Monday, August 8, 2011
There have been a couple of international legal developments of particular significance to nonprofits this summer.
The NY Times reported that the Israeli Parliament passed legislation prohibiting public calls for a boycott against the state of Israel or its West Bank settlements, including by nonprofit organizations that would risk losing tax benefits if they violated the ban.
And according to the Charities Aid Foundation, the Russian government approved what is essentially a tax deduction for donors to charities and other tax improvements for such ororganizations that should both enhance charitable fundraising and reduce the operating costs for Russian charities.
This summer has seen several articles posted on various international aspects of nonprofit law. Here are the authors, titles, and abstracts:
This essay is a contribution to a symposium on international NGO accountability. It distinguishes between "internal" accountability for NGOs (fiduciary standards, fiscal and internal governance controls, etc.) and "external" accountability (the legitimacy with which they act in the international world, and the legitimacy which they confer upon others, and why). The essay focuses upon the latter, external accountability, and argues that the transformation of international NGOs into "global civil society" signaled an ideological move with regards to legitimacy in the global community, one which asserted claims of "representativeness" and not merely interest or expertise. The essay criticizes this legitimacy move, suggesting that it arises from mutual interests on the part of international NGOs and public international organizations such as the UN to confer legitimacy upon each other in the interest of promoting a mutually congenial form of global governance. The essay offers this account and critique in the context of a quasi-historical examination of the rise of the human rights movement as the "apex" values of the international system, with a special "legitimacy" place in that system accorded to international human rights NGOs. The essay concludes by noting that this "auto-legitimation" between international NGOs and international organizations does not lead to greater external accountability, particularly in an increasingly multipolar world.
The federal law prohibiting the provision of material support to terrorist organizations has been no stranger to controversy. From its politically charged origins through its repeated amendment after September 11, 2001, it has remained an important, but often critiqued, weapon in the government’s legal response to terrorism. The most prominent legal challenge to the law lasted over a decade. It culminated in June 2010, when the United States Supreme Court upheld the constitutionality of the law in Holder v. Humanitarian Law Project. The Court’s opinion, however, correctly recognized that important questions remain unresolved.
One such question, which this note addresses, is the application of the law to Muslim charities. Muslim charities are a complex, often misunderstood phenomenon. The use of the law against groups such as the Holy Land Foundation has achieved limited success, but has also alienated significant numbers of Muslim Americans. Civil actions against the group based on the material support law have been particularly ineffective. Likewise, criminal prosecutions have met considerable difficulty. This note explores applications of the material support statute to Muslim charities and concludes by proposing several recommendations for reform in this important area.
The area of charitable contributions under the Foreign Corrupt Practices Act (“FCPA”) is an ambiguous area of law where liability for companies can be enormous. This article examines the challenges companies face under the FCPA when making charitable contributions. It provides an in-depth analysis of the Schering-Plough case, which illustrates how the Securities and Exchange Commission (“SEC”) applies the record-keeping provisions of the FCPA in a situation of charitable giving; it examines Department of Justice (“DOJ”) FCPA Review Opinion Procedure Releases that provide guidance on when companies’ charitable contributions will violate the anti-bribery provisions of the FCPA; it discusses the effect of “compelled giving” laws, which require that foreign companies must agree to invest an established percentage of the profits from each contract into the community in which it operates; and it provides hypothetical situations illustrating the broad array of problems arising under the FCPA for companies making charitable contributions.
The article also looks at corporate social responsibility (“CSR”) in the context of FCPA enforcement. It provides hypothetical situations illustrating companies’ use of CSR to disguise acts of bribery and examines any “chilling effect” that the FCPA has on companies’ charitable giving. This discussion is especially timely in light of the natural disasters in Haiti in 2010 and Japan in 2011. Most companies do not view charitable contributions as an area of risk in their respective FCPA and anti-corruption compliance programs. The article proposes a model FCPA compliance program for charitable contributions, including the creation of a Charitable Contributions Compliance Committee, and presents a roadmap for the due diligence required to minimize liability under the FCPA when making charitable contributions.
Dana Brakman Resier (Brooklyn) and Claire Kelly (Brooklyn), Linking NGO Accountability and the Legitimacy of Global Governance
Concerns are often raised over whether international government organizations suffer from a democracy deficit, and sometimes the participation of NGOs in these entities is offered as a cure for this ill. However, to serve such an ameliorative role, perhaps NGOs need to themselves be composed and governed transparently, deliberatively, participatorily. What should be done when these goals conflict? Current domestic nonprofit law, which forms the basis for how NGOs are structured internally, attempts to create an effective and enforceable regime of nonprofit accountability. This paper asks whether these governance and accountability frameworks offered by domestic law, particularly but not exclusively in the U.S., provide sufficient content to appropriately regulate and incentivize NGOs working internationally.
