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Non-Governmental Organizations: The Other Side of the Coin

By: Hany Abou-El-Fotouh

Non-governmental organizations (NGOs), including charities originally were formed to provide aid togroups in the community that need assistance; and most are legitimate channels to help people in need or

support a noble cause. However, some NGOs are frauds, which have been created to take advantage of theneedy and the generous. Some misuse donors' funds to serve political agendas.

Some charities have been used for terrorist financing. After the attacks on September 11 2001, charitiescame under global scrutiny. For example, in February 2004, the assets of Al Haramain Foundation's(AHF) branch in Oregon were blocked because, according to International Narcotics Control StrategyReport of 2005, individuals connected with AHF appear to have concealed the movement of more than$100,000 to Chechen mujahideen.

It is common that international donors choose to channel the aid via NGOs instead of the governmentdirectly. The biggest risk is that some recipient NGOs misuse the donors' funds and fail to account for themoney to the government. Under the country's laws, NGOs are required to register with the competentgovernmental authority, and account for their activities. The laws aim to ensure transparency in the NGOsector, and guard against foreign political interference via NGOs.

Whilst international funding has considerably increased the resources available to NGOs, it obviouslyposes problems of its own. Foreign donations can raise questions about the credibility of an NGOsactivities: if foreign donors are providing money for an NGO, might they be dictating its goals as well?

How NGOs raise funds

NGOs rely on several methods to collect funds for philanthropic, humanitarian, educational ordevelopment purposes. Most rely on a variety of income sources that can include public support;

government funding; local and foreign private foundations grants, foreign governmental grants, or feescollected for services they provide to members.There are several solicitation methods, which include mandatory religious donations. The methods mayvary depending on if solicitation targets individuals, organizations or the corporate sector. NGOs andcharitable organizations can raise funds in many different ways. Examples of most poplar solicitationtechniques are:

-Fundraising events, i.e., raffles, and marathons/races-Direct in-person requests-Direct mail or telephone solicitation requests-Newspaper and magazine advertisement-Sales of tickets to special events or sales of products

Part of these funds have been and are vulnerable to being diverted to terrorist networks or political groups,often without the donor's knowledge. The additional fear is that the funds might be diverted to private

pockets.

NGOs and misuse of funds

There are doubts that wide ranging frauds some NGOs have been stealing the funds meant to help the pooror save the lives of the afflicted. Several prevalent malpractices include NGOs illegally transfer donatedfunds for their declared activities to foreign accounts abroad and later refund the money in local currency,huge extra budgetary expenditures, lack of transparency in the NGO's procurement management process ,undocumented expenditures, overstating expenses by creating fake bills, inflating employee expenses,

misrepresenting field activities and misreporting the financial status to donors.

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Thus, heartless and greedy individuals and groups fritter the donated money away into private pockets.Not only that, with or without the knowledge of donors, NGOs sometimes direct donated funds to servepolitical or social agendas. Evil NGOs might use foreign funds to incite the public sentiments and stageprotests against government policies leading to political unrest in various parts of the country.

It is galling, indeed, to think that while some kind-hearted donors are making sacrifices, denying

themselves some luxuries in order to help the poor or support a noble cause, some depraved individualsare turning themselves into desperate parasites, feeding fat on the blood of the people they are supposed to

protect. Worst of all, their political agenda could endanger the country's safety and security.

Weeding out ill-intentioned NGOs from the good is a difficult task. That is why governments andindividuals must join hands clamping fraud, terrorist financing and attempts to cause political unrest.

How financial institutions can Know Your NGO.

Financial institutions must carry out enhanced due diligence on the accounts of NGOs and charitableorganizations in particular. Senior management must approve the relationship, and all should keep in mindthat the risk level is high. A representative of the bank should visit the premises of the charitable

organization and prepare a visit report. The report should include details such as:

-The organization's legal type, license of activity, source of capital (if applicable), number of employees,years established, years at present location, nature of activity, geographical location of activity etc.-Details about owners/directors and their powers-Check if a Politically Exposed Person (PEP) or a connected individual partly or fully owns the NGO.-Check if the NGO is authorized to accept donations locally or overseas.

