“New technology is not good or evil in and of itself. It’s all about how people choose to use it.” wrote Jason Pargin, writer, humourist, and editor of the website Cracked.com.

Part of what I do at Stewardship Wealth is help Simon wade through the incessant incoming waves of regulatory issues and discuss how best to address them. I recently received a note from our compliance partner relating to crowdfunding which, up until I read the note, I thought of as a useful, innocent way of raising money for noble causes or business start-ups. I am now better informed, but also unnerved, by what I read. So, I thought I’d share my thoughts.

Crowdfunding, for the uninitiated, is when a project, charity, or individual, reaches out for support primarily on social media by posting details of their project or plans. The idea is to attract a wide audience who may only each give small contributions. These small ventures can catch alight on social media and attract supporters from all over the world. It can also be done through in-person fund-raising on the street, at carnivals or in popular public spaces.

One outstanding example of this is a young girl called Rachel who, for her 9th birthday, asked people to give $9 to support ‘charity: water’* instead of birthday gifts. She wanted to raise $300 but fell just short. She was tragically killed in a car accident shortly afterward, but her story began to spread, and people began to give. In total 30,000 people gave a total of $1.2m as a result. Support for Rachel’s fund-raising efforts still continues today, a decade later.

There are several types of crowdfunding such as:

  • Donation-based: where people give money to people or organisations they want to support.
  • Pre-payment or rewards-based: people give money to receive a reward, service or product (tickets for an event, an innovative product, or a new computer game).
  • Loan-based: people lend money to individuals or businesses in the hope of a financial return (interest and capital repayments over time).
  • Investment-based: by buying shares, or using potentially riskier methods.

Remorseless technological change is putting immense pressure on regulators. The significant volumes of financial transactions, the potential redirection of funds through social media and fake websites has attracted the unwanted attention of the ugly, dark side. Trying to oversee the wave of increasingly innovative promotion of financial products and services is becoming increasingly vital. The key role of any regulator is the avoidance of any foreseeable harm to consumers. Most of us regard crowdfunding as a friendly charitable endeavour, so how could crowdfunding present a financial threat to consumers?

Here comes the scary bit. The 2023 report from the Financial Action Task Force (FATF) revealed increasing use of crowdfunding by terrorist groups such as Levant, probably better known as ISIS or ISIL, along with Al-Qaeda and their affiliates. Six cases studies examined how terrorist organisations were using crowdfunding in various global locations.

The report examined crowdfunding activities on social media, messaging applications or other dedicated websites. It highlighted ways crowdfunding platforms can be abused for terrorist funding purposes.

  • A terrorist group could establish a fundraising campaign on a dedicated crowdfunding platform, share the campaign on social media, requesting and receiving payment in a range of international currencies, even Bitcoin.
  • Recognised humanitarian, charitable and non-profit causes can serve as effective covers for financial solicitation and find themselves targeted and abused for criminal purposes.
  • An individual launches an appeal for humanitarian support but does not follow through on the advertised purpose, diverting funds to a more sinister project.
  • Genuine appeals by people working in high-risk environments where terrorist groups have considerable influence, have been subject to extortion and seen funds diverted.

The scale of the challenge to bring in regulation and control is a mammoth task. In 2022, there were over 6 million crowdfunding campaigns around the world. The combination of volume and variety adds to an already colossal task, and one that self-regulation is unlikely to solve.

Use of AI and sophisticated algorithms can also direct people to sites based on previous social media use. Clever things cookies. Replicating those legitimate sites that are regularly visited can mean people unwittingly supporting terrorist groups and extreme ideologies.

The types of crowdfunding identified as targets are:

  • Donation-based crowdfunding especially the use of technological solutions.
  • Operations involving in-person solicitation and donations, obtained through fundraising events, cultural movements, religious or other associations.

They traditionally involve cash however new technological solutions using digital tools such as Quick Response (QR) codes directing people to payment instructions, websites or electronic accounts.

Why would we be raising this?

We enjoy a close working relationship with our clients, and actively discuss planned charitable and philanthropic giving strategies. The younger generation are both generous and more likely to consider giving on impulse via crowdfunding as a legitimate and personal way to support deserving causes. Technology has made it so simple to donate, and crowdfunding sites can look so authentic that suspicions are unlikely to arise. After all, it’s often only a few pounds.

It is deeply unfortunate that such warnings and heightened awareness are necessary, but it appears that anywhere there is any financial connection, exploitation rears its ugly head.

It distracts from the incredible difference the vast majority of legitimate crowdfunding activity makes to people’s lives, and we shouldn’t be put off supporting where we feel appropriately informed.

If you, or anyone in your family has any concerns about this issue please let us know. We are always happy to talk.

*Here is a link to one of the most powerful, compelling videos I’ve seen for any charity, charity: water’s founder, Scott Harrison.