International Journal of Not -for -Profit Law / vol. 1 6, no. 1, September 2014 / 30
The Swiss Legal Framework on Foundations
and Its Principles About Transparency
Lucas R. Arrivillaga
Georg von Schnurbein *
“Sunlight is said to be the best of disinfectants.”
This article deals with issu es of transparency applicable to grant -making
foundations in Switzerland and analyzes the legal regime in this regard. This
analysis is contextualized by functional aspects typically affecting the
performance of foundations.
The article concludes that the Swiss regime is minimalist and that it might
not be sufficient in terms of setting standards on transparency. However, we
identify positive developments in the self -governing rules included in the Swiss
Foundation Code (SFC). This Code provides a very effe ctive complementary tool.
It constitutes a laudable effort on the part of Switzerland’s philanthropic sector to
reinforce self -regulation by setting transparency standards.
Transparency is a contested issue in the regulation of grant -making f oundations. In
principle, one might argue that transparency should be the norm under which foundations
operate. After all, grant -making foundations are institutions established by and for civil society.
Therefore, by definition, foundations themselves ough t to be interested in opening access to the
flow and democratization of information within the philanthropic sector. 1 Yet vehement criticism
has been voiced against foundations owing to their lack of compliance with transparency rules,
managerial omissions , and their tax -exempt status — failings perceived by many critics as
unjustifiable privileges. 2 But at the same time, one must be cautious in dispensing criticism 3 so
as to avoid false conclusions and unwarranted generalizations. 4
* Lucas R. Arrivillaga is a lawyer and a research associate at the Centre for Philanthropy Studies (CEPS) at
the University o f Basel, Switzerland. Georg von Schnurbein is professor for foundation management at the Faculty
of Economics and director of the C entre for Philanthropy Studies .
1 Third sector institutions engage civil society in their activities, such as advocacy, chari table assistance,
higher education, health care, arts performance, residential nursing, and religious ceremonies. Steinberg, R. &
Powell, W., Introduction, in The Nonprofit Sector: A Research Handbook , 2nd ed. (New Haven: Yale University
Press, 2006), pp. 1-9.
2 Indeed, non -profit and tax -exempt status do not entail a withdrawal from economic activity. Posner, R.
and Philipson, T., “Antitrust in the Non -Profit Sector,” NBER Working Paper Series, March 2006, p. 2.
3 Foundations, as legally tax -exempt instit utions, have often been under threat for financial or political
reasons. Hammack, D., “American Debates on the Legitimacy of Foundations,” in The Legitimacy of Philanthropic
International Journal of Not -for -Profit Law / vol. 1 6, no. 1, September 2014 / 31
The need to formulate a l egal regime 5 aimed at increasing transparency across the third
sector is now seen as essential, not only by the government but also by these institutions
themselves .6 In this article , we focus on the legal regime of Switzerland.
In order to contextualize the rest of the article , we shall outline some preliminary
assumptions: (a) The revolution in digital technology is constantly diminishing the distance
between institutions, both private and public, and the community. (b) There has been an increase
in the amount of self -regulation undertaken, in the number of legislative reforms issued, and in
the scholarships awarded, all of which are aimed at improving transparency in grant -making
foundations’ managerial activities. This might indicate a greater need to a dopt standards within
this sector. 7 (c) The Civil Code reform 8 does not appear to have satisfactorily addressed
transparency issues. (d) The Swiss philanthropic sector has autonomously adopted newer and
stricter rules on transparency standards with its int roduction of the Swiss Foundation Code
The article is structured in four parts . Part I provides a picture of the Swiss grant -making
foundation today. Part II categorizes the elements, tools , and limits of the grant -making
foundations. Part III dea ls with the issue of transparency and its limits from different functional
and socio -political angles: technological limits, limits of international legislation, limits imposed
by the internal legal structure of foundations, limits defined by the legislati on on gift -giving, and
functional limits to the implementation of transparency standards. Part IV comments on Swiss
legislation relevant to foundations and relates these points to the provisions in the Swiss
Foundations: United States and European Perspective , Prewitt, K., Dogan, M., Heyde mann, S., & Toepler, S. (eds.)
(Russell Sage Foundation, 2006), p. 49.
4 Examples of well -established organizations in the third sector are the Red Cross and the Salvation Army.
Although they might be considered standard organizations for this sector, they operate under very different strategic
management principles from most other institutions in this sector. Hansmann, H., “The Rationale for Exempting
Nonprofit Organizations from Corporate Income Taxation,” Yale Law Journal , Vol. 91: 54 (1981), p. 65.
5 Th e legal regime applied to foundations is complex and often diversified. Grant -making foundations
normally straddle different branches of the law: Private Law and Public Law; Federal Law and Local (Cantonal)
Law; Tax Law; Canon Law; Constitutional Law. Dr. Peter Lex, “Die Grundzüge des Stiftungsrechts,” in Stiftungen
in Theorie, Recht und Praxis: Handbuch für ein Modernes Stiftungswesen, Graf Strachwitz, R., & Mercker, F. (eds.)
(Duncker & Humblot, Berlin, 2005), pp. 205 -209.
6 To assess the relevance of th e discussions on the operation and management of grant -making foundations
in this regard, see, for example, “Public Policy for Nonprofits: A Report on ARNOVA’s Symposium of October
2010,” https://netforum.avectra.com/eWeb/DynamicPage.aspx?Site=ARNOVA&WebCode=symposium .
7 In 2011, the European Foundation Centre (EFC) issued the report Exploring Transparency and
Accountability Regulation of Public -Benefit Foundation s in Europe (2011).
8 The Swiss Civil Code was reformed in 2007. The issue has become more relevant, since it is expected that
new tax -estate reforms are likely to introduce more changes to the sector, increasing the amount of capital channeled
to foundat ions annually. See Breitschmid P., “Sale”: Schlussverkauf für die Erbschaftssteuer (NZZ -23.11.11).
9 Numerous codes of conduct issued by European countries for the third sector deal expressly with the issue
of transparency . See EFC, Exploring Transparency .
International Journal of Not -for -Profit Law / vol. 1 6, no. 1, September 2014 / 32
I. The Swiss NPS and Foundati ons at a Glance
Given the size of the country and its population, Switzerland has a large nonprofit sector.
Some 90,000 nonprofit organizations exist, accounting for 4.7 percent of GDP. When the value
of volunteering work is included, this figure rises to 6 percent of the GDP. 10
The foundation sector in particular plays a unique role. By contrast to the Anglo –
American definition, a foundation in the Swiss legal context can be a grant -making, an operati ng,
or an organizing institution. Of the 12,715 charitabl e foundations in total, two -thirds are grant –
Over the past twenty years, more than half of charitable foundations have been less than
ten years old , and total foundation assets have risen from CHF 30 billion (USD 32 billion) to
CHF 70 billion (USD 75 billion). As a consequence of this enormous growth, public interest in
the foundation sector is increasing. 12
Besides the statistical increase, the foundation sector has been subject to changes in
managerial and structural organization. 13 Two association s that serve foundations currently exist,
covering activities such as lobbying, convening, and publications. In terms of management, the
Swiss Foundation Code has gained international attention ; it is the first foundation governance
code in Europe. 14
II. Location, Tools , and the Bottom -Line Foundations Today
In a civil law system such as the Swiss regime, a foundation is normally defined as legal
entity established by the endowment of assets for a specified purpose. 15 In theory, this purpose
must be one of p ublic interest. Besides the fundamental civil -law requirement that the founder
has an autonomous will (i.e., possesses legal capacity), a foundation’s constitution contains two
formation requirements: the endowment, as the material element; and the purpose , as the
subjective element. The endowment is what distinguishes a foundation from other institutions
within the non -for -profit sector 16 (or civil society 17), such as associations and advocacy groups. 18
10 Cf. Helmig, B., Gmür, M., Bärlocher, Ch., & Bächthold, St., “Statistik des Dritten Sektors in der
Schweiz, ” in Helmig, B., Lichtsteiner, H., & Gmür, M. (eds.), Der Dritte Sektor der Schweiz (Bern, 2010), p. 174.
11 Cf. Purtschert, R., von Schnurbein, G ., & Beccarelli, C., “Switzerland, ” in Anheier, H.K., & Daly, S.
(eds.), The Politics of Foundations (London, 2007), p. 310.
12 Cf. Eckhardt, B., Jakob, D., & von Schnurbein, G., Der Schweizer Stiftungsreport (Basel, 2012).
13 Von Schnurbein, G., & Timmer, K ., Die Förderstiftung (Basel, 2010).
14 Sprecher, Th., Egger, Ph., & Janssen, M. (eds.), Swiss Foundation Code 2009: Principles and
Recommendations for the Establishment and Management of Grant -Making Foundations (Basel, 2011).
15 Art. 80 of the Swiss Civil Code: “A foundation is established by endowment of assets for a particular
16 This distinction comes from Roman law, which differentiates between foundations ( Universitas Rerum ),
as institutions based on assets, and associations ( Universitas Pers onarum ), as institutions based on membership.
Prewitt, K., “Foundations,” in The Nonprofit Sector: A Research Handbook, 2nd ed., Powell, W. & Steinberg, R.
(eds.) (New Haven: Yale University Press, 2006), p. 355.
17 The term civil society is used to descri be associations of public interest that involve a nexus between the
family, the state, and the market. Departing from the notion of citizenship, the concept of civil society has been
defined by philosophers since the time of classical liberalism. See the d efinition in Anheier, K. H. et al. , A
Dictionary of Civil Society, Philanthropy, and the Nonprofit Sector (Routledge, 2005), p. 54.
