Mitigating The Accountability Gap In The Third Sector: A New Methodology For Detecting High-Risk TSOs

• In Event: Third sector performance

Abstract

The third sector represents the seventh largest economy in the world at $1.3 trillion dollars (Salamon). It simultaneously suffers from an “accountability gap” (Salamon), in which there exists very few global or social mechanisms to reliably detect, let alone hold accountable, high-risk third sector organisations (TSOs) corrupting the third sector as well as undermining institutions or democratic norms.

The asymmetric abuse of the nonprofit space is often exploited by high-risk TSOs serving as vectors for activities such as: malign finance, malign influence, reputation laundering, money laundering, narrative laundering, and espionage. However, to date there is a dearth of qualitative as well as quantitative information surrounding this phenomenon.

We have observed and documented numerous cases of high-risk TSOs laundering money, narratives, and reputations through a three-step process: placement, layering, and integration (PLI). Often affiliated with facilitating illicit financial flows (i.e., money laundering), PLI has come to accurately describe the same processes and logics found in contemporary narrative and reputation laundering operations. Through PLI, high-risk organisations can discreetly and asymmetrically exploit organic blind spots in the third sector, thereby engendering a range of corrosive activities.

While we aim to identify and publish high-risk TSOs, we acknowledge that our work can have a material effect on an organisation and its associated individuals. By interrogating an organisation’s Leadership, Enabling Structures, and Activities (LESA) through our proprietary lens, our conservative methodology is designed to reduce personal cognitive biases during analysis. Organisations found to meet our criteria are publicly listed on our NGO Watchlist, alongside evidence in support of their inclusion. The intent is to create a reliable tool for due diligence, collect evidence of abuses for statistical purposes, and develop and apply a minimum standard to which all in the third sector can be held.

This paper will illustrate the ways in which high-risk TSOs abuse the sector and demonstrate IEI’s proprietary, explicit, and open methodology for detecting organisations that are being used as covers for malign activity. It will highlight six case studies of various TSOs operating in different spaces of the sector deemed by our methodology to be high-risk. We will also illustrate 2 case studies of TSOs subject to adverse media wherein our methodology determines they are NOT able to be classified as high-risk.

Our work is informed by a multidisciplinary approach, including a literature review consisting of research by the OECD’s Financial Action Task Force (FATF) (Bricknell 2011, FATF 2015 & 2008, Omar et al 2014), the EU Global Facility on Anti-Money Laundering and Countering the Financing of Terrorism (Evans B., Skoric V. 2021), and sector-defining studies conducted by Johns Hopkins University’s Center for Civil Society Studies (List R., Salamon L., Sokolowski S. (2003).

References

Bricknell, S. (2011) Misuse of the Non-Profit Sector for Money Laundering and Terrorism Financing. Australian Institute of Criminology. Trends and Issues in Crime & International Justice. No 424: September

Evans B., Skoric V. (2021) Typologies of Illicit Financial Abuse of the NPO Sector: Specificity, Complexity, Complicity and Harm. EU Global Facility on Anti-Money Laundering and Countering the Financing of Terrorism.

Financial Action Task Force (2015). Best Practices on Combating the Abuse of Non-Profit Organisations (Recommendation 8).

List R., Salamon L., Sokolowski S. (2003). Global Civil Society: An Overview. The Johns Hopkins Comparative Nonprofit Sector Project. 13.

Omar N., Johari Z. A., Arshad R. (2014). Money laundering–FATF special recommendation VIII: A review of evaluation reports. Procedia – Social and Behavioral Sciences, 145, 211–225.

Organization for Economic Cooperation & Development (2008). Report on Use of Charities for Money Laundering and Tax Evasion. OECD: Centre for Tax Policy & Administration.

Shillito M. R. (2015). Countering terrorist financing via non-profit organisations: Assessing why few states comply with the international recommendations. Nonprofit Policy Forum, 6(3), 325–352.

Wang, S. Cheng, Y. (2023). Information-led Policing: Non-Profit Organization’s Terrorist Financing. International Journal of Offender Therapy and Comparative Criminology. Sage.

Authors

• Annie Cowan, Institute for European Integrity

• Brannnan Brouse, Institute for European Integrity