Bond – supplementary written evidence (PCB0033)

Overview

1.      We welcome regulation by the Charity Commission to ensure that those who abuse the trust of donors and beneficiaries can be effectively and proportionately dealt with. The Charity Commission must continue to protect charitable assets and ensure that they are applied for the intended beneficiaries. We appreciate that the Charity Commission must have the appropriate tools to be an effective regulator - and we acknowledge below those measures proposed in the Bill which could usefully add to the tools at the Commission’s disposal.   However, we oppose proposals that would create significant ambiguity or could be open to either subjective interpretation or application. We also oppose proposals that would establish informal or parallel routes of investigations as these could cause confusion.

2.      The international development component of the overall charity sector is a crucial, thriving and internationally-regarded part of UK civil society and of the wider international development effort across the world. UK NGO expertise and high quality delivery of development programmes overseas is highly valued by civil society counterparts in other countries both donor and recipient governments and, by communities on the ground - particularly in complex and challenging contexts  such as fragile and/or conflict-affected states. Rules such as the draft Bill will affect the vital work done by humanitarian, conflict resolution and human rights charities. It will also affect all charities working in authoritarian countries. There needs to be a dialogue between international charities and policy makers, including in DFID, the Home Office and Treasury about the implication, intended or otherwise, of these proposals. Of course, international development NGOs must be held accountable to the highest standards – by themselves and by the Charity Commission. But it is also crucial that any new powers of the kind proposed in the Bill do not undermine – even if unintentionally - the ability of development charities to do such vital work in challenging and complex environments, or to make the risks or management costs of dealing with such powers so onerous as to make it impossible to work in such contexts.

3.      Ensuring that any powers (including new ones proposed in this Bill) can only be used by the Charity Commission on an objective, evidence-based, accountable and transparent basis is vital. This is to ensure that specific charities or types of charities are being made subject to the application of powers strictly only to address mismanagement or misconduct rather than – for example – on the basis of the issues they work on, their readiness to challenge decision-makers through lawful campaigning or because of their basis in a particular community in the UK. Also, this will protect the integrity of the Charity Commission from being subject to any perception of such bias which would be fatal for its overall mission (and so to the charity sector as a whole). We concur, for example,  with the concerns of the Muslim Charities Forum that some recent statements of the Charity Commission and the application of Charity Commission rules have led to deeply-damaging perceptions that  Muslim-based international development charities and, by inference, their donors, mostly in the Muslim community in Britain, are being unfairly targeted. Assumptions are being made about potential links of Muslim charities to extremism or terrorism which, in the heated wider context of public and media debate on extremism and terrorism, can be highly damaging to the reputation of charities where no evidence of any wrong doing has been proved.

4.      We wish to challenge some of the assumptions made in the draft Bill. It exaggerates the number of charities “at risk” and underestimates the direct costs of an innocent charity responding to a mistaken Charity Commission investigation. Public confidence could be damaged by the ease with which the broad powers in the draft Bill can be used and how unfounded comments about a charity can become public currency.

5.      The Charity Commission is not able to define or police “better administration”: an important line has to be drawn between regulation and good practice.

6.      Several proposed amendments are ambiguous, include unclear wording and give too much discretion to the Charity Commission. Several others are too broad. This is an inadequate foundation for the significant consequences that action by the Charity Commission would have on a charity’s reputation and funding.

7.      We understand the seeming attraction of introducing a warning order type power. But we are doubtful of how this could be crafted to enable it to have sufficient necessary safeguards or to work well in practice. In addition the Bill does not give a threshold for the sort of acts that should attract an order. The ability to publish a warning is open to ambiguous application – whether intended or not – and could have a highly damaging and disproportionate effect on the charity and its reputation so vital for fundraising and effective operation. The consequences of failing to follow an order are serious, and this would apply even in cases where there is no proof of wrongdoing. Moreover, there is no cheap, effective appeal process against an order which would make it challenging for charities to respond and/or appeal.

