International Journal of Not-for-Profit Law / vol. 18, no. 1, May 2016 / 4

Letter from the Editor
In this issue, the International Journal of Not-for-Profit Law features two articles on
Asian not-for-profit law, with particular attention to the historical and cultural elements that
shape it. Masayuki Deguchi, a Professor at the National Museum of Ethnology and SOKENDAI
(the Graduate University for Advanced Studies), Japan, draws on his past experience as on the
Public Interest Corporation Commission to assess the origins, structure, and regulation of the
Public Interest Corporation in Japan. Damian Bethke, who recently completed his Ph.D. at the
Chinese University of Hong Kong, outlines the distinct culture of giving in Hong Kong as a basis
for evaluating proposed reforms to charity law.

Other articles in the issue examine a variety of topics. Konstantinos D. Magliveras, a
Professor in the Department of Mediterranean Studies at the University of Aegean, Greece,
analyzes similarities and differences between Greece and England in terms of freedom of
association, freedom of assembly, and the regulation of nongovernmental organizations.
Mohammed Obaidullah, Ph.D., a Senior Economist at the Islamic Research and Training
Institute of the Islamic Development Bank Group in Jeddah, Saudi Arabia, and a Professor in
Islamic Finance at Islamic Science University of Malaysia, develops and applies an analytical
framework for Islamic endowment laws. Isida Tushe of Hofstra University provides an
overview of the New York Nonprofit Revitalization Act. Finally, Eugene H. Fram, Professor
Emeritus at the Saunders College of Business, Rochester Institute of Technology, outlines the
Intermediate Sanctions Act in the United States and the obligations it imposes on board members
and managers of not-for-profit organizations.

We gratefully acknowledge the assistance of anonymous referees who helped with some
of the articles. Most of all, of course, we thank the authors for sharing their expertise, and we
invite readers to share their own expertise. The International Journal of Not-for-Profit Law
welcome manuscripts addressing legal aspects of civil society, philanthropy, and not-for-profit
organizations around the world.

Stephen Bates
Editor
International Journal of Not-for-Profit Law
sbates@icnl.org

Not-for-Profit Law and Culture in Asia GLOBALIZATION, GLOCALIZATION, AND
GALÁPAGOS SYNDROME: PUBLIC INTEREST CORPORATIONS IN JAPAN

MASAYUKI DEGUCHI1

To facilitate public interest activities by private entities, some countries, including
Ireland and New Zealand, have inaugurated Charity Commission-style independent
regulators of the type that originated in England and Wales. In the first attempt far from
the Commonwealth’s culture, Japan has launched the Public Interest Corporation (PIC)
Commission. The aim of the Japan’s reforms, the first revision since establishment of the
Civil Code 1886, is to abolish unclear discretionary regulations and to make clearer
stipulations in the laws. The author witnessed the policy as Commissioner in Japan for
six years. This article summarizes and evaluates the reforms, with a focus on the
interplay between globalization, “glocalization,” and “Galápagos Syndrome.”

I. Introduction
There is a consensus in many countries around the importance of public interest activities
by private entities (Cordery & Morgan 2013). Encouraging the public interest sector is an aspect
of public policy. It is, however, difficult to define “public interest.” Some countries assign the
task to independent agencies, such as the Charity Commission in England and Wales (Cordely
2013).

Japan has adopted the independent commission style by launching Koeki Ninteinto Iinkai
(Public Interest Corporation Commission or PIC Commission) as part of the reforms of Koeki
hojin (Public Interest Corporation or PIC). The reform in 2006 was the first substantial change to
the Civil Code on nonprofit corporations since the establishment of old Civil Code in 1896.
This article provides an overview of Japan’s PIC reforms, with particular focus on the
influence of globalization, “glocalization,” and “Galápagos Syndrome.”

II. History of the Nonprofit Legal System in Japan
Japan’s legal system for “public interest”
2
and for not-for profit organizations dates back
to the old Civil Code, adopted in 1896, and carries forward into the 2006 Civil Code. Article 34

1
Professor, National Museum of Ethnology, and SOKENDAI (the Graduate University for Advanced
Studies), Japan; former Commissioner, Public Interest Corporation Commission; former President, ISTR (2005-
2006).

A version of this paper was presented at the 11th International Conference of the International Society for
Third Sector Research in 2014, in Muenster, Germany. Travel expenses were supported by the MINPAKU DirectorGeneral’s Leadership Program. The author would like to thank Professor Kenich Kudo, Director-General of
MINPAKU, for generous support.
International Journal of Not-for-Profit Law / vol. 18, no. 1, May 2016 / 6
divides Public Interest Corporations (PICs)3
into two categories: the shadan hojin, or
incorporated association; and the zaidan hojin, or incorporated foundation (Amemiya 1998). The
association is formed as a group of members, whereas the foundation is formed around an
endowment and, legally, does not have members (Larratta & Mason 2010).
Some PICs pursue only a quasi-public interest (Moriizumi 1977; Tanaka 1980; London
1991). In addition, the concept of the public interest has varied over time. The activities of some
PICs, accordingly, have been almost indistinguishable from those of for-profit organizations
(London 1991; Ministry of Internal Affairs and Communications 2008).

After World War II, Japan enacted special laws to give organizations different types of
legal personalities: religious corporations (the Religious Corporations Act 1951), school
corporations (the Private Educational Institutions Act 1949), social welfare corporations (the
Social Welfare Services Act 1951), and medical corporations (Revised Medical Care Act 1949).
Hatsutani (2001) emphasizes that the diversification of legal personalities was affected by the
new Constitution. Article of 89 of the Constitution of Japan states that “no public money or other
property shall be expended or appropriated for the use, benefit or maintenance of any religious
institution or association, or for any charitable, educational or benevolent enterprises not under
the control of public authority.” Just after the war, it was necessary for some types of PICs to
receive public money in order to survive. One aim of the acts was to have a robust legal
background for “under the control of public authority” in the Constitution.

Despite these special laws, most grassroots-level organizations in Japan had no legal
status, because they lacked the level of assets that PICs require (London 1991; Deguchi 2001).
The great Hanshin Awaji Earthquake in 1995 unveiled the defects of the legal system. Many
volunteers were active as members of uninstitutionalized nonprofit organizations that had no
legal status (Deguchi 2001; Pekkanen 2000, 2001; Kawashima 2006). In 1998, the Diet enacted a
new act so that citizens’ groups could form and operate with legal personality (Deguchi 2001).
The law created the Specific Nonprofit Activity Corporation (SNC), usually called NPO hojin
(NPO corporation). The act was called the NPO law.

In 2001, yet another category of organization was created. A nonprofit and non-public
benefit organization could be incorporated as Chukan-hojin (Intermediate Juridical Person, or
IJP).

The various types of organizations are overseen by different government agencies, each
with its own accounting standards and regulations: School Corporation Accounting Standard for
school corporations, Social Welfare Corporation Accounting Standard for social welfare
corporations, Religious Corporation Accounting Guideline for religious corporations, Medical
Corporation Accounting Standard for medical corporations, and SNC Accounting Standard for
SNCs.

The reform of the legal framework targeted only PICs and IJPs. School Corporations,
Social Welfare Corporations, Medical Corporations, Religious Corporations, and SNCs continue
to exist. The complicated situation of Japan’s nonprofit organizations, as Figure 1 illustrates,
might be called an example of “Galápagos Syndrome” (Deguchi 2015). Nakamura explains,

2 Reflecting the Japanese legal context, this article uses the term “public interest” rather than the more
common term in the academic literature, “public benefit.”
3
Sometimes referred to as Public Interest incorporated Persons (PIPs).
International Journal of Not-for-Profit Law / vol. 18, no. 1, May 2016 / 7
“Galápagos syndrome is a frequently used term in Japanese business circles to mockingly refer
to technologies and specifications advancing in a form that lacks compatibility with other
countries, much like how animals on the Galapagos Islands evolved uniquely in a closed
environment” (Nakamura 2013: 66). Cellular phones represent one example of Galápagos
Syndrome in Japan. Each company produces phone that address different consumer needs, and
they are very difficult to standardize.

Figure 1: “Galápagos Syndrome” of Japan’s Nonprofit Legal Personality
Source: author’s analysis from the version written in Japanese (Deguchi 2015). Kaikei-kijyun is translated into
Accounting Standard, and Kaikei-jyunsoku is translated into Accounting Guideline. Each accounting standard and
guideline is different.

III. Overview of Reforms
One impetus behind the reforms was to encourage activities by the Third Sector, whose
importance is recognized by the government (Expert Meeting 2004, Tax Commission 2005). The
reform process began with a Cabinet Decision released as Reform of the System of Public
Interest Corporations in 2002 (Cabinet Decision 2002). After a confusing start, the Tax
Commission issued a report in 2005 (Tax Commission 2005) that proposed that new PICs should
be tax-exempt and tax deductible.
4
A particular problem was the Kyoka (permission) system for establishment of PICs
(Expert Meeting 2004). Organizations seeking PIC status had trouble finding the appropriate
agency and then finding the appropriate person or division within the agency, and once they
succeeded in doing so, a laborious series of consultations, negotiations, and compromises would
follow (London 1991). The system set no time limits and no clear criteria for agency decisions
(Pekkanen 2006). Further, the public interest element of some PICs seemed questionable, such as

4 As a member of the Tax Commission from 2003 to 2009, the author contributed to the report.
Accounting
Standard
Religious
Corporation
Religious
Corporations Act
1951
Social
Welfare
Corporation
Social
Welfare Service
Act 1951
Medical
Corporation
Revised Medical
Care Act
1949
NPO
Hojin
NPO
Act
1998
School
Corporation
Private School
Act 1949
Old JCC article 34: any association or foundation
relating to any academic activities, art, charity,
worship, religion, or other public interest
PICs
GECs
Reform
Accounting
Standard
Accounting
Standard
Accounting
Guideline
Accounting
Standard
International Journal of Not-for-Profit Law / vol. 18, no. 1, May 2016 / 8
parking lots and golf courses (London 1991). In addition, retired government officials sometimes
took high-paying positions in the PICs that they had previously overseen (Kaihara 2008;
Deguchi 2009).

The reform process resulted in three related PIC acts in 2006, which abolished the Kyoka
(permission) system: first, the Act on General Incorporated Associations (GIA) and General
Incorporated Foundations (GIF) (Act No. 48 of 2006); second, the Act on Authorization of
Public Interest Incorporated Associations (PIIA) and Public Interest Incorporated Foundations
(PIIF) (Act No. 49 of 2006); and third, the Act Concerning Special Measures for Enforcement
(Act No. 50 of 2006). While the old civil code on PICs consisted of only 56 articles, these laws
amount to 868 articles.

In order to authorize PICs among GIAs and GIFs, which are considered nonprofit
organizations that do not always operate in the public interest, the laws established two new
entities: the Public Interest Corporation Commission (PIC Commission), for national
organizations; and the Council Organization Established in Prefectures (COEP), for local ones.
The PIC Commission’s function resembles that of the Charity Commission in England
and Wales.
5
The PIC Commission has seven commissioners appointed by the Prime Minister
with the consent of both houses of the Diet (Act. No. 49, Article 35).
6
In operation, the
Commission is independent of ministerial government. It has a staff of almost 100.7 Article 5 of
Act No. 49 sets forth clear criteria for the Commission to apply, addressing an organization’s
purpose, financial operations, and governance and accountability.
In addition, the tax system underwent major positive changes. An organization approved
by the PIC Commission is exempt from corporate tax and enjoys tax-deductible status, except
that its for-profit businesses (which are permitted) are taxed. Under another law, donors to
certified PICs can choose tax deduction or tax credit.
The reforms drew applause from stakeholders (JCIE 2005; JACO 2014).
IV. Globalization and the Shadow of the Business Sector
In 2008, the PIC Commission issued a new accounting standard: Public Interest
Corporation Accounting Standard 2008 (PICAS-2008). Previous standards had been issued in
1977, 1985, and 2004. PICAS-2004 reflected the trend of “financial accounting” that spread
following enactment of the Sarbanes-Oxley Act of 2002 (SOX) in the United States (Ribstein
2003; Shirley 2004). SOX influenced nonprofit organizations internationally (Stone & Ostrower
2007; Johnson 2009; Breen 2013). Although Kawashima (2006) points out that nonprofit
organizations in Japan paid less attention to SOX than those in some other countries, SOX did
make a substantial impact on accounting standards in Japan. One effect was felt through the
Statement of Financial Accounting Standards No. 117 (FASB 1993), issued by the Financing

5 Commissioners do not have a free hand to change charitable purposes, as the Charity Commission is a
government body and the discretion of Commissioners remains confined by established precedent (O’Halloran,
McGregor-Lowndes, & Simon 2008).
6 The PIC Commission operates at the nationwide level. Local authorities are responsible for each council
organization. Article 50 of Act. No. 49 of 2006 stipulates that council organizations shall be established in
prefectures for the purpose of dealing with the matters assigned to it by this Act.
7 As of the end of March 2013
International Journal of Not-for-Profit Law / vol. 18, no. 1, May 2016 / 9
Accounting Standards Board in the U.S. (FASB),
8 which emphasized fiduciary duty (On
Revision of PICAS 2004). Among other things, PICAS-2004 created categories paralleling those
in American tax law.

PICAS-2008 represents a hybrid of principles from the Charity Commission in England
and Wales, American accounting practices, and Japanese tradition. Critics contend that it
facilitates control by government rather than serving users (Tetsuyoshi Hasegawa 2012).
PICAS-2008 resulted from a process of working groups of stakeholders, which has also
been used in New Zealand (Sinclair & Bolt 2013). The PIC Commission set up a research
meeting with accountants and representatives from constituents. They discussed accounting
standards to be applied under the new acts. The result of the discussion was a proposal submitted
to the PIC Commission. Some commissioners were startled with the revision of the accounting
standard (PIC Commission the 33rd Official Minutes 2008).

When the Cabinet Office opened the proposal to public comment, the influential Japan
Association of Charitable Organizations said that the standards-setting body should not be the
PIC Commission (JACO 2008). Similar comments came from academia (Hasegawa 2013). The
Japan Institute Certified Public Accountants (JICPA) filed a petition with the PIC Commission in
2013, questioning whether Japan’s Generally Accepted Accounting System should be applied to
PICs, given that their missions and activities differ from those of for-profit corporations (JICPA
2013).

V. “Glocalization” of Standards
Tatsuo Ohta, a representative of the Japan Association of Charitable Organizations, said
that the reforms were based on “free, fair and global” points (Ohta 2006, JACO 2014a),
reflecting the fact that legislation, tax, and accounting all are moving toward global standards
(JACO 2014a: 15).

Although globalization is an influence, as Ohta pointed out, the reforms continue to
reflect particularization. PICAS-2008 applies only in Japan, for example. So do specific PIC
accounting rules and regulations. Accordingly, experts in nonprofit entities of other types from
other countries will not be familiar with the Japanese rules. In this respect, the PIC reforms
simply extend Galápagos Syndrome.

Related to Galápagos Syndrome is what has been called the “glocalization” of the
nonprofit system. Glocalization is a Japanese term that, in a journalistic context, reflects the
notion of thinking globally and acting locally (Sudo 2012). The concept has been further
developed by academics (Robertson 1995; Maekawa 2004; Sudo 2012; Fukukawa & Teramoto
2009). Generally, the term means that local cultures and the forces of globalization interpenetrate
and interpret each other, resulting in both universalizing and particularizing tendencies
(Thompson & Arsel 2004; Fukukawa & Teramoto 2009). Even the law shows glocalization
(Randeria 2003). PICAS-2008 is an example.

At the same time, though, globalization is having a substantial effect on rules that apply
to the for-profit sector (Kikuya, M. 2001). The legal reform of governance of business
companies in Japan is influenced by global trends (Okabe 2009). In a sense, Japanese rules for

8
See Kaneko 2009 (in Japanese).

the nonprofit sector are not under the direct sway of globalization, but they are undergoing
globalization through the for-profit sector.

VI. Conclusion: Complication, Regulation, and Globalization
Have the reforms succeeded? They can be evaluated in terms of the major purposes
underlying them. Three purposes are particularly significant.
One purpose is to strengthen PIC self-governance. Here, the system has fallen short. It is
difficult for many PICs to understand. With three acts, the new accounting standard, and new
acronyms and jargon, even government officials have had trouble.

Especially for small PICs, further, the requirements are an overload (JACO 2014). Except
for the requirement of an accounting auditor, the same rules apply to small and large PICs. Many
PIC are small. In 2014, the median staff size was just five, and a third of PICs had two or fewer
full-time staff members (Cabinet Office 2014c). In addition, Japan has few PIC experts. Experts
in law and accounting typically focus on for-profit businesses. Nonprofit systems are different—
at least, they should be.

A second purpose of the reform is “implementing such programs in a suitable manner”
(Article 1 of APPI)—imposing the face of the regulator. With the PIC Commission, the reform
succeeded in this regard.

Unfortunately, the regulator has not always helped fulfill a third purpose of the reform: to
change unclear rules into clear ones. For example, the PIC Commission issued a statutory
recommendation to a sports organization in 2014.
9

The organization had set up a third-party
committee to investigate an internal scandal and issue a report to their legal members and the
administrative agency. These steps followed the PIC rulebook, but the PIC Commission was
dissatisfied. It explained that “because the ultimate stakeholder is all Japan’s citizen as the
taxpayers,” reporting to legal members and the cabinet office was insufficient. Instead,
“according to the guideline of the Japan Federation of Bar Associations, the report by the thirdparty committee of a public-listed company should be open to the public” (Cabinet Office
“Kankoku” 2014).

