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

Conclusions and recommendations

Policy context of the draft Bill

Abuse in the charitable sector—how big is the problem?

1.  The consensus of opinion is that abuse, distinct from honest mistakes and persistent mismanagement, is rare in the charity sector. There is, moreover, insufficient evidence available to make an accurate assessment of the incidence or significance of such abuse. We heard that, when such abuse does occur, the financial costs and reputational damage to the charity sector can be considerable. It is right that the Charity Commission should be more effective at tackling it than has historically been the case. This raises the question of whether this would also need additional legislative underpinning and, if so, whether the proposals in the draft Bill are the correct ones. (Paragraph 37)

Excepted and exempted charities

2.  A significant number of charities are excepted or exempted from the requirement to register with the Charity Commission. This denies the Charity Commission full regulatory control over the charity sector, and makes it harder to ascertain the full scale of abuse. (Paragraph 43)

3.  We recognise that the draft Bill is not the correct vehicle to address this issue. We therefore urge the Government to consider whether all charities should be brought within the requirement to register with the Commission in the next substantial review of charity law. We hope that the Commission's new investment in digitisation will help these registrations to be carried out without undue additional cost. (Paragraph 44)

A more active approach by the Charity Commission

4.  We are satisfied that, notwithstanding the evident increase in the Commission's use of its existing powers, there remains an overall case for legislative gaps in its regulatory armoury to be addressed now, rather than waiting for it to exhaust the benefits of its more proactive use of its existing powers. The case for each specific power is addressed in the remaining chapters of this Report. (Paragraph 51)

5.  The Charity Commission has to tread a fine line in its dealings with the sector. Its primary focus has to be that of civil regulator. It must also carry out its core operational functions, such as registering charities, granting regulatory consents and making orders and schemes. However, it should also act as a 'facilitator', helping charities, especially smaller charities, understand the nature of their obligations under the law. Nevertheless, the Commission has to guard against providing advice that inevitably is seen by the recipient as regulation, so contributing to 'regulatory creep'. (Paragraph 57)

6.  It has been suggested in evidence that greater emphasis on investigation and enforcement has had a negative impact on the Commission's ability to process new registrations and to provide support and advisory services, which were referred to as "back office" functions by its Chairman. The draft Bill would give the Commission new powers in the area of enforcement and thus potentially new areas of activity. If the Commission is to be asked to fulfil its existing statutory remit in the most effective way the question of its resources must be considered. (Paragraph 58)

7.  We note the weight of evidence which suggests that providing the Commission's online advice within the current pared-down framework of the gov.uk website is unlikely to give charities, particularly the smaller ones, what they need and that it has become more difficult for users to navigate. (Paragraph 60)

8.  We recommend that, in light of the evidence we have received, the Government reviews the Charity Commission's pages on gov.uk and works with them to improve the availability and accessibility of the Commission's information. (Paragraph 61)

9.  There has been much debate about whether the resources available to the Charity Commission are sufficient. The pressure on these resources is unlikely to be eased in the new Parliament, whatever the composition of the Government. It remains the case that the Commission will be unlikely to live up to the increased expectations of it, which include continually improving its non-regulatory functions, without additional resource. Nevertheless, the additional funding for greater digitisation is welcome in that it should free up additional resource for other work. (Paragraph 67)

10.  We note the NAO's finding that although the Charity Commission has made a start in understanding the cost of regulating the sector effectively, it needs to do more particularly as regards developing a better understanding of the costs and benefits of effective regulation. Its doing so will be essential if it is to make a persuasive case to Government for any additional resource we suspect it may need. (Paragraph 68)

11.  Provided a single point of registration does not add unduly to the time taken to register a charity, we consider that it could have significant advantages for all parties involved, particularly well-intentioned but thinly resourced charities. It is regrettable, therefore that roll-out of the new system has been delayed until April 2016. (Paragraph 79)

12.  We note the conclusion in the NAO report of 22 January 2015 that while the Commission is exchanging more information with other public bodies "it typically makes twice the number of disclosures [than] it receives". (Paragraph 80)

13.  In the modern interconnected world regulation is a 360 degree matter and it is vital that other public bodies have confidence in the Commission and are as open with it as it is with them. (Paragraph 80)

Clause 1: The power to issue a statutory warning

Would the power to issue a statutory warning be an effective addition?

