The International Journal
of Not-for-Profit Law

Volume 2, Issue 3, March 2000

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

Table of Contents

Letter from the Editor

Articles

Introduction: "Codes of Conduct for Partnership in Governance: Texts and Commentaries"
By Tatsuro Kunugi and Martha Schweitz

On the Establishment of Social Organizations Under Chinese Law
By Ge Yunsong

Australia's Nonprofit Taxation Reforms
By Myles McGregor-Lowndes

Reviews

Codes of Conduct for Partnerships in Governance: Text and Comments
Edited by Tatsuro Kunugi and Martha Schweitz
Reviewed by Catherine Shea

Case Notes

Central and Eastern Europe: Croatia | Poland | Serbia

Middle East and North Africa: Egypt

Newly Independent States: Azerbaijan

North America:
the United States

South Asia:
India

Country Reports

Asia Pacific:
Australia
| East Timor |
New Zealand
| the Philippines | Vietnam

Central and Eastern Europe: Regional | Kosovo | Romania

Latin America:
Regional | Belize | Brazil | Venezuela

Newly Independent States:
Russia | Ukraine

Middles East and North Africa: Sudan

North America:
Canada
| Mexico |
the United States

South Asia:
India

Sub-Saharan Africa:
Cameroon | Kenya |
Sierra Leone
| South Africa | Tanzania | Zimbabwe

Western Europe:
France | Germany |
the United Kingdom

Self Governance

Law and Governance-- A Lesson in Limits
By Leon Irish and Karla Simon

Trends in Self-Regulation and Transparency of Nonprofits in the U.S.
By Robert O. Bothwell

The Role of Governing Boards in Fostering Accountability
By Crispin Gregoire

Financial Implications Affecting Nonprofit Nongovernmental Organizations Today
By Michael A. Freedman

International Grantmaking

Grantmaking by U.S. Foundations in Canada: A Canadian Lawyer Provides a Plain Language Primer
By Blake Bromley

Community Philanthropy

Community Philanthropy Initiative of the European Foundation Centre

Transatlantic Community Foundation Network

New Website Buergerstiftung.de

Partnerships

General | Brazil | Kenya | Russia

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Editorial Board

Subscription Information

Previous Issues

ICNL Homepage

Country Reports: Newly Independent States

Russia

The European Court of Human Rights has asked Russia to submit observations by 10 March 2000 on the Russian law on freedom of religion in the case of Pitkevich v Russia. The case concerns the impeachment of a city court judge on the grounds that the judge, a member of the Pentecostal Living Faith Church, was alleged to have used her position to attract people to the church. (PDS Russian Religious News, February 2000)


See also Consolidated Budget Competitions for NGO Projects as a Tool for Intersectoral Interaction by Kira Grebennik in the Partnerships section in this issue of IJNL.

Ukraine

Comments on and Recommendations to the Law of Ukraine on Humanitarian Aid[1]

The Law On Humanitarian Aid was adopted on the 22 of October and enacted starting from January 1, 2000. Its adoption was a logical step with fixing in law regulations on the order and distribution of the humanitarian aid in Ukraine.

It’s important to note that this law does not appear on an empty space. Before the Law the humanitarian aid was regulated in Ukraine according to the President’s Decree # 738/98 dd. July 4, 1998 On Humanitarian Aid which is Arriving to Ukraine, and by the Decree of the Cabinet of Ministers of Ukraine # 745 dd. 25 May, 1998 which approved 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. Prior to the mentioned above legislative acts there was a Regulation by the Ukrainian Cabinet of Ministers dd. July 24, 1993 On Straightening Receiving and Distribution of Humanitarian Aid. This Regulation addressed the issues of humanitarian aid for the first time in a consistent way.

It seems like every new legislative act regulates the issues of receiving and distributing humanitarian aid in more details and intends to further expand the role of the state authorities to exercise control over humanitarian aid. It is a natural for the government since the humanitarian aid is tax exempt, is not subject for custom duty and in some cases even freed from the excise tax.

The new Law on Humanitarian Aid collects in itself regulations from all the previous legislative acts and contains some important innovations.

Taking into consideration the importance of legislation on humanitarian aid for significant parts of the population, the International Center for Not-for-Profit Law prepared these comments to the Ukrainian Law on Humanitarian Aid.

I. Introduction

The International Center for Not-for-Profit Law («ICNL») provided comments on the Law on Humanitarian Aid promulgated on October 22, 1999 at the request of the Peoples Deputy of Ukraine, the Chairman of the Committee On International Affairs of the Verkhovna Rada.