It is crucial for financial institutions to subject the accounts of NGOs to close monitoring in order torecognize the `indicators' or "red flags" that call for further scrutiny. Some of the indicators are listed

below:

-Corporate layering: transfers between bank accounts of NGOs and directors or staff of the NGO for noclear reason-Wire transfers by an NGO to beneficiaries located in countries known to be bank or tax havens for noclean reason-Transactions with no logical economic purpose (no link between the activity of the NGO and other

parties involved in the transaction)

Donors should be careful as well.

Several NGOs have carried out good work. However, the huge number and ease of foreign donations haveresulted in the emergence of several fake organizations with a motive to siphon off easy money in the

name of development. The NGO sector is most vulnerable to fraud and criminal practices, including thepotential for misuse for the purposes of money laundering and terrorist financing.

As a donor, you should have some answers before you give money. Questions frequently askedare "How do I know that this NGO is legitimate?" and "Where does this money go once I make adonation?" The following tips are designed to help you know whether an NGO is genuine andhow to avoid being victimized by an organization that is not legitimate or that may misuse thedonated money without your knowledge:

Do not give cash to strangers. You do not know if that person would use your hard-earnedmoney for the charitable purpose or divert it elsewhere.

-Do your homework. Take the time to learn about the NGO you support or considering supporting. Askfor literature and read it. Tell the solicitor that you would like to do some research on the charity. Read

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and understand everything before you make a decision. Ask questions e.g. ask where and how yourcontribution will be used.

Dont be deceived by a convincing name. A fake or dishonest NGO will often have an impressive name,or one that looks like the name of a reputable, legitimate NGO.

-Dont let pressure win. Dont surrender to pressure and feel that you must contribute on the spot.Legitimate organization will not expect you to donate instantly. Remember, you can say no.

-Don't pay cash. Once you have a satisfactory answer to all your questions, you can make all donationsby check to the charitable organization or by credit card. But beware! Do not give your credit card numberto someone you do not know.

Governments should provide adequate oversight on NGOs

Likewise, government authorities should strengthen their oversight on NOGs. Some measures include:

-Carry out background checks on the NGOs;

-Create a whistle-blower mechanism and a fraud response plan for any unethical behavior noticed byindividuals affiliated or working with NGOs;-Carry out periodical training to ensure best ethical practices;-Carry out preliminary risk audits,-Handhold the NGOs by bringing transparency into their day-to-day affairs and get their accounts andoperations periodically audited by independent experts.

Donating to NGOs is a way to support the needy during these troubled times or to support a noble andlegitimate cause. Sadly, there are some people ready to take advantage of donors kindness. Therefore,individual and corporate donors must do their homework before donating the hard-earned money andreasonably take all measures to ensure that the money does not fall in the wrong hands. Needless tomention, governments must exercise adequate oversight over NGOs.

About The Author:

Hany Abou-El-Fotouh is Chief of Staff & Group Board Secretary, CI Capital Holding - the investmentbanking arm of Commercial International Bank which is the largest private bank in Egypt . He providesadvice and direction to the Board and management with respect to corporate governance practices andformulates corporate policies.

Hany is a leading expert on money laundering and terrorist financing controls in the MENA region.Founder of the Middle East Compliance Officers' Forum (MECOF), he has been honored for his work in

promoting compliance culture and awareness in the MENA region. He was also voted as Corporate

Governance Officer of the Year (2011).

Hany writes articles to different newspapers and journals on a variety of subjects. He is a public speakerand professional trainer. Previously, he worked in various senior positions in leading banks in Egypt andGCC countries like HSBC, Oman International Bank, Banque Saudi Fransi among others.

Hany is a certified member of the Association of Certified Anti-Money Laundering Specialists (ACAMS)and Certified Director by Egyptian Institute of Directors.

http://www.linkedin.com/in/ hanyfotouhhanyfotouh@yahoo.com

NGOs, charities, charity, donors, donations, fundraising, hany abou el fotouh, terrorist financing,political agenda, nonprofit

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