Why the nonprofit sector needs stronger financial controls without becoming a target of indiscriminate de-risking

A charity receives a donation.

The funds are transferred to another country.

A local partner withdraws cash.

A project contractor receives payment.

Another transfer is made to a community organisation.

On the surface, nothing necessarily appears unusual.

This may simply be how an international humanitarian or development project operates.

But what happens when the same infrastructure is exploited to conceal the proceeds of corruption, move illicit funds across borders or finance criminal or terrorist activity?

That is where the AML/CFT challenge begins.

The nonprofit sector plays an essential role across Africa. NGOs and other civil society organisations provide humanitarian assistance, healthcare, education, development programmes and support to vulnerable communities, often operating in areas where government capacity is limited.

But legitimate activity should not be confused with zero risk.

The real challenge for financial institutions and regulators is to identify where genuine nonprofit activity intersects with financial crime risk without treating the entire sector as suspicious.

NGOs are not inherently high-risk

This is the starting point for a sensible AML/CFT approach.

The existence of an NGO does not automatically create a money-laundering or terrorist-financing risk.

FATF’s revised Recommendation 8 specifically emphasises a risk-based approach. Countries should identify which organisations fall within the relevant FATF definition of NPOs, assess the risks they face and apply focused and proportionate measures. FATF also warns that disproportionate implementation can disrupt legitimate organisations and contribute to financial exclusion.

That distinction matters enormously in Africa.

An international humanitarian organisation distributing medical supplies is fundamentally different from an opaque organisation receiving unexplained international transfers and operating through undisclosed beneficiaries.

A small community NGO working locally is different from an organisation moving substantial funds through multiple jurisdictions.

The question should therefore not be:

“Is this an NGO?”

It should be:

“What are the specific risks associated with this NGO’s activities, funding, governance and financial flows?”

Why NGOs can become attractive to criminals

The same characteristics that make NGOs valuable can create vulnerabilities.

NGOs can:

Receive donations;
Manage significant financial resources;
Operate internationally;
Work in high-risk or conflict-affected areas;
Make cross-border payments;
Use local partners;
Employ contractors;
Distribute cash or goods;
Operate through banking and payment systems.

These activities are legitimate.

But they can also create opportunities for abuse.

FATF has long recognised that terrorist organisations can attempt to exploit legitimate NPOs, create organisations that appear legitimate or divert funds intended for legitimate purposes.

This is why the AML/CFT risk should be assessed according to exposure and vulnerabilities, rather than the NGO label itself.

The corruption connection

One of the most interesting risks in Africa is the intersection between NGOs and corruption proceeds.

Corruption generates illicit money.

But the person receiving the proceeds still needs to spend, transfer or disguise them.

The laundering process can involve:

Public funds → shell company → contractor → intermediary → NGO/charity-related structure → personal benefit

This does not mean NGOs are commonly used in this way.

It means that the nonprofit structure can potentially become one component in a broader network.

For example, an organisation could theoretically be controlled by individuals connected to a politically exposed person (PEP), receive funds from government contracts or donors and then make payments to companies connected to insiders.

The AML question is therefore not simply whether the NGO exists.

It is:

Who controls it?

Who funds it?

Who receives its money?

Who benefits economically?

PEP exposure deserves particular attention

Africa contains significant political, governmental and state-owned enterprise activity.

An NGO may legitimately work with government officials or receive government funding.

That alone should not make it suspicious.

However, relationships involving politically exposed persons can justify additional scrutiny where the overall risk profile warrants it.

Financial institutions should consider:

Directors and trustees;
Senior management;
Major donors;
Beneficial owners where applicable;
Related companies;
Key contractors;
Significant beneficiaries;
Government relationships.

The key issue is not simply:

“Is there a PEP?”

It is:

“Does the PEP relationship create a plausible corruption, bribery or misuse-of-funds risk?”

That is a much more useful AML question.

Cross-border activity creates additional complexity

African NGOs frequently operate across borders.

