The International Journal
of Not-for-Profit Law

Volume 2, Issue 2, December 1999

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

Table of Contents

Letter from the Editor

Articles

Should the Rules Governing Foundations be Placed in a Civil Code?
By Ulrich Drobnig

Strategic Options for Building the Chinese NGO Sector in an Open World
By Li-Qing Zhao

The Regulation by Public Bodies of Charities in Scotland and Northern Ireland
By Dr. Christine R. Barker and Dr. Kerry J. O’Halloran

Legislation for Non-Profit Organizations in the Republic of Moldova [Russian]
By Ilya Trombytsky

Endowments of Foundations Receive Contributions from the State Privatization Fund of the Czech Republic
By Petr Pajas

A Canadian Charity Tribunal: A Proposal for Implementation
By Arthur B.C. Drache, Q.C. with W. Laird Hunter

Case Notes

Asia Pacific:
the Philippines

European Court Cases:
European Court of Human Rights (Turkey)
| European Court of Justice (Belgium)

Newly Independent States: Belarus

South Asia:
India

Western Europe:
Ireland

Country Reports

Asia Pacific:
Australia
| China | Japan | Korea | New Zealand | the Philippines | Taiwan | Vietnam

Central and Eastern Europe: Regional | Bosnia and Herzegovina | Croatia | Czech Republic | Kosovo | Montenegro | Slovakia

Latin America:
Argentina
| Chile | Colombia | Uruguay | Venezuela

Middle East and North Africa: Iran | Israel | Palestine

Newly Independent States: Azerbaijan | Belarus | Kazakhstan | Moldova | Turkmenistan | Ukraine | Uzbekistan

North America:
Canada/ the United States

South Asia:
India

Sub-Saharan Africa:
Cameroon
| South Africa

Western Europe:
France | Germany | the Netherlands | Portugal | Turkey | the United Kingdom

International Developments

Recognition and Protection of NGOs in International Law
By Frits Hondius

NGOs for Transparency and Against Corruption
By The Europhil Trust

International Grantmaking

Grantmaking and Embargoed Countries: An Overview Using Kosovo as a Case Study
By Timothy S. Burgett and Timothy R. Lyman

Dissolution Dos and Don'ts
By Karla W. Simon

- - - - - - - - - -

Editorial Board

Subscription Information

Previous Issues

ICNL Homepage

Country Reports: Newly Independent States

Azerbaijan

Mr. Aslan Ismaylov, an Azerbaijan attorney, has brought to ICNL’s attention possible irregularities in the registration process of the Azerbaijan Bar Association (ABA). Mr. Ismaylov’s account illustrates the potential of state bureaucratic bodies to stifle the freedom of association of individuals or organizations that have fallen out of favor with the government. The ABA’s experiences underscore the need for governments to fully reflect international best practice in their oversight of nongovernmental organizations (For a discussion of best practice concerning registration of not-for-profit organizations see Guidelines for Laws Affecting Civic Organizations, prepared by ICNL for the Open Society Institute, §3.2*). ICNL hopes to include an article by Mr. Ismaylov detailing the situation in Azerbaijan in the next issue of IJNL.

*To request a copy of Guidelines please contact ICNL, infoicnl@icnl.org.

Belarus

Analysis of the Legislation of the Republic of Belarus on Public Associations and its Conformity with Norms of International Law and International Principles of Legal Regulation of Non-Commercial Organizations[1]

Prepared with Materials from the International Center for Not-for-Profit Law

The purpose of this analysis is to provide comments on the basic provisions governing public associations under the current legislation of the Republic of Belarus, as well as provisions contained in separate draft amendments and addenda to laws presently in force.

A fundamental conclusion of this analysis is that many of the current provisions as well as the proposed amendments and addenda fail to conform to basic norms of international law and generally accepted international principles of legal regulation of non-commercial organizations.

The normative documents considered in this Analysis are:

  1. Law of the Republic of Belarus on Public Associations of 1994.
  2. Presidential decree n° 2 of January 26, 1999 "On Several Measures Regulating the Activities of Political Parties, Trade Unions, Other Public Associations"
  3. "Provisions on State Registration (Re-registration) of Political Parties, Trade Unions and Other Public Associations" approved by the Presidential decree n° 2 of January 26, 1999.
  4. Presidential decree n° 26 of July 13, 1999 "On Insertion of Amendments and Addenda to the Presidential Decree n° 2 of January 26, 1999".

This analysis addresses provisions from the draft amendments and addenda to the Administrative Code of the Republic of Belarus of 1984 and to the Law on Public Associations of 1984. The Council of Ministers of the Republic of Belarus prepared these drafts and introduced them for the consideration by the Chamber of Representatives (the lower chamber) of Parliament.

Analysis of Separate Provisions from the Legislation of the Republic of Belarus

1. Right of Freedom of Association

The legislation of the Republic of Belarus provides citizens with the right to associate through establishing a legal entity in the form of public association. However, the formal establishment of a legal entity is only one approach to the expression of the freedom of association. The right to associate without establishing a legal entity is as important as an expression of freedom of association.

