Charity Money Laundering in 2026: Red Flags and Prevention Tips

More than $2.3 trillion is given to charity worldwide every year. Most of it goes where donors intend, but the size of the sector and the sheer number of transactions flowing through it also attract criminals looking to launder the proceeds of crime. They exploit something here: empathy. Most people want to help when they see suffering, and that impulse makes it easy to give quickly and without asking too many questions. Criminals count on that goodwill, whether they’re running fake appeals or using a legitimate-looking charity to move dirty money.

In its 2026 Charity Sector Risk Assessment, the UK Charity Commission for England and Wales reported a 38% rise in cases involving alleged abuse of charitable status for private benefit in 2024–25, followed by a further 29% increase in 2025–26. It also flagged potentially organized misuse of charities through less transparent payment channels such as voucher schemes and money service businesses. The issue isn’t confined to the UK. The UAE’s 2024 National Risk Assessment identified 1,024 non-profits in the country and judged 154 of them to be more vulnerable to terrorist financing. In China, a 10-million-yuan donation fraud at one of the country’s best-known children’s charities led the Ministry of Civil Affairs to blacklist the foundation and order local authorities to crack down on embezzlement, fraud, and money laundering across the sector.

Strong safeguards against money laundering and fraud protect more than a charity’s finances. They also protect its reputation and the trust its donors place in it.

Understanding charity money laundering

Charity money laundering happens when a charity or other non-profit organization (NPO) is abused to disguise the origin of criminal funds or move them elsewhere. Features that make the sector attractive to criminals include:

• Public trust. For example, almost 60% of people in England and Wales report high trust in charities, so donations and transfers made in a charity’s name rarely draw suspicion. A criminal can, for example, set up a charity with a sympathetic cause, pay in criminal cash disguised as supporter “donations”, and then spend it as if it were legitimate charity income.
• Tax privileges. Charitable status can bring tax exemptions, which lets criminals keep more of the money they launder. In some schemes, illicit funds are donated to a charity, the donor claims tax relief, and the money is later returned to them through inflated invoices from a supplier they control.
• International reach. Some charities work in places where oversight is difficult, including war zones, and can become a channel for sending money to areas under international sanctions or controlled by armed groups. Funds raised for humanitarian aid may be diverted at the local level, handed to intermediaries who pass them on to militant groups, or carried across borders as cash where banking is unavailable. In one well-known US case, five former leaders of the Holy Land Foundation, once the country’s largest Muslim charity, were convicted in 2008 on charges including money laundering and providing material support to Hamas, after funneling more than $12 million to the group under the cover of humanitarian work.
• Operational vulnerabilities. Charity staff and volunteers may have less experience with financial crime than people working in sectors like finance or law. Smaller charities often lack robust systems, due diligence on partners, or the technical resources to spot red flags. This makes it easier for criminals to slip through, for instance by posing as a local partner organization in a crisis region or by making large one-off donations that no one questions.

Suggested read: AML Odyssey: How Growing Businesses Find Their Way to Ithaca

How charities are used for money laundering

Money laundering through charities can take several forms:

• Misuse of funds. Criminals who control a charity can use its accounts to pay for things that have nothing to do with its purpose, such as property, vehicles, or services from businesses they own, making illicit spending look like ordinary charity expenses.
• Cash loans. Criminals may offer interest-free cash loans to local charities and ask to be repaid by bank transfer. The charity gets quick funding, while the criminal turns dirty cash into money that appears to come from a legitimate source.
• Insider abuse. A criminal can join a charity, for example as an employee, trustee, or volunteer, to gain access to its accounts and assets and move illicit funds through it.
• Donation refund schemes. A “donor” makes a large donation, often from illicit funds, then asks for part or all of it back, sometimes to a different account or in a different currency. The refund looks like a legitimate payment from a charity.
• Diversion of funds abroad. Money raised for genuine causes can be redirected to individuals or groups in high-risk regions, including conflict zones, through local partners, intermediaries, or cash couriers. This is a common route for terrorist financing.
• Tax relief abuse. Criminals can make donations with illicit money and have the charity claim tax relief on them, such as Gift Aid in the UK, or submit false claims on donations that were never made.
• Imposter charity. Criminals can pretend to be a well-known charity, often after a disaster or during a humanitarian crisis, to collect donations. The money is then laundered through other accounts, so donors are defrauded and the proceeds are hidden.
• Shell charity. Criminals can set up a new charity that appears legitimate but exists only as a front for laundering money.
• Crowdfunding and donation platform abuse. The Financial Action Task Force (FATF) has highlighted crowdfunding as an evolving terrorist financing method, which is often closely linked to money laundering. The FATF’s June 2026 report shows how integrated payments, virtual assets, and creator monetization on social platforms can be exploited. Appeals can spread quickly from unverified organizers, so charities and platforms should confirm who is behind a campaign and where the money goes.

