Government versus NGOs: FCRA to protect transparency and prevent misuse of foreign funds

By Rohini Mohan

This April, about 30,000 nongovernmental organisations (NGOs), foundations and societies dependent on foreign donations faced a quandary as their five-year Foreign Contributions (Regulation) Act (FCRA) registration expired. Thousands of them have been applying for renewals as an FCRA registration is required for them to receive any foreign donations.

NGOs fi lled paper forms, gathered account reports, and applied for the fi rst-ever FCRA renewal through postal submission. The FCRA department in the ministry of home affairs (MHA) must process renewals in 90 days. Instead, on June 17, it proposed new rules to replace the FCRA Rules of 2011. These seek to digitise applications and impose more compliances on NGOs.

An FCRA official told ET the system for online processing “is still under construction” but was not able to confirm when these will start operating. In the meantime, it’s unclear if NGOs who applied for renewal offl ine will have to reapply online, whether 2010 registrations will stay valid till the renewal process is revamped, or if any foreign donations can be accepted at this moment.
NGOs received Rs 11546.29 crore in foreign donations in 2011-12, the latest data available with the MHA. Most of this is channelised into much-needed social and developmental projects. But now, NGOs are trapped in a regulatory blind spot and are having to cope with frustrating ineffi ciencies in dealing with the FCRA department, especially at a time when the atmosphere around foreign funding of social work is charged.

Several organisations report facing delays, miscommunication and harassment in dealing with the department. And, the social sector accuses government actions on funding — outright bans or restrictions on NGOs like Greenpeace and scrutiny of credible donors like Ford Foundation — as being restrictive.

“Controlling the source of funds is like starving a sector, weakening it,” says Sanjay Agarwal, a charted accountant who works with the non-profi t sector.

“They (FCRA department) don’t answer calls, don’t reply to emails. For annual reports submitted, they never send receipts or acknowledgement, and if the application is rejected, rarely do they give reasons,” says Harish Jaitli, the chief executive of the Voluntary Action Network India (VANI).

NGOs keep registered post receipts. “Second chances to correct honest mistakes, or resubmit documents — things even the income tax men allow — are far fewer than prompt cancellations of FCRA registration.”

Rules of mistrust

The draft amendments to the rules propose that the application process go entirely online. This is a welcome and more transparent move, but also imposes many additional requirements on the NGOs, some cumbersome, and others vague and heavy-handed.

A few days after the MHA published the draft amendment and called for comments by July 1, representatives from several NGOs in Bengaluru held a meeting to frame a coordinated response. On June 30, VANI also hosted a discussion with 30 NGOs in New Delhi to plan a set of recommendations to submit to the MHA.

The June 17, 2015 circular of the proposed new rules says it is to “improve the existing system of receipt of requests”, their faster processing and “bringing transparency” in receipt and use of foreign donations.

Now, all organisations receiving foreign contribution must publish their annual audited statements on their offi cial website within 30 days (A similar requirement existed earlier, but only for organisations which received over Rs 1 crore in one year, which is only about 2% of all FCRA-registered NGOs). When they receive foreign funds, NGOs must publish them on the website within seven days, and banks must report all deposits or withdrawals in foreign contribution bank accounts to the MHA within 48 hours.

“It’s fine to desire transparency, put income and expense statements, salaries and project details online and but earlier, we had nine months from the year-end to publish these on the website,” says Vinay Srinivasa, an activist with Alternative Law Forum that held the NGOs’ meeting in Bengaluru.

“Many small NGOs in the hinterlands have no electricity, can’t access the internet, or have the funds or staff to maintain websites, or update them so rapidly. There should at least be a categorisation of requirements based on size of NGO or donation.”

While turning digital, the proposed rules combine three earlier forms into a single four-page FC-3 online form for application, renewal, and prior permission. But the FC-3 will also ask for the Facebook page and Twitter handles of the NGO as well as all offi ce bearers, their personal mobile numbers and passport numbers of the chief functionary.

Several activists expressed anxiety about revealing these details and applying for renewal during this period of political hostility, but didn’t want their or their organisations’ names mentioned in this article, fearing backlash or unnecessary scrutiny from the MHA.

One old rule, however, stays untouched: an undertaking to be signed by the chief functionary stating that the foreign contribution has not been used against national, public or economic interest of the state. “These terms are still not clearly defi ned, so they allow the state to exert unlimited control over the social sector,” says ALF’s Vinay Srinivasa.

Old axe, new rules

Originally a tool to prevent money laundering and bar foreign funding of political parties and armed groups, the FCRA seeks to monitor how foreign exchange is received and used for public interest.

Organisations that receive foreign funds have to maintain accounts of contributions received and how they use them. If the government suspects any violation of the law, it can order inspection and seizure of accounts and currency and cancel registrations.

