Non-EU charitable ventures looking to further aspects of their work and fundraising within the EU will often seek to establish themselves in the UK due to the protection and financial benefits afforded by the robust structure of the UK's charity legislation. Such benefits are all very well when working within these shores, but for many organisations, the bulk of their charitable operations are undertaken overseas, particularly in the developing world, and funds raised in the UK are diverted abroad accordingly. These charities need to weigh up how they can best deliver their objectives abroad whilst remaining compliant with British legislation.
Limitation of risk
The key principle for UK based charities working internationally is that they should be in a position to manage the increased exposure to risk that arises from operating in jurisdictions different from their own. This is particularly the case in developing countries which may be perceived to be more deserving of charitable aid, but may not necessarily provide such sturdy legislative protection as in the UK. In the same way that charities working within the UK might ring-fence the risk inherent in trading and other commercial endeavours by setting up a wholly owned UK subsidiary to undertake that activity, the risks arising from operating in foreign territories may best be hived off by creating a new entity under that country's legislation to assume the liabilities (whether contractual, financial or otherwise) to which the UK based charity would otherwise be exposed. Where a charity's presence in a jurisdiction is intended to be long term or permanent, the charity may want to seek advice on whether it is feasible to establish a local subsidiary. In doing so, there are various factors which they may need to take into account, depending on the jurisdiction.
Bureaucracy and timing: Seemingly unnecessary bureaucracy is always frustrating, and while levels are more or less bearable in the UK, they can feel daunting in other jurisdictions. By way of example, a British company can start operating as soon as it is established, but before a company can commence trading in India, it must not only register with the companies regulator, but also seek an office space, establish a local bank account (into which the company's share values must be paid), secure a local trade licence, a shops and establishments certificate and a tax registration certificate. Each application must be dealt with separately and can require up to 15 separate forms, resolutions and/or proofs of identity etc. These layers of procedure mean that it can take some substantial time (up to and over a year in some places) before the local entity can start operating.
Knowledge of local customs/cultural differences: The bank adverts have a point - it helps to have on the ground knowledge of how business can be conducted in foreign territories. It should go without saying that local advice will need to be taken in establishing a presence there. What can be less obvious are the various means by which progress in a project might be facilitated. High powered contacts with influence in the right places can cut through months' worth of red tape with a simple phone call.
Bribery Act 2010: Notwithstanding the above, UK based charities should be wary of embracing all local customary practice. In some developing territories it is an accepted fact that business can only be made possible by greasing the palms of those with influence. This ought to raise alarm bells from a good governance perspective in any event, but the introduction of the Bribery Act 2010 (due to be implemented in April 2011) will make it an offence to bribe a foreign public official. Unlike, for example, the US equivalent legislation (the Foreign Corrupt Practices Act), the Bribery Act does not contain a specific exemption for facilitation payments, nor is there any specific defence for this offence. It also remains unclear whether the UK charity may be itself liable under the Act if someone "associated with" it commits an offence under the Act, including bribing a foreign public official. The Act provides a defence to such a charge if the accused organisation can show that it has adequate procedures in place to prevent bribery. Charities with operations overseas should, therefore, review their current practices and have clear policies in place to address how practical situations faced by those carrying out the charity's objectives should be addressed.
Direction of funding: Provided the entity is set up with the same objects as the parent charity and is demonstrably acting charitably from the perspective of UK law, there should be no hindrance to the UK based charity providing funding to the subsidiary to go towards its purposes. However, the burden of proof has shifted recently further to the Finance Act 2010. Charities used to have to show that they had taken objectively reasonable steps to ensure that funds applied abroad would be applied for charitable purposes. Now, the decision as to what is reasonable will be determined by HMRC at its discretion from time to time. Trustees should also be aware that, depending on the jurisdiction, it may not be so straightforward to send funds back to the UK.
Local limitations: As noted above, the benefit of establishing an entity abroad is that the risk involved in contracting with operators there will remain local to that territory, and the UK based charity should be protected from exposure to that risk. However, the local parties may nonetheless seek to tie the UK entity into their contractual arrangements, whether as guarantor or otherwise, seeing the parent body as a more secure source of funding. Such arrangements effectively negate the purpose of setting up a local entity, and trustees may need to consider what comfort they are able to give to the contractors that the subsidiary will remain in funds and secure from a contractual perspective, without risking unduly the assets of the UK charity.