ICNL is honored to have been asked to make these comments, and it hopes they will be helpful in considering the regulation to allow further improving and implementing the 1999 Law on Humanitarian Aid.

ICNL is an international organization working to provide research services, education, and technical aid to help develop the legal and fiscal rules for the not-for-profit sector world-wide. It has worked in all countries of the Newly Independent States (NIS). Under a contract with the World Bank, ICNL has researched the laws and regulations affecting NGOs in over 100 countries and prepared a Handbook of Best Practices for such laws and regulations. It is with that background that these comments on the Law on Humanitarian Aid have been prepared.

The comments and suggestions set below are intended to improve certain provisions of the law and help to draft the follow-up regulations to the new law. We hope that our comments are useful and that we can continue to assist peoples deputies, government officials, and other interested parties representing the government and NGOs as they develop a sound and well-considered set of NGO laws in Ukraine.

II. General Principles

Humanitarian aid is of a great importance in maintaining social stability in the society. It is addressed to help the most vulnerable parts of the population, such as people with disabilities, orphanages, needy as a result of economical, natural, or other calamities. The recipient country shall be interested in establishing efficient mechanisms of import and distribution of humanitarian aid, which help to solve country’s social problems. Many countries encourage activities of organizations providing and distributing humanitarian aid granting them tax and other benefits. However, these benefits without sufficient supervision by the government may relate to abuse and fraud. Such abuses have taken place in the NIS particularly in the years 1992-94. Such actions unfortunately have tarnished the image of the NGO sector and led to the cancellation of many benefits to NGOs.

As pointed out in the Handbook on Good Practices for Laws Relating to Non-Governmental Organizations (Discussion Draft),[2] “laws allowing customs exemptions for NGOs tempt charlatans and crooks into the NGO sector with the prime motive of establishing an NGO to get customs exemption. If customs duties are imposed on legitimate NGOs, however, they can dramatically increase the costs of operations. This problem faces both foreign and domestic NGOs. The problem can be particularly severe for humanitarian relief organizations that typically must import all of their goods and services in order to meet emergency relief needs. It is a problem, though, for even the smallest NGO, which might want to import a fax machine or computer to make its work more productive.[3]

The good practice in this area is to provide customs duty exemptions to public benefit organizations (PBOs), to have a fair but thorough process for assuring that only genuine PBOs qualify for the process, but then to have a certification,licensing, or similar process that ensure that a PBO’s exemption from customs duties will be honored at the border. To protect against the improper use of the exemption, it is appropriate to provide that imports will be exempt only if they are going to be used by the NGO in its operations.”

Government supervision over import and distribution of humanitarian aid by NGOs has to be reasonable. Reporting to the supervising authority allows the government to verify that the goods are used for humanitarian purposes, that the benefits granted are justified, and helps to prevent or minimize the abuse. However, bureaucratic burden can delay the delivery of goods and therefore defeat the purposes of humanitarian aid. Reporting requirements established in the legislation should comply with international principles and best practices. The draft Handbook on Good Practices for Laws Relating to Non-Governmental Organizations (Discussion Draft)[4] recommends that “reports should be as simple to complete and as uniform among agencies as is possible. There should, of course, be penalties for failing to file reports, for failing to file them on time, or for filing false reports.[5] Finally, whatever reporting requirements are imposed on NGOs should not be more onerous than comparable reporting requirements imposed on other entities, such as for-profit companies.” In addition, the supervising agency should have the right to examine the books, records, and activities of an NGO during regular business hours, nevertheless, there should be protections in place to prevent the supervising agency from using the pretext of an audit to extract information about one or more individuals. The tax authorities should not examine any aspect of an NGO other than those directly related to taxation (including whether the requirements for exemption from taxation have been satisfied).

