Circular No. 128/2020: Outputs of the Assessment of the Non-Profit Organizations Sector in Palestine

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Circular No. (128 / 2020)
To all banks operating in Palestine
Date: Tuesday, June 16, 2020

Subject: Outputs of the Assessment of the Non-Profit Organizations Sector in Palestine

Building on the Palestinian Monetary Authority's continuous commitment to maintaining financial stability in Palestine and mitigating the risks of money laundering and terrorist financing, and considering that the Non-Profit Organizations sector is, according to international standards and recommendations, a sector susceptible to exploitation in money laundering and terrorist financing activities. This is due to the unique and special characteristics of charitable activities and the nature of the activities conducted by these organizations, which involve collecting funds from multiple sources and then using, transferring, or distributing these funds to other beneficiary entities. As a result of the spread of their activities and branches at the local and international levels, they have become a target of interest worldwide, aiming to penetrate them and exploit the advantages they possess.

In the context of local cooperation and national efforts undertaken to strengthen the anti-money laundering and counter-terrorist financing framework for the Non-Profit Organizations sector in the State of Palestine, a national risk assessment study was recently conducted on two sub-sectors: (the sector of civil bodies and charitable associations, and the sector of non-profit companies). The outputs and results of the national risk assessment for money laundering and terrorist financing in this sector are as follows:

1. The level of money laundering threats in this sector was assessed as "medium," the level of terrorist financing threats as "low-medium," and the level of terrorist financing consequences as "medium-high." The level of vulnerability to money laundering and terrorist financing in this sector was assessed as "high." This included measuring the adequacy of supervisory measures taken to mitigate money laundering and terrorist financing risks. The results indicated the need to enhance supervisory and oversight practices for this sector and direct resources toward the sub-group with high risks.

2. Identification of the sub-group of Non-Profit Organizations most susceptible to exploitation for terrorist financing based on their activities or characteristics, according to the Financial Action Task Force (FATF) definition. This group does not exceed 3% of the total number of Non-Profit Organizations in Palestine. Therefore, not all Non-Profit Organizations can be considered high-risk.

3. Classification of the degree of exposure of Non-Profit Organizations to money laundering and terrorist financing risks (high, medium, low), taking into account classifying those organizations as high-risk if they fall within the group meeting any of the following criteria:

   • Being a branch of a foreign organization whose headquarters is located in a high-risk country or a country under enhanced monitoring in the lists issued by the Financial Monitoring Unit, and/or having branches in those countries.
   • Having financial relationships with high-risk countries, countries under enhanced monitoring, or countries under the process of monitoring compliance with FATF standards.
   • Annual revenues exceeding 100,000 US dollars, and their main activity falls under service activities, as they are organizations primarily working in the field of collecting or distributing funds. This includes programs focusing on housing, social services, education, and healthcare.
   • The bank has filed a suspicious transaction report regarding them to the Financial Monitoring Unit or received an inquiry and information request from competent authorities.

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With the Palestinian Monetary Authority's keenness to maintain the integrity of the Non-Profit Organizations sector and ensure its continuity, and to guarantee that this sector or any of its organizations is not exploited contrary to its fundamental objectives, the Palestinian Monetary Authority emphasizes the necessity to comply with the following measures and controls:

1. Adopting special measures for opening bank accounts for Non-Profit Organizations, ensuring:
   a. Restricting the opening of bank accounts for Non-Profit Organizations to the name and registration number specified in the registration and licensing certificate issued by competent authorities. b. Identifying and verifying the identity of the Non-Profit Organization, the legality of its objectives, its board of directors members, authorized signatories, and its beneficial owner, and enhancing this with necessary documents. Work on classifying money laundering and terrorist financing risks for these organizations.
   c. Not opening more than one primary account for the same Non-Profit Organization at the same bank. A single main account should be opened, from which sub-accounts branch out for each specific activity or project, through which donations are recorded and expenditures are made.
   d. The organization's commitment to using its bank account for all its operations and financial activities. e. Inquiring about the organization's name, board of directors members, and its financial committees against international and local sanctions and freezing lists. f. Linking the authority of signatories to manage the account electronically on the signature screens of the banking system to the validity of the signatories' authority according to letters of appointment issued by competent authorities.

2. Taking the necessary measures and controls for supervising bank accounts of Non-Profit Organizations and the financial transactions executed on them, ensuring:

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a. No overlap between donations and expenditures between sub-accounts dedicated to projects. Additionally, charitable activities must not be conducted under the personal name of any customers, managers, or employees of the Non-Profit Organization. b. Freezing bank accounts and electronically blocking signatures on them immediately upon the expiration of the validity of the authorization of signatories, and/or immediately upon the inclusion of the organization or its signatories on the prevailing sanctions and freezing lists in Palestine.  
c. Directing and encouraging these organizations to reduce reliance on cash. Account funding sources should be via checks, transfers, and incoming money orders. Account usage (expenditure and withdrawal) should be limited to checks issued to the first beneficiary or via outgoing transfers and money orders, while considering cash withdrawals for the purpose of providing petty cash for the organization.  
d. Prohibiting the provision of any electronic services to Non-Profit Organizations that could move accounts, such as credit and debit cards, internet banking, and mobile banking services. e. Prohibiting the execution of financial transfers outside Palestine without the organization obtaining prior permission from the supervisory and competent authority.

3. Exercising enhanced due diligence towards high-risk non-profit organizations, ensuring the identification of the source of funds, the purpose of financial transactions, and the identity of donors and beneficiaries, and obtaining the necessary documents for this purpose.

4. Enhancing the effectiveness of monitoring suspicious activities and transactions of Non-Profit Organizations according to specific scenarios defined in the bank's anti-money laundering and counter-terrorist financing programs.

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5. Emphasizing that non-profit companies obtain the necessary approvals to receive donations, grants, and financing according to the mechanism specified by the Cabinet of Ministers' decision issued for this purpose in 2016.

6. Relying on the available information about civil bodies, charitable associations, and non-profit companies available on the Palestinian Ministry of Interior's website, and on the database of the Ministry of National Economy available to banks, when conducting due diligence and enhanced due diligence procedures for accounts belonging to these organizations.

Supervisory Group
Palestinian Monetary Authority

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www.pma.ps
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