International Journal of Not -for -Profit Law / vol. 1 6, no. 1, September 2014 / 33
Thus, foundations belong to an economic sector that eme rges independently of markets
and states. But the tools of this sector differ considerably from the resources available to the
other sectors. While governments generate their incomes by exacting taxes (compulsory
payments), and markets generate their incom es by creating financial surpluses (profits),
foundations are not directed at generating income. The structure of society itself is a
consequence of government, as there would be no civil order without centralized power, and
anarchy would reign .19 Markets w ork properly when private initiative and individual ambitions
can flourish .20 The government, markets , and society act interdependently. The third sector, by
contrast , does not exist on the basis of a social mandate, nor do its institutions compete in a
mar ket. However, it nevertheless realizes a purpose that may belong either to the government or
to the market. 21
But the pursuit of these objectives is not per se a warranty of a foundation’s survival. If a
government considers that a foundation’s role is not being performed adequately, the
government might try to take over the task of the foundation or even eliminate it .22 Similarly, if a
company sees an opportunity for financial profit in any of the foundations’ activities, it might
seek to pursu e them itself.
Therefore, foundations exhibit singular characteristics . F irst, they operate by performing
activities that originally belong to the public sector, yet they cannot obligate society. Second ,
foundations can canvass for sponsors, resources , and popular supp ort, but without offering profit
in return. Therefore, although they can attract resources, they cannot function like classical
investment schemes by offering a return on capital.
This commitment to delivering public goods without being subject to the con trols of a
centralized power or for -profit incentives raises questions as to how foundations can exist and
sustain themselves over time .23 These considerations lead us to ask what essential criteria allow
18 Together, these institutions form part of what is known as “the third sector.” The term was introduced by
Amitai Etzioni a nd later adopted by the International Society for Third -Sector Research (ISTR) as a unifying label.
The term highlights the fact that this sector emerged independently of the market (the first sector) and the State (the
second sector). Anheier et al. sugge st that the term “the third sector” is being replaced by “the third system.” This
latter expression is used to identify an array of organizations that are neither governmental agencies nor for -profit
firms. The term is deemed broader than the third sector, as it includes elements of the informal economy. Anheier,
K. H. et al. , A Dictionary of Civil Society, Philanthropy, and the Nonprofit Sector.
19 “When governments no longer provide public goods or services, failure looms.” Rotberg, R., “Failed
States in a World of Terror,” Foreign Affairs , vol. 81, no. 4 (July -August 2002), p. 131.
20 Applying also to John Locke’s views on freedom and the granting of property rights, the absence of
which would menace the freedom of human beings to achieve social and economi c development. For example, the
Universal Declaration of Human Rights (UNHRD), Article 27 (2), states: “Everyone has the right to the protection
of the moral and material interests resulting from any scientific, literary or artistic production of which he is the
author.” UNHRD adopted in December, 1948.
21 Prewitt, “Foundations,” p. 356.
22 Or conversely, due to a foundation’s high level of performance, a government might find its legitimacy
threatened vis -à-vis society.
23 We are not suggesting here that ei ther the public sector or market players have a guaranteed survival.
When a majority of the people turn against their government, they usually cause it to fail. At the same time, markets
work properly when some players win while others fail. See Prewitt, “ Foundations,” p. 357.
International Journal of Not -for -Profit Law / vol. 1 6, no. 1, September 2014 / 34
institutions to be defined as grant -making foundatio ns and to investigate whether transparency
plays a role in establishing these criteria.
In principle, the fundamental assets that constitute a foundation are its dedication to its
purpose and the value of its endowment. Do other characteristics constitute a foundation’s
specific identity? The answer is yes : A foundation depends on the goodwill and financial support
that it receives from both public and private sources.
The various legal frameworks that govern foundations demonstrate the government’s
inter est in ensur ing that their status is protected by its regulations. These regulations support
foundations by granting them status as independent legal entities, by exempting them from the
tax regimes, and by introducing tax waivers on gifts and donations that may be capitalized. In
addition to these benefits, governments can support foundations directly by contracting with
them, granting them funds, and outsourcing certain public activities to them. Companies can also
support foundations by donating tax -exem pt funds and by directly contracting with them to
develop charitable activities.
In fact, if a foundation is able to exploit a favorable legal framework, its activities can be
both permitted by the government and supported by the private sector. This privi lege implies that
the foundation convey s its message to society and that society endorses its credibility. Reputation
is therefore important to foundations. It functions as a kind of “moral credit,” which can generate
resources and help establish a favorab le regulatory environment.
Furthermore, foundations are normally not alone in their domain. They are compelled to
monitor the memberships and responsibilities of other foundations .24 Thus, the philanthropic
sector , like the for -profit sector, is driven by a kind of competitive dynamic .25 Because
foundations must strive to survive, this competitive dynamic must be embedded in the ir founding
Therefore, in addition to the endowment, foundations need a strong relationship with the
public and the priva te sectors of society in order to function . The endowment gives the
foundation a kick -start , but its relationship with the community is what sustains it in the long run.
Consequently, if foundations rely on reputation to function successfully, it can be
logically assumed that rules and principles on transparency will play an important role. However,
this role must also be contextualized. Part III outlines the issues relating to transparency and its
limits in this context today.
III . Transparency and Its L imits
Here , we discuss the general aspects of transparency and its limits with regard to the
constitution and operation of foundations. These issues are of a functional character, and
therefore apply equally to Swiss – and non -Swiss -based foundations.
A. Transparency and Access to Information Today
First of all, it seems undeniable that today’s unprecedented access to information can
trigger changes in the relationship between economic actors and the community. Communication
24 Prewitt, K., “Foundations,” p. 355.
25 Posner, R. and Philipson, T., “Antitrust in the Non -Profit Sector,” NBER Working Paper Series (March
2006), p. 2.
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technologies matter more than ev er before. Never before has the human being enjoyed such an
abundance of available information. The challenge is not about looking for the information; it is
rather about processing it. 26 Although this surfeit of information does not necessarily result in
“improved” knowledge, it renders traditional cases of secrecy almost impracticable.
Issues such as digital technologies, the convergence of media, and the architecture for
distributing information — both legal and illegal — have dramatically changed with the
introduction of Internet Web 2.0. 27 Furthermore, devi ces to process information are inexpensive,
and sophisticated skills are not required to operate, edit , and distribute information. This has
provoked a radical shift in the way society and its institutions communicate with each other.
Traditional practices based on secrecy are no longer acceptable. Foundations should follow this
trend and avoid old -fashioned strategies based on scarcity of information. 28
B. Transparency as an Integral Component
of the Curren t International Legal and Economic Order
Today, transparency has an increasing role to play across different sectors. In the
converging dynamic that has existed s ince the early 1990s, national governments seem to “cede”
sovereignty, economic integration ta kes place, 29 and private players progressively adopt business
models that operate across several jurisdictions. 30 Issues o f transparency are of particular
importance in inter governmental operations and public -private sector relations ,31 where it is
essential to avoid any secrecy that might undermine the business climate, socio political
opportunities for change, or global security. 32
26 Capurro, R., “Towards an Information Ecology,” in Wormell, I. (ed.), Informat ion and Quality (London:
Taylor, Graham, 1990), 122 -139.
27 An iconic example of this was the decrypting and releasing of a video, entitled CollateralMurder.com.,
which shows the murdering of civilians, journalists, and children in Iraq. Sifry, M., Wikilea ks and the Age of
Transparency (New Haven: Yale University Press, 2011).
28 For example, a Spanish study provides a model that allows the level of transparency of different NGOs to
be assessed online. Gálvez Rodríguez, M., Caba Pérez, M., & López Godoy, M ., “Determining Factors in Online
Transparency of NGOs: A Spanish Case Study,” Voluntas , International Society for Third -Sector Research and
Johns Hopkins University, 2011.
29 The conclusion of the GATT Uruguay Round and the establishment of the WTO are pa rt of this trend,
which, in fact, can be traced back to the Bretton Woods Agreement in 1944 and the founding of the World Bank and
the International Monetary Fund, whose aim was to build a more integrated economic order. See Bhagwati, J.,
Protectionism (Ca mbridge: MIT Press, 1989), ch. 1.
30 For a critical view from the perspective of global economic regulation, see Braithwaite, J., & Drahos, P.,
Global Business Regulation, Part I (Cambridge University Press, 2000).
31 Transparency also plays a role in the financial sector, although it has been said that: “The money markets
rely more on trust than transparency, because transactions are so quick that there is little time to assess information.”
“Full Disclosure: The Case for Transparency in Financial Markets is Not Clear -cut,” Economist , Feb. 19, 2009.
32 For example, within the WTO System, transparency is a fundamental principle of the organization that
aims to regulate information flows among trading partners. Hoekman, B., & Kostecki, M., The Political Econo my of
the World Trading System: The WTO and Beyond , 2nd ed. (New York: Oxford University Press, 2001), p. 61.
Likewise, International Standards of Supreme Audit Institutions (ISSAI) of the International Organization of
Supreme Audit Institutions (INTOSAI) sets transparency standards for public finance at Principles of Transparency
and Accountability ISSAI 20. www.issai.org .
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The third sector is also affected by this. For example, after the terrorist attack s of
September 11, 2001, financial regulations were among the first to be affected 33 in order to trace
movements of capital by private players , especially in the recommendations of the Financial
Action Task Force (FATF) of October 2003 and its nine 34 supplementary recommendations. 35
The eighth r ecommendat ion addresses the regulation of non -profit organizations :
Depending on the legal form of the NPO and the country, NPOs may often be subject to
little or no governmental oversight (for example, registration, record keeping, reporting
and monitoring), or few formalities may be required for their creation (for example, there
may be no skills or starting capital required, no background checks necessary for
employees). Terrorist organizations have taken advantage of these characteristics of
NPOs to infiltrate th e sector and misuse NPO funds and operations to cover for or support
terrorist activity. 36
In an economically integrated world, this recommendation constitutes a strong warning
call for the global philanthropic sector. The need for instruments and regulati ons aimed at
avoiding secrecy, albeit for different reasons, is just as clear for the third sector as it is for other
key economic areas, such as trade and public finance .
