International Charitable Giving: The Benefits of Intermediary Organizations
By Juliana Deans, Corporate Responsibility Manager, Silicon Valley Community Foundation
In my post last week, I detailed considerations that corporate grantmakers seeking to donate internationally need to be aware of. This week, I focus on working with intermediary organizations, which can help to reduce the burden of international giving.
First, here’s a reminder of the issue we’re talking about. Charity.org reports that total international giving increased 127 percent between 2000 and 2012 to $19.1 billion. In 2013, CECP, in association with The Conference Board, reported that 71 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.
The benefits of intermediary organizations
For companies or corporate foundations without in-house vetting and compliance staff for their grantmaking, intermediary organizations (IO) can provide immense value. These are U.S.-based 501(c)(3) organizations, such as Silicon Valley Community Foundation, that connect U.S.-based grantmakers, including corporations, to projects or programs outside the U.S.
An IO bears the liabilities of due diligence (because the IO owns the asset) and assumes the inherent risks associated with making grants to organizations established outside of the U.S. And since an IO is a 501(c)(3), the corporation receives the tax deduction upfront no matter where or when the funds are distributed, so long as donated funds are not specifically earmarked for non-U.S. grantees.
Typically, if a donor such as a U.S.-based corporation wishes to support nongovernmental organizations (NGOs) abroad, it may work with the IO to establish a donor advised fund, which is controlled and administered by the IO, but allows that company to recommend grants to be distributed. Upon appropriate due diligence and approval, the IO will award the grant to the recommended organization, including any stipulations, special conditions or reporting requirements requested by the company and mutually agreed upon with the IO
IOs might take the following steps to vet an international NGO:
- Ensuring the organization is operating with accountability and transparency, including having a written charitable donations policy, pre-determining annual budgets, and publically disclosing foreign charitable recipients
- Conducting due diligence on the potential grant recipient with ongoing documentation and monitoring
- Requiring a written agreement with all involved parties certifying that the funds will only be spent for a charitable purpose
- Requiring the organization to provide a financial and summary report detailing how the funds were spent during the grant period
- Prohibiting compensation of NGO Board members
- Having all individuals associated with the grant attest that they are not representatives of the foreign government and that the funds will not be used in violation of the FCPA
Some intermediary organizations, such as Silicon Valley Community Foundation, tend to use equivalency determinations (EDs) to vet international organizations, since it allows donors to use previous vetting for longer periods of time. See last week’s post for more information about EDs.
The benefit to the corporation of gifting to IOs is significant—the company limits their legal liability for grantmaking and is working with an organization that possesses knowledge about the intricacies of giving abroad.
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 Deans
Corporate Responsibility Manager
Silicon Valley Community Foundation
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.