III. International Law

International multilateral agreements regulate the distribution of humanitarian aid only in times of war or disasters. The 1949 Geneva Conventions established rules for the distribution of humanitarian aid to population located in occupied territories or to internees. Indeed, it rules that occupying powers have the duty of insuring the distribution of humanitarian aid for the basic needs of populations.[6] In case the occupying power in question does not have the resources within the occupied territory to provide population with such aid, it must insure outside relief supplies and facilitate its distribution. Tax benefits have to be granted to relief provided from outside. Article 110 of the Fourth Geneva Convention Relative to the Protection of Civilian Persons in Time of War (August 12, 1949) states that “all relief shipments for internees shall be exempt from import, customs and other dues”. This requirement was extended to relief provided to population in Article 69 of the Protocol to the Geneva Conventions (June 8, 1977).[7]

Later, rules were established requiring that all parties to armed conflict should facilitate the provision of humanitarian aid performed by humanitarian organizations. This principle also applies to relief of civilian population in disaster situations and has been established by Resolution 2675 (XXV) of the General Assembly of the United Nations (UN).[8] Indeed, this Resolution provides that Governments are “requested to exercise their sovereign and other legal rights so as to facilitate the transit, admission and distribution of relief supplies provided by impartial international humanitarian organizations for the benefit of civilian populations in disaster areas when disaster situations imperil the life and welfare of such populations.”

Bi-lateral treaties also address the issues of regulation of humanitarian aid. Ukraine ratified bilateral treaties with foreign countries regarding humanitarian and technical economic cooperation and providing taxes and duties exemptions on goods imported within aid programs by foreign countries. For example, the agreement between the United States and Ukraine of May 7, 1992, provides that “Commodities, supplies or other property provided or utilized in connection with United States aid programs may be imported into, exported from, or used in Ukraine free from any tariffs, dues, customs duties, import taxes, and other similar taxes or charges imposed by Ukraine, or any subdivision thereof.”

IV. International Practice and National Laws, the Example of the EU

To present sample regulations on humanitarian aid we use the Regulation of the European Union and as a sample national legislation based on the European Union Regulation – the Decree of France.

Although the candidacy of Ukraine in the European Union has not been accepted yet, it is conceivable that Ukraine will one day become a member of the European Union. However, joining the EU is not a painless process: it requires new members to adopt regulations complying with EU regulations. The European Union attempts to harmonize as much as possible the legislation amongst its members and notably tax issues. Therefore, the later a country joins the EU, the more it will have to amend its legislation in order for it to be in conformity with EU regulations. For this reason, potential candidates should be encouraged to adopt laws that comply with the EU regulations in order to ease the transition once it becomes a member.

Import of goods for humanitarian aid to member governments of the European Union is regulated by the Council regulation n° 918/83. Each member government has had to adopt its own legislation in order to comply with the Council regulation. The regulation provides that goods addressed to charitable or philanthropic organizations accredited by their respective governments must be admitted free of import duty when the goods are:

The exclusive list of goods, which cannot benefit from exemption from import duty, includes alcoholic and tobacco products, coffee, tea, motor vehicles other than ambulances, and materials and equipment intended for rebuilding disaster areas.

When an organization ceases to qualify for exemption or decides to use the goods differently than for the purposes granting the exemption, the organization is liable to pay the import duties on the goods in question or on the goods remaining in the possession of the organization, which do not longer qualify for exemption.

The regulation provides that exemption from import duty shall be granted only to organizations, which adopted accounting procedure to allow the competent authorities to supervise their operations and which provide all the guaranties considered necessary. However, this is the only requirement the EU imposes for accrediting an organization. The EU does not establish harmonized accreditation requirement and it is for the member governments to adopt their own criteria for accreditation.

As an example we will review here the Decree on Tax Exemption to Import of Certain Goods, December 30, 1983, Title XII Goods Addressed to Organization with Philanthropic or Charitable Character, adopted by the French government in order to implement the mentioned above EU regulation. France adopted all the provisions of the EU regulation and regulated in greater details certain issues. Some goods are to be tax exempt within a certain limit:

Goods received in excess of the above mentioned limits would be liable to import duty. There is no limit imposed on goods qualified as basic necessity. These are tax exempt as long as their use complies with the regulation (such as free distribution to needy persons). As in the EU regulation alcoholic and tobacco products, coffee, tea, motor vehicles other than ambulances, and material and equipment intended for rebuilding disaster areas cannot be freed from import duty. Organizations are required to obtain an accreditation, carried out by the customs office, in order to receive such goods with import duty exemption. In order to obtain the accreditation the organization has to present to customs office in Paris the following documents:

Organizations have to present financial reports to the custom offices annually to guaranty the humanitarian operation and allow their control.

V. The Law of Ukraine on Humanitarian Aid

A. General Comments

The Law of Ukraine on Humanitarian Aid, which was adopted on October 22, 1999 brings some innovations that will be favorable to the provision of humanitarian aid in Ukraine such as the support provided for foreign citizens who promote humanitarian aid to Ukraine (article 13) or the fact that humanitarian aid in the form of foreign currency cannot be subject to compulsory sale (article 7). However, many provisions in the Law require adoption of further regulations by appropriate government agencies. Some provisions in the Law do not fully comply with international principles and good practices of regulating humanitarian aid.

