Not-for-Profit Law and Culture in Asia

Charity Law Reform in Hong Kong: Taming the Asian Dragon?

For optimal readability, we highly recommend downloading the document PDF, which you can do below.

International Journal of Not -for -Profit Law / vol. 18, no. 1 , May 2016 / 15

Not -for -Profit Law and Culture in Asia
Charity Law Reform in Hong Kong: Taming the Asian Dragon?

DAMIAN BETHKE *

The number of charitable organizations in Hong Kong has increased significantly despite
unclear and lax regulation. A legislator has identified flaws in the present law and
recommended changes. The proposed recommendations, however, do not consider the
unique characteristics of Hong Kong. If implemented, they would not address the existing
problems adequately. In order to tame the Asian Dragon, this article proposes an
alternative model: self – regulation, which relies on the work of charity watchdogs.

I. Introduction
“The great personal freedom granted modern men has meant that one can be free and
rich, or free and just getting by, or free and poor or destitute — and with no master to fall back
on. ”1

The charitable landscape in Hong Kong, formally known as the Hong Kong Special
Administrative Region, is unique. The Hong Kong people feel a responsibility toward their
communities based on traditional Chinese thoughts and perceptions. In 2012, almost US$1.3
billion (HK$10 billion) was donated by the local people, with the largest donation amounting to
US$257 million (around HK $1.9 billion). If the numbers are to be trusted, the charitable
landscape is remarkably vibrant.

However, charitable organizations act in a legal vacuum, without clear regulation. In
recognition of the problem, the Law Reform Commission of Hong Kong initiated a review of
charity law in September 2007. It recently published its comprehensive review, including
eighteen generally modest recommendations. While some have criticized the reform package for
not going far enough, its shortcomings are actually more fundamental.

This article explores the ongoing charity law reform in Hong Kong. It examines the
historical development of charitable organizations, review s the charity law reform, and argues
that the current proposals fail to address the interests involved. The article suggests a more
flexible yet robust solution, one that is closer to market needs: reliance on independent charity
watchdogs.

* Damian Bethke recently completed his Ph.D. at the Chinese University of Hong Kong. He has previously
studied at Tsinghua University in China and at the University of Zurich in Switzerland. The author thanks Mr.
Jędrzej Górski and Mr. Dini Sejko for valuable comments on an earlier version of the article.
1 Whalen Lai, Chinese Buddhist and Christian Charities: A Comparative History, Buddhist -Christian
Studies, 12 (1992), 29.

II. The Charitable Sector in Hong Kong
In 2014, 8,044 charitable organizations were registered with the Internal Revenue
Department ( IRD). 2 The figure was 7,592 in 2013, 7,194 in 2012, and 6,788 in 2011, marking a
continuous growth of charitable organizations. 3 The amount of donations has increased as well.
It was almost US$ 1.3 billion (HK$ 10 billion) in the tax year s of 2011 -2012 and 2010 -2011, and
more than US$ 1.03 billion (HK$ 8 billion) in 2009 -2010. 4 Remarkably, donations did not
decrease after the SARS outbreak in 2003 and the financial crisis in 2008.

These numbers were supported by a surge in super -donations worth more than one
million U .S. dollars. The brothers Ronnie and Gerald Chan donated US $175 million (HK$1.3
billion) each to Harvard University. 5 Gordon Wu gave US$100 million (HK$775 million) to
Princeton University, 6 and Robert Ho donated US$25 million (HK$ 193 million) to his alma
mater, Colgate University. 7 According to a study, 104 donations worth more than US$ 1 million
each were made by 47 donors in 2012 — including one donation worth more than US$257
million 8— for a total of US$ 877 million (around HK$ 6.8 billion). Most “super -donors ” gave
around US $1.3 million, an amount that is “not surprising given that it ’s worth around HK$10m –
a natural threshold for high -net -worth giving in Hong Kong. ”9 Some donors also made several
US $1 million donations in 2012. The Hong Kong Jockey Club Charities Trust, for example,
made 36 such donations. 10 Donations made by individuals were significantly larger than
donations made by foundations such as the Hong Kong Jockey Club Charities Trust.

2 Inland Revenue Department, Annual Report 2013 -14, 46, http://www.ird.gov.hk/eng/ppr/are13_14.htm .
3 Inland Revenue Department, Annual Report 2012 -13, 49, http://www.ird.gov.hk/eng/ppr/are12_13.htm ;
Annual Report 2011 -12, 45, http://www.ird.gov.hk/dar /2011 -12/table/eng/misc.pdf ; Annual Report 2009 -10, 49,
http://www.ird.gov.hk/dar/2010_11/table/eng/others.pdf . Cf .
http://www.hkcss.org.hk/e/cont_detail.asp?type_id=11&content_id=862 .
4 Inland Revenue Departm ent, Annual Report 2012 -13, 49 . Cf . iDonate, Analysis of Donation Trend in Past
Five Years (2011 ), http://www.theidonate.com/media/report_file/iDonate -Analysis -201106_1.pdf ; Hong Kong
Council of Social Service, The Rise of the Middle -Class Donor,
http://www.hkcss.org.hk/e/cont_detail.asp?type_id=11&content_id=862 ; Hong Kong Council of Social Service,
Charitable Donations Allowed Under Profits Tax and Salaries Tax,
http://www.hkcss.org.hk/e/cont_detail.asp?type_id=11&content_id=801 .
5 South China Morning Post, Hong Kong tycoons ’ US$350m Harvard gifts among world ’s top charity
donations of the year, Dec . 10, 2014, http://www.scmp.com/news/hong -kong/article/1659362/hong -kong –
philanthropists -harvard -gifts -top -10 -charitable -donations?page=all .
6 Giving to Princeton, Princeton Celebrates Sir Gordon Wu ’s Extraordinary Support , May 1, 2007,
http://giving.princeton.edu/news/2007/05/princeton -celebrates -sir-gordon -wus -extraordinary – support.
7 Colgate, Colgate ’s most generous “investor,” March 2004,
http://www4.colgate.edu/scene/mar2004/ho.html .
8 The donation was made by Dr. Tin Ka Ping, founder of Tins Chemical Limited and Tin Ka Ping
Foundation. South China Morning Post, Charity begins at home for city ’s HK$7b top philanthropists, Nov. 21,
2013, http://www.scmp.com/news/hong -kong/article/1362360/charity -begins -home -citys -hk7b -top -philanthropists .
Cf. Coutts, The Million Dollar Donors Reports 2013 , 17, http://philanthropy.coutts.com/en/reports/2013/executive –
summary.html ; Coutts, The Million Dollar Donors Reports 2014,
http://philanthropy.coutts.com/en/reports/2014 /executive -summary.html .
9 Coutts, Million Dollar Donations 2013, 18.
10 Id. , 17.

For three reasons, these numbers understate the actual situation. First, the figures for the
number of charitable organization s only cover organizations registered with the IRD , whereas
some charitable organizations are under no registration obligation. Second, because of cultural
and legal factors, not all donations are disclosed . Chinese donors often keep a low profile and
prefer to stay anonymous.11 Finally , the official figures provided by the IRD account for
donations for which tax deduction was made. However, the low -tax system of Hong Kong
provides limited incentives for such super -donations, so some donors do not deduct them from
taxes.

“Private philanthropy in Hong Kong has both the virtues and the flaws of the family –
controlled companies whose earnings have created the wealth that translates into generosity,
often on a grand scale. ”12

A charitable landscape is shaped by the people who donate not only money but also time.
These people make a charitable sector dynamic and active. There is a long line -up of events in
Hong Kong throughout the year that raise funds for charitable causes. 13 Local universities
motivate students to engage in charitable activities and incorporate such activities into the
curriculum. 14 Organizations run community involvement programs to encourage citizens to help
one another. 15

Beyond the classical concept of charity focused on donations, a new form of charity
focused on doing good has emerged. Indeed, new ways are sought to combine entrepreneurial
skills with a charitable purpose, known as social venture or social enterprise. 16 Under the
paradigm of “make money and do good,” socially conscious entrepreneurs build business es to
drive change. Charitable organizations, for example, open cafes employing people with different
abilities. 17 The most famous example of a local social venture is probably Dialogue in the Dark
Hong Kong, which operates as a global franchise business and attempts to empower and change
perceptions toward people with visual impairments. 18 By contrast to classical charities, such
organizations generate money themselves and do not rely only on donations. Recognizing their
potential, the government now attempts to support social ventures through different programs. 19
Social ventures are more than a mere trend in Hong Kong. They represent a shift in the
understanding of how social problems are best solved.

The principle that making money and creating social impact ought to go together is to be
welcomed. However, charitable organizations with an entrepreneurial approach raise unique
issues. The Li Kai Shing Foundation is an example of a charitable organization that executes
strategic investment choices.

11 Id. , 6.
12 South China Morning Post, Spirit of Giving , Dec . 23, 2005, http://www.scmp.com/node/530396 .
13 E.g., Hong K ong Sta ndard Chartered Marathon, Operation Santa Claus.
14 E.g., OSC Inter -School MBA Charity Challenge , CUHK I Care Programme.
15 Swire , Sustainable Development, http://www.swire.com/mt /en/about_swire/substainable_development .
16 Damian Bethke, Jedrzej Górski, Rethinking Social Ventures in Hong Kong, RJGLB 13 (2014), 1.
17 E.g., Cafe 8, opened by the Nesbitt Centre. See http://www.nesbittcentre.org.hk/index.php/the -coffee –
shops/cafe -8.
18 http://www.dialogue -experience.com.hk/web/index.php?lang=en&mid=0 .
19 Bethke, Górski, Rethin king Social Ventures in Hong Kong , 13.

It acquired a 0.8% stake in social networking website Facebook for
US $60 million and invested in the music streaming service Spotify.20 Such investments are not
as such to be criticized, but the absence of transparency and clear-cut definitions can be
problematic. As the law now stands, a charitable organization could be easily abused as a shield
against tax obligations.

III. Origins of Charitable Giving
A. Early Roots
The idea of giving is deeply rooted in Chinese culture. 21 Early altruism was based on
religious thought s and practices of Chinese custom. 22 With the influence of Western traditions
during the British colonial period in Hong Kong, particularly British common law, the Chinese
form of altruism was legally institutionalized in the concept of charity. However, charitable
giving remains fundamentally inspired by the distinctive Chinese attitude.
The Asian notion of charity has strong foundations in Buddhism, Confucianism, Taoism,
and folk culture. 23 Confucianism regarded philanthropy as one of the fundamental constituents of
nobleness and superiority of character and as a virtue natural to all persons .24 Buddhist monks
followed a set of monastic precepts which required them to care for the sick. 25 Accordingly,
Buddhist monasteries provided social services such as building schools, hospitals, and
orphanages, and helping the victims of famines. 26 Buddhist schools and hospitals were known
for being “wards for nursing the sick [of] the merit field of compassion .”27 But even though the
hospitals were open to the public, services were provided only within their gates. 28 Buddhist
monasteries enjoyed tax exemption as well as strong financial support from the public. 29

20 Reuters, Li Ka -shing Foundation buys Facebook stake , Dec . 3, 2007,
http://www.reuters.com/article/2007/12/04/us -facebook -likashing -idUSN0344520920071204 ; Forbes, Li Ka -shing
Confims Spotify Stake , Aug . 20, 2009, http://www.forbes.com/2009/08/20/spotify -li-hutchison -markets -equities –
technology.html .
21 Cf. Yu Yue Tsu, The Spirit of Chinese Philanthropy (1912 ).
22 Id.
23 Id., 16 .
24 Id. “The feeling of commiseration belongs to all men; so does that of shame and dislike; and that of
reverence and respect; and that of approving and disapproving. The feeling of commiseration implies the principle
of benevolence; that of dislike and shame; the principle of righteousness; that of reverence and respect, the principle
of propriety; and that of approving and of disapproving, the principle of knowledge. Benevolence, righteousness,
proprietary and knowledge, are not infused into us from without. We are certainly furnished with them. Hence it is
said ‘Seek and you will find them. Neglect and you will lose them. ’ Men differ from one another in regard to them;
some as much again as others, some five times as much, and some to an incalculable amount: it is because they
cannot fully their natural powers. ” Mencius, in Yu Yue Tsu, Spirit of Chinese Philanthropy, 17.
25 Peter Harvey, An Introduction to Buddhist Ethics (2000 ), 147.
26 Keulman Kenneth, Critical Moments in Religious History (1993 ), 64; Whalen, Chinese Buddhist and
Christian Charities, 9.
27 Whalen, Chinese Buddhist and Christian Charities, 10.
28 Id., 11.
29 Yongshan He, Buddhism in the Economic History of China: Land, Taxes and Monasteries, Master
Thesis, 2011, 31 , http://digitalcommons.mcmaster.ca/cgi/viewcontent.cgi?article=74 42&context=opendissertations .

Donors did not see this as a mere act of giving ; they believed in a principle of reciprocity. 30 Donations
were seen as a chance for laymen to accrue merit by emulating monks ’ freedom from material
concerns. 31 Gifts were made for a specific purpose , and monks could not use them for something
else. 32 Donors ’ wills were respected.

Monasteries later experienced a decline and were taken over by civil authorities ;33 “the
state charities competed with and undercut the Buddhist charities. ”34 Nonetheless, the idea of
charity persisted and influenced other institutions, such as mutual aid associations, members ’
associations, trade guilds, and clans, which were based on a similar idea of mutual benefit. 35
Members of an association would more readily help members of the same association than
members of other associations. 36 Clan organizations sometimes had clan charities, handed down
from their ancestor s, which might distribute grain to their members. 37 Poor families were also
supported with loans provided by mutual loan societies. 38 People organized civic associations,
such as clansman associations, and supported one another. 39 The center of the culture, in their
view, was not the individual but the family, community, or clan. 40

The principle of mutuality was the main motivation behind charitable giving and had the
function of insurance. It guaranteed that the community would help anyone who had previously
helped others. 41 This idea of do ut des is similarly expressed in the principle of guangxi, which
held that help must be provided to people with whom one had a personal relation. 42 If such ties
were absent, Chinese people would not feel an obligation to help.43

Besides the idea of mutuality as a basis of charitable giving, China also had experience
with do-good or benevolence associations, which provided help to anybody in need and not
solely within the ambit of members.

