FCRA Amendments Aim To Prevent Foreign Powers Interfering With Internal Polity, Diversion Of Funds By NGO : Centre Tells Supreme Court

Defending the Foreign Contribution Regulation(Amendment) Act 2020, the Central Government has said that the changes in the law were necessary to prevent malpractices and diversion of funds by NGOs.

The Centre said that the amendments were necessary in view of the fact that some foreign powers and foreign state and non-state actors continue to take up activities that amount to interference in the internal polity of the country with ulterior designs. The restrictions on transfer aim to prevent and counter such acts of ulterior motives. Therefore, for effective monitoring and for ensuring the accountability of the recipient association, the transfer of foreign contribution has been prohibited.

The Centre further stated that the NGOs are expected to grow on the strength of their own genuine work undertaken for fulfilling specific needs of society. While stating that it recognizes the role of non-profit organizations and voluntary organizations in the national development, the Centre said that "Genuine NGOs need not shy away from any regulatory compliance mandated under the Foreign Contribution (Regulation) Act, 2010".

In a counter-affidavit filed in response to petitions challenging the constitutional validity of the FCRA amendments, the Centre stated that there is "no fundamental right to receive unbridled foreign contribution" and hence the petitions filed under Article 32 of the Constitution were not maintainable.

The challenge is primarily to the following amendments :

• Amendment to Section 7, which forbids a recipient of foreign contribution from transferring the same to any other entity.
• Amendment to Section 8(1)(b), which reduces the limit of usage of foreign contribution for administrative expenses from 50% to 20%.
• Amendment to proviso to Section 11(2), which states that the Centre can direct an organization to not utilize foreign contributions pending an inquiry on suspected violations.
• Newly added Section 12 & 17 which state that the foreign contributions must be deposited in the FCRA account created in the specified branch of the scheduled bank, which was later notified as the New Delhi Branch of the State Bank of India.
• Newly added Section 12A which empowers Centre to obtain Aaadhaar numbers of the key functionaries of organization for approval.
  

Changes brought after noting that NGOs were routing foreign contributions

As regards the amendment to Section 7, the Centre said that it was brought after noting that the NGOs were routing foreign contributions to other entities. The Centre pointed out that the approval to receive foreign contribution is granted for a specified purpose. However, if the diversion of funds are allowed, it will be difficult to monitor the ultimate purpose for which the funds were utilized.

"...the provision of transfer under erstwhile section 7 allowed even the transferee to further transfer it to another association and that transferee could transfer it even further. This would potentially allow endless chain of transfers and create a layered trail of money, thus making it difficult to trace the flow & utilization of foreign contribution. This creates serious vulnerability for misuse and diversion of foreign contribution", the affidavit filed by Sumant Singh, Joint Secretary(Foreigners), the Ministry of Home Affairs stated.

On reduction of limit for administrative expenses

The Centre further stated that he potential of successive multiple chain of transfer not only creates a layered trail of money but also leads to substantive portion of foreign contribution being utilised as administrative expenditure as each recipient could potentially claim its own allowance for administrative expenditure that was permitted upto fifty per cent of total foreign contribution received. It has now been reduced to twenty per cent of the total foreign contribution received.

"The unamended provisions obviously leave much lesser amount of resources for the core activities of the NGO for the direct benefit of society as envisaged under the Act, in case multiple transfers are allowed as each transfer would entail additional 20% administrative expenditure", read the affidavit.

Imperative to counter foreign powers interfering with internal polity

Highlighting that the FCRA was a "sovereignty and integrity legislation", the Centre said that the overriding purpose was to ensure that foreign money does not dominate public lifeas well as political and social discourse in India.

"This becomes even more imperative in view of the fact that some foreign powers and foreign state and non-state actors continue to take up activities that amount to interference in the internal polity of the country with ulterior designs. The restrictions on transfer aim to prevent and counter such acts of ulterior motives. Therefore, for effective monitoring and for ensuring the accountability of the recipient association, the transfer of foreign contribution has been prohibited. It is expected that NGOs would grow on the strength of their own genuine work undertaken for fulfilling specific needs of society", the affidavit stated.

On the requirement to open FCRA account in specified branch

The Centre said that this requirement was introduced due to the difficulties experienced in monitoring of inflow and outflow of foreign contribution when the accounts of various NGOs were spread in different banks across the country.

"As per the erstwhile section 17 of the Act, all these NGOs could receive foreign contribution in an exclusive bank account of their choice in any bank in India. As these FCRA accounts were opened in hundreds of branches spread across the country, massive difficulty was being experienced in monitoring of inflow & outflow of foreign contribution from these accounts and also during audit process," the affidavit stated.

To obviate the difficulties of NGOs in complying with this requirement, the Centre said that it has put in a place to ensure that the accounts can be opened without needing to physically visit Delhi.

It was pointed out that nearly 19,000 FCRA accounts have been opened out of the close to 22,600 associations  registered under FCRA. The Centre also said that the requirement of obtaining Aadhaar number will help in proper identification of the beneficiaries.

The Centre also said that it is facilitating organizations to have smooth transition to the new FCRA regime and has given extension to the deadlines for compliance.

The affidavit has been filed in the cases Noel Harper and Ors v. Union of India,and Jeevan Jyothi Charitable Trust and others v. Union of India, which challenge the FCRA amendments.

Click here to read/download the affidavit