Sunday, 10 June 2018

Penalties for FCRA offences – Is there cause for Worry? Simply remember the Nine Commandments of FCRA!

This is further to our Blog post of 7th June 2018 titled “New Penalties to compound FCRA offences”. 
We have received a number of calls and messages from individuals who are naturally feeling very concerned regarding potential offences like: “what if a foreign donor accidentally credits funds into our local account” or “what if an Indian donor accidentally credits funds into our FCRA account”? 
“Does this mean penalty of minimum INR 100,000 will be imposed if an Indian donor accidentally sends INR 500 to our FCRA account? 
The Irish lawyer and politician John Philpot Curran in a speech in Dublin on July 10, 1790, had said: “The condition upon which God hath given liberty to man is eternal vigilance.” In the Indian context one could rephrase this as: “The condition upon which Ministry of Home Affairs (MHA) hath given FCRA registration or prior permission to NGOs is eternal vigilance.”. 
Exercise vigilance and due diligence everyday and at all times … there is no other way!

Let’s look at the potential offences once again and how best one can avoid penalties.

One may call these the Nine Commandments of FCRA 2010!

Commandment No. 1: If Thou art a politician, bureaucrat, judge etc., thou shalt not accept any ‘foreign hospitality’ without prior permission of MHA.

Thus, if you are a politician or bureaucrat and accidentally or knowingly relish foreign hospitality without prior permission of MHA, there will be a penalty of INR 10,000!

As NGOs let’s not concern ourselves much with this commandment, except wonder why this is the only offence with a penalty of just INR 10,000 while all other offences attract a minimum penalty of INR 100,000!

Commandment No. 2: Thou shall pass on or transfer your foreign contribution funds only to NGOs having FCRA registration or prior permission.

In other words, if you are the primary recipient of foreign funds and are routing foreign contributions to other program partners (NGOs) make sure the second recipient/s also has/have FCRA registration or prior permission to receive these funds and that too only in their FCRA Bank account, even though the second recipient/s will be receiving the funds in India, from an Indian NPO in Indian Rupees. 

The Banks here need to be given all the necessary details regarding why these funds need to go into the FCRA account.

Failure to comply with this regulation will be treated as an offence attracting penalty of INR 100,00 or 10% of the funds transferred to the second recipient, whichever is higher. 

In other words, even if the first recipient transfers INR 10,000 from its FCRA account to an NGO not having FCRA registration or prior permission, the penalty would be INR 100,000!

Commandment No. 3: Thou shalt not incur more than 50% of your foreign funds received during any financial year on administrative expenses.

As per Rule 5 of Foreign Contribution Regulation Rules 2011 under "Administrative expenses". - The following shall constitute administrative expenses: -

  • salaries, wages, travel expenses or any remuneration realised by Members of the Executive Committee or Governing Council;
  • all expenses towards hiring of personnel for management of activities and salaries, wages or any kind of remuneration paid, including cost of travel, to such personnel;
  • all expenses related to consumables like electricity and water charges, telephone charges, postal charges, repairs to premise(s) from where the organization or Association is functioning, stationery and printing charges, transport and travel charges by the Members of the Executive Committee or Governing Council and expenditure on office equipment;
  • cost of accounting for and administering funds;
  • expenses towards running and maintenance of vehicles;
  • cost of writing and filing reports;
  • legal and professional charges;
  • rent of premises, repairs to premises and expenses on other utilities;

Provided that the expenditure incurred on salaries or remuneration of personnel engaged in training or for collection or analysis of field data of an association primarily engaged in research or training shall not be counted towards administrative expenses:

Provided further that the expenses incurred directly in furtherance of the stated objectives of the welfare-oriented organisation shall be excluded from the administrative expenses such as salaries to doctors of hospital, salaries to teachers of school etc.

This ‘offence’ can be compounded by coughing up penalty of INR 100,000 or 5% of such foreign contribution so defrayed beyond the permissible limit, whichever is higher.

Commandment No. 4: Thou shalt not receive any funds from any ‘foreign source’ unless you have FCRA registration or prior permission.

NGOs not having FCRA registration or prior permission should be ultra-careful if they have a payment gateway on their own website or receive funds from other payment gateways, (e.g. crowd funding platforms) which invite funds from both local and international donors.

If your NGO is not registered under FCRA, please let your crowdfunding service provider know this and instruct them to receive funds on your behalf only from local sources, though even here there is scope for potential offence if an overseas citizen of India (OCI) is contributing. 

Hence, where ‘retail fundraising’ from unknown individuals is concerned, one must ascertain their Nationality first, failing which, if an OCI transfers a sum of just INR 1,000 to your account and you do not have FCRA registration or prior permission under FCRA, this would be an offence attracting penalty of INR 100,000.

Commandment No. 5: Even if your NGO has FCRA registration please ensure that foreign funds are received only in your FCRA Bank account specified in your registration or prior permission certificate issued by MHA.

If your NGO maintains FCRA utilisation accounts please ensure that funds from foreign sources are first deposited in your specified main FCRA account and then to your specified FCRA utilisation account.

Any change in FCRA specified bank account or specified utilisation account must be immediately intimated to MHA in online form FC 6.

But, now what if the foreign donor accidentally credits funds to your utilisation account or your local account? 

Well, first of all, one hopes your Bank is vigilant enough and will block the payment till you clarify. 

However, if this does not happen, it would be best for your NGO to instruct the Bank in writing that the funds have inadvertently been credited to the wrong bank account and that the bank should immediately transfer funds to the right bank account or simply return the funds to the donor with instructions from your NGO and/or your bank to re-transfer funds to the correct specified FCRA Bank account.

Any, lapse in this regard would attract penalty of INR 100,000 or 5% of the amount credited to the wrong bank account.

Moral: Check your bank statements regularly or daily or face large penalty!

Commandment No. 6: Thou shalt not deposit local funds in your specified FCRA Bank account.

As stated in our response to Commandment No. 5, if such an inadvertent mistake occurs, one would hope that your Bank would be vigilant. However, if not, please request the bank to immediately correct the mistake or return the money to the donor with a request to re-transfer to the correct Bank account.

This offence can set your NGO back by INR 100,000 or 2% of the amount which was meant to go in your FCRA Bank account but, inadvertently got credited to your specified FCRA Bank account.

Commandment No. 7: If thou art a bank or an ‘authorised person’, thou shalt report or provide intimation to MHA regarding the prescribed amount of foreign remittance and the source and manner of such remittance.

The onus of compliance is mainly on your Bank, but, don’t forget to upload intimation of quarterly receipts of foreign contribution, preferably on MHA’s (FCRA) online portal.

Commandment No. 8: Thou shalt file your FCRA annual returns online before 31st December.

Most NGOs file their tax returns by 30th September but, it’s strange why so many wait, till December to file their FCRA returns. 

Be diligent. Filing your annual return is mandatory even during the year or years that you do not receive any foreign contribution.

Filing your return in FC 4, even during the year or years that you do not receive any foreign contribution is indicative to MHA that you wish to keep your registration alive. 

If you miss the due date, be prepared to shell out a minimum penalty of INR 100,000.

Commandment No. 9: Thou shalt maintain proper books of account (or proper company account or cost centre in your accounting software like Tally) and records of foreign contribution received and manner of its utilisation.

Non-compliance would attract penalty of INR 100,000 or 5% of the foreign contribution received during the relevant period of not maintaining accounts, whichever is higher.

End Note
Remember, managing compliance takes resources, but, it’s nowhere near as expensive as the costs associated with a breach!

Noshir H. Dadrawala

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