The International Journal
of Not-for-Profit Law

Volume 1, Issue 1, September 1998

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

Table of Contents

Letter from the Editor

Article

Legal Mechanisms to Encourage Development Partnerships
By Karla W. Simon and Leon E. Irish

Review

Handbuch Stiftungen
Edited by Bertelsmann Stiftung, Germany
Reviewed by Karla W. Simon

Case Notes

European Court of Human Rights Holds Right to Form Associations is Fundamental Human Right

Country Reports

Asia Pacific:
Region | Australia | China | India | Pakistan

Central and Eastern Europe:
Region
| Albania | Bosnia-Herzegovina | Bulgaria | Croatia | Estonia | Hungary | Latvia | Lithuania | Macedonia | Poland | Romania | Slovakia | Yugoslavia

Latin America:
Region | Belize | Brazil | Chile | Trinidad & Tobago | Venezuela

Newly Independent States / Central Asia:
Region
| Armenia | Azerbaijan | Belarus | Georgia | Kazakhstan | Kyrgyzstan | Moldova | Tadjikistan | Turkmenistan | Ukraine | Uzbekistan

Middle East and North Africa:
Egypt
| West Bank/Gaza | Yemen

North America:
Canada
| United States

Sub-Saharan Africa:
Cameroon | South Africa | Tanzania

Western Europe:
Region | England and Wales | Germany | Ireland | Italy

Self-Regulation Reports

New Zealand
By David Robinson

Kenya
by Edward A. Adiin Yaansah

Ethiopia

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Editorial Board

Subscription Information

Previous Issues

ICNL Homepage

Country Reports: North Africa / Middle East

Egypt; West Bank/Gaza; Yemen

EGYPT

Law No. 32 of 1964, which has been roundly criticized by many human rights organizations within and outside Egypt, is currently being revised by a Task Force, which includes both government and NGO representatives. The first draft of the proposed revision was discussed by members of the NGO sector and criticized because of the continuation of certain powers over NGOs and their members in the hands of the Ministry of Social Affairs (MOSA). However, now changes have been made that make the draft more acceptable to the sector. For information on the existing Law No. 32 and a specific analysis of how it fits with international good practices as outlined in the World Bank Handbook on Good Practices for Laws Relating to Nongovernmental Organizations, please consult ICNL. For further information on the present draft and its progress, please consult Amani Kandil, Executive Director of the Arab Network for NGOs/Shabala at (20-2) 340-8011 (tel) / (20-2) 340-8013 (fax).

For a complete listing of the Documents ICNL has in its documentation center on Egypt, Click Here!

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WEST BANK / GAZA

In May the Palestinian Legislative Council began its consideration of a draft law for NGOs in West Bank/Gaza. The current legal situation is confused. Egyptian law (Law 32) applies in Gaza, while the current, unreformed Jordanian law applies in the West Bank. Each operates with an overlay of emergency decrees issued by Israel.

There are thousands of NGOs active in Palestine. For many years basic social services, such as health, education, and so forth, were provided by NGOs and UN agencies. The Palestinian Authority is now trying to take over basic social service provision, and many of the funds that once flowed into NGOs now go to the PA.

Because of the difficulties of the current legal regime, many NGOs operating in Palestine are not registered there. This has created a large "gray area" in which NGOs perform important and essential functions but have little or no legal status. Most of the advocacy for reform also comes from NGOs. The World Bank has set up a special trust fund to fund NGOs, and will fund them if they have been operating in Palestine, whether they are registered or not.

There are roughly three groups of Palestinian NGOs: local NGOs that were substantially funded by Arab states prior to the Oslo Accords and that are grouped under the Union of Charitable Societies; local NGOs that are funded largely from Europe and North America and that are grouped under the Palestine NGO (PNGO) Network, and international NGOs that are principally funded from OECD countries and that are grouped under AIDA, the Association of International Development Associations.

The PNGO Network and the Union of Charitable Societies have played an active and important role in developing the new law for NGOs. The World Bank has provided some assistance.

