Protecting Charities From Harm
Chapters 2 and 5 of the Charity Commission guidance


In October 2014, the Chairman of the Charity Commission, Sir William Shawcross, said there was “a risk” that money donated by the British public had already been sent to Isil fighters. He also revealed “the regulator has begun scrutinising 86 British charities which it believes could be at risk from extremism, including 37 working to help victims of the Syria crisis”.

Alongside this, the government has pledged that the Commission would receive an extra £8 million and has released a draft bill for “the Protection of Charities”. This proposed legislation would amend the Charities Act 2011 and give more powers to the Commission in facilitating a greater role in national security and counter terrorism.

This increased scrutiny by the Commission along with the wider powers which may be granted in the future, make it more important than ever for charities to ensure that they have appropriate procedures in place to reduce the risk of abuse by terrorist organisations.

Over several years, the Commission has released a guidance series entitled ‘Protecting Charities from Harm’ designed to prevent the abuse of organisations by extremists and terrorism. This article will focus on two chapters from this guidance:-

  • Chapter 2 - ‘Due Diligence, Monitoring and Verification of End Use of Charitable Funds’; and
  • Chapter 5 – ‘Protecting charities from abuse for extremist purposes’.


Chapter 2 - Due Diligence, Monitoring and Verification of End Use of Charitable Funds

In January 2011, the Commission released Chapter 2 of the ‘Protecting Charities from Harm’ guidance which sets out trustees’ legal duties and responsibilities in carrying out due diligence checks and monitoring in relation to a charity’s involvement with external bodies and individuals. Trustees of grant-making charities are strongly advised to familiarise themselves with this document.

Having an appropriate and proportionate due diligence process in place will minimise the chance of charitable donations falling into the wrong hands. There are three key areas for trustees to consider when designing an appropriate due diligence process for prospective donees:-


1.  A Risk Based Approach

The level of due diligence required for each grant will depend on the nature of the risks in the particular circumstances. The starting point is the greater the risks, the more charity trustees need to do. All charities must have, as a minimum:

  • some form of appropriate internal and financial controls in place to ensure that all their funds are fully accounted for and are spent in a manner that is consistent with the purpose of the charity;
  • proper and adequate financial records for both the receipt and use of all funds together with audit trails of decisions made. Records of both domestic and international transactions must be sufficiently detailed to verify that funds have been spent properly as intended and in a manner consistent with the purpose and objectives of the organisation;
  • given careful consideration to what due diligence, monitoring and verification of use of funds they need to carry out to meet their legal duties;
  • taken reasonable and appropriate steps to know who their beneficiaries are, at least in broad terms and carried out appropriate checks where the risks are high and have clear beneficiary selection criteria which are consistently applied.

Grant making charities are also advised to create a simple risk-assessment checklist with a scoring system, to enable them to determine the level of due diligence appropriate for each grant (i.e. low, medium and high).


2.  Translating risk into an appropriate level of due diligence – the ‘Know Your’ principle

What trustees need to apply to undertake due diligence can be described as the ‘Know Your’ principle, specifically making sure that they have carried out satisfactory checks on donors, beneficiaries and partners.

The core elements of due diligence across each of the ‘Know Your’ principles involve trustees taking reasonable steps to ensure they:

  • Identify – know who they are dealing with;
  • Verify – where reasonable and the risks are high, verify this;
  • Know what the organisation’s or individual’s business is and can be assured this is appropriate for the charity to be involved with;
  • Know what their specific business is with the charity and have confidence they will deliver what the charity wants them to;
  • Watch out for unusual or suspicious activities, conduct or requests.

The ‘Know Your Donor’ principle does not mean charities cannot accept anonymous donations. This is perfectly acceptable providing charities look out for suspicious circumstances and put adequate safeguards in place.

A charity’s responsibility is not to work out if a donation is illegal. However, trustees should carry out good due diligence and report concerns and suspicious activities.


3.  Maintain records of due diligence undertaken

Keep a written record of due diligence processes and the results which informed your decision making, so that it can be provided to HMRC (or the Commission) should they decide to inspect or query any grants made. The file should be able to show that:-

  • the charity’s funds can be accounted for;
  • there is an audit trail showing the expenditure of funds by the partner;
  • the partner has actually delivered the project and charitable work expected;
  • the charity’s funds have been used for the purposes for which they were intended and the beneficiaries identified by the charity have benefitted.


Chapter 5 - Protecting charities from abuse for extremist purposes

In January 2013, the Commission released Chapter 5 of the ‘Protecting Charities from Harm’ guidance. The Commission states that the most recent publication “is aimed in particular at charities that host regular events involving external speakers, and those with educational purposes that distribute material and information”.

The guide sets out that all trustees whose charities are involved in relevant activities will need to:

  • ensure that the charity has an adequate level of knowledge about proposed speakers and close partners;
  • carry out due diligence checks on potential speakers and partner organisations. (Again as with the guidance in Chapter 2, what action is reasonable and proportionate, will vary depending upon the proposed speaker or partner);
  • be alert to warning signs that a speaker may promote views that are illegal in the UK and/or intended to radicalise, and/or raise concerns about inappropriate political activities or public benefit issues, such as intolerance of other cultures, religions, ethnic groups, and age, sexuality or gender equality;
  • if a risk assessment identifies a sufficient cause for concern, obtain and consider a copy of the speaker’s speech before giving approval for the speaker to deliver it;
  • provide a written briefing for speakers which sets out the charity’s expectations and its requirements of speakers and how they should conduct themselves at an event. The briefing should make speakers aware of the charity’s purposes and of its charitable status. In some cases a more detailed briefing may be needed which could include the following specific provisions that speakers:-
    • ensure they do not do anything which would bring the name of the charity into disrepute or damage public trust and confidence in it;
    • must not encourage, glorify or promote any acts of terrorism, including any individuals, groups and organisations that support such actions;
    • must not incite hatred, violence or call for the breaking of the law;
    • must be careful not to insult faiths, racial or other groups; and
    • are not permitted to raise or collect funds for any external organisation or cause without express permission of the trustees.
  • ensure there are clear procedures in place for dealing with an incident/complaint and taking action, if the charity’s rules on inviting speakers are breached. Decisions made on inviting speakers and the factors that were considered should be documented and recorded, particularly where they may be controversial. This will provide evidence to demonstrate that the trustees have acted responsibly.


Conclusion

It is clear from the above guidance that there is an overlap between the steps which need to be taken when assessing potential donees and the steps taken when inviting speakers to participate at events which a charity has organised. The Commission expects charities and trustees to take a ‘risk-based’ approach; assessing the risk, carrying out appropriate due diligence in light of any risk and then making adequate records of the decision-making process and due diligence undertaken. Ultimately the Commission cannot say whether any decision was right or wrong, but it can question a charity’s processes if things do go wrong. Therefore the trustees need to be able to explain the reasoning behind any decisions and show evidence of this, in order to counter any criticisms which may arise.

If you would like further information on this subject or have any comments please contact Nadeem Azhar or your usual contact at Pothecary Witham Weld.