Under the Microscope: Compliance Challenges for Non-Governmental Organisations

ChildFund International, an international child development NGO based in Richmond, Virginia, regularly receives US, European Union (EU), UK, New Zealand and Australian government grants. ChildFund’s treasury department has to do its own terrorist vetting, unlike most other treasuries.

Sassan Parandeh, Certified Treasury Professional (CTP), treasurer for ChildFund, explained to gtnews that every three months, his organisation has to send agreements to various government agencies, promising them that any funds that leave ChildFund have been vetted. “We try to indentify who the people are that we are paying,” he said. “It’s the same thing as the ‘know your customer’ rule at a bank. We have to do the same thing for anyone who receives funds, services, technical expertise, etc.”

The Vetting Process

Due to vetting obligations, all international NGOs need to have systems in place that can perform background checks. But these background checks are not the typical screenings that a company would do when hiring a new employee. “They are background checks that go back to places like the Office of Foreign Asset Control (OFAC) of the US Department of Treasury and check the Excluded Persons List System (EPLS),” said Parandeh. “There’s a UK version of this list, an EU version, a Japanese version—anywhere that we are operating. We have to be really careful.”

All monies that NGOs distribute have to be vetted, whether they are government monies or funds from private donors. ChildFund uses LexisNexis Bridger Insight XG to check donors to make sure they are compliant.

Vetting names can be a especially difficult; in some countries, tens of millions of citizens can have the same name. “There could be 17 million people, 200,000 of which show up on a list of drug dealers or terrorists,” said Parandeh. “Then you have the task of trying to identify if your guy is the same as any of those guys. You have to go them, one-by-one.”

Following the terrorist attacks on September 11, 2001, the Federal Bureau of Investigation (FBI) and the Financial Crimes Enforcement Network (FinCEN) looked into how terrorist organisations were able to bring money into the US without the federal government taking notice. They found that a number of NGOs had been set up as nothing more than a mechanism of moving funds. Those fake NGOs have since been shut down.

Nevertheless, there is still a level of high caution with regard to NGOs because less-than-reputable people continue to attempt to route money through NGOs to legitimise it. “They send money to an NGO and then say that they didn’t mean to send it and ask for it back,” said Parandeh. “But they ask for the money to be wired to a different location; not the one that it originated from. By doing that, it looks like an American NGO has taken the money and is sending it to another place as a refund. Those are the kinds of things we really have to look after.”

Given these risks, ChildFund has a refund policy that specifies that monies are only refunded to the point of origin. “We have a refund policy that uses the right delays and the right route of returns,” he said.

Best Practices for NGO Treasuries

Parandeh believes NGOs must have very strong forensic training in place for their employees in order to stave off these kinds of problems. “What triggers a red flag? Anything that looks unnatural,” he said. “Somebody says, ‘I want my money but I don’t have a bank account. Can you pay my brother?’ We have a policy that says ‘No; if you are a contractor for us, we will only give you money if there is a formal business relationship. If you don’t have a bank account, we will not pay you until you open your bank account and pass terrorist vetting.’”

Parandeh also recommends that NGOs never handle money for other organisations. ChildFund recently received a call from the University of Wyoming requesting money be moved to Liberia. The university could not move the money itself because it did not have a license to do so. “A lot of people would say, ‘Sure, what’s the threat from the University of Wyoming’s Women Studies Department?’” he said. “But no; you have to develop discipline in your staff. We do not have a formal business relationship with the University of Wyoming, so we’re not going to move their money for them.”

NGO treasuries can even face compliance challenges when they are moving their own money.

Following the 2004 Indian Ocean earthquake and tsunami, ChildFund’s Taiwan branch raised money for Sri Lanka. “They did fundraising specifically for that project and they sent us a wire transfer of about $270,000,” said Parandeh. “In the reference field in the wire instructions, they said ‘For tsunami relief, Sri Lanka.’ That way, they were telling us what to use the money for.”

As it turns out, one of those fake NGOs that had been singled out by the US federal government was called Tsunami Relief Sri Lanka. Since that name matched ChildFund Taiwan’s wire instructions, the government confiscated the money. “So we actually had to prove that money was not for that organisation; this was just an explanation of what a legitimate American organisation was going to be using it for. But it just goes to show that we are under a microscope. We have to constantly monitor everything because we have to be compliant in every way,” said Parandeh.

Consequences of Non-Compliance

If NGOs are not compliant, the consequences are dire. Parandeh noted that a now-defunct NGO, the Academy for Educational Development (AED), was not complying with terrorist vetting and the US government came down hard on it. AED ultimately had to sell itself to another NGO.

When these laws were first established, many organisations resisted them. Many NGO employees had a more idealistic view of their jobs. “They were saying, ‘Wait a minute; I’m not a part of law enforcement. I’m not going to do it,’” Parandeh said. “It wasn’t until the federal government made some serious examples and really started coming down hard on NGOs—that’s when everybody scrambled and started holding seminars and webinars and tried to really understand how they should be vetting people.”


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