Meeting on Non-Profit Sector Transparency, Ec, Dg Jls, April 25, 2008

MEETING ON NON-PROFIT SECTOR TRANSPARENCY, EC, DG JLS, APRIL 25, 2008

Introduction

Member States[1], Umbrella Organisations representing the Non-Profit Sector[2] and a think tank[3] were invited to discuss the outcome of a study commissioned by DG Justice, Freedom and Security (JLS) and to propose a possible follow-up. The Matrix Knowledge Group (UK) had to pursue three objectives in the ‘Study to assess the extent of abuse of non-profit organisations for financial criminal purposes at EU level’:

1) Identify the most serious and frequent types of financial criminal activity affecting non-profit organisations (NPOs).

2) Estimate, if possible, the volume and value impact of such offences at the EU level.

3) Identify policy responses that might reduce NPO vulnerability to financial criminal abuse.

Besides the presentation of the study, other external speakers were invited to give their perspective on the issue. In between those moments the participants were invited to give their comments. The NPOs were very vocal during these moments and delivered a substantial contribution to the discussion.

This report will mention the main points that have been raised during the day.

Presentation of study by Matrix Knowledge Group.

While details can be found in the study itself, the recommendations that came out of it are: a periodic victimisation survey, a virtual NPO ‘college’, a proactive media strategy, basic detail registers, training & tools for self-regulation, simple due diligence models, NPO to NPO mentoring. Interestingly, the recommendation to establish lead agencies in every member state was left out.

On the follow-up the message was quite clear: no extra regulation and the questions of what and how it needs to be done have to be answered first. The value of taking action was identified as follows: reduce the risk to reputation, lead on self regulation, prevention not reaction and building on experience. The kind of actions were also identified, although very generic: more collaboration, better information and an answer to the question “who can lead this across Europe (identity and coordination)?”

One could conclude that there is no evidence base for extra regulations and coordination in this field. However, the question remains whether there is no evidence at all or whether there is a lack of accessible information and transparency.

Main points in contributions of external speakers.

Nick Ridley, former Europol officer (UK)

NPOs are vulnerable to abuse by criminals and terrorists. NPOs need to be protected for their own reputation and for general security reasons.
Improved data sharing between member states, improved regulations and easier access to NPOs’ financial activities need to be established.
The EC could play a vital role in this.

Nathalie Laukens, Unit for Financial Processing of Information (Belgium)

Three cases of money laundering and two cases of terrorist financing were discussed
This financial unit has access to many databases in order to fulfil their mission. When international transactions are involved the unit will request information from the country concerned. Criteria and regulations in such processes are confidential. This could mean that sharing confidential financial information with third countries is regular practice without democratic oversight.

Adri Kemps, Centraal Bureau Fondsenwerving / International Committee on Fundraising Organisations (The Netherlands)

It was emphasized that many self regulatory mechanisms are already existing.
The ICFO consists of donors and represents their interests and is as such independent.
Charitable activities and civil engagement are voluntary and private acts of citizens. Therefore, state involvement in those activities should be restricted to an absolute minimum.

David Walker, the Charity Commission for England and Wales (UK)

Since 9/11 the UK has been very quick in regulating the NP sector to tackle financial crime.
The Charity Commission[4] is the regulator of charities in the UK. It is a clear example of a lead agency, mentioned in the recommendations of the study.
The types of criminal activity that the Commission has identified are: 1) financial crime; from petty theft, fraud to suspicions of money laundering, 2) terrorist abuse and support for terrorist activities (actual instances of abuse are rare but completely unacceptable), 3) Abuse of vulnerable beneficiaries e.g. paedophile activity.
The following vulnerabilities of NPOs are identified: 1) High levels of public trust due to voluntary and altruistic nature, 2) Global presence, often in conflict areas – movement of money, goods and people, 3) Complex global financial operations – may use cash and alternative remittance systems, 4) Pass funds to other organisations, 5) Trustees may not exercise sufficient oversight and control.
However, it was also stated that “instances of abuse are relatively small, compared to the size of the sector, but they do happen.”
Considering the risk, one may ask whether this Regulator of Charities is acting proportionately or not. Compliance to new regulations seems to be difficult to manage also (196.000 registered charities).

NPOs reacting on study and initiative in general.