In the United Kingdom, and to a lesser extent the United States, an inter vivos gift, once given, cannot be reclaimed by the giver's heirs. In civil law countries the situation is quite different: Not only spouses, but issue and in some cases even ascendants, are entitled to a forced share of a decedent's estate, and these forced shares are assessed against a notional "estate" that includes the testator's inter vivos gifts. If the total of these forced shares exceeds the amount actually available in the decedent's estate at death, the recipients of the gifts, or their successors, may be forced to make up the missing amount.
Clawbacks of this nature might have remained relatively insignificant, but last year the European Union undertook, indirectly, to expand their reach dramatically. The EU proposal, in theory, addresses only conflict of law rules; in practice, if adopted, it will threaten not only existing trusts and charitable gifts in the US and UK, but may also reduce future philanthropic giving. The UK, to date, has opted out of the proposal, and the US is not directly affected; given the large number of US and UK citizens with assets in continental Europe, however, and vice versa, it remains a concern.
The recent European Union proposal to bring about a more uniform body of law governing choice of law and related issues in international inheritance cases is, perhaps, a necessary response to the increasingly international nature of the EU's (and the world's) inhabitants and their assets. As written, though, it is rather heavily tilted toward the civil law values of continental Europe and threatens to collide jarringly with common law traditions, in particular the Anglo-American fondness for trusts and charitable giving. This article provides a look at these different traditions, and then examines the relevant inheritance law provisions of EU member states, the UK, and the US before looking at the proposal itself.
Monday, June 27, 2011
Lady Gaga (Stefani Germanotta) and various companies have been hit with a federal RICO lawsuit alleging that contrary to public representations they retained a portion of the donations collected through the "Lady Gaga Japan Earthquake Relief Wristband" effort. The class action suit, filed in the U.S. District Court for the Eastern District of Michigan seeks a range of damages, including punitive and treble damages. No response from Lady Gaga yet, but presumably one will be forthcoming shortly.
Coverage: International Business Times.
Tuesday, June 7, 2011
The Guardian reports that despite the Conservative Party government's "big society" initiative to involve more charities in providing public services, the number of registered charities actually declined by 1,600 over the past year. The reasons for the decline are unclear, although the Charity Commission noted that its merger unit has seen a 150 percent increase in cases since 2009. The shrinkage represents approximately one percent of registered charities, of which there are currently 162,346. Charity leaders also expressed concerns that the decline may only foreshadow a more substantial contraction of the charitable sector as government budget cuts begin to hit charity revenues and a long-term shrinkage in the number of UK households that donate to charities continues.
Tuesday, May 31, 2011
TVNZ reports that the New Zealand affiliate of Greenpeace has lost significant tax breaks that are now only available to recognized charities. While the affiliate maintains it qualifies as a charity, the New Zealand Charity Commission has rejected that claim based on the level of the affiliate's political involvement. It was only six years ago that the Charity Commission was established and purported charities had to formally register with the Commission. While most applicants have successfully registered, the Commission has rejected registration for a number of organizations, including Greenpeace of New Zealand. The tax benefits at issue include exemption from income tax and tax rebate elibility for donors. The affiliate is making an argument that will be familiar to U.S. readers, that the law fails to provide a clear line regarding how much political advocacy is too much and that such advocacy can be an essential part of fulfilling a charitable mission.
More specifically, in rejecting the registration application, the Charity Commission concluded: "the Commission considers that if the promotion of disarmament and peace [one of the affiliate's stated purposes] is done in a way that is considered political, for example, by requiring a change of law or government policy in New Zealand or abroad, it will not be charitable." The Commission also concluded that a general purpose statement that the affiliate would "[p]romote the adoption of legislation, policies, rules, regulations and plans which further the objects of the Society and support the enforcement or implementation through political or judicial processes as necessary" also demonstrated an independent, non-charitable purpose. The Commission further concluded that these two purposes demonstrated a non-ancillary, political purpose and so disqualified the affiliate from charity status under New Zealand law, which is based in large part on English law.
