Charities Commission speeches

William Shawcross - Charity Law Association Conference. Keynote address

October, 2013

Good morning, I’m delighted to be here with you today.

The Charity Law Association plays a crucial role in the charity world. Over the past 20 years, you made a significant contribution to the development of charity law. And you have been a respected critical friend to the Charity Commission, not least by reviewing and commenting on our guidance.

So I’m pleased to have this opportunity to thank you for your work and to talk to you about my priorities for the Commission over the coming months and years.

As you may know, I have been the Chairman of the Commission for just over a year now – my term of office began last October.

In that time, I’ve learnt something about charity law and have by turns been fascinated and frustrated by it.

And still I have barely scraped the surface of what is an intensely complex legal framework.

My creeping anxiety about this was somewhat assuaged a few weeks ago, during a debate about the charity tribunal at the Commission’s Annual Public Meeting.

The eminent charity lawyer Francesca Quint was taking part and towards the end of her address, she summed up her thoughts with a sigh and the words “charity law is just difficult’.

That came as a relief – if Ms Quint can admit to finding charity law difficult, then so can I.

I do have one advantage. At least I hope it is that. My father was a barrister and I grew up in the 1950s seeing his briefs neatly piled on his desk and on the floor beneath it at home.

So throughout my early decades, I had an acute consciousness of the central role of the law in all our lives. Though when my mother told me that my father was at the bar, I had an image of him pulling pints which seemed hardly to fit that rather meticulous, though sometimes flamboyant father I knew.

He hoped that I would follow him to the bar and I am glad to say that I was enrolled in Grays Inn whilst a student at Oxford, I ate a fair number of dinners, many of them in the wonderful company of Hilary Heilbron, distinguished daughter of the distinguished Rose.

To my father’s disappointment I did not in the end follow him to the bar. In some ways I wish I had, though he would have been a hard act to follow.

Instead I became a writer and recently wrote a book called Justice and the Enemy which dealt with the way in which the Nazi war criminals were treated in Nuremberg, where my father was the Chief British Prosecutor, and the way in which terrorist suspects have been treated in the United States since 9/11.

After Nuremberg my father was involved in many cases, first as Attorney General and then once again in private practice.

There was one case in particular which is relevant to my work at the Charity Commission today.

This was the 1948 case of National Anti Vivisection Society vs Inland Revenue Commissioners. At the age of two I did not follow this case closely but it was recently drawn to my attention by my learned friend John Wood, who as you know is a very fine charity lawyer who has been one of our legal board members for the last six years.

One of the issues around which this case turned was the vexed question of public benefit. Since the 2006 Charity Act, the concept of public benefit has become rather controversial – particularly in regard to the amount of public benefit which independent schools and religions are required to give in order to justify charitable status.

There are those who think these arguments are new. Not so.

My father, rather unusually for an AG, appeared in the case himself and the official law report sets out the submission he made to the court. Back in 1948, the Attorney General said this:

"Public Benefit is essential to a charitable trust, …. because it is not all public purposes that are charitable. Not all education would be charitable, e.g. the education of Fascists. Not all religious trusts would be charitable, e.g. trusts for devil worship and the Black Mass..… The whole terms and effect of the particular trust have to be considered…."
My father’s submissions were not, of course, law. But perhaps in a direct line of argument, in the Independent Schools Council case the Upper Tribunal said in 2011:
"We… do not consider that a trust for the advancement of education is necessarily for the public benefit simply because it is such a trust… The terms of a particular trust have to be considered on a case by case basis…"
As you know, since the 2006 Act, the public benefit provided by religious charities has come to be examined perhaps more closely than it was before.

Again, what my father said in his submission in 1948 may be relevant.

“Persons may hold or teach unorthodox views but they are not to have special privileges for that purpose at the public expense. The court must look at all the considerations material and moral and reach a conclusion on the whole matter.”

As Francesca Quint said, complicated.

And that’s not all.

The Public Administration Select Committee, which looks after us, said in its recent report “The Role of the Charity Commission and Public Benefit” that the 2006 Act was ‘critically flawed’ on public benefit, and was “an administrative and financial disaster for the Charity Commission and for the charities involved.”

Forgive me if I quote more of the report – it is important to us. It stated, “The objectives of the Charity Commission, as set out in the 2006 Act, are far too vague and aspirational in character (an all too frequent shortcoming of modern legislative drafting) to determine what the Charity Commission should do, given the limitations on its resources, to fulfil its statutory objectives. The 2006 Act represented an ambition which the Commission could never fulfil, even before the budget cuts were initiated.”

The Committee also called the Commission’s extra tasks awarded under the 2006 Act “an unaffordable luxury.”

More important still, the government accepted these comments and pledged “to remove statutory functions that add little to the regulation of charities.”

And, moreover, as PASC also said, The Commission is not resourced “to oversee a reappraisal of what is meant by ‘public benefit’, nor is it ever likely to be.”

Nonetheless, we have worked very hard to get our new public benefit guidance right, as required by statute.

In the meantime my hope is that, during my time as Chairman, the Commission as regulator, remains fit for purpose and more.

