Giving Thoughts

International Charitable Giving: Do You Know the Rules?

By Juliana Deans, Corporate Responsibility Manager, Silicon Valley Community Foundation

International giving is important for today’s global corporate citizen. Supporting employee interests, helping communities in need and helping to tackle global challenges are all important reasons for why corporations undertake the complexities of international giving. However, it is critical to understand the potential risks and technical expertise needed to remain compliant with relevant laws and regulations before an international donation is made. In this two-part blog series, we look more closely at these issues.

Charity.org reports that total international giving increased 127 percent between 2000 and 2012 to $19.1 billion. CECP, in association with The Conference Board, reported that in 2013 62 percent of companies gave to international recipients.

To support global charitable projects and initiatives, corporate grantmakers need to be aware of and compliant with the U.S. laws and regulations that govern international giving. Laws such as the Foreign Corrupt Practices Act (FCPA), the Patriot Act, and Executive Order 13224 are complex and require specialized tax and legal knowledge. If a company steps slightly—or flagrantly—out of bounds, it could be subject to stiff penalties and consequences from the Internal Revenue Service (IRS). Complex and detailed due diligence is required with the guidance of tax and legal counsel.

Considerations for corporations making a direct international grant or via a U.S.-based charity

The simplest way for a U.S. business to grant to an international organization is through a U.S.-based 501(c)(3) with an international program. Examples include Heifer International, Junior Achievement Worldwide, or IRC.

If a corporation wants to make a direct grant to a foreign nongovernmental organization (NGO), it must, under U.S. law either make an Equivalency Determination (ED) or exercise Expenditure Responsibility (ER):

ED (or ED vetting) The ED vetting process relies on making a reasonable judgment and good faith determination regarding whether or not the foreign NGO is the “equivalent of a U.S. 501(c)(3) public charity.” There are various points of information that a potential grantee organization must provide for an ED. Documents collected from the NGO focus on the organization as a whole, and can include governing and financial documents and usually involves a signed affidavit either from the NGO or counsel attesting that the organization is the equivalent of a U.S. public charity. While an ED requires significant preliminary work, once the determination is made future grants are administered as if the organization is a U.S. public charity for a specified timeframe.

ER (or ER vetting) The ER vetting process confirms whether or not the recipient organization can and will use the grant for charitable purposes. The organization does not need to be the equivalent of a 501(c)(3). Due to its focus on the specific project, this vetting must be conducted on a grant-by-grant basis (i.e., the ER vetting is not transferable to the work related to another grant). Documentation collected focuses on the purpose of the project, the organization’s financial sophistication and the organization’s history with other charitable projects. An ER grant may require less preliminary work upfront than an ED grant because there are no specific tests to pass; however, it does require more oversight and record keeping throughout the duration of the grant for both the grantmaker and the grantee.

Important laws and regulations for international grantmakers

The following laws and regulations are critical to international grantmakers:

Embargoes and Trade Sanctions International Trade Sanctions and embargoes are a long-standing component of U.S. foreign policy and can change quickly. It is important to stay current on which countries are experiencing sanctions or embargoes as it may relate to grantmaking. While an NGO may be active in a sanctioned area, it still may be eligible for funding depending on the sanction.

Executive Order 13224 This law allows the U.S. government to freeze assets of individuals and corporations deemed by the Executive Branch to support terrorism—either knowingly or otherwise. This power extends to donations made to such organizations or individuals—a critical reason to know where a donation is going and if that recipient is on any relevant watch list.

Foreign Corrupt Practices Act (FCPA) The FCPA is a federal law that was enacted in 1977 that prohibits companies from paying bribes or making improper payments to foreign officials and political figures to obtain or retain business. The Act is enforced by the Department of Justice (DoJ). It also addresses accounting transparency requirements, which are enforced by the Securities and Exchange Commission (SEC). Recently, there has been a tremendous increase in FCPA enforcement activities by both the DOJ and SEC.

Although contributions to local governments and communities are not specifically addressed or prohibited by the FCPA, some contributions could fall within the FCPA purview, making it advantageous to partner with an expert with deep knowledge of the applicable regulatory considerations.

U.S. Patriot Act The most significant aspect of this law impacting international grantmaking is the required assurance that funding will not be used to fund terrorist activity. Many grantmakers include a certification focused on this issue in required affidavits, in addition to checking the names of all key staff, volunteers and board members against relevant watch lists.

Individual Country Laws and Regulations When donating, companies must consider the recipient NGO’s domestic laws regarding donations. For example, regulations on donor confidentiality in the European Union may prevent organizations from providing required information during equivalency determination, and, in India, the Foreign Contribution Regulation Act requires an organization to have a Fair Credit Reporting Act (FCRA) registration from the Indian government to receive funding from non-Indian sources.

In next week’s post, we will be looking at how companies can reduce the rigmarole of international grantmaking by working with an intermediary organization. Stay tuned!

Disclaimer: This article contains general information only and is not meant to render business, legal, or tax advice. This article is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor.

About the author:

Juliana joined Silicon Valley Community Foundation in 2012 as a member of the Corporate Responsibility team. In this role, Juliana manages a portfolio of corporate clients, advising them on their strategic philanthropy, corporate responsibility and employee engagement programs. She is also responsible for the department’s social media outreach, and originated and co-leads SVCF’s employee volunteer council.