30 Whalen, Chinese Buddhist and Christian Charities, 8, 11 . This was similar in Europe, where a beggar
would say, “Bless ye, sire. ”
31 Id.
32 Id., 8.
33 Id. , 13. .
34 Id. , 12 .
35 Elizabeth Sinn, Power and Charity, A Chinese Merchan t Elite in Colonial Hong Kong (2003), 13; cf .
Henry James Lethbridge, The Evolution of a Chinese Voluntary Association in Hong Kong: The Po Leung Kuk ,
Journal of Oriental Studies, 10 (1972); Thomas Menkhoff, Hoon Chang -Yau , Chinese Phi lanthropy in Asia B etween
Continuity and Change , Journal of Asian Business, 24 (2010 ), 2; John Kerr, Native Benevolent Institutions of
Canton , China Review (1873), 88.
36 Yu Yue Tsu, Spirit of Chinese Philanthropy, 75.
37 Id., 78.
38 Id., 85.
39 Id., 75.
40 Ho Andrew, Asian -America n Philanthropy: Expanding Knowledge, Increasing Possibilities , Working
Paper No. 4 Georgetown University, Center for Public & Nonprofit Leadership (2004 ), presented at the ARNOVA
Annual Conference, Los Angeles, California, 2, http://issuu.com/andyho/docs/asianamerican .
41 Yu Yue Tsu, Spirit of Chinese Philanthropy, 75.
42 Ho, Asian -American Philanthropy , 5.
43 Id.

 

Benevolence associations were established on the belief that
doing “good is a joy. ”44 Being engaged in such an association was seen as a status symbol, and
the local elite, merchants, and other notables were involved in them. 45 Religious beliefs were
unimportant in these associations, and they were not based on a principle of mutuality. 46 They
were run “by the better off for the less well off. ”47 Nonetheless, the help provided was still
morally colored, and it was usually confined to widows, widowers, orphans, and others without
families.48

In a nutshell, the original form of Chinese philanthropy was based on the idea of
mutuality or reciprocity. Making dona tions was a cultural requisite that grew out of a cultural
obligation to help one ’s community. A deep-rooted sense of obligation towards the community is
an important motivation for charitable giving.

These aspects can still be identified in modern donors ’ behavior. People in Hong Kong
donate because they feel a sense of obligation to help the underprivileged and because making
donations allows them to appreciate their wellbeing and fortune. Ignoring communal problems
would isolate them and prevent them from receiving support if they were ever themselves in
distress. And with many of the Hong Kong people still strongly connected with families and
communities living in the mainland of the People ’s Republic of China (Mainland ), donors often
prefer to contribute to projects that focus on the Mainland. 49

B. Development of Charitable Organizations in Hong Kong
Modern charity law in Hong Kong has been deeply influenced by the social and
economic policy of the British government toward Hong Kong. This influence resulted in a
symbiosis of foreign elements with Hong Kong characteristics. 50 A look into the historical
development of charitable organizations is helpful to explore this relationship.
The colonial government adhered to a policy of maintaining a distance from the Chinese
people of Hong Kong. While foreigners enjoyed all the amenities of the colonial rule, the
Chinese people were exclude d. Rather than aiding the Chinese, foreigners urged them to find
means of self -help. Ever since, the Chinese have organized themselves in associations such as
trade and craft guilds. 51 But the British rule also witnessed a growth in secret societies that
pursued criminal activities such as robbery, smuggling, or piracy. 52 Although the powerful locals
involved in such societies sometimes carried out criminal activities, they also had an important stabilizing function.

44 Whalen, Chinese Buddhist and Christian Charities , 21.
45 Id., 23.
46 Id. , 22 .
47 Id. , 23 .
48 Id., 22; see also Yu Yue Tsu, Spirit of Chinese Philanthropy, 43.
49 See e.g. the projects funded by the Li Ka Shing Foundation , http://www.lksf.org .
50 Wai -Fung Lam and James L. Perry, The Role of the Nonprofit Sector in Hong Kong ’s Development,
International Journal of Voluntary and Nonprofit Organizations, 11 (2000), 364, 356 -362. For an analysis of the
reasons leading to a rise of charitable organizations in general, see Lester M. Salamon, The Rise of the Nonprofit
Sector, Foreign Affairs, 73 (1994) 109, 115.
51 Sinn, Power and Charity, 13.
52 Id.

They engage d with their communities by providing support. 53 For example,
the secret societies known as kaifong associations, meaning neighborhood associations, provided
social services neglected by the colonial government. 54

“Colonial ignorance, indifference, and incompetence created a demand for services that
these merchants were in a special position to offer. Through charitable and voluntary
organizations, they resolved civil and commercial disputes, provided medical facilities, and
created a voice for the Chinese community. By offering such services, local Chinese merchants
were able to take advantage of Hong Kong ’s position at the edge of the Chinese and British
empires to enhance their own power and prestige. ”55

The colonial government adhered to a social policy of separation, and social aid was kept
to a bare minimum. With power centralized and vested in the colonial government, a bridge was
struck between popular consent building and strong colonial rule. 56 The provision of social
services was not on the agenda of the government.57 Welfare services played a minor role in
colonial Hong Kong from 1880s to 1950s. 58 Welfare services were generally rendered only when
they served the interest s of the government, such as the education of personnel needed for the
administration. 59 The financial policy overall was conservative; it sought to avoid budget
deficits. 60 In brief, charitable activities were not on the minds of government officials.
The earliest exception to this policy of non -intervention was the establishment of the
Tung Wah Hospital in 1872, the first institution in Hong Kong that provided free medical
treatment to local Chinese people in need. 61 The government initiated the hospital because it was
concerned about the sick and destitute. Wealthy locals financed the hospital, 62 and influential
residents, successful businessmen, and leaders of kaifong organizations managed it. 63
The next institution set up for the benefit of the underprivileged was the Po Leung Kuk,
established in 1878.

53 Id., 16.
54 Cf. for more details Aline K. Wong, Chinese Voluntary Associations in Southeast Asian Cities and the
Kaifongs in Hong Kong, Journal of Royal Asiatic Society Hong Kong Branch, 11 (1971) , 62.
55 John M. Carroll, Edge of Empires: Chinese Elites and British Colonials in Hong Kong, Harvard
University Press, 2005, 60.
56 Lam, Perry, The Role of the Nonprofit Sector in Hong Kong ’s Development, 363. Cf. id., 356 : “The
government could be described as an executive-led and centralized political -administrative system which did not
intervene into matters which would have posed a departure of its traditional role best described as ‘positive non –
interventionism .’”
57 Id., 366
58 Elyza W.Y. Lee, Nonprofit Development in Hong Kong: The Case of a Statist -Corporatist Regime,
Voluntas: International Journal of Voluntary and Nonprofit Organizations, 16 (2005), 55.
59 Id., 55.
60 Id. Cf. Elyza W. Y. Lee, The Politics of Welfare Developmentalism in Hong Kong, Social Policy and
Development Programme Paper, 21 (2005), 3.
61 Carroll, Edge of Empires, 61.
62 Id., 37.
63 For more information see Carl T. Smith, Chinese Christians, Elites, Middlemen and the Church in Hong
Kong, Hong Kong University Press, 2005, 124.

To stop kidnappers from bringing children and women into Hong Kong,
influential Europeans and wealthy Chinese founded the institution as a refuge for people who
would otherwise be socially marginalized. 64

The Tung Wah Hospital and the Po Leung Kuk were new types of institutions in Hong
Kong. Although hospitals had been operated by Buddhist monasteries for hundreds of years, they
were not public and did not provide any services outside the gates of the monasteries. These two
institutions provided shelter and services to members of the general public regardless of their
religion or communal group. This marked the introduction of a new concept of social
responsibility.

There seems to be a connection between the arrival of Christian missionaries and the
establishment of the next charitable organizations in Hong Kong. These organizations resembled
Western institutions established for the poor and operated by churches. 65 The Young Men ’s
Christian Association (YMCA ) was set up in 1918 to provide community services to the public,
to organize camps, and to provide children with education. 66 It was the first gymnasium with an
indoor swimming pool, restaurant, and dormitory, which was new to the Chinese people in Hong
Kong. Unlike earlier organizations such as the benevolence associations, the YMCA did not
exclusively operate on a Christian mission; it also helped people of other beliefs. Local people
appreciated the support and considered the institution a success. The YMCA served as an
example for other international organizations, 67 and the Red Cross and the Salvation Army
launched similar efforts in Hong Kong. 68 The colonial government trusted these organizations
and relied on them to support the underprivileged and to educate the children of colonial
officials. 69 Further, the government found it convenient to contract out more and more
educational services to the church .70 The Christian anticommunist Christian religion was
regarded as an ideological protection against the influence of the Chinese Communist Party. 71
The next level of evolution was reached when the government established the Hong
Kong Council of Social Service (HKCSS ) in 1947. Recognizing that more needed to be done
about the underprivileged, the government adopted a policy described as “big bang .”72 The
HKCSS was founded as a result of increased need after World War II.

64 Lethbridge, The Evolution of a Chinese Voluntary Association in Hong Kong, 33. Cf. id., 39: “The
undersigned merchants, engaged here in trade for many years past, have lately noticed that the crimes of kidnapping
are increasing from day to day. Many of both the kidnappers and of their kidnapped victims are natives of our native
district (Tung -kun). Seeing this to be the state of affairs, it is unbearable to think that these villains take this
hospitable Colony for a convenient refuge. A meeting has therefore been held and it is proposed to raise
subscriptions with the view to publish everywhere offers of reward. ”
65 E.g. the Hospital of St. Wulstan established around 1085, the hospital of St. Oswald established around
1268 , and the hospital of St. Cross established around 1132.
66 Whalen, Chinese Buddhist and Christian Charities , 29.
67 Terence Yiu Kai Yuen, Hong Kong, Asia Pacific Philanthropy Consortium Conference, September 5 -7,
2003, 91; Lee, Nonprofit Development in Hong Kong, 58.
68 Lee, Nonp rofit Development in Hong Kong , 58.
69 Id.
70 Id.
71 Lee, The Politics of Welfare Developmentalism in Hong Kong , 2.
72 Tang Leung Kwong, Colonial State and Social Policy: Social Welfare Development in Hong Kong,
1842 –1997, University Press of America, 1998, 61 .

 

Its purpose was planning and coordinating the welfare services and relief that various organizations provided .73 The
HKCSS is still a fundamental structure in the charitable landscape in Hong Kong because it is
the bridge between the government and the non -profit sector. It began as a facilitator but
gradually took on a more comprehensive role. 74 The HKCSS focuses on quality management and
efficiency enhancement of its partners. It provides training for, among others, fundraising and
management, and it publishes guidelines for people involved in charitable organizations. The
HKCSS is funded through WiseGiving, 75 its own development fund, and government
subventions and grants, such as the Lump Sum Grant system of the Social Welfare Department,
the Lotteries Fund, and the Community Chest. 76

During the turbulences in Hong Kong culminating in social unrest during 1966 and 1967,
the government further intensified its social policy. 77 It invested in education, public housing,
and social service. The people of Hong Kong enter ed into a social pact which combined
economic individualism with social interventionism, described as a system of economic freedom
in combination with an adequate social safety net. 78 With the political transition in 1997, the
government commenced to spend more on social welfare in order to enhance its legitimacy. 79
This new approach was aptly labeled the “Confucian welfare state,” and it is regularly referred to
as such. 80

Although Hong Kong is generally not regarded as a welfare state but rather as
neoliberal, 81 its social policy shows a peculiar feature. Charitable organizations fulfill a broad
range of essential functions not carried out by the government. The government is not only the
regulator but also the financier of charitable services. 82 More and more tasks are left to the
private sector. This may explain the boom in the number of charitable organizations. In 2013 –
2014, over 90 percent of social services were offered to the public through 419 not -profit
organizations (NPOs ), of which 33 percent (138) were subsidized by the government Social
Welfare Department (SWD ) and 67 percent (281) were not. 83

73 Chung Woon Fan Flora, The Role of The Hong Kong Council of Social Service in Social Welfare
Development in Hong Kong, Dissertation, 30 Jun e 2008.
74 Id., 10.
75 WiseGiving also provides consultancy services to the third sector. The profits generated through this
work are channeled to the HKCSS.
76 HKCSS, Annual Report 2012 -13, 40, http://www.hkcss.org.hk/uploadFileMgnt/0_20131113142639.pdf .
77 Lee, Nonprofit Development in Hong Kong, 61.
78 Lee, The Politics of Welfare Developmentalism in Hong Kong, 5.
79 Id., 6.
80 Gordon White and Roger Goodman, Welfare Orientalism and the Search for an East Asian Welfare
Model, in: The East Asian Welfare Model: Welfare Orientalism and the State, edited by Roger Goodman, Gordon
White, and Huck -ju Kwon, Routledge, 1998, 13.
81 Lee, The Politics of Welfare Developmentalism in Hong Kong, 10 .
82 Id., 1.
83 HKCSS, Annual Report 2013 -14, 41, http://www.hkcss.org.hk/uploadFileMgnt/0_2014115102852.pdf .
Furthermore, it is crucial to note that not all NPOs operate as charitable organizations, which may distort the market
because different set of rules apply to charitable organizations and for-profit entities. This problem has been
explored by Bethke, Górski, Rethinking Social Ventures in Hong Kong, 13.

 

At the same time, however,
subvention to NPOs was capped, which required the organizations to do more fundraising
activities. 84 Under this status quo, NPOs compete with the business sector for new services. 85
The bidding process is nontransparent, and it may raise suspicion about whether some bidders
are favored.86 Some NPOs rely heavily on subsidized projects for income, 87 which poses a risk to
their independence from the government. 88 It is questionable whether this system addresses
social problems in the most effective way.

The rise of charitable organizations happened without a broad legal framework. Section 3
of the Ordinance No. 3 of 1870 incorporating the Tung Wah Hospital, for example, provided,
“The Corporation is erected for the purpose of establishing and maintaining a public free hospital
for the treatment of the indigent sick among the Chinese population, to be supported by
voluntary contributions and governed by a Board of Directors, etc. ” The terminology of
charitable or tax-exempt organization was not available at that time. Instead, the ordinance used
the loose term of “eleemosynary corporation .” The Po Leung Kuk Incorporation Ordinance Cap.
306 of 1893 also did not make reference to any kind of charity or tax-exempt organization. This
may seem surprising because the notion of “charitable uses ” as defined in the statute of Elizabeth
of 1601 was already established before the adoption of these ordinances. Interestingly, however,
such specific provisions allowing for deductions of donations were also not needed, because
Hong Kong had no income tax until 1940 .89

The first law applicable to charitable organizations as a category was enacted only in
1950 with the introduction of the Inland Revenue Ordinance (section 88). 90 The notion of
charitable organization was introduced in Hong Kong through tax law because “it was not
thought desirable to impose tax on institutions of a charitable, ecclesiastical or educati onal
nature. ”91 The IRO of 1950 kick-started the modern form of charitable organization . A s of May
1, 2014, there were 8,044 registered charitable organizations in Hong Kong.

This proliferation of charitable organizations received an essential impetus from the
Asian Financial Crisis in 1998, which tumbled the economy into a recession, with widespread
unemployment, a decline in wages, and deflation of assets. 92 As the government cut back on
welfare expenses, it introduced a series of tools further supporting the local charitable sector.