C. Transparency and the Essence of the Legal Structure of Foundations
If transparen cy is considered a key asset in the theoretical constitution of a foundation,
this must be reflected in its actual operations. Yet w ell -accepted legal principles are not
necessarily self -explanatory. However well accepted these principles are in theory, th eir
formulation does not easily translate into practice. Historical and structural factors can conspire
against the straight execution of accepted principles.
In the case of foundations, it might even be argued that, as legal institutions, they do not
app ear to have any immediate connection with transparency issues. This might be because
foundations are not publicly associated with a democratic ethos that categorically requires
transparency. The fact that wealthy people can divert resources — which would oth erwise have to
be contributed through taxes to the public budget — in order to satisfy what they personally and
independently determine to be an unmet need of public character, is hardly aligned to any
democratic axiom. 37
In fact, the philosophical underpinn ings of foundations reveal a laissez -faire heritage.
That is, this sector’s principles have little to do with public policy issues. 38 The architecture of
third -sector institutions omits to identify precise beneficiaries who can assert rights against a
33 Pieth, M., Financing Terrorism (Kluwer Academic Publishers, 2002), p. 158.
34 https://www.fatfgafi.org/document/28/0,3746,en_32250379_32236920_33658140_1_1_1_1,00.html .
35 Of 2001, incorporating all subsequent amendment until 2008. https://www.fatf –
36 https://www.fatfgafi.org/document/22/0,3746,en_32250379_32236920_43757718_1_1_1_1,00.html .
37 Consequently, it is not astonishing at all that foundations have been labeled “quasi -aristocratic
institutions.” Anheier, H. K., & Daly, S., Po litics of Foundations , p. 4; Prewitt, K., “Foundations,” p. 374.
38 Brody, E., “The Legal Framework for Nonprofit Organizations,” in The Nonprofit Sector: A Research
Handbook , 2nd ed., Powell, W. W., & Steinberg, R. (eds.) (New Haven: Yale University Press, 2006), p. 243.
International Journal of Not -for -Profit Law / vol. 1 6, no. 1, September 2014 / 37
found ation — an approach adopted by many people who establish charities using a foundation.
These factors conspire against transparency.
For example, when contrasting the structure of a foundation to that of a company, one
marked difference is that the latter is vested with a board that is obliged to submit a periodic
account of its actions to its principal — that is, its shareholders. 39 This requirement has a
tremendous impact on the field of corporate law .40 The structure of a foundation has no such
internal contro l mechanism. Once a foundation has been established, it operate s by following the
directives of its board of management. As the foundation board does not have the duty to
distribute periodic benefits to stakeholders, there are no parties entitled to demand accountability
for the foundation ’s actions. The foundation is not required to report on the size of gifts and
donations, for example, or on the use of the dedicated assets. 41
Thus a foundation operates solely under the management of the board. The board’ s main
duty is to fulfill the founder’s will (the foundation’s purpose). In this sense, the will of the
founder attains a sort of legal character vis -à-vis the authority before the foundation is registered ,
and sometimes even in face of the tax authority. But as foundations are normally expected to
continue their existence beyond the life of the founder, the task of determining who has the right
to enforce the will of the founder is not simple. Of course, to some extent the public authority has
the right to monitor the functions of a foundation. But once a foundation has been established,
the supervisory vigilance of the state is not mandatory.
At the same time, if the government were to introduce an aggressive supervisory policy
over the foundations regist ered within its jurisdiction, there would very likely be a strong
reaction in defense of the foundation’s independent status. Beyond the standard accounting rules
common to all economic actors vested with a legal personality, foundations are not legally
co mpelled to provide information to the regulatory authority. In this sense, it can be said that,
even though the will of the founder has some legal character, and the status of legal entity
ensures that a framework exists to fulfill that will, there is no l egislation to ensure that
foundation funds are handled systematically. Moreover, even in cases where the public authority
obliges funds channeled through foundations to undergo closer scrutiny, this is normally done to
identify dishonest tax avoidance, not to shed light on the foundations’ management activities.
39 Milton Friedman: “[T]he whole justification for permitting the corporate executive to be selected by the
stockholders is that the executive is an agent ser ving the interest of the principal.” Friedman, M., “The Social
Responsibility of Business is to Increase Its Profits,” New York Times Magazine , September 13, 1970.
40 “Much of corporate law can be understood as an effort to control the agency problems that arise from the
opportunist managers vis -à-vis shareholders, controlling shareholders vis -à-vis minority shareholders, and the
company vis -à-vis its non -shareholders’ constituencies such as creditors and employees.” Hertig, G., Kraakman, R.,
& Rock, E., “Is suers and Investor Protection,” in The Anatomy of Corporate Law: A Comparative and Functional
Approach , Kraakman, R., Davies, P., Hansmann, H., Hertig, G., Hopt, K., Kanda, H., & Rock, E. (eds.) (New York:
Oxford University Press, 2004), p. 195.
41 Albeit t hat active fundraising operations actually trigger some regulatory duties vis -à-vis the public
International Journal of Not -for -Profit Law / vol. 1 6, no. 1, September 2014 / 38
D. Transparency and the Privacy Aspect of the Act of Giving
Apart from the initial endowment, foundations are nourished by gifts and donations. It
would therefore be reasonable to track not only w here these funds originate, but also where they
In principle, a philanthropic gift in the form of a contribution or a donation constitutes the
voluntary, irrevocable transfer of an asset (money, property, rights of exploitation, etc.) by one
person t o an organization dedicated to a public purpose. Generally, this act is made without an
expectation of receiving something in exchange. The only condition normally attached to this
transaction is that the assets given be dedicated to the purpose for which they were transferred .43
Moreover, when a foundation ceases operation after receiving a gift , then the gift will most likely
be channeled to another charitable institution with a similar purpose rather than returned to the
donor. Gifts, once given, do not f ind their way back to the giver.
The act of giving anonymously can be especially revered. The reason for this is rooted in
religious traditions and other beliefs as well as in psychological motivations. From this
perspective, confidentiality may be import ant enough for the philanthropic sector to want to
protect it against hostile regulation or operating rules .44 However, anonymity certainly
contributes toward obfuscating the sector.
New trends in philanthropy suggest that the sector is being modernized. D onors are
increasingly assisted by well -established financial planners specialized in this sector, who can
provide a more holistic view of a charitable portfolio. 45 However, nothing suggests that old and
new approaches to philanthropy cannot coexist.
E. Th e Work of Foundations and the Limits of Transparency
Rules on transparency are normally understood as a bulwark against institutional abuses
relating to trade, taxation , or other economic activities — that is, situations in which pernicious
private interests pursue objectives that undermine the market or the public.
Banks and foundations differ considerably, yet they perform similar roles. Banks reduce
the transaction costs between lenders and borrowers of money. Beyond their own endowment,
foundations perfo rm a similar role in the philanthropic market, by gather ing contributions and
donations to be channeled to the different social programs. Just as banks are intermediaries
between lenders and borrowers of credit, foundations are intermediaries between funde rs and
42 In Spain, for instance, there is a foundation that tracks the transparency of NGOs as a guide for donors.
43 See also Anheier, H. K. et al.
44 For an economic analysis of the different reasons that prompt people to donate and provide gifts for
charitable purposes, from hedonistic motives to normative r easons, see Kolm, S., “Introduction to the Economics of
Giving, Altruism and Reciprocity,” in Handbook of the Economics of Giving, Altruism and Reciprocity:
Foundations , Vol. 1, Kolm, S., and Ythier, J. M. (eds.), Handbooks in Economics (Elsevier, 2006), p p. 52 -90.
45 Havens, J. J., O’Herlihy, M. A., Schervish, P. G., “Charitable Giving: How Much, By Whom, To What,
and How?”, in The Nonprofit Sector: A Research Handbook , 2nd edition, Powell, W., and Steinberg, R. (eds. ) (Yale
University Press, 2006), p. 560.
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beneficiaries of aid. In the end, both institutions mediate the problems created by information
Notwithstanding these similarities, bank s are subject to far more regulation than
foundations. Banking regulations are substantially stric ter in the realm of transparency. This is
related to the banking business model expressed in the deposit contract, by which the depositor
keeps the upside of the business (which is limited) and assumes the whole downside loss .47 This
context highlights why transparency is so important in this industry .48
However, transparency can at times undermine the banking business model. Particularly
in times of financial stress, full transparency can reduce a bank’s flexibility. Depositors may
withdraw their funds at once .49 This may worsen the crisis and potentially induce a market
In the foundation sector , th e general trend towards transparency is facilitated by new
technologies and contemporary approaches to communication, as well as by recent internation al
legal recommendations. On their own, s ome foundations have started to provide detailed
information about their organization and activities on their websites. 50 It is in the foundation’s
interest to implement transparency rules in all its operations. Impr oved transparency helps attract
funding, volunteers , and permanent memberships. It also communicates a message to society that
foundations warrant people’s trust. Such t rust is a foundation’s most valuable asset.
Nonetheless, as illustrated by the banking regulation case, caution is appropriate .
Foundations undertak e activities of a public character that are not addressed by the State or the
private sector .51 In pursuing their objectives, sometimes foundations need to operate under a veil
of discretion . Thi s is because their activities often relate only to a small segment of society,
whose members do not have the opportunity or the skill to form a powerful democratic
presence .52 Furthermore, foundation activities can draw a harsh reaction. Examples of charita ble
acts that might arouse public concern include attempts to integrate potential terrorists into
society, studies on the benefits of euthanasia, research on gender change, and help for asylum
seekers. In an open society, foundations should have the freedo m to pursue social change 53 and
46 As in the case of “lemons,” where the “the purchaser’s problem is to identify quality,” elaborated by
Akerlof, G., “The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism,” Quarterly Journal of
Economics , vol. 84, no. 3 (August 1970), p. 495. We can suggest that the primary problem people face when lending
or giving away money is identifying the most efficient institutions in which to place their assets.
