SEC keeps close watch on non-profit organizations, foundations that may be used in money laundering

MANILA, Philippines —  The Securities and Exchange Commission (SEC) is closely watching non-profit organizations (NPOs) and foundations that may unwittingly be used in money laundering and terrorist financing activities through the donations they receive.

The SEC has issued guidelines for the protection of non-profit organizations from such illegal activities.

In a draft memorandum circular, the SEC said non-stock corporations, non-stock non profit organizations, foundations and other non-profit groups registered with the commission must comply with the SEC’s new guidelines.

“To mitigate the risks of money laundering and terrorist financing, NPOs shall observe good governance and strong financial management, including having robust internal and financial controls and risk management procedures,” the SEC said.

Characteristics of a good governance system in an NPO include organizational integrity and financial accountability.

The board of trustees must maintain oversight over the organization by establishing strong financial and human resource policies and conducting regular meetings, the SEC said.

The board of trustees must also ensure proper due diligence is carried out on individuals and organizations that donate money or funds and work closely with the NPO, the SEC said.

This can be done through the use of selection criteria and searches of publicly available information, including domestic blacklists and UN sanctions lists.

“The board of trustees may execute agreements to outline the expectations and responsibilities with partners, including detailed information as to the application of funds and compliance with requirements for regular reporting, audits and on-site visits,” the SEC said.

On financial accountability and transparency, the SEC said the board of trustrees must monitor the use of funds. 

“The board of trustees also mandates that its NPO keep adequate and complete financial records of income, expenses, and financial transactions throughout its operations, including with respect to the use of its funds. NPOs clearly state program goals when collecting funds, and ensure that funds are applied as intended and consistent with the purpose of the organization,” the SEC said.

There should also be appropriate internal controls and monitoring systems to ensure that funds and services are being used as intended.

The SEC urged NPOs to establish a system that would enable them to know who their donors are and where the funds are coming from.

They are also encouraged to ensure that they know who their beneficiaries are and where they are located and that the funds actually reach their target beneficiaries or that they are used for the purpose intended. 

The SEC also said the NPOs must immediately report to the commission any act within its knowledge that gives rise to a suspicion that they are being exploited for money laundering and terrorist financing purposes.