Monday, August 27, 2012

NPO review: why restrict it to a few?

With rather suspect timing, the Ministry of Home Affairs has decided to verify whether the Non Governmental Organisation (NGO) run by Manish Sisodia, member of the now- disbanded Team Anna, is receiving foreign donations, and whether the NGO is using these amounts towards the expenditure incurred by India Against Corruption in the Lokpal agitation. An inspection of the NGO's premises and documents has been carried out to ascertain whether the NGO's claim that it is neither currently receiving foreign contributions nor using these donations for advancing the IAC campaigns is true.

One would, ordinarily, have no quarrel with such a verification exercise because the law (Foreign Contributions Regulation Act) expressly provides that foreign donations shall not be used for any purpose other than the purpose stated at the time of obtaining registration under FCRA.There exists a small set up in the Ministry of Home Affairs which grants such registration, receives and scrutinises all types of statements and returns that FCRA prescribes, and where necessary, carries out verification.

What is objectionable, however, is that the same Government which is expending scarce resources on auditing an NPO with clearly political motives has no documented assessment of how large the NGO (or Non Profit Organisation, NPO, as it is more widely described all over the world) sector in India is or its composition, no clear cut mechanisms laid down in the law for monitoring the activities of this sector except the FCRA and the Income Tax Act which are applicable to only a very small percentage of the sector, and cannot even say which the nodal Ministry/Department for the sector is because there is none.Even worse, it has no assessment of the terrorist financing risk that this sector poses in India.

World wide, the NPO sector is recognised as being vulnerable to abuse for terrorist financing because given the vast range of activities associated with this sector and the huge numbers, it is not possible to scrutinise its millions of transactions despite large amounts of money being involved, including money that flows across borders. Therefore, the Financial Action Task Force, an inter governmental body of which India has recently become a member, has recommended that  countries should ensure that Non Profit Organisations are not misused by terrorist organisations posing as legitimate entities or used to conceal the diversion of funds intended for legitimate purposes to terrorist organisations.

This is what the FATF has to say about the functioning of the NPO sector in India, and its oversight by the government:

By government estimates, there are approximately 2 million foreign and domestic NPOs operating in India. NPOs seeking tax exempt status must register under the Income Tax Act. NPOs which receive funds from outside India must register under the FCRA. The number of NPOs registered with the MHA under the FCRA is 38,591 and the number of NPOs that filed tax returns in the fiscal year 2006-2007 is 71,009. Except for NPOs registered with the Income Tax Department and under the FCRA, India's NPO sector is not well organised, monitored and supervised. India concentrates most of its efforts on tax exempt NPOs as well as those receiving foreign contributions, but these NPOs only account for a small number of entities within the sector. While Indian officials indicated that they believe Financing of Terrorism (FT) risk in the NPO sector is small, it is difficult to understand how they can maintain this confidence in light of the fact that they were unable to state the size, wealth and activities of the majority of NPOs in India.

The FATF has therefore recommended that India should:
 Undertake a comprehensive NPO sector review capturing all relevant data 
 Undertake a detailed risk assessment of the sector for terrorist financing

Has such a review been carried out? Have we made a detailed assessment of the risk that the NPO sector poses or does not pose vis a vis terrorist financing ? If we have, have remedial measures been taken ? Aren't these the more important tasks to be undertaken by a nation battling terrorism, rather than the politically motivated inquiry into whether or not Manish Sisodia's NPO is using its funds for the IAC movement? Why are we allowing State machinery to be used for a political agenda, to the detriment of its use for more pressing purposes ?

para 872 to 891

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