8.      Findings of fact in a foreign court would lead to censure under the Bill, even where the standards of evidence and justice would not be accepted in a UK court. This is very problematic and this provision should be removed.

Impact on our members

1.      We want avoid a disproportional impact – whether actual, perceived, intended or unintended – on UK-based international development charities working in complex countries and contexts where extremist groups also operate. As the Charity Commission has rightly acknowledged, of the 476 cases that were formally investigated in the last 5 years, only 11 cases were related to (international) terrorism allegations.

2.      There is a significant risk that the draft Bill will affect the vital work done in challenging and complex humanitarian, conflict or post-conflict contexts by humanitarian, conflict resolution and human rights charities where extremist groups are also in operation and where charities, in their regular day-to-day work, could unintentionally come in contact with. The UK Independent Reviewer of Terrorism Legislation recognises that, while these charities are acting legitimately, they could come into contact with terrorist groups[1]. The charities and their staff would be affected by the Charity Commission’s interpretation of the “correct” way to act in challenging settings. The secondary impact is also large:

1. Humanitarian: Recent studies by the United Nations Office for the Coordination of Humanitarian Affairs (OCHA) and the Overseas Development Institute[2] have explored the impact of counter-terrorism laws on humanitarian charities. The OCHA report describes the fear of humanitarian actors: counter-terrorism measures will obstruct principled humanitarian action in some areas, whether because of reduced funds, restrictive funding or risk aversion. There is also the hidden administrative cost - in time and money - of navigating complex legal and policy requirements.
2. Conflict resolution: The breadth of counter-terrorism rules means that conflict resolution charities could be prosecuted for offering training in humanitarian principles or bringing together opposing groups to examine underlying grievances and find peaceful ways to address them. Administrative acts by the Charity Commission or political acts by overseas Governments could expose the charity to breaches of the draft Bill. Conflict resolution charities are effective in building peace and promoting human security. If they are prevented from working, there will be greater scope for extremism and political violence. (For further background, see: http://www.c-r.org/news/time-talk-welcome-call-dialogue-independent-reviewer-terrorism-legislation; http://www.berghof-foundation.org/fileadmin/redaktion/Publications/Policy_Briefs/PolicyBrief02.pdf).
3. Human rights charities are sometimes targeted by host Governments and ruling elites for political reasons. They can be put on terrorist lists, prosecuted on fabricated charges, defamed in the media and denied foreign funding. The draft Bill can give credence to the political motivations of prosecutions and media reports, through the adoption of foreign judicial rulings and informal Charity Commission orders. This could affect the charity's reputation and its funding and ability to deliver programmes on the ground dramatically - for example if it was seen as politically-biased or linked to terrorism by association with, for example, foreign governments.

It will affect all charities working in authoritarian countries, as these will emulate the UK’s regulations to the detriment of civil society. The UK’s international interests include democracy, human rights and development. Secure communities are needed, but it is important to consider international perceptions of what is a “good” relationship between the state and its citizens. We support the recommendation of Independent Reviewer of Terrorism Legislation “that a dialogue be initiated between international NGOs and policy makers, including in the Home Office and Treasury, with a view to exploring how the objectives of anti-terrorism law can be met without unnecessarily prejudicing the ability of NGOs to deliver humanitarian aid, capacity-building and peace-building in parts of the world where designated and proscribed groups are active.”[3] A process of this kind is essential alongside any new legislation to ensure that concerns about the application of any powers to charities working in countries affected by conflict, or where terrorist groups operate, are addressed. Bond stands ready to play a constructive role in enabling its members to work with the Charity Commission and other stakeholders in government in whatever mechanism is felt appropriate, to develop workable approaches and solutions to these issues.

3.      We have read MCF’s draft Response and agree with its views that the application of Charity Commission rules and broader counter-terrorism laws are perceived to unfairly target Muslims. Islamic charities face regular difficulties in transferring funds - including from Western bilateral and multilateral donors. These charities are a vital link with donors and opinion-formers in the wider Muslim community.

