The International Journal
of Not-for-Profit Law

Volume 2, Issue 3, March 2000

Regional

Meeting of the Regional Drafting Group in Zakopane, Poland, on Regulating Public Benefit Organizations

Twenty-two experts on non-governmental organizations (NGOs) from thirteen nations met in the scenic mountain resort town of Zakopane, Poland December 8-11, 1999. The purpose of the meeting was to begin drafting a Model Law for Central Europe Regulating Public Benefit Organizations (PBOs). The Central European countries represented at the meeting were: Albania, Bulgaria, Croatia, Czech Republic, Hungary, Lithuania, Moldova, Poland, Romania, Slovakia and Yugoslavia. In addition, experts from England and United States joined the meeting, to provide different perspectives on laws of countries where there is a long tradition of PBO law. The Meeting was chaired by Petr Pajas, an NGO expert, scholar and activist from the Czech Republic.

After welcoming remarks from ICNL President and CEO, Lee Irish and a brief overview of recent PBO law history of the region presented by ICNL Executive Vice-President, Karla Simon, Dr. Pajas opened the meeting on Wednesday evening by outlining the broad goals of PBO law. Foremost among these are the definitions of PBOs and Public Benefit Activities (PBAs). Also, such laws provide answers to questions such as: how should PBOs be certified and who should certify them? What body or bodies should exercise oversight authority over PBOs? What requirements should be made with respect to the governance of PBOs? What kind of activities should PBOs be permitted to engage in? And finally, what obligations must PBOs fulfil and what special benefits might they enjoy?

Dr. Pajas’ remarks were followed by a presentation by ICNL Consultant and Meeting Organizer, Piotr Gajewski. Dr. Gajewski outlined the methodology of the work that was to take place over the next three days. Specifically, that the meeting would divide into two working groups that would work separately, in six sessions over the next two days, addressing the issues outlined by Dr. Pajas. (The groups would be headed by Piotr Gajewski, with Nilda Bullain, Executive Director of Hungary’s Civil Society Development Foundation serving as the reporter, and ICNL Legal Advisor Radost Toftisova, with Maciej Juszczynski, Secretary General of Poland’s YMCA serving as the reporter.) The groups would then meet in two plenary sessions to present their reports and resolve differences in approach.

Several laws and draft laws on PBOs and issues relating to PBOs were made available. All participants received copies of Hungarian and Italian laws, as well as Bulgarian and Polish draft laws regulating PBOs. Everyone also received a chart, prepared by ICNL, comparing the four laws. PBO related laws of other countries in the region were also made available.

Following Dr. Gajewski’s presentation, the two groups were formed and met briefly before retiring for the evening.

The work began in earnest on Thursday morning with the two groups working separately on the definitions of Public Benefit Activities (PBAs) and PBOs. An article by Dr. Pajas, comparing lists of PBAs drawn from the laws of different countries was circulated and discussed. Much of the discussion centered on whether there was need to define some or all of the PBAs in terms of the beneficiaries of the activities, or whether the activities in and of themselves were of public benefit.

With respect to what constitutes a PBO, the discussion centered on whether there are NGO forms other than associations and foundations that could also qualify as a PBO. There was also discussion as to whether an NGO needs to be “exclusively” engaged in PBAs in order to gain PBO status or whether it was enough that the NGO be “principally” engaged in PBAs.

After a coffee break, the morning work continued with a brief plenary presentation by Ilya Trombitsky of Moldova’s Bioteca Ecological Society. Dr. Trombitsky spoke about the Moldovan Law on Associations, which establishes a Certification Commission for Public Associations.

The groups then resumed their work, discussing the various possibilities of PBO certification and oversight authorities. In addition to a specialized commission (per the Moldovan model), other entities which were mentioned as the possible registration authority were 1) courts, 2) line ministries, each within its area of expertise (e.g., health, education, sport), and 3) one specific ministry (e.g., justice). The oversight authority could also be performed by a commission, line ministries or one specific ministry.

After much discussion, it was generally agreed that a specialized commission provided the most ideal solution for registration and oversight. There was broad agreement that none of the other options, while each has certain advantages, provides the efficiency or consistency and quality of decisions that an expert commission would provide.

After lunch, work resumed with discussion of internal management requirements for PBOs and rules of what activities should PBOs be allowed to engage in. With respect to management, there was agreement that PBOs should have a Governing Body that is ultimately responsible for the PBO’s operations. Larger PBOs should also be required to have a Supervisory Body or Audit Committee, as a check on the Governing Body. There was also agreement on broad transparency and reporting requirements for PBOs.

