By Alric Lindsay
Laura Alleyne, a senior compliance officer with the Ministry of Financial Services, revealed at the R3 Cayman Foundation symposium today, May 14, 2025, that Cayman non-profit organisations raised $111 million in 2024. In addition to highlighting that this amount was up by $72 million from the pre-COVID-19 period, Alleyne noted that the supervisory authority for NPOs diligently assessed NPOs at different stages to ensure they reduce their exposure to terrorist financing risks. This confirmation is timely because the Cayman Islands is preparing for the Fifth Round of Mutual Evaluations by the Financial Action Task Force, which requires proactive compliance with FATF recommendations and sector-wide assessments.
What the FATF may be looking for in its inspection
According to the FATF’s website, in the Fifth Round of Mutual Evaluations, inspectors may be looking for Cayman’s competent authority, being the NPO Registrar, to “identify the organisations which fall within the FATF definition of non-profit organisations (NPOs) and assess their terrorist financing risks.”
In doing so, the FATF expects the Cayman Islands to “have in place focused, proportionate and risk-based measures, without unduly disrupting or discouraging legitimate NPO activities, in line with the risk-based approach.”
The FATF added:
The purpose of these measures is to protect such NPOs from terrorist financing abuse, including:
(a) by terrorist organisations posing as legitimate entities;
(b) by exploiting legitimate entities as conduits for terrorist financing, including for the purpose of escaping asset-freezing measures; and
(c) by concealing or obscuring the clandestine diversion of funds intended for legitimate purposes to terrorist organisations.
The FATF stressed that since NPOs enjoy public trust, are sometimes cash-intensive and may have a global presence, terrorist organisations may take advantage of these and other characteristics to infiltrate NPOs and misuse funds and operations to cover for, or support, terrorist activity.
The FATF continued:
Also, there have been cases where terrorists create sham NPOs or engage in fraudulent fundraising for these purposes.
The ongoing international campaign against terrorist financing has identified cases in which terrorists and terrorist organisations exploit some NPOs in the sector to raise and move funds, provide logistical support, encourage terrorist recruitment, or otherwise support terrorist organisations and operations.
The FATF concluded:
This misuse not only facilitates terrorist activity, but also undermines the confidence of donors and financial institutions and jeopardises the very integrity of NPOs.
Therefore, protecting NPOs from terrorist financing abuse is both a critical component of the global effort to prevent and combat terrorism and a necessary step to preserve the integrity of NPOs, the donor community and the financial institutions they use.
How Cayman NPOs can prevent misuse
Emphasising how Cayman NPOs can prevent themselves from being misused by terrorist organisations, Alleyne said:
So one of your goals as an NPO is to disrupt and prevent these financial flows.
That is a critical part of combatting terrorism globally because what you do is cut off the funding from the terrorists.
Regarding the amount of funding at stake, Alleyne shared the following information about the receipts and disbursements by Cayman NPOs:
As noted above, almost everything raised by Cayman NPOs was disbursed.
Regarding disbursements, Alleyne illustrated through case studies how seemingly innocent donations may be used for clandestine purposes if adequate checks are not made on those in control of the funds and making decisions at the NPO board level.
Expanding on this, she asked the audience to consider the following questions:
Do you know who your volunteers are?
Do you fully understand who your employees are?
Who is on your board?
Are you fully aware of what they actually bring to the table?
Based on Alleyne’s commentary, proper consideration of the above will help NPO representatives make better risk assessments regarding exposure to terrorist financing and improve governance in general. According to Alleyne, this includes vetting and monitoring employees and volunteers.
In addition to understanding the above, NPO directors must receive ongoing training to identify suspicious activities. Today, NPO representatives expressed a strong interest in this area to learn more and enhance their governance frameworks.
What the NPO Registrar is doing to combat misuse
Turning to what the NPO Registrar is doing, Alleyne shared:
As a registry, we will strengthen cross-border cooperation, we will continue to expand on our outreach to the NPO sector and we encourage you to leverage technology to ensure that you can have your accounts in order.
She added:
With vigilance, transparency, [and] the government’s strong internal controls, we can protect the sector from exploitation.
By understanding the vulnerabilities, implementing best practices, and fostering a country of accountability, we can build a resilient sector that commands trust and respect.
Laura Alleyne
When asked about building resilience, in particular, how frequently the NPO Registrar performs comprehensive risk assessments of Cayman NPOs to evaluate the exposure to terrorist financing risk, Alleyne said:
We conduct risk assessments on an ongoing basis.
So for example, we conduct risk assessments once you apply to become an NPO, there is a risk assessment that you conduct at that stage [and] when you submit your annual returns and we actually see exactly what’s happening in your NPO.
Concerning the annual returns, Alleyne explained that the NPO Registrar checks whether the annual returns submitted align with the purpose and activities the NPO submitted at onboarding and whether they align with the NPO’s constitutional documents.
Lastly, Alleyne confirmed that the NPO Registrar conducts an additional risk assessment when the controllers of an NPO change.
Based on the foregoing, it appears that the Cayman NPO Registrar is conducting initial and ongoing checks to assess the exposure of Cayman NPOs to terrorist financing risks.
Takeaways
Today’s conference, hosted by the R3 Cayman Foundation, highlighted the diligence of the NPO Registrar in assessing Cayman NPOs for risks of terrorist financing and how NPO directors can work together with the NPO Registrar to reduce these risks on an ongoing basis. This partnership will require NPO directors to continuously upskill themselves as to their legal and fiduciary duties and for them to implement measures at the NPO level to ensure compliance with the FATF recommendations, in particular Recommendation 8, as it relates to NPOs.
Note to readers:
Any Cayman NPO that has not yet completed a risk assessment is encouraged to do so and send it to the NPO Registrar. This is critical for proactive compliance in preparation for the Fifth Round of Mutual Evaluations by the FATF.
For a copy of the FATF recommendations and to learn more about Recommendation 8, please see below.
