Why Non-Profit Organizations Need AML Focused Wealth Screening

USA Giving has shared their survey from 2023 on individuals, foundations, bequests, and corporate donations. Here, individuals donated approximately $374.4 billion, almost 67%, up 1.6% from 2022. Foundations followed with $103.5 billion, which is about 19%, a 1.7% increase. Bequests added $42.7 billion, almost 8%, while corporate donations rose 3% to $36.6 billion, which accounts for about 7%.

These figures show how a small group of philanthropic entities had nudged the majority of donations. However, Non-profit organizations are unaware of the hidden risks within these contributions. Even regulatory bodies like the Financial Action Task Force (FATF) have also highlighted money launderers and terrorist financiers manipulating this charitable sector in its FATF Recommendation 8.

Here, FATF has recommended that countries review its laws and regulations to ensure that they do not provide funds to a terrorist organization. This makes it essential for the NPOs to not only check the donation size but also to evaluate the actual source of funds and the authenticity of their donors.

In line with FATF recommendations, many countries are required to apply a risk-based approach against any kind of misuse. However, some regulators, such as the UK Charities Commission in UK,  have their own national standards requiring NPOs to implement donor due diligence. Wealth Screening for NPOs acts as an adhesive between raw donor data and actionable fundraising intelligence. By enabling NPOs to identify the high-capacity donors and ensuring their funds come from legitimate sources, wealth screening saves them from consequences like penalties and outright bans.

Let’s discuss in detail how wealth screening has become a need for the NPOs and what kind of systems they should use to perform an effective identification of their donors.

Why is there a Need for Wealth Screening in Non-Profit Organizations?

NPO Wealth screening is essential for non-profit organizations as it helps them develop more effective fundraising strategies and strengthen their relationship with supporters by mitigating money laundering and reputational risks.

Here are a few points that explain this factor in detail:

Identify High-Value Donors

Wealth screening assists non-profit organizations in detecting prospects most likely to contribute from thousands of potential donors who have genuine funds. This is actually a sticking point for the fundraisers, as finding donors and seeking a supporter who really has legitimate contributions are two different propositions.

To figure out the right one that aligns with business goals and complies with evolving regulatory standards, wealth screening is a must-have.

Streamline Donor Identification

Looking for donors without following a systematic wealth screening process is quite a lengthy and risky process, as non-profit leaders come across thousands of donor profiles, and there are lots of them involved in shady activities. To streamline the donor identification process and flag the potential dangers before they actually cause damage, wealth screening plays a great role. It finds the diamonds in the rough and saves time spent on false positives.

Secure Donations

Effective wealth screening not only improves the fundraising potential for a non-profit organization by offering them matches that are willing to give large gifts on a gentle nudge, but it also performs due diligence checks on every donation to ensure safe contributions.

This act protects the organizations from future audits and fines.

Risk Indicators in Wealth Screening

Here is a list of some red flags that the NPOs must be aware of in terms of selecting the right donor that can both save their organization’s reputation and help them grow. These risk indicators are:

• If a donor has real estate holdings, such as estates or commercial real estate, then there are chances of opaque ownership structures that need to be traced in the early stages.
• A donor with a significant portfolio of stocks, especially in expanding markets, can be a red flag because of its excessive investments. Therefore, it is mandatory to check whether the payments are associated with an entity from a high-risk jurisdiction or industry.
• If a contributor has involvement in prominent business ventures, either through leadership roles or ownership stakes, it can require enhanced due diligence under AML frameworks.
• Political donations can reflect influence and can signal PEP status that demands additional screening.

By getting aware of these red flags, non-profit organizations can create complete profiles of their potential donors, which offers them a foundation for both effective fundraising and risk-based AML compliance.

How NPOs Screen the Donors Existing in the High-Risk Jurisdictions?

In the FATF’s report “Best Practices on Combating the Abuse of Non-Profit Organizations (Recommendation 8)”, practical screening measures are clearly explained that NPOs must take into account if they have a donor from a high-risk or conflict jurisdiction. These practices will help the NPOs in preventing their funds from being diverted for terrorist or illicit purposes. These key measures are:

• Organizations working in conflict areas must check whether their partners and donors are connected with the terrorist groups and human rights violators.
• It is necessary for the accountants working in NPOs to perform comprehensive background checks using Interpol, FATF, the U.S. Treasury and OFAC sanctions list.
• Non-profit organizations must also share their donor information with other NPOs to check if they know something suspicious or illegal about the particular contributor.

What’s More Challenging for the Non-Profit Organization in Donor Screening?

While wealth screening identifies the donors that align with the organization’s mission, it also presents several challenges. Some of the key sticking points for them are:

Misidentification of the Donor Due to Inaccurate Information

Data accuracy can be a challenge for non-profit organizations, as they are not sure of whether the publicly available data they are using is accurate or not. For these reasons, they usually end up being puzzled, leading to potential misidentification of donor capacity that leads to compliance exposure.

Lack of Transparency on Public Sources

When a non-profit organization collects data from public sources, it can lead to concerns of ethical and legal considerations regarding transparency and donor trust.

Enhanced Due Diligence Without Specialized Tools

Conducting comprehensive Enhanced Due Diligence (EDD) in wealth screenings can be time-consuming if done without automation. Furthermore, there are chances that may require specialized tools or expertise.

Overreliance on Financial Capacity

If a company overrelies on financial capacity, it may overlook other important factors, such as a donor’s legitimacy or past criminal history.

What Kind of Systems Should a Non-Profit Organization Choose for an Effective Wealth Screening?

In the evolving landscape of donor screening, non-profit organizations can gain an advantage from technologies that combine wealth screening with anti-money laundering (AML) due diligence. Integrating AML compliance helps the fundraisers ensure that donations are coming from authentic sources. Here are a few considerations that are must-have features in a donor screening system:

• Fundraisers should seek a solution that offers thorough screening processes to ensure that potential donors are vetted against global watchlists, sanctions lists, PEP databases, and adverse media sources.
• Charitable organizations must consider a system that provides continuous monitoring of donor activities to identify and mitigate potential risks promptly.
• Non-profit leaders should implement a system that offers detailed reporting and audit trails to facilitate informed decision-making and compliance with relevant regulatory requirements.

By adopting such solutions, non-profit organizations can not only identify authentic high-value donors but also ensure that their fundraising efforts align with legal and ethical standards.

How AML Watcher Assists in Effective Wealth Screening?

Is finding the most promising prospect a sticking point for your organization?

That’s where the right partner, like AML Watcher, can make a difference.

With AML Watcher, non-profit organizations can not only screen donors for wealth but also ensure their donor base complies with regulatory standards and does not have any associations with PEPs, sanctioned entities, or reputational risk.

Here’s how fundraisers can streamline their donor screening processes with AML Watcher:

• By using customizable risk categories, they segment their donors.
• Non-profit organizations operating internationally can leverage 80+ language coverage, which ensures media risk detection across diverse jurisdictions.
• Robust PEP and adverse media screening can strengthen donor vetting by identifying risks associated with UNSC, OFAC, OFSI, and other related sanctions regimes.