This is a typical example. Even if an organization masters all 868 articles of the new
laws, the Cabinet Order, the Cabinet Office Ordinance, the new financial standard, and the PIC
guidelines, the government may still step in and impose the standards of large for-profit
companies on small PICs. In this respect, globalization seems to be prevailing over glocalization
and Galápagos Syndrome.

The current problems of Japanese society are serious, and tax funds alone cannot solve
them. The role of the PIC Commission should be to ensure that PICs perform flexibly in
addressing social problems that the government cannot resolve, rather than imposing
unnecessary restrictions on them.
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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, reviews 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 years 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
million8—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, https://www.ird.gov.hk/eng/ppr/are13_14.htm.
3
Inland Revenue Department, Annual Report 2012-13, 49, https://www.ird.gov.hk/eng/ppr/are12_13.htm;
Annual Report 2011-12, 45, https://www.ird.gov.hk/dar/2011-12/table/eng/misc.pdf ; Annual Report 2009-10, 49,
https://www.ird.gov.hk/dar/2010_11/table/eng/others.pdf. Cf.
https://www.hkcss.org.hk/e/cont_detail.asp?type_id=11&content_id=862.
4
Inland Revenue Department, Annual Report 2012-13, 49. Cf. iDonate, Analysis of Donation Trend in Past
Five Years (2011), https://www.theidonate.com/media/report_file/iDonate-Analysis-201106_1.pdf; Hong Kong
Council of Social Service, The Rise of the Middle-Class Donor,
https://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,
https://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, https://www.scmp.com/news/hong-kong/article/1659362/hong-kongphilanthropists-harvard-gifts-top-10-charitable-donations?page=all.
6 Giving to Princeton, Princeton Celebrates Sir Gordon Wu’s Extraordinary Support, May 1, 2007,
https://giving.princeton.edu/news/2007/05/princeton-celebrates-sir-gordon-wus-extraordinary-support.
7 Colgate, Colgate’s most generous “investor,” March 2004,
https://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, https://www.scmp.com/news/hong-kong/article/1362360/charity-begins-home-citys-hk7b-top-philanthropists.
Cf. Coutts, The Million Dollar Donors Reports 2013, 17, https://philanthropy.coutts.com/en/reports/2013/executivesummary.html; Coutts, The Million Dollar Donors Reports 2014,
https://philanthropy.coutts.com/en/reports/2014/executive-summary.html.
9 Coutts, Million Dollar Donations 2013, 18.
10 Id., 17.
International Journal of Not-for-Profit Law / vol. 18, no. 1, May 2016 / 17
For three reasons, these numbers understate the actual situation. First, the figures for the
number of charitable organizations 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 familycontrolled 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 businesses 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

11 Id., 6.
12 South China Morning Post, Spirit of Giving, Dec. 23, 2005, https://www.scmp.com/node/530396.
13 E.g., Hong Kong Standard Chartered Marathon, Operation Santa Claus.
14 E.g., OSC Inter-School MBA Charity Challenge, CUHK I Care Programme.
15 Swire
, Sustainable Development, https://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 https://www.nesbittcentre.org.hk/index.php/the-coffeeshops/cafe-8.
18 https://www.dialogue-experience.com.hk/web/index.php?lang=en&mid=0.
19 Bethke, Górski, Rethinking Social Ventures in Hong Kong, 13.
International Journal of Not-for-Profit Law / vol. 18, no. 1, May 2016 / 18
strategic investment choices. 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 thoughts 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 Donors

20 Reuters, Li Ka-shing Foundation buys Facebook stake, Dec. 3, 2007,
https://www.reuters.com/article/2007/12/04/us-facebook-likashing-idUSN0344520920071204; Forbes, Li Ka-shing
Confims Spotify Stake, Aug. 20, 2009, https://www.forbes.com/2009/08/20/spotify-li-hutchison-markets-equitiestechnology.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, https://digitalcommons.mcmaster.ca/cgi/viewcontent.cgi?article=7442&context=opendissertations.
International Journal of Not-for-Profit Law / vol. 18, no. 1, May 2016 / 19
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 ancestors, 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. Benevolence associations were established on the belief that

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 Merchant 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 Philanthropy in Asia Between
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-American 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, https://issuu.com/andyho/docs/asianamerican.
41 Yu Yue Tsu, Spirit of Chinese Philanthropy, 75.
42 Ho, Asian-American Philanthropy, 5.
43 Id.
International Journal of Not-for-Profit Law / vol. 18, no. 1, May 2016 / 20
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 donations 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 excluded. 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

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, https://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.
International Journal of Not-for-Profit Law / vol. 18, no. 1, May 2016 / 21
stabilizing function. They engaged 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 interests 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. To stop kidnappers from bringing children and women into Hong Kong,

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 noninterventionism.’”
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.

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. Its purpose was planning

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, Nonprofit 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.
International Journal of Not-for-Profit Law / vol. 18, no. 1, May 2016 / 23
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 entered 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 At the same time, however,
subvention to NPOs was capped, which required the organizations to do more fundraising

73 Chung Woon Fan Flora, The Role of The Hong Kong Council of Social Service in Social Welfare
Development in Hong Kong, Dissertation, 30 June 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, https://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, https://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.
International Journal of Not-for-Profit Law / vol. 18, no. 1, May 2016 / 24
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 educational
nature.”
91 The IRO of 1950 kick-started the modern form of charitable organization. As 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.
First, the government introduced the Service Performance Monitoring System (SPMS), a

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: Charles Chan, Chapter 1, Education and Research, Study on the Third Sector Landscape in Hong Kong, 24,
https://www.cpu.gov.hk/doc/en/research_reports/3rd_content.pdf.
89 For more information 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, 40 (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.
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mechanism that aims at assessing the efficiency of the provision 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 contracts.93
These measures boosted the nonprofit sector but made it also more dependent on state
involvement – “thus, increasingly, the 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 framework
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 contentious 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 insights. 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 reviews 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. Some of the examined jurisdictions, such as Ireland, have

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, https://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 200, in Modernising Charity Law, 13.
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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 organizations. 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. Additional specific requirements are

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,
https://www.hkreform.gov.hk/en/publications/rcharities.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).
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imposed by the SWD, Home Affairs Bureau, Education Bureau, and Department of Health on
charitable organizations 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 (Sept. 2006), at para. 9, https://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 subjects, 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) TIO, 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.
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“[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
organizations; however, the directory does not distinguish between for-profit companies and
organizations with approved charitable missions. 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 covers 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 https://www.ird.gov.hk/eng/tax/ach_index.htm. The list of approved charitable organizations runs over
939 pages. See https://www.ird.gov.hk/eng/pdf/e_s88list_emb.pdf.
121
https://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, Investigation Report, 5.5.
126 Id., 5.6.
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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 selfcertified 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 criticisms 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 fundraisingactivity 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 fund-raisers passing off as established and responsible charities.”
131
1. Eighteen Recommendations
The first two recommendations concern the definitions of charity and charitable purpose.
The commission suggested introducing a clear statutory definition of what constitutes a

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. Sept. 2010), at para. 17, https://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.
International Journal of Not-for-Profit Law / vol. 18, no. 1, May 2016 / 30
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 noncompliance. 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.” https://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.
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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 number145 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 cy-près 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 socalled social ventures, which try to do good while also making money.
151 Although social

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.
International Journal of Not-for-Profit Law / vol. 18, no. 1, May 2016 / 32
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 organizations of their own

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,
https://www.heritage.org/index/country/hongkong.
156 CNN, Sophia Yan, Hong Kong has a tycoon problem,
https://money.cnn.com/2014/11/02/news/economy/hong-kong-tycoons.
157 Sections 16D and 26C IRO, Cap. 112.
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choice rather than to the government. 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, https://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,
https://www.un.org/en/sc/ctc/docs/bestpractices/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, https://www.hkics.org.hk/media/publication/attachment/2141_AML%20Guidelines.pdf.
International Journal of Not-for-Profit Law / vol. 18, no. 1, May 2016 / 34
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 models 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 accessible 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. The dispute triggered the director of the charity to say that “the

166 Cf. Teresa 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?,
https://home.fau.edu/sghosh/web/images/CharityFeb19.pdf; but critically Jordan E Silvergleid, Effects of watchdog
organizations on the social capital market, Philantropic Fundraising, 2003, 7.
171 Cf. Hopkins, The Law of Fundraising, 447.
International Journal of Not-for-Profit Law / vol. 18, no. 1, May 2016 / 35
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 reputations, 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). In the second part of the analysis, iDonate uses the working capital ratio and the

172 The dispute was settled in court. For more see Hopkins, The Law of Fundraising, 442.
173 Id.
174 Cf. https://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. https://www.theidonate.com/en/methodology.
International Journal of Not-for-Profit Law / vol. 18, no. 1, May 2016 / 36
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 under-valuation 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.
If a charitable organization receives a low score, iDonate may make suggestions on how
the rating could be improved. It may, for example, suggest that the organization needs

177 Education and Research, Study on the Third Sector Landscape in Hong Kong, 26.
178 Id.
International Journal of Not-for-Profit Law / vol. 18, no. 1, May 2016 / 37
managerial support and that it should attempt to improve the ratio of expenses and donations by
increasing its income. This methodology confronts 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 expenses, 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 allows 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 247182 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. https://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, https://www.scmp.com/lifestyle/family-education/article/1242049/watchdog-stepspressure-non-transparent-hong-kong.
181 Cf. https://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.
International Journal of Not-for-Profit Law / vol. 18, no. 1, May 2016 / 38
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. WiseGiving 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. While the Law Reform Commission undertook a

185 Id., 597.
186 iDonate refers to this aspect on its website and encourages donors to do more specific due diligence
before making a donation: see https://www.theidonate.com/en/methodology.
187 Ann Goggins Gregory and Don Howard, The Nonprofit Starvation Cycle, Stanford Social Innovation
Review, Fall 2009, 49.
International Journal of Not-for-Profit Law / vol. 18, no. 1, May 2016 / 39
comprehensive comparative review, it failed to consider essential aspects specific to Hong Kong:
the people’s unique understanding 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.
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 40
Article
FREEDOMS OF ASSOCIATION AND ASSEMBLY
AND NGO REGULATION IN GREECE AND ENGLAND
KONSTANTINOS D. MAGLIVERAS1
I. Introduction
As in other European countries, thousands of nongovernmental organizations (NGOs)
have been established and are currently in operation in Greece. Their precise number is not
known, not least because Greece, unlike jurisdictions such as England, has no central registry for
NGOs and no other public country-wide method to record their creation and dissolution.
There is also no generally acceptable definition of “NGO”. For the purposes of this
article, NGO is defined as an association of individuals, who have freely agreed to pursue
specific purposes and goals (other than creating syndicates, collective bargaining bodies, trade
unions, or political parties) and who carry out the mandate without aiming for direct profit or
gains, monetary or otherwise—provided, first, that activities benefit the general public; second,
that the organization has been established and is regulated by a constitutive instrument; and third,
that it has received some form of official recognition by a competent public authority and is
subject to State supervision.
This article compares the NGO regulatory regimes of Greece and England. It concludes
by recommending that Greece add the legal entity “nongovernmental organization” to its Civil
Code and regulate it according to the role it plays in societal affairs, similar to the special
treatment of organizations designated “charities” in English law.
Both Greece and England accept and uphold international and regional human rights law.
Both also recognize the competence of multilateral judicial and quasi-judicial organs, including
the European Court of Human Rights. Even so, the two countries differ in four pertinent respects.
First is the type of legal system. Greece is a civil law or Continental law country, whereas
England is a common law country. Second is the duration of a pertinent legal tradition.
Charitable institutions are much more firmly embedded in the Anglo-Saxon world than in
Continental Europe. Accordingly, when NGOs first appeared there, England already had a long
and distinguished tradition of private legal entities known as charities, with a charitable or
philanthropic remit to promote the common good. As a considerably more recent State, by
contrast, Greece did not have such a tradition, and the founders of NGOs had and continue to
have to borrow other types of legal vehicles from the Greek Civil Code in order to establish their
organizations. A third difference is in the two countries’ constitutions. Greece has a written

1
Professor, Department of Mediterranean Studies, University of the Aegean, Greece. Attorney at Law,
Member of the Athens Bar Association.
The research for preparing this article was carried out in the context of the Research Programme THALES –
Investing in knowledge society. It was co-financed by the European Union (European Social Fund – ESF) and
Greek national funds through the Operational Program “Education and Lifelong Learning” of the Greek National
Strategic Reference Framework (NSRF).
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 41
constitution; England does not. Finally, the two countries differ on the impacts of global and
regional treaties. In the Greek legal order, treaties ratified by the Parliament take precedence over
domestic law and form part of the domestic legal order without further enactments. In the United
Kingdom, by contrast, treaties must be incorporated in a specific legislative instrument before
they are deemed domestic law.2
II. NGOs in the Greek Legal Order
A. The Constitution of Greece
According to Article 11 of the Constitution of Greece, “Greek citizens have the right to
assemble peacefully and without carrying weapons.”3
The Police are entitled to be present only
during public gatherings held outdoors. Such gatherings may be prohibited on the basis of a
reasoned decision by the Police if they may cause a serious risk for public safety or if the
socioeconomic life in a specific area will be adversely affected. Detailed provisions on when and
how public gatherings may be prohibited are to be found in a number of legislative instruments.
Despite the fact that the Greek Constitution was promulgated in 1975, some of these instruments,
which are still in force, were adopted when the country was under a military dictatorship (April
1967 – July 1974).
As regards the right to association, Article 12 of the Constitution provides that:
Greek citizens have the right to establish associations and not-for-profit organizations by
observing the legislation, which, however, may not subject the exercise of this right to a
[prior] permit [issued by a public authority].
Such organizations may not be dissolved, save when the legislation has been violated or when
crucial provisions of the organizations’ charters or statutes have been breached. Even in these
cases, dissolution is not automatic. It requires the prior issuance of a court judgment, which not
only must record the infraction but must also conclude convincingly that the infraction is of such
importance that it justifies the termination of the activities. In these instances, the dissolution can
be understood as the penalty that the NGO must pay because it has breached the legislation or
because its members have breached its constitutive instrument. The latter instance might be
regarded as an anomaly: why should the NGO be punished and disbanded when it was the
members who violated the terms of its charter? The simple answer is that the NGO is so closely
knitted with its members that they are almost inseparable and the actions (or omissions) of the
latter cannot but have serious and direct consequences on the former. Article 12 further stipulates
that the dissolution provisions will be applied by analogy to associations of natural persons not
incorporated as organizations. It is of some interest to observe that, while Article 11(2) expressly
allows the legislature to lay down rules determining when public gatherings can be curtailed or
even prohibited, no such stipulation is to be found as regards the exercise of the right to set up
associations and not-for-profit organizations.