84 Id.
85 Id.
86 Id., 74.
87 Id.
88 This was also one of the concerns mentioned by interviewees of an extensive study conducted in Hong
Kong: Charl es Chan, Chapter 1, Education and Research, Study on the Third Sector Landscape in Hong Kong, 24,
http://www.cpu.gov.hk/doc/en/research_reports/3rd_content.pdf .
89 For more infor mation see, Halsbury ’s Laws of Hong Kong, 2nd ed., Cap 112, Inland Revenue Ordinance,
Butterworths, 2001. Cf. Michael Littlewood, The Hong Kong Tax System: Its History, Its Future and the Lessons It
Holds for the Rest of the World , Hong Kong Law Journal, 4 0 (2010). The enactment history is No. 13 of 1940 War
Revenue Ordinance; No. 21 of 1940 War Revenue Amendment Ordinance; No. 29 of 1940 War Revenue (No. 2)
Amendment Ordinance; No. 13 of 1941 War Revenue Ordinance; No. 20 of 1947 Inland Revenue Ordinance.
90 Halsbury ’s Laws of Hong Kong, Cap 112, 1.
91 Hong Kong Hansard, 12th January 1949, 14.
92 Lee, The Politics of Welfare Developmentalism in Hong Kong , 7.

First, the government introduced the Service Performance Monitoring System (SPMS ), a
mechanism that aims at assessing the efficiency of the provis ion of social services. Second, the
government adopted the Lump Sum Grant System as a new funding mechanism for NPOs. And
third, the government introduced a competitive bidding process to procure service contract s.93
These measures boosted the nonprofit sector but made it also more dependent on state
involvement – “thus, increasingly, t he nonprofit sector has become an extension of
bureaucracy. ”94

C. The Charity Law Reform
The charity law reform was initiated in 2007, when the Chief Justice and the Secretary
for Justice asked the Law Reform Commission “to review the law and regulatory fr amework
relating to charities in Hong Kong and to make such recommendations for reform as may be
considered appropriate. ”95 A subcommittee established in September 2007 put forward a
consultation paper in 2010 and solicited public make comments on the local charity law. 96 A
total of 264 comments were submitted. The Law Reform Commission published its report on the
consultation process in December 2013. This report provided a comprehensive review of local
charity law and recommendations for improvement. These recommendations are generally
modest, because the most conten tious proposal — to establish a centralized regulatory and
supervisory authority in the form of a charity commission — was eventually abandoned. The
report offers a practical analysis with few new in sights. A number of aspects were ignored.
Accordingly, the recommendations are likely to have little impact if they are implemented.
The reform has been driven by concerns about the existing law, particularly its lack of a
statutory definition of charity, a system of oversight, a uniform and concise statute applying to
charitable organizations, and a legal requirement for the disclosure of annual reports. Luckily,
Hong Kong has yet not been affected by scandals, but the weak regulatory basis gives rise to
concern.

Other issues also helped drive the push for a review of charity law. International trends
played a role — specifically, the war on terror and the fear that terrorist organizations may use
charitable organizations to launder money. 97 Further, the local reform process coincides with
general review s of the charity law in other common law jurisdictions. 98 This certainly influenced
the outcome of the reform, because the law of the other jurisdictions was closely examined
through the published reports.

93 Lee, Nonprofit Development in Hong Kong, 64.
94 Yuen, Hong Kong, 91.
95 The Law Reform Commission of Hong Kong, Charities Sub -Committee, Consultation Paper, Charities,
June 2011, 2, http://www.hkreform.gov.hk/en/publications/charities.htm .
96 Id.
97 Kerry O ’Halloran, Government – Charity Boundaries, in Modernising Charity Law: Recent
Developments and Future Directions, edited by Myles McGregor -Lowndes and Kerry O ’Halloran, Edward Elgar
Publishing, 2010, 168. This happened in Ireland: cf. e.g. Oonagh B. Breen, Ireland Pemsel Plus, in Modernising
Charity Law: Recent Developments and Future Directions, edited by Myles McGregor -Lowndes and Kerry
O’Halloran, Edward Elgar Publishing, 2010, 74.
98 For an overview cf. e.g. Kerry O ’Halloran, Bob Wyatt, Laird Hunter, et al., Charity Law Reforms:
Overview of Progress Since 2000, in Modernising Charity Law, 13.

Some of the examined jurisdictions, such as Ireland, have
themselves reformed their legislation amid fears that the laws had loopholes for terrorist
organizations to exploit .99

But the principal motivation for the reform is a perceived lack of transparency of
charitable organizations and resultant mistrust. 100 A review showed that 90 percent of the public
regards the issue of transparency the dominant factor when making a decision to donate. 101
Criticism has also come from the media. 102

The recommendations made by the Law Reform Commission attempt to enhance
transparency by statutory provisions and voluntary codes of conduct. The following section of
this article examines perceived holes in the charity law and the charity law reform ’s attempts to
address them.

D. Perceived Holes in the Law
“I am unable to find any principle which will guide one easily, and safely, through the
tangle of the cases as to what is and what is not a charitable gift .”103

1. Lack of Statute
There is no comprehensive ordinance or statute that applies to charitable organizations in
Hong Kong. Depending on the legal structure under which the charitable organization is formed,
different laws apply, a fact that may be the cause of some of the difficulties in understanding the
local law. 104

“Charity ” is not a distinct legal entity, and different legal entities may qualify as
charitable organization s. A charitable organization has a status granted by the IRD based on the
IRO, which exempts any charitable organization from profits tax. 105 A charitable organization
can be formed as a trust, as a society, as a statutory body established under specific ordinance, or
as a company limited by shares or limited by guarantee. 106 As a result, the Companies Ordinance,
the Societies Ordinance, or the Registered Trustees Incorporation Ordinance may apply. 107 The
IRO also contains a provision on the dissolution of charitable organizations. This means that
charitable organizations seeking tax exemption under section 88 IRO have to specify how the
remaining assets of the organization should be dealt with. 99 Breen, Ireland Pemsel Plus, 75.
100 South China Morning Post, Spirit of Giving.
101 South China Morning Post, Shirley Kwok, Bogus Charities Duping Public, 8 April 1995, 46.
102 Id., 50.
103 In re Tetley [1922 T 468]; [1923] 1 Ch 258, at 266 (CA).
104 It has prompted the Ombudsman to the comment that the law is “partial and patchy, fragmented and
ineffective .” Office of the Ombudsman, Investigation Report, para. 6.1 c.
105 Section 88 IRO, Cap 112.
106 Also see Law Reform Commission of Hong Kong, Report, Charities, December 2013, 83,
http://www.hkreform.gov.hk/en/publications/rchari ties.htm . For a typology of charitable organizations in Hong
Kong see Lam, Perry, The Role of the Nonprofit Sector in Hong Kong ’s Development, 358 [graphic with number of
charities classified according to the legal form used ].
107 Another statute further states that unauthorized collection of donations may be punished with HKD
2,000 or 3 months imprisonment (Section 4 (17) (i) Summary Offenses Ordinance, Cap 228).

 

Additional specific requirements are imposed by the SWD, Home Affairs Bureau, Education Bureau, and Department of Health on
charitable organization s falling under their authority. 108

A main criticism concerns the definition of charitable organization, which follows the
rule set down in Income Tax Special Purposes Commissioners v . Pemsel .109 This decision is
based on the statute of Elizabeth of 1601, entitled An Acte to redresse of Landes Goodes and
Stockes of Money hereto given to Charitable Uses. Introduced in response to the devastation of
war and the dissolution of monasteries, the act attempted to channel private help to sectors of
public need. 110 Income Tax Special Purposes Commissioners v. Pemsel specifies those purposes
recognized as charitable. 111 The decision states that in order to be considered a charity, an
organization must be established for a so-called charitable purpose such as relief of poverty,
advancement of education, advancement of religion, or any other purpose beneficial to the
community. The purpose must be for the public benefit. 112

Since then, additional charitable purposes were recognized under the general category of
other purposes that benefit the community. The Hong Kong courts, for example, have decided
that “the development of culture ” is covered under the charitable purpose of advancement of
education. 113 On the other hand, it has ruled that the encouragement of sports is not a charitable
purpose. 114 Meanwhile, the charity law in Hong Kong comprises eleven different charitable
purposes, 115 to which the reform proposes to add another three. 116

These charitable purposes are deemed controversial because they do not reflect the values
of a modern society. 117 The definition of charity is further complicated by provisions applicable
to charitable organizations scattered over the IRO (Cap . 112 ) and the Registered Trustees
Incorporation Ordinance (Cap . 306, “TIO ”). While the IRO remains silent on defining charitable
purposes, the TIO includes a definition of charitable purposes that does not match the ones
acknowledged by the IRD. 118 This adds further confusion to the law. The Law Reform
Commission has recommended statutory definitions of charitable purposes. However, the
decision shows the challenges any reform is facing.

108 Law Reform Commission of Hong Kong, Charities Sub -Committee, Consultation Paper, 103.
109 [1891 ] A.C. 531.
110 O’Halloran, Wyatt, Hunter, et al., Charity Law Reform, 165.
111 Id.
112 Id.
113 Cf. e.g. Ng Chi -fong v . Hui Ho Pui -fun [1987] HKLR 462.
114 Departmental Interpretation and Practice Notes, No. 37 (Revised) Concessionary Deductions: Section
26C: Approved Charitable Donations (Sep t. 2006), at para. 9, http://www.ird.gov.hk/eng/pdf/e_dipn37.pdf .
115 Law Reform Commission of Hong Kong, Charities Sub -Committee, Consultation Paper, 50: Relief of
poor people, Relief of victims of a particular disaster, Relief of sickness, Relief of physically and mentally disabled,
Establishment or maintenance of non -profit -making schools, Provision of scholarships, Diffusion of knowledge of
particular academic subject s, Establishment or maintenance of a church, establishment of religious institutions of a
public character, Prevention of cruelty to animals, Protection and safeguarding of the environment or countryside.
116 Id. Moreover, it is confusing that section 2(1) T IO, Cap . 306 puts forward a different definition of the
charitable purpose.
117 Departmental Interpretation and Practice Notes, No. 37 (Revised), Para. 9.
118 See section 2(1) TIO, Cap. 306.

 

“[A]n attempt to define charity by any of these means would be fraught with difficulty,
and might put at risk the flexibility of the present law which is both its strength and its most
valuable feature. In particular, consider that there would be great dangers in attempting to specify
in statute those objects which are to be regarded as charitable. ”119

2. Lack of Registration, Monitoring, and Supervision System
Charitable organizations in Hong Kong also lack any comprehensive registration,
monitoring, or supervision system. The rules are piecemeal, and different authorities are in
charge. The IRD keeps a public directory of approved charitable organizations on its website. 120
The Companies Registry maintains another registry, which covers all charitable organizations
formed under the Company Ordinance and which includes valuable information about the
organization s; however, the directory does not distinguish between for-profit companies and
organizations with approved charitable mission s. If a charitable organization is not listed in the
directory of the IRD, citizens cannot obtain information about it. Another brief directory of
charitable organizations cover s trust funds for which the Home Affairs Bureau is the trustee. 121
The lack of a comprehensive directory including all approved charitable organizations is a major
concern because it hinders the public from ascertaining the legal status of an organization. 122 A
directory would improve the system and would address the problem of monitoring charitable
activities.

Furthermore, there is a limited system of monitoring in place. When charitable
organizations apply to conduct fundraising activities in public places, colloquially described as
flag days, permission must be granted by the Social Welfare Department. 123 Alternatively, if
funds are raised through a lottery, the charitable organization must first have been granted a
license from the Commissioner for Television and Entertainment Licensing. 124 However,
charitable organizations can escape this control if they do not undertake fundraising in public
(flag days) and do not engage in activities with an element of chance (lotteries). Fundraising
activities are monitored by the government only if they require authorization by the SWD or the
Television and Entertainment Licensing Authority. 125 When it does occur, the monitoring is
confined to the funds raised through the specific fundraising activity in the application .126
In addition to the lack of a proper registration system and the lack of a monitoring
system, different government authorities are involved in the administration of charitable
organizations. This is another barrier for the adequate registration and monitoring of charitable
organizations.

119 UK Home Office, Charities: A Framework for the Future (1989) Cm 694 White Paper, at para. 2.11.
120 http://www.ird.gov.hk/eng/tax/ach_index.htm . The list of approved charitable organi zations runs over
939 pages . See http://www.ird.gov.hk/eng/pdf/e_s88list_emb.pdf .
121
http://www.hab.gov.hk/en/policy_responsibilities/District_Community_and_ Public_Relations/trustfnd.htm .
122 Law Reform Commission of Hong Kong, Charities Sub -Committee , Consultation Paper, 91.
123 See section 4(17)(i) of the Summary Offences Ordinance, Cap . 228.
124 Gambling Ordinance, Cap . 148.
125 Office of the Ombudsman, Investiga tion Report, 5.5.
126 Id., 5.6.

3. No Disclosure Requirements
Charitable organizations face essentially no disclosure requirements. No statutory
provisions oblige charitable organizations to submit annual reports or financial overviews to a
supervision body. 127 The IRD may occasionally review an organization ’s charitable status by
examining financial statements, annual reports , and accounts, but this is not mandatory. 128 A
charitable organization formed as a company must submit audited accounts to the IRD every four
years, but charitable organizations formed as trusts or societies are required to present only self –
certified accounts. Charitable organizations formed under the Companies Ordinance must file
their reports with the Companies Registry annually, 129 but this only covers basic information
such as address, board of directors, and any outstanding mortgages. Unincorporated
organizations are under no such duty at all.

By contrast, a charitable organization established as statutory body may be subject to
stringent control. 130 The Tung Wah Ordinance and the Po Leung Kok Ordinance oblige their
boards to keep proper records of all transactions of the organization. The books have to be open
for inspection by any director and by any person appointed by the Chief Executive Officer of
Hong Kong. They also have to be audited by a certified public accountant.

E. The Reform
These criti cisms are addressed by the Law Reform Commission in its eighteen
recommendations. The core of the reform is to strengthen public trust in the charitable sector, for
which recommendations on better governance and accountability standards were put forward.
The recommendations range from voluntary codes of conducts to mandatory statutory
provisions, and they concern both private and public law rules. The reform attempts to strengthen
transparency not only by increasing disclosure standards but also by clarifying the law to make it
more accessible to the public in general. Enforcement measures are also proposed, which reflects
the understanding that strengthening transparency standards must go in tandem with enforcement
rules. The high number of responses received during the consultation process proves that the
reform is a topic of public concern and not confined to the political arena.

