Piper Alderman Partner, Sarah Johnson and Law Graduate, Ashleigh Russo discuss the impact of the upcoming introduction of the new External Conduct Standards on registered charities operating overseas.
What are the External Conduct Standards?
Originally slated to come into effect in July 2019, the External Conduct Standards (EC Standards) set out minimum standards of governance, monitoring and reporting with which entities that are registered under the Australian Charities and Not-for-profits Commission Act 2012 (Cth) must comply if they operate outside of Australia or partner with organisations that operate outside Australia (in whole or in part).
Affected entities must comply with the EC Standards in addition to complying with requirements of the existing ACNC Governance Standards. The EC Standards cover four distinct but related areas:
- Activities and control of resources (including funds) – this standard requires affected entities to:
- take reasonable steps (including maintaining internal and external controls) to ensure that its activities are carried out, and that resources given to third parties outside Australia are applied, in a manner that is consistent with its purpose and character as a not for profit entity; and
- comply with Australian laws relating to money laundering, financing terrorism, sexual offences against children, slavery and trafficking of people.
- Annual review of overseas activities and record-keeping – this standard requires affected entities to obtain and keep records necessary to prepare a summary of their activities outside Australia on a country by country basis;
- Anti-fraud and anti-corruption – under this standard, affected entities are required to take reasonable steps to minimise any risk of corruption, fraud, bribery or other financial impropriety by its responsible entities, employees, volunteers and third parties outside Australia and to identify and document any perceived or actual material conflicts of interest involving those persons; and
- Protection of vulnerable individuals – this standard requires affected entities to take reasonable steps to ensure the safety of vulnerable individuals outside Australia to the extent those individuals are:
- being provided with services or accessing benefits under programs provided by the affected entity or any third party in collaboration with the affected entity; or
- engaged by the affected entity or any third party in collaboration with the affected entity to provide such services or benefits.
How do I know if I need to comply?
Only charities that operate overseas or work with third parties operating overseas either entirely or in part will be required to comply with the EC Standards. There are some complexities in relation to which activities will be caught by the new requirements and in particular, whether or not such activities are incidental to the entity’s activities in Australia. If you are in any doubt as to whether or not your overseas activities will be covered by the EC Standards, you should contact your professional advisor.
When do the External Standards come into effect?
The proposed EC Standards were tabled in Parliament on 26 November 2018 and will commence on the later of 1 July 2019 and the expiry of the statutory period during which Parliament may disallow regulations. Parliament resumes on 2 July 2019 following the May Federal election and accordingly, affected entities can expect that the EC Standards will come into effect shortly thereafter, unless a motion to disallow is moved.
What should I be doing now?
Once the EC Standards come into effect, affected entities will be responsible for assessing their own compliance with the EC Standards to maintain their registration with the ACNC as a charity. As stated in the Explanatory Statement introducing the Regulations enacting the EC Standards, the steps required to be taken by a particular entity to comply with the EC Standards will vary depending on its size, the scale of its operations inside and outside of Australia, the degree of risk of funds being misapplied in the destination country and the location and nature of the operations. Larger entities and entities with significant resources overseas may need to implement training and regular auditing of compliance with the EC Standards particularly where there is significant risk of funds being misappropriated or other breaches of the EC Standards occurring.
Given that it is currently proposed that the ACNC start collecting data on charities’ compliance with the EC Standards as part of the 2019-2020 Annual Information Statement, registered charities with significant overseas activities may wish to review their current activities and recording keeping and consider changes that may need to be made to ensure the entity will comply with the EC Standards once they commence.
