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External Conduct Standards for charities operating overseas

ABL Private, Native Title & Public Interest Law
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The External Conduct Standards came into force in late July 2019 and relate to registered charities with activities overseas. All charities that operate outside Australia are required to comply with the External Conduct Standards, even basic religious charities (which do not have to comply with the Governance Standards).

The Standards are set out in full in Division 50 of the Australian Charities and Not-for-profit Commissioner Regulation 2013.

In this update, we outline the External Conduct Standards, when they apply, how a registered charity can comply, and the potential consequences of non-compliance.

The External Conduct Standards

There are four External Conduct Standards.

1. Activities and control of resources
 
A registered charity must: take reasonable steps to ensure its activities outside Australia are consistent with its not-for-profit purpose and character; maintain reasonable internal control procedures to ensure its resources are used outside Australia in a way that is consistent with the charity’s not-for-profit purpose and character; and take reasonable steps to ensure that the charity’s resources provided to third parties outside Australia or for use outside Australia are applied in accordance with the charity’s not-for-profit purpose and character and with reasonable risk management processes in place.  
 
External Conduct Standard 1 also requires a registered charity, when operating overseas, to comply with Australian laws relating to money laundering; financing of terrorism; sexual offences against children; slavery and slavery-like conditions; trafficking in individuals and debt bondage; people smuggling; international sanctions; taxation; and bribery.
To ensure this, the charity must maintain reasonable internal control procedures.
 
2. Annual review of overseas activities and record keeping
 
External Conduct Standard 2 requires a registered charity to obtain and keep records for its operations outside Australia.  These records must be sufficient to enable the charity to prepare a summary of its activities and related expenditure outside Australia on a country-by-country basis.
 
Records must be kept for at least 7 years where the charity operates outside Australia, or gives resources to third parties in Australia for use outside Australia.
 
3. Anti-fraud and Anti-corruption
 
External Conduct Standard 3 requires a registered charity to take reasonable steps to: 
 
(a) minimise any risk of corruption, fraud, bribery or other financial impropriety by its responsible entities, employees, volunteers and third parties outside Australia, and 
 
(b) identify and document any perceived or actual material conflicts of interest for their employees, volunteers, third parties and responsible entities outside Australia. 
 
4. Protection of vulnerable persons
 
External Conduct Standard 4 requires a registered charity to take reasonable steps to ensure the safety of vulnerable individuals outside Australia to the extent that those individuals: 
  • are being provided with services, or accessing benefits, under programs provided by the registered entity or a third party in collaboration with the registered entity;, and  
  • are engaged by the registered entity or a third party in collaboration with the registered entity, to provide services or benefits on behalf of the registered entity or the third party.

Application of the External Standards: what does it mean to operate outside Australia?

Broadly speaking the External Conduct Standards apply to any registered charity operating outside Australia.

The ACNC has taken the view that merely providing funds to be used outside Australia meets the definition of operating outside Australia.  Therefore a broad range of charities, including those that simply send money to a nother charity overseas, must comply with the External Conduct Standards. 

Importantly, a charity will not be “operating outside Australia” if its activities (or its provision of money) outside Australia is directly related to it pursuing its purposes in Australia and is merely incidental to its operations in Australia, eg attending a conference outside of Australia to assist a charity’s operations in Australia, or buying goods outside Australia to use in Australia.

The ACNC has said each charity will have to decide its own compliance measures, considering the size and scope of its operations, the risks associated with such operations, and how those risks can be mitigated.

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What is required to comply with the External Conduct Standards?

The External Conduct Standards were drafted in 2018 and there were a number of submissions from those in the charities sector outlining concerns that the original drafting was unclear in many respects.  Unfortunately the External Conduct Standards, as passed and now in force, still retain ambiguous language.

The ACNC has said each charity will have to decide its own compliance measures, considering the size and scope of its operations, the risks associated with such operations, and how those risks can be mitigated.

We recommend charities take a common sense approach to compliance. 

As a first step, each charity that operates overseas should take the time to read the External Conduct Standards and the ACNC guidance on those Standards.

If a charity determines that any current practices and policies are not compliant with the External Conduct Standards then the Board must take steps to become compliant by adopting new policies and procedures.
The ACNC website provides a list of recommended ways that a registered charity will demonstrate compliance with the External Conduct Standards, which may be a useful reference point for charities.

Charities should consider the ACNC guidance on reducing the risk of money laundering and terrorism financing.  They should also have policies in place to protect vulnerable people, which include, but are not limited to, children. Charities should also consider the risk of bribery and corruption in overseas countries and ensure they have robust procedures in place to counter that risk.

Charities do not have to undertake any new reporting to demonstrate compliance but if requested by the ACNC, a charity must be able to demonstrate compliance.

What is the consequence of non-compliance?

Compliance with the External Conduct Standards is a condition of registration as a charity.  If the ACNC Commissioner reasonably believes that a charity has not complied, or is likely to be non-compliant,  he may consider further action. This could range from providing regulation advice and educational material to a charity through to delivery of notices, penalties or even revocation of charity status, depending on a number of factors including the severity and persistence of a breach, risk of harm to the community, and willingness of the charity to work with the ACNC to address any non-compliance.  
 
On its website the ACNC states that it expects most charities will be meeting the External Conduct Standards and that it will focus on charities that have seriously or deliberately breached them.

The ACNC will be asking organisations seeking registration with the ACNC (and charities applying for new charitable subtypes) about the steps they have taken to comply with the External Conduct Standards if they operate overseas.
  
If you have any questions about compliance please contact one of the team below.

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