A regional organisation might receive funding in Europe, maintain a bank account in one country, operate projects in another and pay suppliers in a third.

This creates legitimate cross-border financial flows.

But it also creates additional AML/CFT complexity.

A bank monitoring a transaction may see:

European donor → NGO account → African subsidiary → local partner → cash withdrawal

Without sufficient context, this can look unusual.

With appropriate documentation, it may be completely legitimate.

This is why transaction context matters.

Financial institutions should understand:

The NGO’s mission;
Countries of operation;
Funding model;
Typical transaction volumes;
Project locations;
Expected beneficiaries;
Local partners;
Payment structures.

A transaction should be assessed against that profile.

Cash remains an important risk factor

Cash is not inherently suspicious.

In some African environments, however, cash remains an important part of economic activity.

An NGO working in remote communities may legitimately need cash to pay local workers, purchase supplies or distribute assistance.

But substantial unexplained cash activity can create difficulties for AML monitoring.

Potential questions include:

Why was cash required?
Who received it?
Was there documentation?
Was the payment consistent with the project?
Who authorised it?
Was there appropriate segregation of duties?
Can the NGO demonstrate how the money was ultimately used?

The answer should not automatically be:

Cash = suspicious.

Instead:

Cash + unexplained purpose + weak controls + unusual counterparties = potentially elevated risk.

NGOs and the risk of third-party organisations

Another vulnerability is the use of local partners.

International organisations may work with:

Local NGOs;
Community organisations;
Contractors;
Foundations;
Religious organisations;
Social enterprises;
Informal community structures.

These partnerships can be essential to delivering programmes.

But they also create a third-party risk.

The donor organisation may have limited visibility over:

Ownership;
Governance;
Financial controls;
Beneficiaries;
Subcontractors;
Ultimate use of funds.

This is where proportionate due diligence becomes important.

The objective is not to create impossible compliance requirements for small community organisations.

It is to understand who the partner is and how funds will move.

Beneficial ownership can become difficult

NGOs do not always have conventional corporate ownership structures.

That can complicate the traditional AML concept of beneficial ownership.

Instead of asking only:

“Who owns this organisation?”

a financial institution may need to understand:

Who controls the organisation?
Who appoints directors?
Who can authorise payments?
Who controls bank accounts?
Who has significant influence?
Who controls related entities?
Who ultimately benefits from the organisation’s activities?

This is particularly important when an NGO has complex relationships with commercial entities.

The danger of using AML controls as a blunt instrument

There is an important lesson from FATF’s work on NPOs.

AML/CFT controls can themselves create unintended consequences.

FATF revised Recommendation 8 after identifying cases where incorrect implementation had resulted in disproportionate measures against legitimate NPOs, affecting their ability to access financial services and continue their work.

This is particularly relevant in Africa.

If banks simply decide:

“NGOs are too risky.”

they may begin closing accounts or refusing relationships.

This is known as de-risking.

The problem is that financial exclusion does not necessarily eliminate financial crime.

It can instead push legitimate organisations toward:

Cash;
Informal financial channels;
Alternative payment providers;
Less transparent intermediaries.

The result could actually be less visibility.

What should financial institutions look for?

There is no single indicator that proves an NGO is being abused.

Instead, institutions should consider combinations of risk indicators.

1. Unexplained international transfers

Funds moving to or from jurisdictions with no obvious connection to the NGO’s operations.

2. Unusual donor activity

Large donations inconsistent with the organisation’s stated mission or previous funding.

3. Complex ownership or control

Individuals with unclear or opaque relationships controlling the organisation.

4. PEP connections

Significant relationships with politically exposed persons that create unexplained financial exposure.

5. Related-party transactions

Payments to companies connected to directors, trustees or senior officials.

6. Unusual cash activity

Cash withdrawals inconsistent with the NGO’s operational profile.

7. Rapid movement of funds

Funds received and transferred quickly through multiple counterparties.

8. Unclear beneficiaries

Payments where the ultimate recipient cannot be reasonably identified.

