Risk Factors in Cross-Border Grantmaking
A Framework for Risk Assessment in Grantmaking
A Strategic Approach to Risk
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, operating model, and regulatory environment. With the right tools and thoughtful assessment, global grantmaking can remain both mission-aligned and risk-aware.
Key Risk Factors
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” or “Black” lists should be red flags 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. Funders should pay special attention to the recipient’s internal controls and verify their institutional banking relationships.
Exposure to Terrorist Networks
Regions where terrorist organizations are known to operate—particularly conflict zones or fragile states—require heightened scrutiny. Active terrorist networks can infiltrate charitable ecosystems to redirect funds or launder proceeds under the guise of legitimate programs. Paragon’s enhanced screening services use expanded sanctions databases and adverse media tools to help identify and mitigate these risks.
Grant Size and Complexity
Larger grants inherently 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 justify a Higher Risk vetting pathway.
Re-Granting and Sub-Award Structures
Grant agreements that authorize re-granting 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 re-granting is permitted, it is essential to request detailed plans, vet downstream partners, and require periodic reporting from both tiers.
Supporting Tools and Services
The following services are particularly critical in evaluating and addressing risk in cross-border grantmaking:
Anti-Terrorist Financing Screening (ATFS)
Higher Risk Anti-Terrorist Financing Screening (ATFS HR)