The Securities and Exchange Commission (SEC) has tweaked the regulations on nonprofit organizations (NPOs), citing the need to apply more “focused” measures in dealing with money laundering and terrorist financing threats.
The SEC doubled the maximum penalty for noncompliance to P2 million, while it eased the daily maximum fine for specific violations, based on the 2019 guidelines on SEC-registered NPOs signed on Dec. 27 by SEC Chair Emilio Aquino.
The new guidelines also eliminated the previous classification of NPOs that was based on perceived intensity of vulnerability to dirty money and terrorist financing, such as “low”, “medium” or “high” risk as stated in the old guidelines issued in 2018. The new framework simply seeks to assess whether the entity is at risk or not and impose additional requirements to those identified to be at risk of money laundering and terrorist financing threats.
NPOs refer to entities that are engaged in raising or disbursing funds for purposes, such as charitable, religious, cultural, educational, social or fraternal purposes, or for carrying out other types of good work. Foundations are covered by the guidelines.
For compliance requirements, the SEC streamlined the rules and required all “NPOs at risk” to comply with the following:
• Submit existing minimum requirements based on laws, SEC rules and other requirements
• Submit an annual financial statement audited by an independent certified public accountant accredited by Board of Accountancy.
• Conduct mandatory background checks of the officers and trustees
• Be subjected to a mandatory audit
• Establish an internal audit system
• Attend sustained outreach program of the SEC.
As additional safeguards, all “NPOs at risk” are likewise required to maintain information on their activities and those who control and direct their activities, put in place controls to ensure that funds are fully accounted for and spent in a manner consistent with stated activities, follow a know-your-beneficiaries and associate NPOs rule and report to SEC any fact within its knowledge that gives rise to a suspicion that such NPO is being exploited for money laundering and/or terrorist financing purposes.
For the purpose of applying risk-based measures, the SEC said it would coordinate with the Anti-Money Laundering Council to develop and promulgate a risk rating system for all SEC-registered NPOs.
Citing the need to promote transparency and maintain public trust in NPOs, the SEC also encouraged them to make publicly accessible online accurate, current and complete information regarding their status, finances, expenses, projects, activities, those who control or direct such activities, the composition of their governing boards, and their beneficial owners, among other material information.
“The transparency and trustworthiness of such NPOs may be used by the commission as basis, among others, in including said NPOs in an accredited list or similar listing,” the new guidelines said.
On penalties for noncompliance, the 2019 guidelines said that the SEC would impose a fine of at least P5,000 but no more than P2 million. For each day of continuing violation, a maximum fine of P1,000 will be imposed but the fine should not exceed P2 million.
Previously, the minimum fine was P10,000 but the maximum fine was P1 million plus not more than P2,000 for each day of continuing violation.