The two questions most hotly debated during these sessions were: 1) what type of economic activities should PBOs be allowed to engage in and 2) whether PBOs should be allowed to engage in political activities.

With respect to the first question there was agreement that, in general, economic activities should be permitted. The most difficult questions are whether revenues from all or some of such activities should be exempt from taxation (especially revenues from economic activities unrelated to a PBO’s PBAs). Another issue is whether a PBO should lose its certification if economic activities unrelated to its PBAs become the principal economic activity of the organization.

There was much discussion of the second question. The compromise that received the broadest support was that while PBOs should be allowed to engage in issue advocacy, they should not be allowed to support specific political candidates.

With this, the groups adjourned for the day, and the participants finally had a chance to enjoy some local entertainment. Zakopane is a mountain resort, still very much inhabited by the highlanders. There is a great local tradition of hospitality, folk art and music that provided much needed rest and recreation for the participants.

Friday morning began with a brief plenary presentation by Lee Irish on tax issues relevant to PBOs. Dr. Irish outlined the various approaches to tax relief taken by different countries. The groups then met to discuss the various possible solutions.

In general, there was agreement that revenues from membership fees, grants, donations and state contracts should not be taxed. Also, passive income as well as income from economic activities related to a PBO’s PBAs should not be taxed. The most difficult issue is whether income from economic activities unrelated to a PBO’s PBAs should be taxed even when all of the revenue is used to support the PBAs. On another topic, there was agreement that relief from customs duties, registration fees and court dealing fees was appropriate.

The final group sessions concentrated on summarizing all of the issues and discussion of some miscellaneous issues. These included sanctions, problems with liquidation, and other minor matters. In general there was agreement that there should be a gradation of sanctions for violations of the PBO law, the ultimate sanction, decertification, being reserved to the commission and to be applied in cases of very serious or repeated violations. With respect to liquidation of a PBO, all agreed that there was need to ensure that any remaining assets of a liquidating PBO be used for PBAs similar to the ones pursued by the PBO.

After lunch, the first full plenary session of the Meeting of the Regional Drafting Group was called to order by Petr Pajas. Dr. Pajas again outlined the different issues and then methodically led the session, hearing reports from the two groups, framing differences and moderating discussion. The session served to again air the issues, hear about different approaches in the various countries represented and try to arrive at consensus solutions.

Following the plenary, the evening program again provided the participants with much needed diversion.

The Saturday morning plenary served to summarize the issues of the previous evening and moved to rap up the remaining issues. At the end of the session volunteers were solicited to form a technical drafting team, with the mandate to draft a Model Law based on the agreements reached in Zakopane. The following have agreed to serve:

• Justice Artan Hoxha, Supreme Court of Albania, Albania
• Dr. Petr Pajas, First Consulting, p.b.c., Czech Republic,
• Dr. Gabor Posch, Senior Counselor, Ministry of Finance, Hungary
• Dr. Ilya Trombitsky, Bioteca Ecological Society of Moldova, Moldova

The drafting is being coordinated by ICNL. Several other participants expressed an interest in reviewing the draft, and the draft will be circulated to everyone who attended the meeting.

The Model Law will be presented at the ICNL Conference in Sofia, Bulgaria, scheduled for May 18-21, 2000.

Legal Reforms for Civil Society — A Reflection After Ten Years*

By Karla W. Simon

Good laws and their implementation are not a sufficient condition for the development of civil and open societies, but they are a necessary one.

Formed by a group of US and European lawyers in 1992, a few years after the Berlin Wall came down, the International Center for Not-for-Profit Law (ICNL)[1] works to promote legal reforms that facilitate and support the development of civil society and the freedom of association. What has it learned from its years of working in Central and Eastern Europe and the countries of the former Soviet Union (henceforth ‘the region’)?

Realistic Goals

Perhaps the first lesson is the need for modesty about what ‘law reform’ can accomplish. ICNL has been involved in various ways, large and small, with legal development efforts in every country in the region. As an international knowledge-based organization with a focused mission, ICNL can provide important assistance for drafting and implementing laws affecting NGOs, but their ultimate acceptance and effectiveness will depend on local factors that are beyond ICNL’s control.

Recognizing the technical, law-drafting difficulties facing reformers as well as the complicated interactions among social, economic, and political actors is key to being realistic about what changes can be expected. When we talk about law reform for NGOs in the transition countries of the region, we are looking forward to a transforming role for civil society. But optimism about outcomes must be tempered by realism about time frames!