“Some in our community expect Government to monitor each and every fundraising –
activity to prevent malpractices: this is not realistic. Another body of community opinion
suggests total non -intervention by Government: donors pick the beneficiaries of their choice and
rely on the reputation of the charities concerned. This involves a risk of unscrupulous or
fraudulent fundraisers passing off as established and responsible charities. ”131

1. Eighteen Recommendations
The first two recommendations concern the definition s of charity and charitable purpose.

127 Section 51 (1), Cap. 112.
128 Inland Revenue Department information pamphlet, A Tax Guide for Charitable Institutions and Trusts
of a Public Character (revised ed . Sep t. 2010), at para. 17, http://www.ird.gov.hk/eng/tax/ach_tgc.htm .
129 Section 107 Cap . 32.
130 See e.g. Tung Wah Group of Hospitals Ordinance, Cap. 1051; Po Leung Kuk, Cap. 1040.
131 Office of the Ombudsman, Investigation Report, 12.

The commission suggested introducing a clear statutory definition of what constitutes a
charitable purpose. 132 This comes together with a change in understanding of charity, which
nowadays covers general philanthropic undertakings and not only aid to the poor.
“While the essential characteristics of charitable purposes do not change, what will
satisfy those purposes changes with society… . What is charitable is to be determined in
accordance with contemporary community values. A contemporary activity may be charitable
now, though it would not have been charitable a century ago, or less …. Rules established a
century ago relating to what is charitable need to be revisited in this light. ”133

However, defining specified charitable purposes only makes practical sense when a
regulator has powers to condemn acts of organizations that go beyond their permitted scope. The
commission recommends that the IRD should undertake frequent reviews of the accounts of
charitable organizations to ensure that the money is spent in compliance with their charitable
objects. 134 The IRD is indeed the proper body to make such inquiries, but any further
responsibility is practical only if it is accompanied by additional manpower. Further, this rule
would make practical sense only if the IRD had authority to enforce actions upon non –
compliance. These aspects would need to be considered by the Law Commission.
As to the legal forms available for charitable organizations, the commission found the
current situation to be satisfactory and did not recommend any changes. 135 This conclusion is to
be welcomed, because a specific legal entity for charitable organizations would have only further
complicated the law. However, given the fragmentation of legal rules among several statutes, it
would be helpful if clear information on the regulatory system was provided.

The commission made fundamental recommendations to improve the governance and
accountability of charitable organizations. All charitable organizations which publicly solicit for
donations and which seek tax exemption should be subject to the requirement of registration, and
their list should be publicly available. 136 The commission preferred this approach rather than
establishing a centralized charity body. 137 Furthermore, a specific financial reporting standard
should be adopted, 138 and charitable organizations exceeding a certain annual income should be
under a duty to file audited financial statements. 139 All other charitable organizations should
make information such as financial statements and activities reports available on their
websites. 140 If the organizations do not comply with these requirements, the government should
be responsible for enforcement actions. 141

132 Law Reform Commission of Hong Kong, Report, Recommendation 1 and 2, 23, 81.
133 Aid/Watch Incorporated v Commissioner of Taxes [2008] AATA 652, pars. 16 -17 (Justice Downes).
134 Law Reform Commission of Hong Kong, Report, Recommendation 16, 189.
135 Id., Recommendation 3, 91.
136 Id., Recommendation 4, 107.
137 Id., Recommendation 18, 226. Similarly to a centralized charity commission, Edith Terry suggested a
Hong Kong center for philanthropy, which would function like “a clearing house for information and best
practices. ” http://www.scmp.com/node/530396 .
138 Law Reform Commission of Hong Kong, Report, Recommendation 5, 129.
139 Id., Recommendation 6, 130.
140 Id., Recommendation 7, 131.
141 Id., Recommendation 8, 140.

Such a registration requirement covering all tax-exempt charitable organizations would
help people know which organizations qualify. The transparency rules are imperative. In
essence, additional bureaucracy does not provide for a better framework for regulation, and the
proposed requirements of registration coupled with increased disclosure duties would be the right
move forward.

“We consider a responsible charity to have a duty to be open, transparent and publicly
accountable, even where they are not legally required to do so. They should maintain a high
standard of integrity. ”142

The commission also made recommendations as to the regulation of fundraising
activities. It recommended adoption of a standardized application form for certain fundraising
activities. 143 It also recommended the establishment of a centralized hotline for complaints .144
When raising funds, a charitable organization must clearly identify itself by displaying the
registration number 145 and thereby follow codes of good practices. 146 The public should also be
educated on the fundraising activities to raise awareness of charitable organizations and their
operations. 147 In addition, more resources should be allocated for government departments to
intensify supervision, 148 and a platform should be set up between the independent departments so
they can deal more efficiently with inquiries and applications. 149

Furthermore, the commission suggested broadening the cyprès doctrine to ensure that
property can be distributed not only where a charitable organization is being dissolved but also
where property given for a specific charitable purpose cannot be returned to the donor and
attainment of the purpose have failed .150 This recommendation is overdue. By adopting such a
broader doctrine Hong Kong would align its rules to other common law jurisdictions.

2. Aspects Left Out of the Reform
Although the report by the Law Reform Commission is comprehensive, a number of
considerations have unfortunately been left out.

To begin with, it is regrettable that the charity reform ignored the important topic of so –
called social ventures, which try to do good while also making money.151

142 Office of the Ombudsman, Investigation Report, 5.11.
143 Law Reform Commission of Hong Kong, Report, Recommendation 9, 161.
144 Id., Recommendation 10, 164.
145 Id., Recommendation 11, 168.
146 Id., Recommendation 12, 173.
147 Id., Recommendation 13, 175.
148 Id., Recommendation 15, 178.
149 Id., Recommendation 14, 178.
150 Id., Recommendation 17, 204.
151 Despite their significant importance, the government has largely ignored the legal perspective of social
ventures and excluded them from the charity reform. The problem is that social ventures are caught in the trap of the
bipolarity of the Hong Kong company law, which either allows a company to be for -profit or not -for -profit but
nothing in between. If this problem was addressed, clear distinctions could be drawn between organizations which
entirely rely on donations and such which make money while they also do good. But given the clear emphasis on
social entrepreneurship in Hong Kong, the traditional law of charitable organizations at least seems outdated.

 

Although social ventures have evolved into a fundamental and integral part of the business landscape, they
continue to live a precarious existence in Hong Kong. 152

Methodological justification is another omission. Besides the law of Hong Kong, the
reform commission studied the law of other Ireland, England and Wales, Scotland, Singapore,
Australia, Canada, and New Zealand. This comparative examination, however, does not consider
those features of the Hong Kong charitable sector that are based on the culture and traditions of
the Hong Kong people. 153 Other than Singapore, only Western jurisdictions with a distinctively
different charitable sector were examined. What may be needed is a regulatory concept of charity
based not on a Western understanding of charity but on a specifically Asian understanding, one
that takes the peculiarities of Chinese traditions into consideration. Inadequate regulation could
turn into overregulation, which might deter citizens from making donations. The reform must not
merely incorporate other countries ’ regulatory parameters; instead, it ought to identify and
develop an appropriate regulatory system for Hong Kong.

“Asia is fundamentally different…. The theories regarding philanthropy have all emerged
from the west. While they have their good aspects, I believe that Asia will develop its own
unique brand of philanthropy. ”154

Furthermore, the new regulatory system must fit the macroeconomic structures of Hong
Kong. Hong Kong ’s economy has peculiar characteristics. Some have described Hong Kong as
the freest economy in the world. 155 Others, however, have stressed that the economy is
dominated and steered by a handful of local tycoons. 156 This picture is mirrored in the charitable
sector, which is largely dominated by the few charitable organizations of Hong Kong tycoons.
“Dominated ” means that many of the small charitable organizations depend on the large
charities, which act as financiers to smaller projects. These large charities introduce a kind of
regulation in the market, because they use their liquidity to implement projects according to their
own choice and standards and thereby operate as regulators over smaller charitable
organizations. But the major charitable enterprises themselves act outside the realm of
regulation. This essential aspect ought to be considered in the reform. Regrettably, it has been
ignored. Before the reform moves on, the implications of this macroeconomic situation must be
taken into account in order to design the appropriate regulatory model.

Another important aspect left out of the reform is the tax system. Charity law is closely
intertwined with aspects of taxation because charitable organizations are commonly tax-exempt ,
and donations to such organizations are usually tax -deductible. Deductions for donations to
approved charitable organizations can be made up to 35 percent of the total chargeable salaries
or profits tax but must in any case not be lower than HK $100 one -off. 157 Tax planning is an
essential issue for wealthy people, who usually prefer to give to organization s of their own
choice rather than to the government.

152 Id.
153 Cf. supra chap II.
154 South China Morning Post, Spirit of Giving.
155 Cf. e.g. Heritage Foundation, Index of Economic Freedom 2015,
http://www.heritage.org/index/country/hongkong .
156 CNN, Sophia Yan, Hong Kong has a tycoon problem ,
http://money.cnn.com/2014/11/02/news/economy/hong -kong -tycoons .
157 Sections 16D and 26C IRO, Cap . 112.

 

Nonetheless, the situation is more intractable in Hong
Kong because tax considerations only play a limited role when donors decide to make a
donation. In Hong Kong, the standard rate for personal income is 15 percent and for corporations
16.5 percent, while there is no capital gains tax or investment income tax. This leaves more
disposable income to the people while creating only small tax incentives for donations. Although
such considerations may be decisive for some people, they are largely irrelevant for others.
Super -donations play by different rules. They are not motivated by tax considerations, because
the money is usually derived from investment gains or stock dividends; if not, any such donation
would most certainly be well beyond the cap of 35 percent. This reinforces the conclusion that
the charitable behavior of the Hong Kong people is engraved in culture and traditions. 158
Monetary considerations such as tax incentives are of minor importance.

Hong Kong is also aware that charitable organizations may be misused for terrorist
financing, but it regards the risk as low. The topic is ignored in the report. 159 As a member of the
Financial Action Task Force (FATF ), Hong Kong is bound by the Special Recommendation
VIII, which obliges member states to prevent charitable organizations from financing terrorism.
Based on this international code of best practice, Hong Kong has compiled guidelines for
charitable organizations. 160 These guidelines suggest that strong corporate governance,
responsible service management , financial transparency, and accountability are required for an
anti-terrorist financing framework to be effective. 161 They also suggest a Know Your Donor
principle and introduce a suspicious transaction system. 162 In addition, the guidelines set forth
recommendations for supervising and monitoring charitable organizations. 163 Furthermore, Hong
Kong has adopted the Organized and Serious Crimes Ordinance, which aligns the local
legislation to the Forty Recommendations and Nine Special Recommendations of the FATF
relevant in context of money laundering. 164 These rules create liability for anyone involved in
money laundering who fails to report knowledge or suspicion to authorities. The institute of
chartered secretaries has also published guidelines against money laundering and terrorist
financing, and it encourages its secretaries to track each organization ’s charitable purpose, its
sources of income and donations, and the people behind it.165 Given these international
commitments, it is surprising that the topic was not mentioned in the report.

158 Cf. supra chapter 0
159 Narcotics Division Security Bureau, An Advisory Guideline on Preventing the Misuse of Charities for
Terrorist Financing , July 2007, para. 1.2, http://www.nd.gov.hk/pdf/guideline -e.pdf .
160 Id.
161 Id., chapter 3.
162 Id., chapter 4.
163 FATF, Interpretative Note to Special Recommendation VIII: Non -profit Organizations, 6 b,
http://www.un.org/en/sc/ctc/docs/bestpractice s/fatf/9specialrec/9special -rec8.pdf .
164 Cf. Organized and Serious Crimes Ordinance, Cap 455. One should also mention the United Nations
(Anti -Terrorism Measures) Ordinance, Cap. 575 (UNATMO).
165 Hong Kong Institute of Chartered Secretaries, Anti -Money Laundering and Counter -Terrorist Financing
– Guidelines, para. 5.5, 19, http://www.hkics.org.hk/media/publication/attachment/2141_AML%20Guidelines.pdf .

F. Charity Watchdogs – An Alternative Form of Regulation
The charitable sector obviously needs some kind of regulation to provide transparency
and ensure adherence to generally applicable established rules and principles. But is the proposed
regulatory framework a constructive way forward? Although current law is inadequate, an
ineffective regulatory system will not be an improvement. Regulatory reform should never be an
end in itself; there ought to be an overarching justification for any legislative intervention. In the
absence of such a justification, alternative model s must be considered.

A possible solution to increase transparency and enhance trust in the charitable sector in
Hong Kong would be the establishment of an independent charity evaluator. Such a charity
evaluator or watchdog is a sensible form of regulation that would resolve some of the
inadequacies of the current system. After examining accountability and transparency standards,
corporate governance rules, and financial statements, the watchdog would grant a charity a seal
of quality that informs the public. Charity evaluators bridge the gap between charitable
organizations and donors by interpreting information on the charitable organization and making
it ac cessible to the donors and the public. 166 By doing this, they promote transparency, improve
accountability, strengthen governance of such organizations , and enhance efficiency of their
work. 167

“Sunlight is said to be the best of disinfectants; electric light the most efficient
policeman. ”168

However, charity watchdogs are not without critics. 169 Charity ratings have significant
effects on the behavior of donors, which may suggest that donors sometimes put excessive
reliance on ratings. 170 Thus, a rating score may also be regarded as a form of coercion, pressuring
charitable organizations to comply with requirements for a favorable rating out of fear of losing
out to other organizations. 171 One may also be concerned that powerful rating agencies could be
in the position to steer and manipulate donors. An example of such concern is a lawsuit between
the American Institute of Philanthropy (AIP ) and a charitable organization (Father Flanagan ’s
Boys Home). The AIP graded that charity as one of the “least needy charities ” because of its
large accumulated assets.

166 Cf. Teres a P. Gordon, Cathryn L. Knock, Daniel G. Neely, The Role of rating agencies in the market for
charitable contributions: An empirical test, Journal of Accounting and Public Policy, 28 (2009), 469.
167 Margaret F . Sloan, The Effects of Nonprofit Accountability Ratings on Donor Behavior, Nonprofit and
Voluntary Sector Quarterly, 38 (2009), 220; but critically, Jennifer A. Lammers, Know Your Ratios? Everyone Else
Does, The Nonprofit Quarterly, 10 (2003), 1; Tobin Aldrich, Benchmarking the fundraising performance of UK
charities, International Journal of Nonprofit and Voluntary Sector Marketing, 14 (2009), 353.
168 Justice Louis D. Brandeis.
169 Cf. e.g. Prives D, Charity Standards Proposed by Watchdog Group Are Deeply Flawed ,
https://philanthropy.com/article/Charity -Standards -Proposed -by/51592 ; also see Bruce R . Hopkins, The Law of
Fundraising, 3rd ed ., John Wiley & Sons, 2002, chapter 8. But positively, Aldrich, Benchmarking the fundraising
performance of UK charities.
170 Vidhi Chhaochharia and Suman Ghosh, Do Charity Ratings Matter?,
http://home.fau.edu/sghosh/web/images/CharityFeb19.pdf ; but critically Jordan E Sil vergleid, Effects of watchdog
organizations on the social capital market, Philantropic Fundraising, 2003, 7.
171 Cf. Hopkins, The Law of Fundraising, 447.