I say it is my hope, because it is clear to me that we must change and improve.

The new board, under my leadership, is determined to make the Commission a more effective, robust regulator than it is today.

The strategic plan agreed by the previous board in 2011, prioritised our work to promote compliance and accountability.

But the Commission has not done well enough in putting that plan into action. So I would like to talk to you today about the priorities of the new board.

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There are three main areas in which we have already begun to implement changes.

First, we are becoming more active in identifying abuse and mismanagement.

We must become hungrier in seeking out abuses and problems. For example by using the information we hold on charities to identify risk more effectively.

This is why we recently opened a class inquiry into charities that have defaulted on their annual documents.

We haven’t conducted many class inquiries in the past. We have tended to focus our attention on individual charities. But they are one of the tools charity law grants us.

And I would like the Commission to get into the habit of thinking laterally and imaginatively about the powers at our disposal.

This class inquiry as you may know has started by looking at charities with incomes of over £500,000 that have defaulted on their accounts more than twice in the past five years.

With time, we will extend the investigation to include charities with smaller incomes, and eventually, charities that have defaulted on their documents just once.

We know from our case work that defaulting on accounts is often associated with wider problems, including deliberate abuses.

It is a risk factor.

This inquiry will help us distinguish between trustees that are merely negligent, and those that have something to hide, at worst because they are deliberately misusing their charity for personal gain or to promote non-charitable aims.

We are also taking a new and more robust approach to monitoring charities’ accounts when they have been filed so as to spot risk factors.

We are going to mark qualified accounts against a charity’s entry on the online register. The public should be able to see at a glance that a charity’s accounts have been questioned by an independent assessor.

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Second, we are getting tougher in terms of the conduct of investigations. I want the Commission to become faster and more decisive in tackling wrong doing in charities once it has been identified.

In the past, we have too often given trustees too many chances to put matters right before taking regulatory action ourselves – even when it should have been clear that the trustees had no intention of putting their house in order.

We must become a little less tolerant, a little more demanding.

After all, we know that trustees who co-operate with us fully tend to be those who have made more or less innocent mistakes. They are often mortified about their failures and keen to get back on track right away.

Those who are up to no good, on the other hand, will often string us along and drag things out, for example by providing limp assurances about their intentions.

So in future, I would like us to use our powers – for example to direct trustees to provide documents – more often and more imaginatively.

But let me be clear – the powers we have are woefully inadequate.

As you know, the Commission can only remove trustees from charities we are investigating. And before taking that action, we obliged by law to give the individual in question one month’s notice.

This allows trustees to resign before we can apply our power, knowing that there is absolutely nothing we can do to prevent them from acting as a trustee elsewhere.

That is an insupportable situation. We need a general power of disqualification.

I also believe that the range of criminal convictions that result in automatic disqualification from trusteeship must be expanded. Currently, only people convicted of dishonesty offences are prevented from serving as trustees.

You can be a convicted terrorist or child abuser and still be a trustee. This is ludicrous and dangerous and we are pushing for change.

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Finally, we are getting quicker and better at reporting on our investigations and compliance cases once they have concluded.

It currently takes us too long to publish reports of inquiries and the reports are, to my mind, too long and – forgive me – too legalistic.

We will soon begin reporting regularly on closed operational compliance cases. These are cases that involve investigating serious concerns about charities but where the risks don’t require us to open a formal statutory inquiry.

The purpose of doing so is not simply to name and shame the charities involved – although I do think the reports will have a helpful deterrent effect.

It is also to help charities learn from the mistakes of others and avoid experiencing similar problems.

I’m convinced that real stories are as effective in changing behaviour as theoretical guidance alone – as important as that is.

I’m sure you sometimes use examples and case studies to explain to your clients what can happen when they don’t fulfil their legal duties as trustees.

It’s one thing to be told that trustees must put robust financial controls in place to prevent fraud.

It’s another to read about a charity whose long-serving and apparently trustworthy treasurer has been able to defraud his charity, because his fellow trustees thought it was okay to entrust him with signed blank cheques.

I want the Commission to tell these kinds of stories more often.

So this year’s annual report of our investigations case work will include case studies from the full range of our compliance case work. That will be published in the next few weeks.

So these are the three changes that we are already making – becoming more diligent in identifying abuse, taking tougher action when we investigate charities, and getting better at reporting on that work so that charities can learn the lessons.

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Allocating more of our limited resources to compliance and investigations work means reducing our activity in other areas.

I am afraid that you will need to prepare your clients for a Commission that is less able to provide individual advice and guidance to trustees.

But of course, providing generic online guidance for charities will remain a core part of our role as regulator.

We mustn’t lose sight of the fact that most trustees are honest and want to do the right thing. Our guidance helps them do that.

I hope the National Audit Office, which as you know has been looking at the Commission, recognises that an effective regulator cannot spend all of its time fire fighting. It must also prevent fires from breaking out in the first place.

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I’d now like to look ahead at changes we will be making a little further down the line.

