The International Journal
of Not-for-Profit Law

Volume 11, Issue 4, August 2009

Rebecca B. Vernon*

Introduction
On July 2, 2008, Russian Prime Minister Vladimir Putin issued a decree removing the tax-exempt status of 89 of the 101 nongovernmental organizations (NGOs) with this status.1 As of January 1, 2009, these organizations, including the Red Cross and the Ford Foundation, will be subject to a 24 percent tax on all grants made inside Russia.2 The tax is “deemed prohibitive by many civil society activists,” and the government’s move appears to target organizations engaged in advancing human rights and environmental protection.3

The Ethiopian government recently passed a law that would prevent charities receiving more than ten percent of their funding from foreign sources from engaging in certain activities.4 The prohibited activities include “the advancement of human and democratic rights,” “the promotion of equality of nations, nationalities and peoples and that of gender and religion,” “the promotion of the rights of the disabled and children’s rights,” “the promotion of conflict resolution or reconciliation,” and “the promotion of the efficiency of the justice and law enforcement services.”5

An array of other legal measures limiting what, when, and how foreign donors may give to civil society groups are on the books in countries as far-flung as Zimbabwe, Uzbekistan, Egypt, Eritrea, Moldova, Algeria, Russia, Ethiopia, and Venezuela.6 As these examples show, in addition to standard forms of oppression, such as imprisonment of dissidents and holding unfair elections, authoritarian governments across the globe have enacted legal obstacles to the formation and operation of NGOs7 as a means of restricting their citizens’ attempts to exercise fundamental rights.8 Among these measures have been restrictions on foreign sources of funding for NGOs.9 Because NGOs often engage in activities that threaten the ruling regime’s grasp on power, such as human rights and equality, limiting the organizations’ ability to function lowers the risk of the government weakening.

Preventing NGOs from receiving foreign funding has severe consequences for the people of poor and developing nations. In these countries, domestic funding for civil society is extremely limited or nonexistent. In Ethiopia, where the gross domestic product per capita is estimated at $700,10 prohibiting charities that receive more than ten percent of their funding from foreign sources from engaging in certain activities is a de facto prohibition on these activities nationwide. As increasing aid to developing nations is channeled through NGOs rather than governments,11 the ability of NGOs to obtain and use such aid is ever more important. For example, the Ethiopian Women’s Lawyer Association, a women’s rights group that receives 99 percent of its funding from abroad, will be forced to cease its operations under the new Charities and Societies Proclamation.12

In addition to the practical human-aid consequences of restrictions on foreign funding of civil society, many of these restrictions violate the legal obligations of the countries that enact them, including obligations under the International Covenant of Civil and Political Rights (ICCPR). The ICCPR prohibits limiting the freedom of association, except when the limitations are prescribed by law and “are necessary in a democratic society in the interests of national security or public safety, public order, the protection of public health or morals or the protection of the rights and freedoms of others.”13 Laws restricting or eliminating foreign funding of NGOs rarely if ever are able to withstand the demands of the ICCPR: the interests the Covenant identifies are not threatened by legitimate foreign funding of NGOs.14 While governments sometimes attempt to justify restrictions on foreign funding by invoking concerns about terrorism or maintaining state sovereignty, these apprehensions are either unfounded or better addressed in other ways.15 In addition, many of these restrictions violate various investment treaties nations have signed.16

This article seeks to offer a global view of the challenges of NGOs seeking foreign funding and donors hoping to provide resources to civil society. By not limiting the analysis to a single or country or region, it will show that the problem of government restrictions on foreign funding is not isolated, but instead affects the operation of civil society in the four corners of the globe. It will also argue that not only do these restrictions prevent citizens of poor countries from receiving much-needed aid and hinder economic development, but they are also patently illegal in many cases. Part I will outline the types of legal restrictions governments have placed on civil society’s receipt of foreign funds in Moldova, Eritrea, Uzbekistan, Venezuela, Algeria, Egypt, Ethiopia, Zimbabwe, and Russia. Part II will address the reasons governments give for enacting these restrictions and will attempt to debunk some of the more illegitimate reasons. Part III will examine the legal instruments that are being violated by these laws. Part IV will propose several means, both legal and non-legal, of eliminating the restrictions.

I. Restrictions on Foreign Funding of Civil Society: A Global Survey
A. NGOs under International Law

NGOs occupy a precarious place in international law.17 Typically, they only have legal personality under domestic laws, not under international law.18 NGOs must therefore depend on individual states to grant them legal personality.19 Because states are traditionally seen to be the exclusive holders of rights and duties under international law,20 NGOs encounter difficulties appealing to international law when a country does not grant them legal personality or places limits on their operation.21

Despite the lack of formal legal personality under international law, international bodies have recognized varying roles for NGOs. For instance, Article 71 of the UN Charter provides that “[t]he Economic and Social Council may make suitable arrangements for consultation with nongovernmental organizations which are concerned with matters within its competence.”22 Several other international organizations have followed this “consultative model” for participation by NGOs: the Organization of American States has adopted Guidelines for the Participation of Civil Society Organizations in OAS Activities;23 and the Constitutive Act of the African Union created an Economic, Social, and Cultural Council, an “advisory organ composed of different social and professional groups of the Member States.”24 Additionally, some international courts have provided limited opportunities for NGOs to bring cases.25 The African Commission on Human and Peoples’ Rights permits NGOs with observer status to submit a claim of violation of the African Charter.26 And the European Court of Human Rights allows an NGO to sue if it is itself a victim.27 Finally, several international tribunals, including the Appellate Body of the World Trade Organization and the International Court of Justice, allow NGOs to submit amicus briefs or similar informational documents for pending cases.28

Thus, while NGOs are not without recourse in more traditional channels of international law when they feel they have suffered violations of their rights, these solutions are quite limited. An NGO must have status as an actual victim of a law that violates a state’s obligations under an international treaty, or it may participate as a mere amicus, simply an outside party urging the tribunal to find in a certain way. The result is that nonprofits are largely powerless, from an international legal standpoint, to force domestic governments to accede to their demands to undertake their activities without undue government interference. With this background in mind, this section will examine specific types of restrictions on foreign funding of civil society and the countries that have enacted such restrictions.

