16 September 2020

Calls from EP and the sector: anti money laundering policy must not unduly restrict the sector

The European Parliament and the philanthropy and wider civil society sector are aligned that EU and national anti money laundering and terrorism policy must not unduly restrict the sector

The European Parliament calls in a recent resolution issued in July in the context of the European Commission Action Plan for a comprehensive Union policy on preventing money laundering and terrorism financing  on the European Commission to  ”ensure that the implementation of AML/CTF provisions do not lead to national legislation imposing excessive barriers to the activities of civil society organisations”.https://www.europarl.europa.eu/doceo/document/TA-9-2020-0204_EN.html

The public consultation which ran until 26 August 2020 was an important opportunity for the sector to make concrete suggestions on how EU policy could be revised with a view to ensure a risk based, targeted, clear and effective regime that avoids unintended consequences and overregulation on legitimate civil society actors.

Some key issues that we are flagging in this context:

Consider that our sector is supporting the fight against money laundering and terrorism financing

While PA clearly supports the important fight against money laundering and terrorism financing we are of the opinion that this policy should not unduly restrict legitimate philanthropy and public benefit action! Our sector is contributing with own due diligence efforts and many of its sectors ‘activities/programmes help identify and mitigate potential risks. Increasing evidence and the outcomes of National and Supranational Risk Assessments show that risks related to NPOs have overall been lowered in recent years and that only specific sub-sections of the sector appear to be prone to higher risks depending on national contexts.

Use the EU policy review to clarify some concepts in a comprehensive way and redress overregulation and unintended chilling effect

Existing EU and national AML and CFT policy has had unintended consequences and a chilling effect on the important work of NPOs including philanthropy in delivering aid and benefit to the public good. There is also concern about overregulation and in the context of the current policy review the sector calls for more guidance to ensure proper implementation of the existing rules. Some EU countries have clearly  “over-implemented” the 4/5th EU Money laundering Directive by including NPOs/public benefit foundations as “obliged entities” (which is not required by the current Directive) and hence put them under burdensome strict reporting requirements, without clearly identified risks. In addition, there is concern about if and how the obligation to report on “beneficial owners” (BO) is applied to the NPO sector, a sector that benefits the general public and explicitly not private interests. An application of the BO policy to all NPOs/foundations may not be in line with a risk based approach since policy measures should only target those actors that have been identified to be at risk. The wording of the 4/5th Money Laundering Directive suggests to require all public benefit foundations to list as BOs those that direct the organisations, which could be decision makers/those in control of public benefit foundations. The term beneficial owner is however not always correctly understood at national levels and has a chilling effect as it gives the impression that board members would own or benefit personally from the organisation. The wording “beneficial owner”, along with the privacy and data concerns is discouraging qualified potential candidates to run for positions in public benefit foundation boards. Some Member States have even considered the obligation for NPOs and foundations to report on their grant or scholarship recipients as BOs, which is clearly not an appropriate interpretation with the intended rationale of the BO approach to fight money laundering and terrorism financing.

Overall banks and other financial service providers have put tighter due diligence measures on our sector, which make it more difficult for (cross-border) philanthropy to operate. It is becoming more difficult to get access to formal banking services since banks are de-risking/excluding also parts of our sector. This policy has hence created new risks.

Ensure a fully-fledged risk based and fundamental rights based approach

Based on international standards, any EU level policy must follow a risk-based and proportionate approach[1], taking into account the latest findings form the EU SNRA, fundamental rights and the principle of subsidiarity. Measures put in place must be suitable and effective to address potential risks and they must be proportionate. Efforts should first be undertaken to provide more guidance to ensure consistent and appropriate implementation of existing policy. In addition, there may be appropriate measures that still need to be considered such as facilitation of cross sectoral discussions (with NPOs, financial institutions, regulators and governments), so as to better identify and address potential risks and shortcomings. According to the AML directive itself, NPOs have an important watchdog role and that measures that would restrict their civic space would restrict their ability to perform this role. While considering different policy options, we recall that the European Commission should carefully assess and weigh in the fundamental rights component. Any new EU policy proposals should hence always take into consideration what rights and fundamental freedoms are at stake and balance them against the public interest, while conducting thorough impact assessments, including fundamental rights check lists. 

Do not move NPO/foundation supervision to the EU-level

If an EU body was to supervise obliged entities, it needs to be clarified that NPOs are generally not obliged entities. If a country considers and provides clear evidence that parts of the NPO sector are at higher risk and argues for them to be considered as obliges entities, it should be clearly stated that such NPOs/foundations do not fall under European supervisory structures. Supervision of NPOs/foundations is a clear matter for national authorities. It often is a mix of national or regional tax/financial and framework supervision with criminal investigative authorities getting on board where matters of criminal investigations arise.

[1] See also recent EESC philanthropy opinion asking that national and EU security measures are risk-based, proportionate and evidence-based:https://www.eesc.europa.eu/en/our-work/opinions-information-reports/opinions/european-philanthropy-untapped-potential-exploratory-opinion-request-romanian-presidency