20 February 2018

Be careful what you wish for

“In this world there are only two tragedies. One is not getting what one wants, and the other is getting it.”

― Oscar Wilde, Lady Windermere’s Fan


The adage “be careful what you wish for” is perhaps as old as it is glib, but somehow it feels applicable to the third in this series of challenges facing contemporary philanthropy. My tendency in these posts is to deal with heavy issues lightly and openly, rather than take glib liberties (gliberties?) with issues that are important to our sector. It also introduces the theme of paradox, which is also a red thread through this particular post.

The EFC and others have argued long and loud that the institutional philanthropy sector in particular, and the non-profit industry in general, remain a much neglected periphery on the sidelines of the standardisation of European laws.

Sometimes it seems like we are that guest at a wedding who hardly anyone talks, listens, or pays any attention to. While other guests (such as Money, Personnel and Goods) move more freely about and enjoy the Single Market, philanthropy has been somewhat overlooked, undervalued, and left sitting alone in the corner.  Attempts to remedy this (such as the many years work on a European Foundation Statute) to date may not have prevailed, but efforts to ensure that European lawmakers do justice to the non-profit sector are just as needed as ever. We continue to insist that philanthropic endeavours should not be neglected as the EU standardises the way in which organisations from one country are treated in another. Lonely we might well be, but we aren’t leaving the party.

Philanthropy remains largely outside the European Treaties and better recognition within these and within European fundamental rights are greatly needed. Barriers to cross-border philanthropy are a challenge with a couple of European countries introducing or considering stigmatising foreign funding rules. The freedom of Capital clearly prohibits foreign funding restrictions and discriminatory tax regimes. National laws must be in line with European fundamental rights including the freedom of association and EU fundamental freedoms and philanthropy should use protection mechanisms (such as infringement procedures) to ensure implementation. And there certainly is room to explore how institutional philanthropy can get a level playing field in the “Single Market”. For profit players can move freely, merger and convert and create European structures, whereas philanthropy, as yet, cannot.

What do we want? Regulation!
When do we want it? Now! Or possibly later!  

Here’s where you need to be careful what you wish for, since regulation (even if well intended) can have a freezing effect on our sector. Current, legitimate concerns about terrorism, money-laundering and tax-evasion have led to a sudden escalation of regulation for philanthropy in Europe to grapple with, which are having the knock-on effect of restricting its “wriggle room”. Just as the sector is expected to respond to the withdrawal of the welfare state, which necessitates prowess in responding fast to shifting conditions, it becomes more of a target/victim (depending on your perspective!) for increased regulation and oversight.

Thus, institutional philanthropy is confronted with less room for manoeuvre at precisely the time when demand for its traditional flexibility peaks. Clearly institutional philanthropy has to learn to engage with legislators and regulators in new ways. EU and national efforts to counter-terrorism financing, money laundering and tax evasion, which are intended to protect the sector, have to be risk-based, proportionate and evidence-based.  In addition, the sector and policymakers should work jointly to assess and address risks also looking at soft-law measures. If there’s one thing worse than being ignored as a guest, it’s being the one looked at with suspicion.

Here at the EFC we have a nuanced understanding of the different ways in which regulation will impact this crucial wriggle room.  Make no mistake – you can feel the pressure. The side effects from the General Data Protection Regulation (GPDR), the Financial Action Task Force (FATF), Anti-Money laundering directive revisions and implementations, the tracking of illicit funds, the need to simultaneously limit data yet know everything about a grantee are bewildering and explicit challenges being laid at foundations’ doors.

In some contexts, it must be said, the restrictions of “foreign” funding is being interpreted as political, and in other places it is an attempt to improve the oversight/assess risks of abuse.  In some cases this is being driven by frenzied attempts to grapple with issues that are much greater than the sector (GPDR) and in others it is because the non-profit space is perceived (and we will discuss this in an upcoming blog) as a place where the greatest risks lie (FATF).

So, in conclusion, we do want regulation, but it needs to be regulation that understands the unique nature of our sector and takes into account our strengths and weaknesses – not regulation which (accidentally) makes our lives more difficult. Whatever the intention, and whether direct or, more likely, consequential, the EFC intends to keep an eye both eyes on regulations whenever and however they adversely affect the valuable work of our sector.