Charity's Dark Side: When Doing Good Turns Bad

Charities are generally expected to be law-abiding organisations that work for the public good. However, there are instances where charities may find themselves on the wrong side of the law, either intentionally or unintentionally. This can range from issues with fundraising and financial mismanagement to more serious offences such as fraud or money laundering. In such cases, it is important to understand the legal consequences and the impact on the charity's operations and reputation. While charities often have governing documents and internal regulations in place, they are still subject to general laws and can face legal repercussions if they break the law. This includes areas such as tax, data protection, health and safety, and employment regulations. When charities break the law, it can lead to loss of public trust, legal sanctions, and disruption to their ability to carry out their charitable purposes. Understanding the legal framework that charities operate within is crucial for both the organisations themselves and the donors who support them.

Consequences of a charity breaking the law

Trustees are responsible for ensuring that their charity complies with its governing document and the law. This includes making sure the charity achieves its stated purposes, and that its funds are only spent on supporting these purposes. Using charity funds or resources for other purposes is a serious offence and may result in trustees having to repay the charity from their own money.

Charities are also subject to general laws such as tax, data protection, and health and safety, and trustees have responsibilities to meet these requirements. For example, in the UK, charitable donations or contributions are potentially tax-saving opportunities, but only if the recipient charity is a qualified organisation under federal tax law.

In the US, the Nonprofit Integrity Act of 2004 requires registration and annual reporting by all charitable corporations, unincorporated associations, trustees, and other legal entities holding property for charitable purposes. This includes commercial fundraisers for charitable purposes, fundraising counsel for charitable purposes, and commercial coventurers. The law applies to any person holding money or property for charitable purposes, including entities that are not tax-exempt and for-profit entities if they hold assets for charitable purposes.

There are also specific laws and regulations that charities must follow depending on their activities, structure, and location. For example, charities that own land, employ staff, raise funds, or work with children may have additional requirements.

Consequences for charities that break the law can vary depending on the specific situation and jurisdiction, but they can include fines, legal action, loss of tax benefits, and damage to the charity's reputation. It is important for charities to be aware of and comply with all applicable laws and regulations to avoid these consequences and maintain their ability to serve their intended purposes.

Charity fundraising and the law

Charity fundraising is an essential aspect of the charitable sector, and there are several laws and regulations that charities must comply with when engaging in fundraising activities. Here is an overview of the key legal considerations for charity fundraising:

Licensing Requirements:

Charities collecting cash donations in public spaces or through door-to-door campaigns must adhere to licensing regulations. Licensing requirements vary depending on the location and nature of the fundraising activity. Street collections are typically licensed by local authorities, while house-to-house collections require a separate licence, especially when operating door-to-door. London is an exception, where consent for collections is obtained from the Metropolitan police and the City of London police.

Direct Debit Collections:

Direct debit collections on the street generally do not require a licence. However, door-to-door direct debit collections do need a licence. Face-to-face street fundraisers, often referred to as "chuggers," are required by law to make a fundraising statement, disclosing that they are paid and the amount the fundraising business is receiving.

Written Agreements:

Any business hired by a charity to conduct fundraising must have a written agreement in place. This agreement should include specific elements, such as stating that they are fundraising for the charity and disclosing the amount they are being paid for the appeal.

Compliance and Enforcement:

Failure to comply with fundraising regulations can result in legal consequences. For instance, if a professional fundraiser fails to provide the necessary fundraising statement, they are committing a criminal offence, and a court may intervene to stop further fundraising. The police, Charity Commission, Office of Fair Trading (OFT), local authorities, and other entities may address concerns or violations of fundraising rules.

Self-Regulation:

The public fundraising regulatory association (PFRA) is a UK-wide self-regulatory body that monitors and enforces fundraising standards for organisations conducting face-to-face fundraising in public places. They work with local authorities to ensure fair and reasonable use of town centres and handle complaints from the public regarding fundraising practices.

Flexibility in Fund Usage:

The Charities Act 2022 provides charities with more flexibility in using funds from fundraising appeals. If an appeal raises more or less than intended for a specific purpose, charities can use the funds for a similar charitable purpose without returning the donations, under certain conditions, such as when dealing with small donations or when it is unreasonable to expect the return of the donation.

Other Legal Considerations:

Charities must also be mindful of other legal obligations depending on their activities and structure. This includes compliance with tax laws, data protection, health and safety regulations, and specific requirements related to working with children, owning land, employing staff, or conducting international operations.

In conclusion, charity fundraising is a highly regulated area, and it is essential for charities to be aware of and comply with the applicable laws and regulations to ensure the effectiveness and integrity of their fundraising activities.

