'A Review of Not-For-Profit Organisations, Their Giving, and the new Money Laundering, Anti-Terrorism and Asset Freezing Legislation Implemented in the US, Canada, UK, France and Germany '


An examination of the implementation of money laundering laws in UK,US, Canada, France and Germany after 2001 appears to have succeeded only in psychologically allaying popular fear by visible actions that appear to be combating terrorism. This review shows the difference in attitudes between the different states in their approach to charities. Germany and France not creating special legislation for charities with extremely generous tax breaks, whilst the federal United States stepped up its Inland Revenue Investigations as a monitoring method. The United Kingdom has only just introduced a new Charities law and recent money laundering legislation. Overall, all these countries spent many times more United states dollars per capital on anti-terrorism laws than they gave to charity.

The writer concludes that, even if this emergency and undemocratic law-making was the incorrect route to take, it might be argued that it is successful in allaying people's fears, whilst conciliation is sought to placate those who are bitter at the apparent injustice of globalised law and economics.


Not-For-Profit Organisations And What They Represent

In the area of corporate responsibility, not-for-profit companies1 mostly have a stewardship role for members and this does not have different governance implications from business corporations. A not-for-profit organisation2 has a fundamental difference in its relationship with company members to the relationship of profit organisation and its company members. Non-for-profit organisations, formed to collect money to give aid to developing countries, aid for earthquake crisis situations, aid to the poor and homeless, to build schools, hospitals, etc., have members whose commitment to the company is to donate money to the company. These members must exercise rights for the beneficiaries who are helped by the company. This is their stewardship role.

On the other hand, for-profit organisations have the interest of the shareholders as priority. Consumer interests are only pursued to the extent that these consumer interests are also the same interests of the members of the company.

Directors of not-for profit organisations must have some ultra vires doctrine with which to constrain them; they do not have the remit to increase shareholders value, as with for-profit organisations; their remit must be, in the case of money for aid companies, to efficiently distribute aid to the most deserving and to pursue fund raising activities to sustain such aid to the needy. Another duty of directors of such not-for-profit organisations is prevention of the majority from stopping the company from achieving optimum efficiency. These aims cannot be achieved by for-profit directors because, although efficiency may be considered as an important objective in company contracts, it never suffices and there is a balance between company law interference and the freedom of contract principle.

That directors of not-for-profit companies need constraints is illustrated by incidents of church pastors stealing funds. UK theft and fraud, usually discovered during the audit and submission of annual accounts to the Charity Commission, is perpetrated by cunning people who can hide debts and window-dress the accounts without raising suspicion, especially in the church sector where trust is implied.

Example Of False Accounting In Uk Not-For-Profit Organisation

The Victory Centre in London, a charity3, submitted cessation accounts in 2002 It was discovered that it had debts of £200,000 even though it had an income of £3,500,000.00 in 2001. The preacher of this church received a salary from a trust4 of which he was also a trustee, as do many preachers in many churches in England and Wales. The preacher lived a lavish lifestyle which was very much beyond his known means and this led members to ask for an investigation by the Charity Commission. Incidents like this have forced the Charity Commission5 to implement further regulations to charity accounts to make charities transparent and more accountable.

The investigation by the Charity Commission was to establish if there was fraud and to establish the level of responsibility of the trustees in the management and administration of the charity. They found evidence of management misconduct and mismanagement, examples of which were unauthorised salary payments and other benefits to the preacher and some others, the preacher being the sole signatory to the cheques, a breach of the Charity's constitution. There were no financial controls of cash collections and there were expenses not accounted for. The Charity Commission appointed a Receiver and Manager under section 18(1)6 of the Charities Act 1993. The church was closed down in December 2002 with no identifiable assets and the Commission did not order the restitution of benefits, as it did not think it appropriate in this case.

But the Commission stated that a charity is entitled to the objective judgement of its trustees, and that such judgement must be exercised solely in the interests of the charity, with no conflict of interest. Normally, a trustee who benefits from a position of trust without the necessary authority is liable to repay the benefit which he has received.

They opined that churches need to practice good corporate governance. A trusted and respected spiritual leader must not use "undue influence" in his capacity or, induce members to give him money directly nor should he help himself to money contributed to the church 7. The UK has new regulations that compel charities that give financial advice or sell insurance, to register with the regulator the Financial Services Authority from January 2005.

In line with America's fight against money laundering8 and terrorism, the UK has implemented its Terrorism Act 2000, the Anti-Terrorism, Crime and Security Act 2001, and UN Financial Action Task Force measures against money laundering, freezing $100 million of 'terrorist' assets, now released mostly to the government of Afghanistan.

Charity Law In The United States

In the United States, unlike the UK, charitable giving is big business, estimated at over $120 billion a year by individuals, including the billionaire businessman Bill Gates and billionaire investor Warren Buffet, spawning whole sectors devoted to taxation and trust law for charities. This is apart from corporate bequests, limited to 10% of its taxable income. A corporation can give stock, equipment, property and money. In total, this not-for-profit sector contributes $785 billion a year to the US economy.9

The US federal income tax laws allow up to 50% of a person's annual income to go tax free to charity. and 100% tax free to go to charity on one's death. Motivation for giving ranges from tax planning by way of trusts for future generations of family to minimising estate tax through charitable split-interest trusts, for example. Bequests may be from a person in another country, to persons in another country, to governments of other countries, and the tax rules are complex. There are tax rules as to what can type of asset can be bequeathed.10 There is extensive case-law on disallowed tax deductions, disallowed types of trusts and disallowed purpose of the bequest.11 It is the international activities12 of US charitable organisations that were of concern to state security dealing with terrorism. Before September 2001,the US trust accountants and tax authorities did not perform due diligence tests on the nature or destination of bequests abroad.13 There were bequests to the Red Cross as well as to organisations such as the Holy Land Foundation for Relief. Since July 2004, the new rules provide that a contribution that is deductible as per the Internal Revenue Code is allocated and apportioned only to the US source for foreign tax credit purposes. But this is only a small step in the fight against money laundering for terrorism purposes.14

There are new rules for the corporate governance of all companies including Not-For-Profit companies. All companies must now have Audit committees and strict financial controls and reporting, independent directors, independent auditors, compensation committee. There are other rules peculiar to each state. For instance, companies listed on NASDAQ are required to have at least one member with past employment experience in finance and accounting and all foreign issuers must disclose any exemption to NASDAQ's corporate governance requirements at start and yearly.

In September 2004, 3 years after the terrorist assault on the US, the Non- Profit Integrity Act was passed, imposing Sarbanes- Oxley type provisions, applicable to charitable corporations, charitable trusts...

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