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The International Journal
of Not-for-Profit Law

Volume 12, Issue 3, May 2010

A publication of the International Center for Not-for-Profit Law

Table of Contents

Letter from the Editor

Restrictions on Foreign Funding of Civil Society

Special Section

Introductory Overview
International Center for Not-for-Profit Law

Mohamed ElAgati

Debebe Hailegebriel

Aleksej Bogoroditskii

Sri Lanka
Rohan Edrisinha

Marcos Carrillo


Maintaining Control: Recent Developments in Nonprofit Law and Regulation in Vietnam
Mark Sidel

The NGO Law: Azerbaijan Loses Another Case in the European Court
Mahammad Guluzade and Natalia Bourjaily

The Origin of the Species: Why Charity Regulations in Canada and England Continue to Reflect Their Origins
Peter Elson

Legal Forms of Civil Society Organizations as a Governance Problem: The Case of Switzerland
Georg von Schnurbein and Daniela Schonenberg

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Editorial Board


Aleksej Bogoroditskii

While Russian legislation still contains numerous challenges in regards to activities of non-commercial organizations (NCOs), the Russian Federal Law on Non-commercial Organizations was amended in 2009,2 bringing significant improvements to the regulatory environment for NCOs. Among other issues, the newly amended law has ushered in the following changes:

The election of the President Medvedev has fueled hope that the legal framework for civil society will continue to improve, eliminating other obstacles affecting NCOs, including barriers to foreign funding of NCOs discussed in this report. As the report makes clear, the funding constraints for NCOs were primarily introduced in 2006, prior to the election of President Medvedev; indeed, the focus of this report is predominantly on that particular time – the events surrounding the lead-up and immediate aftermath of the legislative changes introduced in 2006.  By focusing on these constraints – which are largely still in place – the article seeks to shed light on the political narrative surrounding the introduction of the constraints and thereby provide insight, which may be instructive for those in other country contexts.3   

I. Types of Restrictions on Foreign Funding of Civil Society

A. The Nature of the Legal Restriction

The main obstacles precluding non-commercial organizations (NCOs) from obtaining foreign funding are less related to legal restrictions per se, and more to the consequence of official government policy and the selective application of legal provisions. Special regulations pertaining to the registration, reporting, control and liquidation of NCOs provide a toolbox of legal provisions subject to selective application. In examining the nature of the legal restrictions, this section considers (1) the negative perception of foreign-funded NCOs; (2) legal barriers affecting representative offices of foreign organizations; (3) the government list of approved foreign grant makers; (4) legal and practical barriers affecting foreign-funded NCOs; and (5) the taxation of foreign financing.

(1) Negative Perception of Foreign-Funded NCOs

The Russian Government encourages negative attitudes toward foreign donors who fund NCOs and NCOs receiving foreign funding to work in the field of human rights protection, monitoring of the environment, law enforcement and migration, supporting volunteer initiatives, etc. This, in turn, furthers the societal perception of international NCOs and foreign-funded NCOs as an enemy. Russian human rights activists note the presence of “negative rhetoric on the part of authorities in regard to independent NCOs. This attitude frequently borders on outright animosity toward organizations obtaining foreign funding.”4 It has also been noted that “NCOs funded from foreign sources are subjected to more frequent inspections and are required to submit additional reports, etc.”5

(2) Legal Barriers Relating to Foreign Representative Offices

The Russian Government has established special regulations pertaining to the registration and reporting of subsidiaries and representative offices of foreign and international NCOs, which create certain difficulties for carrying out their activities on the territory of Russian Federation. (Federal Law N 18-ФЗ of 01/10/2006 “On introduction of amendments into certain legislative acts of the Russian Federation”) The special regulations include:

(3) Government List of Approved Foreign Grant Makers

In order to give grants to Russian NCOs on a tax-exempt basis, foreign donors must be included on a government list. The adoption of the RF Government Decree № 485 of June 28, 2008 (“On the list of international organizations whose grants (free of charge assistance) extended to Russian tax-payers shall be exempt from the taxation levied against the revenues of Russian grantees”) decreased the number of foreign donors whose grants are free from taxation from a total of 101 to a mere 12. All private donors were excluded from the government list. Significantly, the 2008 Decree also failed to establish criteria for securing a place on the government list. Additionally, foreign organizations that were removed from the list are now liable to pay taxes to the state budget. In response, a number of donors and NCOs opted to enter into donation agreements, or into contractual relations (or fee-for-services agreements).

