banks-religion-AML

Ecclesiastical crime: the due diligence challenge for churches and banks

Companies of all types fall into the trap of embezzling dirty money, and many investigations worldwide have looked into the roles of religious institutions in the clearing of illegal cash. This can take into account organisations across any religion and denomination, but Christian churches specifically have become notoriously liable for fraudulent financial activity.

There are a multitude of reasons for why ‘ecclesiastical crime’ can be carried out so easily, particularly hinging on the exemptions for financial information filings (as opposed to other charities or businesses), as well as the preying on the trustful reputations that these institutions have with their members. Thus, it is extremely tricky to conduct AML investigations and KYC due diligence for these businesses and their customers, albeit becoming ever more necessary to lower money laundering at national and international levels.

Great power, great responsibility

Considering the sheer widespread following of religion, and the worldwide problem of money laundering and terrorism financing, unfortunately no types of organisation are able to detach themselves thoroughly from crooked and clever laundering schemes, with a severe lack of properly implemented AML solutions.

Fraud can be notified because of the lack of properly implemented controls. For instance, a number of red flags for nefarious activity can include complaints from members of the institutions or donors about financial issues, inaccurate and untimely financial reporting, altered documents or even employees with lifestyles that do not match their income. This of course brings into question the roles of auditors, financial institutions and governmental bodies for conducting better investigations into the origins of money pumped through religious institutions.

Within Christianity specifically, churches lose around $63 billion each year globally due to crime committed internally; around 16% of churches’ collective total income. What is also fairly striking is that, in 2013, a spokesperson for the Center for the Study of Global Christianity stated that “95% of fraud within churches goes undetected or unreported”, and still, in 2017, 10% of Protestant churches admitted embezzlement.

On the other hand, in Ghana, anti-money laundering groups have actually looked at these institutions to hold a special role in the education of the populace in regards to nefarious financial activity, given their esteemed platform. Seminars have been conducted by groups including the Inter-Governmental Action Group against Money Laundering in West Africa (GIABA) for these educational purposes, and to attempt to protect its economies from the threat of laundered criminal money. GIABA recognises the value of religious leaders as figureheads of trust and stakeholders to contribute to this mission.

A lack of due diligence

Indeed, fraud committed by religious leaders can be both intentional or unintentional. It can often be attributed to no internal audit being put in place, maybe due to a lack of knowledge or means of correct monetary control. Religious institutions can often receive large sums of money from beneficiaries that are conducted in an unregulated environment, without utilising due diligence measures, again taken as an accepted donation without question of its origin. In more intentional cases, embezzlers of dirty money may face financial pressure or feel that they should deserve the money due to a lack of pay. Much of the fraud that occurs in churches, for instance, is conducted in very small sums that can go undetected. On average, it takes place over a seven year period.

As previously mentioned, there could be no tracing of money given as offerings or pledges by criminals who are followers of religions, whereby this dirty cash can be mixed with genuine funds and deposited into the bank accounts for the institutions. There are also instances whereby criminals can loan money to the building for construction work, and this gets paid back as a cheque, therefore ‘cleaned’. A lack of KYC on a congregation really can have a devastating increase on the likelihood of illegal money passing through the system.

The truthful picture

That being said, religious leaders themselves are not exempt from crime. Some church leaders for instance have used the Church itself to acquire personal wealth without having to pay tax, or exacerbate the flow of illegal proceedings to sister-churches across borders in different countries. The avoidance of tax by churches is a hugely prevalent issue for financial institutions and governments. Another way in which religious leaders can fool the system is by delivering inspirational messages, talks and sermons in other countries around the world to shirk taxation.

Other case studies, where law enforcement has been involved, include a property empire purchased through dirty money by Erik Súñiga. The leader of an evangelical church and mayor of a small town in Guatemala, he died in US custody this year with ties to prolific drug traffickers and known to have laundered at least US$1.4 million through his religious network. The OCCRP also uncovered a tax credit fraud scheme committed by Jacob Kingston, a member of a Mormon denomination in Utah. Kingston’s company Washakie Renewable Energy falsely claimed to sell clean fuel to access tax credits, culminating in at least $1 billion of fraudulent money.

Whatsmore, little action has been taken by Congress to clamp down on the issue; internal investigations are the commonplace way to uncover these activities. The fact that banks have to process the money that comes in and out of an institution brings banks themselves into refute too, with due diligence into the religious institutions they do business with needing a greater focus. One particularly relevant case in regards to the current FinCEN Files leak exposes HSBC’s transferral of fraudulent money due to a Ponzi scheme set up by Ming Xu, who posed as an evangelical church leader in Los Angeles, despite knowing about the investment scam (WCM777).

Ongoing improvements

So what can be done on a larger scale? It’s a precarious issue but not one that Congress in the US has tried to fix in the past, even passing bills to remove churches’ exemption from paying tax, met with severe backlash. Given the unique nature of churches as a religious institution, they are exempt from filing their financial information with the Internal Revenue Service, including Form 990 which details all the money that travels in and out of a secular non-profit organisation.

Nonetheless, some churches do honour a system of trust and voluntarily publish documents such as Form 990 for full transparency. It seems as if the onus is really on churches to create their own audit trails; performing KYC on their members to know exactly where money is coming from, tracking all proceeds in and out of the church, and presenting financial information to relevant bodies. The banks dealing with churches should then conduct further investigation into these customers and understand the nature of business through transaction monitoring.

Given the global interconnectivity of religious institutions where dirty money can be easily grouped with legitimate offerings, AML efforts across the board seem almost impossible. But through greater due diligence practice, and transparency between financial institutions and religious organisations, a slow road to exposing illegal funds through churches and their equivalents can start to be undertaken beyond the small, albeit commendable, efforts of some.

Digital Marketing Executive at Arachnys