One of the principal difficulties with the Presidential Decree n° 2 of January 26, 1999 is its prohibition of activities by unregistered public associations (Section 3). In accordance with article 1 of the law On Public Associations, public association is a voluntary alliance of citizens established on the basis of common interests for the joint realization of civil, economic, social, or cultural rights. With such a broad definition of public association, any interest group of citizens, including those that are not legal entities, are public associations. Thus, according to the decree, any interest group that is not a legal entity is prohibited.

In civil law systems, an unregistered public organization (often one without the status of legal entity) usually is based on informal legal relations of trust or involving joint activities. Such organizations often do not enjoy the rights of a legal entity. The special advantages that can be obtained only through gaining formal legal status induce founders to voluntarily apply for such status. For example, when a public association is created as a legal entity, this status confers limited liability on members where the organization itself, and not the members, the officers, and employees, is responsible for the debts, agreements, and other obligations of the organization. Usually, unlike non-registered associations, registered association (legal entities) enjoys the right to receive government grants or tax benefits.[2]

The prohibition of unregistered associations is a serious violation of the right of freedom of association and of norms of international law. Such prohibition violates article 22(2) of the International Covenant on Civil and Political Rights of 1966.

 2. Administrative Liability of Physical Persons

We are especially concerned about the draft amendments and addenda to the Administrative Code (articles 167 (10) and 167 (11). These introduce administrative penalties in the form of fines and even administrative arrest for up to 15 days for any person carrying out activities on behalf of a public association which has not complied with state registration (re-registration) requirements, as well as similar penalties for the director of a public association when he/she fails to submit information about a change in legal address to the registering body within one month as required by the law. These penalties are in addition to penalties imposed on public associations for activities violating the law. In the case of illegal activities, the body registering public association has the right to bring an action in court for the compulsory liquidation of the offending association.

In international best practice the common rule is that the officers, members, and founders are not responsible for the obligations of the organization. Similarly, the organization is not responsible for the personal obligations of these persons. Officers normally are not individually responsible if they act conscientiously and within their competence. The most prevalent approach with respect to penalties for initial breaches of the law is a fine against the organization. More drastic measures are normally taken only in cases of very serious violations or repeated offenses, particularly when the organization takes no corrective steps. The organization may bring an action against an officer who violates the law or the founding documents, or who exceeds his competence or authority.

The principal purpose of establishing the responsibility of the person who acts on behalf of an organization that is not a legal entity and who misleads third persons with regard to the status of the organization, is the protection of the interests of third persons. In most cases, such person bears responsibility and is required to compensate third persons for any damage caused to the third person.

If the addenda to the Administrative Code mentioned above are adopted, the rights of the citizens to freedom of association will be even more limited.

3. Re-Registration of Public Associations

In accordance with Presidential Decree n° 2 of January 26, 1999, and with the provisions on state registration (re-registration) of political parties, trade unions, and public associations, confirmed by the Decree, all public associations of the Republic of Belarus were required to re-register between February 1, 1999 and July 1, 1999. However, under Presidential Decree n° 11 of March 16, 1999, the deadline for re-registration was extended to August 1, 1999 for many public associations, and to January 1, 2000 for associations where the majority of members are legal entities.

The practice of requiring re-registration has already demonstrated to be painful for non-commercial organizations, and, at the same time, expensive and difficult for state bodies. Re-registration can be implemented by the government for a wide range of reasons, from the necessity to bring founding documents of organizations into conformity with the newly adopted legislation, to using re-registration for the purpose of eliminating unwelcome organizations. Whatever the purported reason for re-registration, the best practice is to find ways to avoid this requirement.

In the Republic of Belarus, re-registration carried out in accordance with Presidential Decree n° 2, was justified by the government by the vaguely stated need to "more orderly regulate activities of political parties, trade unions, and other public associations." Several government officials have offered similarly insufficient reasons for re-registration: (i) it is necessary to eliminate organizations that exist only on paper and are not carrying any activity, and (ii) it is necessary to bring the legal documents of public associations into compliance with the recently adopted Civil Code. Practically, re-registration is clearly not required by the enactment of the new legislation, since the provisions of the new Civil Code contain no new requirements for public associations. In comparison with the burdens of re-registration, obsolete or inactive organizations appear not to be significantly costly for the government and essentially harmless with respect to the non-commercial sector. In addition, the government can easily identify organizations that have terminated their existence through a simple exchange of information between the registering body and the tax authorities, where all organizations are registered as taxpayers and obliged to periodically file documents on tax payment.

Good practice for registration (re-registration where necessary) of associations is to conduct the process as a simple administrative act entailing minimal discretion on the part of government officials, requiring a minimal number of clearly definite documents. Associations should be authorized to carry out any legally permitted activities that are not primarily directed toward earning profits. The degree of activity should be the internal business of the organization; it should be able to suspend and restart its activity any time. Refusal to register an association cannot be justified on any grounds other than failure to comply with clearly stated and relatively simple requirements of the registration law, or for conducting clearly illegal activities. The presumption always must be in favor of the association. There always should be a possibility for an association to appeal an unfavorable decision of the state body.

