ENVIRONMENT DEPARTMENT WORK IN PROGRESS Public Disclosure Authorized HANDBOOK ON Public Disclosure Authorized GOOD PRACTICES FOR LAWS RELATING TO NON-GOVERNMENTAL ORGANIZATIONS (DISCUSSION DRAFT] Public Disclosure Authorized Prepared for the World Bank by The International Center for Not-for-Profit law May 1997 Public Disclosure Authorized .& ENVIRONMENTALLY SUSTAINABLE ~ ~ DEVELOPMENTVICEPRESIDENCY THE WORLD BANK Ii!iIlIII == ============= ACRONYMS/ABBREVIATIONS! GONGO Government-Organised NGO MBO Mutual Benefit Organisation NGO Non-Governmental Organisation PDO Public Benefit Organisation QUANGO Quasi-Non-Governmental Organisation VAT Value Added Tax ! Copies ofthe Discussion Draft are available from the World Bank's Environment Department, Social Policy and Resc:tt.lement Division (NGO Unit). HANDBOOK ON GOOD PRACTICES FOR LAWS RELATING TO NON-GOVERNMENTAL ORGANIZATIONS TABLE OF CONTENTS Introduction 1. Background to the World Bank's interest in NGOs 1 2. Background to the Handbook 4 3. Sources and Methodologies 6 Chapter A: The Relationship of NGOs to Society 9 1. Why Refonn Laws relating to NGOs 9 2. Reasons Why a Country Should want to have a Strong, Vigorous, and Independent NGO Sector 9 Chapter B: DefinitioWl and Terminology 19 1. Definitions and Terminology 19 (a) Nongovernmental Organization (NGO) 19 (b) Mutual Benefit vs. Public Benefit 22 (c) Membership and Non-membership Organizations 23 (d) Law 25 (e) Decree or Order 25 (f) Rule or Regulation 25 (g) Governing Documents 25 (h) Establishment 26 (i) Termination 28 (j) Liquidation 28 (k) Dissolution 28 (I) Board of Directors 28 (m) General Assembly ofMembers 29 (n) Endowment 29 (0) Subsidiary 29 (P) Affiliate 29 (q) Branch 29 (r) Tax Preference 30 Chapter C: Relationship of NGO Laws to Other Laws 31 2. Relationship ofLaws Governing NGOs to Other Laws in a Legal System 31 Chapter D: Legal Existence ofNGOs 34 3. Establishment (Registration or Incorporation) 34 4. Responsible Governmental Agency 41 5. Amendments to Established Status 44 ii 6. Amendment in the Event ofImpossibility 45 7. Public Registry 46 8. Mergers and Split-ups 47 9, Termination, Liquidation, and Dissolution 47 Chapter E: Structure and Governance 49 10, Minimum Requirements ofGoverning Documents 49 II. Optional Provisions and Special Requirements 50 12. Liabilities of Officers and Directors 50 13. Duties ofLoyalty, Diligence, and Confidentiality 51 14. Prohibition on Conflicts ofInterest 52 Chapter F: Prohibition on Direct or Indirect Private Benefits 54 15, Prohibition on the Distribution ofProfits 54 16, Prohibition on Private Inurement 54 17. Prohibition on Self-Dealing 56 18. Prohibition on the Reversion of Assets 58 Chapter G: Activities and Operations of NGOs 60 19. Economic Activities 60 20, Licenses and Permits 60 2 L Political Activities 61 Chapter H: Fund Raising 64 22, Solicitation - Limitations, Standards, and Remedies 65 Chapter I: Reporting 67 23. Internal Reporting and Supervision 69 24. Reporting to and Audit by Supervising Agency 70 25, Reporting to and Audit by Tax Authorities 74 26. Reporting to and Audit by Licensing Agencies 75 27. Reporting to Donors 75 28. Disclosure or Availability ofInformation to the Public 76 29. Special Sanctions 77 Chapter J: Taxation 79 30. Income Taxation Exemption ofNGOs 81 31. Income Tax Deductions or Credits for Donations 83 32. Taxation ofEconomic Activities 86 33. V AT and Customs Duties 87 34. Other Taxes 88 iii Chapter K: Foreign NGOs and Foreign Funds 90 35. Establishment and Supervision ofForeign NGOs 90 36. Foreign Funding 92 Chapter L: Other GOINGO Relations 95 37. QUANGOs and GONGOs 9S 38. Governments Grants and Contacts 96 39. Transfer ofAssets and Services out ofthe Public Sector 96 Chapter M: Self-Regulation 99 40. Self-regulation 100 iv APPENDICES Appendix I: Economic Activities and Taxation 103 A discussion ofeconomic activities ofNGOs and taxation of income from such activities. Appendix H: Report of the Working Group on Self-Regulation 110 This report was adopted by the Conference on Regulation Civil Society held in Sinai, Romania, May 12-15, 1994. Itwasallended by representatives ofmore than 100 NGOs throughout Central Europe. The Report sets out recommendationsfor self-regulation by NGOs in seven different areas (governance, organizational integrity, management practices and human resources,finances, communications to the public, fundraising, andprogram), and also contains recommendations for the role ofumbrella organizations in setting and enforcing self-regulatory standards for groups of NGOs. This report contains a useful listing ofwhat can be accomplished through self-regulation Appendix ID: Charity Accounts - The New Framework 114 This pamphlet published by the Charity Commission ofEngland and Wales describes