Charity financial crime: fraud and money laundering statistics and trends

Fraud and money laundering are both forms of financial crime, and in the charity sector they often go hand in hand. Funds obtained through fraud, such as stolen donations or fake fundraising appeals, usually need to be laundered before criminals can use them. At the same time, charities’ trusted status, cash-heavy income, and cross-border transfers make them attractive vehicles for moving illicit money. Here’s what recent data shows about both threats:

• Fraud controls may be helping to reduce incidents. In BDO’s 2026 report, 34% of UK charities reported fraud or attempted fraud, down from 42%, with 57% of incidents caught by internal controls.
• But the financial impact remains significant. Of the charities hit by fraud, 73% suffered a financial loss, and only 32% managed to recover even part of it.
• Abuse of charitable status is rising. According to the Charity Commission’s 2026 Charity Sector Risk Assessment, cases of alleged abuse of charities for private benefit rose 38% in 2024–25, from 211 to 291, and a further 29% in 2025–26, to 374.
• AI could make both fraud and money laundering easier. According to the UK’s National Risk Assessment of Money Laundering and Terrorist Financing 2025, AI tools can help criminals commit fraud with less effort, bypass AML controls, and move illicit funds faster.
• Enforcement gaps persist. FATF found that 69% of assessed jurisdictions have major or structural deficiencies in pursuing terrorist financing cases.

Real-world example: when charity fraud turns into money laundering

The case of Rajbinder Kaur shows how fraud and money laundering can overlap in a single scheme. In January 2025, Kaur was sentenced to 2 years and 8 months’ imprisonment after being convicted of six counts of theft totaling £50,000, money laundering, and providing false or misleading information to the Charity Commission. The stolen money came from donations to Sikh Youth UK (SYUK), which Kaur set up in 2016. She had applied to register SYUK as a charity, but the application was unsuccessful because she failed to provide the required information to the Charity Commission.

Red flags of charity money laundering

Depending on the context, these charity-specific warning signs can point to money laundering:

🚩Unusually large one-time donations

🚩A series of small donations from an unidentified source

🚩Unusual conditions on how donations are used

🚩Donations structured as loans, especially in cash

🚩Donations from foreign sources, especially from high-risk jurisdictions

🚩A single individual who controls the charity, a very small board, or trustees who don’t engage

🚩Requests to refund a donation soon after it’s made, especially to a different account, a third party, or in another currency

While none of these is necessarily a sign of money laundering on its own, they can point to a need for closer scrutiny, especially if several appear together. Charities should always carry out appropriate due diligence on donors using a risk-based approach.

Suggested read: AML Red Flags: Common Indicators, Industry Examples, and Detection Best Practices

How AML regulations apply to charities

Charities are not directly regulated under the main AML frameworks, such as the UK Money Laundering Regulations 2017, the EU’s AML directives and the new AMLR, and the US Bank Secrecy Act. This means they have no legal obligation to carry out customer due diligence on donors, monitor transactions, keep AML records, appoint a Money Laundering Reporting Officer, or file suspicious activity reports with a financial intelligence unit, as financial institutions must. Instead, they fall under separate rules aimed mainly at preventing terrorist financing and abuse of the sector.

That doesn’t mean charities can ignore money laundering. They still face real legal and practical exposure through other routes:

• Charity law. In England and Wales, for example, trustees must protect charitable assets and act prudently. The Charity Commission, the sector’s main regulator, expects charities to carry out due diligence on donors, partners, and beneficiaries, and opens statutory inquiries where it suspects abuse. Charities must also report serious incidents, including suspected money laundering, to the Commission.
• Criminal law. Laws such as the UK’s Proceeds of Crime Act 2002 and the Terrorism Act 2000 apply to everyone, so a charity or its staff can commit a money laundering or terrorist financing offense. The Terrorism Act also requires people to disclose certain information they learn at work.
• Sanctions law. All organizations must comply with financial sanctions. Dealing with a sanctioned person or entity can lead to enforcement action and prosecution.
• Edge cases. A charity can fall under AML rules if it carries out a regulated activity itself, such as dealing in high-value goods and accepting large cash payments. Some jurisdictions also bring NPOs partly into scope.
• Pressure from banks. Banks often treat charities as higher-risk customers, so charities face extra due diligence, and weak controls can lead to de-risking or account closures.

