Draft Protection of Charities Bill - Joint Committee on the Draft Protection of Charities Bill Contents


4  Investigation and inquiry powers

Actions that constitute misconduct and the power to suspend (clause 2)

106. Clause 2 of the draft Bill would amend the Charities Act 2011 to specify that breaching an order or direction made by the Charity Commission constitutes an act of misconduct or mismanagement which can result in the use of the Commission's other compliance powers, including disqualification. It also increases the period for which the Charity Commission can suspend a trustee from 12 to 24 months. These proposals were broadly welcomed by witnesses, including the charity regulators in Scotland (OSCR) and Northern Ireland (CCNI).[144]

107. The Charity Law Association supported the provisions, but said it should be clarified that this applies only to failure to adhere an order or direction and that it does not follow that non-compliance with an official warning, non-cooperation with the Commission and not adhering to specified good practice would necessarily be considered to be misconduct or mismanagement.[145] They noted that the Charity Commission was currently consulting on revised draft guidance for trustees which suggests that failure to follow "specified good practice" may be treated as evidence of misconduct or mismanagement.[146]

108. The Charity Law Association also questioned whether failure to comply with an order or direction could be deemed to be evidence of misconduct or mismanagement during the period that it is subject to an appeal.[147]

109. As discussed in the preceding chapter, the statutory warning provision is intended for circumstances when the Charity Commission does not feel a statutory inquiry is necessary, but that a charity has issues that it needs to address. If these issues are not addressed, further action would necessary. As a result, we conclude that, assuming the Government agrees to include the further details in the Charity Commission's warning power for which we have called, failure to respond adequately to a statutory warning should be considered an act of misconduct or mismanagement which could trigger further action by the Commission.

110. We therefore recommend an amendment to delete "or direction" and insert ", direction or a warning under s15" in clause 2 (2) lines 14-15.

111. However, failure to follow specified good practice should not in itself be considered sufficient evidence of misconduct or mismanagement. This should be made clear in the Charity Commission's guidance to trustees and in the explanatory notes to the Bill.

112. The explanatory notes to the Bill should also clarify that failure to follow an order or direction can only be treated as evidence of misconduct or mismanagement once any appeals process has been completed.

113. The extension of the maximum suspension period for trustees was well-supported by witnesses. It was described as "reasonable"[148] by the NCVO and "sensible"[149] by Joseph Rowntree Charitable Trust. In expressing support for the proposal, Detective Chief Superintendent Nicholson from the Counter-Terrorism Network highlighted a recent case where a suspension had come "very close" to expiring under the existing 12 month limit while a criminal trial was ongoing.[150]

114. The Committee supports the extension of the maximum suspension period from 12 months to 2 years.

115. We recommend that the Charity Commission include statistics in its annual report of the number of instances where a suspension beyond 12 months has been required and the duration of those suspensions, so that the effect of extended suspensions can be monitored.

116. The Committee supports the inclusion of clause 2 of the draft Bill subject to these conditions.

Misconduct or mismanagement outside of a charity (clause 3)

117. Clause 3 of the draft Bill would amend the 2011 Act in relation to incidents where misconduct or mismanagement in a charity has been identified, an inquiry has been opened, and the Charity Commission can link the misconduct or mismanagement to an individual. In these circumstances, the Commission would be able to take into account the person's conduct not just in relation to that charity but also more widely if it considers that such conduct may damage public trust and confidence in the charity or charities generally.

118. The Charity Commission for Northern Ireland welcomed this power,[151] as did the Office of the Scottish Charity Regulator. The latter noted, however, that it would need to be "exercised proportionately" and with "appropriate safeguards in place".[152]

119. The Joint Committee on Human Rights referred to this clause as one of a number of provisions in the Bill where there is a "lack of legal certainty" and which confer "broad and coercive powers on the Charity Commission".[153]

120. The CLA said that the wording of this power was "very wide" and that it had concerns about how conduct would be deemed relevant for consideration by the Commission and how it would report on its decision. It also noted a risk that "the Commission may be accused of having taken into account irrelevant conduct, where it has done no such thing."[154] The CLA suggested amending the clause to require the Commission to report on what conduct it had taken into account when making its decision and the reasons it was considered relevant.

