FATF Plenary approves revision of Recommendation 8 and Best Practices Paper

The just-concluded FATF Plenary has approved the revision of Recommendation 8 on NPOs. This from the FATF Plenary outcome document:

'a misapplication of the FATF Recommendations has had a chilling effect on legitimate and much-needed charitable and humanitarian activities. The FATF’s work to identify and analyse these unintended consequences highlighted that countries often poorly apply the FATF’s risk-based approach....The FATF has clarified its requirements in close consultation with the non-profit sector. The revisions make it clear that Recommendation 8 does not apply to the entire not-for-profit sector, but only to the sub-set that falls within the FATF definition of an NPO. The revised Standard requires countries to identify the types of organisations that fall within the FATF definition, to assess their risks of abuse for terrorist financing and to have in place focused, proportionate and risk-based measures to mitigate these risks. It clarifies the approach for low-risk NPOs and the need for countries to ensure oversight or monitoring, but not go as far as supervising the sector in the same way they would for the financial or non-financial sectors. The revised Recommendation also aims to prevent the undue disruption or discouragement of legitimate charitable activities through the implementation of risk-based measures. It underlines that countries may also consider, where they exist, self-regulatory measures and related internal control measures in place within the NPOs.'

The revised Standard is here (p.13; pp. 60-65; published November 2023). The Global NPO Coalition welcomes the revision of the Standard, which clarifies the application of the risk-based approach, acknowledges sectoral self-regulation measures, and makes clear that NPOs should not be obliged entities.

The Coalition is also cognizant of the fact that while tightening the Standard will likely address some of the unintended consequences that arise from misinterpretation, it will not address the wilful misinterpretation (the 'intended' consequences) of the Standard that we see in many jurisdictions. The Coalition will continue to advocate with the FATF for changes to the FATF methodology and procedures to address this, for more robust training of assessors to be able to call this out, and for other mechanisms that could address the egregious misuse of the Standards (even outside the MER cycle) that have a deleterious impact on the sector.

The FATF Plenary also approved the revised Best Practices Paper on the implementation of Recommendation 8. The new paper reflects the changes made to the Recommendation itself, and aims to assist in its effective implementation. The Coalition wishes to thank all its members that submitted input during the Public Consultation process - much of it has found its way into the final document. At the insistence of the membership, the guidance paper also includes examples of bad practice - so what jurisdictions should NOT do when implementing the provisions of Recommendation 8.
As the FATF notes, the revision of Recommendation 8 and the publication of the revised guidance 'leaves no room for implementation of measures that are not proportionate to the assessed terrorist financing risks and are therefore overly burdensome or restrictive for organisations working in the not-for-profit realm'.

The Global NPO Coalition membership will closely monitor the next round of evaluations to determine the impact of the changes made.