The rising tide of protectionism is hampering global philanthropy

Cross-border philanthropy is increasingly burdened in many parts of the world. In addition to existing constraints in dozens of countries, more than 30 countries have proposed or enacted such restrictions since 2012. Douglas Rutzen argues that this represents the latest phase in an ‘associational counter-revolution’.

Holy Trinity Cathedral in Adis Ababa (Credit: David Stanley, CC BY 2.0)

In the past, some foundations viewed the law as a transactional challenge, which they could address by hiring a lawyer to draft grant agreements or craft work-around solutions. An increasing number of foundations now recognize that the law is a transformational challenge. To turn the tide, the philanthropic community must engage in advocacy and fund initiatives to help improve the legal environment for global philanthropy.

Laws are used to ‘defund’ and ‘delegitimize’ civil society

Some countries require prior approval to fund a civil society organization (CSO). Under Egyptian law, for example, a CSO must obtain the approval of the Ministry of Social Solidarity before receiving funds from any foreign source, including foreign foundations. Countries requiring prior approval of international funding transactions include Algeria, Azerbaijan, Bahrain, Bangladesh, Jordan and Uzbekistan.

Some countries take a slightly different approach, requiring government approval of organizations entitled to receive international funding. India is perhaps the best-known example: it requires recipient organizations to register under the Foreign Contribution (Regulation) Act.

Other countries require the foreign donor to sign an agreement or receive approval from the host government to fund an in-country CSO. This year, Azerbaijan enacted such legislation, and a draft law in China requires governmental approval for foreign donors to fund or carry out activities in China.

Governments are also using the law to stigmatize CSOs that receive international funding. Russia requires non-commercial organizations that receive funds from abroad and engage in ‘political activities’ to register as ‘foreign agents’. The ‘foreign agents’ label applies even if the use of international funding is unrelated to the ‘political activities’ of an organization. This label is particularly problematic because in Russian the term ‘foreign agent’ is synonymous with ‘foreign spy’. Kyrgyzstan is also considering a ‘foreign agents’ law. These laws are roughly modelled on the 1938 Foreign Agents Registration Act in the US.

Funding caps and regulations help governments control global philanthropy

Ethiopia is a good example of the funding cap approach. Under a 2009 proclamation, ‘Ethiopian’ charities and societies can receive no more than 10 per cent of their total income from international sources. Only ‘Ethiopian’ charities and societies are legally allowed to work on disability rights, children’s rights, gender equality, conflict resolution, the efficiency of the justice system and other goals.

Another way of monitoring and controlling the flow of international funding to CSOs is to require organizations to route funding through a government body or ministry or a government-controlled bank. In practice, this approach gives governments discretion on whether to release the funds. Uganda and Uzbekistan are cases in point.

Yet another approach is to impose burdensome reporting requirements. Turkish law requires foundations to notify public authorities within one month of receiving international funding, and groups must provide notification before using the funds. The government of India ramped up enforcement of reporting requirements in the Foreign Contribution (Regulation) Act and recently proposed amendments that would impose additional reporting requirements on CSOs that receive international funding.

Outright bans and criminal sanctions bar philanthropic giving

Some countries explicitly prohibit international organizations from financing certain activities. In Sudan, for example, CSOs must seek approval from the Humanitarian Aid Commission (HAC) before receiving international funding. The HAC will grant approval only for CSOs that provide narrowly defined ‘humanitarian services’.

Another strategy is to tax international funding. This approach has been in place, at varying times, in Belarus, Kazakhstan and Turkmenistan.

Certain countries impose outright bans on funds from specific donors. For example, in May 2015 Russia enacted the Law on Undesirable Organizations, which prohibits Russian CSOs from receiving money from an organization deemed ‘undesirable’.

Burdening cross-border philanthropy in the name of counter-terrorism and anti-money laundering is another strategy, occurring in countries as diverse as the US, Azerbaijan and the British Virgin Islands. In Kosovo, the law prevents CSOs from receiving more than €1,000 from a single source in a single day without government permission.

Countries have used other laws, including criminal, defamation, tax and national security laws, to restrict global philanthropy. For example, in September 2014 Egypt amended its penal code to subject to life imprisonment anyone who receives funding or other support from an international source with the intent to ‘harm the national interest’, ‘compromise national sovereignty’ or ‘breach security or public peace’. The law also imposes life imprisonment on anyone who gives or offers such funding.

As an increasing number of countries are erecting barriers to cross-border philanthropy, it is time for the philanthropic community to address this troubling trend through advocacy and funding.

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Note: this post originally appeared in Alliance Magazine and can be seen in its original form here. It represents the views of the author and not those of Democratic Audit UK or the LSE. Please read our comments policy before posting.

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Douglas Rutzen is president and CEO of the International Center for Not-for-Profit Law. Email drutzen@icnl.org