121. The Muslim Charities Forum was concerned that the provision would allow the Commission to pass judgment on the political views of charity trustees, potentially infringing upon freedom of association and expression. MCF was concerned that: "trustees that, on a personal capacity, express support for Palestinian Statehood, speak out against the crack-down on Freedom of Association in the aftermath of the Arab Spring, or merely voice their anger at aspects of Western foreign policy, can all potentially fall under the net of supporting terrorism and/or extremism."[155]

122. The JCHR[156] and a number of witnesses[157] also expressed concern about the specific wording of the clause; that the Commission can take into account the conduct of an individual if they are satisfied that the person has been "privy to the misconduct or mismanagement" or "facilitated it". The terms such as 'privy' and 'facilitated' were considered to be unclear and, in the view of Bond, 'facilitation' "could include passivity rather than positive action".[158]

123. The JCHR said:

    "In the absence of further definition in the Bill itself, or other guidance, such broad and vague language significantly increases the power of the Commission and provides insufficient certainty to both individual trustees and charities about the possible consequences of their conduct in relation to matters which may have nothing to do with the management or administration of a charity."[159]

124. We support the principle of clause 3, as these provisions would only apply after a statutory inquiry had begun and the Charity Commission was satisfied that there had been misconduct or mismanagement. However we share the concerns of the JCHR and other witnesses about the risks associated with the power and its lack of clarity. The condition that a person is 'privy' to misconduct could be replaced by one that states they are 'aware of' an action that constituted misconduct and did not report it to the Commission.

125. We recommend that the term 'privy to' be removed from clause 3 (and elsewhere in the Bill and the 2011 Act) and replaced with 'aware of'. We consider that the term 'facilitated' is sufficiently clearly understood for it to be included in the Bill.

126. We also recommend that an amendment be made to require that the Charity Commission states what conduct it has taken into account when reporting on an investigation and how this conduct is demonstrated to be relevant.

Resignation to avoid disqualification (clause 4)

127. Clause 4 of the draft Bill would amend the Charities Act 2011 to allow the Charity Commission, in the course of an inquiry, to establish a scheme in relation to a charity where there is either evidence of misconduct or mismanagement or a need to protect charity property or secure it proper application. The criteria for removal of a trustee or office holder remains unchanged—there must be evidence of both misconduct or mismanagement and a need to protect charity property. This reflects the Government's intention not to implement Proposal 7 of its consultation. The clause also allows the Commission to continue with the process of removal and disqualification of a trustee even if the trustee resigns their position in a charity in an attempt to avoid such sanction.

128. This proposal was well-supported by witnesses,[160] subject to the same concerns about the inclusion of the words 'privy' and 'facilitated' which also appear in clause 3.

129. We support the inclusion of clause 4, subject to the clarification of language suggested for clause 3.

Power to remove disqualified trustee (clause 5)

130. Clause 5 of the draft Bill would allow the Charity Commission to act to remove a disqualified trustee if they continued to remain in their position once disqualified. This proposal was widely welcomed by witnesses.[161]

131. We support the inclusion of clause 5.

Winding up (clause 6)

132. Clause 6 would allow the Charity Commission to direct trustees to wind up a charity in certain circumstances and transfer resources elsewhere. The Chairman of the Commission William Shawcross told the Committee that the power would be used "only rarely" and in "extreme circumstances".[162]

133. Witnesses were divided on the suitability of this power. Sir Stuart Etherington, Chair of NCVO, and Sir Stephen Bubb, Chief Executive of ACEVO, both raised concerns about the extent of discretion that the power would give the Commission,[163] in particular the provision that the Commission could seek the winding up of a charity if "its purposes can be promoted more effectively if it ceases to operate." The Muslim Charities Forum questioned whether the Charity Commission was well-placed to determine how the funds of a charity could be better used elsewhere.[164]

134. However Professor Gareth Morgan described it as "a helpful tidying up of existing powers",[165] and the Charity Law Association was also broadly content with the proposal, though it suggested that there should be some requirements around the publication of notices announcing the winding-up of a charity to allow for appeals to take place.[166]

135. Michelle Russell, Director of Investigations, Monitoring and Enforcement at the Charity Commission, said that the Commission had not considered the idea of a period of notice or public consultation requirement for use of this power, but would be happy to explore it with the Cabinet Office.[167] The Minister, Rob Wilson MP, subsequently told the Committee that a public notice from the Commission of their intention to wind up a charity was "a sensible suggestion" to which the Government would give consideration and that a period of "60 to 90 days" would be a reasonable amount of time to give an organisation to respond.[168]