B. Outright Prohibition on Foreign Funding of NGOs

The most severe form of restriction on foreign funding of civil society is, quite simply, a complete or near-complete prohibition on funding from non-domestic sources. These types of laws are in force, or have recently been in force, in several countries.

1. Moldova
In 2006, the president of the Moldovan separatist government in the Transnistria region signed a decree prohibiting foreign funding of NGOs registered in the region.29 The comprehensive prohibition forbade NGOs from receiving direct or indirect funding from any international or foreign organization, foreign government, Transnistrian organization with a foreign capital share in excess of twenty percent, foreign citizen or stateless person, or anonymous source.30 Any foreign funds received by NGOs could then be seized by the government, and a court could order them expropriated into the state budget.31

Although the decree was amended just over a year later to apply only to those organizations “whose statutes stipulate involvement in electoral campaigns,”32 the significance of the outright restriction on foreign funding of the nonprofit sector should not be ignored. According to the CIA World Factbook, Moldova is one of the poorest countries in Europe, with a GDP per capita of only around $2,300.33 As a result, most NGOs rely exclusively on foreign donors for their income and must effectively cease functioning once foreign funds are no longer available.34 Thus, cutting off foreign funding sources for any amount of time in the Transnistria shutters civil society. The Transnistrian measure, although it continued for only one year, was a dramatic and broad assault on the nonprofit sector in a country where social services provided by NGOs are very much needed.

2. Eritrea
A similar though slightly narrower restriction is currently in place in Eritrea. In May 2005 the government issued a Proclamation prohibiting all NGOs, whether domestic or foreign, from receiving funding to engage in relief or rehabilitation work from the United Nations, its affiliates, other international organization, or through bilateral agreement.35 Because the Proclamation defines an NGO as an organization that engages in relief and/or rehabilitation work,36 the prohibition effectively applies to all NGOs. Furthermore, organizations are only authorized to operate if they have “at their disposal in Eritrea one million US Dollars or its equivalent in other convertible currency.”37 Eritrea, even more so than Moldova, is extremely poor and has little domestic money to allocate to civil society: it rates 157 out of 177 on the UN Development Index, and its GDP per capita is only about $800.38

Soon after the Proclamation was issued, an international organization operating in Eritrea predicted that “[i]f the new proclamation results in the closing down of the few independent local NGOs and the departure of the few remaining international NGOs, there will be no independent civil society left.”39 The prediction has largely become a reality: in the ten months between the Proclamation in May 2005 and March 2006, the number of NGOs operating in the country fell from 37 to 13.40 Without foreign funding, the number has further dwindled, and the U.S. Department of State reports that only 11 NGOs were registered in the country in both 2006 and 2007.41

C. International Aid Must Be Channeled through Government Organs

In several countries, although foreign donors can fund civil society, they cannot give directly to NGOs. Rather, their funding must go through government channels, often a sort of government-operated “bank” that receives foreign donations and then, theoretically, distributes them to domestic NGOs. Oftentimes, this prohibits donors from ensuring that their funds go to the desired purpose or that they go to a nonprofit purpose at all.

1. Uzbekistan

In early 2004, the Uzbek Cabinet of Ministers issued a banking regulation requiring increased governmental scrutiny of money transfers to NGOs through local banks.42 Furthermore, it stipulated that foreign funding for NGOs must be channeled through one of two government-controlled banks.43 According to reports, by examining the transfers to NGOs, government officials could decide whether the proposed use of the funds would be “beneficial” for Uzbekistan and whether they were going toward goals the government felt it was achieving on its own.44 Officials are also able to take a portion of the transfer, whether as an administrative fee, a tax, or a personal payment.45 According to some sources, up to 80 percent of intended donations is siphoned off in this way.46 Furthermore, the process is not transparent and can take several months to complete.47 The effect of these regulations has been to curtail severely the foreign aid that reaches civil society groups in Uzbekistan and force local NGOs to rely on personal sources of income from their leaders and members, such as wages from a second job or individual savings.48 In a country with a stagnating economy, widespread poverty, and a weak culture of philanthropy, foreign money is essential to maintain any semblance of a civil society.49

Advocates of NGOs see this measure as a clear “attempt to wall off the country completely from outside influences” and part of a larger “systemic effort to crack down on civil society.”50 Across Central Asia, government leaders saw the Rose Revolution, the 2003 peaceful demonstrations against unfair elections by Georgian opposition forces that resulted in the ousting of President Eduard Shevardnadze, as the work of foreign-backed NGOs.51 The similar Orange Revolution in Ukraine, just a year later, only strengthened the beliefs of leaders that foreign support of civil society threatened governmental stability. The 2004 Uzbek banking regulations, passed in the midst of great concern about the influence of foreign-backed organizations, are part of a larger struggle to remove such organizations not only from positions of influence in the country but from the country altogether.52 Quite simply, the Uzbek government has been engaged in a coordinated battle against foreign NGOs and the funding they provide to their domestic counterparts. And the government’s plan seems to be working: in the last few years, an estimated 3,000 NGOs have either disbanded or ceased their work under mounting governmental pressure and diminishing resources.53

