by Veena Badrilal Mahor*
On September 20th, the Foreign Contribution (Regulation) Amendment Bill, 2020 was introduced in the Lok Sabha which redefined terms related to acceptance, transfer, and utilization of foreign contributions to charitable organizations under the Foreign Contribution Regulation Act (FCRA), 2010. It passed into law on September 29th, 2020.
The Government claims that the object of the Act is to bring about “greater transparency” and is “not against NGOs or an attack against a religion or community”. It’s in the interest of nonprofits doing good work. The amendments are meant to “stop misuse of foreign funds by some people” and was required for an Atmanirbhar Bharat, and aimed to ensure that foreign funds are spent in the right direction. Thus it is envisaged that the amendments will strengthen compliance, enhance transparency and accountability in the receipt and utilization of foreign contributions and facilitate genuine non-governmental organizations or associations who are working for the welfare of the society.
Amendment Analysis and how it can impact the nonprofit community
Prohibition on “public servant” from receiving foreign contributions
FCRA, 2010, prohibits certain persons to accept any foreign contribution, these include election candidates, editor/owner/publisher of a newspaper, judges, members of any legislature, political parties, employees of a corporation controlled by government etc. FCRA 2020 has extended such prohibition to “public servants” as defined in Section 21 of the Indian Penal Code, 1860. Thus this will prohibit persons in the service or paid by the Government or remunerated by fees or commission for the performance of any public duty by the Government, from receiving foreign contributions. This will take care of any conflict of interest; however, it will also exclude genuine and selfless individuals coming under the definition of “public servant” from organizing finances for public welfare activities. Interestingly, PM CARES fund had received exemptions from complying with FCRA provisions when it is headed by Union cabinet ministers and administered by PMO officials.
Prohibition on transfer of foreign contribution
Section 7 of FCRA 2010 shall be substituted, says, No person who— (a) is registered and granted a certificate or has obtained prior permission under this Act; and (b) receives any foreign contribution, shall transfer such foreign contribution to any other person.”
Earlier, non-government organizations (NGOs) registered under Act were permitted to transfer the foreign contribution received by such NGO to: (i) any other registered NGO; and (ii) any other unregistered person, with prior permission of the Ministry of Home Affairs (MHA).
This would restrict NGOs from acting as fundraisers and channeling funds to other NGOs. There are various small NGOs which work in collaboration with large NGO groups who has the ability to raise FCRA funds. Small NGOs, though having strong work with grassroots, generally doesn’t possess the skill sets and framework to work with foreign donors for direct grants and therefore, big FCRA registered organizations used to handhold such small entities for effective and focused utilization of foreign funding. This will limit the finance and activities at grassroots.
Lowering the cap on administrative expenses
The Amendment Act has amended section 8 of the Act to decrease the cap on using the foreign contribution for administrative expenses from 50% to 20%. The amendment seems to promote effective utilization of the funds towards the mandate of the grant and control mis-utilization. However, with due respect to the national security concerns, there are arguments that it is the funders mandate to deal with administrative budgets and the government should not have a stake in this matter.
Opening of a bank account in State Bank of India, Delhi
FCRA, 2020 mandates the recipient of foreign contribution to receive foreign contribution only in an account designated as “FCRA Account” opened in a branch of the State Bank of India at New Delhi. Relaxation has been provided to open another FCRA Account in any of the scheduled banks in India (at the option of the recipient), for the purpose of keeping or utilising the foreign contribution which has been received in the branch of State Bank of India at New Delhi. This centralizes the inflow, and routing of the foreign contribution and easy supervision and monitoring of the funds. It also means that the government will no longer depend on the disclosures of the recipients.
Power to prohibit a foreign contribution recipient from utilising/receiving its funds
Under the Act, if a person accepting foreign contributions is found guilty of violating any provisions of the Act, the unutilised or unreceived foreign contribution could be utilized or received, only with the prior approval of the Government. The Amendment Act has now added a proviso to section 11 to provide that the Government may also restrict usage of unutilized foreign contribution if, based on a summary inquiry the Government believes that such person has contravened provisions of the Act.
Identification requirements
The Amendment Act has introduced section 12A, enabling the Government to require any person who seeks permission or registration (or renewal) under the Act to provide Aadhaar cards of all its office bearers or directors or other key functionaries or, in case of foreigners, a copy of passport or overseas citizen of India card.
According to the GoI’s FCRA dashboard, there are 22,447 active FCRA registrations in India today. In 2018-19, 21,915 annual returns were filed – a compliance rate of 97.6%. Hence non-compliance is not the issue, this seems to be an effort of harmonizing the regulatory setup to one framework.
Increase in the maximum limit for the period of suspension
Under FCRA, 2010, the government could suspend the registration of a person for a period of up to 180 days. FCRA, 2020 provides that such suspension can be extended to an additional 180 days i.e. up to 360 days. Through this, the Government can keep the registration certificates under suspension for almost a year when it may not have solid grounds to finally cancel the registration. There are apprehensions that this will impact the work of civilsocieties’ at grassroots as they would not be able to function on the ground for a long period which can loosen the grip on the ground.
Surrender of certificate
FCRA 2020 provides that a person can voluntarily surrender the FCRA registration provided that the government is satisfied that the person has not contravened any provision of the Act. Post surrender, the management of the foreign contribution and related assets will then vest with the prescribed authority.
Change in procedure at the time of renewal of registration
As per FCRA 2010, every person to whom FCRA registration was granted was required to get his registration renewed within 6 months before the expiry of the registration certificate. FCRA 2020, empowers and enable Central Government that before renewing any certificate, it may conduct any enquiry it may deem fit to satisfy that such person is not: –
- fictitious or benami
- prosecuted or convicted for indulging in activities aimed at conversion through inducement or force from one religious faith to another or for creating communal tension in the country.
- has not been found guilty or diversion or mis-utilisation of its funds or been prohibited from accepting foreign contribution.
- is not engaged or likely to engage in propagation of sedition or advocate violent methods to achieve its ends;
- is not likely to use the foreign contribution for personal gains or divert it for undesirable purposes;
- has not contravened any of the provisions of this Act.
Impact
The amendments will impact the small NGOs which have good grassroots holds but unable to raise foreign funds and work through collaboration mode. It will also impact the employment of many workers and staff members of the NGOs as these would not be able to take up new projects. It will also impact the communities constituting of weaker/vulnerable societies with which the NGOs are associated. The NGOs will now have extra work of managing new bank accounts that too located at a distance (Delhi) and mandating Adhaar and renewal process of FCRA shall discourage NGOs.
Foreign contributors will now have to be cognizant about the validity of the FCRA certificate of their recipient organization. In case of collaboration, foreign contributors will have to enter into separate grant agreement with each of the nonprofit partners and all these nonprofit partners must have the FCRA account. This will include a lot of administrative tasks. Foreign contributors will have to ensure, either by diligence or by obtaining adequate warranties from the recipient entities that such nonprofit partners do not have any public servants on their governing board, which would make them ineligible to receive foreign contribution. They will have to ensure that the 20% cap on administration is clearly mentioned in budgets given by the nonprofits.
*All the ideas and opinion expressed is that of the author.