Financial crime threats have compelled the global community to maintain robust standards for preventing the abuse of legitimate entities, especially Non-Profit Organisations (NPOs). The Financial Action Task Force (FATF) has long required countries to implement measures that reduce the risk of terrorist financing through NPOs. However, in practice, this has led to new and sometimes unexpected challenges for civil society.

NPOs often operate in high-risk environments and offer essential support during crises. As such, they are exposed to the risk of being exploited by illicit actors. Over the years, governments and financial institutions, prompted by FATF’s Recommendations—especially Recommendation 8—have heightened scrutiny on the non-profit sector. Unfortunately, this has often resulted in legitimate NPOs being unfairly targeted, restricted, or denied banking services due to overly broad or risk-averse interpretations of the rules.

These unintended consequences can hinder humanitarian work, delay the delivery of aid, and undermine public trust. FATF recognises that a one-size-fits-all approach is not only ineffective but can be counterproductive, driving NPO activity underground or into unregulated channels. As a result, the global standard setter has acted to fine-tune the application of its guidance, striving for a more nuanced and proportional regime.

Addressing Unintended Consequences: FATF’s New Procedure Explained

In July 2025, the FATF launched a new procedure designed to address the unintended consequences arising from the misapplication of its Standards on NPOs. This procedure aims to ensure that anti-terrorism financing controls do not unduly burden or disrupt the valuable activities of legitimate non-profit actors.

The initiative establishes a formal process through which countries, as well as international institutions such as the International Monetary Fund and the World Bank, can bring forward concerns when FATF Standards are misapplied in a way that unjustifiably harms NPOs. Unlike previous mechanisms, this approach is both more responsive and collaborative, involving direct engagement between regulators, governments, and stakeholders in the non-profit sector.

The process includes a structured assessment of the claimed unintended consequence. This involves:

• Collecting evidence from affected NPOs, financial institutions, and authorities.
• Analysing whether the disruption to NPO activity results from excessive or inappropriate application of FATF Recommendations.
• Reviewing the consistency of national measures with FATF’s risk-based approach, as outlined in Recommendation 1 and Recommendation 8.

Where misapplication is confirmed, FATF will coordinate with national authorities to recalibrate local regulations or supervisory practices, ensuring legitimate NPO activity is protected without compromising the overarching goal of combating terrorist financing. The new process also complements existing assessment procedures, such as mutual evaluations and follow-up reviews.

Importantly, FATF’s approach recognises the diversity of the non-profit sector, which includes everything from small volunteer-led groups to large international charities. The new procedure is available to all FATF and FATF-Style Regional Bodies (FSRBs) member countries, unless an FSRB decides to implement its own equivalent framework.

Legislative and Regulatory Context: Key FATF Documents and Guidance

The foundation for these new procedures rests on several recent documents and procedural updates:

• 2023 Universal Procedures, paragraph 130(bis): Introduced a specific reference to unintended consequences and the need for remedial mechanisms.
• FATF 5th Round Procedures, paragraph 136(bis): Mandates review and action when unintended consequences are raised by eligible parties.
• 2022 Universal Procedures, paragraph 55(bis): Highlights the principle of proportionality and the requirement for member states to report impacts on NPOs.
• FATF 4th Round Procedures, paragraph 101(bis): Laid the groundwork for integrating unintended consequences into mutual evaluation frameworks.

Recommendation 8 itself was revised in June 2016 to clarify that measures should be focused and risk-based, and not create undue obstacles for legitimate NPOs. However, misinterpretations persisted, prompting the need for further procedural innovation.

FATF’s risk-based approach obliges each jurisdiction to identify which NPOs are most at risk of abuse for terrorist financing and to apply focused controls accordingly. The goal is to avoid a blanket approach that treats all non-profits as inherently high-risk. National authorities are expected to consult widely with NPOs during risk assessments and regulatory design.