2. Venezuela

In 2006, the Venezuelan legislature began deliberation on a law creating an International Cooperation and Assistance Fund, through which donations to civil society organizations intended for “international cooperation” must be funneled.54 The bill, introduced by Hugo Chávez’s government, was preapproved by the legislature and has remained under consideration in a legislative committee.55 The law leaves it to government officials to determine what donations, whether foreign or domestic, are meant for “international cooperation.”56 Could all foreign funding qualify under the rubric of “international cooperation,” simply because its provenance is international? The government will also control how these funds are obtained, who can receive them, and how they will be doled out.57 If the law is passed, the vague language and broad grant of discretion will effectively place foreign donations to NGOs under the control of Hugo Chávez’s government.58 And although the law has not yet passed, “a climate of possible criminalization of receipt of foreign funding” persists in Venezuela.59

D. Government Approval Required to Receive Foreign Funding

Some countries, while they allow NGOs to receive funds directly from foreign sources, require that the organizations obtain government approval before the funds are received. This process, in addition to being lengthy, may result in the rejection of the application for foreign funds, especially if the organization’s activities are seen as a threat to the government’s goals and stability.

1. Algeria

Under Algeria’s 1990 Associations Act, the “relevant public authority” must agree to any donation to an association from a foreign source.60 Before granting permission, the government must “verify the source, amount, compatibility with the stated goal in the statues of the association and any restrictions that may arise therefrom.”61 In reality, the “relevant public authority” that oversees all associations is the Ministry of the Interior, known for being especially corrupt and ineffectual.62 In addition, Algerian NGOs seeking foreign funding must obtain permission from the Ministry of National Solidarity.63 As a result, government approval for a foreign donation to an association is “extremely difficult” to obtain, and few civil society organizations will be able to receive any funding from foreign sources.64

Algeria is comparatively well-off for a developing country. Its GDP per capita is approximately $6,700, and the UN Human Development Index categorizes it at a state of “Medium Human Development” (it is ranked 107 out of 177 countries).65 However, the country was plagued by a lengthy and bloody civil war in the 1990s and continues to face threats from extremist militants.66 Recently, it has also seen a surge of international terrorist activity.67 In such an environment, humanitarian needs are great, and the difficulty of obtaining foreign funding renders NGOs much less capable of providing vital services.

2. Egypt

Likewise, government approval is required for associations to receive foreign funding in Egypt. Associations that do not receive such approval face strict penalties: an association may be fined 2,000 Egyptian pounds (approximately $350), and its leaders may be imprisoned for six months.68 While the Ministry of Social Affairs is reviewing the application to receive foreign funds, the funds must be placed in a designated bank account, where the association cannot access them.69 While technically the government should take no more than 60 days to review the application, it often takes longer, leaving the association with no operating budget and facing insolvency.70 Leaders of human rights organizations were imprisoned in 1998 and 2000 for failure to obtain government authorization prior to receiving foreign funding.71 Furthermore, the government has taken a step not authorized by the 2002 law: in September 2007, the governor of Cairo issued a decree dissolving a human rights NGO for its failure to obtain government approval prior to receiving funds from abroad.72

As in other less-developed nations, foreign funding is a vital source of income for the nonprofit sector. While Egypt has a more developed civil society than many of its neighbors, the availability of outside funding remains extremely important.73 The Egyptian civic sector accounted for $1.5 billion in expenditures in 1999, with much of its funding coming from the sale of goods and services.74 The Muslim tenet of zakat, or charitable giving, “contributes significantly to the strength and operation of many charitable organizations with religious association.”75 Nonetheless, a fifth of the population lives in poverty, greatly reducing the charitable giving capacity of Egyptians in general and greatly increasing the need for services provided by NGOs.76 The Ministry of Social Affairs reported that foreign sources had contributed $12 million to associations, a number that likely “understates the full extent of foreign funding” of the civic sector.77 Clearly, international sources remain a crucial element of NGO funds, and the situation is exacerbated for human rights organizations: because these groups directly challenge the government, they do not receive public funds, and there are limited resources available to them at the local level.78 The UN Special Representative on Human Rights Defenders stated that the restrictions on foreign funding “have seriously endangered the very existence of human rights organizations” in Egypt, as “the ability of human rights defenders to carry out their activities rests on their ability to receive funds and utilize them without undue restriction.”79

E. Certain Groups Cannot Receive Funding

Governments have been able to allow foreign funding of NGOs they find desirable and prohibit foreign funding of those they dislike by limiting the activities an organization receiving foreign funds may undertake. Often the proscribed activities relate to human rights, the effective functioning of the government, and equality among citizens.

1. Ethiopia

In early 2009, the Ethiopian legislature passed a Charities and Societies Proclamation that drastically reduces the rights of NGOs.80 It defines “Ethiopian Charities” as those that receive no more than ten percent of their funds from foreign sources and whose members are all Ethiopian.81 The Proclamation then prohibits non-Ethiopian charities from participating in a variety of activities, including human and democratic rights; equality of genders, religions, and nationalities; the rights of children and the disabled; conflict resolution and reconciliation; and “the promotion of the efficiency of the justice and law enforcement services.”82 The activities unavailable to charities receiving any significant foreign funding seem clearly targeted to those pursuits that will threaten the government’s power: the advancement of democracy, human rights, and the executive and judicial branches of government. Violation of any of the provisions of the Proclamation, including those relating to permissible activities of non-Ethiopian charities, will result in prosecution under the criminal code.83

Ethiopia is, by all measures, an extremely poor country whose citizens are almost universally unable to provide funding to the nonprofit sector. It is ranked 169 out of 177 countries on the United Nation’s Human Development Index.84 Its agriculture-based economy is subject to frequent droughts,85 and there are concerns of a widespread famine on the horizon.86 The poverty of Ethiopian citizens means that for a charity to survive, it must be funded by outside sources. As a result, the ban on non-Ethiopian charities undertaking certain activities translates into a de facto ban on those activities altogether.

