterated the importance of charitable organizations, and encouraged banks to perform risk-based due diligence and not to shy away from working with such customers where appropriate.