Consultation

No legal reform will be effective without cooperation between state and society. When it comes to laws affecting NGOs, NGOs will need to work with the government to produce meaningful laws that can be enacted by the parliament and administered by the government. The process of consultative law drafting is extremely important for the growth of civil society. On the other hand, where a significant segment of the NGO population is in opposition to a government it views as repressive, such a consultative process may be both impossible and undesirable. Consultative processes are proving possible in many countries in the region today, and in those countries ICNL’s efforts to foster cooperative working groups for law reform have produced laws that are generally accepted by both state and society.

In Albania, for example, the Berisha government proposed a law that would have imposed severe restraints on NGO activities, and there was palpable tension between NGOs and the government. ICNL organized a seminar for Albanian representatives in Budapest to discuss ‘regional best practices in NGO law’. It attracted both NGO representatives and the drafters of the restrictive law. As a result of this meeting, the participants agreed to form a joint NGO–government working group, which has now produced one of the most progressive draft laws in the region.

Collaboration

International and regional partners have been important to ICNL in its law reform efforts in the region, but most important by far has been its cooperation with local partners. This includes both its own local staff members in Budapest, Almaty, and Kyiv and the growing network of local lawyers and professionals from other fields in every country in the region who have turned to NGO law as a specialty. In addition, many NGO leaders have been able to give advice about what is and what is not effective in a particular country. They have helped to ensure that initiatives appropriately address local concerns and participated as representatives of the NGO sector in working groups with government.

The Need for Implementation

Written law is completely ineffective unless it can be successfully implemented. Considerable effort must thus be placed on implementation, both in the drafting process itself (does the proposed law create a system that can be implemented in the country context?) and once the law actually comes into effect. This means that law reform efforts must concentrate on training for government officials and judges, on the one hand, and for NGOs, on the other. It is also important to work with local partners to develop model forms and manuals to promote appropriate application of the law.

An example of how implementation concerns may be addressed comes from Macedonia, where the 1998 Law on Associations and Foundations transferred registration authority from the Ministry of Interior to local courts. Judges were unfamiliar with their new role and were initially reluctant to register NGOs. Local experts therefore embarked on a judicial training programme, and over 2,600 NGOs have now been registered under the new law.

Education and Capacity-Building

Part of the implementation of law is the training of those who must apply it, whether in the government or in the NGO sector. Different kinds of courses and outreach programmes should be available for lawyers in private practice, for government officials, for NGO leaders, for business leaders (who can provide key financial support for community services), and for ordinary citizens (who can become involved in NGO activities as volunteers). Without this the long-term social change that is necessary to institutionalize a good legal environment for NGOs will never occur. There must be trained lawyers, both in and out of government, who can effectively administer the laws and represent the needs of NGOs. Cooperating with local and regional universities in the development of courses on NGO law is essential to the long-term success of law reform efforts affecting NGOs.

Comparative Analysis

One of the strengths of a regional approach to law reform is that it brings a comparative perspective to bear on national drafting efforts. All law is a product of local conditions and local needs, and a ‘cookie-cutter’ approach to law drafting is never going to work. Yet people learn from exposure to the ideas of others, and they can profit from successful and unsuccessful experiences with legislation that has been enacted and with solutions that have been tried elsewhere. Regional conferences and publications can play a key role here. Guidelines for Laws Affecting Civic Organizations, produced by ICNL in collaboration with the Open Society Institute, has been translated into several regional languages. Other efforts include the EFC’s SEAL Bulletin, which is a print journal offering articles about legal developments affecting NGOs in the region, and ICNL’s own International Journal of Not-for-Profit Law and ‘Online Library and Database’, which provide free electronic access to information and analysis about legal developments affecting NGOs around the world.

Reflection

Law reform efforts are intense processes that can sometimes be exhausting for all involved. They require a good deal of hard work, considerable research about local conditions and needs, and painstakingly developed technical skills. They also require good will and an awareness that reasonable people may offer different perspectives on what reforms are valuable and appropriate.

An element that may sometimes be missing is the need for reflection on what has been accomplished, on bad as well as good outcomes, on what has and what has not worked.

This is accomplished to some extent through evaluation and review mechanisms that are developed both internally and for our funders (such as USAID, the CS Mott Foundation, and the Open Society Institute). However, I cannot stress enough the need for more considered reflection, particularly about process failures. Like Stephen Holmes, who recently wrote in the East European Constitutional Review of the need for a ‘Legal Reform Strategy Center’ which would be based at a university, I see the need for greater analysis of strategies for effective reform of NGO law. Particularly constructive is the emerging academic attention to the whole concept of a ‘civil society’ and how it comes into being and is sustained (for example, Tom Carothers’ thought-provoking essay recently published in Foreign Policy magazine).