(4) Legal and Practical Barriers Relating to Foreign-Funded NCOs

As mentioned above, the regulatory barriers relating to foreign-funded NCOs are less the result of specific rules applicable to foreign-funded NCOs and more the result of selective application of law. Russian NCOs receiving foreign funding face unfriendly attitudes on the part of state officials and business representatives alike when addressing the issue of financing social projects – primarily because foreign-funded NCOs are suspected of “hostile” activities. The state takes special steps to control the activities of foreign-funded NCOs through the following regulatory methods:

(5) Taxation of Foreign Financing

In addition to the government list of foreign donors described above, whereby foreign donors must be included on a government list in order to give tax-exempt grants, Russian law envisions a mechanism of advance registration for technical assistance projects where NCO-implementers are seeking tax benefits. (Decree of the RF Government № 1547 “On establishing the Commission on the international technical assistance” of December 25, 1998) The Commission on International Technical Assistance under the Ministry of Economic Development is responsible for registration of technical aid programs. Irrevocable technical aid constitutes assets and goods provided free of charge to Russian legal and/or physical persons by foreign countries, their federal or municipal bodies or international and foreign organizations, which is certified through registration of a project or a program on technical assistance. Technical assistance can be provided for two primary purposes: to support economic and social reforms and to conduct disarmament. The law requires implementers to register programs and projects only where implementers (NCOs) are seeking tax benefits.

In practice, however, the mechanism is not functional, due to excessive bureaucracy and a lack of transparency in the decision-making process. Tellingly, employees of the Commission themselves confirmed the lack of a number of norm-setting documents which are supposed to regulate certain procedural issues of the registration process.7 As a result, NCOs must pay taxes – and in particular, VAT – within the framework of assistance projects.

B. Early Warning Signs of Restrictions

The concern with foreign funding of NCOs was first raised in then-President Putin’s Address to the Federal Assembly in 2004:

There are thousands of public associations and unions in our country which are engaged in constructive activities but not all of the organizations work for the benefit of people’s interests. For some organizations, obtaining funding from influential foreign funds has become the top priority, while for others this priority implies serving dubious vested and commercial interests. Meanwhile the most urgent issues facing the country and its citizens remain neglected.

In May 2005, Nickolai Patrushev, Director of FSB, in his report to Parliament, suggested toughening the legal regulation of NCO activities: “An inadequate legislative basis and the lack of efficient mechanisms of state control lay the foundation for carrying out intelligence gathering under the cover of charitable and other activities.”8

In December 2005, Alexander Yakovenko, Deputy Foreign Minister, asserted the following: “There is little wonder that Russia’s foreign policy is perceived in a warped and distorted way abroad. This happens because Russian and Western media tend to quote NGOs generously funded by foreign capital.”

At the time of the adoption of the new legislation on NCOs in January 2006, then-President Putin commented that “the Government will support NCOs but shall see to it that their funding is transparent, which should guarantee their independence; otherwise they would dance to the tune of their foreign puppeteers.”9

In 2007, Putin maintained the same line: “There are those who craftily use pseudo-democratic phraseology for the purpose of returning to the not-so-distant past: some – in order to continue plundering the national wealth, rob our people and the state with impunity – the way they used to do it, while others do it striving to deprive our country of its economic and political independence. The flow of resources from abroad earmarked for direct interference into our internal affairs is steadily growing.”10

C. Impact of Legal Restrictions

Most of the legal barriers described above became law with the enactment of the Federal Law № 18-ФЗ on April 18, 2006. Certain regulatory measures aimed at the partial liberalization of the NCO legislation are currently being prepared, but they fail to address the need to improve the climate for foreign funding of NCOs in Russia.

Since 2006, the number of NCOs seeking foreign funding has decreased. The number of NCOs and civic activists has declined and there is an exodus of young people from the civic sector. In addition, the prestige of charitable and civic activities has plummeted in the eyes of the general public. Furthermore, there is a decline of international exchange, mutual internships and implementation of new social technologies.