Until 2010, a registration under FCRA was for life. Since 2010, and according to rules framed in 2011, entities must renew their certifi cation every fi ve years. Poonam Muttreja, executive director of the Population Foundation of India calls the renewal “a mindless parting gift” to the social sector from the UPA government. “The timing couldn’t be worse, with the NDA now being more hostile to NGOs,” she adds.

Governments have always used the FCRA to control NGOs, but since an Intelligence Bureau report to the Prime Minister’s Offi ce was leaked in May 2014, in which NGOs were called “anti-national”, the debate is more divisive than ever. The MHA has accused public interest groups in the past year of being “a threat to national economic security”, which the Delhi High Court in the Greenpeace case declared as “muzzling” democratic dissent.

Given the NDA government’s mistrust of NGOs, renewal becomes another tool of control. “It is easier for the MHA to deny renewal and thus block foreign funding than to actively prove misuse and cancel registrations,” says Agarwal. “Small local activists working against local corruption or malpractice have been most affected, but so have those working on what the state might call innocent work, like education, or women’s rights or disability,” says Population Foundation’s Muttreja.

NGOs say the FCRA silences dissent through the threat of cancelled funding, but those defending it claim the need to improve accountability in the social sector. ET contacted FCRA director DP Tripathy several times, but received no answer. Another offi cial at the FCRA department said, “The law is just to keep better accounts, and NGOs need to do that.”

“NGOs do need a transparency mechanism but outfits that get foreign funding have always had to give more detailed reports to their donors than to the FCRA department,” says Ananth Guruswamy, former CEO of Amnesty India, now heading the Azim Premji Philanthropy Initiative.

For financial accountability, organisations are under the scrutiny of the Income Tax Authority, which extensively examines all activities undertaken and reasonability of the expenditures incurred. "The FCRA doesn't catch embezzlement; the Income Tax Act does. So we can't credit the law with doing more than trying to stop globally-supported NGOs from challenging the government's ill-thought out projects," says Guruswamy.

The claim of promoting NGO accountability allows the MHA to up what Muttreja calls “suffocating scrutiny”. It has ordered NGOs to seek additional permission to accept funds from 16 donors including Ford Foundation, which are under the MHA scanner.

This introduces case-by-case discretion, and therefore ambiguity. Disability rights activist Bishaka Dutta says, “We have everything above board, our work is not political, but will the renewals be based on compliance of rules or on who my donor was in the past?” An animal rights activist who did not want to be named said his organisation’s prior permission for foreign donation was denied because there was a foreigner on their board.

“He was a member of our parent organisation abroad, and I don’t see this mentioned in the rules, only the online FAQs!” says the activist, whose NGO campaigned against tax benefi ts given to industrial poultry farms with a history of cruelty. “We are fi ghting against cruelty of animals and malpractice by companies, but since the government backs these ventures and lobbies, we can be called anti-national.”

The activist has now decided to forgo the FCRA and register as a for-profi t company, a solution other NGOs like Amnesty India and Chetna Organics have adopted. “The only advantage an NGO has structurally over a company is tax-free donations,” says the animal activist. “I’m not sure which is worse — being taxed, or being gagged.”

Other NGOs are trying to raise funds domestically. But as Charu Sethi, corporate marketing manager of Save The Children says, “Individual charity, CSR and philanthropy is only now picking up in India, and although the trend is positive, the social sector has a long way to go before it can depend on it exclusively.” Moreover, Amnesty India’s fundraising director Rajesh Bhattacharjee says individual and corporate philanthropy tends to favour tangible issues like education and health, “while shying away from environment, civil rights or long-term policy campaigns”.

To add to the anxiety, in the past year, certifi cations of over 10,000 NGOs have been cancelled for alleged non-submission of annual account statements. “Of these, many probably did not do accounts, but many are no longer in existence,” says Jaitli from VANI. Nearly 40% of NGOs with FCRA licences received no foreign funds between 2006 and 2014. “But the MHA shows this database clean-up as proof of bad accounting by all NGOs,” he adds.

NGOs often compare their plight with the leeway companies get. “Public interest work is being judged more harshly than profi t-generating work — that’s not just unfair, that’s not in the best interests of the country,” says Population Foundation’s Muttreja.

Foreign direct investment is 12 times the foreign funds in the social sector. But the difference also lies in the department that administers transparency for each activity. For companies, it is the ministry of corporate affairs, in charge of bolstering commercial activity in the country, but for non-profi t work, it is the suspicious ministry of home affairs, in charge of national security.

The most irreconcilable part of the debate lies at the core of the confl ict — the idea of what constitutes national interest. What the MHA calls “national security protection” is seen by NGOs as invasive control and profi ling.

As long as this remains onerously unclear on paper, FCRA, for all its claims to protect transparency and prevent misuse, will remain a weapon of political expediency.