Organizations that advocate for human rights, gender equality, and conflict resolution, although virtually banned under the Proclamation, are extremely valuable in Ethiopian society today. Human rights abuses include politically-motivated killings, torture, arbitrary arrest and detention, and taking political prisoners.87 Domestic violence and rape are widespread problems, with perhaps only forty percent of rapes ever reported.88 Laws codify the inferior status of women in family, divorce, and inheritance matters, and discrimination against women is most severe in rural areas, home to eighty-five percent of the population.89 The Ethiopian army has been engaged in warfare with Islamist insurgents in Somalia for the last two years.90

Within its borders, the government is facing a rebel movement in the Ogaden region and has forced untrained civilians to take on a military role.91 Simply put, the country’s dire problems stretch far beyond food shortages and engulf many of the areas that non-Ethiopian NGOs are forbidden from addressing.

2. Zimbabwe

Zimbabwe’s 2004 Non-Governmental Organizations Bill, which was enacted but never signed into law,92 prohibited organizations from receiving “any foreign funding or donation to carry out activities involving or including issues of governance.”93 The Bill defines “issues of governance” as “the promotion and protection of human rights and political governance issues.”94 As in Ethiopia, because virtually all NGO funding comes from abroad, the prohibition on foreign-funded organizations participating in these activities is a de facto prohibition on work in the fields of human rights and political governance altogether.95 In Zimbabwe, a country known for its political turmoil, leadership struggles, and human rights abuses,96 even a proposed law prohibiting foreign-backed NGOs from engaging in human rights and good governance advocacy adversely affects the activities of organizations and robs the country of needed services. The mere act of proposing such a law places foreign-backed NGOs on notice that their activities are under scrutiny and that the government is hostile to their operations.

F. Tax Laws Make Giving to NGOs Undesirable or Financially Impractical

Governments may ostensibly allow unlimited foreign funding to domestic civil society organizations participating in a wide array of activities, yet make such funding financially unviable through tax laws. The result is that because so much of foreign grants are eaten up through taxation, foreign donors find giving to organizations in the country ineffective.

1. Russia

In July 2008, Prime Minister Vladimir Putin issued a decree greatly limiting the number of foreign nongovernmental organizations that may provide tax-exempt grants to domestic Russian NGOs.97 The decree revises the “Regulation on the List of Foreign and International Organizations Whose Grants are Not Included into Taxable Income of Russian Organizations – Recipients of Grants” to eliminate eighty-nine NGOs from the list.98 As of January 1, 2009, only twelve organizations retained the right to give tax-exempt grants.99 They are virtually all intergovernmental organizations in which Russia has a voice: the Commission of the European Communities, the Council of the Baltic Sea States, the Nordic Council of Ministers, the International Atomic Energy Agency, the Black Sea Economic Cooperation, the European Fund for the Support of Co-production and Distribution of Cinematographic and Audiovisual Works, the Joint Institute for Nuclear Research, and several United Nations groups.100 In contrast, the NGOs that were removed from the list were private groups that often financed projects relating to human rights and the environment.101 They include the American Red Cross, the Global Fund to Fight AIDS, the Royal Society, the World Wildlife Fund, the Macarthur Foundation, and the Ford Foundation.102

The taxation rate for grants from foreign organizations is twenty-four percent, deemed prohibitively expensive by some NGO leaders.103 Many Russian NGOs, already lacking in funds, will be unable to bear the tax burden and will be forced to close.104 To avoid this result, the foreign NGOs will have to increase their grants by a quarter, reducing the effectiveness of their aid. For the Ford Foundation, which distributes more than $10 million in grants each year in Russia, this will mean an additional $2.4 million to maintain the same level of giving.105

II. Some Justifications (Good or Not)

To justify restrictions on foreign funding of the nonprofit sector, governments invoke the need for anti-terrorism and security measures and the principle of state sovereignty. While these justifications, when examined superficially, appear perfectly valid, upon deeper inspection the faults of these justifications become clear.

A. Anti-Terrorism Measures

Since September 11, 2001, NGOs in general, and their funding in specific, have come under scrutiny as a source of terrorist income.106 Donor countries, such as the United States and the United Kingdom, have enacted laws and regulations to ensure that charitable donations are not in fact financing terrorism.107 Likewise, other countries have enacted legal provisions to prevent terrorism financing from masquerading as nonprofit funding.108 Because restrictions on the right to free association are permitted under the International Covenant of Civil and Political Rights, so long as they are “prescribed by law” and “necessary in a democratic society in the interests of national security or public safety,” countries may permissibly impose some restrictions on NGOs and their funding in the name of anti-terrorism.109

However, these restrictions become problematic when they infringe on the ability of legitimate NGOs to receive necessary funding to carry out their activities. This phenomenon has occurred in several states with restrictive foreign funding laws. In Uzbekistan, the government has described the restrictions on foreign funding of NGOs110 as “part of wider antiterrorism efforts to prevent funding from passing to extremist groups.”111 A Venezuelan legislator invoked the need for anti-terrorism measures to defend the creation of the International Cooperation and Assistance Fund.112 He said the legislation would be a “certain blow . . . to those disguised NGOs, because in truth they are terrorist organizations, prepared to claw.”113