47 Allenspach, N., “Banking and Transparency: Is More Information Always Better?”, Swi ss National
Bank, Working Papers (2009/11), p. 3.
48 However, it has been said that the banking sector needs disclosure more than transparency. Since
financial information tends to be very complex, only the disclosure of relevant items of information by to p managers
to rating agencies and insurance firms really has an effect on the market. See Healy, P. M., Krishna, G., Palepu,
K.G., “Information Asymmetry, Corporate Disclosure, and the Capital Markets: A Review of the Empirical
Disclosure Literature,” Jour nal of Accounting & Economics , 31 (2001), pp. 405 -440.
49 Allenspach, N., p. 3.
50 See for example https://www.grstiftung.ch/en.html .
51 Or sometimes activities differently undertaken, either by the state or the private sector.
52 Otherwise these groups would be able to force the state to act on their behalf.
53 Prewitt, K., p. 355.
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to challenge established limits .54 They must have sufficient autonomy to undertake unpopular
A foundation may also need privacy when it operates outside its jurisdiction in
undemocratic countries . A requirement at hom e that it fully account for its actions can produce
devastating consequences for the people it is trying to help and protect .56 Therefore, transparency
legislation must not obstruct the foundation’s mandate, its manager’s strategy, the assign ment of
its ass ets , or any other aspect of its work .57
To strike the optimal balance, a strategy should distinguish between structural
transparency and performance -related transparency. Structural transparency relates to the internal
framework of the foundation, includin g the purpose, quantity of assets, board members, and rules
on the destination and the granting of funds. Performance -related transparency relates to the
activities of the foundation, including their relationship to its purpose.
Arguably, the public wants principally to be able to assess the individuals responsible for
administering the foundation assets . Structural transparency is likely to suffice in establishing
credibility. By contrast , transparency regulations that focus on the activities of the found ation
can jeopardize its ability to fulfill its purpose.
As will be explained below , Switzerland’s transparency regulations deal predominantly
with a foundation’s structure rather than its activities.
IV . Swiss Legal and Institutional Framework for Found ations
Swiss law establishes three main forms of foundation: classic foundations, known also as
charitable foundations, which are regulated primarily in the Swiss Civil Code (SCC); family and
ecclesiastical foundations, which are not specifically regulate d in the SCC; and foundations
consisting of retirement schemes for employees, which are regulated under other special legal
regimes . In addition, there are business foundations, which , though “unregulated” by the SCC,
seem to be recognized in jurisprudence .58
In Switzerland, the law applicable to foundations is laid down in Articles 80 through
89bis 59 of the Swiss Civil Code, 60 whose last reformed version 61 entered into force on January 1,
55 An example of this is the work of the Ford Foundation and the African -American civil rights movement
during the 1960s. Berma n, H. E., “The Foundations’ Role in American Foreign Policy: The Case of Africa, Post –
1945,” in Philanthropy and Cultural Imperialism: The Foundations at Home and Abroad , Anove, R. F. (ed.)
(Boston: G. K. Hall & Co., 1980), p. 205.
56 For example, German fo undations that are extensively involved in efforts to democratize foreign
countries since 1960 include the Friedrich Ebert Foundation, the Konrad Adenauer Foundation, the Henrich Boell
Foundation, the Hanns Seidel Foundation, and the Rosa Luxemburg Foundat ion. However, these foundations no
longer exist as foundations; in fact, today, they are associations. Alexander Mohl analyzes their work in Mohr, A.,
The German Political Foundations as Actors in Democracy Assistance (Boca Raton, FL: Universal -Publishers,
57 For example, for decades U.S. Government aid was not welcome in China, the Soviet Union, and many
developing countries, whereas U.S. foundations were allowed to operate in them. Berman, H. E., p. 205.
58 See the study by Würmli, M., Das gemeinnüt zige Unternehmen, (s. 901). Pratique Juridique Actuelle,
Dike Verlag AG, AJP (2010).
59 Article 89bis is not analyzed in this paper, as it concerns employee benefits schemes.
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2006, 62 pursuant to Article 1 of the Concluding Section of the SCC. 63 A l egal regime applicable
to the auditors of foundations is stipulated in the Federal Ordinance of August 24 , 2005 .64 The
Swiss Confederation, through the Federal Supervisory Authority on Foundations of the
Secretariat of the Federal Department of Home Affairs (FDHA), 65 exercises overs ight authority
over foundations registered in Switzerland which have a national (or sometimes international)
purpose. 66 This supervisory authority is based on Article 84.2 of the SCC, by which “The
supervisory authority must ensure that the foundation’s assets are used for their declared
purpose.” 67 (Foundations are also supervised locally at cantonal level , a topic that lies beyond the
scope of this article.)
A. Transparency and the Law
Few legal provisions directly address transpar ency; instead, provisions of this kind are
implicitly included within the different sets of legal regulations. Basically, the transparency –
related regulations applicable to grant -making foundations can be divided according to two
implementation phases: whe n the foundation is formed, and when the foundation is administered.
The scope of regulation dealing with the formation of foundations can be extended to
investigate two issues . First, regulations seek to trace and determin e the origin of gifts and
donati ons which are incorporated into the endowment, but which do not form part of the original
endowment itself. Th e purpose is to ensure that foundations do not host illegal assets and do not
get used to divert assets . Second, regulations may come into play wh en the foundation’s purpose
is changed, including upon the request of the founder. Such a change will alter the subjective
aspect of a foundation.
The scope of regulation dealing with the administration of the foundation covers three
areas. First is the m anagement process for ensur ing that grants are allocated on an objective and
systematic basis. Second, regulation addresses t he obligations and duties associated with annual
reporting and accounting. These managerial functions aim to ensure predictable lev els of
expenses and to provide a rational approach to administration that will help secure the
foundation’s long -term survival. A third category of regulations concerns t he rules, duties , and
assignment of managers, as well as the organization of the found ation’s managerial bodies in
their relations with external auditors. These specifications seek to address and avoid the so -called
60 Swiss Civil Code (SCC), Part One: Law of Persons, Title Two: Legal Entities, C hapter Three.
61 It is the first reform of Swiss foundation law since 1907.
62 It is worth noting that the reform of the Swiss Civil Code provisions related to foundations occurred
independently, and not as part of any attempt to harmonize the Swiss Regime with European legislation. Sprecher,
T., Die Revision des Schweizerischen Stiftungsrechts (2006), p. 81.
63 Final Title: Commencement and Implementing Provisions.
64 www.bk.admin.ch/ch/f/as/2005/4555 .pdf .
65 Art. 3, al. (alinéa) 2, let. A, de l’ordonnance sur l’organisation de Département Fédéral de l’intérieur (Art.
3, Abs. 2. Bst. a, Organisationsverordnung vom 28. Juni 2000 für das Eidgenössische Departement des Innern (OV –
EDI)) SR 172.212.1.
66 https://www.edi.admin.ch/esv/index.html .
67 https://www.edi.admin.ch/esv/00465/00466/index.html?lang=fr .
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agency problem. The structural problems of a foundation’s management do not relate directly to
agency problems, but rather res ult from a lack of agents .68
B. The Swiss Foundation Code
Beyond the SCC and related federal and cantonal regulations, the philanthropic sector has
formulated the Swiss Foundation Code in an effort of self -regulation. 69 Self -regulation by private
parties c an offer advantages over state compulsory regulation. 70 Perhaps the most obvious
advantage that private -sector participants have over public authorities is specialized know -how
and experience. This permits them to more easily spot the weaknesses in stewards hip that need to
be regulated. Nonetheless, self -imposed standards can have a downside if the y are drafted by
better equipped players in the philanthropic sector, such as large foundations. The imposition of
sophisticated standards can cause small players to default without being culpable of any
transgression per se , simply because they lack the means to fulfill the standards. It is therefore
advisable to gather opinions from different members of the sector when fashioning self –
regulation . Another point to consider concerns the relationship between the sector’s regulatory
body and the regulated parties. Parties within the sector are likely to have common interests. In
this regard, problems related to capturing regulatory omissions may arise between the secto r’s
players and ad hoc regulators , as happens between regulated parties and the public authority. 71
In the case of the SFC, Swiss foundations (the Association of Swiss Grant -M aking
Foundations 72) commissioned a working group of experts in 2004. The aim was to prepare
recommendations on the formation and management of Swiss foundations. 73 The first version
appeared in 2005 under the heading Code of Best Practices, which was discussed and reviewed
by members of Swiss foundations, the public authority, academia, organizations related to the
philanthropic sector, and the private sector. The text was finally published under the name Swiss
Foundation Code. It includes three main principles and 26 recommendations. The SFC is a
68 Although certain voices sugg est that foundations should adopt a “principal/agent” structure akin to the
organization of a company. See the section Discussion in EFC, Exploring Transparency and Accountability
Regulation of Public -Benefit Foundations in Europe (2011), p. 9.
69 Other Eu ropean countries also have a panoply of self -regulations involving transparency. See Breen, O.,
“Through the Looking Glass: European Perspectives on Non -Profit Vulnerability, Legitimacy and Regulation,”
Brooklyn Journal of International Law , vol. 36, no. 3 (2011), available at
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1932653 , p. 969.
70 Brody, E., “The Legal Framework for Nonprofit Organizations,” in The Nonprofit Sector: A Re search
Handbook , 2nd ed., Powell, W. W., & Steinberg, R. (eds.) (New Haven: Yale University Press, 2006), p. 257.