Responses to specific questions in the consultation

1. The draft Bill would provide the legislative basis for a number of new powers to the Charity Commission, the unitary civil regulator of a large and diverse range of charities in England and Wales. In doing so, the Bill acknowledges that charities require protection from misconduct and mismanagement by trustees. What is the current nature and extent of mismanagement and misconduct in the charity sector? How is this data gathered at present?

1.      The draft Bill over states the number of charities “at risk” of accidently funding or working with terrorist groups It is misleading to refer to a “small minority” of rogue Trustees (Forward to the draft Bill) and to say “not common in the vast majority of charities” (Summary of consultation responses and Government Response, Introduction). This language suggests that a large absolute number of the 160,000 registered charities are affected, or even that a significant proportion of the 1,500 operational compliance cases (page 78) are concerned with mismanagement. This is incorrect. The vast majority of operational compliance cases are technical (eg about Trustees’ use of powers in the charity’s governing documents). Even if a third of the Charity Commission’s inquiries are related to counter-terrorism, and a third of these resulted in censure for the charity, this only affects about 0.00001% of charities.

2.      The impact assessment (page 74) underestimates the direct costs of an innocent charity responding to a mistaken Charity Commission investigation (page 77): the potential impact on the charity’s reputation and finances (see below) suggest that affected charities would devote a significant amount of executive and governance time to this, as well as the costs of legal advice and the knock-on effects of reputational damage on fundraising efforts. 

2. The Charity Commission has been perceived by some to be struggling to act as an effective regulator. Is this borne out by the evidence? If in your view it has been an ineffective regulator is this down to a lack of sufficient powers, reduced resources, or problems with its strategic or operational approach? If the problem has been one of reduced resources, from where can additional resources be drawn?

3.      The focus of the Government and the Charity Commission should be to use existing tools more effectively, rather than to seek new powers.

4.      Rather than being found in established charities, the greater risks are in unregistered individuals and organisations raising and carrying cash. This is a legitimate activity, but there is very little oversight of it.

3. Would the new powers in the draft Bill allow the Charity Commission to be more effective having regard to its statutory objectives set out section 14 of the Charities Act 2011? Would any of the seven proposals (proposals 4, 5, 7, 10, 11, 13, 14) for new powers which were part of the Government’s consultation in December 2013 which have not been included in the draft Bill be appropriate as well or instead?

5.      Public confidence could be damaged by the ease with which the broad powers in the draft Bill can be used and how unfounded comments about a charity can become public currency. See below.

6.      If re-introduced, proposals 7 and 10 of the Government’s consultation in December 2013 should only apply to misconduct or mismanagement. It is not acceptable for the Charity Commission to act in the absence of misconduct or mismanagement.

7.      Proposal 13 of the 2013 consultation was too broad, since instigating an investigation is far too low a threshold, and allows an unacceptable level of discretion. There are other ways to stop extremist behaviour in law and the Charity Commission issued guidance in 2013[4].

8.      Proposal 14 of the 2013 consultation was too unclear on the circumstances and legal procedures, leading to disproportionate oversight. If the power is considered further, there must be strict confidentiality within and outside the bank, so that this type of informal investigation does not affect the reputation of the charity within the bank or externally.

4. How do the current and proposed powers of the Charity Commission compare to those of other civil regulators?

Bond does not have expertise or comment in this area. We note however that it is important to be clear about where the Charity Commission is the appropriate and effective body to deal with allegations of – for example – charities being used to channel funds to terrorist groups abroad, and where this would be better dealt with the police or intelligence agencies.

5. Will the provisions in the draft Bill, as currently drafted, fulfil their policy objectives (pages 78-79)? How could the drafting of the Bill be improved?