Charity law and tax breaks

Charities are subject to a variety of laws and regulations, including those related to tax breaks and charitable donations. In this regard, here is some information on charity law and tax breaks:

Charities can receive generous tax breaks on charitable donations, even for anonymous donations. In the UK, for instance, charitable donations or contributions are a potential tax-saving opportunity for taxpayers. Taxpayers can deduct part or all of their contributions on their tax returns, with some limitations. For example, charitable cash contributions to qualified charities cannot exceed 60% of an individual's adjusted gross income (AGI). To be eligible for a tax deduction, the recipient charity must be a qualified organisation under federal tax law, operating for charitable, religious, scientific, literary, or educational purposes, among other specified purposes.

In the US, charitable contribution deductions for cash contributions to public charities and operating foundations are limited to up to 60% of a taxpayer's AGI. Non-cash contributions to qualifying organisations are capped at 50% of the donor's AGI, while contributions of appreciated capital gain property are generally capped at 30% of the AGI for qualifying organisations.

However, the application of tax breaks for charities is not without controversy. Some argue that the public should know who charities are working for, especially when public funds are involved in match-funding donations. For example, in the UK, Eton College, a registered charity, receives match-funding from the public for donations it receives, which raises questions about the value the public gets from these tax-funded contributions.

Additionally, there are concerns about the lack of transparency regarding the sources of funding for charities. While charities are not required to disclose their donors, this can lead to situations where charities disguise whose interests they are serving, such as in the case of an organisation receiving funding from the oil industry to promote climate denial.

To address these concerns, some have proposed changes to the law, such as requiring charities to disclose their major donors if they want to receive match-funding from public funds. This would strike a balance between the need for transparency and the ability of charities to raise funds.

Charities also need to comply with other legal requirements, such as fundraising regulations, data protection, and health and safety laws, depending on their specific activities, structure, and location.

Charity law and data protection

Charities are subject to the UK General Data Protection Regulation (UK GDPR) and the UK Data Protection Act 2018. This means that charities have a legal responsibility to protect the personal data of their donors, beneficiaries, staff, and volunteers.

Personal data is any information that can be used to identify an individual, either directly or indirectly. This includes name, contact details, date of birth, and financial information. Charities often collect and process sensitive or private personal data, such as health information or financial data. As such, charities must comply with key data protection requirements.

Firstly, charities must lawfully collect and process personal data. They must have a legal basis for processing personal data, such as consent, contract, legal obligation, vital interests, public task, or legitimate interests. Secondly, charities must be transparent about how they use personal data. They must provide individuals with clear and concise information about how their data will be used, and this must be done before or at the time of collection. Thirdly, charities must give individuals control over their personal data. Individuals have rights over their personal data, including the right to request access, rectification, or erasure. Charities must comply with these requests unless an exemption applies. Finally, charities must keep personal data secure. They must take appropriate technical and organisational measures to protect personal data from unauthorised access, use, disclosure, alteration, or destruction.

To comply with the UK GDPR, charities should conduct a data audit to identify what personal data they collect and how they use it. They should also develop data protection policies and procedures, and train staff and volunteers on data protection responsibilities. Implementing appropriate security measures is crucial, such as using strong passwords, encrypting data, and having a data breach response plan.

The Charity Commission, the independent regulator of charities in England and Wales, has issued an alert reminding charities that they must identify and comply with data protection laws and regulations. This is a critical compliance area, and non-compliance can result in substantial fines and negative attention, damaging reputation and donor trust.

Charity law and health and safety

Charities are generally not viewed as businesses as they are not profit-making and often rely on unpaid volunteers. However, they are still subject to health and safety laws, and as in any other sector, the Health and Safety at Work etc. Act 1974, and the regulations made under it, apply if any organisation (including a voluntary organisation) has at least one employee.

Voluntary organisations have a duty of care and responsibility to ensure the safety and well-being of employees, volunteers and anyone else they may come into contact with during the course of their activities. Therefore, while in some instances, the law may not be applicable, it would be good practice to use the law as a guide when considering the activities of the organisation, especially the 'six-pack' of health and safety rules.

The 'six-pack' is the core set of health and safety rules that charities (and businesses) must be aware of and include:

• The Management of Health & Safety at Work Regulations
• Manual Handling Operations Regulations
• Display Screen Equipment (DSE) Regulations
• Workplace (Health, Safety and Welfare) Regulations
• Provision and Use of Work Equipment Regulations
• Personal Protective Equipment (PPE) Regulations

Charities are also subject to other general laws such as tax and data protection, and health and safety, which trustees have a responsibility to meet. Trustees must run their charity in a way that complies with the law, and this includes making sure the charity achieves its purposes. Trustees must also keep their governing document up to date and ensure they know and comply with the rules on how the charity must be managed.

Frequently asked questions