136. The JCHR commented on this provision, citing the requirement that the Commission be satisfied that winding up "is likely to help increase public trust and confidence in charities" as an example of broad and vague language in the drafting of the Bill.[169] The Charity Law Association thought that this condition would be "most difficult to satisfy" and proposed that it could be removed altogether if the power was restructured.[170]

137. The CLA argued that the Commission already had a power in section 84 of the Charities Act 2011 to direct charity trustees to take any action which is expedient in the interests of a charity, which would include the transferring of funds. As a result, the power solely to direct the winding up of the 'shell' of a charity could be drafted as an additional power that would be available to the Commission only after a section 84 order had been made. A more clearly limited power, tied to the prior use of a section 84 order would, in their view, not require the 'public trust and confidence' test that concerned the JCHR. [171]

138. We are persuaded that the power to direct the trustees of a charity to wind it up in certain circumstances and transfer resources elsewhere would only be used in rare circumstances and that, in such circumstances, the Charity Commission would use it sparingly, given its significance.

139. We therefore support the inclusion of clause 6 of the draft Bill, subject to an amendment setting out the publication scheme for a notice of intention to direct the winding up a charity.

140. We recommend that the condition in proposed section 84A(1) that the exercise of the power is "likely to help increase public trust and confidence in charities" be removed, as suggested by the JCHR and the Charity Law Association. We also suggest that the Government considers the proposal of the CLA to re-draft the power as an adjunct to section 84 of the Charities Act 2011.

Power to direct property to be applied to another charity (clause 7)

141. Clause 7 would amend the 2011 Act to allow the Commission to direct the application of charity property in the event that the person is either "unwilling" or "unable" to do so, rather than just "unwilling" as is currently the case. The explanatory notes to the Bill refer to "several cases in which financial institutions holding charity property were contractually unable to transfer it to secure its proper charitable application but would have been willing to do so."

142. The evidence received by the Committee was supportive of this provision.[172] The Charity Law Association did not oppose this change, but questioned whether the meaning of the term "unable" was sufficiently clear and whether banks in such situations were really "unable" to transfer charity money or just "unwilling" to breach a contract to do so.

143. We support the inclusion of clause 7.

144. In reflection of the CLA's point, we recommend the Government consider the inclusion of some form of statutory protection for a financial institution in cases where compliance with a direction from the Charity Commission in these circumstances might constitute a breach of its contract with a charity.

Proposals not proceeded with

145. A number of additional powers were proposed in the government consultation that preceded the draft Bill but were not proceeded with. As invited by the Government in the Command Paper accompanying the draft Bill, we have considered the merits of some of these proposals.

USE OF DIRECTIONS OUTSIDE AN INQUIRY (PROPOSAL 10)

146. The consultation proposed allowing the Charity Commission to make directions to a charity without opening a statutory inquiry under section 46 of the 2011 Act. It was not well supported in the consultation, but the Commission argued in their evidence that it should be included in the Bill.

147. William Shawcross said that there are times when "opening of an inquiry adds nothing specific or significant in practice".[173] Michelle Russell, Director of Investigations, Monitoring and Enforcement at the Charity Commission explained that:

    "The case where this issue came up was when we had been engaging with a charity in an operational compliance case for about six months; we had done a books and records visit, and there was no more information gathering or investigating to do, but we found evidence of misconduct, mismanagement and risk to charity property. The only bit that was missing was the opening of the inquiry. It seemed ludicrous then to have to go through opening the inquiry, effectively for a day or two, with the public attention that comes with it and the publication of the report at the end of it, simply to exercise that power."[174]

148. However the evidence provided by other witnesses was strongly opposed to this measure, as it would allow the Commission to exercise powers without the safeguards associated with the opening of a statutory inquiry.[175]

149. Richard Corden said that the Charity Commission were suggesting that this power was necessary because opening of an inquiry involves a lot of unwelcome and needless bureaucracy. He said that "if that is so, it is bureaucracy of the Commission's own creation … There are no statutory hoops that it has to go through." [176]

150. While there will be instances in which the opening of a statutory inquiry will be nothing more than a bureaucratic exercise, it should not be a particularly burdensome one and the process has valuable safeguards that should not be foregone. On this basis, the Committee would not support the addition of this power to the draft Bill.