14.  We note the view from a number of witnesses that giving the power to the Charity Commission to issue a statutory warning will not contribute significantly to its regulatory armoury. We are however persuaded that in principle it would be useful for the Commission to have at its disposal "something in between" guidance and the opening of an inquiry. Our support in principle is qualified by some concerns over the detailed operation of the new power. (Paragraph 90)

Are appropriate safeguards in place?

15.  We welcome the Minister's commitment to consider putting more detail on the face of the Bill. We are convinced by the evidence we have received that this would ensure that the Charity Commission will exercise the power appropriately. (Paragraph 99)

16.  We are grateful to the CLA Working Group for its suggested amendments to clause 1 and invite the Government to consider their inclusion in the Bill. (Paragraph 100)

17.  At a minimum, we recommend that the following points should be on the face of the Bill:

a)  a restriction of the circumstances in which a warning may be issued to a failure to comply either with a requirement of the 2011 Act or with an order or direction of the Commission;

b)  a requirement on the Commission to issue written notice of its intent to issue a warning, which would imply that that the Commission would have a duty to provide the recipient with the draft content of the warning before it is issued;

c)  a reasonable minimum period to make representations over the warning thereafter; and

d)  a restriction on publicising a warning until this period has elapsed and a requirement that the charity on whom the warning is due to be served is given advance notice of the intention to publish. (Paragraph 101)

18.  Although we note the arguments by some that the issue of a warning should be subject to appeal to the Tribunal, we see the practical difficulty this would present to the Commission as disproportionate to the benefits of doing so. On the assumption that the Government agrees to our recommendation that the necessary details be added to the face of the Bill, we are satisfied that the issuance of a warning does not need the further safeguard of an appeal beyond the ability to seek judicial review. (Paragraph 104)

Investigation and inquiry powers

Clause 2: Actions that constitute misconduct and the power to suspend

19.  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. (Paragraph 109)

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

21.  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. (Paragraph 111)

22.  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. (Paragraph 112)

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

24.  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. (Paragraph 115)

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

Clause 3: Misconduct/mismanagement outside of a charity

26.  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. (Paragraph 124)

27.  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. (Paragraph 125)

28.  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. (Paragraph 126)

Clause 4: Resignation to avoid disqualification

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

Clause 5: Power to remove disqualified trustees

30.  We support the inclusion of clause 5. (Paragraph 131)

Clause 6: Winding up

31.  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. (Paragraph 138)

32.  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. (Paragraph 139)

33.  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. (Paragraph 140)

Clause 7: Power to direct property to be applied to another charity

34.  We support the inclusion of clause 7. (Paragraph 143)

35.  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. (Paragraph 144)

Proposal 10: Use of directions outside an inquiry

36.  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. (Paragraph 150)

Proposals 11 & 13: Preventative directions against acts of potential misconduct

37.  We suggest that it would be helpful if the Government chose to revisit Proposal 13. 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. (Paragraph 155)

Proposal 14: Monitoring bank accounts

38.  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. (Paragraph 162)

Clause 8: Offences leading to automatic disqualification

Money laundering, bribery, misconduct in a public office, perjury and perverting the course of justice (section 178A(1)3-6 added by clause 8)

39.  The inclusion of these offences in clause 8 of the Bill is appropriate as they sensibly close loopholes in the law. (Paragraph 170)

40.  We recommend however that consideration should be given to: (a) the concern raised by the CLA as to whether removal from a post as officer, agent or employee of a charity should lead to automatic disqualification as a charity trustee or would be more appropriately addressed through the discretionary disqualification provisions in clause 9; and (b) the DPRRC's concern as to the immediate effect of an automatic disqualification which could lead to the trustee concerned being prosecuted under section 183 of the 2011 Act for acting as a charity trustee whilst disqualified (which carries a maximum penalty of two years imprisonment) and could also leave a charity with administrative difficulties, including the need to find an immediate replacement trustee. The Committee considers that it should be possible to address these issues whilst not damaging the principal intended effect of these provisions (i.e. the closure of the loopholes which have been identified). (Paragraph 171)