2 Thus, while the European Human Rights Convention was ratified by the UK in March 1951, it only
became part of British law through the promulgation of the Human Rights Act 1998, which came into force in
October 2000.
3 All translations in the present article are the author’s.
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 42
The Constitution limits the application of the rights and freedoms laid down in Articles
11 and 12 to “Greek citizens,” seemingly excluding all aliens who live lawfully in Greece.4
While this restriction could have been upheld when the Constitution was first promulgated in
1975, it is now rather obsolete, at least as it applies to a specific group of aliens: the nationals of
the other Member States of the European Union who have exercised the rights and freedoms
conferred on them by EU law5
and reside in the Greek territory. Thus it can be argued that
Articles 11 and 12 of the Constitution have been de facto amended, and the rights and freedoms
enshrined therein apply by analogy to those EU nationals (i.e., the citizens of another Member
State) living in Greece pursuant to the applicable rules of the European Union.
Given that the Constitution has been revised repeatedly since Greece acceded to the
(then) European Economic Community in January 1981, there have been ample opportunities to
harmonize its text with the compulsory rules of EU law. However, this has not happened, while
there exist EU Member States which have introduced a more favorable regime for EU citizens,
compared to other aliens. For example, Article 146 of the Constitution of Croatia, which was
promulgated in 1990 and last amended in 2013, provides: “In the Republic of Croatia, all rights
guaranteed by the European Union acquis communautaire shall be enjoyed by all citizens of the
European Union.”
6
The need to harmonize the text of the Greek Constitution with EU law is further
supported if one were to invoke the Charter of Fundamental Rights of the European Union,
which entered into force on December 1, 2009.7
The Charter, which was initially proclaimed as a
political declaration by European leaders at the Nice European Council on December 7, 2000,
became legally binding on EU institutions as well as on national governments with the coming
into force of the Treaty of Lisbon (also known as “the Reform Treaty”) in December 2009. The
Charter has the same legal validity as the EU’s constitutive instruments—namely, the Treaty on
European Union and the Treaty on the Functioning of the European Union. The provisions of the
Charter are addressed to the national authorities of Member States and are binding upon them
when implementing EU law in the domestic legal order. The freedoms of assembly and
association are expressly protected by Article 12(1) of the Charter, which reads:
Everyone has the right to freedom of peaceful assembly and to freedom of association at
all levels, in particular in political, trade union and civic matters, which implies the right
of everyone to form and to join trade unions for the protection of his or her interests.
By using the word “everyone,” Article 12(1) arguably covers the following three categories of
individuals: (a) the citizens of a Member State residing in the State of nationality (e.g., a Greek
citizen living in Greece); (b) the citizens of a Member State residing in a Member State other

4 The Greek Constitution is not the only one in Europe that limits these rights solely to its own citizens. Cf.
Articles 8(1) and 9(1) of the German Constitution: “All Germans shall have the right to assemble peacefully …” and
“All Germans shall have the right to form corporations and other associations.” www.btgbestellservice.de/pdf/80201000.pdf
5
Principally, the free movement of persons, including the right of establishment. See Article 3(2) of the
Treaty on European Union; and Articles 26(2), 45 et seq., and 49 et seq. of the Treaty on the Functioning of the
European Union, Official Journal of the European Union, C 83, March 30, 2010.
6 The text of the Constitution is available at https://www.sabor.hr. The term “acquis communautaire”
denotes the totality of primary and secondary EU law, including the constitutive instruments of the European Union.
7 Official Journal of the European Union, C 83, 30.3.2010, p. 389.
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 43
than that of their nationality (e.g., a Greek citizen living in Croatia); and (c) the citizens of all
non-Member States residing in any Member State (e.g., a citizen of South Sudan living in
Croatia).
There are no known cases where the Greek State has deliberately violated the right to
assemble and the freedom of association enjoyed by citizens of other Member States, as
guaranteed by the rules of EU law, including the Charter of Fundamental Rights. For purposes of
legal clarity the Constitution ought to be revised in order to state that these rights extend to all
EU nationals8
and, in keeping with the aforementioned interpretation of the Charter, to all aliens
residing lawfully in Greece as well. However, because the Greek Constitution subscribes to the
principle of reciprocity in its relations with other States, it could be argued that the express
enjoyment of these rights and freedoms by third-country nationals could require that the same
rights are enjoyed by Greek nationals within their jurisdictions, a fact that is extremely difficult
to ascertain.
B. Multilateral Human Rights Treaties Binding Greece9
As regards the global and regional treaties for the protection and promotion of human
rights which have been ratified by Greece, reference will be made to the International Covenant
on Civil and Political Rights (ICCPR), adopted under the auspices of the General Assembly of
the United Nations in 1966,10 and to the aforementioned European Human Rights Convention
(ECHR), adopted by the Council of Europe in 1950.11
1. Treaty Enforcement
As noted above, international conventions which have been duly ratified by Parliament,
enter into force automatically, and without any further procedure form an integral part of the
Greek legal system while taking precedence over any conflicting legislative provision, pursuant
to Article 28(1) of the Constitution. Given the important role that the rules of public international
law play today, not only in intrastate relations but also in interstate dealings (both bilateral and
multilateral), the wording of Article 28(1) begs the question whether it could be interpreted to
mean that ratified treaties also take precedence over the Constitution as well. While this question
as it relates to the freedoms of assembly and association is theoretical—the corresponding rights
are defined quite precisely—it is clear that the Constitution cannot be used as a vehicle to negate
the right to establish NGOs, if their creation is protected by treaties already ratified by Greece.
To measure the compatibility of Constitutional provisions protecting fundamental
freedoms to international human rights standards, one could make use of two modes. The first is
the domestic one: the competent State organs, principally the courts of justice, rule on the
compatibility. The second is the external or multilateral one: judicial organs or semi-judicial

8 Cf. Article 23(1) of the German Constitution, which refers to the establishment of the European Union
and stipulates that the changes to the EU founding treaties will lead to the amendment of the Constitution.
9 The content of this sub-chapter applies, mutatis mutandis, to the English legal system as well.
10 Greece ratified it by virtue of Act 2462/1997, Official Gazette of the Hellenic Government (FEK) 1997
(Issue) A’ (No.) 25.
11 Originally Greece had ratified it under Act 2329/1953, FEK 1953 Α΄ 68. However, the military
dictatorship renounced it in 1969 and withdrew from the Council of Europe. It was ratified again under Legislative
Decree 53/1974, FEK 1974 A’ 256, when Greece acceded anew to the Council of Europe.
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 44
entities with an international remit rule on the compatibility—in the case of the ICCPR, the
Human Rights Committee; in the case of the ECHR, the European Court of Human Rights (the
so-called Strasbourg Court).
Greece has recognized the jurisdiction of both the Human Rights Committee and the
Strasbourg Court. Accordingly, once domestic courts have ruled on complaints, these
multilateral entities have the right (and the mandate) to determine if the respondent State
(Greece) has breached its duties under the relevant treaty. For purposes of these transnational
entities, the domestic legal system is unified, so it makes no difference whether the violation
stems from actions by a State official (e.g., a judge), an act of Parliament, a ministerial decision
or by the Constitution itself. Should the respondent State be found in violation of the respective
treaty, it must take all necessary actions to rectify the violation and ensure that it will not recur.
The judgment may also entitle the complainant party to compensation (depending on the specific
provisions of each treaty).
2. Treaty Provisions
The rights of assembly and association are guaranteed under Article 11 of the ECHR as
well as under Articles 21 and 22 of the ICCPR. Their text runs as follows:
ECHR:
Article 11 – Freedom of assembly and association
1. Everyone has the right to freedom of peaceful assembly and to freedom of
association with others.
2. No restrictions shall be placed on the exercise of these rights other than such as
are prescribed by law and are necessary in a democratic society in the interests of
national security or public safety, for the prevention of disorder or crime, for the
protection of health or morals or for the protection of the rights and freedoms of
others.
ICCPR:
Article 21
The right of peaceful assembly shall be recognized. No restrictions may be placed
on the exercise of this right other than those imposed in conformity with the 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.
Article 22
1. Everyone shall have the right to freedom of association with others.
2. No 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 (ordre public), the
protection of public health or morals or the protection of the rights and freedoms
of others.
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 45
(References to the right to form and to join trade unions as well as to the freedom of association
as it applies to the armed forces and to the police have been omitted, because they are outside the
ambit of the present article.)
The wording of these two multilateral instruments is almost identical, with the exception
that the drafters of the ICCPR separated the right of assembly (Article 21) from the freedom of
association (Article 22). In essence, these provisions stipulate that everyone (i.e., not only the
citizens of contracting States but anyone who resides in their territory) shall enjoy them with no
restrictions other than those expressly stipulated; contracting parties are not allowed to add other
limitations. Those States wishing to curb their exercise may do so only by invoking specific
restrictions contained in the treaties themselves (e.g. to invoke a domestic state of emergency
suspending certain rights and freedoms). But even then, the Human Rights Committee and the
European Court of Human Rights, acting as supervisory mechanisms of the ICCPR and the
ECHR, are competent to rule on whether the imposed limitations are compatible with their
provisions. If they are found to be in violation, the respondent State must correct them,
regardless of the consequences in domestic affairs.
Finally, it is of some interest to compare the above clauses with the Universal Declaration
on Human Rights (UDHR), which was adopted in December 1948 by the UN General
Assembly.12 The UDHR is not the first multilateral (non-binding) instrument for the protection
and promotion of human rights and fundamental freedoms (this honor goes to the American
Declaration on the Rights and Duties of Man13), but it is the most important one. Over the years,
it has immensely influenced not only global and regional human rights conventions but also
national Constitutions around the world.14
Article 20 of the UDHR stipulates that everyone shall have the right to freedom of
peaceful assembly and association and that no one shall be compelled to belong to an
association.15 The UDHR thus has a wider scope than the ECHR and the ICCPR; it does not
include the limitations envisaged in the ECHR and the ICCPR. Further, in stipulating that a State
cannot force the population to participate in specific associations, the UDHR again differs from
the ECHR and the ICCPR. Under the UDHR, for example, a state could not establish a single
environmental NGO and require all citizens who wish to work on environmental issues to join it.
C. Greek Civil Code
In Greece, NGOs are formed as various legal vehicles under the Civil Code, which
largely match the types of organizations established by the Civil Codes of other European

12 General Assembly Resolution 217 A (III) of 10 December 1948. There are currently 438 different
translations of the UDHR, see https://www.ohchr.org/EN/UDHR/Pages/Introduction.aspx
13 Adopted by the Ninth International Conference of American States in April 1948, see
https://www.cidh.oas.org/Basicos/English/Basic2.american%20Declaration.htm
14 See H. Hannum, “The Status of the Universal Declaration of Human Rights in National and International
Law” [1995-96] 25 Georgia Journal of International & Comparative Law 287.
15 Arguably the corresponding provisions in the American Declaration of the Rights and Duties of Man
(Article XXI and Article XXII) were more eloquently drafted, as they talked about the right to assemble “in
connection with matters of common interest of any nature” and the right of association as a manifestation of
protecting one’s “legitimate interests of a political, economic, religious, social, cultural, professional, labor union or
other nature.”
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 46
states.16 Four forms of organization are relevant: societies or associations (somateio);
associations of individuals pursuing a specific purpose but not regarded as societies or
associations; foundations (idryma); and civic non-profit companies or corporations (astiki mi
kerdoskopiki etaireia).
1. Society or Association
Based on empirical research, societies or associations are the most common legal vehicle
employed to set up NGOs in Greece. A lot of the stipulations affecting a somateio center on the
court system. The procedure to establish them is straightforward and relatively inexpensive.
Under Article 79 of the Civil Code, the founders or the persons entrusted with its administration
must apply for registration with the Court of First Instance in whose jurisdiction the seat of the
somateio will be located. The application, which need not be notarized,17 must be accompanied
by the organization’s constitutive instrument. The instrument must be in writing, in compliance
with the requirement in Article 63 of the Civil Code that the charters or statutes of all legal
persons be drawn up in writing. Under Article 78 of the Civil Code, the organization acquires
legal personality once it has been entered into the relevant court registry. On the whole, courts
enter organizations in these registries without closely examining their constitutive instrument.
Indeed, registration is rarely refused and it is a more or less rubber stamp procedure. When it is
refused, the founders can seek review before the competent court of justice and upon appeal the
case could be heard by Areios Pagos, the highest civil court in the country.
The Civil Code regulates a somateio extensively.18 The regulations take precedence over
provisions of the organization’s constitutive instrument. For example, under Article 88(2) of the
Civil Code, members who believe that they have been improperly expelled from the organization
are entitled to file within two months a judicial review of the expulsion before the competent
court of justice19
. In addition, the legality of any decision adopted by the assembly of members
may be challenged again before the competent court by anyone with a legitimate interest,
including those members who dissented from the decision, within six months of the decision’s
adoption. Under Article 101 of the Civil Code, further, if the court of justice voids the decision,
the ruling affects all members, not just those who had contested its legality. Finally, Article 89 of
the Civil Code proclaims the equality of all members participating in a somateio. Additional
rights may be conferred on specific members only if the totality of members consents, acting
through the assembly.

16 The Greek Civil Code entered into force in February 1946. It was considerably influenced by the German
Civil Code (Buergerliches GezetzBuch – BGB), originally adopted in the 19th century. Subsequent revisions in the
Greek Civil Code were also influenced by the BGB.
17 By contrast, commercial companies which operate as sociétés anonymes or as companies with limited
responsibility must have the constitutive (founding) instrument or charter drawn up by a notary public. Greek
commercial law was influenced by French law, although nowadays there is a large corpus of European Union law in
this area.
18 See Articles 78 to 106 of the Civil Code.
19 Invariably this will be the court of first instance in whose jurisdiction the NGO has its registered seat.
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 47
2. Organizations of Individuals Not Regarded as Societies or
Associations
The second type of legal vehicle is envisaged in Article 107 of the Civil Code:
organizations which are composed of individuals (i.e. natural persons) drawn together to pursue
a specific purpose but which are not regarded as societies or associations. Such entities are
obliged to have their constitutive instrument in writing. The Civil Code does not contain any
further provisions on this type of legal vehicle other than to stipulate that its provisions dealing
with companies or corporations (etaireia) shall apply by analogy.20
3. Foundations
Article 108 of the Civil Code defines a foundation (idryma) in the following terms: if, by
virtue of a founding act, property (estate) was designated to serve a specific purpose, the
foundation will acquire legal personality by virtue of a presidential decree approving its
establishment. If the act creating the foundation takes the form of a legal transaction while the
owner of the property is alive, then under Article 109 of the Civil Code, the transaction must be a
legal document drawn up by a notary public.21 Foundations, as opposed to somateio, have no
members and, accordingly, no general assembly. An idryma is run by its administration.
(It should be noted that, over and above the idryma, the Greek legal system acknowledges
the existence of another vehicle, the koinofeles idryma, which largely corresponds to the English
institution of “charity”, at least as far as the notion of charitable purpose or goals is concerned.
By contrast to a Civil Code idryma, a koinofeles idryma does not serve a private aim or purpose.
Rather, its fundamental aim is to be “charitable”, a term that includes religious and philanthropic
purposes and, generally, any goal which is for the benefit of the public at large. This type of
organization is regulated by special legislation.22)
The requirement of a presidential decree to set up an idryma demonstrates that compared
to the other legal entities that can be used for establishing NGOs, foundations are subject to
heavier intervention by the state. Unlike laws which are deliberated in Parliament, agreed by
Parliament and promulgated by the President of the Hellenic Republic (the proper name of
Greece),
23 presidential decrees must be signed by the President, reviewed by the Council of State
(the highest-ranking administrative court in the country), and then issued by the competent
ministers.24 The Council of State, when exercising its advisory role, can recommend to the
competent ministers not to proceed because, for example, clauses in the foundation’s constitutive
instrument violate the legislation or go against morality (bonos mores).
The State, however, does not have absolute discretion. If it refuses the creation of a
foundation, it must give proper reasons. The founders can seek review by the courts by arguing

20 See Articles 741 to 784 of the Civil Code.
21 Note that a foundation can also be set up by a will. In this case, the legal form of the will must follow the
relevant stipulations of the Civil Code. Generally, see K. Magliveras, “The Greek Law of Succession,” in D. Hayton
(ed.), European Succession Laws (3d ed.) (Bristol: Jordans, 2002), 271.
22 Until the promulgation of Act 4182/2013 (FEK 2013 A’ 185), which has been amended by Article 32 of
Act 4223/2013 (FEK 2013 A’ 287), it was regulated by virtue of Act 2039/1939.
23 See Article 42 of the Constitution.
24 See Article 43 of the Constitution.
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 48
that the refusal violates the rights conferred by the Greek Constitution and ratified international
treaties. In this instance, the competent court will be the Council of State, which will rule on
whether the grounds furnished by the State are valid. By the same token, if the presidential
decree has been issued, any other person who can show a legitimate interest in the case can apply
for its annulment before the Council of State.
A foundation can also be dissolved by a presidential decree, under Article 118 of the
Civil Code, in the following three broad situations: (a) when its aim has already been attained or
has become unattainable; (b) when the foundation has deviated from its stated aim; (c) or when
its operation is immoral or violates the applicable laws or breaches public order.
In some respects, Greece regulates foundations differently from other European
countries. The WWF25 supplies an illustration. WWF was registered as a foundation (fondation,
Stiftung) in Switzerland in 1961, pursuant to Articles 80 et seq. of the Swiss Civil Code.26 In
Greece, a WWF International Program Office was created in 1991 under the name Global Fund
for Nature—WWF Greece. Three years later, the Greek national organization was established
with the legal status of a charitable foundation. Its statute was ratified by the Presidential Decree
of January 11, 1994.
27 It was then amended by the Presidential Decree of June 5, 2001,
28 and by
Article 18 of Act 2443/1996.29
Even though an idryma and a fondation are essentially the same legal vehicle, their
regulation differs in a number of respects.30 Article 84 of the Swiss Civil Code stresses the role
played by the supervisory authority, which has to be a public law entity operating at the level of
the Confederation, a canton, or a commune. The supervisory authority, which is determined
according to the goals of the foundation, ensures, inter alia, that the resources given to the
fondation are used for the intended purposes with no deviation. Under Article 88, moreover, the
supervisory authority can dissolve a fondation on its own, without applying to a court for a
dissolution order, if it deems that the organization’s objectives have become unattainable and
cannot be maintained by modifying its constitutive instrument or that its objectives have become
unlawful or immoral.31 Additional requirements can depend on whether the competent body is at
the level of the Confederation or of a canton. For example, the Federal Supervisory Board for
foundations requires a minimum initial capital of 50,000 Swiss francs (about 49,000 Euro).32
Another notable difference is that whereas Greek foundations have a single mandatory organ,

