In March 2005 the Treasury Guidelines Working Group , a broadly representative group of U.S. nonprofits and grantmakers, released the Principles of International Charity (Principles) as an alternative to the Department of the Tresaury’s the Anti-Terrorist Financing Guidelines: Voluntary Best Practices for U.S.-Based Charities. (The group has called the Guidelines ill-advised and potentially harmful, and called for their withdrawal.)
The Principles are designed to more “accurately reflect the diversity of due diligence procedures that effectively minimize the risk of diversion of charitable assets.” The Principles take into account the different ways that charities and foundations operate and recognize that there is no one set of procedures for safeguarding charitable assets against diversion to terrorists. The Principles stress the importance of due diligence and financial controls.
The preamble to the Principles notes that “Charitable organizations have vast experience in overcoming the difficulties associated with carrying out charitable work in distant lands. Some challenges are merely inconvenient: language barriers, cultural differences, technological limitations. Others—disease and hostile fire—may be deadly. Somewhere along this continuum have always been those threats posed by persons and organizations— whether donors, employees or recipients—that view legitimate charitable organizations, along with banks and businesses and virtually any other source of funds, as the unwitting financiers of non-charitable private interests. Charitable organizations have successfully addressed these challenges through attention to procedures designed to reduce the risk that charitable assets would be used for noncharitable purposes. Some of these procedures are mandated by the U.S. tax law, and others are determined by individual organizations’ assessments of the demands of their charitable activities.”
The Fundamental Principles, listed below, are followed by ten pages of commentary that further guides international charitable operations. The principles are:
“Consistent with the privilege inherent in their tax-exempt status, charitable organizations must exclusively pursue the charitable purposes for which they were organized and chartered.
Charitable organizations must comply with both U.S. laws applicable to charities and the relevant laws of the foreign jurisdictions in which they engage in charitable work. Charitable organizations, however, are nongovernmental entities that are not agents for enforcement of U.S. or foreign laws or the policies reflected in them.
Charitable organizations may choose to adopt practices in addition to those required by law that, in their judgment, provide additional confidence that all assets—whether resources or services—are used exclusively for charitable purposes.
The responsibility for observance of relevant laws and adoption and implementation of practices consistent with the principles contained herein ultimately lies with the governing board of each individual charitable organization. The board of directors of each charitable organization must oversee implementation of the governance practices to be followed by the organization.
Fiscal responsibility is fundamental to international charitable work. Therefore, an organization’s commitment to the charitable use of its assets must be reflected at every level of the organization.
When supplying charitable resources, fiscal responsibility on the part of the provider generally involves:
a. in advance of payment, determining that the potential recipient of monetary or in-kind contributions has the ability to both accomplish the charitable purpose of the grant and protect the resources from diversion to noncharitable purposes;
b. reducing the terms of the grant to a written agreement signed by both the charitable resource provider and the recipient;
c. engaging in ongoing monitoring of the recipient and of activities under the grant; and
d. seeking correction of any misuse of resources on the part of the recipient.
When supplying charitable services, fiscal responsibility on the part of a provider involves taking appropriate measures to reduce the risk that its assets would be used for non-charitable purposes. Given the range of services in which organizations engage, the specific measures necessarily vary depending on the type of services and the exigencies of the surrounding circumstances. The key to fiscal responsibility, however, is having sufficient financial controls in place to trace funds between receipt by the service provider and delivery of the service.
Each charitable organization must safeguard its relationship with the communities it serves in order to deliver effective programs. This relationship is founded on local understanding and acceptance of the independence of the charitable organization. If this foundation is shaken, the organization’s ability to be of assistance and the safety of those delivering assistance is at serious risk.”