72 Grant -making foundations are those foundations that have the means either to develop their own projects
or to finance the projects un dertaken by other parties. These are foundations which, in their essence, can develop
73 Even though the foundations targeted by the SFC are the so -called “large” foundations, the introductory
part of the Code includes the caveat that its re commendations should not be applied too rigorously in the case of
smaller foundations, in order to prevent them from being overwhelmed by its provisions, and yet allow them to
profit from the Code guidelines. See SFC, p. 13.
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guideline for the activities of foundati ons formed in Switzerland. 74 It is not a management
guide ,75 and its recommendations are not mandatory. 76
The SFC is divided into four chapters , which address the foundation’s e stablishment ,77
leadership ,78 grant -making ,79 and finances. 80 The code sets forth “ three General Principles, which
must always be observed simultaneously by the management of any modern foundation. These
principles relate to: (1) the Effective Implementation of the Foundation’s Purpose; (2) Checks
and Balances; and (3) Transparency. ”81 The first principle aims to ensure that a foundation’s
work is executed pursuant to its legal purpose . T he second principle address es the foundation’s
managerial structure. The third principle focuses on the relationship between the foundation and
society in g eneral.
C. The Swiss Legal System at Work
The rest of this article deals with the Swiss legal framework on foundations. It primarily
deals with the provisions of applicable federal law, such as the Swiss Civil Code, and presents
these in the context of re gulated act s over the life of a foundation . Where relevant , the article
notes the interplay between the recommendations of the SFC and the provisions of the SCC. A
brief comment on the applicability of the principle of transparency closes the analysis of e ach
piece of regulation.
1. Formation and Registration of Foundations
a. Swiss Civil Code
Article 80 of the SCC (on formation) 82 lays down the basic principle that defines the
foundation as being “established by the endowment of assets 83 for a particular purpo se.” 84 The
act of allocating an endowment to a particular purpose and registering it in the commercial
register gives the foundation its legal personality .85 Article 81, para. 1 , of the SCC stipulates that
a foundation can be established by a public deed — int er vivos — or by a testamentary
74 In its introductory section, the Code also contemplates the adjustment of its principles and
recommendations applicable to foundations that are initially established under a foreign jurisdiction. See SFC, p. 13.
75 See also SFC, p. 14.
76 See SFC, pp. 14 -15.
77 Including Recommendations 1-3.
78 Including Recommendations 4 -15.
79 Including Recommendations 16 -19.
80 Including Recommendations 20 -26.
81 Swiss Foundation Code 2009, Foundation Governance, vol. 9 (Helbing Litchtenhahn Verlag).
82 Article 80 A. Foundation I. In General.
83 In some countries, the law stipulates that the endowment must have a minimum threshold value. This is
not the case of Switzerland, though in practice the Swiss authority requests a minimum amount before registration.
84 In some European countries, the law requests that the purpose be published and expressly defined as
being of a public -benefit. See EFC, Exploring Transparency and Accountability Regulation of Public -Benefit
Foundations in Europe (2011). This level of precision is absent from the SCC.
85 Thus, in Swi tzerland, registration functions as a state approval for grant -making foundations; whereas in
other European countries, such as France, registration is not required. Alternatively, registration is achieved subject
to judicial approval and not by state appr oval. See id. , pp. 12 -13.
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disposition. 86 A foundation can also be established by contract of inheritance ( pacte
successoral )87 under the jurisprudence developed by the Swiss Federal Tribunal. 88 Article 81,
para. 2, of the SCC stipulates that a foundation must be entered in the commercial register,
pursuant to its charter, in accordance with any directions issued by the supervisory authority, and
naming the members of the board of trustees. Finally, Article 81, para. 3, stipulates that the
probate authority shall inform the commercial registrar of the creation of a foundation by
testamentary disposition. 89 Upon subsequent notification of the supervisory authority, the
registrar will exercise supervision. 90
b. Swiss Foundation Code
The first recommendation of the SFC concerns the examination of the founder’s intent. In
particular, the recommendation seeks (a) to ensure that the founder’s intent corresponds to a
societal need, and that that an independent foundation is an appropriate vehicle to deal with this
ne ed, taking into account its assets; (b) to determine whether the foundation is to have a
permanent or limited existence, and , if permanent, to set up a framework for electing or replacing
board members; and (c) to ensure a level of coherence in terms of the foundation’s will, purpose,
organization, and assets disposed. 91
The second recommendation of the SFC deals with the legal domicile of the foundation.
In principle, the recommendation states that the foundation should be established where its main
grant -making activity takes place. However, geographic proximity is not the only concern; a
foundation’s domicile determines its legal framework and supervisory authority. In addition , the
recommendation states that tax issues should be evaluated when setting th e domicile of the
The third recommendation deals with the internal documents and bylaws of the
foundatio n.93 The purpose of the foundation should be stated in the charter. Ancillary rules
concerning the work of the foundation, which need to be adaptable, can be established in other
documents or guidelines. In cases where the purpose is broadly defined, the founder should add a
86 The rules of formal testamentary disposition are governed by Article 498 A. Wills, I. Drawing up a will,
1. In general, Article 499 et seq. governs the requirements of testament established by public deed. The rules of
hand -wri tten testaments are governed by Article 505 (on Holographic will). Article 506 (on Oral will, dispositions)
et seq. govern the rules on oral declarations of testamentary nature.
87 The requirements for contracts of succession are set forth in Article 512 e t seq. of the SCC. In order to be
valid, the contract of succession must be vested with formal requirements of a will executed as a public deed and the
intention of the parties must be declared before the public authority.
88 Sprecher, T., New Features in Swiss Foundation Law (2006), p. 9.
89 Art. 81.3 of the SCC.
90 Sprecher, T. New Features in Swiss Foundation Law (2006).
91 See the Swiss Foundation Code 2009, with commentary. Sprecher, T., Egger, P., and Janssen, M.,
Foundation Governance, vol. 6., Helbing Lichtenhahn, Swiss Foundations (2009).
92 See id.
93 As the law does not have provisions on the bylaws of the foundation, this recommendation is very useful
for newly formed foundations.
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mission statement to serve as a strategic guideline for the board, which can be periodically
2. Challenges b y Heirs or Creditors
Article 82 of the SCC 95 states that the foundation can be challenged by the heirs or
creditors in the same way that a gift may be challenged.
3. Organization of Foundations
a. Swiss Civil Code
The charter stipulates the governing bodie s of the foundation and its method of
administration. 96 If the authority of the commercial register sees a lack of coherence between the
way in which the foundation has been organized and its legal mandate, the authority will notify
the pertinent supervisor y authority of the foundation, which will need to redress these
deficiencies .97 The supervisory authority may set a deadline by which the foundation must
establish its legal status , ap point an executive body (assuming this is vacant) , or appoint an
administ rator (permanent or not) together with an assignment of competence. If the situation
cannot be redressed and uncertainties persist regarding the feasibility of the foundation’s
organization, the foundation’s assets can be donated to another institution tha t has a similar
This is to be done irrespective of whether the deed of the foundation authorizes it or
not. 98 This provision constitutes a departure from the established Swiss legal regime on
foundations, which did not give this power to the autho rity. Under such circumstances, the new
regime even allows the authority to transfer the assets against the will of the founder and the
members of the board, regardless what is stated in the deed. 99
b. Swiss Foundation Code
The second cluster of recommenda tions of the SCF deals with organizational issues. The
last of the 12 recommendations stipulates that the foundation should share information on its
principles , grant -making activities , and procedures with the public. The recommendation aims to
inform the public about the purpose of the foundation, its structure, and its areas of activity. The
SFC advises that foundations make their “ goals, guidelines and procedures governing grant –
making activities” accessible to the public via a website. The recommendatio n states that the
foundation should share this information with its beneficiaries, the public authority , and the
public in general.
Recommendation 4 provides rules for the functions of the board of trustees, which should
be included in the foundation char ter. The first recommendation states that the board should
94 See the Swiss Foundation Code 2009, with commentary.
95 SCC, Artic le 82 III., Challenge by founder’s heirs or creditors.
96 SCC, Article 83B, Organisation, I. In general.
97 The foundation bears the cost of these diligences. Article 83 d, IV, para. 3, of the SCC.
98 SCC, Article 83 d, IV. Organisational defects, point (2)
99 Sprecher, T., New Features in Swiss Foundation Law (2006), p p. 9 -10.
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possess discretionary authority over its judgments and be free to hold independent opinions .
Even if the founder is a member of the board, the other board members must remain
autonomous. The board is entrusted with setting up the foundation’s short -, medium -, and long –
term strategies to achieve its purposes. Taking into account the foundation’s charter, the board
also has the power to periodically evaluate strategies of managers along with performan ces and
policies of the foundation.
Recommendation 5 states that in the absence of stipulations in the foundation’s charter,
the board of trustees should draft procedures regarding the election of its members, their terms of
office ( two to five years per t erm) , and rules governing their succession. Recommendation 6
deals with the number of members o f the board of trustees (ideally five to seven ). It suggests
rules ensur ing that foundation employees and board members receive adequate time to perform
their fu nctions and opportunities to benefit from training courses.
Recommendation 7 suggests rules on board members’ remuneration, which ought to be
commensurate with individual skill and experience, expended time, and performance. Although
the recommendation indicates that board members will optimally perform their duties on a
voluntary basis, it recognizes that members may require remunerat ion for their professional
services. In this regard, the terms must be agreed in writing.
Recommendations 8, 9 , and 10 dea l respectively with the board’s organization, the role of
its chairperson, and the role of its committees. Meetings of the board should take place at least
twice a year; they must be announced; decision -making procedures should be easy to
comprehend ; and m inutes should be recorded. If necessary, the board should determine when to
consult external expert s. Recommendation 9 specifies the tasks entrusted to the chairperson vis –
à-vis the board and the management of the foundation. The chairperson moderate s boar d
meetings and communicate s timely information to board members so that they are appropriately
informed before each meeting. The chairperson’s duties, areas of competence, responsibilities,
and term of office should be laid out in the foundation’s regulati ons or guidelines.
