How to prevent terrorist financing while protecting civic space

While non-profit organizations play a crucial role in supporting people in need, their work is sometimes obstructed by regulations that are technically designed to counter terrorist financing. To prevent these unintended consequences, a recent forum in Mumbai brought together representatives from governments, civil society, banks and private sector groups to explore how regulatory structures can be refined.

Terrorism thrives in environments plagued by ideological radicalization and extreme social injustices. As UN Secretary-General António Guterres aptly put it, “poverty, inequalities and social exclusion give terrorism fuel. Prejudice and discrimination targeting specific groups, cultures, religions and ethnicities give it flame.” Beyond these social and economic drivers, often times criminal activities such as fraud, illegal mining, trafficking of arms, drugs or even human beings provide the financial backbone for terrorist organizations.

Many non-profit organizations (NPOs) in development cooperation and humanitarian play a crucial role in fighting poverty and social exclusion and thereby help to mitigate the very conditions that breed instability and radicalization. However, the effectiveness of NPOs is increasingly threatened by complex financial regulations designed to counter terrorist financing (CTF) and anti-money laundering (AML). While well-intentioned, these regulations often result in overregulation and overcompliance, unintentionally obstructing the very work aimed at fostering social cohesion and resilience against terrorism.

The importance of NPOs in the global effort against terrorism

NPOs provide essential services, from education and healthcare to economic empowerment programs, in regions that are particularly vulnerable to terrorist influence. By addressing human rights abuses, social grievances, and economic marginalization, they act as a stabilizing force in communities susceptible to extremist narratives. Given their on-the-ground expertise and deep community ties, NPOs should be considered vital stakeholders in discussions on CTF and AML policies.

Examples:
One of our member organizations works in Burkina Faso. Their partners provide vocational training for youths. More than half the population is under 18 and there are too little training facilities and job opportunities. Youth unemployment is extremely high. Many fear that young people are drawn to terrorist organizations – not because of ideology, but because they can pay their young recruits. The partner organisation would like to expand their vocational training to give more young people a chance to find work.

Another member organization worked in South Sudan, a country plagued by political tensions and extreme poverty after years of conflict. They’ve put together a large project to improve living conditions. But at the last minute their bank announced that they would no longer process any transactions into South Sudan because of CFT/AML measures.

A key step in including NPOs in addressing shortcomings in CFT/AML regulations was the recent Private Sector Collaborative Forum (PSCF) hosted by the Financial Action Task Force (FATF) in Mumbai. The forum brought together representatives from governments, civil society, banks and private sector groups to explore how regulatory structures can be refined to enhance financial security while minimizing unintended consequences. A major concern raised was the disruption of financial channels for humanitarian and development work, particularly in high-risk jurisdictions.

Balancing risk management with humanitarian needs

Many NPOs operate in areas deemed “high risk” by the FATF, necessitating additional financial scrutiny. However, the resulting compliance burden discourages financial institutions from facilitating transactions to these regions, effectively choking the funding necessary for critical humanitarian and development initiatives. This raises pressing questions:

• Are efforts to control financial flows hindering international humanitarian law?
• What is an appropriate level of financial exclusion for high-risk jurisdictions?
• How can legitimate NPO activities continue without undue obstruction?
• How can banks and NPOs navigate compliance requirements without excessive administrative burdens?

Pathways to practical solutions

During the PSCF discussions, several concrete recommendations were put forth to address these challenges:

1. Reassessing the zero-risk approach: Supervisory authorities must recognize that a zero-risk policy is unrealistic and counterproductive. A more balanced approach should acknowledge that some level of risk is inherent and manageable.
2. Establishing tri-sector dialogues: Solution-oriented dialogues among governments, financial supervisors, banks and NPOs should be institutionalized to develop context-specific solutions and support that ensure CTF/AML without unnecessary barriers.
3. Clear guidance for banks: Banks need assistance in assessing the risks of clients and transactions to high-risk jurisdictions. For example, the Dutch industry baseline for non-profits has reduced the compliance burden for banks while protecting legitimate NPOs from de-risking. However, information sharing with correspondent banks remains an issue that needs to be addressed.
4. Implementing humanitarian exemptions: Legal frameworks should include provisions that allow for higher financial risks in humanitarian operations, ensuring that lifesaving aid reaches those who need it most. This is already the case when it comes to financial sanctions by the United Nation’s Security Council, but similar provisions are missing on CFT/AML legislation and national criminal laws.
5. Supporting self-regulation and risk mitigation: Many NPOs have implemented their own robust financial monitoring, risk-mitigation strategies and codes of conduct – in particular to handle security risks (see VENRO’s e-learning video), to prevent fraud & corruption (e.g. BOND’s anti-bribery guidelines or see VENRO’s German e-learning video) and ensure compliance with sanctions and CFT measures (NRC’s toolkit for managing CT and sanction risks or see VENRO’s German e-learning video). These efforts should be recognized and supported by governments.

A call for collaborative action

The fight against terrorism requires a multi-faceted approach that extends beyond financial security measures. While CTF and AML policies are essential to global security, they must not come at the cost of humanitarian and development efforts, or civil society more broadly. By fostering greater collaboration between governments, financial institutions and NPOs, a regulatory framework can be built that enhances security while enabling organizations to continue their essential work.

To truly counteract the conditions that fuel terrorism, the international community must ensure that NPOs are not just at the table but are actively shaping the policies that impact their operations. The path forward requires pragmatism, cooperation and a commitment to balancing security with social and humanitarian imperatives.

Lukas Goltermann

VENRO