 

The dispute triggered the director of the charity to say that “the
watchdog has become an attack dog. Somebody has to muzzle it. It is causing great harm to
worthy charities .”172

These concerns are, however, unjustified in Hong Kong. People in Hong Kong show a
different donor – behavior. As noted earlier, tax incentives play little role. Donors give because
they like to give. 173 Accordingly, donors want to ensure that an organization complies with the
standards set upon them. In other words, it is necessary for donors that they can identify
themselves with the recipient of their donations.

Moreover, the charitable organizations of the Hong Kong tycoons would remain
unaffected by these ratings, because they do not rely on donations from the public; instead, they
are funded by the super -donations of the tycoons themselves. Although a bad rating might impair
their reputation s, there would be no financial consequences. Small charitable organizations, by
contrast, would be motivated to earn ratings that would allow them to present themselves in a
positive light to the public. In their case, such an excess of watchdog -power could occur, but
given the various types of donors involved (government, private donors, and the trusts of the
tycoons), an over-reliance is unlikely. Also, the media can monitor the power of watchdogs — as
it has done in Hong Kong. 174 However, in order to forestall suspicion, it would be helpful if
watchdogs were required to publish annual reports about their work and a rating guide clearly
setting out their parameters and ratings. Such a requirement would enable watchdogs to make the
charitable sector more professional and to improve accountability, transparency, and governance
of charitable organizations.

Despite the strong charitable sector in Hong Kong, the idea of a charity evaluator is rather
new. A single charity evaluator has emerged in Hong Kong, called iDonate. Another initiative,
WiseGiving, does not qualify as a watchdog; instead it is a mere intermediary that makes
information accessible to the public.

1. iDonate
The charity watchdog iDonate awards each organization a rating score based on the
information disclosed. 175 It covers around 2, 000 charitable organizations, of which the majority
are organizations incorporated under the Companies Ordinance and are tax -exempt under section
88 of the IR. iDonate thereby relies on annual reports downloaded from the websites of
charitable organizations and audited financial reports purchased from the Integrated Companies
Registry Information System. 176 In the first part of the analysis, iDonate uses this information to
calculate the operational efficiency of each charitable organization based on factors such as
fundraising efficiency, fundraising expense, project expense, salaries, and administrative
expense. The rating scores are based on parameters, each of which uses a ten -point scoring
system. The higher the score, the better the operational efficiency of the organization (as defined
by iDonate).172 The dispute was settled in court. For more see Hopkins, The Law of Fundraising, 442.
173 Id.
174 Cf. http://www.theidonate.com/en/media .
175 iDonate is similar to the charity watchdogs known from the US such as Charity Navigator or BBB Wise
Giving Alliance.
176 Cf. http://www.theidonate.com/en/methodology .

In the second part of the analysis, iDonate uses the working capital ratio and the
surplus -to-donation ratio to estimate the charitable organization ’s effective need for funds. This
parameter is helpful for donors who wish to fund an organization that will invest the donations
immediately. iDonate also comments on the transparency of a charitable organization, which
indicates the credibility of the rating. These parameters allow the public to get a clearer
understanding of the organization.

The iDonate approach to fundraising efficiency is straightforward. An organization that
spends HK $50 to raise HK $100 is highly inefficient and receives a lower score than an
organization that spends HK $50 to raise HK $500.

The assessment of fundraising expenses indicates how much the organization spends on
its charitable purpose. However, fundraising activities may also serve another interest, by
helping spread the mission of a charitable organization. Treating these efforts solely as
fundraising expenses is hard to justify. This criticism could perhaps be addressed with proper
accounting tools, which is indeed one of the recommendations of the Law Reform Commission.
But the recommendation would need to differentiate between fundraising costs which merely
seek to raise funds and those that also promote the charitable mission.

iDonate also puts project expense in relation to total expenses. Again, the higher the ratio,
the greater the organization ’s efficiency. The problem here is another accounting issue :
specifically, what can be regarded as project expense? If a charity spends money on an
awareness campaign that also calls for donation, does it count as project expense or fundraising
expense?

Similar issues can arise concerning iDonate ’s measure of staff salaries in relation to the
total expenditures of the organization. An isolated look at this number can be misleading,
because highly effective charitable organizations need to pay competitive salaries to attract the
most talented staff. A particular salary may be assigned to project costs if the employee works
exclusively on a project, but not if his or her work concerns strategic or general operational
decisions. It is in any case wrong to expect people in the NGO sector to work for free .177 “Such
an attitude implies that community work is unworthy of full payment when compared with the
commercial sector because the Third Sector is seen essentially as the charity sector where people
should work with at least some volunteering spirit. This assumption may misconceive the role of
the Third Sector in a modern society, and lead to continuing undervaluation of the sector ’s
importance and runs counter to the need to attract good people to work full -time in the Third
Sector. ”178 These aspects would need to be addressed by the Law Commission through carefully
developed accounting standards.

Unfortunately, iDonate does not rank the governance of charitable organizations. Doing
so using the neutral calculus of numbers would be no more difficult than developing financial
standards. For example, the numerical rating might depend on whether the organization follows
any governance standards, whether the board discloses conflicts of interests, whether the board
convenes on a regular basis, and so forth.

177 Education and Research, Study on the Third Sector Landscape in Hong Kong, 26.
178 Id.

If a charitable organization receive s a low score, iDonate may make suggestions on how
the rating could be improved. It may, for example, suggest that the organization needs
managerial support and that it should attempt to improve the ratio of expenses and donations by
increasing its income. This methodology confront s the charitable organization with its low rating
and gives it a chance to improve its score. It thereby serves an educational function that is
essential for the accountability of the sector. However, so-called winner rankings, such as lists of
the charities with the greatest administrative expense s, improperly isolate certain facts. 179 Such
rankings may be good for publicity, but they do not adequately inform donors.

2. WiseGiving
Whereas iDonate analyzes information on charities, WiseGiving merely makes the raw
data available on its website, www.wisegiving.org.hk. 180 The service is free of charge, and
charitable organizations may join the platform by submitting a set of documents that WiseGiving
then will verify.181 WiseGiving publishes basic information about each organization, including
financial statements, governance, mission, and charitable services. The financials are broken
down in a simple and comprehensive way that allow s the public to understand details of income
and expenditures. The website also lists the current board of trustees by name and notes their
compensation, if any. To remain on the website, an organization must submit updated documents
each year. WiseGiving does not interpret the information or rate the organizations. It simply
facilitates access to the information.

WiseGiving monitors about 247 182 local charitable organizations. Unlike the private
organization iDonate, WiseGiving is a governmental initiative, founded by the Hong Kong
Council of Social Service (HKCSS).

3. Analysis
It is important to distinguish between WiseGiving and iDonate. Both aim at improving
transparency, accountability, and governance, but their means differ. WiseGiving does not
interpret the information provided by charitable organizations. It functions as a mere
intermediary between the charitable organizations and the public. By contrast, iDonate is a rating
agency.

But regardless of their different approaches, both WiseGiving and iDonate enhance
accountability and transparency of charitable organizations. They disclose charitable
organizations ’ flaws to the public. Facing the potential consequences of their wrongful (and
sometimes maybe criminal) conduct, 183 charitable organizations will do more to avoid
mistakes. 184 With its ratings, iDonate is the more effective of the two. The raw data that
WiseGiving provides require donors to perform their own thorough analysis.

179 Cf. http://www.theidonate.com/en/aboutus .
180 South China Morning Post, Nora Tang, Watchdog Steps Up Pressure on Non -Transparent Hong Kong
Charities, 21 , May 2013, http://www.scmp.com/lifes tyle/family -education/article/1242049/watchdog -steps –
pressure -non -transparent -hong -kong .
181 Cf. http://www.wisegiving.org.hk/en/wisegivinglogo.aspx .
182 According to the results that appeared in their search engine.
183 Dana Brakman Reiser, There Ought to Be a Law. The Disclosure Focus of Recent Legislative Proposals
for Nonprofit Reform, Chicago -Kent Law Review, 80 (2005), 580.
184 Id.

 

WiseGiving and iDonate both improve transparency of charitable organizations. iDonate
also reveals whether an organization voluntarily publishes annual reports and financial
statements. They base their assessment on information provided by the organization itself or
otherwise freely accessible. Left to their own devices, charitable organizations might withhold
negative information from the public. WiseGivin g and iDonate operate as direct incentives to
make relevant information accessible to the public, so that all organizations can be evaluated on
the same set of information As a further consequence of higher accountability standards and
improved transparency, WiseGiving and iDonate facilitate the punishment of misbehavior by
governmental authorities. 185

WiseGiving may also strengthen governance of charitable organizations, by providing
information on members of the board of an organization, their general profile, their
compensation, their duties, and the number of meetings they have held in the past financial year.
This information allows the public to get a better understanding of the organization. Governance
standards are unfortunately not considered by iDonate.

While iDonate is an important effort to increase transparency, accountability, and
governance of charitable organizations in Hong Kong, one must not take its ratings as absolute
and final truth. 186 Ratings are only one part of the picture. Other “soft ” factors must be
considered too. A donor may make decisions based on a relationship of trust nurtured by
personal contact with the organization, for example, rather than based on the relation between
spending and administrative and project costs. Similarly, some donors may value the ability to
give a project a personal touch by being part of the planning and implementation more highly
than neutral ratings.

The good done by a charity cannot be measured precisely. Parameters provide at most an
approximation. If we focus predominantly on overhead, we can create what the Stanford Social
Innovation Review has coined “The Nonprofit Starvation Cycle. ”187 We starve charities of the
freedom they need to best serve the people they are trying to serve. A high-efficiency ratio does
not guarantee that the project is well and wisely managed.

By enhancing transparency and accountability and by educating the public, such
organizations as iDonate and WiseGiving serve as an alternative or at least a supplement to legal
rules. The Law Reform Commission must acknowledge their important role. In order to facilitate
their work, the government must adopt a publicly accessible system in which all tax-exempt
organizations are registered. Such a central registration system does not require new laws. It
would enhance the quality of the charitable sector and provide the market with the tools to
regulate itself.

IV. Summary
Charitable organizations in Hong Kong have developed under a very loose regulatory
regime. The Law Reform Commission has recently put forward a report with 18
recommendations for improving charity law.

185 Id., 597.
186 iDonate refers to this aspect on its website and encourage s donors to do more specific due diligence
before making a donation: see http://www.theidonate.com/en/methodology .
187 Ann Goggins Gregory and Don Howard, The Nonprofit Starvation Cycle, Stanford Social Innovation
Review, Fall 2009, 49.

 

While the Law Reform Commission undertook a comprehensive comparative review, it failed to consider essential aspects specific to Hong Kong :
the people ’s unique understand ing of charitable giving, based on Chinese tradition and customs ;
the minor importance of monetary incentives such as tax deductions, compared to people ’s sense
of obligation towards their communities; and the dominant influence of the tycoons, who impose
their own rules on the sector.

In place of the Law Reform Commission ’s recommendations, a preferable system would
rely on self -regulation informed by charity watchdogs. In order for this system to be effective,
the Law Reform Commission must only introduce a publicly accessible registration system for
all charitable organizations in Hong Kong. The suggested model would require minimal
alteration of the law.

e are tired of tolerating IBIS’ political
interference in Bolivia.” 119
 A September 2014 article in the New York Times asserted that foreign “money is
increasingly transforming the once -staid think -tank world into a muscular arm of foreign
governments’ lobbying in Washington.” 120 The following week, United States
Representative Frank Wolf wrote a letter to the Brookings Institution, in which he urged
them to “end this practice of accepting money from … foreign governments” so that its
work is not “compromised by the influence, whether real or perceived, of foreign
governments.” 121
Some governments assert that foreigners are not only seeking to meddle in domestic
political affairs, but also seeking to destabilize the country or otherwise engage in “regime
change.” Accor dingly, they argue that foreign funding restrictions are necessary to thwart efforts
to destabilize or overthrow the government currently in power.
 In 2013 in Sri Lanka , the government justified a recent registration requirement for all
CSOs on the grounds that it was necessary to “thwart certain NGOs from hatching
117 Jonathan Lis, “Draft bill: NGOs with foreign funding to be defined ‘foreign agents,’” Haaretz , May 26,
2013, accessed September 8, 2014, http://www.haaretz.com/news/national/.premium -1.592754 .
118 “Some Azerbaijani NGOs Cooperated with Armenian Special Services Under ‘People’s Diplomacy,’”
Trend, August 15, 2014, accessed September 8, 2014, http://en.trend.az/news/politics/230 3147.html .
119 Agence France -Presse, “Bolivia expels Danish NGO for meddling,” Global Post , December 20, 2013,
accessed September 16, 2014, http://www.gl obalpost.com/dispatch/news/afp/131220/bolivia -expels -danish -ngo –
meddling -1.
120 Eric Lipton, Brooke Williams, & Nicholas Confessore, “Foreign Powers Buy Influence at Think Tanks,”
New York Times , September 6, 2014, accessed September 17, 2014,
http://www.nytimes.com/2014/09/07/us/politics/foreign -powers -buy -influence -at-think -tanks.html?_r=0 .
121 Letter from Representative Frank Wolf to Strobe Talbott of the Brookings Institution, September 9,
2014, accessed September 17, 2014, https://s3.amazonaws.com/s3.documentcloud. org/documents/1301186/rep –
frank -wolfs -letter -to-strobe -talbott -at.pdf .

