When Baseline Screening Isn't Enough
Anti-terrorist financing screening is one component of cross-border grantmaking due diligence. Within that component, not all situations call for the same level of review. Some grants clear a baseline watchlist screen and require nothing further on the anti-terrorist financing screening front. Others present factors that warrant a closer look.
The factors that push a grant into more complex territory reflect real patterns in how funds get diverted, how terrorist financing operates, and where institutional controls are weakest. Understanding those factors helps grantmakers make better-informed decisions about when additional due diligence is warranted and why.
Assessing the appropriate level of due diligence to apply is a judgment call that belongs to the funder. No single risk indicator is decisive on its own. A grant may present one such indicator and still warrant nothing beyond a baseline screen. A first-time grant, on its own, is unremarkable; a first-time grant to a regranting intermediary in a jurisdiction with weak financial oversight is a different matter. What signals the need for a closer look is more often several indicators coinciding, or a single indicator presenting acutely enough to change the overall picture. This is the risk-based approach at the core of international counter-terrorist-financing standards. The Financial Action Task Force, whose recommendations shape financial oversight internationally, calls for measures addressing the non-profit sector to be “focused, proportionate and risk-based” rather than uniform, and has cautioned against treating all organizations as high-risk by default. National regimes echo this principle. The U.S. Treasury’s voluntary guidelines for the charitable sector, for instance, direct organizations to adopt measures commensurate with the risks they face rather than a fixed level of scrutiny applied to every grant.
Paragon’s baseline anti-terrorist financing screening (ATFS) screens the grantee organization, its key personnel, and affiliated entities against the major international sanctions and terrorism lists, including those maintained by the United Nations, the European Union, the United Kingdom, and the United States (OFAC), alongside Interpol and other registers. The baseline report also identifies and records a structured set of “escalation indicators” alongside the watchlist results. These are factors which, alone or in combination, may prompt a grantmaker to escalate to a higher level of screening. Each is explained below.
Jurisdictional Risk Indicators
These indicators address the environment in which the grantee operates. A grantee can have no watchlist matches and no adverse associations and still operate in a context that introduces meaningful risk. Jurisdictional indicators surface that context.
Sanctions Exposure
A grantee can be free of any watchlist match and still operate in a country that is itself subject to sanctions. Sanctions vary in scope. Some are comprehensive, restricting virtually all transactions with a country or region; others are targeted, reaching only designated individuals or entities. Where sanctions apply at the country level, their nature matters: a grant to an organization with no watchlist match in a comprehensively sanctioned country raises different questions than one in a country where only specific parties are designated.
FATF Listing Status
The Financial Action Task Force maintains two public lists of jurisdictions with identified deficiencies in their anti-money-laundering and counter-terrorist-financing frameworks. The grey list (formally, jurisdictions under increased monitoring) identifies countries that have committed to address specific weaknesses and are being actively monitored. The black list (formally, High-Risk Jurisdictions Subject to a Call for Action) identifies countries with more serious deficiencies where FATF members are called to apply countermeasures.
FATF listings matter for grantmakers because they reflect the strength of local financial oversight. A country on either list has formally acknowledged gaps in its ability to detect and prevent financial flows to illicit actors. That does not mean every grantee in that country poses a risk. It means the institutional environment offers less assurance that financial controls are working as they should.
Documented Terrorist Organization Presence
Some countries have active designated terrorist organizations operating within their borders. This indicator records whether any such organizations are documented as present in the country where the grantee is based or active. It is a factual record drawn from public sources, not an assessment of the grantee, and not a finding about the grant. Its relevance is contextual: operating in an environment with documented terrorist organization presence is a factor that sophisticated compliance programs take into account.
Basel AML Index Score
The Basel Institute on Governance publishes an annual composite risk score for countries, on a scale of 0 to 10, where higher scores indicate greater exposure to money laundering and terrorist financing risk. The index draws on publicly accessible sources including the FATF, Transparency International, and the Global Initiative against Transnational Organized Crime. The score captures something that watchlist screening cannot: the systemic risk environment in a country, rather than the status of any individual actor. Two countries with no OFAC exposure and no FATF listing can look identical in a watchlist screen while differing substantially in their underlying risk environment. The Basel AML Index makes that difference visible.
Corruption Perceptions Index Score
The Corruption Perceptions Index, published annually by Transparency International, scores countries from 0 to 100, where lower scores indicate higher perceived corruption. Its relevance to grantmaking due diligence is sometimes less obvious than the other indicators, so it is worth explaining directly. Corruption and terrorism financing are connected through the same mechanism: weak institutional controls. In a high-corruption environment, financial oversight is less reliable, regulatory enforcement is less consistent, and the ability to trace funds through local intermediaries is reduced. A grantee operating in good faith in such an environment faces structural risks that have nothing to do with its own conduct, risks that are not visible in a watchlist scan. The CPI provides a systematic, cross-comparable measure of that environment.
Grant Structure and Relationship Considerations
These indicators address characteristics of the specific grant arrangement rather than the operating environment. The relevant facts (grant size, purpose, regranting arrangements, relationship history) are held by the grantmaker, and the escalation judgment belongs there as well.
Grant Size or Complexity
Larger grants concentrate more resources in a single relationship and raise the consequences of any gap in due diligence. Complexity compounds the risk: phased disbursements, multiple objectives, and cross-border sub-components create more handoff points, more intermediaries, and more opportunities for funds to be diverted before they reach their intended purpose. The larger and more complex a grant, the more surface area there is for something to go wrong, and the less likely that a baseline watchlist screen alone will be sufficient to address it.
Regranting or sub-award arrangements
When a grantee is authorized to pass funds to downstream recipients, baseline screening of the primary grantee does not reach those recipients. Fund diversion and terrorist financing do not always occur at the first point of transfer. They can occur further down the chain, through organizations or individuals the original funder never screened. Regranting arrangements are legitimate and common in cross-border grantmaking, but they require the funder to consider whether screening the primary grantee is sufficient when that grantee becomes, in effect, a grantmaker itself. In high-risk jurisdictions, downstream recipients may operate with even less institutional oversight than the primary grantee.
First-time relationships
Repeat relationships carry an accumulated body of evidence: prior screening results, grant reports, financial documentation, and a track record of the grantee meeting its obligations. That history does not guarantee future compliance, but it provides a basis for calibrating risk that does not exist when a relationship is new. A first-time engagement requires the funder to rely more heavily on the screening process itself, with no prior relationship context to draw on. This matters most when the new relationship also involves elevated jurisdictional risk indicators, a complex grant structure, or a grantee with limited prior exposure to international compliance requirements.
Working with Paragon
For situations that warrant greater scrutiny, such as higher-risk geographies or unusually large or complex grant structures, Paragon offers ATFS-HR, a higher-risk screening service that adds national sanctions screening, terrorism-focused adverse media review, verification of banking good standing, and review of the grantee’s policies governing downstream partners to the Tier 1 baseline. For the most complex situations, Integrity Review and Integrity Due Diligence provide progressively deeper analysis.
Third-Party Risk
Anti-terrorist financing screening is one component of Paragon’s broader Third-Party Risk services, which help grantmakers identify and manage exposure to terrorist financing, corruption, political influence, sanctions risk, and related vulnerabilities across cross-border giving.