 The provisions for state registration (re-registration) established by Decree n°2 provide a complicated procedure for re-registration (registration) of public associations: (i) a two level system of registration with the Republican Commission for Registration and with the Ministry of Justice, as well as (ii) the requirement to submit a vast list of documents to apply for registration (re-registration). In accordance to Presidential Decree n° 2 of January 26, 1999, an association that does not re-register is subject to compulsory liquidation. It is difficult to appeal decisions of the Republican Commission for Registration of Public Associations. This Commission plays a decisive role in the registration (re-registration) decision. At the same time, the Commission, established on the basis of the Presidential Decree n° 2 has no precise status in law and is not itself a legal entity, and the legislation lacks any procedure for appealing its decisions.

The registration process and requirements for documents must be simple. At each stage of the process opportunity to exercise official discretion should be minimized. Governmental ministries or departments responsible for the registration of associations should publicize regulations, provisions, and forms explaining the registration process. The state body should assist the association to obtain official legal status. Any refusal to register an association must be supported with written documentation and subject to appeal. 

In summary, the requirement of re-registration in Belarus is generally not well founded, threatens the existence of public associations, is not in accordance with international legal principles regulating non-commercial organizations, and should be deemed a violation of the right of freedom of association.

4. Separate Regulation for Political Parties and Religious Organizations

Although the law of the Republic of Belarus On Public Associations of 1994 does not apply to political parties, trade unions, and religious organizations, the provisions of the Presidential Decree n° 2 of January 26, 1999 regulate issues of registration and re-registration of associations including political parties and trade unions.

The best practice is to establish separate regulations for political parties, religious organizations, and trade unions. In view of the specific purposes of these organizations, their regulation combined with other public associations will likely lead to unnecessary restrictions on the activities of the public associations.

For example, a political party exists to gain political power. The ruling party is interested in limiting the activities of these organizations it perceives as its potential competitors. For the law to provide a ready vehicle for so limiting the activities or even existence of organizations can sorely affect other public organizations, for example, those with activities in the social or human rights sphere.

In view of the significant characteristics of each category of organization, many countries have enacted separate laws on political parties, trade unions, and consumers’ cooperatives.

The Presidential Decree n° 2 of January 26, 1999 on public associations includes within its mandate the regulation on registration of political parties and trade unions. This fact may explain the excessively strict state constraints imposed on all public associations.

5. Registration of Public Associations on Territorial Grounds

In accordance with article 13 of the Law on Public Association, state bodies register a public association subject to the geographic area of activity in which the association operates. If it seeks to extend its activities into other geographic regions, a public association must be re-registered.

Further, in accordance with the draft amendments to the law On Public Associations (new version, article 8, part 1) in order to create a Local Public Association, no fewer than 10 founders (members) must derive from a majority of the administrative areas of the territory in which the association intends to carry out its activities. In order to create an All-republic Public Association, there must be no fewer than 10 founders (members) per region from a majority of the regions of the Republic of Belarus, including the city of Minsk.

The practice of determining the status of a public organization on territorial grounds follows the tradition of Soviet law (Russia, like the former USSR, is comprised of independent Federal jurisdictions which are empowered to adopt their own legislation.) This system of registration is employed in states with federal divisions and is found, for example in Germany, the USA, and Switzerland. Each jurisdiction within the federation is authorized to adopt independent laws, and consequently, to establish different procedures for registration, accounting requirements, and the like.

Limitation of registration and activities of public associations geographically restricts the development of these organizations since it requires re-registration with another governmental agency every time the association seeks to expand its activities beyond the original registration area.

There are no federal divisions in the Republic of Belarus. The registration process established for public associations should not be more difficult than for commercial entities, which are not limited geographically within Belarus. Accordingly, we recommend elimination of the requirement that organizations register on the basis of geography.

6. Restrictions on Establishment and Activities of Public Associations

Article 3 of the Law on Public Associations provides the following instances in which the establishment and activity of public associations are prohibited -- when the activity of the associations (i) aims to overthrow or violently change the constitutional order, (ii) violates the integrity and security of the state, (iii) is intended to conduct war propaganda, violence, or incite national, social, religious and racial hostility. In the draft amendments and addenda to the law On Public Associations, this list is complemented by the phrase "as well as public associations which activities can have a negative influence on the health and psyche of the citizens".

While this list seems long, the literal text of Article 3 in general appears to conform to the provisions of the International Covenant on Civil and Political Rights of 1966, which stipulates that states may restrict rights, such as the freedom of association, that are protected by the Covenant when such restriction is prescribed by law, and then only if the restriction is "necessary in a democratic society" to serve legitimate interests of national security, public safety, public morals or health, or others’ rights or freedoms.

However, the impact of such a provision is strongly affected by the way in which it may be implemented. For example, the "negative influence on the health and psyche of the citizens" invites overly broad interpretation by governmental authorities. Responsibility for causing harm to a person's health is properly regulated in the criminal laws. Licensing legislation protects the public by regulating activities subject to licensing, for example, medical practice or educational curricula. It is not clear how the mere registration of an association might cause a "negative influence on the health and psyche of the citizens." Accordingly, the phrase "negative influence on the health and psyche of the citizens" is patently inappropriate in this context, overly vague, and subject to potential abuse. 

A narrower restatement of this article would provide the means to prevent state bodies from interpreting the provisions of this article excessively broadly. In any concrete event of refusal to register an NGO, the key question should be (1) whether there is (or has been) a demonstrable legal threat to national security, constitutional order, or health, and (2) were any measures adopted well founded and proportional, or were they unnecessary and excessive.