Regulatory guidelines: from FATF to national rules

FATF Recommendation 8 requires countries to identify which organizations fall within its definition of NPOs, assess their terrorist financing risk, and apply focused, proportionate measures. It also calls for a risk-based approach rather than blanket de-risking: financial institutions should understand each charity’s activities, funding, beneficiaries, and geographic exposure, and apply enhanced due diligence only where it’s justified. In 2025, FATF introduced a procedure to address unintended consequences when its standards disrupt legitimate NPO activity.

National rules and guidance build on this. In England and Wales, expectations for charities are shaped by the 2025 national risk assessment, the Charity Commission’s guidance, and the Fundraising Regulator’s due diligence guide. In the US, the Treasury’s 2024 National Terrorist Financing Risk Assessment finds that the risk lies mainly with sham charities abroad. In the EU, the AML Single Rulebook sets the framework for how obliged entities assess risk, including when dealing with non-profits.

Rules vary by jurisdiction, so always check your local requirements and make sure your AML and anti-fraud systems are calibrated to your specific needs and risks.

Suggested read: What is Enhanced Due Diligence?

How to prevent money laundering in charities

The Financial Action Task Force issues guidelines on preventing terrorist financing in non-profit organizations such as charities. These guidelines can also help prevent money laundering. They include:

• Documenting a risk assessment that covers donors, partners, and regions
• Naming a lead (a compliance officer or trustee) and training staff and volunteers
• Making sure no single person can access funds without checks, and reviewing payments regularly
• Managing conflicts of interest and giving people a safe way to raise concerns

While NPOs generally have no mandatory AML obligations, due diligence is still good practice. Verifying donors and beneficiaries, monitoring where donations come from, and reporting suspicious activity can all help protect a charity.

Monitoring and reporting suspicious activity

Charities should track where money comes from and where it goes next, including through partners. Staff should know how to escalate concerns to management or trustees, who can then report them to the relevant authorities where appropriate. In the UK, for example, Suspicious Activity Reports go to the UK Financial Intelligence Unit of the National Crime Agency, serious incident reports go to the Charity Commission, and Report Fraud (the successor to Action Fraud) handles fraud reports.

Transaction monitoring systems can help identify suspicious activity, especially for organizations that handle large volumes of transactions.

Donor and beneficiary due diligence

Aim to verify the source and nature of a donation before accepting it, in proportion to the risk. You don’t need to question every gift, and small cash donations rarely need checks unless other red flags appear. Collect only the personal data you need for effective due diligence. Before working with fundraising partners, verify who they are, put agreements in writing, and keep monitoring them.

Beneficiaries need a lighter touch. EU AML/CFT Global Facility guidance describes applying CDD to recipients of humanitarian aid as bad practice. Instead, focus your checks on partners and intermediaries.

Suggested read: What is Customer Due Diligence?

Sanctions and PEP screening for donors

Screen donors (and, where relevant, partners and intermediaries) against sanctions lists. Screening needs to be thorough: basic checks can miss a sanctioned individual or their close associates if they don’t account for alternative surnames, spellings, and transliterations. It’s also worth screening for politically exposed persons (PEPs), as large donations from PEPs may carry a higher risk of corruption-related funds.

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Charity money laundering FAQ

• Are charities used for money laundering?

  Yes, they are. Because charities focus their resources on helping people, they may struggle to establish proper verification mechanisms to combat money laundering. Besides that, criminals can create fake charities to launder money or evade taxes.

• How does money laundering work through charities?

  Criminals use charities to launder money in nine main ways: misuse of funds, cash loans, insider abuse, donation refund schemes, diversion of funds abroad, tax relief abuse, imposter charities, shell charities, and crowdfunding and donation platform abuse. In each case, the charity’s trusted status helps disguise where the money came from or where it’s going.

• What are the AML policies for charities?

  While charities are not generally legally obliged to comply with AML regulations, they should take steps to minimize money laundering risks to protect the integrity of their organizations and their reputations. They should establish internal compliance procedures, appoint a compliance officer, and provide relevant training to staff members. Charities should also implement due diligence procedures to identify and verify donors and recipients. In addition, charities should create monitoring and reporting systems to detect suspicious activity and notify authorities promptly.

• What is due diligence for charity donors?

  Due diligence for charity donors is a set of checks to confirm who a donor is and whether their money is legitimate. It looks at factors such as money laundering risk and potential sanctions exposure. The required checks, and their depth, depend on the size, source, and nature of the gift, as well as any other potential risk factors that may apply.

• What is FATF and how does it regulate charities?

  FATF stands for the Financial Action Task Force, and it does not regulate charities. However, it sets global standards for anti-money laundering and counter-terrorist financing rules, and its recommendations have been incorporated into regulations worldwide.