25 WWF is globally referred to by the abbreviation of its original name, World Wildlife Fund, which was
later changed to World Wide Fund for Nature.
26 An official translation of the Swiss Civil Code, which was also influenced by the German Civil Code, is
available at www.admin.ch/ch/e/rs/2/210.en.pdf
27 FEK 1994 Β’ 22 of January 18, 1994.
28 FEK 2001 Β’ 790 of June 22, 2001.
29 FEK 1996 A’ 265 of December 3, 1996. The purpose of this amendment was to exclude it from the
provisions of the aforementioned Act 2039/1939 on account of its operational and administrative autonomy.
30 See L. R. Arrivillaga and G. von Schnurbein, “The Swiss Legal Framework on Foundations and Its
Principles About Transparency,” International Journal of Not-for-Profit Law, Vol. 16, no. 1, September 2014, 30.
31 See Article 88 of the Swiss Civil Code.
32 Note that since July 1, 1999, all fondations must be entered in an electronic registry, which is open and
available to the public (https://www.edi.admin.ch/esv/05263/index.html?lang=de).
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 49
Swiss foundations have two: the council (the supreme governing body) and the board of trustees
(audit board); the latter appoints the external auditors.
4. Civic Not-for-Profit Organizations
Articles 741 et seq. address the fourth type of legal vehicle envisaged in the Greek Civil
Code, civic not-for-profit companies, corporations, and organizations. These are entities set up
by at least two natural persons or legal persons who make joint contributions and commitments
to carry out a particular social or economic aim. The founders of NGOs have often used the
astiki mi kerdoskopiki etaireia to pursue philanthropic aims.
Given the wide-ranging scope of the type of entity, it has also been used for a variety of
other purposes and activities, including commercial and scientific. In addition, the Greek
government has used these vehicles for programs financed by the European Community and the
European Union and undertaken by different legal entities. Article 8 of Act 2372/1996,
“Establishment of operators to accelerate the development process and other provisions,”
requires the formation of civic not-for-profit companies for those seeking to implement EC- and
EU-financed programs dealing with, among other things, the economic and social inclusion of
less privileged groups.33 Arguably, these companies do not meet the criteria of an NGO.
5. NGOs as Legal Persons
Finally, it should be clarified that the Greek Civil Code treats societies and associations
as well as foundations as legal persons in order to distinguish them from the natural persons who
act as their founders or members.34 The Civil Code does not seem to allow the organizations to
participate in other legal persons, whether new or preexisting. Article 62 stipulates: “The
capacity of a legal person does not extend to legal relationships, which require the faculty/status
of a natural person.” Thus, legal persons do not have the capacity to establish other legal persons
even in collaboration with natural persons.
III. NGOs in the English Legal Order
England has a long and distinguished tradition in NGOs. It can boast of many important
and successful NGOs, and a good share of them are active on the international plane.
Philanthropy is deeply rooted in the Anglo-Saxon world, which has no doubt contributed
considerably to establishing NGOs as a trusted institution in England.35 The creation of the
Oxford Committee for Famine Relief in 1942 marked a fresh way of looking after the interests of
those most in need, irrespective of the country where they are located. Initially the Oxford
Committee, which is now internationally known as Oxfam, aimed at ensuring the supply of vital
relief to civilians in European countries occupied by the Axis powers during World War II,
principally Belgium and Greece. Today, Oxfam, as an international confederation comprising 17

33 FEK 1996 Issue A’ 29 of February 28, 1996. The Act is apparently still in force.
34 Note that the provisions examined here form part of the third chapter of the Civil Code, which is titled
“Legal Persons.” The legal provisions on natural persons (individuals) are contained in the second chapter of the
Civil Code.
35 Generally, see W.K. Jordan, Philanthropy in England, 1480-1660: A Study of the Changing Pattern of
English Social Aspirations (London: G. Allen & Unwin, 1959).
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 50
organizations,36 is active in more than 90 countries and works alongside local partners.37 Its main
objectives are to address the root causes of poverty and to respond to humanitarian
emergencies.
38
Oxfam considers itself part of the so-called “non-profit sector.” It is one of the signatories
of the INGO (international nongovernmental organization) Accountability Charter, which was
concluded in 2005 and further developed in 2014 as a voluntary commitment to high standards
of transparency, accountability, and effectiveness.39
At the same time, Oxfam is a registered charity in England and Wales as well as in
Scotland. The notion of a “registered charity” denotes that an organization with charitable
purposes and aims is under the supervision of the Charity Commission (if registered in England
and Wales) or the Office of the Scottish Charity Regulator (if registered in Scotland). Since these
two entities operate as “non-Ministerial Government Departments,” they form part of the wider
public administration system in Great Britain. Even so, they are completely independent of
ministerial influence. To that extent, they can be considered as regulatory authorities enjoying
budgetary and administrative independence. These two entities act under the principal legislative
instruments covering “charities”: the Charities Act 2011 (England and Wales) and the Charities
and Trustee Investment (Scotland) Act 2005.40
The Charities Act 2011, which came into effect on March 14, 2012, sets out how charities
in England and in Wales are to be registered and regulated. According to section 1 of the
Charities Act 2011,41 “charity” means an institution that meets the following two conditions:
first, it has been established for charitable purposes only; and second, it falls into the ambit of the
control of the High Court.42 What constitutes “charitable purposes” is laid down in sections 2 and
3 of the Charities Act 2011:
(a) the prevention or relief of poverty;
(b) the advancement of education;

36 Most of these organizations are in countries of the so-called First World and not in the countries where
Oxfam implements its programs: Oxfam America; Oxfam Australia; Oxfam-in-Belgium; Oxfam Canada; Oxfam
France; Oxfam Germany; Oxfam Great Britain; Oxfam Hong Kong; Oxfam India; Oxfam Intermón (Spain); Oxfam
Ireland; Oxfam Mexico; Oxfam New Zealand; Oxfam Novib (Netherlands); Oxfam-Québec; Oxfam Italy; and
Oxfam Japan.
37 For the list of countries, see https://www.oxfam.org.uk/what-we-do/countries-we-work-in.
38 For the current Oxfam Strategic Plan (2013-2019), which is titled “The Power of People Against
Poverty,” see https://www.oxfam.org/en/about/accountability/oxfam-strategic-plan-2013-2019.
39 For the current text of the Accountability Charter, see
https://www.ingoaccountabilitycharter.org/wpcms/wp-content/uploads/INGO_CHARTER_web.pdf.
40 It should be noted that even though the United Kingdom of Great Britain and Northern Ireland is a
unitary State, there exist three separate legal regimes covering, respectively, England and Wales, Scotland, and
Northern Ireland. This divergence of legislation also applies in the case of regulating charities. For purposes of
convenience only the provisions of the Charities Act 2011 will be examined here.
41 Note that the English legislation is broken down into “sections” and not into “articles,” as is the case with
Continental European legislation.
42 The High Court (the full title is “Her Majesty’s High Court of Justice in England”) is one of the senior
British courts with territorial jurisdiction in England and Wales. Its principal function is to consider important legal
cases. But it has also been endowed with other juridical tasks.
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 51
(c) the advancement of religion;
(d) the advancement of health or the saving of lives;
(e) the advancement of citizenship or community development;
(f) the advancement of the arts, culture, heritage or science;
(g) the advancement of amateur sport;
(h) the advancement of human rights, conflict resolution or the promotion of religious or
racial harmony or equality and diversity;
(i) the advancement of environmental protection;
(j) the relief of those in need because of youth, age, ill-health, disability, financial
hardship or other disadvantage;
(k) the advancement of animal welfare;
(l) the promotion of the efficiency of the armed forces of the Crown or of the efficiency
of the police, fire and rescue services or ambulance services; and
(m) any other aim, which may reasonably be regarded as analogous to any aims falling
within any of above (a) to (l).43
If one were to argue that some of the above should not be regarded as activities usually promoted
by NGOs (e.g., the advancement of citizenship or the promotion of the efficiency of the British
armed forces), it should be remembered that “charity” in the English legislation has a specialized
meaning.44
Section 2 of the Charities Act 2011 stipulates that all activities must be “for the public
benefit,” a term not expressly defined in the legislation but rather left to be interpreted by the
Charity Commission. Thus, the Charity Commission has described the term “public benefit” as
follows:
Public benefit is an essential part of what it is to be a charity. But it is not just a legal
requirement that charities have to meet and that we regulate. It also provides charities
with a positive opportunity to demonstrate the benefits they bring to the public, in return
for the financial and other benefits that come from being a charity, such as public
support.45
Moreover, it has acknowledged that there can be no precise definition of “public benefit.”
Rather, it must be examined on a case-by-case basis.46

43 For analysis, see J. Garton, The Regulation of Organised Civil Society (Oxford: Hart Publishing, 2009),
147-154.
44 See N. Malik, “Defining ‘Charity’ and ‘Charitable Purposes’ in the United Kingdom,” International
Journal of Not-for-Profit Law, Volume 11, Issue 1, November 2008, available at
https://www.icnl.org/research/journal/vol11iss1/special_2.htm.
45 See Charity Commission, Public Benefit: An Overview, September 2013, 3, available at
https://www.charitycommission.gov.uk/media/535041/public_benefit_an_overview.pdf.
46 See Charity Commission, Analysis of the Law Relating to Public Benefit, September 2013, available at
https://www.charitycommission.gov.uk/media/94849/lawpb1208.pdf.
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 52
Pursuant to section 30 of the Charities Act 2011, every charity must be entered in the
register kept by the Charity Commission,
47 except for those whose annual gross income does not
exceed GBP 5,000 (about 6,500 Euro). Section 37 stipulates that an institution is conclusively
presumed to be a charity when it appears on the register. Registered charities must reveal their
total income. Larger charities must also submit a financial profile disclosing, inter alia, their
long- and short-term investments.
IV. Conclusions
Greece and England have followed different models for the regulation of NGOs. Greece
has de facto allowed individuals to endow their organizations with legal personality by using the
private law entities envisaged in the Civil Code (other than commercial enterprises and
companies), but so far it has not drafted a regulatory framework specific to NGOs. In England,
by contrast, the longstanding existence of charities, as a separate and regulated legal entity,
arguably obviated the need for NGO-specific legislation. Any interested NGO could become a
registered charity, so long as its activities fell within the broadly worded permissible purposes,
and gain the advantages that this status entails.
Lacking the legal category of “charity,” Greece ought to adopt a regulatory framework
tailored to the ever increasing number of NGOs. The ordinary operation of the very large number
of NGOs currently active in Greece demands the existence of a framework, which would not
have to be elaborate. It will be submitted that small changes to the Civil Code would allow
adding NGOs as another tailor-made legal vehicle available to individuals seeking to pursue their
legitimate interests together, especially interests that are protected by the Constitution. The Civil
Code ought to recognize the NGO as a separate entity with legal personality, distinct from the
other legal vehicles.
In particular, the Civil Code ought to allow a group of individuals, regardless of
citizenship (i.e. both Greek citizens and aliens), to set up a legal person specifically categorized
as a “nongovernmental organization” and enjoying full juridical personality, separate from
associations, (charitable) foundations, and not-for profit undertakings. As for regulatory details,
the Civil Code could stipulate that the elaborate provisions on associations (somateio) will apply
by analogy.
In Greece, as in other Continental European countries, the codification of rules and
custom is a guiding principle of the legal culture. Civil Codes, as the principal regulatory
instrument governing private-to-private dealings and transactions, should keep pace with societal
changes and trends. There is no doubt that the establishment and operation of thousands of
NGOs in Greece in the past 25 years has been such a trend. England, having no such tradition in
codification, has perhaps been more flexible by adopting purposely-drafted legislation whenever
the need arose.
Arguably, the Greek Civil Code has been allowed to lag behind societal developments.
The last overhaul concerned family law and took place in the early 1980s. The addition of NGOs
to the list of legal vehicles in the Civil Code will offer a tailor-made entity to those wishing to
exercise their freedom of association. It will also increase the number of international NGOs
operating on Greek territory.

47 The Register of Charities is available at https://www.charitycommission.gov.uk/find-charities.
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 53
One author has described the power of the NGOs in the following terms:
As norm entrepreneurs, [NGOs] advocate substantive constitutional principles, human
rights, the rule of law and democracy. Furthermore, NGOs strengthen these principles in
situations where state organs or agencies fail to fulfil their essential functions and, in
exceptional situations, even act as surrogates of state officials where state institutions
have broken down.48
A type of organization that might have the potential to play such an instrumental role cannot be
left without customized regulation, especially in today’s Greece, where traditional legal
principles such as the rule of law have arguably been traumatized while the enemies of the rule
of law such as corruption have become the order of the day. Although proper regulations cannot
guarantee that NGOs will successfully take over where the State has failed, segments in society
expect them to pursue the wider good.
Finally, it is high time that Greece harmonized its Constitution with EU law and
institutions. The Constitution ought to state clearly that the rights guaranteed by Articles 11 and
12 extend to the citizens of all EU member states, rather than, as now, only to Greek nationals.
England, lacking a written Constitution, has not had to face this issue.
These are urgent issues that must be addressed. The sooner they are dealt with, the
greater the benefits that NGOs and their members can confer on Greek society.

48 T. Kleinlein, “Non-State Actors from an International Constitutionalist Perspective: Participation
Matters!” in J. d’Aspremont (ed.), Participants in the International Legal System. Multiple Perspectives on NonState Actors in International Law (Abingdon: Routledge, 2011), 41, 44.
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 54
Article
A FRAMEWORK FOR ANALYSIS
OF ISLAMIC ENDOWMENT (WAQF) LAWS
MOHAMMED OBAIDULLAH, PH.D.
1
Analysis of the Shariah-legal framework for Islamic endowments (awqaf, or in singular
waqf) around the globe reveals that the Shariah law as well as the national laws are
rooted in several considerations. Preservation of the endowed assets seems to be the
overriding consideration, which has been interpreted variously as preservation of the
assets in their physical form and as preservation of benefits for the intended
beneficiaries. While preservation of assets manifests in the form of stipulations such as
prohibitions against any sale, gift, or mortgage that might lead to transfer of ownership
of the assets, preservation of benefits for the intended beneficiaries requires prudent
management of the assets and efficiency in their development and investment.
Development may actually lead to expansion of benefits for the intended beneficiaries
and may at times require a degree of dilution in the stipulations concerning preservation.
We find that laws and regulations often involve a trade-off between concerns about
preservation of assets in physical form and concerns about development. Although the
focus here is on Islamic endowments in India, this framework may also be employed to
analyze laws in other jurisdictions.
1. Introduction
Laws governing Islamic endowments (awqaf, or in singular waqf) display wide
variations. In most countries the laws demonstrate the influence of their colonial past. In these
countries, Islamic law was superseded by secular law2
and the endowments remained dormant
for long periods. The extent of reform efforts varies among countries. For example, though
Malaysia is far ahead of others in putting into practice Islamic law in the field of banking,
insurance, and financial markets, it lags way behind in operationalizing a progressive law for its
awqaf sector. Indonesia stands far ahead of others in enacting a law that reflects state-of-the-art
thinking among scholars in the field and that may perhaps serve as a model for other countries.
India, Pakistan, and Bangladesh share the same origin, in laws enacted during the undivided
British India, but they have introduced reforms in varying degrees since achieving their
independence. A high degree of commonality therefore exists in their laws.3

1 Mohammed Obaidullah, Ph.D., mobaidullah@isdb.org, is Senior Economist at the Islamic Research and
Training Institute of the Islamic Development Bank Group in Jeddah, Saudi Arabia, and Yayasan Tun Ismail
Mohamed Ali Berdaftar (YTI) Chair Professor in Islamic Finance at Islamic Science University of Malaysia.
2
Islamic law was replaced by British law in all countries with the exception of Indonesia, which was
colonized by the Dutch.
3
See Islamic Social Finance Report (2014), ch. 4, Islamic Research and Training Institute, Jeddah, Saudi
Arabia, which provides a comparative analysis of regulations for the awqaf sector in six countries in South and
Southeast Asia.
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 55
Malaysia comprises thirteen states and federal territories. In Selangor and Malacca, the
provisions of law on awqaf are provided under the Enactment of Wakaf (State of Selangor) 1999
and the Enactment of Wakaf (state of Malacca) 2005; the other states that do not have such
legislation are governed by the states’ administration of Islamic law.4
The provisions of Part VI
of the Administration of the Religion of Islam (Federal Territories) Act 1993 relating to Islamic
endowments have striking similarities with those in Chapter 3 of the Administration of Muslim
Law Act, Singapore 1999, that deal with Islamic endowments.
In Indonesia, waqf is regulated by the Act of Republic of Indonesia No. 41 on Waqf
2004.
India, Pakistan, and Bangladesh share a common history of being part of the undivided
India ruled by the British until 1947; therefore, they show striking similarities in their waqf
laws.
5
There have been major changes since, though. India, like its neighbors, has a long history
of waqf laws in various versions, including the Waqf Act 1995 followed by the Waqf Reform
Act 2013, which may be the most recent applicable legislation in any country. In Pakistan the
Provisional Waqf Ordinances 1979 in its four provinces provide the regulatory framework. In
Bangladesh the Waqf’s Ordinance 1962 primarily governs waqf creation and administration.
In the Gulf Cooperation Council and Middle East/North Africa region, laws governing
Islamic endowments have also evolved over time. Islamic endowments were transferred from the
voluntary sector (managed by private trustees under the supervision of the qadi/judiciary) into
the domain of the governments as a response to alleged corrupt practices and usurpation. The
endowments in the region remain under the control of the Ministry of Islamic/Religious Affairs.
State control has been less stringent in Sub-Saharan Africa. Countries such as Nigeria and
Sudan have been giving increasing attention to reforming their waqf infrastructure and providing
an enabling regulatory environment for the endowments to be managed and developed.
Analysis of the Shariah-legal framework for Islamic endowments around the globe
reveals that the Shariah law as well as the national laws of awqaf are rooted in several
considerations. Preservation of the endowed assets seems to be the overriding consideration,
which has been interpreted variously as preservation of the assets in their physical form and as
preservation of benefits for the intended beneficiaries.6 While preservation of assets manifests in
the form of stipulations such as prohibitions against any sale, gift, or mortgage that might lead to
transfer of ownership of the waqf assets, preservation of benefits for the intended beneficiaries
requires prudent management of the assets and efficiency in their development and investment.
Development may actually lead to expansion of benefits for the intended beneficiaries and may
at times require a degree of dilution in the stipulations concerning preservation.
In the next section, we present a framework for analysis of laws and regulations as they
have been put in place over time. We demonstrate that these have often involved a trade-off
between concerns about preservation of assets in physical form and concerns about development.