International Journal of Not -for -Profit Law / vol. 17 , no. 1, March 2015 / 23

conspiracies to effect regime change by engaging in politics in the guise of doing social
work.” 122
 A drafter of the Russian “foreign agents” law justified the initiative when it was pending
in pa rliament, stating, “There is so much evidence about regime change in Yugoslavia,
now in Libya, Egypt, Tunisia, in Kosovo — that’s what happens in the world, some
governments are working to change regimes in other countries. Russian democracy needs
to be prot ected from outside influences.” 123
 In 2005, the Prime Minister of Ethiopia expelled civil society organizations, explaining,
“there is not going to be a ‘Rose Revolution’ or a ‘Green Revolution’ in Ethiopia after the
election” 124 — a reference to the so -called “color revolutions” that had recently occurred
in Georgia and elsewhere.
 In June 2012, Uganda’s Minister for Internal Affairs justified the government’s threats to
deregister certain CSOs, stating that CSOs “want to destabilize the country because that
is what they are paid to do…. They are busy stabbing the government in its back yet they
are supposed to do humanitarian work.” 125
 In the process of driving civil society organizations out of Zimbabwe , President Mugabe
justified his policies by claiming that the CSOs were fronts for Western “colonial
masters” to undermine the Zimbabwean government. 126 Similarly, the central committee
of Mugabe’s party claimed, “Some of these NGOs are working day and night to remove
President Mugabe and ZANU PF from power. They are being funded by Britain and
some European Union countries, the United States, Australia, Canada and New
Zealand.” 127
 In a March 2014 interview justifying a draft “foreign agents” law, Kyrgyzstan’s
President Atembaev argued, “Activities conducted by CSOs are obviously aimed at
destabilization of the situation in the Kyrgyz Republic…. Some CSOs do not care about
how they get income, whose orders to fulfill, which kind of work to execute…. There are
122 Xinhua, “Sri Lanka to Investigate NGOs Operating in Country,” Herald , June 13, 2013, accessed
September 8, 2014, http://www.herald.co.zw/sri -lanka -to-investigate -ngos -operating -in-country/ .
123 “Russian parliament gives first approval to NGO bill,” BBC , July 6, 2012, accessed September 8, 2014,
http://www.bbc.com/news/world -europe -18732949 .
124 Darin Christensen & Jeremy M. Weinstein, “Defunding Dissent,” Journal of Democracy 24(2) (April
2013): 80.
125Pascal Kwesiga, “Govt gets tough on NGOs,” New Vision , June 19, 2012, accessed Septembe r 9, 2014,
http://www.newvision.co.ug/news/632123 -govt -gets -tough -on-ngos.html .
126 Thomas Carothers, “The Backlash Against Democracy Promotion,” Foreign Affairs , March/April 2006,
accessed September 9, 2014, http://www.foreignaffairs.com/articles/61509/thomas -carothers/the -backlash -against –
democracy -promotion .
127 “29 NGOs banned in crackdown,” New Zimbabwe , February 14, 2012, accessed September 9, 2014,
http://www.newzimbabwe.com/news -7189 -29+NGOs+banned+in+crackdown/new s.aspx .

International Journal of Not -for -Profit Law / vol. 17 , no. 1, March 2015 / 24

forces interested in destabilizing the situation in Kyrgyzs tan and spreading chaos across
Central Asia and parts of China.” 128
 In July 2014, the vice chairman of the China Research Institute of China -Russia Relations
argued that China should “learn from Russia” and enact a foreign agents law “so as to
block the way for the infiltration of external forces and eliminate the possibilities of a
Color Revolution.” 129
2. Transparency and Accountability
Another justification commonly invoked by governments to regulate and restrict the flow
of foreign funds is the importance of upholding the integrity of CSOs by promoting transparency
and accountability through government regulation. Consider, for example, the following
responses by government delegations to the UNSR’s Resource Report:
 Egypt : “We agree with the principles of accountability, transparency, and integrity of the
activities of civil society organisations and NGOs. However, this should not be l imited to
accountability to donors. National mechanisms to follow -up on activities of such entities,
while respecting their independence have to be established and respected.” 130
 Maldives : “While civil societies should have access to financing for effective operation
within the human rights framework, it is of equal importance that the organizations must
also ensure that they work with utmost integrity and in an ethical and responsible
manner.” 131
 Azerbaijan : “The changes and amendments to the national legisl ation on NGOs have
been made with a view of increasing transparency in this field…. In that regard, these
amendments should only disturb the associations operating in our country on a non –
transparent basis.” 132
Similarly, in response to a United Nations Hum an Rights Council panel on the promotion
and protection of civil society space in March 2014, the following government delegations
responded with justifications invoking transparency and accountability:
128 “Алмазбек Атамбаев: “Хочу максимально успеть,” Slovo.kg , March 23, 2014, accessed September
9, 2014, translated by Aida Rustemova, http://slovo.kg/?p=35019 .
129 Simon Denyer , “China taking the Putin approach to democracy,” Washington Post, October 1, 2014,
A7.
130 UN Office of the High Commissioner for Human Rights, “Clustered ID with the WG on HR and
Transnational Corporations and the SR on The Rights to Freedom of Assembly an d Association: Intervention
delivered by the Permanent Delegation of Egypt,” May 30, 2013, accessed September 9, 2014,
https://extran et.ohchr.org/sites/hrc/HRCSessions/RegularSessions/23rdSession/OralStatements/Egypt_10_1.pdf .
131 UN Office of the High Commissioner for Human Rights, “Interactive Dialogue with the Special
Rapporteur on the Rights to Peaceful Assembly and of Association, M aldives Oral Statement,” May 31, 2013,
accessed September 9, 2014,
https://extranet.ohchr.org/sites/hrc/HRCSessions/RegularSessions/ 23rdSession/OralStatements/Maldives_12.pdf .
132 UN Office of the High Commissioner for Human Rights, “Remarks by Azerbaijan,” May 31, 2013,
accessed September 9, 2014,
https://extranet.ohchr.org/sites/hrc/HRCSessions/RegularSessions/23rdSession/OralStatements/Azerbaijan_12.pdf .

International Journal of Not -for -Profit Law / vol. 17 , no. 1, March 2015 / 25

 Ethiopia , on behalf of the African Group: “Domestic l aw regulation consistent with the
international obligations of States should be put in place to ensure that the exercise of the
right to freedom of expression, assembly and association fully respects the rights of
others and ensures the independence, accou ntability and transparency of civil society.” 133
 India, on behalf of the “Like Minded Group”: “The advocacy for civil society should be
tempered by the need for responsibility, openness and transparency and accountability of
civil society organizations.” 134
 Pa kistan , on behalf of the Organisation of Islamic Cooperation members : “It may be
underscored that securing funding for its crucial work is the right of civil society,
maintaining transparency and necessary regulation of funding is the responsibility of
sta tes.” 135
Kyrgyzstan has also employed this argument to justify a draft “foreign agents” law. The
explanatory note to the draft law claims that it “has been developed for purposes of ensuring
openness, publicity, transparency for non -profit organizations, inc luding units of foreign non –
profit organizations, as well as non -profit organizations acting as foreign agents and receiving
their funds from foreign sources, such as foreign countries, their government agencies,
international and foreign organizations, fo reign citizens, stateless persons or their authorized
representatives, receiving monetary funds or other assets from the said sources.”
3. Aid Effectiveness and Coordination
A global movement has increasingly advocated for greater aid effectiveness, including
through concepts of “host country ownership” and the harmonization of development
assistance. 136 However, some states have interpreted “host country ownership” to be
synonymous with “host government ownership” and have otherwise co -opted the aid
effectivene ss debate to justify constraints on international funding. For example:
133 UN Office of the High Commissioner for Human Rights, “Statement by Ethiopia on behalf of the
African Grou p at the 25th session of the Human Rights Council On the Panel Discussion on the Importance of the
Promotion and Protection of Civil Society Space,” March 11, 2014, accessed September 9, 2014,
https://extranet.ohchr.org/sites/hrc/HRCSessions/RegularSessions/25thSession/OralStatements/Ethiopia%20on%20b
ehalf%20of%20African%20Group_PD_21.pdf .
134 UN Office of the High Commissioner for Human Rights, “Joint Statement: India on behalf of like –
minded countries,” March 11, 2014, accessed September 9, 2014,
https://extranet.ohchr.org/sites/hrc/HRCSessions/RegularSessions/25thSession/OralStatements/India_on%20behalf
%20of%20LMG_PD_21.pdf . The “Like Minded Group” consists of Algeria, Bahrain, Bangladesh, Belarus,
Chi na, Cuba, Egypt, India, Indonesia, Malaysia, Pakistan, Russia, Saudi Arabia, Singapore, South Africa, Sri
Lanka, Sudan, Uganda, United Arab Emirates, Vietnam , and Zimbabwe .
135 UN Office of the High Commissioner for Human Rights, “Statement by Pakistan on be half of OIC:
Panel Discussion on Civil Society Space,” March 11, 2014, accessed September 9, 2014,
https ://extranet.ohchr.org/sites/hrc/HRCSessions/RegularSessions/25thSession/OralStatements/Pakistan%20on%20b
ehalf%20of%20OIC_PD_21.pdf .
136 See the Aid Effectiveness Agenda of the Paris Declaration (2005), the Accra Agenda for Action (2008),
and the Busan Partn ership for Effective Development Cooperation (2011).

International Journal of Not -for -Profit Law / vol. 17 , no. 1, March 2015 / 26

 In July 2014, Nepal ’s government released a new Development Cooperation Policy 137
that will require development partners to channel all development cooperation through
the Ministry of Fi nance, rather than directly to CSOs. The government argued that this
policy is necessary for aid effectiveness and coordination: “Both the Government and the
development partners are aware of the fact that the effectiveness can only be enhanced if
the owne rship of aid funded projects lies with the recipient government.” 138
 Sri Lanka ’s Finance and Planning Ministry issued a public notice in July 2014 requiring
CSOs to receive government approval of international funding. Justifying the
requirement, the Ministry claimed that projects financed with international funding were
“outside t he government budget undermining the national development programmes.” 139
 In response to the UNSR’s Resource Report, the representative of Egypt stated, “The
diversification of the venues of international cooperation and assistance to States towards
the fund ing of civil society partners fragments and diverts the already limited resources
available for international assistance. Hence, aid coordination is crucial for aid
effectiveness.” 140
 At the recent Africa Leaders Summit, the Foreign Minister of Benin s poke a t a workshop
on closing space for civil society. He asserted that CSOs “don’t think they are
accountable to government but only to development partners. This is a problem.” He said
Benin needs “a regulation to create transparency on resources coming from a broad and
the management of resources,” stating that the space for civil society is “too wide.” 141
 The Intelligence Bureau of India released a report in June 2014 claiming that foreign –
funded CSOs stall economic development and negatively impact India’s GDP growth by
2 to 3 percent. 142 The report stated, “a significant number of Indian NGOs, funded by
some donors based in the US, the UK, Germany, the Netherlands and Scandinavian
137 Government of Nepal Ministry of Finance, “Development Cooperation Policy, 2014,” unofficial
translation, accessed September 9, 2014,
http://www.mof.gov.np/uploads/document/file/DCP_English_20140707120230_20140721083326.pdf .
138 Government of Nepal Ministry of Finance, “Development Cooperation Policy, 2014,” unofficial
translation, Article 2.2, acces sed September 9, 2014,
http://www.mof.gov.np/uploads/document/file/DCP_English_20140707120230_20140721083326.pdf .
139 “No foreign funds without approva l: Ministry,” Daily Mirror , July 22, 2014, accessed September 9,
2014, http://www.dailymirror.lk/news/50038 -no -foreign -funds -without -approval -ministry.html .
140 UN Office of the High Commissioner for Human Rights, “Clustered ID with the WG on HR and
Transnational Corporations and the SR on The Rights to Freedom of Assembly and Association: Intervention
delivered by the Permanent Delegation of Egypt,” May 30, 2013, accessed September 9, 2014,
https://extranet.ohchr.org/sites/hrc/HRCSessions/RegularSessions/23rdSession/OralStatements/Egypt_1 0_1.pdf .
141 Personal notes of author.
142 “Foreign -funded NGOs stalling development: IB report,” Times of India , June 12, 2014, accessed
September 9, 2014, http://timesofindia.indiatimes.com/india/Foreign -funded -NGOs -stalling -development -IB –
report/articleshow/36411169.cms .

International Journal of Not -for -Profit Law / vol. 17 , no. 1, March 2015 / 27

countries, have been noticed to be using people centric issues to create an enviro nment
which lends itself to stalling development projects.” 143
4. National Security, Counterterrorism, and Anti -Money Laundering
As discussed above, governments also invoke national security, counterterrorism, and
anti -money laundering policies to justify restr ictions on international funding, including cross –
border philanthropy. For example, the Financial Action Task Force (FATF), an
intergovernmental body that seeks to combat money laundering and terrorist financing, stated:
The ongoing international campaign against terrorist financing has unfortunately
demonstrated however that terrorists and terrorist organisations exploit the NPO
sector to raise and move funds, provide logistical support, encourage terrorist
recruitment or otherwise support terrorist organi sations and operations. This
misuse not only facilitates terrorist activity but also undermines donor confidence
and jeopardises the very integrity of NPOs. Therefore, protecting the NPO sector
from terrorist abuse is both a critical component of the globa l fight against
terrorism and a necessary step to preserve the integrity of NPOs. 144
Governments have leveraged concerns about counterterrorism and money laundering to
justify restricting both the inflow and outflow of philanthropy. For example: 145
 The governm ent of Azerbaijan justified amendments relating to the registration of
foreign grants, stating that the purpose of the amendments was, in part, “ to enforce
international obligations of the Republic of Azerbaijan in the area of combating money –
laundering.” 146
143 Rake sh Krishnan Simha, “Why India Should Follow Vladimir Putin’s Lead on NGOs,” Russia & India
Report, June 15, 2014, accessed September 9, 2014,
http://in.rbth.com/blogs/2014/06/15/why_india_should_follow_vladimir_putins_lead_on_ngos_35945.html .
144 Financial Action Task Force, “International Standards on Combating Money Laundering and the
Financing of Terrorism & Proliferation: The FATF Recommendations,” Financial Action Task Force Report, 2013,
54, accessed September 9, 2014,
http://www.fatfgafi.org/media/fa tf/documents/recommendations/pdfs/FATF_Recommendations.pdf . See also
Financial Action Task Force, “Risk of Terrorist Abuse in Non -Profit Organisations,” Financial Action Task Force
Report, June 2014, http://www.fatf -gafi.org/media/fatf/documents/reports/Risk -of-terrorist -abuse -in-non -profit –
organisations.pdf .
145 Constraints by donor governments on the outflow of cross -border donation s, albeit beyond the scope of
this article, similarly present significant barriers to cross -border philanthropy. These states assert that they have an
international responsibility to regulate the outflow of cross -border donations in order to ensure that fu nding destined
for other countries will not support criminal or terrorist activities in those foreign jurisdictions. For more information
about the justifications employed and the implications for civil society, please see: Ben Hayes, “Counter -Terrorism,
‘Policy Laundering’ and the FATF: Legalizing Surveillance, Regulating Civil Society,” Transnational
Institute/Statewatch Report, February 2012, http://www.statewatch.org/analyses/no -171 -fafp -report.pdf .
146 Charity & Security Network, “How the FATF Is Used to Justify Laws That Harm Civil Society,
Freedom of Association and Expression,” Charity & Security Network , May 16, 2013, accessed September 9, 2014,
http://www.charityandsecurity.org/analysis/Restrictive_Laws_How_FATF_Used_to_Justify_Laws_That_Harm_Civ
il_Society .