Although the law was supposed to enter into force on January 1, 2000, a follow up legislation still need to be adopted to allow to implementation the law. The following issues still need to be clarified:

  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 in the register. The Cabinet of Ministers must therefore adopt a regulation for the Unified Register of Recipients of Humanitarian Aid. (part 1, par. 5 of article 1)
  2. The procedure for establishing and operation of the Commission of the Cabinet of Ministers on the Issues of Humanitarian Aid, as well as appropriate Commissions at the Autonomous Republic of Crimea and the regions, as well as in Kiev and Sevastopol, also must be established by the Cabinet of Ministers (part 5, article 4).
  3. The procedure for receiving and utilizing humanitarian aid in foreign currency must be regulated by the Cabinet of Ministers together with the National Bank of Ukraine (part 6, article 7).
  4.   Sanitary, veterinarian, …., ecological regulations must be established by the Cabinet of Ministers. (part 2, article 9).
  5. Procedures for importing into the territory of Ukraine or destroying deficient or unsafe humanitarian aid shall be established by the Cabinet of Ministers (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 for the provision of humanitarian aid by Ukraine have to be established by the Cabinet of Ministers. (part 3, article 10).
  8. The Ukrainian Ministry of Finance must establish bookkeeping procedures to account for humanitarian aid received. (part 4, article 11).
  9. The Cabinet of Ministers must define procedures for writing off assets from the humanitarian aid after the expiration date. (part 6, article 14).
  10. The Cabinet of Ministers must establish limits and categories of goods that may be imported to Ukraine as humanitarian aid (annually or quarterly). (part 1, article 14).
  11. The Cabinet of Ministers must establish maximum quantities of humanitarian aid that may be lawfully obtained by a recipient. (part 2, article 14).

The law establishes extra levels of supervision over humanitarian aid, which seems unreasonable. Certain issues addressed in the Law are already regulated in other laws. Below we list these issues:

Below we will provide comments and recommendations to key issues that still need to be regulated or for which the regulations can be improved in order to comply with international best practices.

B. Requirements for Donors

Article 3 of the Law states that “A basis to start the procedure to recognize an aid as humanitarian is a written proposal by the donor to provide it.

A basis to carry out humanitarian aid in Ukraine is a written consent of the recipient of humanitarian aid to receive it…”

This article is talking about the “procedure of recognition an aid as humanitarian.” Yet, it is not clear what does this procedure mean. We can interpret provisions of article 3 so that donors and potential recipients are required to exchange letters. However, there is no connection between provisions in article three and provisions in article five, which empowers Commission on Issues of Humanitarian Aid (Commission) to recognize the aid as humanitarian and literally to allow transactions.

We can interpret provisions of article 3 so that such exchange of letters between the potential donor and the potential recipient shall be presented to the relevant Commission. It is difficult to imagine that the Commission will be able to make a decision just based on these two letters. There is a potential threat for a donor and a recipient, that Commission will request more information from them before issuing any decision. As experience shows donors might be required to provide other documents, such as an approval of registration or residence at the country of their origin. We would like to warn that more requirements imposed on donors always lead to reduced stream of assistance. Donors would rather prefer to donate to other countries with easier regulatory environment. For example, in France, the donor does not provide any information to the customs authorities. The recipient however provides information on the donor together with its own information, an inventory of the goods to be cleared and a letter of intent on how the goods will be used (see procedure described in Section C. Unclear Procedure of Qualifying Goods as Humanitarian Aid)

Another provision of article 3 requires that “a change of the recipient of humanitarian aid and its re-addressing shall only be possible on agreement with the foreign donors based on the resolution of a corresponding Commission on Issues of Humanitarian Aid.”

This means that donors have to acquire permission from the Commission to re-distribute their humanitarian assistance goods. The government wants to insure that goods are transferred to an entity or for the purposes the tax and other benefits were granted for. However, it does not seem reasonable to impose such requirements on a donor. Whatever documents were filed by the original recipient shall be submitted again by a new recipient since this new recipient has to receive tax and customs benefits. However, a donor should not be requested to obtain any permission. If a donor is interested that the goods still keep the status of humanitarian aid, it will wait until new organization- recipient will follow procedure required by the law. We would not recommend imposing additional requirements on donors. The same should apply to changes in purpose of use of the humanitarian aid.