PREVENTATIVE DIRECTIONS AGAINST ACTS OF POTENTIAL MISCONDUCT (PROPOSALS 11 & 13)

151. The Government consulted on whether the Charity Commission should have a proactive, preventative power to act if it was aware that a charity subject to an inquiry might undertake an action that would be considered misconduct or mismanagement. Proposal 11 suggested a power for the Commission to prevent further "acts of misconduct or mismanagement or breach of fiduciary duty" taking place once misconduct or mismanagement had been identified and suggests the possibility for the Commission to make an on-going direction, while Proposal 13 would address issues of a temporary nature which might arise, such as inviting a known extremist to speak at a public meeting.[177]

152. DCS Terri Nicholson from the Counter Terrorism Network said that the Commission needed "the power to direct the charity not to take such actions, which would be in support of the broader counter-extremism effort", citing the case study from the consultation document.[178] ACAT were also supportive of this type of measure, "provided there is a speedy and effective appeal procedure".[179]

153. However other witnesses opposed a power in this form, arguing that it risked the Commission becoming too involved in the running of charities.[180] The NCVO said that "While we are sympathetic to the Commission's desire to have a proactive means of addressing issues that could lead to misconduct/mismanagement, this new power would go too far and open up new areas of responsibility for the Commission, where it is not appropriate for it to act."[181] The Muslim Charities Forum said the power was "too broad" and "allows an unacceptable level of discretion",[182] while the Countryside Alliance said that it was hard to see how it would work in practice.[183]

154. The Office of the Scottish Charity Regulator told the Committee that, it while it could see merit in Proposal 11, monitoring and enforcing it might be problematic. However OSCR said it had a similar power to Proposal 13, under section 28 (3) of the Charities and Trustee Investment (Scotland) Act 2005, "to direct any charity, body or person subject to an inquiry not to undertake specific activities for a period of six months" and to apply to the Court of Session to interdict a charity from taking particular actions over longer periods.[184]

155. In its response to its consultation, the Government said it did not intend to pursue Proposal 11 but might revisit Proposal 13. We suggest that it would be helpful if it chose to do so. If so, the relevant clauses must be tightly drawn to clarify the circumstances in which the power can be used and the safeguards that apply, particularly the right of appeal. The Government may wish to consider whether the OSCR's powers provide an effective template.

MONITORING BANK ACCOUNTS (PROPOSAL 14)

156. The consultation proposed giving the Charity Commission the power to direct banks to monitor the accounts of charities when there might be a risk that resources are being mismanaged.

157. DCS Terri Nicholson from the Counter Terrorism Network said that as charities are handling public money it would be appropriate for the regulator to have oversight of those accounts.[185] OSCR told us that it had the related power, under section 31 of the 2005 Act, to direct a bank or other institution not to part with a charity's assets without OSCR's consent. They said there was merit in this proposal an intelligence gathering measure although they noted that its use would require appropriate safeguards.[186]

158. The NCVO said they were "broadly supportive of this extended power, provided that it is kept within appropriate bounds" and suggested a number of safeguards, including a requirement that a statutory inquiry had been opened and that the monitoring had been approved by the First-tier Tribunal (Charity) subject to a set of criteria in the legislation.[187]

159. Other witnesses also suggested further safeguards and clarification of the procedures for using this power would be necessary to avoid "disproportionate oversight"[188] and "fishing trips".[189]

160. Donald Toon, Director of Economic Crime Command at the National Crime Agency, questioned the value of this power to the Charity Commission:

    "I find it difficult to see the value of that power given the Commission's specific remit. I wonder if, at that point, you would be close to placing the Commission in a financial investigative role, which is not something that they are trained to do. It does not sit comfortably within their remit. It is a position that from a law enforcement perspective would absolutely sit around the financial intelligence and financial investigation space."[190]

161. The Government came to a similar conclusion in their response to the consultation. They said "it became clear that the Commission would be unlikely to make use of this power if it were to be accompanied by the same safeguards that apply under the Proceeds of Crime Act 2002, in particular the requirement to apply to the court to make the account monitoring order",[191] and on that basis had not proceeded with the proposal.

  1. We consider that giving the Commission this power would require significant additional safeguards which would make it insufficiently useful in practice to justify including it in the Bill.



