A loophole which allows convicted terrorists and money launderers to become charity trustees is set to be closed under plans to beef up the powers of a regulator.
Damning criticism of the Charity Commission by a spending watchdog over its failure to deal effectively with rogue good causes has led ministers to examine what new powers it needs.
And one of the priorities is tightening the criteria for barring people from being a trustee - which at present would allow jailed terror plotters to set up new fundraising scams when they are released.
Civil Society Minister Nick Hurd has launched a consultation on enhanced powers for the Commission - which partly blames a lack of teeth and resources for its poor performance in policing the sector.
The move was one of the recommendations of a highly critical assessment of the body by the National Audit Office (NAO) which found the Commission was "not regulating charities effectively".
Under present law, only those convicted of offences classed as "dishonesty or deception" face automatic disqualification - which does not cover serious crimes such as terrorism.
One recent case highlighted by the Cabinet Office consultation was of a group of people convicted of terrorism offences who had diverted "charity" cash to their cause.
"Although currently serving custodial sentences, if these individuals wanted to become charity trustees they would not be caught by the existing disqualification provisions," it said.
The Government indicated that it would act to tighten the law when the same issue was raised in a recent review led by Lord Hodgson.
Other suggested powers include giving the Commission the right to close down charities found guilty of serious misconduct or mismanagement and more leeway to intervene where assets are at risk.
Commission chief executive Sam Younger, who accepted the NAO's verdict that it needed to make significant improvements, welcomed the reform plans.
"We have long pressed for extensions to our powers to prevent and tackle abuse in charities," he said.
"So I welcome and support the Cabinet Office consultation. If enacted, these changes would make us a stronger, more robust and more agile regulator.
"Effective regulation plays an important role in maintaining the public trust and confidence in charities so we believe all charities will benefit if we are better able to tackle and prevent abuse.
"This consultation presents an important opportunity to help to shape the future of charity regulation and I encourage charities and those with an interest in and experience of their work to respond to this consultation."
The NAO investigation was called by the Commons public accounts committee after it found the Commission had failed in its response to a registered charity using a tax avoidance scheme.
The Cup Trust gave just £152,292 to good causes despite attempting to claim £46 million back from the tax authorities in Gift Aid on its £177 million income.
The NAO said the Commission failed to check the organisation met the legal requirements when it registered as a charity in April 2009.
Its sole corporate trustee was a company called Mountstar, registered in the British Virgin Islands.
In 2011, despite concerns raised by HMRC - which has refused to pay back the claimed Gift Aid - the commission failed to open a statutory investigation and remained "too passive", the NAO said.
It eventually launched a full investigation in April, admitting that the outcry over the case had been "a disaster for the charity sector".
But the NAO backed complaints the commission should have acted against the Trust far sooner - suggesting the case was symptomatic of widespread failings.
In the three years to March, not one charity trustee had been removed by the commission, only two had been suspended and there were just 17 instances where it intervened to prevent charities entering transactions, the report pointed out.
Mr Hurd said: "Deliberate abuse of charities remains rare, but where it does take place it is important that the Charity Commission has the tools it needs to act swiftly and decisively to protect public trust and confidence in charities.
"The National Audit Office has criticised the Charity Commission for failing to effectively regulate charities.
"The Charity Commission has accepted that it needs to improve its regulatory effectiveness, and there is already evidence of progress under the direction of its new board."