Another important issue addressed in the law, which affects donors, is the possibility of confiscation of humanitarian aid goods in case if they are not used by the recipient according to the legislation (article 12 of the Law).

The current text of the Law provides in such a way that even minor violations of the law might lead to confiscation. It is easy to understand the Government’s attempt to try not only to punish the violator, but also to reimburse its own losses through misuse of customs and tax benefits. However, this might violate the rights of donors. Taking into consideration the interests of the government and of the donor we recommend the following structure to deal with cases of violating the law by recipients of humanitarian aid:

These donors who works under the by-lateral governmental agreements regarding humanitarian and technical assistance shall take into the consideration that the Government of Ukraine under these agreements is obliged to take reasonable actions preventing the humanitarian assistance goods from being used for purposes other than these agreed upon under such programs. If the Ukrainian government fails to fulfill this requirement it shall refund the foreign government the amount disbursed for such goods. As example, See Article IV of the Agreement Between the Government of Ukraine and the Government of the United States of America Regarding Humanitarian and Technical Economic Cooperation (May 7, 1992).

C. Unclear Procedure of Qualifying Goods as Humanitarian Aid

Article 3 of the Law states that “A basis to start the procedure to recognize an aid as humanitarian is a written proposal by the donor to provide it.

A basis to carry out humanitarian aid in Ukraine is a written consent of the recipient of humanitarian aid to receive it.”

It is unclear how organizations- recipients should proceed so that the government authorities recognize the aid as “humanitarian.” It is not clear in article 3 to whom shall the donor apply and to whom should the recipient address its written acceptance of the aid. We can interpret provisions of article 3 so that such exchange of letters between the potential donor and the potential recipient shall be presented to the relevant Commission. These issues require additional legal interpretation.

In France the procedure to clear goods at customs is as follows:

  1. when an organization knows that it is going to receive aid, it has to send to the customs office in Paris (office that granted the accreditation which has functions regarding the humanitarian aid similar to functions of the Ukrainian Commission on the Issues of Humanitarian Aid) in 4 copies:
    • the name and address of the accredited organization,
    • the name and address of the donor together with the gift declaration it made to the organization,
    • an inventory of the goods expected,
    • which customs office is expected to clear the goods,
    • a letter indicating the usage that will be done of the goods imported (distributed free of charge, fund raising, or for operational needs)
  2. The customs office in Paris then puts its approval stamps on the copies and sends:
    • one back to the organizations and
    • one to the customs office that will clear the goods.
  3. When the goods arrive at customs the organization presents to customs the documents validated by the customs office in Paris. The customs office then confronts the documents presented by the organization to those sent by the Paris office and clears the goods.

Submission of documents to the Paris customs office has declarative character, and recognition of these documents by Paris Customs Office is a formality. Paris Customs Office does not decide either to grant or not to grant the status of humanitarian aid to goods. Of course the tax exemption would not be granted if the import of these goods would not comply with the regulation. For example if goods, which do not qualify for tax exemption such as tobacco or alcohol, would be listed on the inventory or the letter of intent would state that the organization will use for example basic necessities goods for its commercial activities.

We should admit that in France the volume of received humanitarian aid is insignificant. This allows Paris Customs Office and customs offices clearing goods to conduct all operations with export-import of humanitarian aid quickly without a delay.

A simplified procedure shall be adopted for recognizing goods as humanitarian aid, when these goods are imported by the US or other foreign countries organizations under by-lateral agreements on humanitarian and technical assistance.

D. Unified Register

Article 1 of the law governs that “recipients of humanitarian aid are juridical persons registered in accordance with the procedure established by the Cabinet of Ministers of Ukraine in the Unified Register of Recipients of Humanitarian Aid”. Enterprises of social organizations of disabled persons and veterans and entities supported by budgets, charitable organizations, social organizations of disabled persons and veterans, social organizations carrying out ecological, health improvement, amateur, sports, cultural, educational and scientific activities, the Ukrainian Red Cross, and religious organizations are eligible recipients.”

This requirement for organizations to go through special registration in order to receive customs and tax benefits generally complies with the international practices. For example, in France organizations- potential recipients of humanitarian aid have to obtain accreditation with the customs office. In many countries, only public benefit organizations, which aim is to benefit the society or the sector of the society, are granted exemptions while receiving or distributing humanitarian aid. However several issues have to be considered.