Despite the claims of government leaders, burdensome restrictions on foreign funding of civil society, such as those imposed by Uzbekistan, Venezuela, Algeria, and Egypt, do not truly address the anti-terrorism issue. As a matter of common sense, terrorist groups are unlikely to be deterred by a law restricting foreign funding of the nonprofit sector. Such groups are, by definition, operating outside the law, and breaking a narrow law on nonprofit funding will be dwarfed by the many other domestic and international laws they will break in the commission of a terrorist act. Additionally, the incidence of foreign charities supporting terrorism is extremely rare. Of approximately 1.4 million charities, foundations, and religious organizations in the United States, none has ever been convicted of material support of terrorism.114 In 2006, U.S. foundations gave in excess of $4.2 billion in international grants.115 Using U.S. grant makers as but one limited example, it seems clear that the anti-terror justification for restricting foreign funding of civil society is insufficient. This is especially so when considering the anti-terrorism measures imposed by developed countries on grants sent abroad.116 Finally, the programs implemented by civil society, for which foreign funding is often a necessary precondition, can weaken local support for terrorist groups, reduce terrorist recruits, and generally address the root causes of terrorism, such as poverty and social isolation.117 In fact, the UN General Assembly has called on “non-governmental organizations and civil society to engage, as appropriate, on how to enhance efforts to implement” the UN’s Global Counterterrorism Strategy.118

B. State Sovereignty

Many countries have justified restrictions on foreign funding of the nonprofit sector by claiming such funding infringes on state sovereignty.119 Leaders often portray foreign funding as a new sort of imperialism, importing Western values, especially in the realm of human rights.120 In Egypt, those in power “accuse NGOs of representing ‘a homogenous block of Western interests seeking to dominate Egypt.’”121 African nations, such as Zimbabwe and Eritrea, view foreign-supported NGOs as “Trojan horses,” masquerading as aid groups, but intent on diminishing the government’s sovereign authority.122 When the Zimbabwean Non-Governmental Organizations Bill was introduced, President Robert Mugabe declared that “we cannot allow CSOs to be conduits or instruments of foreign interference in our national affairs.”123 The Russian government explained the need to restrict the influence of “meddlesome” foreign charities by removing the tax-exempt status of many such charities.124

The sphere in which NGOs operate is protected by international instruments such as the International Covenant on Civil and Political Rights and the African Charter on Human and Peoples’ Rights.125 When countries enter into such instruments and agree to their terms, they do so willingly as an exercise of their sovereignty. As a result, signatories cannot claim that allowing organizations to exercise their right to free association by obtaining funding from abroad violates their sovereignty.126 Many of the activities prohibited by laws restricting foreign funding of NGOs, such as human rights and equality before the law, are protected by these instruments.127

Allowing NGOs, even those funded by foreign sources, to participate in the political and civil life of a country does not lead inevitably to a reduction in state sovereignty. Public international law scholar Steve Charnovitz points out that “a state is not weakened just because its citizens speak through diverse voices.”128 When a nation’s citizens form domestic organizations, determine their policy agendas, and then seek funding, whether at home or abroad, to advance those agendas, the result does not undermine state sovereignty; rather, it produces a growth in the domestic capacity of a state vis-à-vis other states.

IV. Legal Violations

In addition to the very real everyday problems that restrictions on foreign funding of civil society create, these restrictions contravene a variety of laws and legal obligations, including international human rights conventions and bilateral treaties between states.

A. International Covenant on Civil and Political Rights129

The International Covenant on Civil and Political Rights provides that “[e]veryone shall have the right to freedom of association with others” and that “[n]o restrictions may be placed on the exercise of this right other than those which are prescribed by law and which are necessary in a democratic society in the interests of national security or public safety, public order, the protection of public health or morals, or the protection of the rights and freedoms of others.”130 The right to start and run an organization is covered under the right to free association.131 In the decision Sidiropoulos and Others v. Greece, the European Court of Human Rights found that under the European Convention for the Protection of Human Rights and Fundamental Freedoms,132 “the right to form an association is an inherent part” of the right to free association, “without which the right would be deprived of any meaning.”133 In another case under the European Convention, the European Court of Human Rights confirmed that the right to free association “lasts for an association’s entire life.”134 In order to realize the right to association, organizations should be allowed to obtain funds, through fundraising or other permissible economic activity, to use for the accomplishment of their goals.135 Because in many parts of the world foreign funding is the only funding that is available, the right to free association guaranteed by the ICCPR would be largely illusory without access to foreign funding.136

To satisfy the requirements of Article 22 of the ICCPR, a restriction on free association must meet three conditions: it must be prescribed by law, it must be in pursuit of one of the four legitimate state interests identified in the Article, and it must be necessary in a democratic society. Any restriction that fails to meet even one of the conditions is unlawful under the Covenant. Almost all restrictions on foreign funding of nonprofits fail to meet at least one of these three conditions.

Vague language that gives administrative officials broad discretion to limit the rights of NGOs would not satisfy the requirement that the restriction be prescribed by law.137 The proposed Venezuelan law that requires donations to NGOs intended for “international cooperation” to be funneled into a government-controlled fund, yet leaves it to government officials to determine what “international cooperation” means, would violate this requirement of the ICCPR.138 The Uzbek banking regulations that allow government officials to determine whether the use of the foreign funds would be “beneficial” before allowing NGOs access to the money is similarly too vague to satisfy the ICCPR.139 The Algerian Associations Act leaves it to the government minister to determine whether the foreign donation is “compatible with the stated goal in the statutes of the association.”140 Without any specific standards to determine compatibility, the Act’s language is too vague for the restriction to be truly “prescribed by law.”