7. Grounds for Refusal to Register (Re-Register) a Public Association

Section 11 of the Presidential Decree n° 2 of January 26, 1999 establishes grounds for refusal to register (re-register) a public association. The list of reasons is very broad, and individual reasons are vague and subject to misinterpretation by state officials. For example, refusal to register can occur if in the year preceding re-registration the association received a written warning from the registering or other state body of violation of the charter of the association or of the current legislation. It is worth noting that the possibility of refusal to re-register in a given case is not linked to any opportunity on the part of the association to correct the revealed violation, the seriousness of such violation, or the fact of recall of the warning or cancellation of any penalties by the court or the higher state body. This purported justification allows state bodies to refuse re-registration of associations and thereby cause their liquidation on relatively insignificant grounds. Such grounds might be, for example, failure to meet the deadline for tax payment, or failure to make a timely filing of financial reports from the previous year.

Moreover, during the process of re-registering a public association, the state registering body repeatedly verifies the charter, which had been previously registered by the same state body. Many requirements brought in the list of grounds for refusal to register (re-register) bear a purely bureaucratic character, such as non-conformity of the name and symbol of the association in the charter and the legislation. The association should have the opportunity to correct these simple procedural defects before registration (re-registration) is definitively refused. Reasonable limits on the discretion of the state body to refuse registration (re-registration) of a public association are required by the right of freedom of association, openly subscribed to by the Republic of Belarus.

In accordance with the International Covenant of Civil and Political Rights of 1966, countries-members are allowed to limit the freedom of association, and other rights protected under the Covenant only when such limitation is allowed by the law and only if such limitation is “necessary in democratic society” to protect lawful interests of national security, public tranquility, public morals and health, as well as rights and freedoms of others. We strongly recommend that the list of grounds for refusal of registration (re-registration) of public association be revised and brought into compliance with the provisions of the International Covenant of Civil and Political Rights. In each specific case of refusal of registration (re-registration) of a public association, certain questions must be answered: first, Is (was) there or not a real legal threat to national security, civil order, moral or health of society; and, second, were the measures adopted well-founded and proportional, or unnecessary and excessive, in accordance with the provisions of article 11 of the Human Rights Convention and article 22 of the International Covenant of Civil and Political Rights, and decisions issued by the European Court of Human Rights in the case of the Turkish Communist Party vs. Greece (1998). 

8. Establishment of Public Association

The Presidential Decree n° 2 of January 26, 1999 introduces new and more stringent requirements for the establishment of public associations. In accordance with section 3 of the Decree, legal entities cannot found public associations. Further, in accordance with the draft amendments to the law On Public Associations (new version, article 8, part 1) in order to create a Local Public Association, no fewer than 10 founders (members) are required from the majority of administrative regions of the territory where an association will be conducting its activities, and to create an All-republic Public Association, no fewer than 10 founders (members) are required per region from a majority of the regions in the Republic of Belarus, including the city of Minsk.

All laws on non-commercial organizations should be established on the presumption that different citizens, groups, and legal entities have the right to establish non-commercial organizations, pursuing any legal non-commercial activity. Any legal or natural person, including foreign, should have the right to create non-commercial organizations.

Not only natural, but also legal persons should have the right to create non-commercial organizations. Existing laws on non-commercial organizations permit natural persons to establish non-commercial organizations, but many do not grant this right to legal persons. It is highly desirable that legal entities be granted this right so that non-commercial organizations sharing the same values may associate in order to solve issues and represent their common interests. Most important, the right of legal entities to establish non-commercial organizations manifests itself effectively in their right to establish both public associations of legal entities and foundations.

Although the prohibition against legal entities founding public associations is not a violation of international law, it does not conform to best international practices regulating non-commercial organizations. If the amendments to the Law on Public Associations are adopted, the requirement for establishing public associations will be stricter for public associations than for commercial organizations.

Notes

[1] In this analysis, are used the words public association, public organization, non-governmental as well as non-commercial. It is understood by “non-commercial,” non-governmental, public organizations whose profits do not constitute the main purpose and are not distributed amongst members and officers of the organization. A public association is considered to be a separate organizational legal form of non-commercial (non-governmental, public) organization, based on membership. The provisions of this article on non-commercial (non-governmental, public) organizations apply to public associations.

In this analysis are not considered special regulations of certain types of public associations as political parties, trade union and religious organizations.

[2] See World Bank Handbook on Good Practices for Laws Relating to Non-Governmental Organizations, Chapter D, section 3.

Kazakhstan

Kazakhstan Tax Changes Effective of January 1st, 2000

At the present time, tax benefits in Kazakhstan is regulated by; (1) the Presidential Decree on Taxes and Other Obligatory Payments to the Budget (April 24, 1995);[i] (2) applicable resolutions of the government; and (3) separate international agreements.[ii] The Presidential Decree (hereinafter the Decree), having the force of law and approved by the Parliament, is the de facto Tax Code of Kazakhstan.