The list in article 1 includes enterprises of social organizations of disabled persons and veterans. These enterprises are commercial entities with the statutory purpose to gain profits. While it is reasonable to encourage these enterprises with tax and other benefits, it might be risky to allow them to import goods tax and duty-free. Even though the profit might be distributed back to the founder-social organization, it is much more difficult to trace the destination of this profit use. At the same time social organizations of disabled and veterans are non-profit organizations, which are also listed in article 1 of the Law and reasonably shall be allowed to import humanitarian aid.

All organizations listed in article 1 of the Law with the exception of enterprises of social organizations of disabled and veterans are already registered in the single Register of Not-for-profit Organizations with the General Tax Administration. Organizations, which were already qualified for tax exemptions will probably be qualified as recipients of humanitarian aid. The Register of Recipients of Humanitarian Aid seems to become a duplicate of an excerpt of the Register of Not-for-profit Organizations. Our first recommendation would be to amend the Law on Humanitarian Aid to eliminate the Register of Recipients of Humanitarian Aid and to require organizations listed in article 1 to present to a customs office the approval from the tax authority that they are in the Register of Not-for-profit Organizations. Even though the Register of Not-for-profit Organizations contains a broader list of organizations each kind of organizations, listed in this Law has its own code in the Register, for example charitable foundations have code “0005”. Organizations with a certain codes shall automatically be eligible to be recipients of humanitarian aid and the document approval from the tax authority shall be sufficient to be presented to customs offices.

If the legislator decides to go with the Register of Recipients of Humanitarian Aid the entry to this Register should be a simple formality. The follow-up regulations shall establish simple and clear procedures for registration in the Unified Register of Recipients of Humanitarian Aid. We suggest that applicant- organizations would have to provide the Commission on Issues of Humanitarian Aid with the proof of their registration in the register of not-for-profit organizations, the latest annual finance report, and the copy of the charter stating their purposes corresponding to those described in the law in order to obtain immediate registration from the Commission. The Commission would enter information on registered organization in the Unified Register. A proof of registration should be delivered to the organization so that the organization can present it to customs officers and expedite the process for clearing goods of humanitarian aid. For example, in France such accreditation allows accredited organizations to receive and distribute humanitarian aid tax-free without obtaining other permission for a one year period, with the exception of limitations for certain goods (See Section H. Threshold for Import of Humanitarian Aid)

Below is the proposed exclusive list of reasons to reject registration of the applicant as a recipient of the humanitarian aid:

  1. The information in the application or in attached documents is false;
  2. The serious violation of tax laws resulted in penalties within 6 months prior to the date of submitting the application.

E. Government Supervision

Article 11 provides that “accounting of humanitarian aid and corresponding reports should be made by the recipients of humanitarian aid (juridical persons) in accordance with the procedure established by the Ministry of Finance of Ukraine. In case of absence of accounting of receipt and designed use of humanitarian aid it shall be deemed used contrary to the designed purpose. The recipient of humanitarian aid and the grantee of humanitarian aid (juridical person) shall in accordance with the established procedure submit to the corresponding Commission on Issues of Humanitarian Aid monthly reports on the availability and distribution of humanitarian aid until full use of the whole amount of the humanitarian aid received.”

The monthly reports by organizations- recipients may require unjustified effort from their part. However, it is reasonable to require from the registered recipient to report only when it has in possession humanitarian aid goods. The procedures on reporting to be established by the Ministry of Finance should be as simple as possible. In some countries organizations-recipients shall report on the usage of the humanitarian aid goods to the tax authority within general tax reports. In Ukraine special reporting requirements might be either incorporated into general finance reports filed to tax authorities, or filed as a separate report. ICNL would be happy to assist in developing such accounting standards (reporting requirements) to the Ukrainian authorities. It might be required for registered recipients of humanitarian aid to file the copy of such finance report to the appropriate Commission On the Issues of Humanitarian Aid instead of requiring the submission of separate monthly reports. The regularity of reports shall be further discussed. In France, for example, such reports are filed annually.

It would significantly reduce the bureaucratic burden on recipients of humanitarian aid if the government authorities (tax, customs and appropriate Commissions) among themselves would establish sufficient system of exchange of information regarding received humanitarian aid. Assuming that the information in the Unified Register of the Recipients of Humanitarian Aid will be available to all of them, (i) the appropriate Commission shall distribute information on registration of organization with a Unified Register to tax authority to tax authorities at the location of the organization, and to the customs office. (ii) At the same time the tax and customs authorities shall provide Commission accordingly with organization’s finance reports and inform on the imported (exported) cargo received as a humanitarian aid. Commission would be coordinating the exchange of the information and requesting information from the organization- recipient whenever “the ends do not meet.” The general mechanisms to supervise activities will apply to registered recipients as to other legal entities (periodical audit, if required by the law, general supervision by authorized government entities).