4 The term wakaf is used for Islamic endowments in Southeast Asian countries, including Malaysia. The
corresponding term in South Asia is wakf; in the Middle East, waqf; and in North Africa, habs.
5 This is also the case with Zanjibar in Tanzania that was under British occupation.
6
See Monzer Kahf, Towards the Revival of Awqaf: A Few Fiqhi Issues to Reconsider, paper presented at
Harvard Forum on Islamic Finance and Economics, October 1, 1999, Harvard University, U.S.A.
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 56
Using the framework, we analyze laws of Islamic endowments as they have evolved in India.
Based on the analysis we argue that further reforms are required to facilitate creation of new
endowments and revival of existing endowments.
2. Understanding the Regulatory Trajectory
In order to appreciate the way the laws have evolved over time, we present the concept of
society’s objective function for laws/regulations/rules/policies. We hypothesize that the objective
function for laws/regulations/rules/policies pertaining to Islamic endowments is determined
largely by the Islamic scholars who lead the Muslim masses in matters of religion. In a
democratic state the laws seek to capture the objective function over time. We hypothesize that
given the large-scale encroachment of awqaf assets by rulers, the scholars’ and society’s primary
objective has been the preservation of assets. However, over time one may witness a shift in the
objective function from (i) preservation of assets to (ii) preservation of benefits for the intended
beneficiaries and vice-versa. For instance, such a shift in the objective function is believed to
have taken place as one finds increasing scholarly discussion of the concepts of exchange and
replacement of waqf assets (ibdal and istibdal). Arguably, this may occur in the face of a
realization that the objective function may need to be modified to (iii) sustained enhancement of
benefits for the intended beneficiaries. This would also ensure the fulfillment of (i) and (ii).
Society’s objective function may be presented in a two-dimensional space as Regulatory
Efficiency Frontier (REF), with the two dimensions being preservation and development.
Creation of an enabling legal environment would involve a search for laws of the following
types:
1. Laws that enhance both preservation and development: a movement toward the
Regulatory Efficiency Frontier
2. Laws that enhance preservation without adversely affecting development: a vertical move
upward
3. Laws that enhance development without adversely affecting preservation: a horizontal
move to the right
The search for efficiency should involve movement of all three types. Society will optimize
efficiency gains at the Regulatory Efficiency Frontier (see Figure 1). A shift in objective function
itself (relative importance attached to concerns about preservation and development) would
mean a change in the shape of the REF.
3. Islamic Endowments in India
The following facts for the Indian awqaf sector provide the basis for the framework. The
size of assets under Islamic endowments in India is huge. The Report on Social, Economic and
Educational Status of the Muslim Community of India (2006) estimated that there are more than
490,000 registered Islamic endowments.7
The total area under endowed land assets is estimated
at 600,000 acres; 80 percent is in rural India and the rest is in major cities. The book value of
these assets is estimated at USD 1 billion and the market value at USD 20 billion. At the same

7
Social, Economic and Educational Status of the Muslim Community of India: A Report, Prime Minister’s
High Level Committee, Cabinet Secretariat Government of India, November, 2006,
https://www.minorityaffairs.gov.in/sites/upload_files/moma/files/pdfs/sachar_comm.pdf
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 57
time, the annual income on endowed assets is meager, estimated at USD 27 million, or 2.7
percent of book value.
Figure 1: Regulatory Efficiency Frontier
The Islamic endowments in India are characterized by massive encroachment by state
agencies and corporate entities, raising serious concerns of preservation. Historians assert that
aggressive encroachment by the state began after the 1857 mutiny against the British raj.
According to one estimate, currently in Delhi alone, over 30 percent of about 2,000 waqf
properties are illegally occupied by government agencies. Media reports on high-profile cases
have kept the concerns about preservation on the front burner. For example, in 2002 an
orphanage land valued at about USD 24 million was sold for USD 3.4 million for construction of
the residence of India’s richest man (currently valued at around USD 1 billion).
8
Studies have also reported excellent returns on properties post-development. Therefore, it
is believed that the potential and significance of development is huge. A study by Syed Khalid
Rashid estimated the average return on investment of 20 percent post-development.9
3.1. Waqf Laws in India
India has witnessed multiple waqf laws beginning in 1810. The more recent enactments
have been the Wakf Act 1954, Wakf Amendment Act 1984, Wakf Act 1995, and now the Wakf
Amendment Act 2013.
A research study undertaken by Hasanuddin Ahmad and Ahmadullah Khan in 1995 for
the Islamic Research and Training Institute (IRTI) provides the complete history of waqf laws in

8
“Mukesh Ambani, India’s richest man, faces court over Dh3.6bn Mumbai home,” The National, Aug. 4,
2011, https://www.thenational.ae/news/world/south-asia/mukesh-ambani-indias-richest-man-faces-court-over-dh3-
6bn-mumbai-home#ixzz3Eb2rfPxx.
9
S.K Rashid (2005), Protection, Maintenance and Development of Awqaf in India (with special reference
to Rajasthan), Institute of Objective Studies, New Delhi, pp 74-85.
Development
Regulatory Efficiency Frontier
Preservation
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 58
India.10 However, we restrict our analysis to post-independence India where laws resulted from
the democratic process rather than British rule. The first comprehensive legislation for waqf in
independent India was the Waqf Act 1954. However, this Act failed to address the concerns
relating to awqaf; therefore, a Waqf Enquiry Committee was constituted by the government in
1969 comprising public representatives. The Committee held nationwide deliberations and made
wide-ranging recommendations. This led to the passage of the Waqf Amendment Act 1984.
However, for a variety of reasons, this Act remained dormant. The Waqf Act 1995 is the first
comprehensive piece of law that defined the rules of the game. The operation of the law,
however, continued to attract criticism, and it was largely perceived to be ineffective in
preserving the waqf assets. This led to further calls for reform. The Waqf Reform Bill 2010 was
formulated after extensive consultations. It took the shape of Waqf Amendment Act 2013 three
years later.
We focus on provisions of the Waqf Act 1995 and the Waqf Amendment Act 2013 and
highlight how the changes that have taken place over time with respect to the infrastructure for
waqf administration address the concerns about preservation and development.
3.2. Waqf Infrastructure
India has a huge waqf infrastructure under its Ministry of Minorities Affairs, but with
significant autonomy to waqf boards constituted at the provincial or state levels. The State Waqf
Boards (SWBs) are established by the respective provincial or state governments in view of
sections 13 and 14 of the Wakf Act 1995. These work towards management, regulation, and
protection of the waqf properties by constituting local committees. Currently there are thirty waqf
boards across the country. The Central Waqf Council is a statutory body established in 1964 by
the Government of India under Wakf Act 1954 (now a subsection the Wakf Act 1995) for the
purpose of advising it on matters pertaining to working of the State Waqf Boards and proper
administration of the awqaf in the country.
Figure 2. Waqf infrastructure in India

10 Hasanuddin Ahmad and Ahmadullah Khan (1995), Strategies to Develop Waqf Administration in India,
Islamic Research and Training Institute, Jeddah, Saudi Arabia.
Ministry of Minorities Affairs
Central Waqf Council
State Waqf Boards
Waqf Administration
Waqif (Endower) Mutawalli (Manager) Mawquf Alaihi (Beneficiary)
WAQF TRIBUNAL
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 59
Figure 2 presents the various components of the waqf related infrastructure in India.
We move on to explore how changes in laws over time affecting them have been
governed by concerns about preservation and development.
3.2.1. Central Waqf Council
Section 9-12 of the Wakf Act 1995 provided for the creation and functions of the CWC to
advise the Government of India on matters concerning the working of Waqf Boards and the due
administration of awqaf in the country; and to undertake development of waqf assets to ensure
preservation.
These provisions were clearly governed by a need to ensure physical preservation of
endowed assets (movement of type 2 towards REF in Figure 1). The Act asserted that the
endowed assets need to be developed lest they be physically dilapidated to an extent that they
would cease to provide any benefits. Thus, the focus was on maintenance of the assets so that
benefits continued to flow out and not on development of the assets so that benefits could be
enhanced. The law at this stage provided very little that could lead to large-scale development of
the endowed assets.
The Waqf Amendment Act 2013 sought to strengthen the role of the CWC as a central
and key pillar in waqf administration. Among other things, it sought to address the concerns
about physical preservation of endowed assets (movement of type 2 toward REF) by
empowering the CWC to issue directives to the State Waqf Boards (SWBs) on their financial
performance, survey, and maintenance of waqf deeds, revenue records, and encroachment of
waqf properties seeking annual report and audit report; and by providing for any disputes arising
out of its directives to be referred to a high-level Board of Adjudication
3.2.2. State Waqf Boards
The idea of federalism, with the State Waqf Boards (SWBs) as the foremost actors in
waqf administration in India, was introduced quite early. However, it was the Wakf Act 1995
that provided an elaborate list of power and functions of the SWBs (Section 32) as well as the
duties and obligations for the trustee-manager or mutawalli relating to registration, disclosure,
and compliance with directives of the board (Section 50). These provisions were essentially
governed by the concern to ensure and enhance preservation of the endowed assets (movement
of type 2 towards REF).
Section 32.2 describes the powers and functions of the SWBs as follows:
1. to maintain a record containing information relating to the origin, income, object, and
beneficiaries of every waqf;
2. to ensure that the income and other property of awqaf are applied to the objects and for
the purposes for which such awqaf were intended or created;
3. to give directions for the administration of awqaf;
4. to settle schemes of management for a waqf, provided that no such settlement shall be
made without giving affected parties an opportunity of being heard;
5. to direct (i) the utilization of the surplus income of a waqf consistent with the objects of
waqf; (ii) in what manner the income of a waqf, the objects of which are not evident from
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 60
any written instrument, shall be utilized; (iii) in any case where any object of waqf has
ceased to exist or has become incapable of achievement, that so much of the income of
the waqf as was previously applied to that object shall be applied to any other object,
which shall be similar to the original object or for the benefit of the poor or for the
purpose of promotion of knowledge and learning in the Muslim Community;
6. to scrutinize and approve the budgets submitted by mutawallis and to arrange for auditing
of account of awqaf;
7. to appoint and remove mutawallis in accordance with the provisions of this Act;
8. to take measures for the recovery of lost properties of any waqf;
9. to institute and defend suits and proceedings relating to awqaf;
10. to sanction any transfer of immovable property of a waqf by way of sale, gift, mortgage,
exchange, or lease;
11. to administer the Waqf Fund;
12. to call for such returns, statistics, accounts, and other information from the mutawallis
with respect to the waqf property as the board may require;
13. to inspect, or cause inspection of, waqf properties, accounts, records, or deeds, and
documents relating thereto;
14. to investigate and determine the nature and extent of waqf and waqf property, and to
cause, whenever necessary, a survey of such waqf property; and
15. generally do all such acts as may be necessary for the control, maintenance, and
administration of awqaf.
This law also provided for proactive intervention for development of an asset with prior
government approval (Section 32.4). The development-related concerns were obviously
becoming more significant in shaping the regulatory framework (movement of type 3 towards
REF).
Section 32.4 stipulates that where the board is satisfied that any endowed asset offers a
feasible potential for development, it may ask the mutawalli to develop it. Otherwise, it may,
with the prior approval of the Government, take over the asset, develop it with its own funds, and
control and manage it until the original investment and the financing cost are recovered (Section
32.5), subsequent to which the developed asset shall be handed over to mutawalli of the
concerned waqf (Section 32.6).
The Waqf Amendment Act 2013 made major changes with respect to the power and
functions of the SWBs. It did away with the “government approval” requirement in Section 32.5,
thus paving the way for SWBs to undertake development faster and more easily. It also provided
for additional physical punishment over and above financial penalties for the mutawalli in case
of non-compliance with provisions of the law concerning its duties and responsibilities vis-à-vis
preservation and development of the endowed assets (movement of type 1 towards REF)
(Section 61).
It also sought to strengthen the preservation of endowed assets (movement of type 2
towards REF) by providing for:
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 61
 Establishment of boards in states where they are nonexistent (Section 13);
 Prohibition of sale, gift, exchange, mortgage, or transfer of waqf property ab initio,
except for the possibility of acquisition of waqf properties for a public purpose under the
Land Acquisition Act 1894 or any other law relating to acquisition of land if the
acquisition is made in consultation with the board, provided also that (a) the acquisition
shall not be in contravention of the Places of Public Worship (Special Provisions) Act
1991; (b) the purpose for which the land is being acquired shall be undisputedly for a
public purpose; (c) no alternative land is available which shall be considered suitable for
that purpose; and (d) to safeguard adequately the interest and objective of the waqf, the
compensation shall be at the prevailing market value or a suitable land with reasonable
solatium in lieu of the acquired property (Section 51);
 Restoration of waqf properties in occupation of government agencies to the mutawalli or
Waqf Board, or payment of rent at market rates (Section 51);
 Inclusion of professionals and scholars on the board, with a Muslim CEO to effectively
deal with administrative machinery in the state (Section 20);
 Removal of corrupt members through no-confidence motion (Section 20A);
 Survey and digitization of records, and compulsory registration within one year of
enactment and every ten years thereafter (Section 6); and
 Punishment for alienation of waqf assets (Section 52A).
3.2.3. Tribunal
While the dominant role in waqf administration is entrusted to the state, the judiciary is
expected to act as a watchdog to prevent acts of transgression by the state agency against the
mutawalli and adjudicate in matters of dispute. However, its effectiveness in ensuring fair play is
dependent on provisions of law that define its constitution, power, and functions.
The Waqf Act 1995 provides for establishment of a Waqf Tribunal to adjudicate disputes
on whether a particular property is indeed waqf property (Sections 6-7)and to ensure fair deal to
an aggrieved trustee-manager (Sections 33-35), member (Section 16), and executive officer and
staff of SWBs (Section 38.7). However, though the creation of the Tribunal was primarily to
ensure the preservation of endowed assets (movement of type 2 towards REF) by recovering
encroached assets (Section 52), experience showed that the Tribunal was largely ineffective
against encroachment.
The Waqf Amendment Act 2013 sought to further enhance preservation of endowed
assets (movement of type 2 towards REF) by providing that the Tribunal has powers of
assessment of damages by unauthorized occupation of waqf property and to penalize
unauthorized occupants and to recover damages; and a public servant who fails in his lawful duty
to prevent or remove such an encroachment can be convicted and fined (Section 54).
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 62
3.3. Management of Assets
According to Islamic law, it is compulsory to invest waqf assets.
11 It is the duty of the
mutawalli to manage the waqf assets prudently and efficiently. And it is the duty of the state
(waqf administration) and judiciary to ensure that the mutawalli is complying. The returns or
benefits from the endowed assets are meant to flow to the beneficiaries as intended by the
endower or waqif. However, early lawmakers seemed to be obsessed with the idea of
preservation. The Waqf Act 1995 stipulated that the lease or sublease of endowed assets was not
permissible for a period beyond three years (movement of type 2 towards REF). Lease or
sublease was permitted for one to three years, but only with prior approval of the board (Section
56). Ruling out any long-term lease effectively barred the possibility of participation of returnseeking private capital in the development of waqf assets.
This realization has led to amendment of the above restrictive section in the Waqf
Amendment Act 2013, which provides the following:
1. The lease period is extended to up to 30 years for commercial activities, education, or
health purposes;
2. Approval by the state government is necessary because of the long gestation periods;
3. The board will sanction a lease with the consent of at least two-thirds of members; and
4. The maximum period of lease for agricultural land is three years.
Clauses 2, 3, and 4 show that sufficient caution has been exercised while facilitating the
development of endowed assets. The Leasing Rules 2014 further enhance preservation as well as
development aspects (movement of type 1 towards REF) by requiring that:
1. The minimum lease rental on such assets put under lease must be at least 5 percent of the
market value;
2. Lease rentals must increase by not less than 5 percent every year;
3. There must be competitive bidding;
4. Two years’ rent must be paid upfront as security if the lease period is over 10 years;
5. No sublease is permissible;
6. No clause should exist for automatic renewals of the lease; and
7. Stringent conditions must exist in the agreement for possible default by lessee.
The above rules have been formulated by the Ministry of Minority Affairs as prescribed by the
Act. Arguably, these need to be revisited.
3.4. Need for Development of Endowed Assets
In line with a growing concern that development is the only way to enhance the benefits
for endowment beneficiaries (a flatter REF to the right), there is a need to look at the available
mechanisms to ensure development.