The current draft is a major step forward, compared with earlier drafts prepared by the Ministry of Justice that have circulated for several years. Under the current draft, an association can be formed upon presentation of basic governance documents, the application must be acted on in two months time, there is a right to appeal a refusal to register to a court of competent jurisdiction, and there is registration by default if no action is taken by the Ministry of Justice (MOJ). A minimum of only 7 persons are required to form an association, and an association may engage in any social, economic, cultural, developmental, or other activities or services that will enhance the life of citizens in the fields of social, health, professional, material, spiritual, artistic, cultural, educational, or sports.

Generally reasonable rules are established for the governance and operation of associations. Associations are exempted from all taxes and customs duties on funds and property used for their public interest purposes, although the latter are recaptured if the goods are sold within 5 years. Associations are free to solicit contributions from the public, and they may engage in commercial activities so long as the profits are used for their public interest purposes. All associations except very small ones must have an annual budget supervised by a chartered accountant, and all associations must keep the bulk of their funds in a bank. An association can be voluntarily dissolved by its members, but MOJ can involuntarily terminate an association only for substantive violations of its bylaws and after notice and failure to correct. Any decision to dissolve an association is appealable to a court.

All associations are required to retain their important records and documents, and they must file annual reports on their activities and finances. The Ministry has the right to investigate possible abuses upon a written order substantiated by cause. Prior laws are repealed and existing associations are given 6 months to re-register.

Despite its many merits, there are also matters of concern in the current draft. For example, it does not allow the formation of foundations or other nonmembership organizations, nor does it permit mutual benefit organizations – organizations formed to pursue the private interests of its members rather than the public good (e.g., a chess club). Apparently an association formed under the draft law could not have foreign activities and no investments other than in bank accounts are allowed. Foreign NGOs are allowed to operate in WB/G only with the permission of the Ministry of Justice and only to provide social services that do not conflict with the interests of the Palestinian people.

Many other technical problems exist under the draft law. If enacted as is, however, it would be the most progressive NGO law in the Middle East. The draft has had only one reading, and will receive two more before it is passed by the Palestinian Council. It must then be signed by the President, Yaser Arafat, before it becomes law. It is uncertain whether, when, and in what final form the draft will become law.

For a complete listing of the Documents ICNL has in its documentation center on West Bank/Gaza, Click Here!

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YEMEN

With assistance from the World Bank, the Republic of Yemen is well on its way to adopting a modern, progressive law for Organizations. A comprehensive law for associations and foundations was discussed at eight workshops held throughout the country in May 1998. In June a review conference was held at which suggestions from the workshops were presented. An interministerial committee under the supervision of H.E. Mohammed Al Batani, the Minister of Insurance and Social Affairs (MISA), is charged with preparing the final draft law for presentation to the Parliament.

As part of the preparation of the draft law, which is available in English and Arabic, and in order to provide international comparative experience, the World Bank Handbook on Good Practices Relating to Laws for Organizations was translated into Arabic. Although the discussion draft of the law was presented by MISA, there was extensive consultation with Organizations.

There are about 1,200 not-for-profit organizations registered with MISA, and an unknown number of others are registered at other departments of the Government. Most registered organizations engage in social service or advocacy activities. One purpose of the draft law is to centralize all registration of not-for-profit organizations in MISA, which has a specialized department to deal with such NGO's.

Although the Yemeni Civil Code permits foundations, virtually all organizations in Yemen are currently registered as associations. There are also aqaf, which are regulated by the Sharia law. A waqf is typically established by an individual for the support of a mosque or related religious purposes.

The draft law was prepared in accordance with guidance recommended in the World Bank Handbook. A copy of it will be available soon in the on-line documents library of ICNL. The more significant provisions may be summarized as follows:

Under the draft law an association can be established to engage in any legal activity. A foundation can be established to engage in "public benefit activities," which are broadly defined. A foundation or an association can be established as either a membership or a non-membership organization.

Upon presentation of properly prepared constitutive documents, which are defined in the draft law, an NGO is entitled to be registered within 60 days. Registration can be denied only if the purposes of the organization would violate the laws of Yemen, if the registration application is materially incomplete, or if the name of the proposed organization is identical to an existing one, or so similar that confusion would be created in the minds of the public. If MISA fails to act within 60 days, the organization is automatically registered and is entitled to receive a certificate of registration. If registration is denied, MISA must state the specific reasons in writing. Any such refusal, or any other government action that is adverse to an NGO, may be appealed to a court of competent jurisdiction.