9. Weak documentation

Invoices, contracts or project documentation that cannot adequately explain significant transactions.

10. Geographic inconsistencies

Financial activity occurring in countries where the organisation has no apparent operational presence.

Again, none of these indicators should be applied mechanically.

The combination and context matter.

Technology can help — but context remains essential

Modern AML systems can identify unusual behaviour through:

Transaction monitoring;
Network analysis;
Sanctions screening;
PEP screening;
Adverse media;
Beneficial ownership data;
Geographic analysis.

For example, a network-analysis system might identify that several organisations are sending funds to the same contractor.

That could indicate legitimate procurement.

Or it could reveal a relationship requiring investigation.

Technology identifies the connection.

Human investigation explains it.

This is especially important in Africa, where legitimate economic and financial activity may not always fit assumptions developed in highly formalised financial markets.

The role of NGOs themselves

The responsibility does not sit exclusively with banks and regulators.

NGOs can strengthen their own resilience through:

Strong governance

Clearly defined responsibilities for directors, trustees and senior management.

Financial controls

Segregation of duties, approval processes and appropriate reconciliation.

Donor due diligence

Understanding significant donors and funding sources.

Partner due diligence

Knowing local implementing partners and contractors.

Record keeping

Maintaining appropriate documentation supporting transactions.

Staff training

Ensuring employees understand fraud, corruption and financial crime risks.

Whistleblowing mechanisms

Creating safe channels to report suspected misconduct.

These measures do not need to transform every NGO into a bank.

They need to be proportionate to the organisation’s size, activities and risk profile.

Africa needs stronger cooperation

Corruption and money laundering rarely stop at national borders.

Transparency International’s work on AML in Africa has highlighted the importance of stronger financial-crime capabilities across countries including Côte d’Ivoire, Ghana, Guinea, Liberia, Nigeria, Senegal and Sierra Leone.

More recently, Transparency International has also emphasised the role of Financial Intelligence Units in exposing corrupt money flows and the importance of adequate powers, resources and access to information.

This is particularly relevant when NGO-related financial flows cross jurisdictions.

Effective prevention requires cooperation between:

FIUs

Banks

Regulators

Law enforcement

Tax authorities

NGOs

Donors

and, where appropriate, international counterparts.

The NGO should not become the AML scapegoat

There is a broader lesson here.

NGOs operate in some of the most financially and socially complex environments in Africa.

They may work in communities affected by poverty, conflict, displacement and weak infrastructure.

Their financial activity can therefore look unusual even when it is legitimate.

A risk-based AML framework must recognise this.

The question is not whether an NGO’s activity looks different from that of a normal corporate customer.

It almost certainly will.

The question is whether the activity is reasonable given the organisation’s mission, funding model, geographic footprint and operating environment.

Final Thoughts

NGOs are essential to Africa’s development.

They deliver humanitarian assistance, strengthen communities and often provide services where governments and markets cannot.

But legitimate purpose does not eliminate financial crime risk.

Corruption, fraud, terrorist financing and money laundering can exploit almost any financial infrastructure.

The answer, however, is not to treat the entire nonprofit sector as high-risk.

FATF’s revised approach is clear: countries should identify the organisations and activities presenting relevant terrorist-financing risks and apply focused, proportionate and risk-based measures.

For financial institutions, this means moving beyond simple customer classification.

Instead of asking:

“Is this an NGO?”

ask:

“What does this organisation do?”

“Where does its money come from?”

“Where does it go?”

“Who controls it?”

“Who ultimately benefits?”

“Does the financial activity make sense given its mission?”

And perhaps most importantly:

“What is the actual risk rather than the perceived risk?”

Because effective AML/CFT controls should protect the financial system without preventing legitimate organisations from reaching the communities they exist to serve.

In Africa, that balance will be critical.

The objective should not be to make NGO banking impossible.

It should be to make financial crime difficult while keeping legitimate humanitarian and development activity possible.

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NGOs, Corruption, and AML/CFT Risks in Africa: A Risk-Based Perspective