The government of Kazakhstan has adopted a series of changes to the Decree which unequivocally clarify the status of gratuitous transfers ("grants") from international NGOs to indigenous NGOs. The following amendments were added to the Tax Code of the Republic of Kazakhstan on December 10, 1999:

Article 5, point 8:

“grant — property provided on a charge-free basis by States, governments of states, state-owned, international and public organizations and physical persons to the Republic of Kazakhstan, Government of the Republic of Kazakhstan, legal entities (including to non-residents), their affiliates, representations and other separate structural subdivisions as well as physical persons for attaining certain objectives (purposes)”;

According to the previous version of the Decree, a grant and other humanitarian and charity aid, were considered to be excluded from income tax.[iii] However, there was no effective definition of grant. The amendment to Article 5 shown above, now further clarifies what a grant is. That is, the new wording leaves no doubt that grants from international donors and grants made pursuant to international agreements are not taxable as income.

This article is furthered applied to those obtaining salary from grant funds. Amended Article 104-7, point 3, subpoint 15, states that the payment of salaries out of grant funds to juridical persons (including NGOs) are exempt from "social tax" (much like social security) as long as the grant money was given

  1. according to inter-governmental agreements, or
  2. grants from international, non-governmental organizations.[iv]

The current rate of social tax for legal persons is 26%. Previously, if a donor gave a grant of $10,000 (US Dollars), salaries paid by the grant would subject the sum to taxation. In this example, if $6,000 went to pay salaries, $1,560 would be deducted from the $10,000 over the course of a year. It was argued that this limited the effectiveness of the grants made by international donors. However, this taxation has been eliminated due to the recent amendments.

These benefits apply not only to local NGOs that receive grant money but it also applies to international NGOs in Kazakhstan. An example would be a USAID grantee such as the ICNL. ICNL receives its funding in accordance with an international agreement between Kazakhstan and the US. This satisfies the requirements of point (1) cited above.

In Kazakhstan, it is customary that the social tax on an employee's salary be paid by the NGO. According to the new changes, ICNL will gain back approximately 26% of what it is paying for social tax on salaries. If ICNL was paying $5,000 a month for salaries, ICNL would save $1300/month under the new changes -- money that can go back into programming activity.

This reduction will not effect an employee's ability to collect the government pension as the government pension is a general fund not relative to one's contribution. Moreover, the government pension is very low. Please note that there will still be the mandatory 10% tax that goes to private pension funds. This is considered to be the real security for future pensioners. That tax is relative to one's contribution

Also, according to Article 57, point 24, NGOs operating on grants made by international donors are also given a preferential VAT rating.

Article 57. Turnover (Sales) not Liable for Value Added Tax

1. Turnover relating to the sale of the following goods (works and services) shall be exempt from VAT:

24) turnover (sales) relating to disposal of goods (works and services) carried out at the expenses of grants given along the line of states, governments of states and international organizations;

The addition to the Decree relieves grant money from VAT on the selling end (as opposed to the purchasing transfer). Another VAT preference is set forth in Article 57. The import of the goods which are executed at the expense of the grants that were obtained along the lines of (from) intergovernmental agreements, governments of foreign states and international organizations is released from the value added tax.[v]

These benefits enumerated above definitely improve the economic viability of the sector. Moreover, they may encourage organizations that maintain "separate books" to now pay their legitimate share of taxes. This, in turn, may bring more credibility to the NGO sector and bring more revenue to Kazakhstani society.

Notes

[i] This decree has the force of law under the Kazakhstan system.

[ii] In particular, bilateral agreements as between Kazakhstan and foreign countries such as the United States.

[iii] Article 34, section 5 (3).

[iv] Article 104-7. Taxable Base:

Legal persons do not pay social tax in the following cases:

15) out of grant funds given on the basis of intergovernmental agreements and given by international non-governmental organizations.”

[v] Article 57, section 24.

Moldova

Moldovan Law On Foundations: the “Tool for Clearing Up Dirty Money” or the Key to the “Civilized Charity”?

This article is the response to the comments on the new Moldovan law On Foundations published in Economic Overview # 41, 1999. These comments indicate misunderstanding and mistrust to the new law.

As one of the drafters of this law I will try to explain it. The reason of this misunderstanding is not the fault of the drafters of the law, but more the deficiency of the Russian language. For the Russian speaker it is not clear which foundations are subject to regulation under this law. Different words such as “fund” and “foundation” exist in English. In Romanian they are called accordingly “fond” and “fundatia”. At the same time Russian language has only one word covering both terms “Фонд”. Laws in Moldova are adopted in Romanian and Moldovan and Russian text of these laws is only the translation of Moldovan laws. Under the law the foundation is defined as a non-commercial organization without a membership created based on the foundation documents by one or more physical and/or legal persons, to which the property is transferred, and this property is differentiated and separated from the property of founders, which is purposed to achieve non-commercial purposes stated in the charter.

What was the need to adopt the law? As a matter of fact in all developed countries, and now in Eastern European countries two main forms of non-political non-governmental organizations exist- associations and foundations (or in Romanian “fundatia”). Associations unite people (in our case- public associations) and foundations unite assets for the achievement of non-commercial purposes. The more country is civilized, the more rich is this country means that people are more involved in such organizations. For example, in the US 7 % of work-capable population is involved in such organizations, in Hungary- 3 %. These organizations solve problems, which the government can not or does not want to solve in the areas of social, medical, ecological, educational services, and other areas. Opposite to the opinion of the author of mentioned above comments published in the Economic Overview, these organizations are well respected by the community, existing to a large extend at the finance support of common citizens. The cased of misuse and “clearing out dirty money” are minimal because of the sophisticated legislation and control on the part of non-governmental organizations themselves.

