Proverbs 9:10 The fear of the Lord is the beginning of wisdom, and the knowledge of the Holy One is understanding.
There has been a lot of discussion in recent weeks around the Non-Profit Organizations Act. The concern you are hearing from churches is real and it ties directly to how FATF Recommendation 8 is being interpreted.
The Financial Action Task Force (FATF) organized by the G7 in 1989, is the international standard-setting body for anti-money laundering (AML), countering of the financing of terrorism (CFT), and countering proliferation financing (CPF). It is composed of 39 member countries with nine FATF-Style Regional Bodies that, together with the FATF, can claim almost every country in the world as a member.
The revised Recommendation 8 and its Interpretive note require countries to protect NPOs from terrorist financing (TF) abuse.
It is important to note that it does NOT require blanket registration of all churches, in fact what it suggests is that countries should apply targeted, proportionate, risk-based measures to NPOs that have been identified as vulnerable, not to the entire sector. Similarly, it warns that over-regulation is “antithetical to our Standards” and that measures should not disrupt legitimate charitable activities. It also says banks should not view NPOs as high risk just because they handle cash.
The advancing of this act by the Government of the day is a response that has been brought to bear as the country was on the FATF grey list until 2024. To stay compliant, the Charities Act 2013 and the Charities Regulations 2022 were amended to show oversight of NPOs.
Notwithstanding, the discussion around the act, lets consider why churches are generally assessed as low risk for money laundering/terrorist financing. There are four (4) main categories for which churches in Jamaica typically score low-
- Source of Funding – Tithes and offerings are small, domestic, cash-based, from known congregants. Not cross border wire transfers from high-risk jurisdictions. The FATF high-risk red flag is foreign funding from or to conflict zones.
- Activity – Funds received are generally disbursed locally for rental, utilities, welfare, and not for overseas humanitarian work where diversion is easier. FATF’s 102 case studies of abuse were almost all sham charities or large international relief NPOs, not local houses of worship.
- Organization Structure: Membership-based, with board minutes, long-standing community presence. Not the opaque, director-controlled structure used to layer money.
- Generally, donations are low value and not anonymous in practice, its traceable in terms of source of funds. Laundering needs placement of large unexplained cash.
Notwithstanding the latter, the risk is not zero. Any cash intensive entity can be abused, but the risk-based approach says you focus supervision on higher-risk NPOs, not blanket regulation.
Some other factors to be considered that will affect the church if this mandatory registration as a charity is implemented for which smaller churches will be impacted.
Once a church registers under the Charities Act, there will be ongoing obligations under the Department of Co-operatives and Friendly Societies (DCFS). These include –
- Business Set-up/ One-time costs
- Incorporation as Company Limited by Guarantee (COJ): average cost J$24,000 – J$35,000
- Constitution that meets Charities Regulations 2022 requirements – most small churches need a lawyer: average cost J$50k-150k
- Fit and proper questionnaire and JP certified photos for all board members
- TCC and TRN
- Recurring annual costs
- Mandatory audit by a Registered Public Accountant is required every year, and new auditor every 5 years. Even for a very small charity, market rate in Jamaica average J$150,000 – J$350,000 per year. For comparison, a medium international charity in Jamaica reported J$1.2 million in one year just to prepare and file reports.
- Three documents due within 3 months of financial year-end:* audited financials, auditor’s report, auditor’s report on use of donation monies.
For example, for a church with 30 members collecting J$80,000 per month in tithes, an annual audit fee of J$200,000 is 20% of its annual income. That is consistent with what Caribbean Council for Ethical and Financial Accountability (CCEFA) told the Jamaica Observer: “Most churches are having difficulty becoming compliant because of all that is required; most churches and ministries don’t have the resources”.
- Compliance officer, donor ID verification, 7-year record keeping, receipt for every donation, fundraising plan, annual report.
- Failure to implement protective measures could lead to fine up to J$1 million on summary conviction.
In summary the Government is faced with the dilemma of demonstrating to FATF that all NPOs that raise funds are registered and supervised, otherwise risk de-listing. The Charities Act requires any entity receiving donations to be registered. How will the Government be guided not to treat entire NPO sector as high risk and to avoid unintended consequences.