New effort to regulate charities

Government is again attempting to regulate charities in the Cayman Islands.

A new legislative proposal that seeks to establish a legislative framework for charities, make them more accountable for the funds and donations they receive and ensure Cayman compliance with international regulations on anti-money laundering and terrorist financing was released May 8.

The Portfolio of Legal Affairs has invited charities and the public to comment by July 7 on the Charities Bill, 2014.

Among other things, the bill aims to establish a charities register for all charitable organizations in the Cayman Islands. Private charities, which are regulated by the Cayman Islands Monetary Authority, are not subject to the bill.

Previous attempts to create a legislative framework and set up a charities register have been fraught with controversy.

The Charities Bill 2010 was withdrawn four years ago by the government at the time in order to allow for wider public consultation, after charitable organizations raised concerns over the administrative and financial burden of the extra record-keeping, audit and reporting requirements.

The Charities Bill 2010 was included in a report by the Law Reform Commission, which reviewed the laws regulating the charitable organizations in the Cayman Islands. In response to the withdrawal of bill, the commission said in 2011, the bill had “taken into account the conditions existing within the local charities sector balanced against the international obligations of the Cayman Islands.”

International regulations have been applied to charities because of their potential to serve as a front for money laundering and terrorist financing.

Charities, in turn, were concerned they may not be able to afford the additional administrative expenses from requirements to keep records for many years and obtain annual external audits.

According to the Portfolio of Legal Affairs, “the attorney general’s chambers has since had several meetings with some stakeholders and accordingly, the Bill has been revised with a view to addressing the concerns raised while preserving its ultimate objective of acceptable and effective regulation of charities.”

The Charities Bill 2014 still provides for the appointment and functions of a registrar of charities in charge of monitoring the conduct of charitable organizations. It establishes a charities register and a process through which charities are required to register.

Charities are defined by the bill as a person conducting activities for charitable purposes for public benefit. Public benefit in turn is defined as any benefit that falls within the scope of one of the charitable purposes listed in the bill and that is available to the general public or to a section of the public in the Cayman Islands or elsewhere.

A new element of the bill demands that charitable organizations include the words “Cayman Islands Registered Charity” or “CIRC” in their official documents, materials, collection receptacles and identification labels or badges.

Should the bill become law, charities will have to file annual returns with the registrar within six months of the end of their financial year.

Charities would be required to employ acceptable accounting standards, maintain proper records and conduct audits. However, the audit can be prepared by a duly qualified accountant, who is licensed or competent to provide audit services, rather than an audit firm.

Charities that are registered companies are exempt from the bill’s audit requirements, as they have to comply with the accounts and audit provisions of the Companies Law.

In terms of record-keeping, charities need to maintain the names and contact information of all its donors and where this information is not easily ascertainable the fund raising method used. Evidence of “know your client” compliance is also a point of consideration in the registration process.

Under the proposed legislation, the attorney general has the power to inquire into the operations of a charity and take action where the organization may have been engaged in misconduct or committed a criminal offence.

The bill further regulates how fundraising activities have to be carried out. Specifically, fundraising efforts should not unreasonably intrude on privacy, place undue pressure or make unreasonably persistent approaches to potential donors. In their attempts to raise funds, organizations are further prohibited from making false or misleading representations about the extent and urgency of funding needs, the use of funds or the activities, achievements or finances of a charity or company.

In March, several charities were surprised to learn that they had to register with the Department of Labour and Pensions, if they maintain any employees. The Labour Law exempts charitable organizations from its provisions, as long as they register with the department. However, this process is completely independent from the proposed registration process of the Charities Bill.

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