While non-profit organisations are typically known for their charitable work, government officials in Bahrain are worried that criminals and terrorists may be exploiting the groups' financial transparency standards for their own malevolent ends.

In response to these growing concerns, Bahrain's Ministry of Human Rights and Social Development recently organised a workshop on how to protect non-profit organisations from being used for money laundering and terrorist financing purposes, as well as how to increase government oversight over their activities.

The two-day event, entitled "Protecting Non-Profit Organisations from Being Exploited for Money Laundering and Terrorist Financing Purposes", began on May 26th in co-operation with the Middle East and North Africa Financial Action Task Force and featured representatives from non-profit organisations, local sports and cultural clubs, and youth centres.

Workshops participants said that oversight of non-profit organisations is a shared responsibility between the government, the charity community, and charity recipients, adding that non-profit organisations need to maintain complete and transparent budgets for their activities.

Attendees recommended that non-profit organisations open registered bank accounts for their funds and use registered financial channels for money transfers, especially those abroad. In addition, participants suggested that agencies should establish verification protocols to ensure that donations reach their intended recipients.

Training on how to spot problem areas

Najwa Janahi, the ministry's director of non-profit organisations, told Al-Shorfa the ministry has adopted several measures to monitor transactions of registered non-profits, including contracting auditing firm Abdel Aal Gulf Audit in February 2009 to review fund transfers.

"As soon as the contract was signed, a workgroup was formed composed of experts in accounting, auditing, and financial management who received training to familiarize them with the nature of the task and the responsibilities of team members," Janahi said.

Bahraini law governs the movement of non-profit funds in and out of the country according to a provision forbidding any organisation to accept funds from a foreign individual or entity (or send funds outside the country) without prior approval from the relevant government authority.

Janahi said the ministry follows a strict mechanism for issuing licenses to non-profit organisations. It also communicates with the Department of Financial Investigation or the Ministry of Foreign Affairs when money is received from a foreign embassy, she added.

Adel al-Qalleesh, executive secretary of the Middle East and North Africa Financial Action Task Force, said the workgroup adopted a programme of joint evaluation between all member states to determine the extent of their commitment to the anti-money laundering and terrorist financing recommendations issued by the group.

The task force was established in 2004 after 14 Arab nations signed a memorandum of understanding to combat money laundering. The Middle Eastern task force serves under the umbrella of parent task force that was founded by the G-7 in Paris in 1989.

Many facets to money laundering

Al-Qalleesh said there are many facets to money laundering, such as issuing multiple invoices for goods and services, overstating or understating shipments, and falsifying the descriptions of goods or services rendered.

"Among the benefits of implementing an integrated and effective system to combat money laundering and terrorist financing is that it safeguards the integrity of the non-profit organisations, helps stabilise financial institutions, contributes to economic growth and combats financial crimes," he said.

"Among the attributes and dangers of non-profit organisations is that they engage in volunteer work, their work involves funding and concealment of identities, some have widespread financial bases, they are active in areas that may be dangerous, and are seen as above suspicion just for being charitable organizations," he added.

Al-Qalleesh said the task force is evaluating existing systems used to combat money laundering and terrorist financing in each member state by reviewing all relevant laws and regulations currently enforced in order to assess their effectiveness and compliance with international standards.

"Charitable activities have attracted in recent years the interest of criminal and terrorist organisations around the world who seek to infiltrate them and take advantage of the privileges they enjoy, especially the humanitarian and social cover their work provides," said Mariam al-Thaghen of the Interior Ministry's Economic and Electronic Security and Anti-Corruption bureau.

"Some non-profit organisations may be knowingly exploited by donors or those in charge of them, which would undermine the community's trust in this charitable sector and cause them to abstain from making contributions, thereby destroying an essential pillar of social collaboration and co-operation these communities depend upon," al-Thaghen said.

She identified three essential oversight requirements to increase the community's confidence in the work of non-profit organisations, including bolstering transparency and disclosure standards, implementing specific criteria for hiring non-profit workers, and strengthening the oversight authority of supervising bodies.

Al-Thaghen also urged banks to implement a "know your customer" policy and adopt standards to ensure regulatory compliance.