According to Article 5 Commissions shall insure broad openness and publicize in mass media all aspects of their work. It is important to keep the Register open to the public. This will especially help donors.

It is not clear from the law how Commissions on the Issues of Humanitarian Aid will carry out accounting and control over received and distributed humanitarian aid. As experience shows when such issues are not regulated in the law they might become subject of broad interpretation by some government officials and it becomes more difficult to protect the rights of organizations subject to supervision. Below is the proposed procedure of carrying out supervision over activities of organizations:

The Commission shall have the right to investigate possible violations by registered entity by examining the books and records of the entity during normal business hours. If the entity or any interested person believes that the investigation is improper or the violation of the entity’s rights or any person’s rights, it may refuse access, in which case the Commission must seek enforcement of its investigative powers from a court at the location of the defendant.

Finding of Facts shall be issued for the results of each examination. Such finding shall be signed by the official of the Commission conducting investigation and by the authorized representative of the entity. The Finding of Facts shall contain:

  1. date and place of issuance;
  2. reasons of conducting the examination;
  3. actions which the examination took in order to conduct the investigation
  4. participants and aid from the entity which has been examined;
  5. results of findings.

The examination should not interfere with the routine work carried out by the entity. The officials of the entity are obliged to provide all required aid to the examination.

In addition, the entity is obliged to present the report on distribution of goods with a status of humanitarian aid to the Commission with the President. The entity should submit this report to the Commission on an annual base for the previous calendar year, but not late than by the 15 (fifteenth) of April following the reporting year. The Commission shall approve the form of the report, which shall contain the following information:

  1. description of goods received as humanitarian aid, their quantity and value, dates of receiving these goods; dates and description of other transactions with these goods, the procedure of their distribution and the plans for distribution, the recipients of the aid;
  2. any income gained from the humanitarian aid and how this income was disposed;
  3. list of persons who are members of the organization or its governing bodies, or their relatives or creditors who benefited from the humanitarian aid;
  4. examinations of the entity carried out by government authorities during the reported period and the results of these examinations;
  5. annual financial balance of the entity.

In addition to the authorized official from the Commission, other state authorities may exercise oversight as provided by the law.

The Commission may not have right to interfere with the activities of registered entities. The Commission and other government bodies authorized to supervise the activity of entities, which have an access to the confidential information on the activity of the entity including information about donors, are obliged to keep such information confidential.

In the event an entity conducts public solicitation on undefined number of addressees without specified addresses, the entity is obliged to present to the public information on the goals of solicitation, the total amount of collected donations and how they will be used.

See also Section B. Requirements for Donors.

F. Appeal in Case of Dispute

Regarding the recognition of consignments of goods as humanitarian aid, article 8 stipulates that “In case of dispute the resolution of the Commission on Issues of Humanitarian Aid…shall be final for customs formalities and execution of the appropriate custom’ s procedure.”

This provision violates Article 5 of the Ukrainian Constitution as well as Article 6 of the European Convention for the Protection of Human Rights and Fundamental Freedoms (Rome, November 4, 1950). According to this Convention “everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law.” Therefore this provision would have to be amended, allowing the possibility to appeal to a court in case of dispute, in order for the law to comply with international law and the Ukrainian Constitution.

G. Sanctions

According to article 12 of the law, “humanitarian aid goods, which have been sold for money or distributed with other compensation, as well as profit gained through such transactions shall be seized or confiscated in accordance with the procedure established by the law.” In addition, criminal and administrative prosecution shall apply in case of the use of humanitarian aid not according to designated purposes or the use of the humanitarian aid with a purpose of gaining profit. Also the organization shall be struck off the Unified Register.

Sanctions should be more diverse and the seriousness of the violation shall be considered. With the unclear procedure of granting humanitarian aid status to imported goods by the Commission it is not clear how specific the designated purpose should be defined. For example, if the organization has been originally allowed to distribute goods to elderly, but suddenly changed its mind and distributed these goods among orphanages, will it be subject for prosecution? In this case, or in case, when organization, for example, sold goods instead of their originally designed distribution, with the further utilization of money for humanitarian purposes, organization shall be allowed to inform the Commission on the change in original plans. However, the best way to regulate this issue would be to allow defining the purposes of distribution broadly, as it is defined in article 1 in the definition of the “humanitarian aid”. For example, humanitarian aid to eligible recipients according to the law, with the prohibition for the persons in charge of distribution and related persons to benefit from it. Also if violation is considered to be a minor, for example, the accounting requirements have not been completely fulfilled (see paragraph 4 article 11 of the Law), the only reasonable sanction shall be to have the organization pay taxes it had been exempt from, and eventually, have the organization pay a fine if it did not warn the authorities on its intention to use the humanitarian aid for purposes others than they claimed in their application for registration.