Terrorism offences (clause 8 section 178A(1)1-2)

41.  Notwithstanding that the scale of the problem has not been quantified, on balance we consider that the inclusion of a conviction for terrorism offences to the list of specified offences in clause 8 is likely to be a useful tool in preventing the abuse of charitable funds in connection with terrorism, There is no good reason that an individual with such convictions should be allowed to be a trustee. We therefore support the inclusion of convictions for terrorism offences in clause 8 of the Bill. (Paragraph 176)

42.  There are however wider difficulties presented to charities by the effect of terrorism law which came across strongly in evidence, although the operational points are not within the scope of the draft Bill, the concerns are relevant to clause 9. (Paragraph 177)

43.  These issues are not and cannot be part of the draft Bill but they do need to be addressed. The difficulties posed by current terrorism legislation to the protection of charities working overseas to deliver humanitarian aid in difficult circumstances were put to the Committee compellingly by a number of witnesses. Although we accept that these difficulties have not led to prosecutions, they appear to present a real risk of a 'chilling effect' on UK NGOs' activities overseas at a time when their efforts are possibly more critical than ever before. (Paragraph 185)

44.  We call on the Government to consider the position of these NGOs in the context of terrorism law. It could consider adopting statutory provisions similar to those already in place in Australia and New Zealand. We recognise that it may take time to get agreement on this approach. Accordingly, while this may mean that the Protection of Charities Bill cannot be a vehicle for such provisions. (Paragraph 186)

45.  It is important that the Government commits to an early resolution of this problem. Without such a resolution the Protection of Charities Bill could achieve a 'chilling effect' without providing any 'safe harbour' by which these important aid flows can continue. (Paragraph 186)

46.  Without minimising the value of the advice provided for charities by the Charity Commission in this area, greater legal certainty is required, particularly because of the likely delay before any further primary legislation. (Paragraph 191)

47.  We recommend that the Government ask the Director of Public Prosecutions to publish guidance for charities setting out the approach she would take to prosecutions under counter-terrorism legislation and on the application of the public interest test. (Paragraph 192)

Rehabilitation opportunities for ex-offenders

48.  We note the important concerns raised about the limiting the opportunities for the rehabilitation of offenders. We are glad to hear that the Charity Commission is looking to address the issues identified with the waiver process. (Paragraph 200)

49.  We recommend that the Charity Commission do more to promote understanding of the availability of waivers and simplify wherever possible the application and decision-making process. (Paragraph 201)

Delegated powers issues (section 178A(4) inserted by clause 8)

50.  We are content that the order making power to add to the list of offences leading to automatic disqualification should be available to the Minister in the form and subject to the procedures which are proposed. (Paragraph 207)

51.  We recommend, however, that when using the power, the Minister should be required to consult fully on whether it is appropriate and proportionate to include an offence within the list of disqualifying offences. (Paragraph 208)

Clause 9: Discretionary disqualifying power

Fitness to be a charity trustee (section 181A(3)(b) inserted by clause 9)

52.  While the word "unfit" is given some context by the rest of the clause as a whole, we recommend that the Cabinet Office considers the criticisms made by witnesses of the present lack of a definition of "unfit". It should follow up the comments made in its own evidence and produces a non-exhaustive list of matters which demonstrate when a person is "unfit" to act as a charity trustee or trustee of a charity. (Paragraph 215)

Fit and proper person test (section 181A4(C) added by clause 9)

53.  We have noted the Government's and the Commission's desire to include a power to disqualify a person where there has been a finding by HMRC that the person is not "fit and proper" in relation to a charity. We have also noted the suggestion that there should be a more joined up approach between tax and charity law. We are concerned, however, that there are significant misgivings over the move to apply tax law, expressed by a number of witnesses in the context of the HMRC test. At present we would not support its inclusion in the Bill. (Paragraph 221)

54.  We therefore recommend that, before finalising any provision on a "fit and proper person" test, there should be further discussions between the Charity Commission, HMRC and the Cabinet Office, with a view to addressing the concerns raised. (Paragraph 222)