Second, a restriction on free association must be in pursuit of one of four legitimate state interests: national security or public safety, public order, the protection of public health or morals, or the protection of the rights and freedoms of others.141 These interests are quite limited, and the ICCPR provides no mechanism for expanding them, either through interpretation or adding to the list.142 Preservation of state sovereignty is not listed as one of the legitimate state interests, so laws restricting foreign funding of NGOs in order to preserve state sovereignty are unlawful under the Covenant. Thus Egypt’s efforts to maintain state sovereignty in the face of encroaching Western cultural imperialism by requiring government approval for civil society funding from international sources do not conform to the mandates of Article 22.143 Similarly, Russia’s method of heavily taxing grants by foreign-based NGOs to protect Russian sovereignty from “meddlesome” foreign charities does not meet the Covenant’s requirements.144

Likewise, because the Zimbabwean Non-Governmental Organizations Bill was passed, according to the president, to prevent foreign encroachments on state sovereignty, it lacks a lawful basis under the ICCPR.145 The Bill, which would prohibit foreign funding for organizations promoting human rights or political governance issues, cannot be seen to fall under the four legitimate interests either: it does not protect national security or public safety; it does not seek to maintain public order; it does not protect public health or morals; and it does not protect the rights and freedoms of others.146 In fact, because it would prevent foreign funding of organizations promoting human rights, it undermines the last of the legitimate interests. The Ethiopian Charities and Societies Proclamation falls victim to the same legal defects: in addition to failing to meet any of the legitimate state interests, its prohibition on foreign funding of organizations advancing human rights, equality, conflict resolution, and law enforcement and justice services undermines national security, public safety, public order, and the protection of the rights and freedoms of others.147

The final requirement in Article 22, that restrictions be “necessary in a democratic society,” means that a mere casual linkage between the restriction and a legitimate interest will not justify curtailing freedom of association.148 Rather, the restriction must be proportionate to the interest pursued and may not go beyond what is necessary to obtain the interest.149 As a result, justifying a restriction on free association as an anti-terrorism measure by itself is insufficient to satisfy the ICCPR, although anti-terrorism falls under the legitimate state interest of protecting national security and public safety. Rather, the restriction must be narrowly tailored to address a valid terrorism concern. The terrorist threat must be real and likely to affect the territorial integrity or political independence of the nation.150

Venezuela and Uzbekistan, among others, have invoked terrorist concerns to justify the passage of their laws restricting foreign funding of NGOs.151 Especially in Uzbekistan, where terrorism is a valid concern, the government should take measures to protect national security.152 However, the measures in Venezuela and Uzbekistan to funnel foreign NGO funding through government-controlled organisms are far from necessary to prevent terrorism.153 The impulse to seek government oversight of foreign funds flowing to domestic organizations may seem reasonable in light of terrorist financing concerns, but there are more effective and less restrictive means of ensuring that terror money is not masquerading as legitimate civil society funding.154

As a general matter, laws governing NGOs should require some sort of financial reporting and supervision to ensure that funds are being obtained and disbursed for a legitimate nonprofit purpose.155 In some cases, regular auditing by the responsible ministry or tax authorities may also be appropriate.156 These generally-applicable policies can be used to ensure that foreign funding of NGOs comes from a legitimate source and is used for purposes relating to the organization’s goals. Because less intrusive means of accomplishing the legitimate state interest are available, the restrictions on foreign funding of NGOs in Uzbekistan and Venezuela are not “necessary in a democratic society” and are therefore unlawful under the ICCPR.157 Similarly, the total bans on foreign funding of civil society in Moldova and Eritrea do not comply with the condition of necessity in Article 22 because there are much less restrictive means of accomplishing legitimate state interests.158 The United States Department of State’s Guiding Principles on Non-Governmental Organizations confirm that the right of NGOs to seek foreign funding is compatible with antiterrorism measures under the ICCPR: “NGOs should be permitted to seek, receive, manage and administer for their peaceful activities financial support from domestic, foreign and international entities.”159

B. Bilateral Investment Treaties

The United States and other developed nations have concluded treaties with many developing nations to safeguard foreign investments in those countries. These bilateral investment treaties (BITs) provide core investment protections, including fair and equitable treatment and prohibitions against arbitrary impairment and expropriation.160 Restrictions on civil society often conflict with provisions of BITs, especially restrictions on the foreign funding of civil society.161

In order for a BIT to apply, the NGO must first qualify as a protected investor (or company), and its funding must qualify as a protected investment under the treaty.162 Some treaties, such as the United States-Egyptian Treaty Concerning the Reciprocal Encouragement and Protection of Investments, specify that a “company” does not have to be organized for pecuniary gain.163 Other treaties do not specify whether a company must be a for-profit entity, or whether the definition may include NGOs.164 Likewise, a treaty may fail to specify whether an “investment” may include funding for a nonprofit purpose.165

If the foreign funding of the NGO does meet these requirements, the host country must provide certain protections to foreign grant-making groups, such as the same treatment it would accord to domestic companies.166 The BIT between Egypt and the U.S., for example, provides that “each Party shall accord investments in its territory, and associated activities related to these investments, of nationals or companies of the other Party treatment no less favorable than that which it accords in like situations to investments and associated activities of its own nationals or companies.”167 Under this standard, Egypt’s law requiring government approval of foreign funding of NGOs violates its treaty with the United States,168 as Egypt imposes the burden on foreign donors but not domestic ones.