Recommendation 10 outlines cases where the board might decide to set up permanent or ad hoc
committees for specific tasks , such as overseeing finance, investments, grant -making, human
resources, and remuneration. The board must ensure th at the external members of these
committees are independent and in no way associated with the people they must evaluate. The
board of trustees should lay down the committee’s tasks in the foundation’s regulations and
Recommendation 11 deals wi th the rules governing potential conflicts of interest between
a person’s role as a foundation board member or management member and his or her other
professional or personal activities . The board is charged with draft ing the rules on this. As a
matter of principle, any situation presenting a potential conflict of interest should be avoided.
Should such a case occur, it must be disclosed to the board. It may also have to be disclosed in
the annual report.
Recommendation 12 outlines the foundation’s tasks r egarding public communication.
The foundation has a duty to provide its members, its beneficiaries, the government, the public ,
and the media with information concerning its purpose and structure, along with its grant -making
policy , strategies, and activit ies. It should purvey this information using modern media channels ,
such as a website.
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The function of management is addressed in Recommendation 13. The board of trustees
should determine the skills, experience, duties, responsibilities, and compensation t hat its
management should have and hire the management. Once hired, management should run the
foundation’s operations under the supervision of the board of trustees.
Recommendation 14 seeks to ensure that the auditing agency is not assigned any task
other than what is required by statutory obligation. In p articular, the board of trustees is
cautioned against entrust ing the auditing agency with the responsibility of managing foundation
assets. The board must also make sure that the auditing agency or at lea st the head auditor is
Recommendation 15 deals with the appointment of permanent or ad hoc advisors and
consultants. When the board needs new skills or simply assistance, it can employ an external
work force. The foundation’s regula tions or guidelines should state the task, areas of expertise ,
and responsibilities of such external workers . The rules on independence and remuneration of
board members should apply equally to advisors, advisory committees , and other foundation
4. Recomm endations on the Work of Grant -M aking Foundations
a. Swiss Civil Code
The Swiss Civil Code is silent about the work undertaken by grant -making foundations in
b. Swiss Foundation Code
SFC Recommendation 16 advises the board of trustees to document foundation policy in
writing in order to serve as a reference framework. Grant -making and investment policies should
be coordinated , and strategies should periodically be reevaluated in consideration of both
society’s needs and the activities of ot her private and public grant -making institutions. The board
should set midterm goals as well as possibilities for collaboration.
Recommendation 17 addresses grant -making . In accordance with its investment
strategies, the board of trustees should determine distributable foundation income and disburse
available funds in a timely manner. A foundation should conduct grant -making activities in a
professional , business -like fashion . There must be communication with other private and public
institutions to operate efficiently and to avoid duplicate granting. There should be an optimal
ratio between administrative costs and grant -making activities. The foundation should have
established criteria to determine its efficiency.
Recommendation 18 advises that projects b e evaluated and selected pursuant to the grant –
making guidelines. The foundation should ensure that competent persons are in charge of such
evaluation , and that it is done in an objective and timely manner. External committees or
consultants may be used as well.
Recommendation 19 recommends that once a grant has been awarded, the foundation
enter into a contract with the beneficiary for the duration of the project. The foundation should
define the terms of the contract. A foundation can attach conditions t o the funding and monitor
the fulfillment of those conditions.
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5. Recommendations on the Financial Management of G rant -M aking Foundations
a. Swiss Civil Code
Article 83 a (1) of the Swiss Civil Code on Foundations’ Accounting obliges the board of
trustees to maintain the foundation’s accounts pursuant to the Code of Obligations on
Article 83 a (2) addresses the situation where a foundation conducts a commercial
operation in order to pursue its objects. In such a case, the foundation is required to follow the
provisions in the Code of Obligations 100 in respect to presenting public annual financial
statements mutatis mutandis. 101
The obligation s to submit annual financial statements and to keep accounts app ly even to
foundations that have been exempted from the obligation to designate an external auditor.
b. Swiss Foundation Code
Whereas t he Swiss Civil Code (SCC) and Swiss Code of Obligations (SCO) provide
standard rules on accounting and auditing applicable to grant -making foundations, t he SFC
provides rules on financial management specifically drafted to deal with a grant -making
foundation’s daily activities. Recommendations 20 to 26 deal with finance.
Recommendation 20 entrusts the board of trustees with the duty to guard against
impro per funds — those derived from money -laundering, terrorism, corruption , or any other
criminal activity. Such funds must not constitute either the origi nal endowment or the income
from foundation activities . The board should also ensure a sound balance betwee n the cash flow
of the foundation’s assets and its grant -making activities.
Recommendation 21 deals with investment s. T he board of trustees should prepare an
explicit policy covering the investment process. Then t he foundation should follow this policy in
determining the investment strategy, implementing the strategy, and overseeing the results.
Recommendation 22 states that the board should evaluate the foundation’s “risk -carrying
capacity.” The foundation’s assets should be invested pursuant to a strategy consistent with the
foundation’s purpose and its investment capacity , regardless of the personal preferences of the
Recommendation 23 stipulates that the board should use a competitive and open
submission procedure to determine what entity will im plement its investment strategy.
Recommendation 24 advises that the board of trustees systematically review investment
results twice a year. Also, t he investment strategy should be reviewed every two to three years.
Results from the examination of invest ment returns and investment strategy should be recorded
Recommendation 25 deals with the foundation’s investment plan. It advises that the
board establish a plan for investing the foundation’s assets efficiently. The components of the
plan sho uld be specified in the investment regulations. In addition, t he plan should mandate that
investment and oversight are strictly independent of one another. If the foundation holds stock,
100 SCO, Arts. 957 to 962.
101 SCC, Article 83 a II. Accounting
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the investment regulation of the board of trustees should establish r ules for exercising rights on
Recommendation 26 advises that the board of trustees administer the financial
management of asset investment, budget planning, and the rendering of accounts. The annual
financial reports should provide a complete, accu rate , and transparent picture of the financial
standing of the foundation. In addition, the board of trustees should generate a budget on the
basis of its investment and disbursement plan. The foundation’s board should use the annual
budget as well as fina ncial reports as tools for management and supervision.
6. Audit of Foundations 102
In principle, classic foundations must undergo a normal audit. Article 83 b (1) of the
Swiss Civil Code on Foundations’ Auditors mandates that the board of trustees appoint ext ernal
auditors. 103 However, this obligation can be waived by the supervisory authority. Article 83 b (2)
states that the Federal Council determines the conditions for such a waiver. 104
If there are no special provisions applicable to foundations, the rules of the Swiss Code of
Obligations concerning external auditors of public limited companies are applicable mutatis
mutandis .105 If the foundation has the duty to carry out a limited audit, the supervisory authority
can order a full audit in order to obtain a reli able financial assessment of the foundation’s
finances. 106 The external auditors must provide the supervisory authority with a copy of the audit
report as well as all important communications it had with the foundation. 107
Thus, in principle, the law stipulat es that foundations must have auditors, and this is
understood as a fundamental rule of transparency that increases credibility and offers confidence
to donors. 108 Nonetheless , the board of a foundation can request that the supervisory authority
exempt it fr om the duty to designate an external auditor. 109 The supervisory authority can agree,
subject to the fulfillment of conditions specified by the Swiss Federal Council and stipulated by
Article 1 of the Ordinance on the Audit of Foundations. These are:
The fou ndation has a balance sheet that amounts to less than CHF 200,000. -, in two
successive business years (subpara. (a)), and
The foundation refrains from raising capital either through public calls for donations
or other contributions (subpara. (b)).
These c onditions are cumulative. The first condition demands that a foundation seeking to obtain
this waiver must have undergone an external audit for at least two years prior to application,
102 This part on Audit of Foundations is based on Sprecher, T., New Features in Swiss Foundation Law
(2006), pp. 10 ff .
103 SCC, Article 83 b III. Auditors (1).
104 SCC, Article 83 b III. Auditors (2).
105 SCC, Article 83 b III. Auditors (3).
106 SCC, Article 83 b III. Auditors (4).
107 SCC, Article 83 c 2. Supervisory authority.
108 Sprecher, T., New Features in Swiss Foundation Law (2006), p. 10 .
109 This request by the foundation’s board implies that the exception is not granted ex officio by the
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which is thus a mandatory step in the case of newly formed foundations. The second condition
implies that exemption can only be granted to foundations that are not seeking donations. 110
Although this waiver is unlimited in duration, it may be revoked by the supervisory authority if
the requisite conditions change or if an audit is necessary in order to make a reliable assessment
of the financial situation of the foundation. 111
Since an auditor might be a legal entity, a foundation might act as auditor for another
foundation . This act must be pursuant to the foundation’s charter, and the requirements of
independence must be satisfied “under the law governing audits.” 112
One of the innovations introduced by the law is the requirement that auditors be
independent of the foundation. Sprecher points to four cases where independence can b e
The persons commissioned to undertake the audit must not be members of another
executive body of the foundation which is to be audited. If the auditors are members
of an associated body, the obligations and responsibilities of the foundation
executive bodies should be strictly divided from each other.
W here the person commissioned to undertake the audit is an employee of the
foundation, independence is jeopardized.
In principle, cases w here the persons in charge of the audit are also benefic iaries of
the foundation’s activities should be avoided.
In principle, cases w here the persons in charge of the audit have a close relationship
with members of the foundation’s executive bodies (e.g., family ties) should be
In view of the above issues, Article 2, para. 1, of the Ordinance on the Audit of
Foundations instructs the foundation to engage a qualified auditor:
if the foundation is raising funds and has received as gifts, donations or other
contributions amounts exceeding 100,000 CHF i n each of two successive business
if the foundation’s finances exceed “any two of the following parameters” (subpara.
b) during two successive business years:
1) an overall balance sheet total of CHF 10 million, or
2) a cash flow of CHF 20 millio n, or
3) an annual average workforce of 50 full -time employees.