International Journal of Not -for -Profit Law / vol. 17 , no. 1, March 2015 / 28

 The British Virgin Islands (BVI) enacted a law requiring that CSOs with more than five
employees appoint a designated Anti -Money Laundering Compliance Officer. 147 The
law also imposes audit requirements for CSOs that are not required of businesses. These
burdens were justified with explicit reference to FATF’s recommendation on nonprofit
organizations and counterterrorism. 148
 In response to the UNSR’s Resource Report, a group of thirteen African states responded,
“It is the responsibility of governments to ensure that the origin and destination of
associations’ funds are not used for terrorist purposes or directed towards activities which
encourage incitement to hatred and violence.” 149
 In 2013, a Sri Lankan government representative similarly stated, “While w e agree that
access to resources is important for the vibrant functioning of civil society, we observe
that Mr. Kiai does not seem to adequately take into account the negative impact of lack of
or insufficient regulation of funding of associations on natio nal security and counter –
terrorism.” 150
 In a National Security Analysis released in August 2014, Sri Lanka’s Ministry of
Defence claimed that some civil society actors have links with the Liberation Tigers of
Tamil Eelam, a group with “extremist separatist i deology,” and that these CSOs thereby
pose “a major national security threat.” 151 During the same period, the Sri Lankan
government announced that it was drafting a law requiring CSOs to register with the
Ministry of Defence in order to have a bank account and receive international funding.
5. Hybrid Justifications
While these categories and examples represent the types of justifications offered by
governments for restricting foreign funding, in practice, official statements often combine
multiple justifications. A recent example is the statement made at the UN Human Rights Council
by India on behalf of itself and twenty other “like minded” states, including Cuba, Saudi
147 “Non -Profit Organisations,” British Virg in Islands Financial Investigation Agency, accessed September
9, 2014, http://www.bvifia.org/non -profit -organisations .
148 Charity & Security Network, “How the FATF Is Used to Justify Laws That H arm Civil Society,
Freedom of Association and Expression,” May 16, 2013,
http://www.charityandsecurity.org/analysis/Restrictiv e_Laws_How_FATF_Used_to_Justify_Laws_That_Harm_Civ
il_Society
149 UN Office of the High Commissioner for Human Rights, “Oral Statement — Gabon on behalf of the
African Group,” 30 May 2013, accessed September 9, 2014,
https://extranet.ohchr.org/sites/hrc/HRCSessions/RegularSessions/23rdSession/OralStatements/Gabon%20on%20be
half%20ofAG_10_1.pdf .
150 UN Office of the High Co mmissioner for Human Rights, “23rd Session of the HRC Statement by Sri
Lanka —Item 3: Clustered ID with the SR on the rights to peaceful assembly & of association,” May 31, 2013,
accessed September 9, 2014,
https://extranet.ohchr.org/sites/hrc/HRCSessions/RegularSessions/23rdSession/Pages/OralStatement.aspx?MeetingN
umber=12.0&MeetingDat e=Friday,%2031%20May%202013 .
151 Gotabaya Rajapaksa, “Sri Lanka’s National Security,” Ministry of Defence and Urban Development of
Sri Lanka, August 19, 2014, accessed September 9, 2014,
http://www.defence.lk/new.asp?fname=Sri_Lankas_National_Security_20140819_02 .

International Journal of Not -for -Profit Law / vol. 17 , no. 1, March 2015 / 29

Arabia , Belarus, China, and Vietnam ,152 which weaves together a number of different
justifications, including foreign interference, accountability, and national security:
[C]ivil society cannot function effectively and efficiently without defined
limits…. Civil society must also learn to protect its own space by guarding against
machinations of donor groups guided by extreme ideologies laden with hidden
politicized motives, which if allowed could potentially bring disrepute to the civil
society space…. There have also been those civil society organizations, who have
digressed from their original purpose and indulged in the pursuit of donor -driven
agendas. It is important to ensure accountability and responsibility for their
actions and the consequences thereof and also guard against compromising
national and international security. 153
Similarly, Ethiopia, in its statement in response to the UNSR’s Resource R eport,
referenced justifications relating to state sovereignty, aid coordination, and accountability and
transparency:
It is our firm belief that associations will play their role in the overall
development of the country and advance their objectives, if a nd only if an
environment for the growth of transparent, members based and members driven
civil society groups in Ethiopia providing for accountability and predictability is
put in place. We are concerned that the abovementioned assertion [about
lightening the burdens to receive donor funding] by the special rapporteur
undermines the principle of sovereignty which we have always been guided by. 154
Similarly constructed statements have also been put forward by Pakistan and other states. 155
152 The “Like Minded Group” consisted of Algeria, Bahrain, Bangladesh, Belarus, China, Cuba, Egypt,
India, Indonesia, Malaysia, Pakistan, Russia, Saudi Arabia, Singapore, South Africa, Sri Lanka, Sudan, Uganda,
UAE, Vietnam, and Zimbabwe. UN Office of the Hig h Commissioner for Human Rights, “Joint Statement: India on
behalf of like -minded countries,” March 11, 2014, accessed September 9, 2014,
https://extranet.ohchr.org/sites/hrc/HRCSessions/RegularSessions/25thSession/OralStatements/India_on%20behalf
%20of%20LMG_PD_21.pdf .
153 Ibid.
154 UN Office of the High Commissioner for Human Rights, “Oral Statement: Ethiopia,” May 31, 2013,
accessed September 9, 2014,
https://extranet.ohchr.org/sites/hrc/HRCSessions/RegularSessions/23rdSession/OralStatements/Et hiopia_12.pdf .
155 See, e.g., UN Office of the High Commissioner for Human Rights, “Statement by Pakistan on Behalf of
OIC: Panel Discussion on Civil Society Space,” March 11, 2014, accessed September 9, 2014,
https://extranet.ohchr.org/sites/hrc/HRCSessions/RegularSessions/25thSession/OralStatements/Pakistan%20on%20b
ehalf%20of%20OIC_PD_21.pdf : “By virtue of its dynamic role civil society is well poised to build convergences
with the view to develop synergies between state institutions and their own networks. These synergies would
facilitate proper utilization of resources at the disposal state institutions an d civil society actors. In this regard, it
may be underscored that securing funding for its crucial work is the right of civil society, maintaining transparency
and necessary regulation of funding is the responsibility of states…. Within this social space, the civil society can
play its optimal role by working in collaboration with state institutions. Better coordination between civil society
actors and state institution [sic] would also facilitate enhancement of international cooperation in the field of hu man
rights.”

International Journal of Not -for -Profit Law / vol. 17 , no. 1, March 2015 / 30

In this section, the a rticle briefly surveyed justifications presented by governments to
constrain the inflow of international funding, including philanthropy. In the following section,
we analyze constraints and their justifications under international law.
International Legal Framework
1. International Norms Protecting Access to Resources and Cross -Border Philanthropy
Article 22 of the International Covenant on Civil and Political Rights (ICCPR) states,
“Everyone shall have the right to freedom of association with others….” 156 Acco rding to the
UNSR: 157
The right to freedom of association not only includes the ability of individuals or legal
entities to form and join an association 158 but also to seek, receive and use resources 159 —
human, material and financial — from domestic, foreign and in ternational sources. 160
The United Nations Declaration on Human Rights Defenders 161 similarly states that
access to resources is a self -standing right:
“[E]veryone has the right, individually and in association with others, to solicit, receive
and utilize reso urces for the express purpose of promoting and protecting human rights
and fundamental freedoms through peaceful means….” 162
According to the Office of the United Nations High Commissioner for Human Rights, this right
specifically encompasses “the receipt of funds from abroad.” 163
156 United Nations International Covenant on Civil and Political Rights, Article 22, December 16, 1966,
http://www.ohchr.org/en/professionalinterest/pages/ccpr.aspx .
157 While reports of the UNSR are not binding international law, his reports are referenced here because
they provide a comprehensive articulation and explanation of international law.
158 International law generally recognizes the freedom of association, and t his section follows that
formulation. Addressing the applicability of international law to non -membership organizations is beyond the scope
of this article, but for more information, please see: International Center for Not -for -Profit Law & World Movement
for Democracy Secretariat, “Defending Civil Society Report, Second Edition,” June 2012, 35,
http://www.icnl.org/research/resources/dcs/DCS_Report_Second_Editi on_English.pdf .
159 The UNSR defines “resources” as a broad concept that includes financial transfers (e.g., donations,
grants, contracts, sponsorship, and social investments), loan guarantees, in -kind donations, and other forms of
support. See United Nation s Human Rights Council, Report of the Special Rapporteur on the rights to freedom of
peaceful assembly and of association, Maina Kiai, para. 10, UN Doc. A/HRC/23/39 (April 24, 2013) at
http://freeassembly.net/wp -content/uploads/2013/04/A.HRC_.23.39_EN -funding -report -April -2013.pdf .
160 Ibid., para. 8.
161 The UNSR notes that while “the Declaration is not a binding instrument, it must be recalled tha t it was
adopted by consensus of the General Assembly and contains a series of principles and rights that are based on
human rights standards enshrined in other international instruments which are legally binding. Ibid., para. 17.
162 United Nations General Assembly, Declaration on the Right and Responsibility of Individuals, Groups
and Organs of Society to Promote and Protect Universally Recognized Human Rights and Fundamental Freedoms ,
UN Res. 53/144, Article 13, http://www.un.org/Docs/asp/ws.asp?m=A/RES/53/144 .
163 United Nations Office of the High Commissioner for Human Rights, “Declaration on Human Rights
Defenders,” UN OHCHR, accessed September 9, 2014,
http://www.ohchr.org/EN/Issues/SRHRDefenders/Pages/Declaration.aspx .

International Journal of Not -for -Profit Law / vol. 17 , no. 1, March 2015 / 31

Reinforcing this position, 164 in 2013 the United Nations Human Rights Council passed
resolution 22/6, which calls upon on States “[t]o ensure that they do not discriminatorily impose
restrictions on potential sources of funding aimed at supporting the work of human rights
defenders,” and “no law should criminalize or delegitimize activities in defence of human rights
on account of the origin of funding thereto.” 165
The freedom to access resources extends beyond human rights defenders. For example,
the Declaration on the Elimination of A ll Forms of Intolerance and of Discrimination Based on
Religion or Belief states that the right to freedom of thought, conscience, and religion includes
the freedom to “solicit and receive voluntary financial and other contributions from individuals
and in stitutions.” 166 Access to resources is also an integral part of a number of other civil,
cultural, economic, political, and social rights. As the UNSR states: 167
For associations promoting human rights, including economic, social and cultural rights,
or those involved in service delivery (such as disaster relief, health -care provision or
environmental protection), access to resources is important, not only to the existence of
the association itself, but also to the enjoyment of other human rights by those benef itting
from the work of the association. Hence, undue restrictions on resources available to
associations impact the enjoyment of the right to freedom of association and also
undermine civil, cultural, economic, political and social rights as a whole. 168
Acc ordingly, “funding restrictions that impede the ability of associations to pursue their statutory
activities constitute an interference with article 22” of the International Covenant on Civil and
Political Rights. 169
2. Regional and Bilateral Commitments to Pro tect Cross -Border Philanthropy
164 This article briefly examines international norms governing global philanthropy. But it also recogniz es
that there are distinct limits to the impact of international law. For example, there is often an implementation gap
between international norms and country practice. In addition, there are few binding international treaties, such as
the ICCPR, and de tails are often left to “soft law,” such as the reports of the UNSR. At the same time, there is
concern that any effort to create a new global treaty on cross -border philanthropy or foreign funding would lead to a
retrenchment of existing rights.
165 United Nations General Assembly, Protecting Human Rights Defenders, March 21, 2013, UN Human
Rights Council, Resolution 22/6, para. 9, http://ap.ohchr.org/documents/dpage_e.aspx?si=A/HRC /RES/22/6 .
166 United Nations General Assembly, Declaration on the Elimination of All Forms of Intolerance and of
Discrimination Based on Religion or Belief , November 25, 1981, UN General Assembly Resolution A/RES/36/55,
Article 6(f), http://www.un.org/documents/ga/res/36/a36r055.htm .
167 In similar fashion, the UN Committee on Economic, Social and Cultural Rights recognized the link
between access to resources and economic, social and cultural rights, when it expressed “deep concern” about an
Egyptian law that “gives the Government control over the right of NGOs to manage their own activities, including
seeking external funding.” See Egypt, ICESCR, E/2001/22 (2000) 38 at paras. 161, 176,
http://www.bayefsky.com/themes/public_general_concluding -observations.php .
168 United Nations Human Rights Council, Report of the Special Rapporteur on the rights to freedom of
peaceful assembly and of association, Maina Kiai, para. 9, UN Doc. A/HRC/23/39 (April 24, 2013) at
http://freeassembly.net/wp -content/uploa ds/2013/04/A.HRC_.23.39_EN -funding -report -April -2013.pdf .
169 Human Rights Committee, communication No. 1274/2004, Korneenko et al. v. Belarus, Views adopted
on October 31, 2006, para. 7.2.

International Journal of Not -for -Profit Law / vol. 17 , no. 1, March 2015 / 32

While this article is focused on global norms, cross -border philanthropy is also
protected at the regional level. For example:
 The Council of Europe Recommendation on the Legal Status of NGOs states:
“NGOs should be free to s olicit and receive funding — cash or in -kind donations —
not only from public bodies in their own state but also from institutional or
individual donors, another state or multilateral agencies ….” 170
 According to the Inter -American Commission on Human Rights, “states should allow and
facilitate human rights organizations’ access to foreign funds in the context of
international cooperation, in transparent conditions.” 171
 In May 2014, the African Commission on Human and Peoples’ Rights (ACHPR)
adopted, in draft for m, a report of the ACHPR Study Group on Freedom of Association
and Peaceful Assembly, with a specific recommendation that States’ legal regimes should
codify that associations have the right to seek and receive funds. This includes the right to
seek and re ceive funds from their own government, foreign governments, international
organizations and other entities as a part of international cooperation to which civil
society is entitled, to the same extent as governments.
 The European Court of Justice (ECJ) has issued a series of important decisions about the
free flow of philanthropic capital within the European Union. 172
In addition, many jurisdictions have concluded bilateral investment treaties, which help
protect the free flow of capital across borders. Some treaties, such as the U.S. treaties with
Kazakhstan and Kyrgyzstan, expressly extend investment treaty protections to organizations not
“organized for pecuniary gain.” 173 Indeed, the letters of transmittal submitted by the White
House to the U.S. Senate sta te that these treaties are drafted to cover “charitable and non -profit
entities.” 174
170 Council of Europe, “Recommendation CM/Rec (2007)145 of the Committ ee of Ministers to member
states on the legal status of non -governmental organisations in Europe,” adopted October 10, 2007, Article 50,
https://wcd.coe.int/ViewDoc.jsp?id=1194609 .
171 Inter -American Commission on Human Rights, Report on the Situation of Human Rights Defenders in
the Americas , March 7, 2006, Recommendation 19, http://www.icnl.org /research/resources/assembly/oas -human –
rights -report.pdf .
172 For more information on these decisions, see: European Foundation Center and Transnational Giving
Europe, “Taxation of Cross -Border Philanthropy in Europe After Persche and Stauffer: From landloc k to free
movement?”, European Foundation Center Report, 2014,
http://www.efc.be/programmes_services/resources/Documents/TGE -web.pdf ; European Foundation Centre, “ECJ
rules in favour of cross -border giving ,” EFC briefing, January 27, 2009, accessed September 9, 2014,
http://www.efc.be/programmes_services/resources/Documents/befc09 08.pdf .
173 U.S. -Kyrgyz Bilateral Investment Treaty, Article 1(b); U.S. -Kazakh Bilateral Investment Treaty, Article
1(b). See also Article 1(2) of the China – Germany BIT: “the term ‘investor’ means … any juridical person as well
as any commercial or other c ompany or association with or without legal personality having its seat in the territory
of the Federal Republic of Germany, irrespective of whether or not its activities are directed at profit.”
174 Letters of Transmittal available at the U.S. State Departm ent website:
http://www.state.gov/documents/organization/43566.pdf and
http://www.state.gov/documents/organization/4 3567.pdf .