Additionally, the U.S.-Egypt treaty stipulates that the treatment of investments “shall never be less than that required by international law and national legislation.”169 The Secretary of State’s letter transmitting the treaty to the President explains that this provision is intended to ensure that U.S. investments in Egypt receive “fair and equitable treatment.”170 Tribunals arbitrating claims under BITs have found that “excessive and harassing administrative burdens” violate the requirement of fair and equitable treatment.171 Because the process of obtaining government approval is often lengthy and the organization does not have access to the funds while it awaits approval,172 Egypt is imposing an excessive administrative burden on both the foreign organization and the domestic recipient of the funding in contravention of its BIT obligations.

BITs often require that a state pay compensation when it expropriates foreign investments.173 For example, the U.S.-Uzbekistan Treaty Concerning the Encouragement and Reciprocal Protection of Investment only allows expropriation of investments for “public purpose,” and must provide compensation in the fair market value of the expropriated investment.174 The Uzbek practice of taking up to eighty percent of foreign donations to NGOs during the transfer of foreign funds through a government-controlled bank175 clearly contravenes the expropriation provision of the BIT.

C. Investment Incentive Agreements

The United States has also entered into investment incentive agreements with many of the states that restrict foreign funding of the nonprofit sector. These agreements deal with the services that the Overseas Private Investment Corporation (OPIC), a U.S. government agency, provides to U.S. businesses seeking to invest overseas.176 All of these agreements contain a provision stating that OPIC can transfer funds to any person or entity (likely an American business investing in the foreign country), and that the funds are freely available for use by the recipient.177 From the language of these agreements, it appears that so long as an American business operating in the foreign country receives funds from OPIC, it can then use those funds as it wishes, including by making donations to NGOs. In this way, the investment incentive agreements protect donations from American entities to NGOs operating in other countries, so long as the American entity is operating in the same country.
A number of restrictions on foreign funding of NGOs violate these agreements. In Algeria, for example, the requirement of government approval for NGO receipt of foreign funding178 does not allow American entities to distribute the funds from OPIC “freely,” as the agreement requires.179 Likewise, the prohibitions on all foreign funding of NGOs in Eritrea and the Transnistria region of Moldova180 do not allow American entities operating in those countries to distribute OPIC funding to domestic NGOs, in violation of those countries’ agreements with the United States.181

IV. Enforcement Options

In the face of violations of international norms and specific legal obligations, those injured by the restrictions on foreign funding of civil society may wish to challenge the restrictions either in legal fora or through other means. From a legal perspective, the relevant treaties may create enforcement mechanisms or provide causes of action. Practically, however, such relief is difficult to maintain. Thus, the realpolitik option of forcing change through a carrot-and-stick approach of conditioning foreign aid on removal of these restrictions may be more effective.

A. Treaty-Based Enforcement Mechanisms

1. The International Covenant on Civil and Political Rights

The ICCPR has three monitoring systems: states submit periodic reports to the Human Rights Committee (HRC), explaining the measures they have taken to implement the guarantees of the Covenant;182 a state may complain to the HRC about another state’s breach of the Covenant;183 or, under the Optional Protocol to the ICCPR, individuals may submit communications to the HRC claiming to be victims of a state’s violation of the Covenant.184

The Article 40 periodic reporting requirement remains largely toothless, both because of the vague description of the requirement and the ease with which states can manipulate facts and circumstances to create a favorable impression of their human rights records.185 The ICCPR requires that the reports describe “measures” that the states have adopted to “give effect to the rights” of the Covenant, as well as the “progress made in the enjoyment of those rights.”186 The imprecise language allows states to refer to laws that have been adopted for other reasons, as well as to court and administrative decisions and practices.187 As a result, the reports are regularly “abstract” and “not substantiated.”188 Thus, there is a tendency for reports to fail to accurately reflect the situation of Covenant implementation in a given state. In the end, the HRC often resorts to reports from other UN organs and outside NGOs to obtain a more realistic view of a state’s implementation of the Covenant rights.189 Despite this crucial input from NGOs in the HRC reporting process, they cannot seek enforcement of their rights through this mechanism, as the HRC does not issue binding judgments with the force of law in the reporting process.

Likewise, the HRC is unable to issue binding decisions when a state utilizes its Article 41 right to complain about another state’s breach of the ICCPR.190 The effectiveness of the Article 41 complaint process is further blunted by the infrequency of states taking advantage of it. Often, states prefer to tolerate violations, especially if they are not particularly grave, to avoid injuring often precarious international relations.191

The most promising method of challenging a state’s laws restricting NGOs’ right to foreign funding is the Optional Protocol’s individual communication mechanism. Even this method has severe limitations, though. First, any individual wishing to bring a complaint before the HRC must have “exhausted all available domestic remedies.”192 Thus, the individual must devote the time and expense to litigating his case in domestic court, including the appeals process, before he may seek a remedy under the Optional Protocol. In addition, the HRC has ruled that NGOs cannot submit complaints, as only individuals have the right to do so under the Optional Protocol.193 An NGO that is unable to receive foreign funding because of legal restrictions cannot bring a complaint to the HRC. Rather, the complainant must be an individual who has been directly harmed by the restriction: for example, someone who ceased to receive services from an NGO because the organization’s foreign funding became unavailable due to legal impediments. Finally, many states that have adopted the ICCPR have not adopted its First Optional Protocol, so it is impossible to bring individual complaints against them to the HRC.194

Clearly, the class of individuals capable of bringing suit exists; however, the members of this class are those who are least likely to be able to withstand the process of pursuing all domestic remedies prior to filing a complaint before the HRC. Thus, while laws restricting foreign funding of NGOs can technically be challenged under the Optional Protocol to the ICCPR, such challenges are likely to be rare.

