Charity Fraud

Unusual conditions on how donations should be used are one of the many red flags, along with other signs, such as large one-time donations or a series of small donations from a single, unidentified source. Fraudsters also often imitate the name, website, or other details, such as the address of a real charity. If the name sounds familiar but not exactly right, make sure you do your due diligence. Mistakes and typos are also a sign of fraud. 

As a person checking to see if the charity is legit, you should always look out for warning signs. The organization should have social media accounts and a proper website with information on how to donate. If you’re unsure about an organization, pause before acting and continue doing your due diligence:

• Always verify the charity’s contact details by checking for a physical address and a working phone number or email address. Cross-reference this information with reliable sources.
• If you’re a company considering a donation, use Know Your Business (KYB) measures like social media checks, negative news screening, address verification, and reviewing key data such as the charity’s ownership structure before proceeding.

Some regions don’t have strict regulatory frameworks for charities and non-profit organizations. Such loopholes make it an attractive tool to launder money. 

Here’s how fraudsters commit charity fraud and launder funds:

• Setting up a fake charity. Fraudsters can create a charity and use its tax-exempt status to legitimize dirty cash. 
• Misusing charity money. Criminals can take out funds from the charity and invest them in illegal businesses. 
• Making anonymous donations. Bad actors can hide the origins of their funds by donating to charities, making it difficult for them to identify fraud.

No matter if the charity knew about the fraud or not, it can face severe penalties, such as:

• Legal action
• Non-compliance fines
• Loss of funding
• Reputational damage
• Operational disruptions
• Inability to meet its mission

To avoid negative consequences, charities can use screening and monitoring practices that help detect suspicious activity and report it to regulatory authorities. Additionally, charities should conduct staff training to ensure that everyone in the organization knows how to spot fraudulent activity. 

In 2019, a man was sentenced to nearly 10 years in prison for selling counterfeit supplements and slimming pills in the UK. He used a charity called Chabad UK and laundered millions through multiple bank accounts.