According to the 8th edition of the Annual Charities Report, approximately 4,000 charities registered with the Australian Charities and Not-For-Profits Commission (ACNC) operate overseas across 217 different countries and regions, the most common being Cambodia, the Philippines, Indonesia, Kenya and Papua New Guinea. With the continuation of the war in Ukraine and the relaxing of international borders, we can only expect this number to increase.

A charity can operate overseas in a multitude of different ways; including conducting specific activities abroad, the provision of funds (one-off or ongoing), or partnering with an organisation overseas. Regardless of what it might look like, it is important for charities to recognise when they are engaging in overseas operations for ACNC purposes as this could lead to increased reporting and compliance obligations. In this article we set out five key questions every charity should ask if they are thinking about, or currently engage in, overseas operations.

When is a charity operating overseas?

The first step in determining the extent of your compliance obligations is understanding whether your charity is operating overseas. An activity which is an incidental part of a charity’s operation may not of itself turn on a charity’s obligation to comply with the External Conduct Standards if the activity is directly related to a purpose benefitting people in Australia. The ACNC defines the term ‘incidental’ in this context to mean an activity which is a minor part of a charity’s work benefitting people in Australia. The ACNC provides some helpful examples on their website, describing some situations where charities are engaging in activities which occur overseas, but are activities which are an incidental part of their operations.

A charity which engages in overseas operations on a deeper level may be more likely to be obligated to meet the External Conduct Standards. A charity is ‘operating outside Australia’ if the charity is:

• providing funding overseas, even if the funding is minor or a small dollar value; or
• undertaking activities overseas, even when the activities undertaken overseas are indirect or a minor part of the work they do overall. Activities may include:
  • sending staff, volunteers, members or beneficiaries overseas;
  • sending resources overseas;
  • buying goods and services from overseas suppliers;
  • working with individuals or organisations overseas; or
  • managing an overseas project from Australia.

Charities undertaking the above activities will still be taken to operate overseas even where the provision of funds or the undertaking of activities is done through a third party. Importantly, any charity operating outside Australia (including Basic Religious Charities) will be subject to additional compliance obligations.

It is worth noting these standards, like the ACNC Governance Standards, are principle based and are not prescriptive, meaning they are open to interpretation and implementation in the context of a particular charity and particular circumstances. . We therefore recommend seeking specific guidance if you are unsure about whether the obligations for overseas operations apply to your charity.

What additional obligations are placed on a charity operating overseas?

Charities operating overseas must comply with the External Conduct Standards, which are a set of minimum standards for conduct, governance and behaviour. The External Conduct Standards aim to provide confidence that overseas operations are reaching the intended beneficiaries and are being used solely for charitable purposes, while promoting transparency.

The ACNC describes the External Conduct Standards in detail, and are summarised below:

• External Conduct Standard 1: This standard addresses the way a charity must manage its activities and control its finances and other resources used overseas.
• External Conduct Standard 2: This standard sets out the record keeping requirements for a charity operating overseas.
• External Conduct Standard 3: This standard requires a charity to take steps to reduce the risk  of fraud, bribery or corruption by its responsible persons, and to identify any perceived or material conflicts of interest among its employees, volunteers, third parties and Responsible Persons outside Australia. Responsible Person in this context means someone who is responsible for governing a charity and will generally include the board, committee members or trustees of a charity
• External Conduct Standard 4: The final standard outlines steps that must be taken to ensure the safety of vulnerable people overseas.

How can my charity comply with the External Conduct Standards?

External Conduct Standard 1: Activities and control of resources

The ACNC does not prescribe exactly how charities are to comply with External Conduct Standard 1. Rather, a charity must take reasonable steps to ensure it is acting consistently with its charitable purpose and character as a not-for-profit. As such, the steps required for compliance depends on the specific circumstances in which the charity is operating outside Australia.

Relevantly, External Conduct Standard 1 requires charities operating outside Australia to ensure they are complying with Australian laws, including exercising care to only enter contracts that comply with Australian laws in the following areas:

• money laundering;
• financing of terrorism;
• sexual offences against children;
• slavery and slavery-like conditions;
• trafficking in individuals and debt bondage;
• people smuggling;
• international sanctions;
• taxation; and
• bribery.

To promote compliance with External Conduct Standard 1, charities should consider:

• ensuring regulatory obligations are a standing item on board meeting agendas;
• ensuring clear, written agreements are entered into with third parties and checking the reputation and suitability of third parties prior to engaging with them;
• adopting procedures for monitoring overseas projects, including those undertaken by third parties;
• regularly monitoring the eligibility of beneficiaries for the services of the charity; and
• implementing a procedure through which to detect wrongdoing or to report suspected wrongdoing.