International Journal of Not -for -Profit Law / vol. 17 , no. 1, March 2015 / 33

A detailed discussion of investment treaty protection for cross -border philanthropy is
beyond the scope of this article. This issue is presented in brief form, however, beca use it is a
significant avenue for further exploration, as it expands the international legal argument beyond
human rights and implicates bilateral investment treaties with binding enforcement
mechanisms. 175 For further information on this issue, please see International Investment Treaty
Protection of Not -for -Profit Organizations 176 and Protection of U.S. Non -Governmental
Organizations in Egypt under the Egypt -U.S. Bilateral Investment Treaty. 177
3. Restrictions Permitted Under International Law
Continuing the discussion of global norms, ICCPR Article 22(2) recognizes that the
freedom of association can be restricted in certain narrowly defined conditions. According to
Article 22(2):
No restrictions may be placed on the exercise of this right other than those wh ich are
prescribed by law and which are necessary in a democratic society in the interests of
national security or public safety, public order (ordre public), the protection of public
health or morals or the protection of the rights and freedoms of others. 178
In other words, international law allows a government to restrict access to resources if the
restriction is:
(1) prescribed by law;
(2) in pursuance of one or more legitimate aims, specifically:
o national security or public safety;
o public order;
o the protection of public health or morals; or
o the protection of the rights and freedoms of others; and
175 In addition, the European Court of Human Rights has held that Article 1 of the First Protocol of the
European Convention on Human Rights protects the right to peaceful enjoyment of one’s possessions. (Article 1 of
the First Protocol of the Euro pean Convention reads: “Every natural or legal person is entitled to the peaceful
enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to
the conditions provided for by law and by the general p rinciples of international law. The preceding provisions shall
not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of
property in accordance with the general interest or to secure the payment o f taxes or other contributions or
penalties.” In addition, the right to property includes the right to dispose of one’s property (Clare Ovey & Robin
White, The European Convention on Human Rights , 3rd edition (Oxford: Oxford University Press, 2002)), which
would seem to embrace the right to make contributions to CSOs for lawful purposes.
176 Luke Eric Peterson & Nick Gallus, “International Investment Treaty Protection of Not -for -Profit
Organizations,” International Journal of Not -for -Profit Law 10(1) (December 2007),
http://www.icnl.org/research/journal/vol10iss1/art_1.htm .
177 Nick Gallus, “Protection of U.S. Non -Governmental Organizations in Egypt under the Egypt -U.S.
Bilat eral Investment Treaty,” International Journal of Not -for -Profit Law 14(3) (September 2012),
http://www.icnl.org/research/journal/vol14iss3/art2.html .
178 United Nations International Covenant on Civil and Political Rights, Article 22, December 16, 1966,
http://www.ohchr.org/en/professionalinterest/pages/ccpr.aspx . Article 22, ICCPR

International Journal of Not -for -Profit Law / vol. 17 , no. 1, March 2015 / 34

(3) “necessary in a democratic society to achieve those aims.” 179
Moreover :
States should always be guided by the principle that the restrictions must not im pair the
essence of the right … the relations between right and restriction, between norm and
exception, must not be reversed. 180
The burden of proof is on the government. 181 In addition:
When a State party invokes a legitimate ground for restriction of freed om of expression,
it must demonstrate in specific and individualized fashion the precise nature of the threat,
and the necessity and proportionality of the specific action taken, in particular by
establishing a direct and immediate connection between the [ activity at issue] and the
threat. 182
The following section amplifies this three -part test contained in Article 22(2).
A. Prescribed by law
The first prong requires a restriction to have a formal basis in law. This means that:
restrictions on the right to free dom of association are only valid if they had been
introduced by law (through an act of Parliament or an equivalent unwritten norm of
common law), and are not permissible if introduced through Government decrees or other
similar administrative orders. 183
As discussed above, in July 2014, the Sri Lankan Department of External Resources of
the Ministry of Finance and Planning disseminated a notice to the public, declaring that any
organization or individual undertaking a project with foreign aid must have appro val from
relevant government agencies. Similarly, in July 2014, Nepal’s government released a new
Development Cooperation Policy that will require development partners to channel all
development cooperation through the Ministry of Finance, rather than directly to civil society. In
both cases, the restriction s were based on executive action and not “introduced by law (through
179 Case of Vona v. Hungary (A pp no 35943/10) (2013) ECHR para. 50,
http://hudoc.echr.coe.int/sites/eng/pages/search.aspx?i=001 -122183 .
180 United Nations Human Rights Council, Report of the Special Rappo rteur on the rights to freedom of
peaceful assembly and of association, Maina Kiai, para. 16, UN Doc. A/HRC/20/27 (May 21, 2012),
http://www.ohchr .org/Documents/HRBodies/HRCouncil/RegularSession/Session20/A -HRC -20 -27_en.pdf .
181 UN Office of the High Commissioner for Human Rights (OHCHR), Fact Sheet No. 15, Civil and
Political Rights: The Human Rights Committee, May 2005,
http://www.ohchr.org/Documents/Publications/FactSheet15rev.1en.pdf .
182 United Nations Human Rights Committee, General Comment No. 34, para. 35, UN Doc.
CCPR/C/GC/34 (September 12, 2011), http://www2.ohchr.org/english/bodies/hrc/docs/GC34.pdf .
183 See UN Special Rapporteur on the situation of human rights defenders, Commentary to the Declaration
on the Right and Responsibility of Individuals, Groups and Organs of Society to Promote and Protect Universally
Recognized Human Rights and Fundamental Fre edoms, July 2011, 44,
http://www.ohchr.org/Documents/Issues/Defenders/CommentarytoDeclarationondefendersJuly2011.pdf : “It would
seem reasonable t o presume that an interference is only “prescribed by law” if it derives from any duly promulgated
law, regulation, order, or decision of an adjudicative body. By contrast, acts by governmental officials that are ultra
vires would seem not to be ‘prescribe d by law,’ at least if they are invalid as a result.”

International Journal of Not -for -Profit Law / vol. 17 , no. 1, March 2015 / 35

an act of Parliament or an equivalent unwritten norm of common law).” Accordingly, they
appear to violate the “prescribed by law” standard required under Article 22(2) of the ICCPR.
This prong of Article 22(2) also requires that a provision be sufficiently precise for an
individual or NGO to understand whether or not intended conduct would constitute a violation of
law. 184 As stated in the Johannesburg Principles, “The law must be accessible , unambiguous,
drawn narrowly and with precision so as to enable individuals to foresee whether a particular
action is unlawful.” 185
This prong helps limit the scope of permissible restrictions. As discussed above, certain
laws ban funding of organizations that cause “social anxiety,” have a “political nature,” or have
“implied ideological conditions.” These terms are undefined and provide little guidance to
individuals or organizations about prohibited conduct. Since they are not “unambiguous, drawn
narrowl y and with precision so as to enable individuals to foresee whether a particular action is
unlawful,” there is a reasonable argument that these sorts of vague restrictions fail the
“prescribed by law” requirements of international law.
B. Legitimate aim
The second prong of Article 22(2) requires that a restriction advance one or more
“legitimate aims,” 186 namely:
 national security or public safety;
 public order;
 the protection of public health or morals; or
 the protection of the rights and freedoms of others.
This prong provides a useful lens to analyze various justifications for constraint. For
example, governments have justified constraints to promote “aid effectiveness.” As the UNSR
notes, aid effectiveness “is not listed as a legitimate ground for restricti ons.” 187 Similarly, “[t]he
protection of State sovereignty is not listed as a legitimate interest in the [ICCPR],” and “States
cannot refer to additional grounds … to restrict the right to freedom of association.” 188
Of course, assertions of national security or public safety may, in certain circumstances,
constitute a legitimate interest. Under the Siracusa Principles, however, assertions of national
security must be construed restrictively “to justify measures limiting certain rights only when
184 Though not a fully precise comparison, this concept is somewhat similar to the “void for vagueness”
doctrine in U.S. constitutional law.
185 Article 19, Johannesburg Principles on National Security, Fre edom of Expression and Access to
Information (London: Article 19, 1996), Principle 1.1(a),
http://www.article19.org/data/files/pdfs/standards/joburgprinciples.pdf . The Johannesburg Principles were
developed by a meeting of international experts at a consultation in South Africa in October 1995.
186 Case of Vona v. Hungary (App no 35943/10) (2013) ECHR para. 50,
http://hudoc.echr.coe.int/sites/eng/pages/search.aspx?i=001 -122183 .
187 United Nations Human Rights Council, Report of the Special Rapporteur on the rights to freedom of
peaceful assembly and of association, Maina Kiai, para. 40, UN Doc . A/HRC/23/39 (April 24, 2013) at
http://freeassembly.net/wp -content/uploads/2013/04/A.HRC_.23.39_EN -funding -report -April -2013.pdf .
188 Ibid., pa ra. 30.

International Journal of Not -for -Profit Law / vol. 17 , no. 1, March 2015 / 36

they are taken to protect the existence of the nation or its territorial integrity or political
independence against force or threat of force.” 189 In addition, a state may not use “ national
security as a justification for measures aimed at suppressing opposition … or at perpetrating
repressive practices against its population.” 190 This includes defaming or stigmatizing foreign
funded groups by accusing them of “treason” or “promoting regime change.” 191
Accordingly, under international law, governments cannot rely on generalized claims of
“state sovereignty” to justify constraints on global philanthropy. In the words of the UNSR:
Affirming that national security is threatened when an association receives funding from
foreign sources is not only spurious and distorted, but also in contradiction with
international human rights law. 192
This brief analysis is not intended to explore the details of the aid effectiveness and
sovereignty justifications. Rather, the goal is to illustrate how the “legitimate aim” requirement
of in ternational law can help inform the analysis of certain justifications presented by
governments, such as arguments based on “aid effectiveness” and “sovereignty.”
C. Necessary in a Democratic Society
Even if a government is able to articulate a legitimate aim , a restriction violates
international law unless it is “necessary in a democratic society.” As stated by the Organization
for Security and Co -operation in Europe, the reference to necessity does not have “the flexibility
of terms such as ‘useful’ or ‘conv enient’: instead, the term means that there must be a ‘pressing
social need’ for the interference.” 193 Specifically, “where such restrictions are made, States must
demonstrate their necessity and only take such measures as are proportionate to the pursuance of
legitimate aims in order to ensure continuous and effective protection of Covenant rights.” 194
As stated by the UNSR:
In order to meet the proportionality and necessity test, restrictive measures must be the
least intrusive means to achieve the desired ob jective and be limited to the associations
189 See the “Siracusa Principles” [United Nations, Economic and Social Council, U.N. Sub -Commission on
Prevention of Discrimination and Protection of Minorities, Siracusa Principles on the Limitation and Derogation of
Provisions in the International Covenant on Civil and Political Rights, Annex, UN Doc E/CN.4/1985/4 (1984)],
which were adopted in May 1984 by a group of international human rights experts convened by the International
Commission of Jurists, the International Association of Penal Law, th e American Association for the International
Commission of Jurists, the Urban Morgan Institute for Human Rights, and the International Institute of Higher
Studies in Criminal Sciences. Though not legally binding, these principles provide an authoritative s ource of
interpretation of the ICCPR with regard to limitations clauses and issue of derogation in a public emergency. They
are available at: http://graduateinstitute.ch/f aculty/clapham/hrdoc/docs/siracusa.html .
190 Ibid.
191 United Nations Human Rights Council, Report of the Special Rapporteur on the rights to freedom of
peaceful assembly and of association, Maina Kiai, para. 27, UN Doc. A/HRC/23/39 (April 24, 2013) at
http://freeassembly.net/wp -content/uploads/2013/04/A.HRC_.23.39_EN -funding -report -April -2013.pdf .
192 Ibid., para. 30
193 OSCE/Office for Democratic Institutions and Human Rights (ODIHR), Key Guiding Principles of
Freedom of Association with an Emphasis on Non -Governmental Organizations , para. 5
194 United Nations Human Rights Committee, General Comment No. 31 (2004), para. 6, UN Doc.
CCPR/C/21/Rev.1/Ad d. 13, May 26, 2004.

International Journal of Not -for -Profit Law / vol. 17 , no. 1, March 2015 / 37

falling within the clearly identified aspects characterizing terrorism only. They must not
target all civil society associations…. 195
Consider, for example, Ethiopian legislation imposing a 10 percent cap on the for eign
funding of all CSOs promoting a variety of objectives, including women’s rights and disability
rights. As discussed above, Ethiopia has asserted a counterterrorism rationale to justify foreign
funding constraints. Ethiopia does not establish a “ direct and immediate connection between the
[activity at issue] and the threat.” 196 In addition, the cap is not the “least intrusive means to
achieve the desired objective and … limited to the associations falling within the clearly
identified aspects characterizi ng terrorism.” Accordingly, the counterterrorism objective fails to
justify the Ethiopian cap on foreign funding.
The UNSR also applied this test to the “aid effectiveness” justification. In response, he
stressed that:
even if the restriction were to purs ue a legitimate objective, it would not comply with the
requirements of “a democratic society.” In particular, deliberate misinterpretations by
Governments of ownership or harmonization principles to require associations to align
themselves with Government s’ priorities contradict one of the most important aspects of
freedom of association, namely that individuals can freely associate for any legal
purpose. 197
In addition, “longstanding jurisprudence asserts that democratic societies only exist
where ‘pluralis m, tolerance and broadmindedness’ are in place,” 198 and “minority or dissenting
views or beliefs are respected.” 199
Applying this test, the UNSR has note