different reporting requirements for charities, depending on size. Appendix IV: Statement of Purpose and Standards of National Philanthropy orthe National Charities Information Bureau (NCffi) 119 NCIB is a U.S. watchdog organization that has been evaluating US NGOs for 77 years. The purpose ofNCIB is to promote informed giving by prOViding information to the public about whether large US charities that regularly seek public support meet NCIB standards in nine areas (board governance, purpose, programs, information, finanCial support and related activities, use offunds, annual reporting. accountability, and budget). Appendix V: NGO Acronyms 125 This list ofvarious acronyms by which NGOs are known around the world was compiled by Adil Nqjam. Appendix VI: Contributors 126 A list ofindividuals whose work or personal contributions have aided the development ofthis Handbook. HANDBOOK ON GOOD PRACTICES FOR LAWS RELATING TO NON-GOVERNMENTAL ORGANIZATIONS Introduction. 1. Backgroynd to the World Bank's interest in NGOs. The World Bank, in common with other development agencies, has become increasingly interested in the work of non-governmental organizations (NGOs) over the past decade. The proportion of Bank-financed projects which involved NGOs in one role or another increased from an average of 6% from FY73 to FY88 to 48% in FY96. 1 While early NGO involvement was mostly oriented to more cost-effective or more poverty-targeted service delivery, and was often a very minor aspect of the project in question, in more recent years NGO roles have both widened and deepened. This diversification of roles was described first in 1989 in the Bank's Operational Directive on NGOs.2 Subsequent Bank policies stressed the important contribution of NGOs to issues relating to indigenous peoples, resettlement, poverty reduction, and gender.3 This enhanced collaboration (involving, as it does, the government in question) has enabled the Bank to identify important NGO contributions to development beyond their capacity to deliver services. Some NGOs have important specialist knowledge, for example regarding environmental issues. Some NGOs work in close partnership with poor communities and are able both to help foster participatory development approaches and to identify priority concerns of poor people. Other NGOs help strengthen civil society through informing and educating the public, for example concerning their legal rights or entitlements to services or by helping attune government policies and practices to the needs of poor citizens. This diversity has led to expanded forms of cooperation between the Bank and NGOs including government-Bank-NGO collaboration in projects.' It has also contributed to the Bank's policies regarding 1 Cooperation between the Wodd Bank and NGOs • FY96 Progress Report (199D. 2 Operatjonal Directiye 14.7Q. "Involving NGOs in Bank-Supported Actiyities," August 1989. 3 Ibrahim Shihata, The World Bank in a Changing World, Vol. II, Chapter 6, The World Bank end NGOs,1995. • Carmen Malena, WOrking with NGOs: A Practical Guide to Operational Collaboration between the World Bank and NGOs, 1995. DISCUSSION DRAFT 2 information disclosure and public consultation.' For example, in the preparation of Environmental Assessments (required for all projects which potentially have a major environmental impact), the Bank requires "meaningful consultation between borrowers and affected groups and local NGOs,· based on timely public disclosure of relevant information.6 Based on its own experience, the Bank strongly advises governments to involve NGOs in the preparation of National Environmental Action Plans and in designing poverty reduction programs. For this reason the Bank further "encourages govemments to be responsive to NGOs that request information or raise questions about Bank-supported activities".' Involvement of NGOs in Bank-supported activities is also a primary way of achieving participatory development, which has been proven by experience to help attain the Bank's goals of economic and social development. Participation is the term used by the Bank to describe the process by which stakeholders in development - the Bank, the borrower, and those who are directly or indirectly affected by a development project - influence and share control over development initiatives, and the decisions and resources that affect them.8 The Bank also advocates participatory approaches to government in the design as well as implementation of the projects it finances, on the ground that this enhances development effectiveness.9 In order for the Bank to be able to work effectively with NGOs, and to benefit fully from the contributions they can potentially make to successful development, it is essential in any particular country in which the Bank