Philanthropy in the US has always carried a distinctly global mindset. US-based nonprofits have a lengthy and impressive history of not only sending money, goods, and volunteers to help those in need, but also operating overseas to directly conduct their missions. Legal and practical issues may vary considerably. Several basic pro-active steps, however, apply to nearly every nonprofit contemplating international activities.
Research, Research, Research
The first step is to research the specific country in which the organization would like to serve. Find out whether there are particular risks for nonprofits and their volunteers working in the country. Research requirements for visas and work permits. Check the US Office of Foreign Assets Control’s (“OFAC”) Specially Designated Nationals List and Terrorist Exclusion List, as well as Department of State advisories, to avoid partnering with organizations linked to terrorism. Understand whether plans for doing charitable work are feasible in the specific country.
Additionally, understand the legal requirements in both the US and the foreign country. For example, note that while foreign charitable organizations may secure tax-exempt status in the US, donors may not deduct contributions to these organizations. Charities organized in the US, on the other hand, may perform charitable activities in foreign countries and provide funds to foreign organizations without risking loss of tax-exempt status or causing contributions to be non-deductible, subject to some specific rules. These rules differ depending on whether the US organization is directly performing the activities or is providing funds to a foreign organization. Talk to a knowledgeable attorney about how US tax law affects the structure of the new international endeavor.
Pay close attention to legal requirements in the foreign country, as well. If a US entity is doing charitable work in the country, does it need to register with a government entity? When establishing a new entity in the country, what are the legal requirements? Are there laws governing employees living in the country, particularly regarding the withholding of income taxes or social security and other benefits? How do such foreign laws overlap with US law? Some countries already have established totalization treaties with the US addressing these employment-related issues.
Nonprofits may need local counsel in the foreign country, in addition to their US counsel, to ensure compliance with all legal requirements in the foreign country. It may be difficult to find good local counsel due to differing requirements for attorneys in other countries, but doing so can be key to operating a successful international program.
Make Friends with the Locals
In determining the structure of the international program, consider the culture of the country in which the organization wants to work. Is the country friendly to US organizations? Would it help to set up an intermediate organization in a neutral country or to register the organization with a government entity? Will cultural concerns prevent the organization from being up front about ties to a particular religion or ideology? If so, will it be necessary to set up a new charity with no “formal” ties to a US organization that provides funding?
Additionally, talk to other nonprofit organizations already working in the country. Ask about issues they have encountered and how they have dealt with them. Consider hiring citizens of the country who have local know-how. Establish a connection with the US embassy in the country. Embassy representatives may know about local organizations with which it is safe to partner. Such representatives may also know of local attorneys with solid reputations, or how to address issues that arise with local government. Think about whether it would also be beneficial to directly establish good relations with the local government, but be careful about doing so in countries with volatile political climates.
Be Proactive – Manage the Risk
Establishing risk-management policies is particularly important when it comes to finances. Increase your awareness regarding money-laundering scams, for which nonprofit organizations are a common target. Set up reporting and accountability mechanisms, both as good practice and to comply with US legal requirements. Establish safeguards controlling how funds will be transferred from a US entity to a foreign one. Keep in mind that traditional banking systems typically provide the most protections and that funds should only be transferred as they are needed.
Particularly when partnering with other organizations, it is also important to have an exit strategy. Make sure to have a clear contract with any local partners that controls what happens when things don’t go as planned. Be prepared for the worst-case scenario, and have a plan in place in case you have to shut down the project. Know when it is time to leave, either because the work is complete or because it has become impossible to meet the organization’s charitable goals.
Finally, be aware that this list is not comprehensive. Be sure to talk to an attorney with extensive knowledge of the legal issues related to international charity work. Establishing new programs can be a daunting task, but the steps above and solid legal counsel will put you well on your way to doing good work across the globe.