Can artificial intelligence, RegTech and CharityTech provide effective solutions for anti-money laundering and counter-terror financing initiatives in charitable fundraising
| DOI | https://doi.org/10.1108/JMLC-09-2020-0100 |
| Published date | 30 November 2020 |
| Date | 30 November 2020 |
| Pages | 464-482 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial compliance/regulation,Financial crime |
| Author | Charanjit Singh,Wangwei Lin |
Can artificial intelligence,
RegTech and CharityTech provide
effective solutions for anti-money
laundering and counter-terror
financing initiatives in
charitable fundraising
Charanjit Singh
Westminster Business School College,University of Westminster, London, UK, and
Wangwei Lin
Department of Law, School of Law, Coventry University, Coventry, UK
Abstract
Purpose –Artificial intelligence has hada major impact on organisations fromBanking through to Law
Firms. The rate at which technology has developed in terms of tasks that are complex, technical and time-
consuming has been astounding.The purpose of this paper is to explore the solutions that AI, RegTech and
CharityTech provide to charitiesin navigating the vast amount of anti-money laundering and counter-terror
finance legislation in the UK; so that theycomply with the requirements and mitigate the potential risk they
face but also developa more coherent and streamlined set of actions.
Design/methodology/approach –The subject is approached through the analysis of data, literature
and, domestic and international regulation. The first part of the paperexplores the current obligations and
risks charities face, these are then, in the secondpart, set against the examination of potential technological
solutionsas of August 2020.
Findings –It is suggested that charities underestimatethe importance of the nature and size of the threat
posed to them, this is significant, as demonstrated, given the growing size and impact of the sector.
Technologicalsolutions are suggested to combat the issues charities face.
Originality/value –The study is original because it is the first to create the notionof CharityTechand to
specifically explore what technological advances can assist charities in meeting the regulatory compliance
challenge.
Keywords Artificial intelligence, RegTech, Anti-money laundering, CharityTech,
Counter-terror finance, English law
Paper type Research paper
1. Introduction
Artificial intelligence (AI) is changingthe face of fundraising. The ability of AI to automate
the tasks often considered as ‘tedious’generates immense benefits for instancecreating time
for those seeking to raise funds to do the necessarystrategizing and donor networking. AI,
data analytics and machine learning (ML) may sound like commonplace buzzwords, but
their potential is being built into organisationtechnology systems as innovative solutions to
the issues relating to manpower or human resource, compliance and the management of
risk. In this articlewe explore how AI, we have termed this CharityTech, canhelp alleviate a
JMLC
24,3
464
Journalof Money Laundering
Control
Vol.24 No. 3, 2021
pp. 464-482
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-09-2020-0100
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1368-5201.htm
notable problem facing charities where fundraising is concerned; how to prevent their systems
being used to launder money and finance terror. In so doing, we investigate whether AI is a
trustworthy component in the future of fundraising for the not-for-profit charity sector.
2. Charities in the United Kingdom
Before considering the issues facing charities in terms of financial crime, both practically
and theoretically,defining the organisations that are the subject of this research.
Charities’, in England and Wales, are regulated organisations formed for particular
charitable purposes. In law, they are purpose trusts [1] without named beneficiaries. They
fall into the voluntary sector but are distinguishable; the sector includes many other
non-profit and non-charitableorganisations. Often the charitable sector will be referred to as
the ‘third sector’alongside the ‘public’and ‘private’sectors. Sections 1–3 of the United
and the description of that purpose. Save in short, the latter is to prevention or relief of
poverty of the advancementof education or religion etcetera [2].
Charities may choose to set themselves up as companies [3] limited by guarantee with
trustees as board members. Shell charities pose specific regulatory problems. A shell
corporation [4] or company is set up in compliance with the relevant legislation and has
financial assets but conducts little or no business activity. The purposeof this organisation
is to act as a conduit through which financial transactionscan be undertaken anonymously.
While they can be used for legitimatepurposes i.e. asset storage for start-ups, they are often
used for illegal purposes such as money laundering. Shell charities often fall into the latter
category [5] and therefore pose a major financial crime risk. Regardless of the form, they
choose the principles that apply to ‘charities’must be adhered to. It is salient to note that,
while beyond the scope of this article, the rules of equity, various fiduciary duties and the
duty of prudence, care and skill as set out in the Trustees Act 2000 [6], all seek to regulate
the actions of the decision-makers within a charitable operation. The Charity Commission
seeks to promote transparency in the financial affairs of thirdsector organisations with the
main aim of sustaining and possibly increasingcharitable giving. Maintaining ‘donor’trust
and confidence is important in this endeavour,something that is discussed in relation to AI
later in this article. There are obviousfinancial i.e. tax benefits [7] to charitable status, this is
a matter beyond the scope of this article but may present problems relating to fraud in its
own regard for the exchequer.
In 2018, there were over 212,063 charities registered in the United Kingdom, 19,731
operating overseas. This poses a significant compliance challenge both for the authorities
and the charities (FATF, 2018a) as discussed later in the paper. It is salient to begin the
discussion with the formsof abuse that charities face.
3. Charities and their fundraising aims
There is no human endeavour that is oft-presented more worthy of praise than not-for-profit
fundraising. The traditional methods used to generate funds (Sheldon, 2000, pp. 4-6),
namely; grants, networking and donor dinners, direct giving from corporate foundations,
meetings in coffee shops etceteraneed to be supplemented to fund what are often referred to
in the charity sector as “change-the-world initiatives”. AI provides an answer to achieving
low human resource costs while maintaining high-levels of relationship-building and
outreach as discussed laterin thepaper.
AI, of which ML is a constituent technology, allows a machine to act, comprehend,learn
and sense just like an individual would.It is transformative; the relationship between people
and machines is changing at a phenomenalrate, AI harnesses human ingenuity but does so
Anti-money
laundering
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