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SEC tightens scrutiny of non-profit organizations with new guidelines

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THE Securities and Exchange Commission (SEC) has issued guidelines to prevent registered non-profit organizations (NPO) from being used as vehicles for money laundering or terrorist financing.

Memorandum Circular No. 15 Series 2018 covers non-stock corporations registered with the commission, defined as groups that engage in “raising or disbursing funds for purposes such as charitable, religious, cultural, educational, social, or fraternal purposes, or for the purpose of carrying out other types of good works.”

The SEC seeks to ensure that NPOs will not be used by terrorist organizations in the guise of legitimate entities, or be exploited for terrorist financing including escaping asset freezing measures.

Based on Section 2.1 of the guidelines, the SEC will adopt a risk-based approach to address these concerns. It will identify threats of terrorist financing based on the Anti-Money Laundering Council’s national risk assessment. It will also look at vulnerabilities in NPOs based on their types and characteristics, as well as the consequences of such threats.

“In the event that the commission identifies certain NPOs as being at risk, it shall adopt enhanced monitoring and supervision measures and require NPOs the enhanced compliance requirements under Section 3.1 of these guidelines,” according to Section 2.4 of the guidelines.

Depending on the level of risks among NPOs, the SEC will require the submission of an NPO’s General Information Sheet and Annual Financial Statement.

Those classified with Medium Risk must subject their financial statement to an external auditing body accredited by the Board of Accountancy, a Sworn Statement of Sources, Amount and Application of Funds, and activity planned or accomplished, among others.

Should an NPO be rated as High Risk, the SEC will conduct a mandatory background check of its officers and trustees, as well as a mandatory audit of the entire NPO.

An NPO can also be blacklisted, in which case they will outrightly be denied registration. “If the non-stock corporation or NPO is blacklisted subsequent to its registration, the process of revocation will be initiated and publicized, subject to notification and grace period for compliance granted by the commission to the relevant non-stock corporation or NPO.”

SEC-registered NPOs will also be required to submit within the next six months details of their operations, such as the objectives and purpose of their stated activities; identify the people who own, control, or direct their activities; the nature of operations or projects; and the actual raising or disbursing of funds, among others.

To ensure that the funds raised by NPOs are not used for money laundering or terrorist financing, the SEC has also directed them to “establish and record the true and full identity of their donors/ sources of funds identified as PEPs (politically exposed persons)…”

The commission will also implement a good governance system to promote the NPO’s accountability, integrity, and public confidence for their management.

The rules will take effect on Nov. 23, or 15 days after the memorandum circular was published. — Arra B. Francia