1. Introduction

Earlier this year, my team and I wrote on the revised Code of Governance for Charities and Institutions of a Public Character (the Code) published by the Charity Council in April 2023. The Code was a positive measure by the Charity Council to raise the standards of governance in the charity sector and instill confidence in Singaporeans to give and support charities and their causes.

Recent developments have thrown certain charities into unwanted spotlight as they were the victims of money-laundering donors. As my colleague Loh Kia Meng aptly shared in his Straits Times opinion column 21 October 2023 “Hard for Volunteer-Run Charities to identify money laundering donors”, it is indeed challenging for charities to expend substantial resources to counter money laundering and terrorism financing. How then can charities protect themselves given this landscape of money laundering risk?

2. Measures Put In Place by the COC

Since as early as 2015, the Commissioner of Charities (COC) highlighted the issues of money laundering and terrorism financing to charities. In their guide “Protecting Your Charity Against Money Laundering and Terrorist Financing (May 2015)” (the COC Guide), the COC encouraged charities to have vigorous financial controls in place, and to be transparent in their activities in order to protect themselves. It is timely to recap these advisory steps in light of the recent developments surrounding charities receiving donations from money-launderers.

Red Flags/Suspicious Indicators of ML/TF

To prevent terrorists or money launderers from exploiting vulnerabilities of charities, it is crucial that charities have vigorous financial controls in place, and are transparent in their activities. Charities should also conduct regular reviews of their internal controls, policies and procedures, key programmes and partnerships to protect themselves from actual or alleged abuse of fraud, money laundering or support for terrorism.

The COC Guide sets out a useful checklist below to help charities recognise possible money laundering/terrorism financing red flags which might put them at risk of being abused by terrorists or other criminals:

Checklist of questions a charity should constantly ask itself:

• Are you clear about the sources of your donations and support?
• Do you know the background and affiliations of the charity’s board members, employees, fund-raisers, volunteers and partners?
• Do you know if your charity’s name is being used to support a person or cause(s) which you are not familiar with?
• If your charity is in partnership with another organisation on projects, do you have a clear written agreement outlining the activities which will be undertaken and how they will be monitored and accounted for? Do you check that the agreements are adhered to?
• Are the beneficiaries of your charity designated as terrorists? Please refer to the Inter-Ministerial Committee – Terrorist Designation (IMC-TD) for more information.
• Do you have internal control systems with documented procedures for key processes, such as procurement and payment, revenue and receipts, and a system to ensure proper delegation of authority and appropriate limits of approval?
• Are there measures in place to ensure proper segregation of duties and adequate checks and balances, especially over financial matters such as the collection, handling of cash, depositing, transfer of funds and the issuing of receipts?
• Are you aware of the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act 1992 and the Terrorism (Suppression of Financing) Act 2002 and how to lodge a suspicious transaction report (STR), if necessary?

Potential Suspicious Activities Which May Indicate Money Laundering

The COC Guide lists potentially suspicious activities which charities should monitor for, such as:

Donors or Beneficiaries Who Provide Insufficient or Suspicious Information

Donor or beneficiary is a trust or shell company which is unwilling to provide additional information about their beneficial owners or underlying beneficiaries.

Fund Transfers

A large number of fund transfers ordered in small amounts in an apparent effort to avoid triggering identification or reporting requirements or foreign exchange transactions performed on behalf of donors or beneficiaries.

Activity Inconsistent with the Charity’s Operations

Goods or services purchased by the charity does not match the needs of the operations or payment for goods or services made by cheques not drawn from the charity’s account.

Other Unusual Transactions

Corporate donations made using a personal account or donor makes large contributions which do not seem to commensurate with the donor’s known background or income.

The above are certainly relevant in the context of money-laundering donors channeling illicit funds into charities.

How can Charities Protect Themselves

Strong Governance and Financial Transparency

Charities which have in place good financial management and maintain robust internal processes of transparency and accountability will be better safeguarded against all types of abuse. Sound written policies and financial procedures are critical preventive measures, and it is equally critical to ensure that they are adhered to.

Know Your Key Donors and Beneficiaries

Charities should carry out proper due diligence procedures on their key donors and beneficiaries. Resource permitting, charities should put in their best efforts to confirm the identity, credentials and good standing of the beneficiaries. Similarly, charities should confirm the identity of significant donors while respecting donor confidentiality.

Transactions Conducted Via Regulated Financial Channels

As far as possible, charities should also ensure that transactions are conducted via regulated financial channels to minimise any potential terrorist abuse while the funds are in transit.

Funds Applied in a Manner Consistent with the Charity’s Mission and Objects

Charities should always review its expenditure to ensure that funds are channelled towards causes which are congruent with their missions and objects. Charities should also not accept donations which are directed for purposes that are not consistent with the charities’ missions and objects.

Report Suspicious Transactions to STRO

Charities should lodge a STR if there is a reasonable suspicion of money laundering or terrorism financing activity during the course of the charities’ administration or operations.

Recent COC Advisory

Recently (October 2023), the COC issued an advisory to charities urging them to review their donor records from as far back as January 2019, to see if persons of interest linked to the SGD$2.8 billion money laundering case had donated money to them. The COC reiterated that charities should file suspicious transaction reports if they have reasonable grounds to suspect that any cash or in-kind donations may be connected to any criminal activity. The advisory included a list of persons of interest in Singapore’s largest money laundering case, to facilitate the review, and added: “Charities that have received donations from the persons of interest and/or related entities should carefully consider the action(s) you will take in respect of these donations, bearing in mind the potential legal and reputational risks if it comes to light that your charity had accepted donations from the persons of interest and/or related entities.”

3. Concluding remarks

As the charity sector matures and public expectations of charities change, charities must keep ever vigilant to ensure they do not become convenient conduits for illicit funds from money launderers. The COC has provided valuable guidance through the years, and it is perhaps an opportune and necessary task for charities to inter alia revisit the COC Guide and implement more robust anti-money laundering practices to better protect themselves from fraudulent donors.