1
This response has been produced by a sub-group of the Charity Law Association's Investigations Group (CIG), which examines questions relating to the investigation of charities by the Charity Commission (the Commission).
2
The members of the group are:
- Paul Bater, Principal Research Associate, International Bureau of Fiscal Documentation (Chair)
- Hannah Candlin, Solicitor, Speechly Bircham LLP
- Clive Cutbill, Partner, Withers LLP
- Benjamin James, Senior Associate, Bircham Dyson Bell
- Francesca Quint, Barrister, Radcliffe Chambers
- Khalid Sofi, Solicitor, Johns & Saggar
- Charlotte Watts, Solicitor, Wilsons
- Tamsin Wilkinson, Trainee Solicitor, Stone King LLP (Secretary).
3
Recent events have once again underlined the enormity of the damage which terrorism is capable of causing to society and the consequent need for vigilance. Nevertheless we are highly conscious of the need to avoid excessive regulation of a sector whose creativity and diversity are two of the hallmarks of individual liberty and shared values.
Do you agree that a risk-based and proportionate approach involving all stakeholders is the best way to counter the threat of terrorist abuse of charities?
4 Proportionality
The Paper stresses on several occasions that the incidence of links between terrorism and the sector is small. This must be emphasised at all stages and any policies/actions must have this as their starting point.
5
There is, in our view, a need to be proportionate and balance the need for risk-based prevention with evidence-based policing. There are serious problems with a 'one size fits all' approach – the needs of domestic and international charities are vastly different and subsequently they require a different focus in assessing what risks they involve and how they should be minimised. Equally, an approach based on profiling would be unacceptable to charities. Profiling has an alienating effect on those charities which are targeted as a result, whilst other legitimate targets are missed entirely because they do not 'fit'. All charities must be charged with preventing terrorist abuse of their funds. There is a parallel to be drawn with the need for insurance against damage by terrorist action: once scarcely thought about but now commonly accepted as a normal incident of safeguarding charity property in built-up areas.
6
It is also necessary to differentiate between 'abused' and 'abusive' charities. This is a vital distinction, as those charities which are vulnerable to abuse from outside must be taught to be aware of areas in which they could potentially be exploited, whereas those which are set up with an illegal aim require law enforcement agencies to be able to identify and prevent criminal activity. No guidance/training by the Commission or any other body will be able to address the latter.
7
We consider that there is a need for further education of the sector about the general duties of trustees, as opposed to more stringent regulation specifically directed at terrorist threats. In addition, questions asked of charities need to be framed correctly and those reading the answers need to be trained to interpret them correctly. Terrorist financing and abuse is just one of the threats to the sector – the Commission should look for problems with charities generally, not concentrate on one area to the detriment of others.
8 Specific aspects of charity risk assessments
We consider that guidance to charities should cover the following areas:
Charities' cash being used indirectly to support terrorism, for instance:
- promoting radicalism/fanaticism, e.g. in the course of education – likely to be found in an abusive charity, more likely to be international; or
- distortion of educational/recreational activities, infiltration by fanatics – likely to be found in an abused charity, more likely to be domestic.
Poor risk assessment by charities of the activities they carry out, leading to charities being exposed to money laundering/terrorist abuse.
'Know your beneficiary' test – this is already covered under general charity law, being a keystone of the fiduciary duties of trustees. However, indirect benefits may be too difficult to detect, for instance where individuals who receive benefits have political sympathies for a terrorist group. This may be made more difficult to deal with where the beneficiaries are remote from the charity's base of operations.
'Know your donor' test – it is vital to ensure that as well as knowing their beneficiaries charities know the sources of their funds, including taking steps to know the donor of large donations or donations made with conditions
9 Role of the Commission
The Commission has great experience in dealing with charities of all types. The staff are not, however, trained in combating terrorism or in tracing complex financial transactions internationally. Investigation of suspected terrorist activities also poses risks to the personal security of the staff involved. It may be argued that some of the Commission's staff can be trained for a different role. Such training would necessarily have to be undertaken by professionals from other agencies, whose focus and values are quite different from those of the Commission. We feel that the Commission's approach in other areas could be adversely affected by engaging in such training and activities. In our view the Commission should be tasked with providing guidance and information for the sector, and providing background training on charities to the investigating agencies, not personally investigating alleged abuse overseas. The Commission absolutely needs to be trusted by the sector, and giving it a role where it is to act as under-cover investigator and/or prosecutor, as well as advisor and regulator, would damage trust and confidence.
10
There are also concerns about jurisdiction. The Commission is concerned only with charities in England and Wales. If investigations need to be carried out abroad, they may well involve bodies outside the Commission's jurisdiction. Other agencies who have the infrastructure and skills for rapid international response and are not limited in the same way would be more effective in that role.
11
There are also concerns about the level of security clearance to which Commission staff are subject. There need to be people within the Commission who have the relevant security clearance to be able to have the necessary conversations with the Metropolitan Police Counter Terrorism Command (CTC) and other agencies.