144   Written evidence from Office of the Scottish Charity Regulator (OSCR) (PCB0040) and Charity Commission for Northern Ireland (PCB0030) Back

145   Written evidence from Charity Law Association (PCB0039) Back

146   Charity Commission, The essential trustee (CC3): new version (November 2014): https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/396981/ Consultation_The_essential_trustee.pdf [accessed 2 February 2015] Back

147   Written evidence from Charity Law Association (PCB0039) Back

148   Written evidence from NCVO (PCB0010) Back

149   Written evidence from Joseph Rowntree Charitable Trust (PCB0028) Back

150   Q 301 (Detective Chief Superintendent Terri Nicholson) Back

151   Written evidence from Charity Commission for Northern Ireland (PCB0030) Back

152   Written evidence from Office of the Scottish Charity Regulator (OSCR) (PCB0040) Back

153   Letter from Dr Hywel Francis MP to the Chairman, 7 January 2015, Appendix 4 Back

154   Written evidence from Charity Law Association (PCB0039) Back

155   Written evidence from Muslim Charities Forum (PCB0029) Back

156   Letter from Dr Hywel Francis MP to the Chairman, 7 January 2015, Appendix 4 Back

157   Written evidence from Bond (PCB0033), Joseph Rowntree Charitable Trust (PCB0028), Muslim Charities Forum (PCB0029) and NCVO (PCB0010) Back

158   Written evidence from Bond (PCB0033) Back

159   Letter from Dr Hywel Francis MP to the Chairman, 7 January 2015, Appendix 4 Back

160   Written evidence from Charity Commission for Northern Ireland (PCB0030), Joseph Rowntree Charitable Trust (PCB0028), Office of the Scottish Charity Regulator (OSCR) (PCB0040) and NCVO (PCB0010) Back

161   Written evidence from Association of Charitable Foundations (PCB0023), Charity Commission for Northern Ireland (PCB0030), Office of the Scottish Charity Regulator (OSCR) (PCB0040), Joseph Rowntree Charitable Trust (PCB0028) and NCVO (PCB0010) Back

162   Q 476 (William Shawcross) Back

163   QQ 79-81 (Sir Stuart Etherington), Q 261 (Sir Stephen Bubb) Back

164   Written evidence from Muslim Charities Forum (PCB0029) Back

165   Written evidence from Professor Gareth Morgan (PCB0001) Back

166   Q 165 (Jo Coleman) Back

167   Q 476 (Michelle Russell) Back

168   QQ 545-546 (Rob Wilson MP) Back

169   Letter from Dr Hywel Francis MP to the Chairman, 7 January 2015, Appendix 4 Back

170   Written evidence from Charity Law Association (PCB0039) Back

171   Ibid. Back

172   Written evidence from Professor Gareth Morgan (PCB0001), Charity Commission for Northern Ireland (PCB0030), Joseph Rowntree Charitable Trust (PCB0028) and NCVO (PCB0010) Back

173   Q 455 (William Shawcross) Back

174   Q 455 (Michelle Russell) Back

175   Q 77 (Sir Stuart Etherington) and written evidence from Joseph Rowntree Charitable Trust (PCB0028) and Charity Law Association (PCB0039) Back

176   Q 255 (Richard Corden) Back

177   Cabinet Office, Consultation on extending the Charity Commission's Powers to Tackle Abuse in Charities (December 2013): https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/263248/ Consultation-on-Extending-the-Charity-Commissions-powers_4-December.pdf [accessed 2 February 2015] Back

178   Q 302 (Detective Chief Superintendent Terri Nicholson) Back

179   Written evidence from Association of Church Accountants and Treasurers (PCB0026) Back

180   Written evidence from Association of Charitable Foundations (PCB0023) and Wales Council for Voluntary Action (WCVA) (PCB0021) Back

181   Written evidence from NCVO (PCB0010) Back

182   Written evidence from Muslim Charities Forum (PCB0029) Back

183   Written evidence from Countryside Alliance (PCB0017) Back

184   Written evidence from Office of the Scottish Charity Regulator (OSCR) (PCB0040) Back

185   Q 349 (Detective Chief Superintendent Terri Nicholson) Back

186   Written evidence from Office of the Scottish Charity Regulator (OSCR) (PCB0040) Back

187   Written evidence from NCVO (PCB0010) Back

188   Written evidence from Bond (PCB0033) Back

189   Written evidence from Muslim Charities Forum (PCB0029) Back

190   Q 349 (Donald Toon) Back

191   Cabinet Office, Draft Protection of Charities Bill, Cm 8954, October 2014: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/365710/43820_Cm_8954_web_accessible_Draft_protection_of_charities_bill.pdf [accessed 18 February 2015] Back


 
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Prepared 25 February 2015