2. Bilateral Investment Treaty Claims

Another treaty-based option for legal challenge to restrictions on foreign funding of NGOs is through bilateral investment treaties’ arbitration clauses. Generally, two sorts of claims may be brought related to an investment treaty: a state may bring a claim when there is a dispute about the interpretation or application of the treaty, or investors may bring a claim against a state for violating the treaty.195 Often, the treaties provide that any disputes arising under the treaty, including alleged breaches of the rights conferred by the treaty, should be solved through arbitration or other alternative dispute resolution processes.196 In some instances, an investor may bring a claim before the courts or administrative tribunals of the state it claims is in breach.197 If their claims are successful, investors may win damages for a breach of the treaty.198 Furthermore, the enforcement mechanisms when an individual investor brings a claim are seen to be stronger, especially if the dispute is settled through arbitration.199

Foreign donors whose aid-granting capacity has been limited or interrupted by laws restricting foreign funding of NGOs can thus seek redress if the restriction violates an investment treaty in place between the donor’s country and the recipient’s country. An American donor to NGOs in Uzbekistan that has had a portion of its donation siphoned off by the government-controlled banks200 may bring a claim arguing that it is owed compensation for expropriation of a foreign investment.201 Under the Bilateral Investment Treaty between the United States and Uzbekistan, the donor could choose whether to bring the suit in Uzbek courts or pursue international arbitration.202 In either case, the donor could seek compensation for donations already seized by the government, as well as an agreement or legal order prohibiting future violations of the BIT in this manner.

While BIT claims can provide legal remedies for restrictions on foreign funding of NGOs, this option contains limitations. First, it is only available to the donor organization, and not to recipient groups. In the case of the government appropriating a portion of the money donated, it is easy to see how a foreign NGO would have an interest in pursuing a claim. However, for violations that may affect the donor less directly, such as the Ethiopian law prohibiting NGOs receiving foreign funding from engaging in certain types of activities, the donor groups may be less willing to pursue remedies under BITs. Making a treaty-based legal claim, whether in arbitration or a more traditional court system, is costly and time consuming. For organizations seeking to maximize their limited resources, the costs may simply be too high.

B. Conditioning Foreign Aid on Compliance

The U.S. government, like the governments of other wealthy nations, has long used foreign aid as an instrument to influence the domestic policies of recipient states.203 In the middle of the twentieth century, for instance, the U.S. provided foreign aid to states it feared would become allies of the U.S.S.R. and adopt communist regimes.204 A 2004 Congressional report notes that foreign aid “can act as both a carrot and a stick, and is a means of influencing events, solving specific problems, and projecting U.S. values.”205

The governments of donor states could therefore influence change in recipient countries’ laws governing foreign funding of NGOs by conditioning foreign aid on eliminating undesirable restrictions. With a total budget of over $9 billion in 2006 alone,206 the United States Agency for International Development (USAID), the principal U.S. federal government agency for overseas assistance,207 has an enormous “carrot” at its disposal to encourage recipient nations to enact specific changes. One of the goals of U.S. foreign assistance is to “advance human rights and freedoms,” and the Director of Foreign Assistance’s operating principles include “prioritizing the allocation of resources to ensure that U.S. policy objectives are achieved” and “using our convening authority to bring stakeholders together to develop coordinated approaches to issues and challenges.”208 USAID could very well use its funding as both a carrot and a stick by increasing funding to those countries that allow NGOs to receive funds from foreign donors and greatly reducing funding to those countries that do not. The governmental interest in ensuring that NGOs can receive foreign funding is compounded by recent developments in governmental grant-making: increasingly, the federal government is channeling its aid to NGOs rather than governments, especially in areas where the government is seen as corrupt.209

In 2004, the U.S. government established an additional branch to administer foreign aid: the Millennium Challenge Corporation (MCC).210 To determine whether countries will be eligible for grants, MCC examines their “performance on independent and transparent policy indicators.”211 Two of these policy indicators relate to the freedom of association: civil liberties and political rights.212 A country’s restrictions on foreign funding of NGOs will lower its scores on these two indicators, decreasing its chances of becoming eligible for MCC grants. The grants thus serve a carrot function by providing economic incentives for countries to liberalize their laws governing foreign funding for the nonprofit sector. In the end, this “carrot and stick” approach may be a more effective method of bringing about reform of foreign funding laws. While legal challenges may be more expedient, their availability is limited. Furthermore, because foreign aid incentives invite changes across the spectrum of fundamental rights and good governance, they are more likely to have systemic, rather than localized, impact.

Conclusion

Civil society is generally coming under attack across the globe from authoritarian and semi-authoritarian governments, and restrictions on foreign funding of organizations operating within the civic sphere are but one manifestation of a much larger problem.213 Limits on the receipt of foreign funds often strip NGOs of their only source of income, as domestic funding for civil society is extremely scarce in most developing nations. The result is the reduction or even elimination of life-saving social services and development aid. Despite a rather grim outlook for the continued viability of the civic sector in countries that limit foreign funding, both donor and recipient organizations should remain cognizant of legal tools that can be used to challenge such restrictions. When lobbying a repressive government to amend its laws is unlikely to produce change, the best solutions may be legal challenges through international treaties and covenants and persuading donor governments to condition aid on removal of foreign funding restrictions.

Notes

* J.D. Candidate, Cornell Law School, 2010; B.A. cum laude, Mount Holyoke College, 2006. The author wishes to thank Catherine Shea at the International Center for Not-for-Profit Law for her help in developing the topic of this article, as well as Isaac Young for his suggestions and criticism.