The Foreign Contribution (Regulation) Amendment Act, 2020

The FCRA Act was enacted to regulate the acceptance and utilisation of foreign contribution by individuals, associations or companies and to prohibit acceptance and utilisation of foreign contribution or foreign hospitality for any activities detrimental to the national interest.

• Annual inflow of foreign contribution has doubled between 2010 and 2019
• Many recipients did not utilise foreign contribution for the stated purpose as per registration or prior permission
• Government cancelled FCRA Registration of more than 19,000 organizations between 2011 and 2019
• FCRA Amendment enacted to streamline the provisions of the FCRA & strengthen the compliance mechanism

KEY CHANGES - FCRA AMENDMENT

Exclusion of Public Servant - A public servant as defined in Section 21 of the IPC shall not be allowed to accept any foreign contributions and therefore is best excluded from non-profit boards that receive FC.

Definition of Organisation of a Political Nature – Organisations having association with a political party in the Official Gazette, organisations of farmers, workers, students, youth based on caste, community, religion, language or otherwise and those who habitually engages itself in or employs common methods of political action in support of public causes shall also be considered to be of political nature, if they participate in active politics or party politics.

No Transfer/Sub-grant of Foreign Contribution - No organisation, registered under FCRA can transfer the foreign contribution to any other organisation/ person even if the second recipient or sub-grantee has an FCRA-registration or prior permission under the FCRA.

Cap on Administrative Expenses - Reduction in the cap on using FC towards administration expenditure from 50% of foreign funds received during the fiscal year to 20% of the funds received.

Restrictions on Utilization of Funds – Under the Act, an organization found guilty of violation of any of the provisions of the FCRA was not allowed to utilize the unutilized or unreceived amount of foreign contribution except with the prior approval of the Central Government. A proviso added allows the Government to even restrict usage of the unutilized foreign contribution if, based on a summary inquiry the Government believes that organization/ person has contravened provisions of the FCRA.

Mandatory Aadhaar Number, Religion –

• Organisations applying for registration or renewal of FCRA registration have to mandatorily provide Aadhaar number (along with PAN) of all its office bearers or Directors or other key functionaries, a copy of the Passport or PIO/OCI card, in case of a foreigner.
• The officer’s relationship with other member(s) of the executive council/governing body/ office bearers must also be provided.
• Details of any current office bearers or directors or other key functionaries of the association, who, in the discharge of his/her official functions or private conduct been has any prosecution for any offence pending against him/ her must be provided.
• Election, resignation or death of any new key member must be intimated to the Ministry of Home Affairs (MHA) within 15 days and the change shall be effective only after MHA approval.
• If the nature of an organisation is designated as religious, it must be stated whether the association is Hindu, Sikh, Muslim, Christian, Buddhist, or others.

Suspension of FCRA registration - Earlier, the FCRA-registration of an organization which violates the provisions of FCRA could be suspended for such period not exceeding 180 days. This has been increased to 360 days.

Voluntary surrender of FCRA registration -Under the earlier FCRA, there was no provision for an organization to voluntarily surrender its FCRA registration. The Amendment allows for voluntary surrender of FCRA registration if, such organization has not contravened any of the provisions of FCRA and the management of foreign contribution and asset has been vested in the competent authority prescribed under the FCRA.

Renewal of FCRA registration - Under the FCRA, no prior inquiry was conducted for renewal of the FCRA registration. The Amendment requires the Central Government to make inquiries to satisfy itself that the organization has fulfilled all conditions specified under Section 12(4)[1] of the FCRA. The certificate needs to be renewed at least 6 months prior the expiry of the period of the original certificate, failing which the certificate will expire 5 years from date of grant.

FCRA Account with SBI, New Delhi - Organisations are required to open their designated FCRA Bank account with New Delhi Main Branch (NDMB) of the State Bank of India (SBI), 11, Sansad Marg, New Delhi 110001. The Ministry of Home Affairs has issued a Public Notice dated October 13, 2020 providing the procedure and for opening and operating the designated “FCRA Account” and clarified that personal visits to Delhi are not warranted.

The latest circular clarifies the following changes with respect to banking:

1. New Delhi Main Branch: New Delhi Main Branch (NDMB) of the State Bank of India (SBI), 11, Sansad Marg, New Delhi 110001 is the designated bank for the purposes of opening the “FCRA Account” to receive Foreign Contributions (FC).
2. All existing FCRA Account holders or persons with prior permission whose present accounts are in banks other than NDMB shall have to open an FCRA Account in NDMB by March 31, 2021.
3. The existing FCRA Account holders or persons with prior permission shall be eligible to receive FC in the “FCRA Account” w.e.f April 1, 2021 or from the date of opening of the “FCRA Account” in the NDMB whichever is earlier.
4. All fresh applicants for certificate of registration or prior permission shall have to first open the “FCRA Account” in NDMB.
5. The NGOs/associations need not have to visit the NDMB. They can visit the nearest SBI Branch or any other SBI Branch of their choice to open the “FCRA Account” in NDMB.
6. A Standard Operating Procedure (SOP) to facilitate the opening of the “FCRA Account” in NDMB is uploaded in the MHA portal.
7. The NGOs/associations can retain their present FCRA Account and link it to the “FCRA Account” opened at the NDMB.
8. No transfer fee or charges will be levied by NDMB for transferring the FC from the “FCRA Account” to another FCRA Account or utilization account/ accounts in a branch of any scheduled bank.
9. NGOs/associations may visit fcraonline.nic.in for further updates.

IMPACT OF AMENDMENT ON INDIAN SOCIAL SECTOR

The FCRA Amendment brings with it a set of new problems - the main being the ban on sub-grants. This will mean that more grass-roots NGOs will now directly access foreign contribution from foreign philanthropy/Foundation/HNI rather than than through an Indian intermediary of a foreign funder. This means all grass-roots non-profits will compete for funds in the global philanthropy market.

To succeed, every such NGO should demonstrate robust compliance, governance & impact. Therefore NGOs must build capacity in these domains to succeed in the long run.

This may also result in larger foreign philanthropies winding down verticals that were implemented exclusively through grass roots partner NGOs. In the same breath, Indian non-profits with a healthy endowment and traction may consider opening foreign charities to receive international funding and make down stream grants in India.

This also lines up with the ideology proposed by the SEBI's working committee on the social stock exchange - i.e improve transparency & accountability of Indian non-profits so as to attract and retain social & impact funding. We might be heading towards globalisation of a charitable kind!