[1] ICNL now has 25 lawyers worldwide, working full and part-time, with offices in Budapest, Almaty and Kyiv.

*First published in vol 5, no 1 of Alliance: Building resources for the community worldwide, Charities Aid Foundation’s quarterly magazine on the funding of civil society worldwide. For more information about Alliance, go to www.CAFonline.org/alliance

Kosovo

NGO Training in Kosovo

In late January 2000, ICNL held seminars on “Managing NGOs in a New Legal Environment” in three cities in Kosovo, Prishtina, Gjilan and Prizren. These were the first seminars of this kind held in Kosovo,and the first seminars ever organized for NGOs in Kosovo cities outside of Prishtina. Over 150 NGO representatives participated in the seminars.

ICNL consultant Gjylieta Mushkolaj, a Kosovar Albanian lawyer who previously served as chief translator at the Rambouillet talks, led the seminars. The seminars focused on the procedures for registration under the new regulation on NGO registration enacted by the United Nations Mission in Kosovo (UNMIK), on which ICNL served as primary technical advisor [See NGO Regulation Enacted in Kosovo and Registration And Activities For Kosovar NGOs In A New Legal Environment for further discussion]. In addition, the seminars offered guidance to NGOs on how to prepare statutes and keep accounting records, officers’ and directors’ obligations, and limitations on economic and political activities, along with practical advice on opening bank accounts, renting office space and hiring staff. ICNL prepared and distributed brochures on each of the topics covered. The brochures are available in Albanian, English, and Serbian.

The need for such seminars was readily apparent from the overwhelming response, and there was not enough capacity to accommodate all of the interested participants. ICNL advertised the seminar a week in advance in the two largest daily newspapers, Koha Ditore and ZERI, and emailed invitations in Albanian, Serbian and English to NGOs in Kosovo ten days before the seminar. One of Prishtina’s main radio stations even advertised the seminar voluntarily and at no charge. OSCE also distributed information about the seminar and the agenda, handled the advance registration, and assisted with logistical arrangements outside of Prishtina.

Because of the overwhelming response and positive reactions, ICNL plans follow-up seminars, expanding to other Kosovo cities, in April or May. ICNL’s work in Kosovo is funded through a grant from the Charles Stewart Mott Foundation.

Romania

By Gloria Jean Garland
ICNL

In late January, the Romanian government passed a new ordinance regulating associations and foundations. The ordinance, which represents a combined effort of the Ministry of Justice and the NGO community, replaces Law No. 21 from 1924 and significantly simplifies the process for NGO registration and operation. Among other things, the new ordinance reduces the number of founders required to establish an association from 20 to 3, provides for a central registry, and grants preferential rights to state budget allocations for “public utility” organizations–those that act in the community interest. It also expressly authorizes NGOs to establish commercial companies to undertake economic activities, so long as the dividends are either re-invested into the same companies or used to achieve the NGOs’ aims. The ordinance carries the force of law and remains in place unless and until acted upon by the Parliament. The ordinance takes effect on May 1, unless modified or otherwise acted upon by the Romanian Parliament prior to that date.

The draft law, prior to passage as an ordinance, provided for significant tax benefits, including exemption from value-added tax, customs duties, and property tax, as well as a 25% reduction in dividend tax. However, the draft did not distinguish between those NGOs acting for the benefit of their own members and those acting in the community or public interest. This entire provision was eliminated from the final ordinance, and will presumably be addressed in separate tax legislation.

The East-West Parliamentary Practice Project organized an inter-Parliamentary workshop for the Romanian parliament in Bucharest in early February, with one working group focused entirely on the new ordinance. Members of Parliament present at the working group indicated they intended to push for emergency Parliamentary debate on the ordinance prior to May 1, focusing on public benefit, commercial activities, and taxation issues.

The Civil Society Development Foundation and America’s Development Foundation, under the auspices of the European Integration Committee of the Parliament and the GIR (Group for the Implementation of the NGO Forum Resolutions), have organized a follow-up workshop on the ordinance for March 29.

Recently the main opposition party PDSR, currently receiving high ratings in opinion polls, asked the Prime Minister to withdraw the ordinance “as it leaves space for administrative interference in civil society organizations and, through its provisions related to economic activities, allows little distinction between non-profit and for-profit corporations.”