Our law On Foundations is the first in NIS, but fare from being first in Europe. The purpose of this law in Moldova is to establish basis for “civilized charity,” which can be carried out through foundations and not by direct transfer of resources for the defined event. The later is very often followed with the request to place an advertisement or to unlawfully withdraw cash from the bank account and to return the leftover.

I can hope that it is not smart idea with our current legislation to create foundations with the purpose to “clear out dirty money” because in order to receive exemptions from taxes a foundation should (1) have only public benefit purposes in its charter, (2) pass the certification procedure with receiving a special document, and lastly (3) to provide support only to the legal entities, listed in paragraphs (a) and (b) part 1 of Article 52 of the Tax Code, and not to political parties (paragraph (d) of the same article in the Tax Code).

It is understandable that “Fond Mitropolii” is immediately coming to mind. By permitting this fund the government damaged the reputation of the non-commercial sector, and now “being burned with a hot milk, it is blowing on a cold water.” The key to understanding of what’s happened at that time is to understand that the basic principles for the non-commercial sector were ignored: foundations may carry out only activities, which are directly related with the purposes stated in the charter. We have this provision in our law.

There is nothing terrifying that foundations are allowed to found subsidiaries because they can be found by any subject of civil law. Foundations do not have any preferences in this case.

I would like to explain the definition of non-commercial organization to which the term “foundation” relates. According to Article 12 of the Tax Code this is an organization, which does not have earning profits as a purpose of its activity and which does not distribute earned income among founders, members or participants.

A founder (founders) has a very specific role in context of the above definition. Any physical and/or legal person, including foreign person, excluding government bodies and exempt organizations can be a founder (founders). The founder’s role is to draft and register the charter, to provide assets for the realization of purposes and to appoint the first board of directors. Further on the foundation exists autonomously under the guidance of the charter and even the founder can not influence its activity. Of course, the founder, as well as any other person still has the right to support the activities of the foundation with assets.

Reading the previous paragraph many will say “what idiot will transfer assets to the foundation if he/she does not have any return from these assets?” Yes, a foundation is created with the purpose to conduct good to the society. However, nothing prevents “Voxtel” to create a foundation with the same name, and in this case this foundation will start working creating an image of the firm acting in a European way. This makes sense taking into the consideration that in Western countries listings of foundations exist, and every consumer of a foundation’s services remembers a foundation with a kind word. In addition, a normal patriotism exists which is, to my mind, is not strange to rich people. Almost all big companies in the West founded foundations, for example, NIKE, Panasonic, ARCO, Citibank Foundation, Coca-Cola Co. Physical persons may create foundations as well.

Nevertheless, the reader should not think that the foundation should be necessarily big. A private library at the home of a schoolteacher also can become a foundation according to his will after his death, and neighbors will be using it. A hospital for needee also can be a foundation.

Currently, with the exception of the Soros Foundation and a few representation offices of foreign foundations, there are no national foundations in Moldova. Those organizations, which call themselves foundations, de facto are associations. The new law allows to conduct good. Whether local business will utilize this opportunity or not depends on its maturity.

I am ready to assist with advice to brave companies and individuals.

Ilia Trombitski,
Deputy of the Parliament

Tel.: 8-291-217-26
E-mail: paolo@mdearn.cri.md

Turkmenistan

Legislative Update

A new Tax Code and potential Law on the Registration of Legal Entities are currently in the works in Turkmenistan. ICNL provided comments and suggestions to the draft Law on Registration of Legal Entities. This draft is being proposed by the State Agency on Foreign Investment. The draft law does not cover non-entrepreneurial organizations although it presumably should since it refers to a public register of legal entities and non-entrepreneurial organizations are legal entities. However doubtful, the Majilis (Parliament) expects to address this draft before 2000.

The Tax Code is being proposed by various government ministries including the Ministry of Finance. The outcome of this initiative is unclear and will not be know until after 2000.

On Tuesday, November 23rd, 1999, the President accepted/signed the new law "On Joint Stock Companies". Versions of the law may be available through USAID sponsored, Booz-Allen Consulting in Turkmenistan. Contact: Brian O'Shea at boshea@cat.glasnet.ru

The International Planned Parenthood Foundation held a seminar on the need for an NGO law in Ashgabad during the last week of November, 1999. The seminar focused on the NGO law checklist (available through ICNL) and critiqued the Turkmenistan NGO legislation namely the law "On Public Associations". The seminar also highlighted the new Civil Code (March 1, 1999) and its provisions regulating NGO registration. These little known provisions improve registration mechanisms and procedures for NGOs but have not been actively implemented by the government (namely the Ministry of Justice). 

Additional information available through Richard Remias, Regional Director Central Asia, ICNL, Almaty, Kazakhstan
rremias@cpart.alma-ata.su

Ukraine

What Will the New Law on Humanitarian Aid Bring?

