Watchdog proposed to check charities

South China Morning Post – 13 June 2011

The Law Reform Commission suggests a new group be created to oversee NGOs amid concerns the lack of a governing body could lead to abuse of donations

The Law Reform Commission this week will recommend a law to establish a Charities Commission to take charge of the registration and regulation of charitable organisations in Hong Kong.

This comes in response to widespread concerns about the lack of oversight of charities and the ease with which they can be set up and acquire tax-free status.

A person close to the Law Reform Commission subcommittee on charities said the proposal would be based on a similar body in Britain.

Under the proposed law all charities would have to register with the commission, open their accounts and be transparent in their activities and operations.

Registered groups would be given a licence number and be allowed to use the term “charity” in their operations, while the commission would monitor their work and make sure their operation fitted their mission.

“For example, a charity serving local communities should not invest in overseas properties,” the person said.

The commission would not, however, evaluate or regulate the effectiveness of their activities and campaigns, or issues such as their administration costs. “There are 7,000 NGOs in Hong Kong and to monitor them closely would be a huge task,” he said.

“The performance of a charitable organisation in promoting its cause should be decided by its donors and stakeholders,” he said.

“This new commission could become another Securities and Futures Commission if it had to work as a full regulator.” Britain’s Charities Act of 2006 defines a charity as a body or trust that performs one or more of 13 specified purposes that benefit the public. These include poverty relief and the advancement of education, health or religion.

The commission regulates the charities and has the power to check whether organisations are “fit and proper” to carry out public fund-raising, which must be licensed.

The proposed law for Hong Kong would adopt most of these rules, the person said. Groups calling themselves charities can apply to the Inland Revenue Department for tax exemption on charitable grounds. Last year the 6,380 registered groups raised HK$5.01 billion.

No single law governs charitable organisations and the use of the donations. There is also no law to regulate online fund-raising. The Social Welfare Department regulates flag selling, the Television and Entertainment Licensing Authority regulates raffles, and the Food and Environmental Hygiene Department regulates other sales.

Tik Chi-yuen, a seasoned social worker and former executive director of the Society for the Aged, said the current arrangement opened the charitable institution status to abuse. Although the commission should not intervene in charities’ operations, it should compile a code of practice, such as for the composition of the board of directors, for them to follow.

“There should be some sort of standard on governance, so the public will know how well the charities are operating. It will make public monitoring more effective,” Tik said.

Peter Cheung Kwok-che, the social workers’ representative in the Legislative Council, welcomed the commission’s decision to leave monitoring of the charities to the public.

“The most important thing is transparency. As long as the charities show the public how they spend their money, we don’t need government regulation,” Cheung said.

In 2007, the chief justice and secretary for justice asked the Law Reform Commission to study whether a law governing charities was needed.

The Independent Commission Against Corruption, in 2009, announced guidelines for charities on how to plug fund-raising loopholes that could lead to corruption. These focus on how charities manage their accounts and encourage them to keep donors informed.