The External Conduct Standards (“ECS”) are intended to provide greater confidence to the public that funds sent, and services provided, outside Australia are reaching legitimate beneficiaries and are being used for legitimate purposes. (Reg 50.1).
Below are 5 tips to consider when setting up a charity that intends to send money overseas.
TIP 1: The ECSs apply to all charities (registered entities) including Basic Religious Charities (BRCs). There is some overlap with the ACNC Governance Standards, but this is intentional, as the ACNC Governance Standards can only apply to federally regulated entities (based on the Corporations head of power in the Constitution). The ECSs instead rely on the External Affairs head of power in the Commonwealth Constitution and so they can apply to a broader range of charities.
TIP 2: The ECSs applies when a charity, operates (including sending funds) outside Australia in whole or in part. (Reg 50.4) They apply to any (front line) purpose delivery outside Australia even if it is one-off or minor (including inside Australia activity directly related to outside Australia purpose delivery). They do not apply to Incidental activity outside Australia related to (front line) purpose delivery in Australia. (Reg 50.4(2) and the EM).
TIP 3: The Explanatory Memorandum has the following, perhaps surprising, example about when the ECSs apply:
A registered entity which is a church asks for collections in Australia for the purpose of sending the funds overseas to contribute to foreign disaster relief. The registered entity gives the small amount of funds raised to an overseas church, which is not a registered entity. Because the amount of money raised is small when compared to the church’s overall collections and donations to other organisations and causes in Australia, the incidental element is satisfied. However, because the funds are sent to an overseas church for a foreign purpose, it is not directly related to the pursuit of the registered entity’s purposes in Australia. As the activities are not directly related to the pursuit of its purposes in Australia, the entity has obligations under the standards.
Therefore, minor sending of money or resources overseas (other than to another Australian registered charity) should be assumed to be caught (and more closely looked at), requiring compliance with the ECS.
TIP 4: Record keeping is a black letter compliance issue and requires careful attention. The ECS record keeping requirement does not need to be reported, but can be called for from time to time by the ACNC. If they do, charities should expect that the ACNC may well then “cherry pick” the more substantive operations and call for evidence about compliance with the other ECSs in relation to that more substantive (higher risk) movement of resources overseas.
TIP 5: Consider your obligations when providing money to other registered charities that operate overseas. When a registered charity sends money to an Australian bank account of another registered charity that conducts overseas operations, it is the receiving charity that is required to comply with the ECS. However, when a registered charity sends money to an overseas bank account of another Australian registered charity – the ACNC takes the view that the sender of the money is responsible under the ECS to take reasonable steps for the safe conduct (management) of the money into the overseas bank account. The ACNC guidance says this:
Third party registered with the ACNC
Education For Kids is a charity registered with the ACNC and based in Australia. It sends money overseas to another charity, Cambodian Aid Inc, which is also registered with the ACNC. Cambodian Aid Inc works in local communities in Cambodia to provide school children with books and healthy lunches.
Because Cambodian Aid Inc is also a charity registered with the ACNC, it has its own obligation to comply with the Standards for its operations outside Australia.
Education For Kids must comply with the External Conduct Standards for the management of the money it sends overseas. Cambodian Aid Inc must comply with the External Conduct Standards for its activities overseas.
Education For Kids does not need to comply with the External Conduct Standards for Cambodian Aid Inc’s activities overseas. See here.
Our NFP & charity law team regularly advise charities on ECS compliance along with the development of policies, processes and MOUs to assist in the discharge of the duties under the Standards. Should you have an inquiry, contact us today.