Update: Seven things to know about the ACNC External Conduct Standards Guidance

This week the Australian Charities and Not-for-profits Commission (ACNC) released Guidance on the External Conduct Standards (ECS). The ECS came into effect on 23 July 2019, imposing additional governance, recordkeeping and oversight obligations on registered charities with activities outside of Australia.

Here are seven things registered charities need to know about the ACNC ECS Guidance.

  1. The reach of the ECS may be broader than you think
    The ECS is commonly understood to apply to the activities of registered charities operating overseas and any third parties with which they collaborate. This example included in the ACNC’s Guidance suggests that the reach of the ECS may extend beyond this to the activities of any organisations that a charity’s partner works with as part of the collaboration.The Australian charity must comply with the External Conduct Standards for its own activities overseas as well as those of its overseas partner charity and the other organisations the partner charity works with on this project.This would require charities to put in place “reasonable steps” to monitor the activities not only of partners, but any organisations that that their partner in turn proposes to work with. Charities will need to assess how their partners choose organisations to work with to carry out collaborative projects and what controls those organisations have in place.
  2. Even when dealing with an ACNC registered third party, you may still be subject to the ECS
    Many charities understood that the ECS would not apply to overseas activities being conducted solely through another ACNC registered charity. However, if money is transferred by a donor charity to the overseas account of an ACNC registered recipient charity, the ECS will still apply to the “management” of the money by the donor charity. The donor charity must, for example, ensure that the money is transferred through secure means to the recipient charity’s account. The donor charity will not need to comply with the ECS in respect of the recipient charity’s activities overseas. The ECS would not apply at all to the donor charity if the recipient charity’s bank account was located in Australia.  
  3. Minor activities and small amounts of money may still be caught
    Many of our clients have inquired about whether minor activities are subject to the ECS. The Guidance confirms that a charity “is generally considered to operate outside Australia even if its overseas activities are just a minor part of its work or if it only sends a small amount of money overseas. This is true even when such activities are conducted through a third party”. [emphasis added]

    The Guidance further states the Standards will not apply if:- The overseas activity is “directly related to the Charity’s purpose in Australia”, and
    – The activity is “incidental to its operation in Australia”.This means that the ECS will apply to minor activities and small amounts of money unless these overseas operations are “incidental” to a charity’s Australian operations. “Incidental” means that it is “a minor part of a charity’s work benefitting people in Australia”. The Guidance provides examples of “incidental” overseas activities, including sending an Australian beneficiary overseas for cancer treatment, sending staff to an overseas conference and obtaining small amounts of supplies from overseas companies.Unfortunately the case remains that all overseas operations (irrespective of size) will be subject to the ECS if those activities are pursued to benefit people or purposes outside Australia.
  4. Examples of ways to meet the ECS
    Much like the Governance Standards, the ECS are expressed as high-level principles rather than precise rules. In particular, many of the ECS require charities to take “reasonable steps” or maintain “reasonable procedures”. This means that each registered charity must consider factors including the context in which it is operating overseas and the scale and nature of its overseas operations to determine how to comply with the ECS.The Guidelines include considerations that charities should take into account when determining what steps might be “reasonable”. They also include useful “Ways to meet the Standard” for each of the four standards. Charities should be aware that these are examples only – each charity must consider what response is reasonable to each Standard in light of their own circumstances.
  5. Drilling down on Australian laws with extraterritorial application

    ECS 1 includes a requirement for charities to comply with Australian laws relating to a number of specified areas (such as money laundering and slavery). The Guidance includes a helpful (but unfortunately not exhaustive) list of legislation that “may be relevant” to these key areas, highlighting provisions of those Acts to which charities may wish to pay particular attention.
  6. No template policies and procedures

    Many smaller charities (or charities whose overseas operations are minor) were hoping for template policies and procedures to assist them to comply with the ECS. No such luck, other than a link to the existing Conflict of Interest policy. All charities will need to develop their own policies and procedures in response to the ECS. For charities that are not ACFID members, this is likely to require a detailed and careful review of their overseas operations in light of each of the ECS.
  7. Compliance and enforcement
    Most registered charities will be aware that the ACNC Governance Standards were in place for quite some time before the ACNC began to engage in significant, proactive compliance activity. We anticipate that any grace period in respect of the ECS will be much shorter, as:- the ACNC already has compliance infrastructure in place in respect of the Governance Standards;
    – the media and public are increasingly keen to hold charities to account, particularly where vulnerable persons are involved; and
    – the sector is much more aware of the ACNC’s role and its obligations.

The ACNC states that it will follow its existing regulatory approach, and will “take action if [it has] information that indicates a charity has seriously or deliberately breached the External Conduct Standards”. In practice, secrecy provisions continue to make it difficult to get a clear picture of how and when the ACNC uses its enforcement powers.

Next steps

The onus remains on charities to determine what might be considered “reasonable steps” to comply with the ECS. This will involve an assessment of the charity’s size (turnover and workers), the nature, scale and complexity of the overseas operations, whether the region it is operating in has particular risks and how capable third parties are of meeting the ECS. Policies and procedures may then need to be reviewed or developed to ensure compliance.

Our Not-for-profit team is working with clients to assist them to consider and apply the ECS in their own context. Please do not hesitate to contact us.