Alongside the new procedure, FATF encourages the use of guidance such as:

• The FATF Best Practices Paper on Combating the Abuse of NPOs (June 2015, updated regularly)
• FATF’s Guidance on Transparency and Beneficial Ownership
• The Interpretive Note to Recommendation 8

This legislative context anchors the new process in a transparent and legally robust framework, allowing for independent verification by all stakeholders.

Real-World Impact: Challenges for Non-Profits and Global Civil Society

Non-profit organisations have consistently raised concerns that overzealous enforcement of anti-terrorism measures can result in serious collateral damage. For example:

• Banks may de-risk entire segments of the NPO sector, closing accounts or refusing services out of fear of regulatory penalties.
• Charities working in conflict zones may be unable to transfer funds to local partners, disrupting essential humanitarian operations.
• Grassroots organisations may struggle to register, access grants, or receive cross-border payments, impeding their effectiveness.
• Donors, faced with complicated compliance checks, may reduce contributions, affecting the financial viability of vulnerable projects.

These obstacles are not theoretical. Numerous case studies have documented how legitimate aid to disaster victims, refugees, and at-risk populations has been blocked due to technical compliance concerns. This effect, sometimes known as “financial exclusion”, can exacerbate the very instability that anti-money laundering (AML) and counter-terrorist financing (CFT) measures are meant to address.

The FATF’s new process aims to correct such distortions. By establishing a formal avenue for identifying and resolving issues, the global standard setter is not only protecting the integrity of the NPO sector but also reinforcing the credibility and legitimacy of the broader AML/CFT system.

Financial institutions are expected to review their own risk management policies to align with the spirit of the new FATF guidance. This includes engaging with NPOs to understand their operational realities and avoiding over-compliance that adds unnecessary friction to the provision of humanitarian assistance.

Future Prospects: Enhancing Proportionality and Collaboration

The introduction of this dedicated procedure is widely regarded as a milestone in international financial regulation. It signals an evolving understanding among policymakers that effective financial crime controls cannot come at the expense of legitimate civil society activity.

Looking ahead, several positive trends are expected to emerge:

• Increased Consultation: National regulators are likely to intensify dialogue with NPOs, ensuring that risk assessments reflect practical realities.
• Tailored Supervision: Supervisory authorities will be encouraged to differentiate between various types of NPOs and to apply controls only where justified by risk.
• Global Benchmarking: International institutions, including the IMF and World Bank, will have a structured role in monitoring the impact of FATF Standards on NPOs, fostering greater accountability.
• Transparency: Public reporting and stakeholder feedback will help to identify patterns of misapplication and ensure lessons are shared across jurisdictions.
• Resilience: NPOs can be more confident that when legitimate work is disrupted by regulatory action, there is now a clear pathway to resolution.

The FATF’s approach is already prompting FSRBs and national governments to re-examine their own procedures, making proportionality and responsiveness central principles of effective financial crime control.

Conclusion: FATF’s New Procedure Paves the Way for Smarter Regulation

FATF’s new procedure to address unintended consequences for non-profit organisations represents a pivotal step toward more balanced, evidence-based financial regulation. By establishing a dedicated process for raising and resolving issues of misapplication, FATF is sending a clear message that the fight against terrorist financing and money laundering must be grounded in fairness, transparency, and respect for civil society.

The success of this initiative will depend on sustained commitment from governments, regulators, and the financial sector, as well as continued engagement with NPOs themselves. When applied as intended, the new process offers the promise of stronger, more inclusive safeguards—protecting both the financial system and the vital work of non-profits around the world.

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Related Links

• FATF Recommendation 8 – Non-Profit Organisations
• FATF Best Practices on Combating the Abuse of NPOs
• FATF 5th Round Mutual Evaluation Procedures
• 2023 FATF Universal Procedures
• IMF Guidance on Financial Access for NPOs

Related Links

• FATF Flags $Billions at Risk from Evolving Terrorist
• FATF 2025: Virtual Asset Money Laundering Risks Demand Tougher Action
• What ChatGPT Has To Say About the FATF 2025 Methodology Changes Compared to Previous Versions

Source: FATF

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