11 Resolution No. 140-15/6, Rulings of OIC Fiqh Academy on Awqāf, reproduced in Obaidullah, M.
(2013), Awqaf Development and Management, Islamic Research and Training Institute, Jeddah, Saudi Arabia, ch. 3.
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 63
The mechanism for waqf development that has existed for several decades is the Urban
Waqf Properties Development Scheme of Central Waqf Council. It is funded through a yearly
grant‐in‐aid from the Central Government. The scheme provides loans with two conditions for
waqf management: (i) donation of 6 percent per annum to Education Fund, and (ii) 40 percent of
enhanced income after loan repayment to be paid towards education.
The National Waqf Development Corporation (NAWADCO) has been set up recently
with the explicit objective of development of awqaf assets.
3.5. Making Sense of Some Numbers
Against 490,000 registered awqaf properties with an estimated market valuation of assets
at USD 24 billion, the Urban Waqf Properties Development Scheme of Central Waqf Council
has hitherto provided loans to 137 projects of USD 5.77 million (1974-2012), of which 84 have
been completed in all respects and are now yielding income; and the National Waqf
Development Corporation has been established with authorized capital of INR 500 crores (USD
80 million), which is less than 0.35 percent of asset value.
A question therefore arises: How do we meet the massive capital needs for waqf
development in an efficiency-enhancing manner?
The first mechanism following from successful international experiments seems to be
private capital contribution for limited periods. This would, however, call for a relaxation of
leasing rules, and more specifically, to allow subleasing to facilitate sukuk issues, since no other
form of Shariah-compliant borrowing is possible in India. Without permitting subleases, many of
the modern awqaf financing mechanisms would fall flat.
One may draw here a parallel with the widely acclaimed success in waqf development in
Singapore by the state agency Majlis Ugama Islam Singapura (MUIS). MUIS has been highly
successful in transforming and significantly enhancing the incomes of awqaf assets in Singapore.
MUIS now manages 68 waqf assets directly and an additional 33 waqf assets indirectly through
mutawallis. MUIS appoints mutawallis for privately managed awqaf and approves any
development or redevelopment or purchases by them. It holds the title deeds of all, including the
privately managed awqaf. Observers attribute this success to a very progressive regulatory
change that has allowed leasing waqf property for up to 99 years without transferring the
ownership to the lessee; and has allowed selling waqf properties completely and replacing them
with new, higher-yielding free-hold properties (istibdal). Because of this flexibility, MUIS could
issue participation sukuk called Musharaka bonds to finance the development of endowed assets
on a fairly large scale.12
The second mechanism to finance the development of new waqf is through creation of
new waqf. However, the waqf laws in India in their present form do not provide for explicit rules
for cash waqf and waqf shares.
Laws are also silent on rules pertaining to investment of cash waqf.
It is a matter of common observation that there is need for level playing field for awqaf as
compared with other forms of not-for-profit organization, such as societies, trusts, and Section 35

12 See Shamsiah Bte Abdul Karim (2010), Contemporary Shari’a Compliance Structuring for the
Development and Management of Waqf Assets in Singapore, Kyoto Bulletin of Islamic Area Studies, 3-2.
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 64
Companies. However, waqf involves significant financial and non-financial costs as compared to
the above structures, leading to lack of interest among Muslim philanthropists for using the
awqaf for establishing of education, healthcare, and other socially useful projects. A striking
example is that of Azim Premji Trust, which transferred 295.5 million equity shares, valued at
USD 2.3 billion, representing 12 per cent of the shares of Wipro Ltd, to an irrevocable trust (the
Azim Premji Trust) that finances the activities of the Azim Premji Foundation.
13 The
irrevocability of the trust takes care of the most significant difference between a waqf and a trust;
therefore, the Azim Premji Trust can be legitimately called an innovative case of corporate waqf.
There are strikingly similar examples of corporate waqf, such as the WANCorp by Johor
Corporation in Malaysia and the Vehbi KoC Foundation in Turkey,
14 and there is no reason why
Indian laws cannot provide for the possibility of corporate waqf.
Interestingly, there is very little mention of the term waqif or donor in the Indian waqf
laws. It appears that these laws are meant for awqaf created many centuries ago, not for newly
created ones. It is worth considering giving waqif an option to create waqf outside the purview of
board (which is where most non-financial costs come from). Without such changes, the problem
of funds will continue to haunt the prospects of waqf development.
4. Conclusion
This article traced the trajectory of the laws of awqaf in India and examined how
different provisions of the laws were enacted to address the societal concerns about preservation
of endowed assets with a view to retaining its expected benefits for the intended beneficiaries, or
developing the assets with a view to enhancing the expected benefits for the intended
beneficiaries. The former seems to have dominated the minds of lawmakers in India so far,
though of late there seems to be growing recognition of the significance of the latter. The search
for efficiency-enhancing rules must continue. One must not shy away from considering and
experimenting with innovations in waqf financing, which is essential for taking the development
agenda forward. Undoubtedly, it makes no sense to allow the endowed properties to remain as
they are, without being of any value or providing benefits to anyone.
Further, the modes to address society’s concerns (preservation or development) must be
correctly identified. For example, extreme concern for preservation has led to seeking state
protection without recognizing its adverse impact on the institutionalization of voluntarism.
Indeed, state protection is sought to curb private corruption while state apathy, corruption, and
interference has discouraged voluntary acts. Recent philanthropic action by members of the
community seems to have preferred non-waqf forms, perhaps because of excessive government
control over waqf under existing laws in place.
Waqf was always meant to be in the voluntary sector and not in the government sector.
Efficient laws must be formulated and implemented to ensure a reversion to the original status of
Islamic endowments as a mechanism that encourages voluntarism, benevolence, and
philanthropy.

13 See “Azim Premji donates USD 2.3 billion after signing giving pledge,” Forbes, February 23, 2013,
https://www.forbes.com/sites/naazneenkarmali/2013/02/23/azim-premji-donates-2-3-billion-after-signing-givingpledge/
14See Obaidullah, M. (2013) Awqaf Development and Management, Islamic Research and Training
Institute, Jeddah, Saudi Arabia, ch. 2.
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 65
Article
THE NEW YORK NONPROFIT REVITALIZATION ACT,
FROM THE FOUNDATION OF THE SARBANES-OXLEY ACT
TO IMPLEMENTATION
ISIDA TUSHE*
Introduction
Nonprofit organizations play a critical role by acting as a vessel to provide funding for
projects that benefit society.1
Services and grants in a wide variety of areas are important to
institutions in the community, including healthcare, education, museums, and social-need
organizations. The nonprofit sector has grown in size and diversity and has increased in
prominence. More than 1.5 million nonprofit organizations are registered in the United States.2
More than 92,906 of these nonprofits are active in New York,3
of which 74,269 are listed as
501(c) (3) nonprofit organizations. This non-exhaustive list includes public charities, private
foundations, and other types of nonprofit organizations, including chambers of commerce,
fraternal organizations, and civic leagues.
In the wake of news of scandals in nonprofit organizations, several states began to tout
legislative solutions to the perceived notion of a nonprofit accountability gap. These legislative
approaches followed the passing of the Sarbanes-Oxley Act of 2002 (“SOX”). The steps taken
by the boards of for-profit organizations, including those required by Sarbanes-Oxley and related
rules and regulations, have led to increased engagement on the part of board of directors.4
Stricter modifications of federal and state law regarding for-profit corporations have also
been implemented. The new regulations for nonprofit corporations are not far disconnected from
SOX regulations that were the foundation for their creation. More interesting, however, is the
substantive link between these two sets of reforms, particularly the shared emphasis on the board
of directors and fiduciary duties. Officers and directors are considered fiduciaries of the

*
Isida Tushe is a student at Hofstra University School of Law.
1 Mark Sidel, The Nonprofit Sector and the New State Activism, 100 Mich. L. Rev. 1312, 1313 (2002)
(book review) [hereinafter Sidel, New State Activism] (stating that the charitable sector is “‘integral to the national
economy and a valued part of [our] social fabric . . . . [It] embodies the philanthropic goodness, conviviality, cultural
excitement, and democratic spirit of the American people . . . [and] has provided a valued social location in which
groups can operate without pecuniary obsessions and with measures of success that are not necessarily related to
financial profitability.” (quoting NORMAN I. SILBER, A CORPORATE FORM OF FREEDOM: THE EMERGENCE OF THE
NONPROFIT SECTOR 2 (2001))).
2 National Center for Charitable Statistics (NCCS).
3
Id., refer to state profile and pull up New York.
4 Deloitte, The Guide to Not-For-Profit Governance 2012.
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 66
nonprofit organization that they manage.5
The fiduciary duties of the board of directors are
articulated in the Nonprofit Corporation Law (“NPCL”) of New York.
This article argues that IRS regulatory influence through the Sarbanes-Oxley Act has
influenced the strong, ethical, and transparent nonprofit board governance as implemented in the
New York Nonprofit Revitalization Act (“Revitalization Act”). Part I examines how the New
York government first mimicked SOX by using it as a foundation for the NPCL to regulate
nonprofits. This section further compares the Revitalization Act and the SOX. Part II charts the
evolution of the NPCL until it emerged, renamed the New York Nonprofit Revitalization Act.
Part III gives recommendations to build on the existing reforms in the nonprofit sector.
I. Regulations of Nonprofits
A. Federal Regulations: IRS
Nonprofit law combines corporate law, tax law, and trust law.6
The law regulating
nonprofit organizations is relatively new compared to the law regulating for-profit corporations.
7
Ordinarily, a nonprofit is incorporated under a nonprofit corporation statute. Incorporation is not
required to operate as a nonprofit; however, incorporating is wise when seeking favorable tax
treatment under the Internal Revenue Code.8
The IRS prohibits acts of self-inurement and selfdealing for tax-exempt organizations. IRC §501(c)(3) requires that the organization be operated
exclusively for tax-exempt purposes and that “no part of [its] net earnings . . . inures to the
benefit of any private shareholder or individual. . . .”
The role of the board of directors for nonprofits began to be addressed in IRS filings
starting in 2008,
9 which placed an increased focus on the scope of the obligations of nonprofit
directors.10 In 2007, the IRS released Form 990 that requires disclosures on corporate
governance and board of directors, making the nonprofit’s governance a matter of public record.
A nonprofit in Form 990 must indicate whether the governing board reviewed the form
before it was filed with the IRS11 and must verify that the form was actually presented to the

5
Scheuer Family Foundation, Inc. v. 61 Associates, 179 A.D. 2d 65, N.Y.S.2d 662 (1st Dept. 1992); The
Martha Graham School and Dance Foundation, Inc. v. Martha Graham Center of Contemporary Dance, 224 F. Supp.
2d 567 (S.D.N.Y. 2002), aff’d in part, rev’d in part on other grounds, 380 F. 3d 624 (2d Cir. 2004).
6
Susan N. Gary. Regulating the Management of Charities: Trust Law Corporate Law, and Tax law, 21 U.
Haw. L. Rev. 593 (1999) (discussing how trust law, corporate law, and tax law impact charities).
7 Kara A. Gilmore, House Bill 1095: The New Nonprofit Corporation Law for Missouri, 63 UMKC L. Rev.
633, 633 (1995) (“Nationally, nonprofit corporations have not received as much attention from lawmakers as forprofit corporations because the former do not impact the economic status of Americans as directly as for-profit
corporations.”).
8 David S. Walker, A Consideration of an LLC for a 501(c)(3) Nonprofit Organization, 38 Wm. Mitchell L.
Rev. 627 (2012) (“While the charitable trust form is an option and, for some, the unincorporated nonprofit
association may be a viable choice, the ‘predominant’ form of charitable organization in the United States is the
nonprofit corporation.”).
9 Karen Donnelly, Good Governance: Has the IRS Usurped the Business Judgment of Tax-Exempt
Organizations in the Name of Transparency and Accountability?, 79 UMKC L. Rev. 163, 165-68, 181-91 (2010).
10 Grace Allison, The New Form 990 for Tax Exempt Organizations: Revolution in Progress, 37 Est.
Plan.14, 14-20 (2010) (discussing the enhanced Form 990 requirements and their effects on directors at nonprofits).
11 I.R.C. Form 990, at 6, Question 11 (2011).
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 67
board prior to the IRS filing.12 It further requires inclusion of a full description of the process for
review by any of the organization’s officers, directors, trustees, or management and disclosure of
whether it was reviewed before or after it was filed with the IRS, which includes disclosure of
who conducted the review, when it was conducted, and the extent of the review.
Other questions in Form 990 ask the nonprofit to address governance practices in setting
executive compensation and disclosure of the number of independent voting members in the
governing body.13 Also, the nonprofit must indicate whether its officers, directors or trustees, and
key employees are required to annually disclose any personal interests that could give rise to
conflicts.14 Additionally, Form 990 must disclose whether the process for determining CEO and
other key officer and employee compensation includes a review and approval by independent
persons, comparability data, and contemporaneous substantiation of the deliberation and decision
for the organization.15
Section 4958 applies to all organizations exempt under IRC sections 501(c)(3) (other than
private foundations) and 501(c)(4). IRC §4958 proscribes “excess benefit transactions”
16
between certain charitable organizations and “disqualified persons” (generally, those in a
position to exercise “substantial influence” over the organization). Such regulations give the IRS
the authority to impose penalty taxes (known as “intermediate sanctions” in contrast to the
ultimate sanction, revocation of exempt status) when a transaction is found to bestow an excess
benefit on a disqualified person. This legal doctrine was taken into consideration by the New
York legislature for definitional purposes when drafting the Revitalization Act.
B. The Influence of Sarbanes-Oxley
SOX raised corporate governance standards of for-profit corporations. Regulators seized
this opportunity to create similar reforms in nonprofit governance, in order to avoid further
scandals.17 At the federal level such reforms quickly became moot; in fact the need for
government reforms in nonprofits originated with tax laws rather than traditional corporate
governance sources.18
SOX was passed in 2002 in the wake of corporate accounting scandals. Two criminal
provisions apply to nonprofit organizations: provisions prohibiting retaliation against
whistleblowers and provisions prohibiting the destruction, alteration, or concealment of certain

12 Id.
13 Dana Brakman Reiser, Director Independence in the Independent Sector, 76 Fordham L. Rev. 795, 814-
31 (2007).
14 I.R.C. Form 990.
15 Id.
16 An excess benefit transaction is one in which the economic benefit provides to the disqualified person is
greater than the return itself to the applicable tax-exempt organization. IRC §4958(c)(1)(A).
17 Wendy K. Szymanski, The Allegory of Good (and Bad) Governance: Applying the Sarbanes Oxley Act to
Nonprofit Organizations, 2003 Utah L. Rev. 1303, 1320-36 (2003).
18 Faith Stevelman, Regulatory Competition, Choice of Forum, and Delaware’s Stake in Corporate Law, 34
Del. J. Corp. L. 57, 60 (2009).
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 68
documents or the impediment of investigations.19 These two criminal provisions will not be
discussed in this article. Instead this article focuses on the provisions of the board of directors,
audit committee requirements, and auditor provisions of the SOX and how the revised
amendments of the NPCL have made their way into the Revitalization Act, with definitional
language changes and structural shifts.
Board of Directors Requirements
With the implementation of SOX, the focus shifted toward a perspective that
management is working for the board of directors. Previously, it was common practice for the
board of directors to act in service of the management. SOX further recognizes that director
independence is necessary for the board to serve effectively as a check on management. SOX
allows director liability if the board fails to exercise the appropriate oversight. This increased
demand and need for independence has led to greater diversity among the people who serve on
the boards. Furthermore, SOX mandates the creation of an audit committee.
Audit Committee Requirements
SOX requires that the audit committee of a company’s board of directors appoint,
compensate, and oversee the auditor’s work.20 Additionally, it mandates that each corporation
create and maintain an independent and competent audit committee.21 This committee remains
apprised of all “critical accounting policies and practices” used by the company’s outside
auditors.22 It requires that each member of the audit committee be an independent board member,
which the act defines as “a person who holds a voting seat on the board but has no other stake in
the corporation.”
23 Further, the audit committee members may not be affiliated with the company
or its subsidiaries, and they may not receive fees from the company beyond their compensation
for serving on the board of directors and the audit committee.24 The law also encourages
companies to have financial experts on the audit committee by requiring companies to disclose
whether their committees include at least one financial expert and, if not, the reasons why.25
Auditor Provisions
SOX prohibits auditors from providing certain non-auditing services along with an audit;
it requires the audit committee to pre-authorize the audit and permissible non-audit services
(such as tax services, bookkeeping, actuarial services, management or human resources services,
and legal services); and it requires that all audit committee approvals of non-audit services be
disclosed.26 It requires that the lead partner of a company’s outside auditing firm be rotated off

19 See American Bar Association, Standing Committee on Pro Bono & Public Service and the Center for
Pro Bono. Nonprofits and Sarbanes-Oxley, https://americanbar.org/legalservices/probono/nonprofits_sarbanesoxley.html.
20 Sarbanes-Oxley Act §301.
21 Stephen J. McNally & Joseph T. Steuer, Case Study: Can Sarbanes Oxley Hold the Keys to Nonprofit
Governance?, WEBCPA, Feb. 2013, 2006, https://www.webcpa.com/article.cfm?articleid=18822&print=yes.
22 Sarbanes-Oxley Act § 204.
23 Id. § 301(3).
24 Id. §301.
25 Id. §407(A).
26 Id. §202.
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 69
the company’s audit committee every five years27 and prohibits an auditor from providing audit
service to a company if the auditor employed the company’s CEO, CFO, Chief Accounting
Officer, or controller and such individual participated in any way in the audit of the company
within one year before the initiation of the audit.
28 This provision is meant to minimize risk of
collusion between the company and the auditor.29 Third, SOX mandates that a top corporate
officer certify the accuracy of the company’s financial statements and holds this officer
personally liable for fraudulent claims in these disclosures.30 These provisions have given the
audit committee greater powers and more responsibilities. Essentially, if the audit committee of
the board does not address reports of misconduct from independent auditors, the independent
auditors have the obligation to inform the SEC. This creates a check-and-balances system. It
mandates increased communication between the audit committee and the auditor, placing
responsibility for all aspects of the audit with the audit committee while enabling the auditor to
act without any conflict of interest.31
SOX does not address “related party transactions” under the same microscopic view as
the Revitalization Act does. In fact no such section exists. However, SOX does require both the
board and the audit committees to review their existing codes of conduct or conflict of interest
policies with particular focus on practices concerning related-party transactions. When dealing
with related transactions, the audit committee may take an expansive view of what is considered
a “related party” and focus on non-arm’s length transactions in addition to relationships required
to be disclosed by the SEC.
II. Not-for-Profit-Corporation Law in New York
New York Attorney General Andrew Cuomo continued the initiative to enact a nonprofit
law that the previous attorney general, Eliot Spitzer, had begun. In 2010, two new governance
rules amended New York’s version of the Uniform Prudent Management of Institutional Funds
Act, requiring (a) that organizations have a written investment policy and (b) that boards
document the prudence analysis accompanying decisions to draw funds – even to appropriate the
annual draw – from endowment.32 On September 17, 2010, New York governor David Paterson
signed into law the New York Prudent Management of Institutional Funds Act (“NYPMIFA”).33
A year later, Attorney General Eric Schneiderman convened the Leadership Committee for
Nonprofit Revitalization, which ultimately developed the New York NPCL and then later
amended it to what is now the New York Nonprofit Revitalization Act (“Revitalization Act”).

