Government currently has no idea about how many nonprofit organizations operate in the territory, according to Ministry of Financial Services and Home Affairs Policy Officer Wilbur Welcome.
Such lack of information is a problem for a jurisdiction susceptible to being used for terrorist financing and other nefarious activities, he said.
By July 31, 2018, however, all of the territory’s nonprofit organizations will be required to be listed on a public central registry or face fines, as per the recently enacted Non-Profit Organisations Law. To prepare for that transition, Mr. Welcome and General Registry Head of Compliance Paul Inniss held a seminar last week to discuss how the new legislation will impact the nonprofit sector.
Mr. Welcome told the 15 participants at the seminar that the new law will actually make it easier for many nonprofit organizations to operate in the territory. For instance, nonprofits registered as limited companies will no longer be subject to a $500 fee each time they change an officer. Instead, they will be subject to a fee of $25 under the Non-Profit Organizations Law, said Mr. Welcome.
Nonprofit organizations making more than $250,000 and sending 30 percent of those funds overseas will also be subject to a financial review instead of an audit, he said.
Mr. Inniss added that being registered may make it easier for nonprofits to open accounts with banks, which have put such entities under especially intense scrutiny in recent years.
However, the new legislation will place reporting requirements on entities such as churches, schools and other nonprofit entities.
When asked why schools regulated by the Department of Education Services and churches registered under the Churches Incorporation Law have to go through that added step, Mr. Welcome explained that the nonprofit organizations legislation is primarily concerned with preventing terrorist financing – something that was not on the radar of the other regulators.
“The education department isn’t concerned with terrorist financing measures,” he said. “They’re concerned with your teachers, what your curriculum looks like – they have no concern if the school has raised $10 million and sent $5 million to Syria to an organization they never heard of to start a school, and that school turned out not to be a school, but to fund ISIS.”
Perhaps the most important aspect of the new legislation, Mr. Inniss said, is that it will be an added protection against Cayman-registered nonprofits being used for the financing of terrorism, which would cripple the territory’s reputation.
Mr. Inniss, who worked in the Royal Cayman Islands Police Service’s Financial Crime Unit for eight years, said the risk of Cayman being used to channel money to terrorists is very real.
To illustrate his point, he told participants about an investigation he worked on when he was with the RCIPS.
In that case, he said, a group of workers came here from a jurisdiction they said did not have a developed banking sector. As such, the workers asked their employer to pay all of their salaries into one bank account, which would then be disbursed to their families back home.
It was soon discovered that the monies were not, in fact, going to the workers’ families, but were instead being funneled to the Kurdistan Workers’ Party (PKK), based in Turkey and Iraq, and designated by some countries as a terrorist group.
“The issue is that the intelligence coming from the homeland said the money wasn’t really going to the families, it was going to an organization called the PKK,” said Mr. Inniss. “This is real, this isn’t made up. It’s something I investigated.”
While those workers did not use a nonprofit organization in that case, Mr. Inniss said he has seen nonprofits of all stripes being used for other types of illicit dealings.
“I’ve seen it all,” he said. “I’ve seen the unfortunate abuse and misuse of the nonprofit sector – sporting organizations, churches, sporting groups, you name it.”
By requiring nonprofit organizations to register their directors, controllers, owners and financial information – this information will not be public – and by allowing the attorney general and general registrar to investigate nonprofits, the new legislation should go a long way to curtail such activity.
However, Mr. Inniss urged the participants to go above and beyond the legal requirements.
For starters, he said, nonprofit organizations need to know their volunteers. Many nonprofits hand out shirts or other items that could be used by fraudsters who are purportedly collecting donations, but are in fact stealing money from duped donors, he said.
To prevent this, “You have to at least to know first and last name, date of birth, and copy of ID,” he said. “I’ve investigated thiefing, and when I went to the organization and said, ‘tell me about the employee,’ all they can tell me is the first name. And I’m talking about million-dollar entities in this territory. You’ve got to do better than that.”
Two more seminars are scheduled: Aug. 23 from 10-11 a.m. and Aug. 29 from 2-3 p.m., both in room 1038 of the Government Administration Building.