Government anti-terrorism measures target charitable transactions, open up new D&O exposures

Government anti-terrorism regulations that target purportedly charitable financial transactions — financial dealings that might instead be used in support of terrorist activities — have subjected Canadian charities to stringent regulatory requirements, and could potentially expose charities’ directors to personal liability, an Aon Canada advisory report warns.

Potential consequences of anti-terrorism act violations could include loss of existing charitable status; criminal investigation and prosecution; seizure or other constraints on charitable property or even bankruptcy and insolvency of the charity, the report warns.

“Seizure or other constraint on a charity’s assets can expose the charity’s directors to liability for breach of fiduciary duty,” Shelley Lloyd, the research and legal practice advisor of the Aon’s financial services group, wrote in the paper.

Some risk management measures for charities and their directors and officers, particularly those with any cross-border funding activity or operations within conflict zones, include:

* awareness of practising international best practices and due diligence guidelines;

* identifying potentially problematic individuals or organizations with whom they have dealings;

* establishing an anti-terrorism policy statement; and

* educating directors and officers about organizations potential risks and liabilities.

“To avoid potential violations of anti-terrorist and money-laundering laws and personal liability for directors and officers, well-informed charitable organizations should establish due diligence and risk management procedures and review the coverage available to them under a non-profit D&O liability,” Lloyd suggests.