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Use of Blockchain Technology in the Charities and Non-Profit Organization Sector


Introduction:


With the world reeling with a new virus threat Covid-19, Charities and NPOs around the world are engaged in raising funds for helping the victims and organizations involved in treating the victims. Many genuine charities are unable to raise enough funds to meet their objectives due to lack of public trust.


However, as charities and NPOs are perceived as sectors which are at ‘High Risk’ of being abused for money laundering, these organisations often having difficulty in establishing a brand of legitimacy.


Last year the UK Charities Commission investigated eight linked charities which were involved in a money-laundering scam. The Commission identified that of the funds donated to the eight charities, a small proportion of the payments were confirmed as legitimate charitable donations, many of the other payments were from overseas accounts which were connected to a website offering fake erectile dysfunction medication for men and slimming aids to customers in Austria, Germany, Switzerland and France.


Chinese charities have also been haunted by issues such as corruption, money laundering and other financial crime. Many Chinese charities have been accused of not providing access to the beneficiaries of the funds raised from the charitable donations as well as routing the funds to a different cause; for example, Charities which were set up to help young girls, but in reality gave money to young boys - one of which used duplicate photos to encourage people to donate to impoverished children.


Charity 9958, a project under China Charities Aid Foundation for Children (CCAFC) which raised funds for the heart surgery of a young girl, Wu Huayan, but never paid the amount to the beneficiary. Wu Huayan died and her death sparked public outrage and investigation into the charity.


These examples have raised increasing concerns about the credibility of Chinese charities which has impacted legitimate charities who are trying to raise funds for legitimate causes. Blockchain and other digital ledger technology, however, offers a solution.


Blockchain technology as a solution for Charities and NPO Sector


Crypto-Philanthropy refers to the use of Blockchain technology to facilitate charitable contributions. It helps many organizations raise funds and receive donations through direct decentralized transactions.

Blockchain technology is being adopted by various charities around the world to provide greater transparency into funds being donated and the ultimate use of the donations.


  • Highly visible and traceable transactions The decentralized nature of Blockchain technology helps to create better trust between the donors and Charities. Donors can track all their transactions from the beginning to the end and are able to verify where the funds went. The recipients receive maximum amount of the money donated on a real time basis since expensive transfer mechanism are bypassed.


  • Transactions at Higher Speed and Lower Cost Every transaction executed on Blockchain is recorded in near real time and is available to everyone. Transactions performed on a blockchain can reach the recipient faster and is recorded immediately. This decreases the cost of annual reporting on a charitable organization budget and increases its transparency.


  • Cryptocurrency Exchanges subject to Regulation Under the European 5th Money Laundering Directive (5MLD), Cryptocurrency exchanges are considered as ‘obliged entities’ and are subject to the same regulatory AML/CFT measures applied to financial institutions. This involves an obligation to conduct KYC, Transaction Monitoring and submission of Suspicious Activity Reports when potential illicit transactions are identified.


This technology will result in individuals involved in Crypto-Philanthropy being subject to KYC and their donations are traceable when made through the Blockchain platform offered by cryptocurrency exchanges.


Blockchain Platform to fight an epidemic


Hyperchain, a world leading Chinese enterprise-level blockchain platform, recently announced the launch of its Blockchain based platform to fight against the Coronavirus epidemic (Covid-19). The charities on the platform will serve as medical supply donations to support hospitals in Central China.

Hyperchain created the platform to ensure the donation process is immutable, traceable and reliable. The portal provides information exchange and allows donors to see through where their donations are going. It also provides a proof of need and proof of receipt to ensure the donations reach the intended party.


Conclusion:


The recent rise of technologies such as Big Data, Blockchain and Artificial Intelligence have provided a window of opportunity for different sectors to start using them to support payments and to provide better transparency in their business and to deter and reduce financial crime. Blockchain technology companies have started partnering with charity organizations to provide more transparency into their business and provide a better way for accounting and auditing the transactions. Awareness about the advantages of Blockchain technology needs to be created so that its scope can be beneficially utilised.



References:


https://www.imd.org/research-knowledge/articles/could-blockchain-revolutionize-philanthropy/

https://www.thirdsector.co.uk/regulator-examines-eight-linked-charities-amid-10m-fake-viagra-money-laundering-scam/governance/article/1590462

https://cointelegraph.com/news/blockchain-charity-platform-to-fight-against-the-coronavirus-outbreak

https://www.bbc.co.uk/news/world-asia-china-51131296


By Vanitha Vinayak, Consultant at Lysis Group

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