Per Bo, Concord representative / Danish EU – NGO Platform

A very clear message was sent out[5]: our sector has a clear and strong self-interest in preventing misuse for criminal and terrorist purposes. As such, the sector should be consulted more thoroughly, substantially and regularly on this issue. Without a true sense of mutual responsibility and mutual transparency this effort is going to be a waste of time and resources. DG JLS has been lacking in this sense for many years and in doing so it threatens mutual trust. Extra top-down regulations are merely counter productive in this huge and diverse sector.
The following principles, decided upon by the Council of Ministers of Justice (2005), are seen by Concord as fundamental and should be taken as guidelines in this process: 1) Safeguarding the integrity of the NP sector, 2) Dialogue between member states, the NP sector and other stakeholders is essential, 3) member states should continually develop their knowledge of their NP sector, 4) Transparency, accountability and good governance lie at the heart of donor confidence, 5) Risks of terrorist finance are managed best where there are effective, proportionate measures for oversight.
This strong presentation led to an open atmosphere in which many things could be brought forward. The need to talk more thoroughly about how to proceed was made very clear.

ERAN

ERAN made it very clear that many counter terrorism measures are being used only when there’s a sense of mistrust. In effect this means Muslim charities or ethnic minorities (and their organisations) in conflict areas. Most of the time these measures are used in a discriminatory way.

Emmanuelle Faure, EFC

It is not wise to discuss a possible follow-up until we will receive the outcome of the second survey. Firstly, it has to be clear what (self-) regulations exist in every member state.
Applauds the conclusion of the study that extra regulation is premature. Extra regulation would also mean that extra resources are needed (who is going to pay?) for extra administrative burdens.
…

Other remarks[6]

It should be mentioned first that, while many remarks have been made, there is a need to discuss the issue further. That is, to discuss DG JLS’ aim to coordinate regulations that will improve the prevention of abuse and to discuss the stance and concerns of the NP sector.
Subsidiarity: many regulations and self-regulatory mechanisms do already exist at member state level. Many member states do already comply to FATF recommendation VIII.
The NP sector is defined and regulated differently in all member states. Thus, national approaches are needed and most effective.
Funding local organisations in conflict areas, mostly places where aid is much needed and can contribute to peace and reconstruction, becomes more and more risky for European development NGOs.
Proportionality: where is the evidence base to adopt and implement extra regulations? Many national regulations and laws can counter possible abuse already, why adding any extra?
This discourse breathes the atmosphere of suspicion: NPOs are very vulnerable to criminal, and especially, terrorist abuse. However, the evidence base is non existent and the idea of NPOs contributing to stable and healthy societies is not mentioned.
Before any extra steps are being taken, a proposal for a way forward will be drafted by DG JLS. The question remains in what way they will include the remarks by the NP sector[7].

Conclusive remarks

Following the FATF recommendation VIII the European Commission wrote a communication to the Council, the European Parliament and the European economic and social committee: the prevention of and fight against terrorist financing through enhanced national level coordination and greater transparency of the non-profit sector (November 2005). Especially the UK has put pressure on other member states to work this out. This meeting, however, showed again that many member states want to regulate, or let their NP sector regulate itself, when complying to the FATF. Currently, DG JLS has to manoeuvre between the unwilling states, the willing and the European NP sector. Its progress has been accordingly slow. While their communication has been approved by the Council in the aftermath of terrorist attacks (Madrid and London), the execution of it seems quite difficult. This may seem like a deadlock, but other ways to comply with this communication are possible. Another attack on European soil could even boost this process. In short, a continuing monitoring and participation from the NP sector is necessary in this discourse. The current stance and ambitions of DG JLS are quite unclear.

We will try to send a written statement to all participants (especially the member states), may be you could join us in signing this statement.

G.Y. Vellenga

Consultant for Cordaid

counter terrorism measures and its impact on civil society

+32 475 78 2661

+31 645 27 2619

28 Boulevard Charlemagne, B-1000, Brussels

ANNEX I

Meeting on non-profit sector transparency.

Friday, 25. April 2008.

CONCORD intervention.

Thank you for the invitation to participate in this meeting with a presentation of the Matrix study (on assessing the extent of abuse of non-profit organisations for financial criminal purposes at EU-level)

My name is Per Bo and I speak on behalf of CONCORD, which is the European confederation of relief and development NGOs.

The issue that the report deals with is important but not new. As mentioned in the invitation the Commission addressed the issue in 2005. During the second half of 2005 there had been a discussion on a proposal regarding a Code of Conduct for Non-profit Organisationsto Promote Transparency and Accountability Best Practices

The process showed that the Commission lacked knowledge of the NP-sector and how it operated.

