Foreign Contribution (Regulation) Amendment Act 2020: An Attempt To Alter The Landscape Of Foreign Donations In India

INTRODUCTION

The Foreign Contribution Regulations Act, or FCRA, is a law adopted by the Parliament to govern foreign contributions (particularly monetary donations) made to NGOs and other organizations in India. The act, in its consolidated version, was first passed in 1976 and was later amended in 2010. The Foreign Contribution (Regulation) Act of 2010 (FCRA) was enacted with the goal of controlling the acceptance and use of foreign contributions and barring its use for activities that are harmful to the national interest. However, in recent years, it has been claimed that the FCRA’s regulations were not stringent enough to prevent certain organizations from misusing such foreign funds. As a result, in order to improve transparency in the use of foreign donations, the Government adopted the Foreign Contribution (Regulation) Amendment Act, 2020 (“Amendment Act”), which received presidential assent on September 28, 2020, and was notified on September 30, 2020.

Fair Credit Reporting Act FCRA and pile of documents

According to an Inquirer report, the Ministry of Home Affairs revoked the registration of many US-based non-governmental organizations (NGOs) when it was discovered that they were diverting funds collected to fund rallies against a nuclear power plant in Tamil Nadu’s Kudankulam. Amnesty International has recently closed its India operations after the government froze its accounts for alleged FCRA violations.

Though the amendment was drafted to bring transparency regarding sources of funding for the civil society organisations like NGOs, the changes have been highly criticised by several Non-profit Organisations suggesting that the act attempts to further control and overburden India’s existing non-profits eco-system. Further, it is claimed that the Act tends to reduce the functionary independence of non-profit groups in India, particularly grassroots organizations that work on the frontlines with vulnerable communities.

1. Restrictions on transfer/ sub-granting of foreign contributions:

Previously, under Section 7 of the FCRA, foreign donations could only be transferred to individuals who were registered or had secured previous authorisation under the FCRA to obtain foreign contributions. The FCRA Amendment Act modifies this section by making it illegal to transfer or sub-grant a foreign donation received to another person. According to the Act, a “person” is defined as an individual, an association, or a registered corporation. This Amendment is expected to have a significant impact on grassroots and smaller non-profit organizations that previously received sub-grants from larger groups that have taken foreign funding. Arrangements for the transfer of funds between various smaller and larger NGOs can no longer be used, and any existing agreements must be cancelled. Non-profits involved in collaborative research initiatives will no longer be able to sub-grant cash to institutions working in parallel or downstream. Furthermore, some think tanks and non-profit research and advocacy organizations that work with a diverse range of stakeholders in the non-profit ecosystem may face operational challenges because of this. The government has stated that restricting sub-grants will promote openness. However, imposing additional constraints on annual reporting and utilization requirements would have been the best alternative to assure transparency.

2. Reduction in the percentage of administrative expenses:

The Foreign Contribution Regulation Amendment Act aims to change Section 8 of the Foreign Contribution Regulation Act (2010) by reducing the administrative expense barrier from 50% to 20%. Administrative expenses form an important part of running a non-profit organization. These expenses include costs such as hiring personnel to manage the person’s activities, salaries, wages, or any other form of remuneration paid to members of the governing body/executive council, rent, travel expenses, electricity and telephone costs, legal and professional fees, and so on. Thus, the decrease in the use of foreign contributions for administrative expenses is anticipated to have a substantial impact on talent recruiting, since NPOs would be unable to give competitive remuneration to professionals. As a result, the quality of governance and management of non-profits may suffer greatly. Furthermore, the administrative expense cap would hinder non-profits from funding field-based programs or project monitoring and evaluation operations, discouraging and limiting non-profits’ ability to expand their reach.

3. Extension of the suspension period:

Section 13 of the FCRA Amendment Act 2020 extended the period of suspension of an NGO’s FCRA Registration from 180 to 360 days. The government can possibly suspend a non-license profits for an entire year under this provision. This can be a big setback for non-profits because they will be denied funds until the relevant agency/agencies complete their investigation. Furthermore, numerous non-governmental organizations (NGOs) have already expressed concerns about a hostile financial environment, citing bottlenecks and delays caused by banks’ misinterpretation of FCRA requirements. As a result, these amendments will very probably exacerbate these constraints.

4. Increased governmental powers:

According to the FCRA Amendment Act 2020, the government may investigate the organization at the time of renewal of registration to ensure that the person submitting the application: i) is not fictitious or benami, ii) has not been prosecuted or convicted for engaging in religious conversion activities, and iii) has not been found guilty of diversion or misappropriation of funds.

While the renewal application must be submitted six months before the registration expires, there is no deadline for the government to complete the renewal or provision for considered approval of the renewal application. As a result, the scrutiny process done at the time of renewal may add to the timeliness of the renewal application, as such renewal will be at the scrutiny officer’s discretion. This raises the likelihood of an organization being harassed by officials, especially if it expresses opposition to the government’s actions. Thus, this expansion of bureaucratic power will further lead to red-tapism, arbitrariness, and harassment by authorities.

5. Designated FCRA account:

According to the 2020 Amendment, all foreign donations must be accepted only in a “designated FCRA Account”, which must be opened exclusively at the State Bank of India’s main branch at 11, Sansad Marg, New Delhi. Additionally, no funds other than foreign contributions are permitted to be received or deposited in the FCRA account. Furthermore, FCRA accounts (in addition to the FCRA account in the prescribed branch of the State Bank of India) may be formed in any scheduled bank for the purpose of keeping or utilizing the received foreign contribution. The decision of the government to monitor funds flowing through a centralized route is admirable, but it presents a problem for organizations spread across the country to register a bank account in a certain state, as this is anticipated to increase the overhead costs of non-profits, particularly those working in remote areas of the country.

6. Violation of international law:

The International Commission of Jurists (ICJ) has stated that the Foreign Contribution (Regulation) Amendment Bill, 2020, is incompatible with international law and is obstructing the work of civil society. The International Court of Justice (ICJ) stated that the act’s provisions will construct arbitrary and exceptional impediments to human rights activists and other civil society actors carrying out their vital work.

CONCLUSION

Despite being aimed at increasing transparency and effectiveness of foreign capital inflows and their usage for the purposes specified in their registration, the amendment act has its own set of shortcomings. While it is crucial to regulate the NPO sector and state action should be welcomed, when necessary, the act appears to advocate for and prescribe excessive regulation and regulatory interventions. It also makes it difficult for thousands of professionally operated, albeit smaller, non-profits to expand their operations and reach. Furthermore, imposing a limit on administrative expenses funded by foreign contributions may force numerous organizations to cease operations for regulatory reasons. The act could also create an artificial barrier between well-funded urban-centric non-profits and rural (non-profit) service providers.

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This article is written by Mr Aayush Akar, Student, National Law University Odisha and Ms Deepanshi Kapoor, Student, Alliance University, Bengaluru

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