Navigating Philanthropic Compliance in an Era of Heightened Regulation

Compliance has been an inextricable component of philanthropy for as long as it has been tied to tax incentives and government spending. But in recent years, the number of global regulations, recommendations, and executive actions has ballooned, adding significant costs and complexity to philanthropic transactions.

As just one example, the Financial Action Task Force (FATF), a regulatory body established by the G7, expanded its Recommendations to cover terrorist financing in 2001 and declared that nonprofits were especially vulnerable to terrorist money laundering. This contributed to a wave of bank derisking activities, including restricting nonprofits’ access to funding and bank accounts. The FATF later conceded that the Recommendations disrupted and discouraged legitimate nonprofit operations, but while it revised them in 2016 and again in 2021, many small nonprofits still cannot open bank accounts and experience periodic account closures.

Simultaneously, national and international governments increasingly use economic sanctions to pressure or penalize other nations. To avoid steep penalties for even inadvertent violations, public agencies like the Office of Foreign Assets Controls require that funders and their banks collect the personal details of nonprofit directors, officers, related parties, and affiliated entities before authorizing a transaction. In 2021, the US Treasury Department reported that US sanctions had increased by roughly 900 percent over the previous two decades.

Meanwhile, anti-terrorism checks have crept into previously distinct tax-exempt law processes, while broad and ambiguous definitions of “material support” of terrorism have led funders to adopt complex vetting exercises, including increased application and reporting requirements.

Good intentions are often at work here: Government compliance systems aim to bolster trust in civil society and protect communities from harm, and mandates within the field aim to improve philanthropy’s effectiveness and efficiency. However, given the increasing burden of reporting on the sector, it is important to consider whether government and philanthropy are actually meeting these goals, and whether social sector organizations are the better for it.

This article series, presented in partnership with Latitude Global, examines compliance as a tool not only for control, but also for resistance, education, and opportunity. The stories explore how compliance shapes philanthropic efficacy and how the sector might do better, particularly in contexts where political decisions or constraints make civil society difficult to support.