9.      The Charity Commission has not defined “better administration” and does not have a role here: an important line has to be drawn between regulation and good practice. Clause 1 is therefore too broad. The Charity Commission has legitimacy to encourage the better administration of charities and publishes a broad range of useful advice and guidance. However, good practice is hard to define and a regulator has neither the skills nor the capacity to do this.

10.  In clauses 2, 3 and 4, the proposed amendments to section 76(1) and the new sections 76A (1) and 79(1) are ambiguous as to whether they are limited to “misconduct or mismanagement”; they should not include orders about the “better administration” of charities. Also, section 76(1) as amended is much broader than suggested by the Commentary on provisions of the draft Bill, paragraph 7 (see below). At the same time, the brackets in the draft section suggest that it is – or should be – limited to misconduct or mismanagement. It is unclear which is intended.

11.  Several amended sections include unclear wording and give too much discretion to the Charity Commission. This is not an adequate foundation, given the consequences for a charity’s reputation and funding. Words like “privy” and “facilitated” in sections 76A (2), 79(4), 181A (4)D and 181A(4)E are unclear, can include passivity (rather than positive action) and do not require an intention to contribute to misconduct or mismanagement. The sections must be changed to require a causal link between the result and an act or omission that was made with the intention of producing the result or was reckless about the foreseeable result.

12.  Sections on types of Trustees are too general 76A (3)(b) and 181A (4)F) since they allow the Charity Commission to judge a Trustee in very broad terms without definition.  It would be better to (a) change the definition of who can be a Trustee and (b) rely on the criminal law and allow removal of a Trustee in relation to prosecutions for particular charges.

13.  In clause 6, sections 84A (1) (b) gives too broad a power for the Charity Commission to wind up a charity where “its purposes can be promoted more effectively if it ceases to operate”. The section could be justified if it said that a charity could be closed if it harmed the public. But the section does not say this. It suggests that the Charity Commission should be empowered to determine how best to implement charitable purposes and whether a specific charity is effective. The purpose of third sector is that it is able to do things that Government (or its quangos) is not well placed to do and to enable individuals to exercise their rights of association and expression. In addition, we do not believe the Charity Commission has the capacity or the expertise to exercise this role.

6. Is the Government right to expand the criteria for the automatic disqualification of trustees (clause 8)? Do the suggested new criteria go far enough, or do they go too far? Should the disqualification power also extend to persons holding other positions of responsibility in a charity?

14.  In relation to section 178A, the Charity Commission should only be able to disqualify persons to act as trustees who have been convicted of serious offences (it already had the power to suspend them in other cases). We are surprised at the focus in the list, instead of safeguarding vulnerable beneficiaries e.g. against sex offenders. The Independent Reviewer of Terrorism Legislation points out that several criminal offences under UK anti-terrorism legislation could impede charities[5] and that the broad discretion of prosecutors does not give comfort to those facing the risk of criminal liability.

15.  Likewise, the Minister’s powers need to be constrained in sections 178A (4) and 181A (5). If there are to be offences that trigger automatic disqualification, these should be set out clearly and precisely: discretion should not be allowed.

16.  Section 181A (4) B (b) is too broad: findings of fact in a foreign court would lead to censure under the Bill, even where the standards of evidence and justice would not be accepted in a UK court. UK definitions, standards of evidence and due process must be used. Overseas convictions must be able to stand up in a UK court: there are broad civil liberty and sovereignty issues at stake here – which have particular pertinence to charities working internationally in a wide range of countries and jurisdictions. Other countries have different terrorist lists to the UK, and different legal processes. These cannot be accepted without great circumspection, but must be measured against UK lists and practice. Otherwise, there would be the remarkable situation where a trustee would be disqualified for an act that is legal in the UK.

17.  Section 181B (2) restrictions must be linked to the time when a conviction becomes spent. The drafting is far broader than the Government’s response to the consultation that “The Government proposes that convictions in the UK … should result in automatic disqualification from being a charity trustee in England and Wales for so long as the conviction remains unspent” (paragraph 18).