History

The Law on Humanitarian Aid was adopted on October 22, effective January 1, 2000. Its adoption was a logical regulatory step in clarifying the order and distribution of humanitarian aid in the Ukraine.

This law did not appear in a vacuum. Before the enactment of the new law, humanitarian aid was regulated in the Ukraine under Presidential Decree # 738/98 dd. July 4, 1998 “On Humanitarian Aid which is Arriving to Ukraine,” and the Decree of the Cabinet of Ministers of the Ukraine # 745 dd. May 25, 1998, which approved the “Regulation on the Commission with the Cabinet of Ministers On the Issues of Coordination, Receiving, Transportation, Protection, and Distribution of the Humanitarian Aid which is Arriving from the Foreign Countries.” Before these decrees, a regulation promulgated by the Ukrainian Cabinet of Ministers dd. July 24, 1993, “On Straightening Receiving and Distribution of Humanitarian Aid,” first comprehensively addressed the issues surrounding the distribution of humanitarian aid.

Each new legislative act has provided increased regulation of the receipt and distribution of humanitarian aid, and further expanded the state’s control. Because humanitarian aid is tax exempt, not subject to customs duty, and in some cases even freed from the excise tax, the government naturally seeks to exercise some degree of control.

The new Law on Humanitarian Aid represents an amalgamation of regulations included in all of the previous legislative and regulatory acts. Further, it contains one truly significant innovation- the introduction of the “Unified Register of the Recipients of the Humanitarian Aid.” Together with other innovations, this law will substantially affect procedures for granting and distributing humanitarian aid in the Ukraine.

The Law on Humanitarian Aid will Not Have an Immediate Effect

Enforcing the law from January 1, 2000 is meaningless because most of the technical issues crucial to the implementation of the law will require the enactment of follow-up regulations. Based on previous experience it is unlikely that these regulations, when finally enacted, will be clear and easy to understand and to establish non-bureaucratic procedures.

Below is the list of the most important issues addressed in the Law on Humanitarian Aid, which shall be implemented through follow-up regulations:

  1. To obtain the status of a recipient of humanitarian aid an organization must be included into the “Unified Register of Recipients of the Humanitarian Aid.” The law does not establish registration procedures for including legal entities into the register. The Cabinet of Ministers must adopt a regulation for the Unified Register of Recipients of Humanitarian Aid. (part 1 and part 5 of article 1)
  2. The procedure for establishing and operating the Committee of the Cabinet of Ministers on the Issues of Humanitarian Aid as well as the appropriate committees in the Autonomous Republic of Crimea. In addition, Kiev and Sevastopol must also be established by a Decree of the Cabinet of Ministers. (part 5, article 4)
  3. The procedure for receiving and utilizing humanitarian aid in a foreign currency must be regulated by a Decree from the Cabinet of Ministers and the National Bank of the Ukraine. (part 6, article 7)
  4. The Cabinet of Ministers must establish sanitation, veterinary, and ecological regulations. (part 2, article 9)
  5. The Cabinet of Ministers shall establish procedures for importing into the territory of the Ukraine and procedures for destroying deficient or unsafe humanitarian aid in the Ukraine. (part 4, article 9)
  6. The Cabinet of Ministers shall establish the liability of government officials for exercising their authority and for adoption of appropriate customs registration for humanitarian aid. (part 6, article 9)
  7. Procedures are included for providing humanitarian aid by the Ukraine. (part 3, article 10)
  8. The Ukrainian Ministry of Finance must establish bookkeeping procedures to account for any humanitarian aid received. (part 4, article 11)
  9. The Cabinet of Ministers must define procedures for writing-off assets from humanitarian aid that has expired. (part 6, article 14)
  10. The Cabinet of Ministers must, either quarterly or annually, establish limits on categories of goods that may be imported into the Ukraine as humanitarian aid. (part 1, article 14)
  11. The Cabinet of Ministers must establish the maximum quantities of humanitarian aid that may be lawfully obtained by a recipient. (part 2, article 14)

Problems which Arise When Enforcing the Law on Humanitarian Aid

Consequently, donors and recipients of humanitarian aid will face the basic problem that the law cannot yet be implemented, notwithstanding the effective date of its enactment. Article 15 of the Law establishes the only assignment between the old commissions on the issues of coordination, reception, transportation, protection, and distribution of humanitarian aid and the new commissions on the issues of humanitarian aid. Despite the law’s silence on the issue, we assume that the legislative acts which regulated the old commissions on the issues of coordination, reception, transportation, protection and distribution of humanitarian aid remain in force pending adoption of implementing regulations for the new law.

It is currently unclear who can be a recipient of humanitarian aid. Before the enactment of the new law, it was not necessary to register with the “Unified Register of Recipients of Humanitarian Aid”. It may be that no organization will be present at the customs border to receive the cargo with humanitarian aid since no regulation exists governing registration as a recipient of humanitarian aid.

It is also unclear how to make sure that governmental authorities recognize the aid as “humanitarian.” It is not clear in article 3 to whom shall the donor apply and to whom the recipient should address its written acceptance of the aid. We can interpret provisions of article 3 so that such the exchange of letters between the potential donor and the potential recipient shall be presented to the relevant commission. However, because the law is not clear, these issues require additional legal interpretation.

