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

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Editorial Board

Subscription Information

Previous Issues

ICNL Homepage

International Grantmaking

Grantmaking and Embargoed Countries: An Overview Using Kosovo as a Case Study

By Timothy S. Burgett and Timothy R. Lyman

Authors’ note: because of the potentially fast-changing political and military circumstances leading to imposition of embargoes, regulations governing embargoes are also subject to frequent change. This article references relevant provisions in effect as of July 15, 1999.

In times of humanitarian crisis many U.S. grantmakers find themselves seeking ways to channel assistance quickly to populations in need. Where the crisis in question has military aspects or involves national security threats, grantmakers may find that they must contend with a variety of U.S. legal sanctions against a particular country and its nationals, designed to advance protective or punitive foreign policy objectives, as is the case presently in the Federal Republic of Yugoslavia (which consists of Serbia, including the province of Kosovo, and Montenegro). To provide assistance in situations involving an embargoed country, U.S. grantmakers need to find an approach that satisfies not only the legal requirements ordinarily applicable to foreign grantmaking, but also special rules imposed by the embargo in question.

For foreign grantmaking in general, private foundations will want to be sure that their grants to any foreign entities do not constitute “taxable expenditures” and will generally want to be sure that their grants constitute “qualifying distributions,” as discussed in the Legal Dimensions articles “Grantmaking by Private Foundations in the International Arena” by Thomas Chomicz and “The Out of Corpus Rule Reviewed” by Milton Cerny and Doug Varley. Corporate grantmakers will want to be certain their assistance can be deducted, and both corporate grantmakers and private foundations may find it convenient to work with a domestic U.S. public charity carrying out activities in the embargoed country in question. See Legal Dimensions “Simpler Approaches to Cross-Border Giving through Domestic Collaborations” by Timothy R. Lyman, and “How Private Foundations Can Use ‘Friends Of’ Organizations” by Victoria B. Bjorklund and Jennifer I. Goldberg.

When the additional element of an embargoed country is added, those involved in humanitarian or other nonprofit work often adopt an attitude at one of two extremes. Either they assume that the embargo “can’t apply to charitable activities” and so it can be safely ignored, or they assume that the embargo absolutely forbids any activity connected with the target country. Neither extreme is correct. While U.S. embargoes cannot be ignored by nonprofit entities or grantmakers who fund them (violations are subject to substantial civil and criminal penalties), usually exceptions or licenses are available which will authorize humanitarian (and other types of nonprofit) activities.

The U.S. currently imposes “complete embargoes” with respect to Cuba, Iran, Iraq, Libya, North Korea, Sudan, Yugoslavia and, most recently, the Taliban organization and areas of Afghanistan under its control. In addition, there are more limited sanctions restricting financial transactions involving Burma (Myanmar), Syria, the UNITA organization in Angola, and various named terrorist and drug trafficking persons and organizations. The embargoes are administered primarily by the Treasury Department’s Office of Foreign Assets Control (OFAC), whose website contains useful information and documents. For some embargoes, the restrictions on exports of goods (including food and medicine) and technology are administered by the Commerce Department’s Bureau of Export Administration (BXA), with information available at www.bxa.doc.gov.

The exact descriptions of prohibited activities vary from embargo to embargo. But for a U.S. grantmaker, the complete embargoes generally capture: grants to the embargoed government; grants to persons or entities anywhere in the world which are controlled by the embargoed government (OFAC publishes a list of such persons and entities); and grants to persons or entities located within the embargoed country. The prohibitions also usually encompass the more likely scenario: a grant to a nonprofit entity (whether U.S. or foreign) to enable such entity to transfer goods, services or other resources (including humanitarian items such as food or medicine) to the embargoed country. Even if the grantmaker is merely transferring funds within the U.S. to another U.S. entity, the transaction will often be captured by sections in the embargo regulations dealing with “facilitating” (or participating indirectly in) prohibited transactions, particularly if the terms of the grant call for funds to be used by the grantee in a manner that violates the embargo in question.

Thus, a U.S. grantmaker desiring to fund activity relating to an embargoed country usually will need to act within an exemption from the general prohibitions. Fortunately, there are numerous exemptions in the embargo regulations, including two in areas likely of interest to U.S. grantmakers: humanitarian activities, and transactions relating to informational materials (publications, films, posters, CD-ROMs, etc.).