27 Id. § 203. (“It shall be unlawful for a registered public accounting firm to provide audit services to an
issuer if the lead (or coordinating) audit partner . . . has performed audit services for that issuer in each of the 5
previous fiscal years of that issuer.”)
28 Id. §206.
29 BoardSource & Indep. Sector, The Sarbanes-Oxley Act and Implications for Nonprofit Organizations 5
(2003), available at https://www.boardsource.org/clientfiles/SarbanesOxley.pdf.
30 Sarbanes-Oxley Act § 906(c).
31 Daniel L. Kurtz, Nonprofit Governance (2003).
32 New York Revitalizes: State Governance Reform for Nonprofits.
33 New York Prudent Management of Institutional Funds Act, Ch. 490 § 1, 2010 N.Y. Laws 1334.
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 70
The Revitalization Act, passed in December 2013, took effect on July 1, 2014. It
amended the NPCL and related laws affecting nonprofit organizations. The Act makes several
changes to the laws governing New York nonprofits in an attempt to shore up board
independence, improve accountability, and modernize outdated provisions. These new provisions
apply to nonprofits that are incorporated in New York, but one significant section – related to
financial audits and financial reporting to the state—applies to all nonprofits that are required to
register in New York for charitable solicitation purposes. The focus of this article is those
provisions dealing with independent governance, audit, and oversight. Under the NPCL, a
nonprofit may have standing and special committees of the board in addition to committees of
the corporation.34 The Revitalization Act eliminates the concept of standing and special
committees and clarifies that committees include committees of the board and committees of the
corporation.
Audit Committee and Audits
Following the lead of the SOX and the IRS rules, the Revitalization Act places a great
deal of focus on ensuring the independence and objectivity of the board and its directors. For
example, an employee can no longer serve as the chair of the board or hold a position with
similar responsibilities. This provision makes it illegal for one person to lead the administration
of an organization and its governance. The responsibility must be divided between multiple
parties who work in tandem. This minimizes collusion by separating powers. One party can
provide information regarding the many facets of the nonprofit to help the board understand the
situation but is unable to affect the discussion or the vote of the board’s decision.
The Revitalization Act requires a nonprofit organization to have at least two types of
committees: (a) committees of the board, which are made up solely of board directors, and (b)
committees of the organization, which can contain a mix of directors and non-directors. Only
committees of the board can bind the organization. Additionally, the Revitalization Act requires
that the directors be independent and not have significant financial involvement in the
organization.
The Revitalization Act also increases the threshold amounts for requiring a CPA audit.
Under the Act, a nonprofit corporation with annual revenue in excess of $500,000 must establish
an audit committee composed solely of independent directors,
35 or, alternatively, have the
independent directors of the board serve the functions of an audit committee. The audit
committee or independent directors are required to oversee the accounting and financial
reporting processes of the entity as well as the annual audit of the entity’s financial statements,

34 Non-Profit Revitalization Act, 2013 §712.
35 “Independent director” is defined in Section 102(a)(21) as a Director who: (1) is not, and has not been
within the last three years, an employee of the corporation or an affiliate of the corporation, and does not have a
relative who is, or has been within the last three years, a key employee of the corporation or an affiliate of the
corporation; (ii) has not received, and does not have a relative who has received, in any of the last three fiscal years,
more than $10,000 in direct compensation from the corporation or an affiliate of the corporation (other than
reimbursement for expenses reasonably incurred as a director or reasonable compensation for service as a director as
permitted by paragraph (A) of Section 202(general and special powers)); and (iii) is not a current employee of or has
a substantial financial interest in, any entity that has made payments to, or received payments from, the corporation
or an affiliate of the corporation for property or services in an amount which, in any of the last three fiscal years,
exceeds the lesser of $25,000 or 2% of such entity’s consolidated gross revenues. For purposes of this subparagraph,
“payment” does not include charitable contributions.
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including by retaining an independent auditor to conduct the audit and reviewing the audit results
with the auditor. These additional review requirements of the audit committee apply to
corporations with annual revenue greater than $1,000,000 in the prior fiscal year. It is worth
noting that there is no requirement that all directors be considered “independent” – rather, the
focus should be on ensuring that certain governance functions, such as audit oversight, are within
the exclusive control of independent directors.36
Additionally, the Revitalization Act relaxes certain audit-related thresholds related to
financial reporting with the Attorney General for nonprofits. Corporations receiving gross
revenue and support greater than $500,000 in a fiscal year will be required to file an annual fiscal
report and an audit report prepared by an independent CPA with the Attorney General.
37
Corporations receiving gross revenue and support greater than $250,000 but less than $500,000
in a fiscal year will be required to file with the Attorney General an annual financial report and a
review report prepared by an independent CPA. Corporations receiving gross revenue and
support less than $250,000 in a fiscal year will be required only to file an audited financial report
with the Attorney General.38
These new requirements raise the threshold requirements for the filings. They benefit the
organization with revenue of $100,000 to $250,000, because it is relieved of a review or audit
done by an outside CPA. The filing requirement was burdensome to smaller nonprofits, and the
increased thresholds make it easier for smaller nonprofits to comply. However, audits are a key
step in avoiding mishaps. It was through an audit that the missing funds were uncovered in the
case of the former financial director for a New York Chapter of the American Red Cross.39 In the
case of H.O.W. Foundation,40 the former executive director wrote himself 213 unauthorized
checks for a total of more than $1.35 million and embezzled more than $200,000 from a thrift
store operated by the nonprofit over eight years.
The Revitalization Act defines an “independent director” as one who is not, and who has
not been within the last three years, an employee of the corporation or an affiliate of the
corporation, and who does not have a relative who is, or who has been within the last three years,
a key employee of the corporation or an affiliate of the corporation.41 However, the nonprofit is
given leeway by allowing the independent director to receive no more than $10,000 as direct
compensation, or a financial interest in an entity that adds up to no more than $25,000 or 2
percent of the corporation’s gross revenue for property or services (whichever is less).42 The

36 Id.
37 This threshold will increase to $750,000 in 2017 and $1,000,000 in 2021.
38 Revitalization Act Section 102.
39 In 2013, the former financial director for New York Red Cross Chapter was sentenced to two to seven
years in prison for grand larceny. As signatory of the chapter’s operating account, she obtained an ATM debit card
in her name that was linked to the chapter’s account to make cash withdrawals, as often as every few days in some
instances. She used the money to pay for clothing, her children’s tuition, and other personal expenses, embezzling
over $274,000 between 2005 and 2009.
40 A nonprofit alcohol and drug treatment center in Tulsa, Oklahoma.
41 New York Nonprofit Revitalization Act Section 102(a)(21)(11).
42 New York Legislature Passes Nonprofit Revitalization Act: Comprehensive, Significant Changes to New
York Nonprofit Corporation Law on Horizon, Journal of Multistate Taxation and Incentives, March/April 2014.
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 72
definition is controversial in that not only is it unique among states but it is also found nowhere
else in New York nonprofit law or in IRS rules. It is similar to a question on Form 99043 but the
definition differs. The term affiliate means entity controlled by, in control of, or under common
control with corporation. The term “control” remains undefined under the IRS Form 990 and the
Revitalization Act. This is a high bar because it makes it difficult to find independent directors.
Also, “substantial financial interest” remains undefined in the Revitalization Act. The
question arises as to whether this means a senior manager or someone with an ownership
interest. Say, for example, that a member of the board of directors of a theater company buys a
ticket to one of the group’s performances with his own money. Does he need to disclose the
material facts about the ticket purchase, even though he paid the same price as the general
public? In the case of a hospital board and a director whose relative is a private pay patient or has
high-deductible insurance plan, does the hospital board need to pre-approve emergency medical
treatment? If the related party has “substantial financial interest,” then “alternative transactions
to extent available” must also be considered, but this is not defined, so it raises questions such as
whether it is a de facto bidding requirement. Are a certain number of bids required? Must they be
in writing? Is publicizing required? These questions remain unanswered.
Furthermore, Section 102(a)(21)(ii) of the independent director definition makes note of
relatives. This is identical to the IRS definition under the Excess Benefit Doctrine.
44
Related Party Transactions
The Revitalization Act revised NPCL § 715 and increased the approval and oversight
powers of the board of directors for transactions involving “related parties.”45 It replaced a
provision governing transactions of “interested directors and officers” with a new provision
regarding “Related Party Transactions,” which are defined as transactions between the
organization or any of its affiliates and a related party who has a financial interest in the
transaction.46 This term is now more specific. Directors and trustees may not enter into the
transaction unless the transaction meets the standard “fair, reasonable and in the corporation’s
best interest at the time of such determination.”47 Further, any director, officer, or “key
employee” who has an interest in a related party transaction must disclose in good faith to the
board, or an authorized committee, the material facts concerning the interest.
In the evaluation process, the Board of Directors must (i) consider alternative transactions
to the extent possible; (ii) approve the transaction by a majority vote of directors present at the

43 Form 990 possess four questions to determine the “independent” factor: (a) Were you compensated as an
officer or other employee from this or a related organization?; (b) Did you receive total compensation or other
payments exceeding $10,000 for the year from this or a related organization as an independent contractor?; (c) Did
you receive, directly or indirectly, material financial benefits from this or a related organization?; (d) did you have a
family member that received compensation or other material financial benefits from this or a related organization?
44 This was in response to an amendment to IRS in the 1990s that enacted new standards for evaluating
compensation, mainly in nonprofits listed as 501(c)(3) and 501(c)(4)s.
45 “Related party” is defined in Section 102(a)(23) as (i) any director, officer, or key employee of the
corporation; (ii) any relative of a director, officer, or key employee of the corporation; or (iii) any business entity in
which a person described in clauses (i) or (ii) has a 35% or greater ownership stake.
46 Id.
47 NPCL Section 715(a).
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meeting; and (iii) document the approval by the Board of Directors, including any discussion
regarding alternative proposals. As to what extent related party transactions are intended to
overlap with conflicts of interest, it remains unclear, but it appears that all related party
transactions are likely potential conflicts of interest and that there may be additional conflicts of
interest that are not related party transactions. This requires nonprofit boards to subject such
transactions to careful scrutiny.
In the NPCL, the “financial interest” is applied to any transaction between two
corporations which may have a director or officer in common but in which the director does not
have a financial interest. This provision was dropped in the Revitalization Act, resulting in a
possible conflict of interest. For example, a conflict that wouldn’t be covered would be two
nonprofits collaborating with each other and sharing a director. This is no longer a conflict of
interest on the face of the statute.
At first glance, the “key” employee section might appear to derive directly from the IRS
statute. However, the IRS statute uses the term “person with substantial interest” and not “key
employee.” The IRS regulation encompasses more than employees. The “ownership or beneficial
interest” under Section 102(a)(23)(iii)(ii) is consistent with IRS regulations. This is addressing
persons who have a significant interest in vendors with which nonprofits may be doing business.
Contrary to the SOX, the Revitalization Act does not provide a check and balances
system by requiring both the board and the audit committee to review any related party
transactions; rather, it gives that task to the board of directors or authorized committee. This
requires scrupulous review of transactions. One result of the absence of checks and balances is
the Project Genesis case.48 On October 12, 2013, the former CFO of Project Genesis, a
Connecticut nonprofit organization that served people with disabilities, was sentenced to 33
months’ imprisonment after embezzling more than $348,000 from the organization over a threeyear period. He stole such funds by keeping terminated employees on the payroll and then
transferring their salaries to his personal bank account.49
If the board of directors does not follow the prescribed procedures, the Revitalization Act
authorizes the attorney general to bring action to enjoin, void, or rescind the related party
transaction and to seek restitution, to remove directors and officers, or to take other remedial
actions.50 With respect to these provisions, there is no “de minimis” threshold, and in the case of
willful or intentional misconduct, the attorney general is authorized to require a corporation to
repay double the amount of improperly obtained benefit.51 This gives the attorney general plenty
to shoot at in challenging transactions. The power to “void” a transaction may have profound
consequences. It may determine how the power will be administered and how much deference a
judge gives to the board of directors’ statements.

48 FBI Press Release 2012, former CEO of Willimantic Non-Profit Admits Embezzling More than
$348,000.
49 Id.
50 Keith J. Kehrer and Chaeri K. Tornay, New York’s Nonprofit Revitalization Act of 2013 and Its Impact
on Nonprofit Organizations, April 2, 2014.
51 Id.
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Violation may go beyond improper benefit to include failure to approve a transaction.
This contracts the IRS excess benefit rules, under which an organization can demonstrate a
transaction is reasonable even if not approved in advance. The IRS rules are structured to
encourage the organization to do everything upfront. If so, the IRS gives deference to that
process or decision. Under the Revitalization Act, the attorney general would have the power to
say that the reasonableness of the transaction does not matter, a departure from federal law.
Furthermore, prior to initial election and at least annually thereafter, each nonprofit
corporation must require directors to sign and submit a written statement identifying those
entities in which they have relationships as officers, directors, owners, or employees, and with
which the nonprofit corporation has a relationship. This statement must also include any
transaction in which the nonprofit corporation is a participant if the director may have a conflict
of interest. These statements must be provided to the chair of the audit committee for review
upon completion. The approval process is in parallel to the IRS “excess benefit” rules except for
independent director requirement. Procedures to deal with the IRS regulations will satisfy
Revitalization Act regulations.
III. Recommendations and Conclusions
Organizations in small communities might struggle with finding a sufficient number of
“independent” directors to serve on the audit committee given the Act’s stringent definition.
However, the limitation is balanced in the Revitalization Act’s requirement of less scrutiny of
reporting by smaller nonprofits. Regulatory intent seems to be to increase the impartiality and
independence of board members, resulting in less chance of collusion within the organization.
Requiring the use of an independent audit committee by the nonprofit will provide an
effective way to maintain control and objectivity, thus ensuring a foundationally secure financial
process that is able to detect and prevent financial mismanagement. Not specifying a number of
individuals that must be on the board will give leeway for small nonprofits to leverage the board
position by appointing qualified and knowledgeable individuals to oversee the financial aspect of
the organization. Management and board members are often more trusting, which leads to less
stringent financial controls for nonprofits.52 However, a belief that audits will catch any fraud is
flawed. The Association of Certified Fraud Examiners reports that less than 10 percent of frauds
are discovered as a result of an audit by an independent account firm.53 Auditors only have a
responsibility to give “reasonable” assurance that no material misstatements in financial
statements have been made.54 This is a low standard. Therefore, external audits are crucial in
ensuring that effective financial controls and fraud prevention measures are being followed.
The nonprofit sector is self-regulatory. The best way to take full advantage of the
Revitalization Act would be to bifurcate the nonprofit board into a board of directors-managers
responsible for day-to-day management of activities and a supervisory board of advisors charged
with oversight of such management board. The board of directors would owe fiduciary duties to
its members and to beneficiaries but not concern itself with managing the nonprofit organization.

