Associations and Foundations: Unique KYC Challenges
Associations and Foundations: Unique KYC Challenges
"But we're just a sports club!" The board looks confused at the accountant insisting on comprehensive KYC documentation. The truth is that associations and foundations face some of the most complex KYC challenges - not because they're high-risk, but because their structure simply doesn't fit the normal boxes.
Let's dive into why these seemingly innocent organizations can give even experienced compliance professionals gray hair.
Why Is It So Complicated?
Associations and foundations differ fundamentally from regular companies:
- No traditional owners
- Democratic/collective leadership
- Often many people involved
- Frequent board changes
- Complex money flows (fees, donations, grants)
KYC rules are designed for companies with clear owners. When nobody "owns" the association, who should you identify?
The Ultimate Challenge: Beneficial Ownership
Foundations: Nobody Owns Anything
A foundation owns itself. There are no beneficial owners in the traditional sense. But AML law still requires you to identify:
- Board members (they have control)
- The founder (if relevant/alive)
- Beneficiaries (if specific)
- Persons with significant influence
Practical solution: Treat the board as "beneficial owners" and document this choice.
Associations: Everyone and No One Owns
An association is theoretically owned by members - maybe 500 people. Should you KYC check everyone?
Law's answer: No. Focus on:
- Daily management
- Board members
- Persons with power of attorney
- Particularly influential members
Typical Association Challenges
1. Annual Board Turnover
Problem: General assembly elects new board. Suddenly your KYC data is outdated.
Solution:
- Get automatic notice of board changes
- Standard KYC package for new board members
- Annual "batch update" after general assembly
2. Cash-Intensive Activities
Problem: Football club has canteen, raffles, flea markets - all in cash.
Solution:
- Document normal income patterns
- Establish cash policy
- Show how money goes to association purposes
3. International Connections
Problem: Scout association sends money to friendship group in Kenya.
Solution:
- Extra documentation for international transfers
- Verify recipient organization
- Save project documentation
4. Public Grants Mixed with Private Funds
Problem: Municipal grant, sponsorships, and fees in one pot.
Solution:
- Separate project accounts
- Clear bookkeeping of funds' origin
- Documentation of use
Foundations: Special Circumstances
Commercial vs. Non-Commercial
Commercial foundations: Full KYC program like companies.
Charitable foundations: Can often manage with reduced KYC, but watch out if they:
- Receive large individual donations
- Have international activities
- Distribute to individuals
Donor Due Diligence
Foundations must also know their donors:
- Who gives money?
- Where does money come from?
- Are there conditions?
Red flag: Anonymous donation of 5 million? KYC alarm!
Practical KYC Setup
For Small Associations
- Basic documentation:
- Articles of association
- Minutes from latest general assembly
- List of board members
- CVR registration
- Person identification:
- Passport/driver's license for board members
- CPR numbers (store securely!)
- Annual update:
- After general assembly
- At board changes
For Larger/Complex Organizations
Everything above plus:
- Detailed organization chart
- Policy for receiving donations
- Procedures for international transfers
- Extended documentation on money flows
Risk Assessment in Practice
Low Risk ✅
- Local sports association
- Only fee-financed
- No international activity
- Transparent economy
High Risk 🚨
- International charity
- Large cash donations
- Political/religious activity
- Distribution to individuals
Digital Tools That Help
Automatic CVR monitoring: Get notified of board changes.
Template library: Standard KYC packages for new board members.
Bulk operations: Update entire board at once.
Integration with Civil Registry: Verify CPR numbers automatically.
When Inspection Comes
Business Authority has special focus on associations/foundations because:
- Historically used for money laundering
- Often inadequate documentation
- Complex money flows
Be prepared for questions about:
- Why you chose your KYC approach
- Documentation of board's control
- Money's path through organization
10 Golden Rules
- Document everything - even what seems obvious
- Update continuously - not just annually
- Be transparent - about organization's purpose
- Keep money flows simple - if possible
- Train the board - in KYC understanding
- Have clear policies - for donations and distributions
- Use professionals - accountant/lawyer when in doubt
- Archive electronically - paper disappears
- Make audit trail - for all decisions
- Take it seriously - even if you're "just volunteers"
The Future
Rule development points toward:
- Better adapted rules for non-profits
- Digital integration with public registries
- Standardized industry solutions
- Proportionality based on activity
But until then, associations and foundations must navigate rules designed for companies.
Conclusion
Yes, KYC for associations and foundations is complex. But it's not about making life difficult for volunteers. It's about ensuring well-meaning organizations aren't abused for criminal purposes.
With the right approach - proportional, practical, and persistent - even the most complex association can comply without drowning in paperwork.
Remember: You're not alone. Seek help, share experiences with other associations, and gradually build a system that works for you.
Because ultimately, it's about protecting the good work you do.