18.  More detail is needed for reports by the Charity Commission. Section 181B (7) must specify reasonable intervals (e.g. 6 months). The Charity Commission must publish the number of orders and suspensions that it has made, and the number of those that have been reviewed and lifted.

19.  We also believe that the Charity Commission should be required to set out a regular  annual statement of the current strategic concerns which are determining the general application of its powers. (For example challenges brought on by terrorism / extremism in say Syria or a growth in use of charities for tax avoidance – or whatever the current issues may be.) This would both provide an opportunity for the Charity Commission to account for its overall approach and ensure regular, high quality scrutiny by Parliament.

7. Are there sufficient safeguards in the draft Bill for those subject to investigation and possible sanction by the Charity Commission? Is the role of the Charity Tribunal sufficient?

20.  It critical that, at all times, the Charity Commission is acting in an objective and transparent manner and is fully accountable in the exercise of its current or any new powers. If not it would lose the confidence of both charities and the wider pubic and an effective and impartial regulator

21.  There needs to be close oversight of the use – and unintended effects (or unintended consequences) – of powers. Yet there is no cheap, effective appeal against an order because there is no right of appeal to the Charity Tribunal against an official warning; it could only be challenged through judicial review (Commentary on provisions of Draft Bill, paragraph 3). This is expensive and time-consuming and so is not an effective remedy compared to the breadth of things than an order for better administration could apply to.

22.  Statistics would be needed on the use of powers to avoid any perception that investigations target particular types of charities or communities who support charities.

23.  The Charity Commission must proactively ‘rehabilitate’ the reputation and functioning of a charity that it has publicly reprimanded and not closed. The new powers will be used more often and widely, and charities need to be protected against them. These charities suffer from adverse publicity, yet the Charity Commission and media do not give the same prominence to charities that have been investigated and no/minor action has been taken.

8. What is the case for the Charity Commission to be able to issue statutory warnings (clause 1)? What would be required for this warning regime to achieve the policy objective of providing a reasonable and proportionate way for the Commission to deal with lower risk breaches of the Charities Act 2011 or of fiduciary duties?

24.  For all of clause 1, the ability to publish a warning is open to misuse by the Charity Commission – whether intended or not – and could have a disproportionate and major effect on the charity. Official warnings could be easily given and charities may become increasingly risk averse to avoid receiving a warning. Publication would damage the reputation of the charity and its services to beneficiaries immeasurably. Donors and banks would be wary of supporting the charity, even though the Charity Commission did not have sufficient grounds to take action.

25.  The Bill does not give a threshold for the sort of acts that should attract an order. The Charity Commission list of examples (Commentary on provisions of Draft Bill, paragraph 6) and its distinction between deliberate abuse and an honest mistake (Charity Commission’s Statement of Regulatory Approach) are not binding on the Charity Commission nor an indication of how the Draft Bill would be applied. For example, it would be wrong for the Charity Commission to be able to issue an Official warning for a charity that did not follow the Charity Commission’s policy advice to consider merging with another charity. It is not acceptable for the Charity Commission to act in the absence of misconduct or mismanagement.

26.  The consequences of failing to follow an order are draconian where there is no proof of wrongdoing. The Charity Commission has significant powers in sections 76 and 178 of the Charities Act 2011 (as amended by clause 8) that are justified where there is an inquiry. These consequences are not justified for failure to follow a mere order. This goes beyond the intention that the order is intended to be a more reasonable and proportionate way of dealing with breaches where the risks and impact on charitable assets and services are relatively low (Commentary on provisions of Draft Bill, paragraph 4).

9. Should the Commission have power to prevent or restrict actions which in the Commission’s view would amount to misconduct or mismanagement if they were allowed to proceed? If so, what safeguards should this power be subject to?

27.  The Charity Commission must be given strict limits on its discretion as described above.

Submission ends

18  December 2014

2