However it lead to a meeting the 22nd of November 2005 between the Commissioner and the Civil Society Contact Group (CSCG) and led to at least one good result.

The Ministers of Justice on their December meeting agreed on five principles on dealing with the NPO sector:

Safeguarding the integrity of the non-profit sector is a shared responsibility of states and non-profit organisations.
Dialogue between MemberStates, the non-profit sector and other relevant stakeholders is essential to build robust defences against terrorist finance.
Member States should continually develop their knowledge of their non-profit sector, its activities and vulnerabilities.
Transparency, accountability and good governance lie at the heart of donor confidence and probity in the non-profit sector.
Risks of terrorist finance are managed best where there are effective, proportionate measures for oversight.

We considered and still consider those five principles as a good basis for cooperation between the EC, the member states and the NP sector.

Further the Commission informed the ministers that it would continue the consultation process through

the setting up of an informal contact group and
would organize a conference in the first semester of 2006.

It was as if it opened up for a new positive and constructive dialogue.

If we are a little skeptical today the reason is that the Commission has not lived up to its promises.

The informal contact group has not been set up and the conference has not been held.

Reminders have been sent but nothing has happened some reminders have not even been answered.

And have the Commission lived up to the five principles ?

Unfortunately it has not.

For instance this report that we are to discuss today is not a result of a dialogue between the NPO-sector and the Commission, but a unilateral initiative by the commission.

It has not been a dialogue, but a monologue.
That is very unfortunate as Dialogue - as it is correctly stated in the justice-ministers´ second principle - is essential to build robust defences against terrorist finance.

We have a self-interest in preventing that our sector is not misused/exploited for terrorist purposes. At the same time we are the ones that best know how the NP-sector functions.

I could also elaborate in relation to the other four principles, but let me now turn to the Matrix report at hand.

Let me start saying that in general I agree with many of the observations, conclusions and also recommendations in the report. In other words we feel that the report can constitute a good basis for further collaboration between the EC and NPOs.

When you read a report it is important to see

what is dealt with in the report, but also
what is not dealt with maybe omitted.

Let me begin with the last point, because I agree with much of what is mentioned in the report.

Why are the principles agreed by the ministers of Justice in December 2005 not explicitly mentioned ?

Why are the non-fulfillment of the promises of forming an informal contact group and having an expert conference in the first half of 2006 not mentioned ?

Why is there no criticism on how DG-Justice have followed-up on those recommendations ?

Why is that not part of the background information ?

Is it so that those who pay the music also decide the melody ?

I feel that we have missed valuable time. Actually nearly two years.

Another problem is the narrow focus, which means that the potential negativesideeffects of some measures are not considered.

Coherence between the various policies of the EU has to be taken into consideration.

Let me take one example:

It is well known that that a number of developing countries have authoritarian governments for whom a detailed knowledge of what critical Civil Society Organizations are doing would be their highest wish. When we ask for information we have to consider that aspect.

We are concerned that we do not bring those CSOs who are fighting for Human Rights and Democracy at risk!

The report draws several conclusions. Time does not allow to comment on all of them. I would like to highlight two important conclusions:

1.that “if the available information is to be believed, the incidence and prevalence of NPO financial abuse in the EU are limited”

2.that “there is a general agreement that NPO employees and volunteers are best placed to expose fraud and corrupt practices”

I should also like to comment on the notion “available” information.

Because that reminds me of the story, I heard about a man searching for something under a lamppost. Another man comes up to him and asks him “What are you looking for ?” “My key”. Then the second man asks “Did you miss it here ?” “No, but it is the only place where there is light!”

I think it is important to notice that abuse does not seem to be a big problem, but on the other hand the best to enlighten you are the NPOs.

One should think that that observation would also be the point of departure when presenting recommendations. But it is not.

It is a paternalistic approach: The first recommendation is saying “the EC should consider setting up a victim survey….”

The first recommendation – and the point of departure – in my opinion should be recommendation number three:

“NPO representatives and officials should be coming together at the national and at the EU levels to swap information and good practices and build up the expertise necessary to protect their particular areas”.

Time does not allow that I comment on all conclusions and recommendations, but let me repeat that we have a selfinterest that our organisations are not misused and that we are positive towards several of the recommendations while we are sceptical to others.

The first step is to build trust between the EC, the governments and the NPOs.

With that point of departure let me finish up with some concrete proposals.

Let us form a contact group.

The group should in more detail analyze and discuss the

recommendations.

The group will exchange information of common interest.

The group could discuss and recommend initiatives in the field