The Regulation of Foreign Funding of Nonprofits in a Democracy

Working Paper as of August 2023

Governments worldwide are increasingly limiting foreign funding for nonprofits, citing the need to protect a country from undue foreign influence. However, these restrictions are also being used to control or stigmatize critics, which significantly constrains global activism around pressing issues from climate change to human rights.

In this working paper, ICNL’s Nick Robinson examines this trend by analyzing restrictions on foreign funding to nonprofits in the world’s three largest democracies or democratic blocs: the European Union, India, and the United States. The paper finds these democracies have taken markedly different approaches in their regulation of cross-border funding of nonprofits, which it labels in turn: “rights-based regulatory liberalism,” “government-controlled nonprofit nationalism,” and “ambiguous regulatory heavy-handedness.”

The paper explores reasons for and against restricting cross-border funding to nonprofits. Significantly, the strongest argument for and against these restrictions is promoting a country’s democratic self-governance. It argues that this apparent contradiction is the result of competing considerations about what improves self-governance and competing understandings of the proper relationship between government and civil society in a democracy.

To aid policymakers, the paper presents groups of factors governments have historically used to regulate the foreign funding of nonprofits. It ends by arguing for a democracy-centered approach based on four key principles for limiting and shaping regulation. While there are genuine reasons to regulate cross-border funding of nonprofits, the specter of foreign influence often leads lawmakers and judges to underappreciate the dangers of such regulation to democratic self-governance. The potential benefits of the approach outlined in this article have implications for both the regulation of the cross-border funding of nonprofits and the broader regulation of foreign influence in a democracy.