Tuesday, January 25, 2011
Singapore Issues a Revised "Code of Governance for Charities and Institutions of a Public Character"
The Singapore Charity Council has issued a revised Code of Governance for Charities and Institutions of Public Concern available for downloand here:(Download Code_of_Governance_for_Charities_&_IPCs_(2011)) The revised Code replaces the previous code that became effective in November 2007 andn is effective April 1, 2011. From the introduction:
WHY A CODE OF GOVERNANCE?
Charities are community organisations that work for public benefit. They are encouraged to applythe principles and practices of governance and management listed in this Code of Governance. Governance is important because it affects how a charity is run and the services that the organisation provides. The Board of a charity is responsible for putting in place the principles and practices of good governance in the organisation. The Code also helps charities to be more effective, transparent and accountable to their stakeholders. Members of the public donate and volunteer services to charities. This Code aims to help the public understand what good governance is and to make an informed decision on which charity to support.
And here is the preamble:
1. Charities differ greatly in size, activity and circumstances. Not all Code guidelines will apply to every charity. But all charities should go through the entire Code and take the necessary action to improve their governance. 2. The Code was first introduced by the Charity Council in November 2007. To help charities apply the Code more effectively, the Charity Council held an exercise to refi ne the Code in 2010. A Sub-Committee was formed, as well as three workgroups of representatives from charities/Institutions of a Public Character (IPCs), professional bodies, academia, auditors and grantmakers. They proposed changes based on feedback and their experiences on the ground. 3. This refined Code provides greater clarity and relevance about good governance to the charity sector. Charities are encouraged to refer to the related guides and templates on the Charity Council Website (www.charitycouncil.org.sg) to better understand the Code and how it could be applied.
1. Charities differ greatly in size, activity and circumstances. Not all Code guidelines will apply to every charity. But all charities should go through the entire Code and take the necessary action to improve their governance.
2. The Code was first introduced by the Charity Council in November 2007. To help charities apply the Code more effectively, the Charity Council held an exercise to refi ne the Code in 2010. A Sub-Committee was formed, as well as three workgroups of representatives from charities/Institutions of a Public Character (IPCs), professional bodies, academia, auditors and grantmakers. They proposed changes based on feedback and their experiences on the ground.
3. This refined Code provides greater clarity and relevance about good governance to the charity sector. Charities are encouraged to refer to the related guides and templates on the Charity Council Website (www.charitycouncil.org.sg) to better understand the Code and how it could be applied.
Friday, January 7, 2011
The New York Times reports that in many developing countries microfinance is experiencing a political backlash. In the wake of reports that for-profit microcredit businesses are using strong-arm tactics to obtain loan repayments and possible over or poor lending that fail to create businesses capable of repaying the loans, governments from Asia to Latin America are imposing new restrictions on such businesses and urging borrowers not to repay their loans. In part these developments may reflect the tension between nonprofit microcredit organizations that, without a profit motive, may be more careful in targeting loans and working with borrowers but lack access to sufficient capital to meet the borrowing demand, and for-profit microcredit businesses that have access to that capital but then face the profit-making pressures that can lead to unwise lending practices and excessive growth. Article, anyone?
Wednesday, December 22, 2010
The Council on Foundations recently issue a press release announcing that a working group of more than 70 charities has ended its seven-year effort to convince the Treasury Department to modify its approach to global grantmaking. Sparked by Treasury's issuance of "voluntary" anti-terrorist guidelines for charities in the wake of 9/11, the working group strove to convince Treasury to modify the guidelines to better reflect the reality of international charitable activities. Those efforts led to a revision of the guidelines in 2006, but according to the press release those revisions were not sufficient to resolve concerns that the guidelines are "confusing and misleading." Lack of responsiveness from Treasury led the group to determine "it can no longer support or participate in Treasury's attempts to impose current or future versions of the guidelines on the charitable sector."
Tuesday, November 9, 2010
The BBC reports that a 27 percent cut in the budget for the Charity Commission that registers and regulates charities in England and Wales has led the Commission's chief executive to state publicly that he is considering ignoring some reports of charity fraud. More specifically, the Commission might ignore reports where the amount of charitable funds at risk is relatively small, leaving such investigations to the regular police (who face budget cuts of their own). Last year the Commission investigated 450 reports of fraud and mismanagement (as compared to 180,000 registered charities), and the articles states the Commission regards that number as significantly underestimating the fraud and mismanagement problems within the charitable sector.
Tuesday, October 26, 2010
For years, social entrepreneurs in the U.S. have applauded microlending programs as tools for wealth generation in poor countries. The programs, generlly based on the model established by Muhammad Yunus and the Grameen Bank, provide small loans to entrepreneurs who ordinarily do not qualify for bank financing. Until recently, microloan programs were confined primarily to the poorest nations.