52 William H. Devaney and Jeffrey S. Tenebaum, Preventing Embezzlement and Fraud in Nonprofit
Organizations, May 4, 2011.
53 Id.
54 Id.
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This board could serve as the audit committee and report annually to the appropriate authorities.
These advisors cannot be employees of the nonprofit, therefore obeying the Revitalization Act.
The Revitalization Act’s focus is on the independence of directors. Adopting audits and
audit committees is a development out of the SOX that does not take into consideration the
complexity and diversity of the charitable sector, merely the financial revenue of the
organization. The SOX provided a heightened scrutiny environment for audit committees and
outside auditors in the for-profit sector. It made the audit committee directly responsible. This
important characteristic is now in the Revitalization Act, and the audit committee is virtually the
one responsible if accounting and financial processes go wrong.
The nonprofit standards set in the Revitalization Act are tailored toward the business
corporate standard as set forth in the SOX. This shift in the governance of internal matters within
a nonprofit should be salutary. To be sure, applying blanket standard to the actions and
responsibilities of all board members for all nonprofits may be too lenient, because it ignores the
special public purpose carried by nonprofits, the nature of the nonprofit board, and the
inadequacy of internal control and enforcement. This highlights the differences between the
Revitalization Act and SOX. The Revitalization Act considers the size and financial revenue of
the organization, which makes it easier for smaller nonprofits to comply with regulations.
However, the Revitalization Act mandates that the nonprofit organizations fill the positions of
board members and audit committees with individuals academically prepared for these roles
rather than just the individuals with the deepest pockets, inasmuch as those who might be
interested in board membership are often dissuaded out of concerns of liability.
It would be wise to add a clause protecting directors from monetary liability for
unintentional fiduciary duty breaches, as with Delaware businesses and nonprofits. Such a
provision may have been omitted because of the widespread scandals, but it should be
reassessed.
Modeling the requirements pertaining to board of directors, audit committees, and
auditors of the New York Nonprofit Revitalization Act on the Sarbanes-Oxley Act is a proactive
step to reduce the risk of future scandals in the nonprofit sector. The checks-and-balances system
is a step forward to ensure that fraud and corruption do not diminish public trust in nonprofit
organizations. But as we see evidence of how the Revitalization Act affects the nonprofit
industry, the law must continue to evolve.
Chart 1: Changes in the NPCL amendments to New York Nonprofit Revitalization Act
NPCL Amendments New York Non-Profit Revitalization Act (Current Law)
Governance Requires the board of
directors, board of
trustees, or other
governing body of a
nonprofit corporation
to consist of at least
three individuals.
There continues to be
no cap on the number
of directors who may
serve.
Prohibits an employee of a nonprofit corporation from serving
as the chair of its governing board or holding any other title
with similar responsibilities.
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 76
NPCL Amendments New York Non-Profit Revitalization Act (Current Law)
Types of
Committees
Nonprofit may have
standing and special
committees of the
board in addition to
committees of the
corporation.
Nonprofit corporations may establish and maintain two types of
committees: (1) a “committee of the board,” whose members
must be members of the board, which may be delegated powers
of the board and which can exercise authority to bind the
corporation; (2) a “committee of the corporation,” which may
include directors and non-directors. Also dispenses with the
distinction between standing and special committees.
RelatedParty
Transactions
 Gave rise to
questions as to
whether any
director or officer
involved was
fulfilling duty of
loyalty to the
organization; such
transactions, if
approved and
entered into, were
valid, binding, and
enforceable against
the organization.
 Financial interest
applied to any
transaction between
two corporations
that may have a
director or officer
in common.
 The presumption is that a related-party transaction is invalid
and therefore unenforceable unless the organization’s
governing body determines that the transaction is fair,
reasonable, and in the best interest of the organization. A
“related party” is a person who serves as a director, officer, or
key employee of the nonprofit organization or any affiliate
thereof, or is any such person’s relative. “Related party” also
includes any entity in which any of the foregoing individuals
has a 35% or greater ownership or beneficial interest, or, in the
case of a partnership or professional corporation, a direct or
indirect ownership interest in excess of 5%.
 This provision regarding financial interests was dropped
completely.
Auditrelated
thresholds
(gross
revenue)
Requirements
before July 1, 2014
< $100,000: no
accountant’s report
required
$100,000-$250,000:
independent
accountant’s review
report and financial
statements with
accompanying notes
> $250,000:
independent
accountant’s audit
report and financial
statements and
accompanying notes.
Requirements through June 30, 2017
< $250,000: unaudited financial report
$250,000-$500,000: Independent CPA review report
> $500,000: Independent CPA audit report
Requirements beginning July 1, 2017
< $250,000: Unaudited financial report
$250,000-750,000: Independent CPA review report
> $750,000: Independent CPA review report
Requirements beginning July 1, 2021
< $250,000: Unaudited financial report
$250,000-$1,000,000: Independent CPA review report
> 1,000,000: Independent CPA review report
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 77
NPCL Amendments New York Non-Profit Revitalization Act (Current Law)
Financial
Statements
Responsibility was
divided between
multiple board
members and/or
parties who had to
work in tandem to
achieve success
The board, or a board-designated audit committee composed
only of independent directors, must oversee the accounting and
financial reporting processes of the nonprofit and the auditing of
financial statements. Oversight includes retaining auditors and
reviewing audits, if required, on an annual basis. Attorney
General can require an organization to have its financial
statements audited, even if the organization’s gross revenue is
below the threshold limit. See audit-related thresholds below.
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 78
Article
WHAT NONPROFIT BOARD MEMBERS AND MANAGERS
DON’T KNOW CAN HURT THEM FINANCIALLY:
IRS FORM 990 AND THE INTERMEDIATE SANCTIONS ACT
EUGENE H. FRAM, ED.D1
Nonprofit 501(C)(3) charitable organizations and 501(C)(4) social welfare organizations
fall under two IRS regulations—the extended annual Form 990 and the Intermediate
Sanctions Act (Act). Form 990 requires answers to 38 corporate questions on corporate
governance operations. The Act covers prohibitions related to providing or seeking
excess benefits. Most board members know about the Form 990, but few know about its
board obligations; and few board members and managers know the Act exists. With the
IRS aggressively enforcing the Act to eliminate faux nonprofits, unwitting nonprofit
board directors and managers can become ensnared financially.
Two classes of nonprofit organizations, 501(C)(3) charitable organizations and 501(C)(4)
social welfare organizations, are covered by two IRS regulations not applicable to for-profit
corporations.
One regulation requires the organization to file an IRS Form 990 each year, including
financial data plus answers to 38 questions related to corporate governance. Many board
members may be unaware of their obligations to be involved in preparation of the form each
year. If there were an audit involving the 38 board questions, further, board members might be
expected to know about any exceptions to be reported, such as conflicts of interest. For example,
any board member whose firm or employing firm has a business relationship with the nonprofit
must specify it as a conflict of interest on Form 990 and probably abstain from voting on related
issues. Also, if the report is late, the nonprofit must file an IRS form, and the board needs to be
advised of the situation.
If the organization ignores any of the requirements, it can lose its tax-exempt status—a
penalty already imposed on thousands of smaller nonprofits. In some instances, moreover, failure
to heed the requirements might leave nonprofit board members open to personal liability for
failing in their corporate duties for “due care.”

1 Eugene H. Fram is Professor Emeritus, Saunders College of Business, Rochester Institute of Technology,
and the author of the newly published Going for Impact: The Nonprofit Director’s Essential Guidebook. He can be
reached at 1 West Edith Ave – A103, Los Altos, California 94022, frameugene@gmail.com, blog https://non-profitmanagement-dr-fram.com.
The suggestions presented in this article are based on field observations as a veteran for-profit and
nonprofit director and consultant. They should not be construed as offering legal advice.
Parts of this article contain revised and updated material from Eugene Fram & Elaine Spaull (2001)
“Expectations for Nonprofit Boards are Changing,” Nonprofit World, May/June, and reflect the expertise of Elaine
Spaull, Ph.D., J.D.
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 79
Another obligation to which nonprofits must adhere is the Intermediate Sanctions Act,
Internal Revenue Code section 4958 (the Act). The Act was passed by Congress in 1996 with
temporary rules of enforcement, but it was not robustly enforced until about 2002. Although they
can be financially ensnared by the 20-year-old Act, very few nonprofit board members and
managers seem to know it exists. In making conference presentations to nonprofit directors,
CEOs, and managers, in fact, I find that ignorance of the law is frightening.
From press coverage and elsewhere, board members and managers are generally aware
that their organizations can be in trouble if they pay unreasonable compensations. But they are
unaware of other sections of the Act that can lead to personal liability for board members, senior
managers, and even such tangential persons such as volunteers and vendors.
History of the Intermediate Sanctions Act.
Up to 1996, the IRS had only one tool to sanction nonprofit organizations that violated its
regulations: It could revoke the organization’s tax-exempt status, a difficult and costly legal
process. Without fraud or a lack of “due care,” the IRS was powerless to hold individual board
members or managers financially responsible.2
The need for the Act was prompted by several
scandals in which CEOs and/or board members of high-profile organizations used their positions
to unjustly enrich themselves.
To give the IRS a tool to target those responsible for such activity while allowing the
nonprofits to retain their tax-exempt status and continue serving clients, Congress passed the
Intermediate Sanctions Act. “The legislative history of section 4958 provides that intermediate
sanctions … may be imposed … in lieu of, or addition to, revocation of and organizations taxexempt status—H. Rep. No. 104-506.”3
Importance of Excess Benefits and Disqualified Persons
The key to the Act is what one part of the legislation calls an excess benefit. An excess
benefit can develop in ways other than paying above-market wages. The IRS may consider as
excess benefits the nonprofit’s above-market payment for an asset or its disadvantageous
financial arrangements with other organizations. A fundraising group that receives an
excessively generous travel budget from a nonprofit group can also be in violation of the Act.
Those giving and those seeking an excess benefit can both be liable.
The Act also specifies who may be liable under its provisions, identified with the curious
title of disqualified persons:
Disqualified persons include organization officers, board members and their relatives.
[More importantly] the disqualified persons category also can be extended to people not
on the staff or board if they are in a position to exercise substantial influence over the
organization’s affairs. For example, if a volunteer agrees to chair a program task force,
that person may be considered a disqualified person. Major donors also may fall into this

2 Even when charged by state regulators, one board refused to back down on an excess salary. See:
https://nonprofitquarterly.org/2014/08/04/trustees-of-queens-library-dismissed-after-defending-high-ceo-salary/
3 David A. Levitt (2009) “Excess Benefit Transactions Under Section 4958 and Revocation of Tax-Exempt
Status,” Practical Tax Lawyer, spring.
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 80
category, even if their only role is to provide resources. The legal reasoning is that such
people have the ability to exercise substantial influence over the organization.4
In simple terms, those receiving the benefit as well as board members and managers approving it
are all subject to the Act.5
In addition, if some benefits are not included in the recipient’s W-2, they are considered
an automatic excess benefit that must be reported on the public IRS Form 990. As of 2008, the
IRS has the power to revoke the organization’s tax-exempt status if it is found guilty of one or
more excess benefits transactions.6
Personal Tax Sanctions
The IRS levies penalties in an unusual way. They are added to the income tax bill of the
individuals found responsible:
For example, if a section 501(C)(3) organization were found to have paid $150,000 to a
disqualified person in a transaction for which $100,000 was fair market value, the
disqualified person would have to pay a tax of 25% of $50,000 or $12,500 to the IRS. In
addition the disqualified person would have to return the excess benefit of $50,000 to the
organization, or be subject to the 200 percent penalty tax ($100,000).7
Enforcement of IRS 4958
To assess the level of enforcement of the Act, I contacted four practicing attorneys, two
of whom specialize in actions related to the Intermediate Sanctions Act. Three cited only one
court case related to a merger situation in which section 4958 was a primary issue.8 All agreed
that the IRS is settling cases without litigation.
Two attorneys suggested that the IRS might be following a procedure common to
administrative agencies:
 The agency identifies an action as a violation of a statute, sometimes with modest
evidence.
 The agency proposes a settlement. If the accused agrees, the case is resolved.
 If the case is not resolved, the agency takes aggressive actions to obtain a settlement—
sometimes euphemistically called “rattling the cage.”
 If there is no settlement, the agency submits the action for trial or concedes the case.
With so few court cases on record, those accused seem to be acquiescing in the charges. One
hopes that all of these are nonprofits that have been established for self-interest.

4 Eugene Fram & Elaine Spaull (2001) “Expectations for Nonprofit Boards are Changing,” Nonprofit
World, May/June.
5 David A. Levitt (2012) “Automatic Excess Benefit Transactions,” Nonprofit Law Matters, Adler &
Colvin, March 22.
6 Levitt (2009).
7 Levitt (2009).
8 Carracci v. Commissioner, https://caselaw.findlaw.com/us-5th-circuit/1147472.html
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 81
Such a process, however, can easily ensnare well-meaning nonprofit directors, managers,
or even volunteers who unwittingly approve an excess benefit. In my opinion, nonprofit directors
with nontraditional backgrounds may face a particular risk. In some states, nonprofits such as
medical facilities are required to have current or former clients on their boards, which could
leave some low-income people facing significant tax liabilities. These persons can be placed in a
precarious situation, especially if their D&O policies do not cover losses levied under the Act.
A Hypothetical Case
Following is a statement from a D&O policy that does cover the Act:
Costs of Defense incurred by the Insured. Loss shall not include: (1) criminal or civil
fines or penalties imposed by law, or taxes (except for the 10% “excess benefit” tax
assessed by the Internal Revenue Service against any Insured Person pursuant to 26 USC
Section 4958 (a))
Would naïve volunteer board members who approve an excess benefit be covered under such a
D&O policy? It is highly possible that an inept CFO and/or external auditor might be at fault for
the IRS bringing an action.
The naïveté about the Act extends beyond untutored volunteer board members. I have
encountered certified public accountants and attorneys, including one representing a national
legal association, who had no idea the law existed. I have also encountered a competent CFO
who had unintentionally failed to add an excess vacation benefit to an employee’s income.
Fortunately, the auditing firm found the error. If it had not done so, the IRS could have deemed
the error an automatic excess benefit. Obtaining a claim rescission would have entailed
substantial legal costs and dedicated management time.
In sum, ignorance of the Intermediate Sanctions Act can be financially devastating to
well-meaning people. Nonprofit board education is needed in the area. In particular, all board
members ought to
 Be alert: Every board member should know that the Act covers much more than paying
higher salaries and identifying disqualified persons. Well-meaning outsiders, such as
donors and revenue-sharing organizations, could be deemed part of an operating
partnership that might be ensnared by Section 4958.
 Know about compensation and benefits: Nonprofits frequently delegate compensation
decisions regarding the executive director or CEO to the board chair or a few senior
board members. The entire board should review all salary schedules every year. If
questioned by the IRS, every board member should know the compensation of the three
or five highest-paid persons. All of this needs to be completed before a salary increase is
awarded.
 Make certain records are kept: If the organization is audited, it will need records of any
transaction being questioned. Board members who are unsure whether a transaction
might involve an excess benefit should ask the board to seek competent legal counsel.
The existence of an excess benefit may fall in a gray area. It could well be fact-based, in
light of practices of comparable organizations. But counsel could flag whether the
potential exists for the payment or benefit to be deemed an excess benefit. If the board
refuses to accept the view of counsel, board members who might perceive it to be an
International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 82
excess benefit should vote “no” on the transaction and make certain their votes are
clearly recorded in the meeting minutes in order to avoid liability. When in danger of
approving an excess benefit, it is not a good idea “to go along to get along,” a culture
that seems to pervade nonprofit boards.
 Know about safe harbor provisions: The IRS says boards should take certain actions
before making any decision that might be construed as involving an excess benefit—for
example, using organization funds to support an executive director’s trip to Europe after
20 years of service. The board should first appoint a group of disinterested board
members or a formal board committee of disinterested persons to approve such a
transaction, and it should ensure that the group’s decision rests on comparable data
gathered by disinterested field experts. For the European trip, it would be best to
determine if such a reward were standard industry practice, in case the IRS questions the
transaction.
 Make certain all directors’ and officers’ D&O liability insurance policies cover excessbenefit tax sanctions. If not, they should seek coverage. Some policies may exclude
indemnity coverage where there is a violation of law.
 Make certain that the annual conflict of interest statement signed by board members,
managers and other disqualified persons includes some reference to the Intermediate
Sanctions Act.
 Have counsel review appropriate bylaws, operating guidelines, principles or policies,
etc., to make certain that all compensation processes and other major transactions
comply with the Intermediate Sanctions Act.

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, https://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, https://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, https://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,
https://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, https://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,
https://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,
https://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, https://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,
https://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, https://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).

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 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,
https://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,
https://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, https://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, https://timesofindia.indiatimes.com/india/Foreign -funded -NGOs -stalling -development -IB –
report/articleshow/36411169.cms .

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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,
https://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,
https://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, https://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, https://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,
https://www.charityandsecurity.org/analysis/Restrictive_Laws_How_FATF_Used_to_Justify_Laws_That_Harm_Civ
il_Society .

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 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, https://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,
https://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,
https://www.defence.lk/new.asp?fname=Sri_Lankas_National_Security_20140819_02 .

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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.”

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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,
https://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,
https://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
https://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, https://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,
https://www.ohchr.org/EN/Issues/SRHRDefenders/Pages/Declaration.aspx .

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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, https://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), https://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,
https://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
https://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.

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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, https://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,
https://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,
https://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:
https://www.state.gov/documents/organization/43566.pdf and
https://www.state.gov/documents/organization/4 3567.pdf .

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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),
https://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),
https://www.icnl.org/research/journal/vol14iss3/art2.html .
178 United Nations International Covenant on Civil and Political Rights, Article 22, December 16, 1966,
https://www.ohchr.org/en/professionalinterest/pages/ccpr.aspx . Article 22, ICCPR

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(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,
https://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),
https://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,
https://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), https://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,
https://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.”

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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),
https://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,
https://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
https://freeassembly.net/wp -content/uploads/2013/04/A.HRC_.23.39_EN -funding -report -April -2013.pdf .
188 Ibid., pa ra. 30.

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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: https://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
https://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.

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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