Public-Private Partnership Between the Austrian Ministry of Finance and the NPO Sector

Origins of the PPP

The initiation of the PPP was driven by the request for NPO participation in the Austrian Sectoral Risk Assessment, as part of the country’s preparation for their upcoming FATF Mutual Evaluation. The BMF included representatives from their AML/CFT policy and coordination unit, as well as the more practically oriented unit for fraud prevention.

A broad call was put out for NPO participation. The partnership includes NPO associations and umbrella organizations, including KOO and Global Responsibility, which together represent a large portion of Austrian’s NPOs active in development and humanitarian aid. Prior to the SRA, these NPO associations had already contacted the BMF to discuss issues around sanctions and access to banking, and as such had already began building a relationship.  Although there is a smaller core group of NPO members working more intensively on this, there are various options for NPOs to participate depending on their desired involvement. The umbrella organizations also ensure regular updates to their members on important developments. Having this core group was seen by both parties as being a contributing factor to the success of the PPP, in keeping the workflow on a good pace.

The PPP includes a broad membership, including representatives of the KSW Chamber for tax accountancy and auditors, since these are the primary legal resources utilized by NPOs. In Austria, publicly available tax-deductibility information enabled the filtering of NPOs. Academia also played a significant role in this partnership, providing empirical grounding and analysis for the research component of the SRA.

In establishing the PPP, the BMF drew inspiration from the Dutch example. The Dutch model offered valuable guidance and structure, which was adapted to suit the Austrian context.

Sectoral Risk Assessment

Before the start of the SRA, the NPOs prepared for the questions they would receive and set up a report on the external control mechanisms that NPOs in Austria are subjected to, which the BMF included in the SRA. The results of a questionnaire that was sent to NPOs to fill in to assess their risk for terrorism financing were also included in the SRA. The BMF sent drafts of the SRA for feedback to the NPOs multiple times and at various stages.

Initially, the BMF narrowed down the roughly 135,000 NPOs active in Austria to 1200 NPOs that fell within the FATF definition of charitable organizations and were considered for the risk assessment. However, through desk research, this number was reduced to 450 NPOs with potential exposure to TF risks. These NPOs were asked to complete a questionnaire, ensuring a balance between comprehensive coverage and high-quality data. Despite the significant challenge of having inconsistent access to data for 135,000 NPOs, the focus was successfully narrowed down to 76 NPOs that might potentially face terrorist financing (TF) risks because they are implementing projects in close vicinity of a terrorist threat.

There is a differentiated classification of the overall risk in the SRA. In general, the NPO sector’s risk of being abused for terrorist financing purposes is rated as low. The risk of those NPOs being misused for terrorist financing purposes with projects in identified risk areas (approximately 0.06 % of the sector) is medium if they have certain seals/ accreditations. The risk of NPOs outside these networks for projects in identified risk areas is to be classified as medium to high. This classification concerns only the project scope of the NPOs, which falls within these risk areas. For the other project areas, the risk is to be classified as low. This differentiated classification based on project scope, rather than entire organization is an innovative way to differentiate risk and ensure proportional measures.

This distinction was crucial, as it enabled the authorities to inform obliged entities that more than 99% of the examined sector falls into the low-risk category, while also providing targeted workshops to address the specific needs of the others effectively.

Successes

NPOs have been integral to the PPP, contributing significantly to planning, agenda-setting, and providing input on various initiatives and workstreams. In the SRA specifically, the NPOs played an important role essentially ‘translating’ NPO-world to the BMF by explaining how NPOs work and providing a lot of data and information about quality standards. NPOs helped create a realistic view of the potential risks within the sector and provided constructive feedback on early drafts of surveys. In one example, the recommendations for risk mitigation provided at first were so specific on terrorism financing risk that they did not adequately reflect or fit the sector and the way they work. Through the collaboration the NPO partners were able to show that many of the risk mitigation measures already in place met the same criteria.

Overall, the NPOs were very positive about their collaboration with the BMF, emphasizing appreciation for the iterative process, for being able to give extensive feedback, and for how their concerns and feedback were taken seriously. Where there were differences in perspectives on inclusion or exclusion of a point, there was room for discussion and the BMF provided the NPOs with their reasoning behind it.

To facilitate further communication with NPOs, the BMF has established a dedicated feedback mailbox. This mailbox is not tied to a specific person, but is a general email address, which helps in terms of the sustainability of this action.

Looking to the future

Post-NRA, the NPOs highlighted several priorities that needed further attention. These included the need for seminars and workshops on various topics such as access to banking services, dealing with shrinking operational spaces in certain project countries, international payment transfers, and conducting risk assessments. Addressing these priorities through targeted workshops and focused discussions becomes a key focus of the PPP.

Austrian NPOs have faced de-risking challenges, particularly in their relationships with financial institutions, affecting payment processes. They have reported delays, increased costs, and difficulties with corresponding banks. Larger NPOs, however, often benefit from longstanding ties with financial institutions and dedicated customer representatives who understand their operations.

The identification of de-risking challenges has enabled the implementation of targeted workshops and focused attention on addressing specific needs within the NPO sector. Additionally, NPOs have expressed concerns about perceptions of TF risks from their donors. The SRA classification can potentially facilitate NPOs' access to banking services by lowering the risk profile of NPO’s. This can hopefully also aid in addressing donor concerns regarding TF risks, enhancing confidence in NPO fundraising activities.

Lessons Learned

One big lesson learned is the importance of having an iterative process, and planning for many rounds for feedback – from the very beginning. According to the BMF, one factor that aided in the collaboration was the fact that there was a core group of NPOs that consolidated their input and was able to respond in one voice. For future collaborations, the NPO sector emphasised the importance of being able to have enough time to provide feedback and coordinate processes internally so that the diversity of civil society experiences can adequately be compiled.

A lot of the positive experiences to come out of this process are dependent on the people within the BMF, and therefore it is important that these practices are institutionalized so that the mutual understanding created is not at risk if there is staff turnover at the Ministry. A positive outcome is equally dependent on the resources of the NPO sector and its representatives to coordinate their inputs and compile relevant information to support the process.

Another lesson learned is that there are quite distinct working cultures, between the Ministries, the banks and the NPO sector. The BMF and the banks have historically had a lot of time to better understand each other’s language. For the relationships with NPOs it is important to work on mutual understanding and trust, because misconceptions and preconceived ideas about each other’s sectors can put the PPP in jeopardy.

The establishment of the Public-Private Partnership between the Austrian Ministry of Finance and the NPO sector marks a significant milestone in collaborative efforts to enhance mutual understanding. The lessons learned and successes achieved underscore the importance of inclusive and iterative processes in fostering productive engagement. As the PPP continues to evolve, it hopes to deliver sustained benefits for the NPO sector and the broader financial ecosystem in Austria.

The Austrian NPO Sectoral Risk Assessment can be found here in German, and here in English.