[This is a guest post by Viraj Thakur.]
Introduction
NGOs are often funded by foreign sources. However, the ease with which they can acquire such foreign funding differs based on the object and jurisdiction of the NGO. For instance, the United States has specifically exempted NGOs from the purview of the Foreign Agents Registration Act (“FARA”), which involves the receipt of foreign funding by entities undertaking political activities. The Declaration on Human Rights Defenders, adopted by the United Nations (“UN”) General Assembly in 1998, highlights the role of NGOs (among others) in protecting human rights; it is pertinent to note that the declaration does not contain any clause regulating foreign contribution. In fact, as noted by the Special Rapporteur on the rights to freedom of peaceful assembly and of association, UN treaty bodies have found regulations on fundraising based on the origin of funding deeply problematic.
India, however, has a strict regime for regulating foreign funding to NGOs, implemented through the Foreign Contribution (Regulation) Act, 2010 (“FCRA”). The legitimacy of the act has recently been hotly debated with the search of Harsh Mander’s home, which some view as a ‘vindictive witch-hunt.’ These searches were carried out due to alleged FCRA violations by Harsh Mander’s NGO, Centre for Equity Studies.
The FCRA was amended in 2020, and these amendments were challenged in Noel Harper v. Union of India (2022). However, in this case, as has been argued earlier, the judiciary omitted legal principles entirely, presenting rhetoric as a substitute, entirely glossing over the question of proportionality.
Naturally, now, a question arises. If the FCRA is disproportionate, can a rational nexus be struck between the purpose of the Act and the means adopted? In other words, what alternatives can be adopted to make the impact of the FCRA proportionate?
In this article, I shall attempt to answer this very question. First, I consider international standards in regulating foreign funding to NGOs. I focus on a recent report released by the Financial Action Task Force (“FATF”) and focus on policy-based improvements. Secondly, I look closely at the Foreign Donations (Voluntary Activities) Regulation Act, 2016, which is in force in Bangladesh, to suggest means to temper the FCRA while pointing out a notable problem in both. Finally, I look at an international judgement which provides for a specific test of proportionality in dealing with the right to freedom of association of NGOs. In doing so, I argue for greater proportionality within the FCRA by suggesting measures to improve the existing shortcomings.
International Standards in Regulating Foreign Funding to Civil Society
While entities such as the UN believe that foreign funding must not be regulated, bodies such as the FATF have noted before that terrorist funding to NPOs (non-profit organizations) can pose a threat to a country. To this end, the FATF recently released a paper detailing best practices in dealing with such a situation, which may provide some answers as to how to balance the right to freedom of association of NGOs and national interests. Relying on this FATF paper, my primary objective shall be to propose a framework that would push India towards a rational policy intervention via the risk-assessment model proposed in the paper.
The first step would be to conduct a survey in order to determine which organizations fall within the FATF definition of an ‘NPO’:
A legal person or arrangement or organisation that primarily engages in raising or disbursing funds for purposes such as charitable, religious, cultural, educational, social, or fraternal purposes, or for the carrying out of other types of “good works.”
The next step is to identify any “vulnerabilities”(sectoral or organisational) that can be exploited by “threats” (referring to terrorist funding or misappropriation). According to the report, if no action is taken at all, NPOs serving as fronts for terrorist funding may infiltrate civil society. However, overregulating the sector can create regulatory barriers that can force legitimate NPOs to shut down. These vulnerabilities must be assessed based on data analysis, and not just rhetoric.
Next, public consultations and greater deliberation on legislative action is a must. This must be done periodically, as using tenuous and old data is unlikely to allow a balance between the spectrum of no action and overregulation, as the report shows. Additionally, involving the primary stakeholders will help build trust and ensure a balanced approach through the inclusion of diverse perspectives. Moreover, as noted in Annexure A to the report, the 2023 French National Risk Assessment involved a systematic analysis of NPOs and the risk of terrorist funding affecting them at a national-scale. In doing so, it also established certain classes of NPOs that may be more susceptible to terrorist funding. For example, NPOs that provide humanitarian aid in conflict areas/high-risk areas may warrant greater scrutiny than another NPO not fitting these criteria. Hence, creating intelligible differentia between groups of NPOs is another step to be considered, to prevent disproportionality.
