Charity staff are being urged to act as whistle-blowers if they suspect funds are being used to finance terrorism.

The Government has today issued an alert against charities that divert cash to fund terrorism and pledged to take action against trustees and charities who suspect this and fail to report it. It follows several cases where UK charity assets have ended up in the hands of proscribed terror groups.

In guidance on the Terrorism Act, the Charity Commission says it is particularly relevant for charities in countries or areas where terrorists are active or in control.

"The intended use or diversion of charitable funds for terrorist purposes is completely unacceptable and undermines public trust and confidence in charities," the commission said.

Under counter-terrorism legislation, charity trustees and staff are obliged to report suspicions that funds are being misused, such as to fund terror. Failure to do this is punishable by fines or up to five years in prison.

The commission said it understands the risks charities and their staff face when working in unstable and dangerous countries. 

"Trustees must remain alert and vigilant to the risk to their charity's operations as a result of proximity to terrorist groups or organisations," the commission said.

"The commission, in issuing this alert, is raising awareness of the legal requirement to report suspicions or beliefs regarding terrorist financing offences with charity trustees so that they do not breach UK counter-terrorism legislation."

In the cases where funds have been lost, there was no indication that the charities involved had knowingly allowed their assets to be used for terrorism, the commission said.

In one incident, there was a delay between the time that the losses were identified and raised internally within the charity and then being reported to the police but although this was an offence, the commission and the Crown Prosecution Service decided it was not in the public interest to prosecute. 

However, the commission warned there would be prosecutions in future. 

Earlier this year, the Overseas Development Institute warned that millions of pounds of donations to charities have been held up, blocked or returned by banks over fears that the cash could end up financing terrorism. Several international banks had frozen UK charity accounts. The institute said a lack of guidance on how banks should respond to counter-terrorism legislation had caused overly risk-averse action towards UK charities in conflict zones.