Recently, the Community Development Law Clinic that I supervise in North Carolina has received requests from local groups wishing to form microloan programs in their communities. And it appears that microloan programs' migration to the US is not confined to my home state. The Wall Street Journalreported recently that Kiva, a nonprofit known for helping foreign entrepreneurs receive microloans, is beginning to do business along the U.S. Gulf Coast. Kiva is the best known of the so-called "crowdfunding" organizations that act as a portal, matching donors who want to loan to microentrepreneurs with low income people who need capital to start businesses.
Monday, October 25, 2010
Several regular contributors to this blog attended a symposium last Friday at Brooklyn Law School on Governing Civil Society: NGO Accountability, Legitimacy, and Influence. Brooklyn's International Law Journal will be collecting and publishing the papers (next spring)? My paper, "Wait! That's Not What We Meant by Civil Society: Questioning the NGO Orthodoxy in West Africa," described how Western efforts to engender civil society in several West African nations has produced unintended consequences as Islamic religious organizations have flooded into (and as often as not taken over) civil society. One problem with the nascent civil society organizations promoted by the West is that they tend to be run by Western-oriented elites whose interests diverge from those of grassroots citizens and groups. This is one of the reasons that Islamic organizations have had so much success. The paper argues that there is not much that we (i.e., the U.S.) can or should do about the situation. All of the papers were thought provoking, but I particularly enjoyed Gary Jenkins' remarks. He pointed out that Western insistence on NGO best administrative practices might have the effect of exacerbating the elitism of host country NGOs, rendering them illegitimate in the eyes of the ordinary citizens. (Gary, sorry if I misstated your argument.)
Wednesday, October 20, 2010
The EU has opened a probe into property tax exemptions provided by Italy to the Catholic Church and some other nonprofit organizations. According to another report, the issue involves an Italian law that shields these organizations from property taxes even on property used for some commercial purposes, like hostels and athletic clubs.
Tuesday, October 19, 2010
The NY Times reports that Microsoft will provide free software licenses to more than 500,000 advocacy groups, independent media outlets and other nonprofit organizations in 12 countries with tightly controlled governments, including Russia and China, in order to prevent those governments from using software piracy claims to shut down anti-government advocacy groups. The move comes after an earlier Times story reported that Microsoft lawyers often encouraged and/or participated in crackdowns on anti-government advocacy groups in Russia, and that Russian security services confiscated computers from dozens of advocacy groups under the guise of enforcing piracy laws.
Friday, September 3, 2010
What Happens When the Regulator Runs Out of £?: UK Health Care Charities Dodge Public Benefit Scrutiny
ThirdSector reports that the Charity Commission for England and Wales has canceled planned public benefit assessments of health care charities because of limited resources. In the wake of the Charity Commission's issuance of new guidance on the "public benefit" requirement for charities (see this report), the Commission announced planned public benefit assessments of a limited sample of charities, including hospitals and other health care entities. While the Commission has completed sixteen public benefit assessments of independent schools, religious charities, arts charities, and others, and has begun assessments of four sports and recreation charities, it has decided not to pursue assessments of health care charities, citing "limited resources." Given the size and complexity of hospitals and other health care charities, it is understandable that such assessments would have been time consuming and costly. Yet especially in light of their heavy level of fee dependence, it also appears unwise. In an era of deficit-fighting, however, such decisions are perhaps to be expected, not only in the UK but in the US and other countries as well.
Thursday, September 2, 2010
The Charity Commission in New Zealand has refused the attempt by Exodus Ministries Trust Board, the New Zealand affiliate of Exodus International, to register as a charitable entity. Exodus is a Christian ministry that promotes "release" from homosexuality based on its belief that homosexuals can become heterosexual and that homosexuality is morally wrong. Consistent with these beliefs, it provides counseling and conducts seminars and study groups. Interpreting New Zealand's statutory law, the Commission found that the organization was not charitable - citing to the Preamble to the 1601 Statute of Elizabeth from which the definition of "charitable" in most if not all common law countries, including the United States, can be traced - and also that it was unclear whether the group would provide a public benefit. The ruling appears to have been reported in the U.S. primarily if not exclusively in the gay press (see, for example, the Edge's coverage) to date. One interesting question the decision raises is whether similar reasoning could be adopted in the U.S., the U.K., or other countries that use a similar definition of charitable, although at least in the U.S. the explicit provision of "religious" as an acceptable purpose for a charity (for federal tax purposes) may provide an alternate ground for maintaining the charity status of Exodus and similar groups.