110 Sprecher, T., New Features in Swiss Foundation Law (2006).
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7. Supervisory Authority and Oversight of Foundations
The Swiss Confederation itself, the Cantons, and within them, the Communes are entitled
to supervise foundations. In principle, a foundati on is supervised by the public authority to which
it has been assigned. Nonetheless, the Swiss cantonal authorities can demand that a foundation
supervised at communal level be supervised by the respective canton. 114 This provision allows
the cantonal public authority to supervise the activities of the foundation. The supervisory
authority must make sure that the assets of the foundation are used for their declared purpose. 115
8. On the O ver -Indebtedness and Insolvency of Foundations
If a foundation is about t o fall into insolvency or there are serious doubts about its
financial capacity to meet its obligations, the board of trustees must draw up an interim balance
sheet at liquidation values and submit this to the external auditors or , in the absence of extern al
auditors , to the supervisory authority. If the external auditors identify such circumstances, they
must notify the public authority directly. The supervisory authority must then command the
board of trustees to take the necessary steps to redress the si tuation. If the board fails to do so,
the supervisory authority will take these measures itself. As a last resort, the supervisory
authority can take legal enforcement measures. The provisions of company law on
commencement or deferral of compulsory dissol ution apply to the foundation mutatis
The “revocation of the foundation as a matter of civil law” does not represent a financial
restructuring measure. This might also not be possible if the foundation is over -indebted or if it
runs counter to the will of creditors. Revocation is possible only if the legal enforcement process
has been concluded and a surplus remains. 117
A foundation may fall into bankruptcy. If financial restructuring is no longer feasible, the
Swiss Debt Enforcement and Bankrupt cy Law (DEBL) will apply to the foundation, mutatis
mutandis, as it does in the case of corporate bankruptcy.
Finally, a foundation can issue a self -declaration of insolvency, pursuant to Article 39,
para. 1, clause 12, of the DEBL.
Articl e 84 b of the SCC 118 sets the rules on bookkeeping for foundations. Foundations are
subject to the duty to keep accounts, which is essential for auditing annual accounts as mandated
by Article 83 a, para. 3, of the SCC. 119 The provisions on commercial bookkeepin g of the Code
of Obligations also apply here. 120
114 SCC, Art. 84 C. Supervision 1bis.
115 SCC, Art. 8 4 C. Supervision 2.
116 SCC, Art. 84 Cbis, 4, Measures in the event of overindebtedness and insolvency.
117 Sprecher, T., New Features in Swiss Foundation Law (2006), pp. 16 -17.
118 SCC, Article 84b.
119 SCC, Article 83a II. Accounting.
120 SCO, Arts. 957 et seq.
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10. Changes in the Purpose of the Foundation
Under Swiss law , the purpose of a foundation can be changed by the federal or the
cantonal authority pursuant to a proposal made by the overseeing authority or by t he board o f
trustees of the foundation. 121
11. Changes in the Foundation’s Object at the Founder’s Request
Traditionally, foundations have been conceived of as being institutions that pursue
perennial objects. When establishing a foundation, founders devote a good deal of wealth to the
pursuit of an object that they expect will survive them. This intent of the founder is the
motivational force underlying the foundation’s charter. The SCC recognizes the force of the
founder’s will in Article 86a, which introd uces the right of the founder to amend the foundation’s
object by request, subject to the classical legal framework of foundations.
The request to change the purpose of a foundation can be made by the founder directly or
by testamentary disposition. Howev er, some conditions have to be fulfilled:
At the time of setting up the foundation, the founder must have reserved the right to
amend the purpose of the foundation.
The request should be directed by the founder to the competent public authority.
This reque st can be made directly or by testament. If the request is by testament, the
authority disclosing the testament should inform the relevant authority of this
This right to change the purpose of a foundation is personal. It cannot be passed to
heir s or acquired by third parties. Therefore, if it is not exercised, it will end with the
life of the founder.
In the case of several founders, the request for change of purpose may only be
exercised jointly by all the co -founders.
In order to request the ch ange, at least ten years must have elapsed since the creation
of the foundation or the last change in the purpose of the foundation requested by the
founder. This period of ten years ensures stability in the foundation’s activities.
If the founder is a leg al entity, the right to change its purpose lasts for 20 years and is
subsequently extinguished. This rule is aimed at preventing misuse of the right to
change the foundation’s purpose and abuse of the foundation as a legal entity. 122
If the purpose of the f oundation which is to be changed is of a public or charitable
nature in the sense of Article 56, subpara. G, of the Direct Federal Tax Act, 123 the
121 A change in the purpose of the foundation might take place when the foundation’s original object has
changed to such a degree that it is necessary to redirect the foundation’s purpose to the founder’s original intention
in a more coherent way. SCC, Art. 86 II. Amendment of objects, 1. Request by the supervisory authority or the
board of trustees 75.
122 Sprecher, T., New Features in Swiss Foundation Law (2006), p. 20.
123 DBG, Article 56, let. g, de la loi fédéral du 14 décembre 1990 sur l‘impôt fédéral dir ect, Art. 56, Bst. g,
Bundesgesetz vom 14. Dezember 1990 über die direkte Bundessteuer; Art. 56, lit. g, Federal Income Tax Statute of
14 December 1990; SR 642.11.
International Journal of Not -for -Profit Law / vol. 1 6, no. 1, September 2014 / 53
new object of the foundation must also be a “public or charitable object” under the
terms of that law. 124
Wherea s Article 86 assigns the federal authority the competence to amend the
foundation’s purpose, Article 86 a assigns the supervisory authority the task of ensuring that the
request for the foundation ’s change of purpose has been executed according to the requi rements
of the law. Once the supervisory authority has ascertained this to be the case, it must order the
change of purpose and notify the Commercial Register Office. The authority, however, has no
mandate to make subjective evaluations of the new purpose or to suggest alternative purposes. 125
12. Dissolution of the Foundation and Deletion from the Register
Article 88 gives the federal or cantonal authority the right to dissolve a foundation if its
object has become unattainable and the foundation cannot be m aintained by following the deed,
or if the objects of the foundation become illegal or immoral. 126 Any interested party has the
right to apply to the public authority for the dissolution of a foundation. Once this request has
been granted, the commercial reg istrar must be informed so that the foundation can be deleted
from the register. 127 Finally, courts have the power to terminate family or ecclesiastical
V. Concluding Remarks
This article has provide d an account of the current Swiss legal regime applicable to
foundations from a pro -transparency point of view. We began with a summary of the sector as it
exists in Switzerland today. Our analysis focused on the legal provisions of the Swiss Civil Code
and the Swiss Code of Obligations, together with the Swiss Foundation Code. W e have also
illustrated our analysis with functional aspects that are applicable to foundations beyond the
borders of Switzerland. As a general conclusion, we hold that, in terms of the principles and
practices related to trans parency, the SFC provides a highly important self -regulation tool for
Switzerland’s philanthropic sector.
We close with comments on the analyzed provisions:
[A] On formation of a foundation: A foundation can be established by an act inter -vivos
or an agre ement as to succession . An issue of transparency might arise if the heirs of the testator
do not fulfill the will expressed in the testament. However, the SCC permits the formation of
124 Sprecher points out that this was a highly disputed issue during the drafting of the law, as there were
concerns that the new right to alter the purpose of a foundation could become a loophole for tax abuse and give the
founder an opportunity to repatriate assets. On the other hand, this limitation is aimed at guaranteeing that the
individuals who contributed to the foundation by donations or other instruments are reassured that their assets
remain devoted to a “public or charitable” purpose, even if the new purpose is not the same as the original one.
Sprecher, T., New Features in Swiss Founda tion Law (2006), p. 21.
125 SCC, Article 86b gives the right to the supervising authority — upon hearing the board of trustees —to
provide ancillary modifications to the foundation charter, if these are demanded for objective purposes and do not
affect third pa rties’ rights. These minor changes provided by the supervising authority aim to simplify the
procedures for establishing a foundation. SCC, Art. 86b III. Minor amendments to the charter.
126 SCC, Article 88 F. Dissolution and deletion from the register. Dis solution by the competent authority.
127 SCC, Article 89 II. Right to apply for dissolution, deletion from the register.
128 SCC, Article 88 F. Dissolution and deletion from the register. I. Dissolution by the competent authority.
International Journal of Not -for -Profit Law / vol. 1 6, no. 1, September 2014 / 54
foundations by testamentary disposition. This ruling reflects the instit ution’s regard for
The SCC addresses this issue, albeit not in the section expressly dedicated to the
regulation of foundations. So the duty of the heir to submit the will to the SCC 129 must be read in
conjunction with the provisions on “Reading the will” of the SCC, Article 557. 130 The authority
in charge of opening the testament must therefore notify the competent commercial register. The
performance of this duty is the key to ensuring the fulfillment of the founder’s will.
The more spec ific recommendations of the SFC address the functionality of the grant –
making foundation. First, the recommendations suggest a kind of proportionality test to evaluate
the feasibility of a foundation ’s achieving its objects given its means and organization .
Recommendations 2 and 3 specify the level of coherence expected between the laws that are
applied to foundations — including the tax regime — and the activities that foundations engage in.
By anchoring the regulatory authority to the foundation’s legal domic ile, the SFC intends to
discourage forum shopping. At the same time, however, given today’s globalized economy, this
provision should not limit foundations from operating a cross borders.