What Shall be Done?

The Law on Humanitarian Aid is of great public importance because it strongly affects not only the NGO sector but also the most vulnerable and least protected part of the Ukrainian population. However, the Ukrainian Government never brought this legislation into public discussion. This disclosure would have simplified the task of clarifying the text of the law, rather than now seeking to affect dozens of ministerial regulations under the most secretive drafting processes. Nevertheless, the NGO community must initiate efforts to prepare and propose to the government follow-up regulations and amendments to the law, in order to assure the most straightforward and efficient implementation of the new law.

For more information please contact Anatolij Tkachuk, the ICNL representative in WestNIS, via e-mail at csi@ukrpack.net or tel/fax in Kiev at (380-44)2690732

Uzbekistan

New Law in Uzbekistan: Law on Non-Governmental, Non-Commercial Organizations

In April 1999, Uzbekistan adopted the new law regulating non-governmental, non-commercial organizations (commonly referred to as NGOs). The new Law on Non-governmental, Non-commercial Organizations (Law on NGOs) will apply to legal entities established on a voluntary basis that do not pursue economic gain as the main purpose, and do not distribute profit among members of the organization.

Previously, the main piece of legislation regulating non-commercial entities was the 1991 Law on Public Associations. This law, in combination with other rules and acts, created a restrictive environment for NGOs and even deterred NGOs from obtaining official registration. From over-regulation to geographical limitations on the activities of NGOs, this law failed to recognize contemporary norms of NGO legislation.

The new law comes after three years of consistent effort by government officials, local NGOs and international organizations. The broad-based interest in NGO legislation stems from the realization that NGOs play an increasingly important role in the overall development of a given country. NGOs are generally volunteer organizations that, because of the donated time, money and their specific interest, more effectively contribute to social causes.

As such, the government of Uzbekistan has been encouraged by various international organizations and local NGOs to improve the legal and regulatory environment for NGOs. As result of the combined interest, President Karimov called for NGO reform last fall in his address to the nation. Thereafter, an official working group was formed to draft new NGO legislation.

Many international organizations, such as USAID, Counterpart Consortium, OSCE, UNDP and the International Center for Not-for-Profit Law (ICNL) provided technical assistance to this goal.

After an intense campaign consisting of debate, discussion and drafting, an initial draft was prepared and introduced into the December session of Parliament. After a commenting period, the Olyi Majilis passed the bill on April 15th and soon thereafter, President Islam Karimov signed the bill into law.

The new law brings many positive changes to the acting legislation. It allows individuals to establish new types of non-commercial organizations such as foundations and institutions. Under the new law, not only citizens of Uzbekistan, but also foreigners and persons without citizenship are allowed to found NGOs. In addition, legal entities as well as physical persons can be founders of NGOs. These changes, among others, bring Uzbekistan legislation closer to international norms.

The new law potentially establishes simple registration procedures for foundations and institutions (note: subsequent legislation or acts are still needed to implement the positive provisions of the new law). One such change is a decrease in the amount of documentation and information required for registration. Under the former process, the need for numerous documents and detailed information often led to delays in the registration process.

The law generally simplifies reporting requirements. There is no longer any need to file periodic activities’ reports to registration authorities. According to the new law, NGOs are only required to allow the open access to the information regarding the use of the NGO's property and its financial means. In this regard, the law may also have a positive impact on public trust and awareness of NGO activity. The public will additionally have access to information on NGO registration in the Public Register of Legal Entities.

However, many important issues are still unresolved in the new law. One such issue is the undefined authority of government bodies supervising NGOs. This lack of definition may allow government authorities to arbitrarily interfere into NGOs activities. Another issue is the broad list of reasons to deny registration, as well as unclear procedure how to appeal such denial to a court of law. Furthermore, the new law still contains requirements for NGOs to register based on the territory of their activities, which requires re-registration every time an NGO expands its activities.

It is more difficult to substantially improve the regulatory environment for NGOs since the soviet-styled Law on Public Associations continues to exist. Even after enactment of the new Law on NGOs, the former 1991 law has not lost its force. In this respect it will be necessary to introduce the required amendments in accordance with the superceding Law on NGOs. In addition, if the government requires the re-registration of NGOs based on the adoption of the new law, this will cause damage to the fragile NGO sector.

Most commentators agree that the adoption of the new law can have both positive as well as negative effects. It will depend on the implementation of the law by the government authorities. As was stated previously, subsequent implementing regulations will be formed in the upcoming months. It remains to be seen in the next steps whether government and NGOs will continue to work together to fill in the blanks and complete the task of improving the legal and regulatory environment.

Richard Remias is the Regional Director of the International Center for Not-for-Profit Law in Central Asia (ICNL). ICNL's activity in Central Asia is funded by the United States Agency for International Development. The opinions herein are those of the author(s) and do not necessarily reflect the views of the U.S. Agency for International development.

For more information on the new NGO law contact ICNL in Almaty, Kazakhstan at (7-3272) 62-16-44 or fax (7-3272) 60-86-06 [rremias@cpart.alma-ata.su].

 

Copyright 2008 The International Center for Not-for-Profit Law (ICNL)
ISSN: 1556-5157