In 2024, Luxembourg’s financial sector was rocked by the Caritas affair, marked by an unprecedented embezzlement within this leading charitable organization. This scandal, involving €60 million, revealed significant governance failures and internal control weaknesses within the NGO, as well as shortcomings in the vigilance of its financial partners. Beyond the immediate repercussions for Caritas, this event sparks a deeper reflection on the governance of non-governmental organizations (NGOs) and the risk management challenges they face.
The Caritas Case: A Revealer of Governance Failures
The Caritas case broke in July 2024, when a complaint was filed by the NGO’s CEO, Marc Crochet, reporting fraudulent transfers to a Spanish bank. The amount embezzled — over €60 million — far exceeds Caritas’ annual budget, estimated at €57.3 million. This fraud, which happened over the span of six months, occurred largely in the absence of the CEO, highlighting a critical lack of robust internal controls within the organisation. Out of the 61 million that evaporated, 30 million in loans had been granted to the foundation by banks, despite the Board of Directors not giving its approval. The foundation will now have to find a way to repay them.
The transfers, ranging from €250,000 to €500,000, bypassed the monitoring systems of the partner banks (such as BGL and Spuerkeess), raising questions about the reliability of the systems designed to detect suspicious transactions. The methods used, such as identity theft and document forgery, allowed the fraud to go unnoticed, illustrating the limitations of current mechanisms in protecting against financial crimes.
In Caritas’ case, the incident led to the immediate suspension of public funding. Luxembourg’s Prime Minister, Luc Frieden, asserted that no further public funds would be disbursed to the NGO until assurances on the proper use of funds were provided1.
The Caritas affair is far from an isolated case. Other NGOs have also faced financial scandals that tarnished their reputations and exposed governance flaws. Greenpeace’s 2014 incident, in which an employee lost €3.8 million in risky foreign exchange bets, demonstrates that even the most prestigious organisations are not immune to internal dysfunctions2. These incidents reveal the vulnerability of NGOs to human error and fraud when control mechanisms are insufficient, as well as the need for NGOs to strengthen their governance frameworks to ensure rigorous and transparent management of their resources.
Towards Stronger Governance and Increased Vigilance
NGO governance, like corporate governance, relies on a set of rules and practices designed to guide leaders’ actions and ensure the proper management of resources. For NGOs, it is crucial to establish robust internal control mechanisms to prevent misconduct while maintaining continuous oversight of financial transactions.
The Caritas affair sent shockwaves not only through the NGO sector but also throughout Luxembourg’s financial sector. The Association of Banks and Bankers of Luxembourg (ABBL) quickly responded, announcing plans to enhance bank employees’ training on fraud detection, while the Financial Sector Supervisory Commission (CSSF) may impose new vigilance rules regarding suspicious transactions. These measures aim to restore public confidence and ensure better security in financial systems.
However, these reforms should not be limited to financial institutions. NGOs themselves must learn from this incident and strengthen their governance structures.
Improving financial oversight
To avoid scandals like the one involving Caritas, the governance of NGOs must be strengthened on several levels. This includes reviewing internal decision-making processes, ensuring complete transparency in fund management, and increasing the traceability of financial transactions.
It is essential to introduce enhanced financial controls, as proposed by the LSAP, including multi-level validations for significant payments, applying the “four-eyes” principle for amounts over 10,000 euros, and the “eight-eyes” principle for payments exceeding 100,000 euros. If a project incurs costs exceeding 500,000 euros over a four-week period, the board of directors should make a decision on the matter. Additionally, the implementation of regular supervision by external auditors and the Court of Auditors would help detect vulnerabilities before they can be exploited.
Finally, transparency measures, such as registering in the transparency register for associations receiving public funds, coupled with new governance to replace failing structures as planned by the government, are crucial to minimising future risks3. As Christelle Perrin emphasized, donors’ and funders’ trust now rests on NGOs’ ability to demonstrate ethical, rigorous, and responsible management of their resources4.
Conclusion
The Caritas scandal is a wake-up call for the entire humanitarian and non-profit sector. It highlights the need for NGOs to bolster their governance and risk management mechanisms to meet growing expectations for transparency and accountability. In an environment where trust is paramount, charitable organisations must ensure that their resources are managed with the utmost rigour. The Caritas case will undoubtedly serve as a catalyst for deep reforms, aiming to restore the credibility of NGOs and prevent future misconduct.
- https://www.virgule.lu/luxembourg/jusqua-present-environ-29-millions-deuros-ont-ete-verses-par-letat-a-caritas-en-2024/17630840.html ↩︎
- https://www.lemonde.fr/economie/article/2014/06/16/greenpeace-perd-3-8-millions-d-euros-a-cause-d-un-de-ses-employes_4439229_3234.html ↩︎
- https://www.virgule.lu/luxembourg/comment-eviter-a-lavenir-les-cas-de-fraude-comme-ceux-de-caritas/18855775.html ↩︎
- Christelle Perrin. Une explication de la gouvernance des ONG vu à travers le processus de rationalisation de l’aide humanitaire. Revue française de gouvernance d’entreprise, 2008, 4, pp.159-180. ↩︎