Recommendation 3 of the SFC outlines essential documents that a foun dation should
provide regarding its internal organization , which should remain valid for the first five years of
the foundation’s existence. Other documents include the foundation’s constitution, its internal
organization, and its mission statement. This m aterial provides fundamental , prima facie
evidence of the new foundation’s objectives and principles.
The first three SFC recommendations relate to regulatory requirements for the formation
of foundations: the founder’s intent, the foundation’s legal domic ile and regulatory authority, and
the founding documentation. Although none of these recommendations directly address
transparency, they deal with issues that are central to it.
[B] On Article 82 of the SCC (Challenges by Heirs or Creditors): The SCC prov ision
seeks to prevent foundations from being used as depositaries for assets diverted from their
original legal destination by dishonest means: diluting assets entailed to a legal inheritance, or
simulating a situation of insolvency by transferring assets to a foundation. Since these abuses do
not directly concern to the functionality of foundations, the SFC does not refer to them
[C] On Article 83d of the SCC (IV. Organizational defects of foundations): The Swiss
Civil Code provides the pub lic authority with the power to intervene and directly restore
situations where a foundation fails to organize itself pursuant to requirements of the authority.
Under some circumstances the authority might even dispose of the foundation’s assets, assigning
them to another foundation of similar purpose. In theory, this is a way to e nsure that foundations
registered with the authority are internally structured pursuant to the law and supervisory
regulations. But at the same time, such a disposition imposes a more compelling level of
responsibility on the authority when assessing and endorsing any foundation in its registry. This
provision does not concern issues of transparency vis -à-vis the public as such. However, it is not
129 SCC, Article 556 (on Duty to submit the will) mandates that a will be submitted to the public authority;
the public authority can afterwards release the estate to the statutory heirs on a provisional basis or designate an
130 SCC, Art. 557 II. Reading the will .
International Journal of Not -for -Profit Law / vol. 1 6, no. 1, September 2014 / 55
detrimental either. Conversely, Re commendation 12 expressly addresses the issue of sharing
information on a foundation’s organization, activities, grant -making procedures , and purposes.
This provision constitutes a plausible approach aimed at enhancing transparency between the
foundation a nd the public, so that in conjunction with the ensemble of Recommendations 4
through 15 on Leadership , it provides for a level of transparency.
[D] With regard to the recommendations aimed at providing a framework of rules and
conditions for the granting of funds, taking into account cost -analysis and the fact that
foundations are not alone in the sector: Although these recommendations are directed more
toward implementing a rational management of the foundation’s funds than transparency as
such, the fact that the SFC recommends that these policies be stipulated in writing provides
grant -making applicants with a set of instructions drafted ex ante, which should help enhance
grant permission s and at the same time reduce arbitrary refusals.
[E] On the financ e of grant -making foundations: One of the responsibilities imposed on
board members is the duty to check the origin of the assets introduced to the foundation. In
general, the recommendations relating to this duty of care do not deal with issues of transpa rency
directly. Nevertheless, they do provide foundations with principled guidelines that help the sector
to function smoothly.
[F] On the accounting procedures of foundations: The Swiss Civil Code does not provide
any rules specifying accounting procedur es for foundations. This omission leaves numerous
options open to the managers who are charged with fulfilling the foundation’s purpose. The SCC
regulations together with the rules and procedures for extending grants, as well as the SCF’s
general rules on finance, should help foundations offer a clearer picture of their activities.
Recommendation 26 of the SFC constitutes a valued tool for achieving this.
[G] On auditing procedures for foundations: The authority has the power to exempt a
foundation from th e obligation to appoint external auditors. This potentially undermines the
credibility of the authority in cases where the foundation becomes insolvent. In this sense, the
Code’s conditions might not always suffice to shield the authority from this risk. T o address this
risk, Sprecher presents a case where a group of foundations could create a foundation whose sole
purpose would be to independently audit that group of grant -making foundations. Provided that
the sector has sufficient resources for this purpo se, the creation of an independent auditing
foundation would promote transparency by giving specialists in the sector the opportunity to
provide clear accounting procedures for foundations.
[H] On the supervisory authority and the oversight of foundations: Supervision should
become more coherent throughout Switzerland. A highly confederated country, composed of 26
independent cantons, can only welcome such a provision. The SFC recommendations on the
supervision of foundations therefore contribute to the sec tor’s transparency.
[I] On insolvent or over -indebted foundations: None of the provisions concerns the
transparency of grant -making foundations. At the same time, the fact that the law applies
corporate rules on insolvency and bankruptcy to foundations sh ields the philanthropic sector
from being hijacked by spurious financial maneuvers exercised by either local or foreign players.
[J] On bookkeeping: This legal aspect is not directly linked to transparency, but it is an
instrumental item for achieving hig h standards in transparency.
International Journal of Not -for -Profit Law / vol. 1 6, no. 1, September 2014 / 56
[K] On changes in the foundation’s purpose: In principle, the intervention of the public
authority in providing clearance for a change in the foundation’s purpose is likely to contribute
favorably to transparency issues.
[L] On changes in the foundation’s object at the founder’ s request: Whereas t he SFC is
markedly silent on this issue, SCC commentators suggest that the purpose should be defined as
broadly as possible. However, the public authority has virtually no power to de cide on the new
purpose. Once the conditions required for changing the object have been met, the authority can
do nothing in order to object. In this sense, the legislat ure clearly considers the legal
requirements sufficient to ensure that the system is no t abused. While this is possibly a
disputable approach, the alternative would be to grant the public authority the right to designate a
new purpose, which would conflict with the nature of the foundation as a legal , liberal
institution. Moreover, if the au thority does not have the right to determine the foundation’s
purpose at the moment of its registration, why should it acquire such a right later on?
[M] On the dissolution of foundations and deletion from the register: This provision also
contributes to t he transparency of this sector . It provides the public authority and intereste d
parties with the right to request the liquidation of a foundation that has become estranged from
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now in Libya, Egypt, Tunisia, in Kosovo — that’s what happens in the world, some
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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
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
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 .
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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
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,
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,
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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,
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,
%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,
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
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,
138 Government of Nepal Ministry of Finance, “Development Cooperation Policy, 2014,” unofficial
translation, Article 2.2, acces sed September 9, 2014,
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 –
International Journal of Not -for -Profit Law / vol. 17 , no. 1, March 2015 / 27
countries, have been noticed to be using people centric issues to create an enviro nment
which lends itself to stalling development projects.” 143
4. National Security, Counterterrorism, and Anti -Money Laundering
As discussed above, governments also invoke national security, counterterrorism, and
anti -money laundering policies to justify restr ictions on international funding, including cross –
border philanthropy. For example, the Financial Action Task Force (FATF), an
intergovernmental body that seeks to combat money laundering and terrorist financing, stated:
The ongoing international campaign against terrorist financing has unfortunately
demonstrated however that terrorists and terrorist organisations exploit the NPO
sector to raise and move funds, provide logistical support, encourage terrorist
recruitment or otherwise support terrorist organi sations and operations. This
misuse not only facilitates terrorist activity but also undermines donor confidence
and jeopardises the very integrity of NPOs. Therefore, protecting the NPO sector
from terrorist abuse is both a critical component of the globa l fight against
terrorism and a necessary step to preserve the integrity of NPOs. 144
Governments have leveraged concerns about counterterrorism and money laundering to
justify restricting both the inflow and outflow of philanthropy. For example: 145
The governm ent of Azerbaijan justified amendments relating to the registration of
foreign grants, stating that the purpose of the amendments was, in part, “ to enforce
international obligations of the Republic of Azerbaijan in the area of combating money –
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,
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 –
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,
International Journal of Not -for -Profit Law / vol. 17 , no. 1, March 2015 / 28
The British Virgin Islands (BVI) enacted a law requiring that CSOs with more than five
employees appoint a designated Anti -Money Laundering Compliance Officer. 147 The
law also imposes audit requirements for CSOs that are not required of businesses. These
burdens were justified with explicit reference to FATF’s recommendation on nonprofit
organizations and counterterrorism. 148
In response to the UNSR’s Resource Report, a group of thirteen African states responded,
“It is the responsibility of governments to ensure that the origin and destination of
associations’ funds are not used for terrorist purposes or directed towards activities which
encourage incitement to hatred and violence.” 149
In 2013, a Sri Lankan government representative similarly stated, “While w e agree that
access to resources is important for the vibrant functioning of civil society, we observe
that Mr. Kiai does not seem to adequately take into account the negative impact of lack of
or insufficient regulation of funding of associations on natio nal security and counter –
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,
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,
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,
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,
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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
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,
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,
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
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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
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,
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,
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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
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,
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/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
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
(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),
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),
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
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
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,
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.”
International Journal of Not -for -Profit Law / vol. 17 , no. 1, March 2015 / 35
an act of Parliament or an equivalent unwritten norm of common law).” Accordingly, they
appear to violate the “prescribed by law” standard required under Article 22(2) of the ICCPR.
This prong of Article 22(2) also requires that a provision be sufficiently precise for an
individual or NGO to understand whether or not intended conduct would constitute a violation of
law. 184 As stated in the Johannesburg Principles, “The law must be accessible , unambiguous,
drawn narrowly and with precision so as to enable individuals to foresee whether a particular
action is unlawful.” 185
This prong helps limit the scope of permissible restrictions. As discussed above, certain
laws ban funding of organizations that cause “social anxiety,” have a “political nature,” or have
“implied ideological conditions.” These terms are undefined and provide little guidance to
individuals or organizations about prohibited conduct. Since they are not “unambiguous, drawn
narrowl y and with precision so as to enable individuals to foresee whether a particular action is
unlawful,” there is a reasonable argument that these sorts of vague restrictions fail the
“prescribed by law” requirements of international law.
B. Legitimate aim
The second prong of Article 22(2) requires that a restriction advance one or more
“legitimate aims,” 186 namely:
national security or public safety;
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 .
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
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
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