Risk Factors in International Grantmaking
Risk management is essential for responsible and compliant cross-border philanthropy. Effective due diligence helps mitigate exposure to financial crime, fund diversion, terrorism financing, and reputational harm. While every grant carries its own complexities, a structured approach to assessing risk enables funders to tailor their diligence accordingly.
There is no one-size-fits-all model for evaluating grant risk. Funders should adopt internal frameworks that reflect variables such as grant size, geographic focus, whether the grantee works directly or through partners, and regulatory environment. With the right tools and thoughtful assessment, global grantmaking can remain both mission-aligned and risk-aware.
Paragon’s Four-Tier Framework provides funders with a scalable method for aligning the depth of review with the level of risk, ensuring that diligence remains proportionate, consistent, and defensible across diverse cross-border contexts.
Related
Paragon’s Four-Tier Framework helps funders align vetting depth with risk.
Risk across the grant lifecycle
Before payment
How well does the funder know the grantee, and how much is at stake?
A first-time relationship calls for closer review.
More money and more partners create more points where funds can be diverted.
Transfer
Can the money be traced once it leaves the funder?
Weak financial oversight and controls
Weak anti-money laundering (AML) regulation and banking oversight in the destination country make funds harder to trace.
Use of funds
Where is the money spent, and who receives it in turn?
Corruption in the operating environment
Bribery, false reporting and political influence can divert funds. PEP Screening →
Exposure to terrorist networks
Funds can be redirected where designated groups operate. ATFS-HR →
Regranting and sub-award structures
Screening the grantee does not reach its sub-grantees.
Several of these factors, alone or together, can lead a funder to escalate its screening. When to Escalate Screening →
Key Risk Factors in Cross-Border Grantmaking
Paragon Philanthropy supports clients in evaluating cross-border grant risk by focusing on the following high-impact categories:
Corruption in the Operating Environment
High levels of corruption in a grantee’s operating context significantly increase the risk that funds may be diverted or misused. Corruption is often associated with practices such as bribery, collusion, and fraudulent reporting, conditions that are especially prevalent in jurisdictions that do not comply with Financial Action Task Force (FATF) standards. A country’s ranking on the Corruption Perceptions Index or inclusion on the FATF grey list (jurisdictions under increased monitoring) or black list (high-risk jurisdictions subject to a call for action) are among the indicators funders weigh during due diligence.
Weak Financial Oversight and Controls
Grants directed to countries with insufficient anti-money laundering (AML) protections and inadequate financial regulation face increased exposure to unauthorized use of funds. In such environments, the lack of reliable auditing, banking integrity, and transaction traceability makes it easier for malicious actors to exploit charitable flows.
Exposure to Terrorist Networks
Regions where terrorist organizations are known to operate, particularly conflict zones and fragile states, require heightened scrutiny. Active terrorist networks can infiltrate charitable ecosystems to redirect funds or launder proceeds under the guise of legitimate programs. Higher-Risk Anti-Terrorist Financing Screening (ATFS-HR) adds national sanctions and adverse media screening to help identify these risks.
Grant Size and Complexity
Larger grants can carry greater risk due to the scale of financial exposure and operational oversight required. They often involve multiple implementation partners, cross-sector objectives, and intricate disbursement schedules. These elements raise the stakes and demand a more robust due diligence protocol, including deeper financial analysis, leadership vetting, and ongoing monitoring.
Prior Grantmaking History
A strong, well-documented grantmaking history with a grantee can be a significant risk mitigant. Consistent compliance, accurate reporting, and demonstrated programmatic integrity over time reduce the likelihood of diversion or misuse. Conversely, first-time engagements or insufficient prior data warrant more intensive scrutiny and may lead a funder to choose ATFS-HR. When to Escalate Screening sets out the indicators that most often lead funders to make that choice.
Regranting and Sub-Award Structures
Grant agreements that authorize regranting introduce a layer of uncertainty and complexity. The primary grantor loses direct oversight of downstream recipients, thereby increasing the risk of non-compliance or diversion at the secondary level. Where regranting is permitted, it is essential to request detailed plans, vet downstream partners, and require periodic reporting from both tiers.
Supporting Tools and Services
Managing cross-border grant risk requires diligence tools that can be calibrated to different levels of exposure. Paragon’s services support a risk-based approach, enabling funders to apply appropriate screening, review, and monitoring measures as grant complexity and risk increase.
Rather than a one-size-fits-all model, these tools help ensure that diligence remains proportionate, defensible, and aligned with regulatory expectations. The following services play a critical role in addressing elevated risk in international grantmaking:
Anti-Terrorist Financing Screening (ATFS)
Establishes the baseline for cross-border due diligence by screening organizations, leadership, and banking relationships against global terrorism and sanctions lists to identify potential exposure to terrorist financing risk.
Higher-Risk Anti-Terrorist Financing Screening (ATFS-HR)
Builds on baseline anti-terrorist financing screening by adding national sanctions screening, terrorism-focused adverse media screening, and review of bank-issued account status documentation to address elevated risk associated with higher-risk geographies, complex operations, or government-linked entities.
Integrity Review (IR)
Builds on higher-risk anti-terrorist financing screening to assess corruption, governance, political exposure, and reputational risk through expanded PEP screening, adverse media review, and policy analysis across leadership, partners, and financial channels.
Integrity Due Diligence (IDD)
Builds on the Integrity Review by applying enhanced verification, litigation and enforcement record searches, and expanded ownership mapping to document integrity-related risks in higher-risk or complex grantmaking environments.
Politically Exposed Persons Screening (PEPS)
Identifies political exposure by screening organizations and key individuals against global PEP databases, helping funders assess corruption, influence, and reputational risk linked to politically connected leadership or counterparties.
Adverse Media Screening (AMS)
Monitors global media sources to surface historical or emerging reputational concerns, including fraud, corruption, financial misconduct, or other material issues, that may be relevant to grantmaking decisions.
Financial Health & Controls Screen
Reviews submitted financial and governance documentation to identify indicators of financial weakness, control gaps, or operational risk. Supports early assessment of an organization’s financial capacity and stewardship practices.