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Better regulation arrives in foreign contribution law

The government recently notified the Foreign Contribution (Regulation) Amendment Act, 2020 (FCRA), amending the provisions of the Foreign Contribution (Regulation) Act, 2010 (act). Multiple cancellations of registrations owing to lapses in compliance with the provisions of the act led to the need for better clarity and regulation by way of the FCRA. Some of the features of the FCRA are as follows:

  1. To prevent persons employed or remunerated by the government from being improperly influenced or having any conflict of interest in the discharge of their duties, the FCRA prohibits such persons from receiving foreign contributions. Public servants have therefore been added to the list of persons covered by the act.

  2. To prevent cases of surrogate foreign funding, the FCRA prohibits persons eligible to receive foreign contributions under the act from transferring such foreign contributions to any other person. Formerly, eligible non-government organizations (NGO) could transfer such foreign contributions to any other registered NGO, and to any other unregistered person, with the prior permission of the Ministry of Home Affairs.

  3. To bring more accountability to the use of foreign contributions and to ensure that they are put towards their intended objectives, the FCRA has reduced the cap on the use of foreign contributions for administrative expenses from 50% to 20%.

  4. To ensure better oversight in receiving and using foreign contributions, the FCRA empowers the government to require entities seeking prior permission, registration or renewal under the act to furnish the Aadhaar [national identity system] number of their office bearers. Non-nationals or non-residents can be required to furnish details of their passports or overseas citizens of India cards.

  5. To prevent misuse of foreign contributions, the FCRA empowers the government to require that any foreign contribution not yet used or received should be used or only with the prior approval of the government. Such a decision may be taken if, on the basis of a summary inquiry, the government believes that a user or recipient has contravened provisions of the act.

  6. To strengthen the administration of the act, the FCRA extends the period of suspension of a registration certificate from 180 to 360 days.

  7. To enable easier operation and exit, the FCRA empowers the government to permit a person to voluntarily surrender their registration certificate provided that the government is satisfied that such person has not contravened any provisions of the act, and the management of its foreign contribution and related assets has been vested in an authority prescribed by the government.

  8. To enable effective monitoring of the point of receipt of foreign contributions, the FCRA requires all foreign contributions under the act to be paid only into an account maintained with the State Bank of India (SBI), New Delhi branch. Recipients, are however, entitled to maintain FCRA accounts in other scheduled banks for the utilization or holding of foreign contributions received into their accounts with the SBI New Delhi branch.

The changes brought about by the amendments to the act by the FCRA are to enable better account- ability, and better administration and monitoring of foreign contributions received under the act. These are likely to reduce many perceived ambiguities earlier leading to difficulties in operation and to the cancellation of registrations.

Even in the case of the 2% corporate social responsibility allocation by companies under the provisions of the Companies Act, 2013, the permissible cap on administrative expenses by NGOs is set at 5% of the corporate social responsibility contributions received from Indian companies. The unusual cap of 50% as earlier provided had always raised issues of the accountability and genuineness of such expenses prior to the FCRA.

The changes enabling a larger proportion of foreign contributions to be put towards their intended uses is a welcome move for contributors who wished for better oversight and control over perceived diversions of foreign contributions by recipients. They also come as a relief for donors/ NGOs from other countries where stringent anti-corruption regimes are in place, and who have been making contributions in India amid difficulties to comply with stringent laws at home owing to the gaps in the act in India. Further clarity is, however, keenly awaited by NGOs, with the future notification of rules under the act to give effect to the changes introduced by the FCRA.

This article was originally published by Indian Business Law Journal:



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