Associations and foundations may be registered by foreign or domestic individuals or legal entities, including governmental agencies, and foreign organizations may register branch offices. MISA will maintain a central registry of registered organizations that will be open to public inspection.

Although associations and foundations may engage freely in research, education, publication, and advocacy with respect to any issues affecting the public interest, including criticism of the policies and activities of the state or any officer or organ thereof, they may not engage in party politics, raise or spend money on behalf of political candidates, or engage in electioneering.

No person may be required to join or continue his membership, office, or employment with any association or foundation, and the right of individuals to form associations and foundations does not derogate in any way from their rights as individuals to exercise fully and freely the freedoms of association, assembly, and speech.

Basic rules for internal regulation are established, including the right of members, Boards, and officers to examine the books and records of the organization. Conflicts of interest are prohibited, recusal rules are specified, and duties of loyalty, diligence, and confidentiality are imposed upon officers, directors, and employees.

Officers, directors, and employees are not personally liable for the debts, obligations, or liabilities of an association or foundation, but they are liable for willful or grossly negligent performance or neglect of their duties. No net earnings or profits may be distributed, and the assets, earnings, and profits of an organization may not be used to provide special personal benefits to any member, officer, director, employee, founder, or donor. Upon termination any such assets must generally be distributed to an organization with a similar purpose.

Large organizations must have an annual certified audit of their finances, and all cash and currency assets in excess of an amount sufficient to meet the expenses of the organization for a period of two months must be maintained in a bank account.

Associations and foundations may engage in economic activities, but only if the principal purposes and activities of the organize constitute the nonprofit purposes for which it was established, there is no direct or indirect distribution of any profits to founders, members, officers, directors, employees, or donors, and the economic activities do not constitute speculation or create an unreasonable financial risk for the organization.

Associations and foundations are exempt from income tax on all of their income, except that income earned from economic activities is subject to taxation if it is not used or set aside for public benefit activities, and income earned on the assets of a foundation are subject to taxation to the extent that the portion of it which is not used to accomplish the nonprofit purposes of the organization exceeds the real rate of return on monetary assets.

Associations and foundations pay no customs duties on goods, supplies, and equipment that is imported and used for at least three years, or consumed, for the accomplishment of public benefit activities.

Contributions by an individual or a business entity to an association or foundation for public benefit activities are deductible up to 5 percent of income.

Any person who engages in public solicitation on behalf of an association or foundation may be required by any person being solicited to demonstrate that the organization is registered, that he or she has authority to solicit on behalf of the organization, and to give an accurate description of the organization’s purposes and the percentage of its income expended on overhead and fundraising activities.

Each organization must maintain books and records, and a minimum record retention policy is established. Organizations with no or only a small amount of expenditures for public benefit activities are not required to file reports with MISA. Medium-sized public organizations must file simplified reports on their finances and activities with MISA and make them available to the public. Large public benefit organizations must provide reports on their activities and operations and audited financial reports to MISA and make them available to the public.

Any organization with more than a certain level of income must file simplified tax returns with the tax authorities, and above a higher level, more detailed returns must be filed.

MISA is given appropriate investigative powers, and penalties are established for knowingly filing a material false report, intentionally concealing or destroying information required to be retained or provided, failure to provide required reports, engaging in improper political activities, soliciting funds other than in compliance with the public solicitation rules, or distributing assets or income improperly.

An association or foundation can be involuntarily terminated only if it has engaged in a material breach of a serious crime, engaged in repeated and flagrant violations of the civil law, or repeatedly failed to file required reports. Termination in permitted in the latter two circumstances only after notice and an opportunity to correct.

When the draft law is available online, ICNL plans to establish a bulletin board discussion of its provisions, in order to get further input.

For a complete listing of the Documents ICNL has in its documentation center on Yemen, Click Here!

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ISSN: 1556-5157