On Monday 13 August 2018, the Treasury released exposure draft regulations proposing external conduct standards that charities registered with the Australian Charities and Not-for-profits Commission (ACNC) will need to comply with when operating outside Australia.

These would be ‘reasonable steps’ and reporting standards, with regard to (1) criminal risks and obeying Australian laws (even overseas); Annual review of overseas activities and expenses; (3) preventing fraud or corruption; and (4) protecting vulnerable persons.

By introducing this measure, Australia will comply with international obligations including the Financial Action Task Force Recommendations (FATF) Recommendations. The FATF is an inter-governmental body established in 1989 to promote measures for combatting money laundering, terrorist financing and related threats to the integrity of the international financial system.

DATE OF EFFECT: for these proposed Standards would be 1 July 2019.

These standards would be imposed by way of amendments to the Australian Charities and Not-for-profits Commission Regulation 2013, which in turn are made under the Australian Charities and Not-for-profits Commission Act 2012. The amending regulations would be called: the Australian Charities and Not-for-profits Commission Amendment Regulations (No. 2) 2018.

The 2013 Regulations set out ‘Governance Standards’ (in Division 45) and Requirements for Annual financial statements (in Division 60).

This draft Regulation would insert a new Division 50 into the 2013 Regulations – titled: ‘External conduct standards‘. The Draft Regulation acknowledges (but also warns):

Australian registered entities play an important role in providing development assistance, essential services and humanitarian aid to those in need around the world. Unfortunately, there is a risk that criminal organisations may take advantage of registered entities, by misusing funds and providing a cover for, or support of, criminal activities.

These external conduct standards are intended to give greater confidence that this criminal risk does not arise or is minimised.

The terms of the proposed standards are set out below.

50.20 Standard 1—Activities and control of resources (including funds)

Draft Standard 1 imposes reasonable ‘steps’ and ‘controls’ type obligations on an Australian entity, in regard to its overseas operations. See the proposed sub-reg (3) below:

(3)  The registered entity must:

(a)  take reasonable steps to ensure that its activities outside Australia are carried out in a way that is consistent with its purpose and its character as a not-for-profit entity; and

(b)  maintain reasonable internal control procedures to ensure that resources (including funds) are used in a way that is consistent with its purpose and character as a not-for-profit entity; and

(c)  take reasonable steps to ensure that the resources (including funds) given to third parties outside Australia (or within Australia for use outside Australia) are applied:

(i) in accordance with the entity’s purpose and character as a not-for- profit entity; and

(ii) with reasonable controls and risk management processes in place.

Draft Standard 1 would also impose an obligation to comply with certain Australian laws, whilst overseas (with broadly an antimoney laundering‘, ‘terrorism‘, ‘slavery‘ and ‘bribery‘ focus). See proposed sub-reg (4) below.

(4) The registered entity must comply with Australian laws relating to any of the following:

(a) money laundering;

(b) the financing of terrorism;

(c) sexual offences against children;

(d) slavery and slavery-like conditions;

(e) trafficking in individuals and debt bondage;

(f) people smuggling;

(g) international sanctions;

(h) taxation;

(i) bribery.

50.25 Standard 2Annual review of overseas activities and record-keeping

Standard 2 would oblige an Australian entity to report on its activities overseas, annually, on a ‘country by country’ basis, and to keep records so that it can do so this (including records of its expenditure). See the proposed Standard 2, below.

Standard

(3)  The registered entity must obtain and keep records necessary to prepare a summary of its operations and activities outside Australia on a country by country basis (an overseas activities statement) for each financial year during which it:

(a)  operated outside Australia; or

(b)  gave resources (including funds) to third parties outside Australia (or within Australia for use outside Australia), other than resources provided to another registered entity.

50.30 Standard 3Anti-fraud and anti-corruption

Standard 3 would impose an obligation to take ‘reasonable steps’ to minimise the risk of ‘corruption, fraud [or] bribery’ and identify ‘conflicts of interests’ staff or volunteers might have. See the proposed Standard 3, below.

Standard

(3)  The registered entity must take reasonable steps:

(a) to minimise any risk of corruption, fraud, bribery or other financial impropriety by its responsible entities, employees, volunteers and third parties outside Australia; and

(b) to identify and document any perceived or actual material conflicts of interest for their employees, volunteers, third parties and responsible entities outside Australia.

50.35 Standard 4Protection of vulnerable individuals

Standard 4 would require entities to take ‘reasonable steps‘ to ensure the safety of vulnerable persons, outside Australia to whom they were giving assistance, or whom they employed.

Standard

(3)  The registered entity must take reasonable steps to ensure the safety of vulnerable individuals outside Australia in relation to those individuals being provided with services or accessing benefits under programs provided by:

(a) the registered entity; or
(b) a third party in collaboration with the registered entity.

(4)  The registered entity must take reasonable steps to ensure the safety of vulnerable individuals outside Australia who have been engaged by:

(a) the registered entity; or

(b) a third party in collaboration with the registered entity to provide services or benefits on behalf of the registered entity or the third party.

FJM 26.8.18

[Treasury website: Consultation Page; Draft Regulations; Draft EM; External Conduct Standards FAQs; Consultation Summary; ACNC site: Home; ACNC Legislation; LTN 154, 13/8/18; Tax Month – August 2018]

 

Comprehension questions (answers available)

  1. Is there a risk that criminal elements might operate under the cover of the work of charities in overseas countries?
  2. How will the Standard address this?
  3. Is there Another Standard that would address this?
  4. How will the Standard address this?
  5. Is there a risk of fraud and corruption?
  6. How will the Standard address this?
  7. Is there a risk for vulnerable persons helped or employed?
  8. How will the Standard address this.

[Answers:1.yes;2.Standard1-ObeyRelevantAustralianLaws(evenOverseas);3.yes;

4.Standard2-ReportAnnuallyOnACountryByCountryBasis;5.yes;

6.Standard3-reasonableStepsToMinimise,IdentifyConflictsOfInterest;7.yes;8.Standard4-takeReasonableStepsToEnsureSafety]

 

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