Charity finance policy Fraud

Review: Wolves in Sheep’s Clothing Report - Extremism in Charities

Yesterday the Henry Jackson Society through its Centre for the Response to Radicalisation and Terrorism released a report on “How Islamist Extremists exploit the UK Charitable Sector.” 

The report received coverage in The Times, The Sun and our own sector media.

It is important to state at the outset that we should all oppose terrorists and extremists that try to abuse charities to achieve their goals. However, this report makes some sweeping generalisations and allegations that tarnish the whole sector and it is important to consider these.

Exploitation on a large scale?

Any exploitation of a charity is bad. However, the report starts by claiming that “exploitation of charities persists on a large scale”. Is this true? A quick glance at the Charity Commission’s own compliance report would indicate that it isn’t. Over 2,100 serious incidents were reported to the Charity Commission last year.

Only 19 were related to links to terrorism. Around 0.8% of the total number of serious incidents. In 2016-17, the Charity Commission opened 1664 compliance cases. Of these, 7 were linked to alleged terrorism and extremism – 0.4% of the total. Of the inquiries opened by the Charity Commission, 9 out of 187 were linked to alleged terrorism and extremism – around 5% of the total.

This pales compared with issues around fraud or governance. You could argue that this is because the Charity Commission is not very good at getting this information, and of course, underreporting exists. But this is equally true of areas such as fraud and safeguarding.

So there is no reason why the proportion of these reports related to terrorism would increase if there was much better reporting. Moreover, the data shows that when the Charity Commission does get reports, it takes them very seriously. What this report fails to do is to put the information that it provides into context.

Particularly vulnerable to terrorism/extremism?

The report references the Financial Action Task Force and its recommendations on non-profit organisations. However, it fails to mention that the FATF changed its recommendations in 2016 to say that charities and the wider NPO sector was not “particularly vulnerable” to terrorist financing abuse.

The most recent UK National Risk Assessment has downgraded the risk of charities being abused for money laundering and terrorist financing, from “medium-high” to “low”. This is because the number of proven instances are small compared to the number of registered charities and there are a large number of safeguards in place to protect charities.

Now the Henry Jackson report deals mostly with extremism, but given the reference to the FATF and National Risk Assessments in the report, it is confusing that the report fails to reference the latest information but chooses to use old reports. These give a much more rounded picture of the state of the sector.

Why does this matter?

I am not an expert on counter-terrorism and I am not a lawyer. I am not qualified to comment on the individual allegations and case studies in this report. However, CFG has been engaged with charities on the issues of bank de-risking and sanctions for some years.

Reports like this matter because they create a mood music which makes banks and regulators concerned about the sector. Throwing out generalisations that “exploitation of charities persists on a large scale” can make banks fearful in providing bank accounts to legitimate organisations. This not only creates significant administrative problems for the charities, but most importantly harms legitimate beneficiaries who then suffer because of delays in getting support to them.

The report also makes a number of recommendations which could have wider impacts on the whole sector particularly in getting banks to “disrupt the activity of non-violent extremists” through their “compliance programmes” and other sanctions. The sector has already seen a huge increase in due diligence which is threatening the ability of many charities, particularly small organisations, to keep access to bank accounts.

Given the scale of what we are talking about, this could have a disproportionate impact on legitimate organisations, something that the Financial Action Task Force has raised concerns about in its latest Recommendations on non-profit organisations. The report also calls for more work on preventing the abuse of Gift Aid. This is likely to lead to more paperwork for charities. If charities are legitimate and registered, then they should be able to access Gift Aid. Gift Aid should not be used to regulate or sanction charities, this is what the Charity Commission is supposed to be doing.

Perceived failures in one area should not lead to disproportionate actions being taken into another area. Work to combat extremism and terrorism needs to be proportionate and risk-based – as the Financial Action Task Force recommends. It needs to be targeted at those that are seeking to abuse organisations not blanket approaches which undermine the work of legitimate organisations. Where we can whole-heartedly agree with the Henry Jackson Society is the need for a properly resourced regulator to do this work. More data gathering from banks and the Charity Commission isn’t the most effective way to deal with this.

What is needed are more people in the Charity Commission with expertise and knowledge about charities and extremism/counter terrorism who can act on the information that they are provided with. This will mean a more targeted approach and likely to yield better results than catch all recommendations which will impact the whole sector and undermine its work, which in many cases is contributing to combatting terrorism and extremism. That being said, it is important that reports like this do not end up colouring the vast majority of the sector or lead to knee-jerk policy reactions.

This post was last reviewed on 25 July 2018 at 11:27
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