In sum, the Government has managed successfully to reduce foreign influence on the social and political processes of the territory of the Russian Federation.

II. Justifications

Stricter regulatory control over NCOs and NCO activities has been justified by a range of supporting rationales, including the following:

In justifying the restrictive regulations introduced in 2006, the Russian Government relied most heavily on the legislative goal of enhanced transparency and increased efficiency of registration and supervision. Statements by politicians and national security officers, however, belied an underlying motivation linked with a view of NCOs as a subversive threat to the state. Indeed, NCOs were perceived to have played subversive roles in the “colored revolutions” in neighboring countries, and the new restrictions were seen as necessary, at least in part, to guard against similar attempts by NCOs in Russia.

Foreign-funded NCOs in particular were viewed as politically affiliated and threats to the national security and national sovereignty of the Russian Federation. For example, according to one official of the national security system, “NCOs, tied to their foreign partners, are addressing one and only one issue on the territory of the RF: they are undermining the constitutional form of government and the very statehood of the RF.”11 According to his colleague, “American and British agents are carrying out their activities behind the façade of non-commercial and faith-based organizations striving to give charitable grants to talented Russian citizens.”12

The governmental goal to enhance transparency and accountability of NCOs is legitimate, and likely complies with international standards. But the selective application of regulatory requirements vis-à-vis certain types of NCOs runs contrary to the standards of human rights established in the European Convention on Human Rights and Fundamental Freedoms, and also contradicts the standards proclaimed by the Council of Europe and the Constitution of the RF. Moreover, such a regulatory approach is incompatible with the very spirit of democracy and freedom.

III. Responses and Lessons Learned

A. Responses

By the time amendments to the legislation on NCOs were adopted in 2005-2006, the Russian Government had taken considerable steps toward creating a public-private partnership, which, in practice, meant creating a system of informal control over civic initiatives of “the opposition NCOs” and engaging loyal NCOs in the system of management of the societal/government processes. As a consequence, the civil society community failed to take a consolidated stand in relation to the new legislation. Evaluation of the proposed amendments was critical, as a rule, but nonetheless varied from extremely pessimistic to moderately critical. The range of opinion depended, to a great extent, on the proximity of the NCO to the authorities and on the accessibility of government funding. Still, NCOs exerted considerable pressure and succeeded in removing the most odious and radical amendments from the draft law.

After the law was enacted in 2006, and during its implementation, NCOs managed to combine their efforts around monitoring of the implementation of the law and assessment of the impact of the 2006 legislation. The results of the monitoring research were presented to the country’s leadership. Separate assessments of the situation of civil society in Russia were conducted by the Council of Europe and the European Parliament. These efforts, taken together, helped lead to “untightening the screws” and the eventual adoption of amendments to the law, which became effective in August 2009.

B. Lessons Learned

Based on the experience of the past several years, NCOs have drawn the conclusion that the framework of formal institutions, such as public chambers and other forms of civil assemblies, are not necessarily conducive to the protection of the rights of NCOs, but rather serve the interests of the state in controlling civic initiatives. In light of this, it would seem more effective to develop informal networks and coalitions uniting NCOs for the purpose of collective protection and lobbying for the rights of NCOs. Moreover, there is a role for the international diplomatic community and local networks and coalitions may seek to draw on the support of the international community.

C. What’s Next?

Two responsive strategies have been pursued and continue to be pursued by NCOs operating in the Russian Federation. First, NCOs have monitored and will continue to monitor how the law is being applied and the impact it is having on the sector. Second, NCOs have promoted and will continue to promote legislative initiatives in the interests of civil society at the national and regional levels.


1 This paper is made possible with the generous support of the American people through the United States Agency for International Development (USAID). The contents are the responsibility of the authors and do not necessarily reflect the views of USAID or the United States Government.

2 In June 2009, the State Duma adopted amendments to Russian Federal Law No. 7-FZ of January 12, 1996, “On Non-Commercial Organizations” (NCO Law) that came into force on August 1, 2009. 

3 These introductory paragraphs were contributed by ICNL; Sections I-III, which follow, were authored by Aleksej Bogoroditskii and do not necessarily reflect the views of ICNL.


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ISSN: 1556-5157