Answered by Hanna Surmatz from EFC and Max von Abendroth from DAFNE
- Can you please tell us a bit about this report and why the EFC and DAFNE have decided to commission it?
Towards the end of 2016 and following the failure of the joint European Foundation Statute initiative, the EFC and the DAFNE decided to undertake a joint academic research to scan and evaluate challenges and opportunities around the regulatory and soft-law framework for institutional philanthropy in Europe. The aim was to stimulate discussions and strategic thinking around future policy and advocacy work of the EFC and DAFNE and scope new areas for potential academic research on the topic. While companies can move freely across border and for profit capital flows without undue restrictions, this is not yet the case for institutional philanthropy. We wanted to scan the horizon of what the EU Treaty and other tools offer in terms of creating and protecting an enabling environment for our sector. In addition, worrying developments around the introduction of foreign funding restrictions in Hungary and more demands on countering money laundering, terrorism financing or tax evasion, require the sector to review its defence strategies.
- What are the main takeaways? Did you have any surprises with the outcomes of the research?
This report is just one more piece of evidence that while it is very simple to make money across Europe as a commercial entity, when you want to start spending money as a charity across Europe you are hitting a very bumpy road. We are missing a single market for philanthropy in Europe.
The study puts out the challenges very clearly, even though most of them did not come as a surprise:
- More efforts are needed to ensure better recognition of philanthropy in the EU treaties and European fundamental rights.
- Barriers to cross-border philanthropy remain an ongoing challenge. Following the failure of a European Statute for foundations, efforts are still worthwhile to move towards a European public benefit concept and non-discriminatory tax regimes.
- National laws must be in line with European fundamental rights including the freedom of association and EU fundamental freedoms (such as the Freedom of Capital, which includes free flow of philanthropic capital). Tools for philanthropy to use protection mechanisms should be used as appropriate (e.g. via infringement procedures).
- The study also reports that ongoing EU efforts to counter terrorism financing and money laundering have continued to view the non-profit sector, including philanthropic money flows, as vulnerable to exploitation. Measures intended to protect the sector have however to be risk-based, proportionate and evidenced-based. In addition, the sector and policymakers should work jointly to assess and address risks both in the context of the Financial Action Task Force (FATF) and at national and European levels.
- Are there learnings you think can be particularly relevant to other regions of the world?
Clearly the efforts to counter terrorism financing, money laundering and tax evasion are a global endeavour and our sector in all regions of the world should engage with policymakers around those issues. Governments have in different parts of the world used the international FATF policy to close down our sector with a broad brush. In June 2016, at its Plenary, the Financial Action Task Force (FATF) issued on an ad hoc basis, a revision to the text of one of its 40 Recommendations. The revision of Recommendation 8 on non-profits manifests the outcome of a long process of advocacy and dialogue among unfamiliar interlocutors that was itself unique in the history of FATF (as stated recently by Peter Romaniuk and Tom Keatinge in their recent article: Protecting charities from terrorists…and counterterrorists… published online December 15th 2017 by Springer Science and Business Media B.V.). This policy change and the creation of a formalized dialogue between FATF and the NPO sector reflects the success of the global NPO coalition on FATF led by four of the leading members: the Charity and Security Network (C&SN), the European Center for Not-for-Profit Law (ECNL), the European Foundation Centre (EFC), and the Human Security Collective (HSC), and supported by others, see www.fatfplatform.org . The EFC (on behalf of WINGS) now holds one of the four newly introduced seats in the FATF Private Sector Consultative Forum; the next meeting of which is scheduled for the end of April. Interested parties can approach the EFC for more information at email@example.com.
- What are the main challenges European philanthropy needs to tackle in order to protect, and when possible expend, the space within which it operates?
The main challenge certainly is the lack of recognition in the Treaties and the current legal basis for EU legislation/development of a European supranational legal form on our sector that requires unanimity. New pieces of EU legislation (not directly addressed to philanthropy) are impacting our sector such as a revised VAT rate scheme, money laundering and terrorism financing policy and the General Data Protection Directive (GDPR), which will apply as of May this year.
Barriers to cross-border philanthropy remain an ongoing challenge. Efforts are needed to ensure that Member States develop non-discriminatory tax regimes in a way that it can enable effective and impactful cross-border philanthropy (see proposals made in a recent EFC/TGE study).
The EFC/DAFNE report discusses the importance of the emergence of social investment and venture philanthropy as direct means to facilitate philanthropic growth in the social innovation space. It highlights the new moves at European level to support social entrepreneurship while also reporting on the national barriers that exist in some countries which hinder philanthropic organisations from engaging fully in the support of social innovation programmes. More exploration or analysis of possibilities for philanthropy may be worthwhile in order to review how institutional philanthropy could use their endowments and grantmaking/operations in flexible ways to engage in social innovation tools.
Given restrictive developments in some countries, it will also be key to further analyse and develop protection mechanisms that the EU freedoms and fundamental rights offer. We have seen in recent developments in Hungary, Romania and Poland that EU action can serve as a guardian of the EU treaties and fundamental European values and rights.
The space is constantly evolving and new trends such as crowdfunding are followed by new pieces of legislation or self-regulatory mechanisms. Overall self-regulatory measures can also be very important tools to enlarge the space for institutional philanthropy.
- What are the main strategies the EFC and DAFNE are following to address these challenges and will the report outcomes influence it?
The EFC and DAFNE will use the learnings of this study and additional sources of information and guidance to kick-off joint advocacy work for Europe’s philanthropic sector with the aim to maintain and develop the space for philanthropy across Europe and its positive impact on wider civil society. A new momentum is expected on May 28th, the day before the EFC’s annual conference kicks off, when the sector will engage with policymakers on different pathway scenarios and entry points in Brussels. Interested parties and the press can ask to be invited.
- Would you say that the European level is as important, or even more important, than the national level in the definition and evolution of the philanthropy space in Europe?
National and even regional law remains the key driver and designer of philanthropy space. But given that roughly 70% of all national laws in EU countries are somehow influenced by EU law, the EU level policy is crucial and monitoring and engagement are essential. This applies mostly to legislation not directly addressing our sector but also impacting it such as the Anti-Money Laundering Directive/VAT Directive/General Data Protection Directive for example. Better recognition in the Treaties could offer new opportunities. At the end of the day the national and sometimes even regional level remains the key regulatory framework for our sector. National legislators are however bound to the freedoms and the fundamental rights and the sector should continue to use this also as a hook to ensure its licence to operate is not at risk.
- How closely are you working with non-philanthropic actors on the issue of the enabling environment: civil society, private sector, etc.?
On many of the issues, we have a common agenda with the wider civil society which we consider ourselves part of. We are hence creating synergies with different actors, for example with the European Charities Committee on VAT (ECCVAT) on VAT issues impacting our sector and with other civil society actors on money laundering and terrorism financing issues and cross-border philanthropy taxation and rules of law issues. When it comes to easing tax effective cross-border philanthropic giving, individual donors and corporate donors have an equal interest in developing better solutions, hence we are in the same boat with corporate players and the fundraising sector for these issues. The unintended consequence of some of the money laundering and terrorism financing policy has been the fact that some banks have become reluctant to provide financial services to our sector and the wider civil society sector (so called de-risking). Solutions will require multi-stakeholder dialogues, including with the banking sector and legal experts.
- Based on your experience, what would be your main advises for other philanthropy networks and support organizations who are working towards an enlarged space for philanthropy in other regions of the world?
Join forces! Consider working in partnership with those that have a common agenda, even if this is out of your comfort zone. Do not be afraid to fail. If you always ask for what you have asked for you will always get what you asked for!