See also Section 4 Requirements for Donors.

H. Threshold for Import of Humanitarian Aid

According to article 14 “amounts and nomenclature of agricultural, food, printed products, construction materials, and other goods that can be imported into Ukraine as humanitarian aid shall be defined by the Cabinet of Ministers of Ukraine.

Limiting amounts of favorable-terms receipt of humanitarian aid by one recipient as regards quantitative and value estimate shall be established by the Cabinet of Ministers of Ukraine taking into account the number of people who need help from this recipient.

The humanitarian aid received in excess of the amounts established by the Cabinet of Ministers shall be subject to taxation on common grounds.”

Laws in other countries often use the term “production to support basic needs”, this includes, but is not limited to food, medicine, clothing and bed clothing. Instead of adopting and regularly amending the list of goods which can be imported as “humanitarian aid” it seems easier to adopt a list of goods which can not be imported as humanitarian aid and the list of goods with a restricted regime of use as humanitarian aid. For example, see attached Decree of France Government on Tax Exemption to Import of Certain Goods (December 30, 1983).

Trying to quantify the number of people who are in the need or quantity of goods to satisfy the need could be a very difficult task leading to injustice. It is understandable that the Government would wish to set a limit on goods to be used for the operational need of humanitarian organizations or to be used for fundraising activities but goods of basic necessity should not be restricted because there is rarely sufficiently enough of it.

Notes

[1] These Comments were made possible through support provided by Counterpart International and the Eurasia Foundation with financing from the U.S. Agency for International Development. The Comments were prepared by ICNL experts Natalia Bourjaily, Program Director for NIS, and Caroline Newman, Analyst.

[2] Handbook on Good Practices for Laws Relating to Non-Governmental Organizations (Discussion Draft) , prepared for the World Bank by ICNL, May 1997.

[3] Often the problem is not the absence of an exemption for NGOs, but the red tape involved in claiming it. In India NGOs wishing to obtain concession from duties imposed on equipment imports donated by foreigners have to apply for Central Government approval six months in advance, and strict rules and procedures are invoked. In Sri Lanka and The Philippines exemption from customs duties and the VAT on donations from foreign sources can be obtained only if the donations are consigned to the relevant government agency. These procedures generally involve numerous bureaucratic obstacles and conditions.

[4] Handbook on Good Practices for Laws Relating to Non-Governmental Organizations (Discussion Draft) , prepared for the World Bank by ICNL, May 1997.

[5] Although the essence of accountability is to ensure that NGO funds have been used in accordance with applicable standards, accountability transcends financial integrity: "NGOs are also accountable to their immediate beneficiaries for the substantive services that they provide. More broadly, they are accountable to the ultimate beneficiaries, the public-at-large. . . . As a basic condition for ensuring accountability, all NGOs should be required to open their accounts to public scrutiny." ESCAP, Fiscal Incentives, p. 41 (1994).

[6] Article 55 of the 4th Geneva Convention relative to the protection of civilian persons in time of war (Geneva, August 12, 1949) governments that: “…the Occupying Power has the duty of ensuring the food and medical supplies of the population, it should, in particular, bring in the necessary foodstuffs, medical stores and other articles if the resources of the occupied territory are inadequate.”

Article 59 further states “If the whole or part of the population of an occupied territory is inadequately supplied, the Occupying Power shall agree to relief schemes on behalf of the said population, and shall facilitate them by all means at its disposal.

Such schemes ……. shall consist, in particular, of the provision of consignments of foodstuffs, medical supplies and clothing.”

[7] Protocol Additional to the Geneva Conventions of 12 August 1949, and relating to the Protection of Victims of International Armed Conflicts (Protocol I), June 8, 1977.

[8] In its Resolution the UN adopted provisions from the Resolution on “Declaration of Principles for International Humanitarian Relief to the Civilian Populations in Disaster Situation of the XXIst International Conference of the Red Cross ( Resolution XXVI, Istanbul, 1969).

 

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