Lastly, financial transactions of registered NPOs that utilize foreign funds can be made public to promote transparency. In India, currently, only a state-wise list of organisations registered under the FCRA is available, but not their financial statements.
The government must ensure that it does not discourage social welfare altogether. Regulation is important, but taking a rational research-driven approach is the first step in ensuring balanced regulation. The normative message it ends up sending to NPOs currently is to enter at their risk and find their own sources of funding—resorting to foreign funding brings too many regulations and too much additional risk.
Manifesting Proportionality via the FDVA in Bangladesh
Another good starting point may be a similar legislation from Bangladesh. The Foreign Donations (Voluntary Activities) Regulation Act, 2016 (“FDVA”) deals primarily with NGOs, and bears strong resemblance to the FCRA. However, it is less stringent in terms of imposing strict requirements on NGOs receiving foreign funding, and hence may serve as a reference point for tempering the language of the FCRA.
Section 7 of the FDVA, for instance, deals with the same subject matter as Section 7 of the FCRA, i.e., dealing with transfer of foreign funds between NGOs. Yet, their approach is radically different. The FDVA allows the transfer of foreign funds between NGOs, provided three basic conditions are met:
- The entity receiving the grant must be a registered organization under prevalent laws of Bangladesh;
- The NGO granting foreign funds must provide a proposal of the project to be undertaken. This proposal must include the details of the NGO receiving funds and contain an outline of the funds to be granted;
- The granting NGO or individual shall guarantee the implementation of the project in accordance with the conditions of approval of the project.
Section 7 of the FCRA instead imposes a blanket ban on any transfer of foreign fund, without any specific rationale. One of the reasons for such routing of funds is that large NGOs support smaller ones that do work at the grassroots level. It was noted in the parliamentary debate over the FCRA that this provision has been made absolute for no well-defined reason.
Furthermore, a parallel can be drawn between Section 9 of the FDVA and Section 17(1) of the FCRA, both providing for the bank account in which an NGO may receive foreign funds. While the former allows an NGO to open a bank account in any scheduled bank, the latter requires an NGO receiving foreign funds to open an account in an SBI branch in New Delhi. Moreover, as was pointed during the parliamentary debates over the amendment, there was no cogent rationale for this move. This is especially worrying, given that 93% of NGOs have accounts outside of Delhi.
Finally, Section 17 of the FDVA provides for an appellate tribunal in case of grievances and prescribes a time limit for redressal. Instituting such an alternate mechanism in India would be ideal, given that the delays of the Indian legal system imply that any NGO challenging its FCRA license being suspended, would find itself embroiled in a long struggle of litigation. This would impose another financial barrier on the NGO, making it harder for them to function. Currently, no such dedicated mechanism exists in India.
One common issue can be spotted in both legislations. Section 8 of the FCRA and Section 6(5) of the FDVA both prescribe that foreign funds can only be used to meet up to 20% of administrative expenditure requirements.
In the context of India, reading Section 8 in conjunction with the Foreign Contribution (Regulation) Rules, 2011 (“the Rules”) shows that under Rule 5, only expenses that are associated with field work or directly with the purpose of the organisation can be met freely through foreign funds. Anything else is categorised as ‘administrative expenditure.’ In light of the same, how does the Centre expect NGOs to expand, when foreign contribution can no longer be used to meet expenses such as rent, legal charges, accounting charges, etc? Such a severe restriction on the usage of administrative expenses only impedes social welfare, especially when this particular section has no justification in the FCRA or the amendment bill.
Conclusion
The FCRA has definite fault lines and displays signs of disproportionality. However, attempting more neutral policy making such as that in the FDVA would prove immensely useful for India, as would ensuring an empirical approach derived from the FATF paper. However, it is also important to note that apart from formal requirements such as through the FCRA, informal requirements also pose a hurdle. For example, requiring registration through government officials at the local level (as in Bangladesh, via the FDVA) often means jumping through bureaucratic loops that create prolonged delays. A more holistic policy overhaul must consider this as well in the Indian context too, apart from making the FCRA itself less rights-intrusive. This would allow a balance to be struck between the rights of civil society and national interest for security.
Constitutional Law and Philosophy 
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