In the best case, such activities and transactions are explicitly authorized in the regulations. If the desired activity falls within the precise authorization, it can be carried out without further approvals (e.g., for Sudan, exports in general are prohibited, “except for . . . donations of articles intended to relieve human suffering, such as food, clothing, and medicine”). In the worst case, a specific license must be obtained, sometimes from OFAC and other times from BXA. For example, OFAC has overall jurisdiction for the Iraq embargo, and its regulations state that “specific licenses may be issued on a case-by-case basis to permit exportation to Iraq of donated food intended to relieve human suffering.” While such licenses usually will be issued eventually, extensive details must be provided to the licensing agency. There will also be a delay (sometimes substantial) while the paperwork is processed. If a grantmaker is funding a U.S. entity for the project, the two entities should be able to work together in obtaining a single license. If a grantmaker is funding a non-U.S. entity, the grantmaker will usually need to obtain the license in its own name.

The current crisis in Kosovo provides an excellent and timely example of the above issues. As this article went to press, NATO troops were still in the process of taking up positions in Kosovo pursuant to the peace agreement. Assume, in this context, that a U.S. grantmaker desires to fund a humanitarian organization’s response to the Kosovo crisis. In particular, the humanitarian organization will use the grant funds to purchase food and medical supplies outside of Yugoslavia, then transport those items into both Montenegro and Serbia for distribution to needy civilians. (In law if not in fact, Montenegro and Serbia are the two constituent republics of the Federal Republic of Yugoslavia, and Kosovo is a province within Serbia.)

Under the relevant embargo rules in effect when this article went to press, donated humanitarian items may be shipped to Montenegro without a license. However, as an illustration of the menacing quirks that sometimes occur in the provisions of particular embargoes, the rules are currently different if the intention is to ship the items into Serbia. If so, a further question must be asked: whether the food and medical supplies are of U.S. origin. If they are not, again no license would be required although if a nongovernmental organization (NGO) desires actually to operate within Serbia, it should “register” with OFAC. If they are, then a prior license must be obtained from the Commerce Department’s BXA.

Many grantmakers looking for ways to provide assistance - not just in Kosovo, but in any embargoed country - will choose to collaborate with a U.S.-based international charity, which in turn will be expected to be informed about, and comply with, the relevant embargo rules. If properly structured, such collaborations will assure grantmakers the desired tax treatment for their funding. However, even these grantmakers will still want to have a general awareness of how the relevant embargo rules work (because of the possibility that the sanctions involved may very well extend to parties, such as funders, who merely “facilitate” an embargo violation). As the legal requirements vary from embargo to embargo, and frequently change, it would be prudent for grantmakers to consult with OFAC or BXA or with competent legal counsel when contemplating such activities. Grantmakers will also want to make sure to document, in a legally enforceable manner, any obligations of their grantees to comply with the relevant embargo provisions. Having taken these protective steps, however, grantmakers will generally find that exemptions from the relevant embargo rules will permit them significant latitude to fund the basic humanitarian activities that they desire, as well as many types of cultural and informational activities.

This article is intended to give a general overview for information purposes only. It should not be relied upon as legal advice for any specific situation.

Timothy S. Burgett is an attorney in the Legal Department at World Vision International. Embargo-related legal issues arise frequently in connection with the humanitarian work carried out by World Vision in approximately 90 countries around the world. Timothy R. Lyman is a partner in Hartford, CT office of Day, Berry & Howard LLP, where he heads the firm’s Nonprofit Institutions Practice Group. In this capacity and as President of the Day, Berry & Howard Foundation (“promoting positive developments in the law, legal scholarship and legal education”), he is a frequent consultant and speaker internationally on various legal issues pertaining to nonprofit organizations and relief and development work, particularly microfinance law.

For copies of this article with citations to legal authority, please contact Mr. Lyman at trlyman@dbh.com or call 860/275-0329.

This article was originally published as a "Legal Dimensions" paper in the Council on Foundations’ quarterly journal, International Grant-making and is reproduced here with the kind permission of the Council. "Legal Dimensions" articles are edited by an editorial board in which the following firms are represented: International Center for Not-for-Profit Law; Silk, Adler & Colvin; Day, Berry & Howard; and Caplin & Drysdale. For further information about the publication and the "Legal Dimensions" series, please contact Joyce Chandran at the Council on Foundations (e-mail: chanj@cof.org) or call 202/467-0386.

 

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