As you may know, we are working with HMRC to develop a joint portal that allows organisations to apply simultaneously for registration as a charity with the Commission and for recognition as a ‘charity for tax purposes’ by HMRC.

I would like to stress that the portal will not result in joint decision making. HMRC and the Commission are both independent departments. We will continue to make independent judgements based on the areas of law that we enforce.

The purpose of the portal is to reduce bureaucracy and – crucially – to improve the exchange of information and help us identify potential abuse and risks more quickly and efficiently.

Abuses of the tax system seriously undermine public trust in charities and it is vital that we work closely with other agencies to prevent and tackle it.

I am also determined to ensure the Commission does everything in our power to prevent and stop the terrorist abuse of charities. This is unfortunately an increasingly important problem as the threat of violent terrorist attacks and subversion, become greater and greater, around the world. The recent Islamist attack on a shopping Mall in Nairobi, where Christians were singled out to be murdered, was only the latest demonstration of the horror which the world faces.

Proven cases of terrorist involvement in charities are low. But we have to be very vigilant, the Commission sees terrorist abuse as one of the greatest risks facing the charitable sector today.

Charities working in conflict zones are not alone in being at risk. Terrorists and extremist subversion of charity can take many forms and threaten any charity. Terrorists can exploit charity funding, misuse their assets or misuse their name and status.

Part of our role is to ensure trustees clearly understand the risks they face. This is why we recently issued an alert reminding charities about the risks of working in areas where terrorist or extremist groups operate.

Our alert didn’t tell charities not to work in such areas, which of course are often home to those in desperate need. But it reminded trustees of their legal duties.

I would encourage those among you who advise charities working in such areas to make them aware of this alert.

They need to know, for example, that they have a duty to report to the police if they know or suspect that the charity’s funds may have been diverted for terrorist purposes, or gone to a proscribed terrorist group.

Our guidance on extremist speakers is another example of our work in this area. It explains the steps trustees – of student unions for example - must take to ensure their charity does not give a platform to people espousing illegal views or promoting violent extremism. Charities must not be misused as vehicles for radicalisation.

And the Commission as regulator must take swift and robust action when there are concerns that charities are being misused, or trustees are reneging on their duties.

During my time as Chairman, the Commission will concentrate on this work, including through our contribution to the government’s Extremism Taskforce, set up after the horrific murder of Drummer Lee Rigby in Woolwich in May.

I am very glad that we have on our new board, Peter Clarke, who is the former head of Counter Terrorism at the Metropolitan Police. His experience and wisdom are vital in this dangerous, shifting terrain.

Another area the new board is looking at is the online Register of Charities.

I have already said that we will start marking qualified accounts against charities’ entries.

We have also proposed stating whether charities are members of the Fundraising Standards Board.

We know the public cares about the way in which charities fundraise and this will encourage high fundraising standards. Not everyone enjoys chugging, for example. Membership of fundraising regulator demonstrates a commitment to sound fundraising practices and we want to encourage charities to join.

We are also looking more broadly at the way we present charities’ information on the online register.

I know charity lawyers are among the most prolific users of that information so I hope you will be pleased to learn that we are improving the functionality of the register data. We want to make it easier for you and your clients to access and interrogate charity data.

Next, I would like to build on the Commission’s partnership strategy.

As the Commission focuses more closely on our core duties, others in the charitable sector must step up to fill the gaps.

For example umbrella bodies, which can promote good governance by setting high standards for their members.

The Commission supports the development of quality standards through our endorsement system.

Groups of charities agree a set of standards and a system of assessment against those standards. If we agree that these are robust enough, and cover the right areas, we will endorse them.

Recently, we endorsed standards set by the mental health charity Mind. Local independent Mind charities can now apply to be assessed against those standards.

Donors and the public can then be assured that the charity in question is well managed.

This is a way of bridging the gap between public expectations of charity and the limitations of our role as regulator.

I hope that we can develop more such initiatives that help us use our status as regulator to promote compliance – without necessarily expending large amounts of our resources.

In conclusion, I’d like to reassure you that the Commission’s new board is putting regulation first. We are determined to be the policeman of charities.

But we are very mindful that most trustees are honest volunteers, who contribute a great deal to their communities and the causes they care about.

Nearly half of all charities are tiny, with incomes of less than £10,000 – so-called kitchen table charities. They are the backbone of the voluntary sector.

We want them to thrive. The Commission must not put excessive burdens on them in our drive to tackle abuse. I have said this before and I will say it again: we do not want to become the Stasi of the charitable world.

Of course, striking that balance is a challenge.

We will not always get it right. But the important thing that I want to help ensure is that charities remain, in William Beveridge’s happy phrase, one of the golden threads in the tapestry of life in this country. Charities are different and it is the job of the Commission, through effective regulation, to help preserve that difference.

I have no doubt that there will be challenges to some of our decisions – perhaps involving members of the CLA – and that the outcomes of such action will help further develop and clarify charity law.

But I am convinced that the new Board is taking the right approach.

And I look forward to speaking to you again in the years ahead, to explain our progress in achieving our aims.

Thank you

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