External Conduct Standard 2: Annual review of overseas activities and record-keeping

The ACNC does not require a charity to provide records for its operations outside Australia. However, the ACNC may request this information from a charity as part of an enquiry or investigation, and you should be able to provide them in a timely manner.

To promote compliance with External Conduct Standard 2, consider whether your records should contain the following information:

• types of activities conducted by the charity outside Australia on a country-by-country basis;
• details of how activities outside Australia enabled the charity to pursue and achieve its purpose on a country-by-country basis;
• details of all expenditure relating to activities outside Australia on a country-by-country basis
• details of any procedures and processes it used to monitor its overseas operations;
• a list of the third parties it worked with outside Australia; and
• details of any documented claims of inappropriate behaviour by its employees or responsible persons outside Australia, and actions it took in response. This might involve documenting information if the charity breaks Australian or overseas laws, or breaches its own code of conduct.

Charities should ensure records are in English or in a form that can easily be translated to English, stored safely and retained for at least seven years.

External Conduct Standard 3: Anti-fraud and anti-corruption

The ACNC does not prescribe how to meet External Conduct Standard 3. Instead, charities should ensure they are taking steps that are reasonable and proportionate to their degree of overseas activity. In particular, charities should ensure due diligence is conducted on any third party organisation the charity chooses to engage.

Responsible persons should take the time to ensure they have a detailed understanding of the terms ‘fraud’, ‘corruption’ and ‘bribery’ to enable detection of the relevant risks, and an awareness of the likelihood of these risks eventuating in the relevant region. External Conduct Standard 3 also considers conflicts of interest, which overlaps with governance standard 5.

To promote compliance with External Conduct Standard 3, considerations include:

• implementing clear policies (including a conflicts of interest policy) and adequate controls for proper and ethical financial management;
• ensuring detailed financial records and statements are kept and reviewed regularly for signs of any financial wrongdoing; and
• carefully supervising employees, contractors and volunteers who are involved with the organisation’s finances and financial records.

External Conduct Standard 4: Protection of vulnerable individuals

The ACNC does not prescribe how to meet External Conduct Standard 4 because the measures implemented by a charity depend on the nature and degree of the vulnerability of the people the charity works with.

Vulnerable individuals are defined as people under the age of 18, or those who may be either unable to take care of themselves – for example due to their age, an illness, trauma, disability, or some other disadvantage – or unable to protect themselves against harm or exploitation.

The charity must understand the degree of interaction it will have with vulnerable people to determine how comprehensive the mechanisms should be.

The ACNC provides the following guidance:

For example, a charity providing medical care and residential care services to children in a disadvantaged community overseas is expected to have stronger controls in place to protect the vulnerable people it helps than a charity working to save endangered wildlife.

It is therefore important to conduct a thorough risk assessment to ensure the charity is aware of the potential risks in respect of vulnerable people, and to take steps to manage those risks.

To promote compliance with External Conduct Standard 4, considerations include:

• the development of policies that apply to volunteers, employees and Responsible Persons who engage with vulnerable individuals, including obligations to report abuse;
• ensuring contracts with third party providers contain provisions to protect vulnerable individuals; and
• thorough due diligence on all third parties by conducting police checks, working with children checks where possible and reputational checks through background interviews. If there are particular licences and registrations required to work with vulnerable individuals in the relevant jurisdiction, ensuring all third parties have up-to-date licences and registrations.

Each standard has been explored in detail in our article New standards now apply to charities operating overseas.

How can my charity demonstrate compliance with the External Conduct Standards?

The ACNC does not require charities to submit any documentation to demonstrate compliance with the External Conduct Standards, but it does expect every charity with overseas operations to understand and comply with them. If specifically requested, charities should be ready to provide evidence of compliance. However, new charities and charities applying for new charitable subtypes will be asked about how they are meeting the External Conduct Standards.

The ACNC will investigate charities which have seriously or deliberately breached the External Conduct Standards. However, if a breach does occur, it is important to notify the ACNC, the relevant authorities, and take steps to minimise any further loss or damage.

Does my charity still need to comply with the ACNC Governance Standards and reporting requirements if it is conducting overseas activities?

Yes, your charity will need to comply with the ACNC Governance Standards and reporting requirements in addition to the External Conduct Standards.

How we can help

For more information, including advice on whether your charity must comply with the External Conduct Standards or advice on how your charity can best comply with the External Conduct Standards, please get in touch with our specialist Charities + Social Sector lawyers.