Thursday, August 26, 2010
Pro-Israel Nonprofit Accuses IRS of Delaying Application Because Group's Activiities May Conflict with Administration's Policies
Z Street, a pro-Israel nonprofit corporation, has filed a complaint alleging that the IRS is delaying consideration of its application for recognition of section 501(c)(3) tax-exempt status because the Service is determining whether the group's activities contradict the Administration's policies. Most specifically, the lawsuit alleges that a named IRS agent informed the group's corporate counsel that she had two concerns with respect to the application: "(1) the advocacy activities in general, and (2) the IRS's special concern about applications from organizations whose activities are related to Israel, and that are organizations whose positions contradict the US Administration's Israeli policy."
The first point appears to reflect a common and legitimate concern raised by the IRS with respect to public policy groups seeking section 501(c)(3) status, as the complaint goes on to assert that the agent raised the question of lobbying and whether the group might be an "action organization," which under the applicable regulations would disqualify it from section 501(c)(3) status. The second point is the more troubling one, although the complaint's conclusion that these "IRS's admissions" "make clear that the IRS maintains an Israel Special Policy governing the processing of applications for tax exemption by organizations which are believed to be operated by persons holding political views inconsistent with those espoused by the Obama administration" appears to read a lot into the agent's alleged comments. Nevertheless, the possibility that even a single agent, much less perhaps the agent's supervisor or others within the IRS as well, would consider denying an exemption application because an organization takes positions contradictory to that of the current administration is extremely troubling. The second concern appears to be a far cry from the contrary to established public policy concern that ultimately led to the revocation of tax-exempt status for Bob Jones University for engaging in racial discrimination in education.
Another interesting aspect of this lawsuit is its timing. Code section 7428 only permits a suit for declaratory judgment that an organization qualifies for section 501(c)(3) status if either the IRS has denied the application or the application has been pending for more than 270 days. Here neither event has occurred because Z Street only filed the application on December 29, 2009, according to the complaint, or less than eight months ago (thanks to Ellen Aprill for noting this point). Perhaps for this reason Z street does not ask for such a declaratory judgment, but instead for a declaration that the asserted 'Israel Special Policy" is a violation of the First Amendment and for other relief that would prevent the application of this policy to Z street.
As early coverage of this story, linked to below, already has revealed, the IRS' ability to respond to these accusations is limited by its inability to comment publicly on any specific pending application. Given this limitation, general statements about how all applications are considered fairly under the applicable law will almost certainly be forthcoming shortly, however.
Tuesday, August 24, 2010
The Third Sector Daily reports that the Charity Commission of England and Wales has refused to allow Catholic Care to change its charitable objects to restrict is adoption services to heterosexual individuals and couples, thereby preventing Catholic Care from taking advantage of an exemption to otherwise applicable equality legislation. Catholic Care issued a press statement in response to the decision.
The Toronto Globe and Mail reports that the Canadian federal government will match private donations for Pakistan flood relief dollar for dollar if those donations are made between August 2nd and September 12th. There is no maximum to the matching. The article notes that the government instituted similar matching programs in the wake of the Haitian earthquake and the 2004 tsunami.
Thursday, July 15, 2010
Karla Simon has posted her article in the International Lawyer to her SSRN webpage. The article is a “year-in-review” summary of developments during the year 2009 regarding civil society organizations around the world. The article is accessible both in hard copy and on the internet. Those wishing a hard copy reprint should contact Karla directly at email@example.com.
The Wall Street Journal’s Realtime China Blogreported that some of China’s most recognized philanthropic leaders have gathered in Beijing for the launch of the China Foundation Center, a new organization that aims to help increase the transparency of Chinese charitable groups, which have sometimes struggled with public suspicion of mismanagement and even corruption. The organization looks to bolster trust in Chinese foundations by making information about their activities available to the public—thus hopefully encouraging more participation in charitable work. The center’s websitewill initially archive data on more than 1,800 foundations across China. Chinese and international philanthropic leaders gathered for the launch ceremony, including Peter Geithner, father of the U.S. Treasury secretary and a former longtime leader in the Ford Foundation, and Xu Yongguang, founder of Project Hope, China’s largest non-governmental social welfare group. Many of them described the new organization’s launch as mirroring crucial steps taken to improve the transparency of the charitable sector in the U.S. in the 1950’s.