12
Our view is that the Commission's key role should be in preventing abusive bodies, generally sham charities, from being entered on the register of charities in the first place. Having determined that the body concerned is not charitable, the Commission will generally have no further jurisdiction over it. However, there should be a process to ensure that such bodies, and the persons involved, do not simply disappear below the radar and that relevant information is exchanged so that ongoing monitoring can take place in appropriate cases.
13
The Commission's secondary function must be in providing guidance/information to charities to help them avoid becoming abused charities. Should terrorist abuse be uncovered by the Commission it should not undertake any investigation itself, it should refer the matter to CTC. CTC can then undertake the investigation or refer it to an appropriate agency. Suspicions of terrorist activity should be treated in the same way.
Are there measures that the Government could take in addition to the recommendations presented here that would help to safeguard public and donor confidence in the integrity of the sector?
14
The sector is vibrant and innovative because it is independent from Government. Any new measures from Central Government would have to be proportionate to the evidence. If there is to be further legislation, this should be accompanied by a binding commitment to a review by Parliament within a reasonably short timeframe. We do not believe that any new legislation is required or justified.
15 Key Recommendations
1) No additional regulations, compliance requirements or sanctions should be introduced without adequate prior consultation with the sector.
2) If additional regulations are introduced, any new liabilities placed on the trustees should be capable of being relieved, in the same way as breaches of trust, where the trustees have acted honestly and reasonably: see Charities Act 2006 s 38. It should be recognised that trustees can normally be regarded as acting reasonably if they follow any advice or guidance provided by the Commission in identifying and managing risks: cf Charities Act 1993 s 29, Charities Act 2006 s 24.
3) The Commission should seek to raise awareness of the varieties of terrorist threat among all charities.
4) In addition to revising its internal guidance on terrorist risks (OG96), the Commission should produce new guidance for all charities on identifying and countering risks of abuse in general, e.g. fraud and money laundering as well as terrorism.
5) The Commission should provide more support and guidance to charities, in particular in relation to operating abroad.
6) The Commission should remind charity trustees about their existing duties, with practical examples, e.g. requirement to check that funds remitted abroad are applied for charitable purposes (tax rules); avoiding loss of funds through local corruption; the need to be suspicious of donations with excessive or peculiar conditions attached, or donations which the donors ask to be returned (proceeds of crime/money laundering).
7) The SORP could be amended to include a statement/confirmation that the charity has complied with these duties as part of its risk management process.
8) For charities where this is inappropriate, a question in the Annual Return could ask whether full risk assessments have been carried out.
9) Following the Iran Aid case, there should be clarification from the Charity Commission whether it is its view that, if an audit trail cannot be provided, charities should simply not undertake an activity even though this means that potential beneficiaries will suffer.
10) There should be no attempt to single out Muslim charities. This will alienate such charities and inhibit them from developing transparency and other characteristics of good practice; discourage charities from seeking advice from the Commission; and lead agencies to miss other valid targets by directing attention exclusively towards international terrorism and away from other, equally worrying but less widely-reported terrorism (e.g. animal rights extremism, anti-abortion violence etc).
11) The Commission should be given further training for its staff in two main areas – firstly, when responding to requests, and to avoid falling foul of the 'tipping off' provisions of the money laundering legislation, they should improve their 'neither confirm nor deny' responses; and secondly, staff should be trained on how to protect themselves should they be undertaking appropriate investigations.
12) The Commission should not undertake investigations into concerns or suspicions relating to terrorism. Such investigations should be referred to CTC as a matter of urgency. CTC can – and should be encouraged to - call on the Commission to provide expert advice as required, e.g. to confirm whether certain activities are suspicious or generally acceptable in the sector.
13) The Commission should develop key relationships with CTC and the Security Agencies so that appropriate people in the Commission can make necessary reports and so that the agencies can obtain information in relation to investigations from the Commission on a straightforward basis.
14) The Commission should develop co-operative relationships with, and provide advice and training in matters relating to charities for, the staff of agencies whose prime responsibility is to investigate suspected terrorist activities abroad. It needs to be understood, for example, that it is not necessarily suspicious for a charity to deliver a large amount of cash to a conflict area without a reliable domestic banking system.
15) The Government should review the legal framework for reciprocal exchanges of information with domestic and foreign governmental bodies with a view to facilitating both civil and criminal investigations of the overseas activities of UK charities and other persons.
16
The scope of the consultation, and the extent of the Charity Commission's jurisdiction, is limited to England and Wales. The threats posed by terrorism require a UK wide response. While the comments above are made in the specific context of charities established in England and Wales, we believe that the approach that we advocate can be adopted throughout the UK. In relation to Scottish and Northern Irish charities, our comments on the role of the Charity Commission are relevant to the role of the Office of the Scottish Charity Regulator (OSCR) and the proposed Charity Commission for Northern Ireland (CCNI). We are concerned that the likely delay in establishing the CCNI should not expose Northern Irish charities to greater risks than those operating elsewhere in the UK and recommend that the provision of appropriate guidance for their benefit should not be deferred until CCNI is able to take on this role.
17
In carrying out its own regulatory functions, and in its dealings with other agencies, it is vital that the Commission should retain the trust of the charity sector. In particular, it must continue to guard its independence and take action against charities or their trustees only on the basis of sound and credible evidence.
1 August 2007