Cautions (section 181A(4)B inserted by clause 9)

55.  The Committee appreciates that this is a discretionary power and that accepting a caution for a disqualifying offence is only one of the conditions which must be satisfied if the Commission is to exercise its power to disqualify a person from acting as a trustee. The question of fitness to be a trustee also arises. The Committee remains concerned, however, that the clause is not readily understood by those who will be subject to it and/or advise on it. (Paragraph 233)

56.  The circumstances (including when the caution was accepted) which will give rise to a caution for a disqualifying offence need to be made clear either on the face of the Bill or in detailed guidance which is needed for this provision. Additionally, factors dictating the length of any disqualification (such as a requirement for the Commission to have regard to when the caution was or is spent) could helpfully be included on the face of the Bill. Such a provision could be an addition to that which has already been drafted to deal with the length of disqualification arising from a conviction which will in due course be spent. The Government is urged to consider this point and address it in its response to this Report. (Paragraph 234)

57.  The extension of this provision to overseas cautions is not supported by the Committee which has concerns as to evidence and burdens of proof (and justice generally) which are explored in the paragraphs below in relation to overseas convictions. Our conclusions on those aspects of overseas convictions apply equally to overseas cautions. (Paragraph 235)

Overseas convictions (section 181A(4)A added by clause 9)

58.  The Committee is concerned as to the possible ramifications of this provision and at present we would not support this proposal. (Paragraph 241)

59.  Therefore we recommend the Government should reconsider the possibility of overseas convictions which appear to have an equivalent in UK law forming the basis for a disqualification. Our concerns apply equally to overseas cautions. The approach being taken in the Small Business, Enterprise and Employment Bill, currently before Parliament, in relation to both overseas convictions and cautions leading to the disqualification of directors should be considered in the context of charity trustees. (Paragraph 242)

Other offences (and issues of interpretation in section 181A(4)D-F added by clause 9)

60.  We understand the need for a broad power to disqualify an individual in certain instances not all of which can be specifically identified and encapsulated in legislation. We are concerned, however, at the lack of safeguards which accompany this power and consider that there should be a review of the way in which other disqualification regimes (for example, in the case of company directors) ensure that there are clear limits on the powers of a regulator and criteria which provide for the circumstances in which a person may be disqualified. We agree with the JCHR and consider that there is a need for condition F (and other broad concepts which occur in the Bill (such "privy to", considered above)) to be clearly defined. (Paragraph 253)

Power to add or remove a condition (section 181A(5) added by clause 9)

61.  We are content that the order making power to amend the list of conditions should be included in the Bill but draw the Cabinet Office's attention to the comments made by the DPRRC. (Paragraph 256)

Proposal 5: Positions of power

62.  We understand the potential value of the proposed provision but would only support its inclusion with some additional safeguards. (Paragraph 269)

63.  We recommend that consideration should be given to incorporating the procedures for disqualification included in the company directors' disqualification legislation and that the Cabinet Office should examine the model of the Financial Conduct Authority's fitness and propriety test to design a regime which is human rights and employment rights compliant. (Paragraph 270)

Reporting, Reviews and Appeals

Clause 10: Records of disqualification and removal

64.  We support the inclusion of clause 10. (Paragraph 274)

Clause 11: Participation in corporate decisions while disqualified

65.  We support the inclusion of clause 11. (Paragraph 277)

Clause 12: Review of the operation of the Act

66.  We agree that a wider review of charity legislation would be more valuable than a narrow review focussing solely on the provisions of this Bill. The timing of the review should take into account the passage of this Bill, assuming it is introduced in the new Parliament, and the implementation of any reforms based on the Law Commission's ongoing charity law project. (Paragraph 281)

Appeals against decisions of the Charity Commission

67.  We note that the Law Commission's forthcoming work on charity law includes "certain powers" of the Charity Tribunal. (Paragraph 284)

68.  Although its terms of reference do not include Schedule 6 to the 2011 Act, we suggest that greater clarity over the formulation of Schedule 6 should be a part of its work in due course. (Paragraph 284)

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