People want to support good causes abroad
Our clients have generously supported similar efforts in the recent past, with over £9 million donated through CAF to the Disaster Emergency Committee (DEC) appeal for Ukraine. The Appeal has raised over £400m (and counting). This makes it is the second-largest appeal in its history, with £600m raised for victims of the 2004 Indian Ocean tsunami, and securing a world record for the most money raised by an online campaign in one week. Additionally, DEC is the biggest charitable donor to the response inside Ukraine to tackle the regional refugee crisis. Notably, it illustrates the – literally record-breaking - appetite for donors to give across borders in various ways and for various reasons.
Donating to disaster relief is well supported
When it comes to supporting global disaster relief we have a fantastic infrastructure in place that serves different types of donors. They can give directly to the DEC, support large international organisations, and other UK-based charities that have a presence on the ground. They can also go via intermediaries including CAF to increase the scale and efficiency of giving. For example, employees and companies often use of CAF’s Give As You Earn payroll giving scheme to donate to disaster relief, or other crises that require a large scale response, such as supporting victims of the Russian invasion of Ukraine.
We also know that ‘disaster giving’ does not cannibalise other donations. Research has shown that donations to non-disaster related charities increase simultaneously during a large disaster appeal (followed by an eventual return to normal levels of giving). Engaging with giving increases further giving, domestically and globally.
Giving to local causes directly is effective and desired by donors
Delivering funds to locally owned organisations is a key component to help build a strong local civil society and improve the long-term efficacy of responses. This is not limited to the disaster relief context but cuts across all types of international development efforts - one of the key learnings from the localisation discourse. Individual donors might want to support specific rebuilding efforts run by local organisations. However, giving directly to a charity that operates in a high-risk country that has recently been destabilised by a natural catastrophe or war can prove difficult.
Barriers to cross-border giving
Cross-border giving relies on the international financial system. For good reasons, money transfers into high-risk areas are subject to restrictions based on AML (Anti-Money Laundering) & CFT (Counter the Financing of Terrorism) regulation). The risk appetite of financial service institutions also differs. In some countries, local civil society is being perceived as high risk and is therefore underbanked or even unbanked. The overall decline of corresponding banks that can help facilitate transfers in the first place is another issue.
International aid charities have faced similar problems when trying to pay for goods and services in last-mile environments. This is why Save the Children, Standard Chartered Bank and Barclays Bank have developed a tech solution called LOTUS20, to facilitate safe and efficient distribution and payment of aid by trusted local merchants and service providers.
There is a wider question about how sanction regimes impact aid delivery and also cross-border giving. While not intended to have adverse impacts on civilians, many aid organisations have argued that they do. If charitable funds and resources are diverted and end up with designated persons and entities, then this can present a violation of UN financial sanctions. The UN Security Council recently adopted SCR 226 introducing a broad exemption that addresses challenges that financial sanctions pose to humanitarian action.
Intermediaries can help but face challenges
Intermediaries can provide solutions. They are well versed in this and can assess risk, local regulation and protect the donor’s reputation. However, in the UK, they need to verify the receiving charity on the ground, collect information to ensure funds are spent in line with national definitions of charitable causes (at home and abroad), ensure that receiving entities are genuine charities, and comply with AML and CFT regulations. The cost of carrying this out can grow substantially - but it can also prevent operating in certain geographies altogether. Significantly, these checks need to be done for each donation facilitated. This might become difficult to do when facilitating high volume and low value donations that go directly to local causes.
Could we enable more cross-border giving?
The US provides a potential regulatory template to consider. Equivalency Determination (ED) is the process through which a US foundation makes a good-faith determination that a non-US grantee would meet the requirements of a US Public Charity registered under IRC Section 509(a). This is a review of the organisation itself rather than of a specific project and allows for unrestricted and repeat grants over a set timeframe (generally two years). Introducing a UK-style Equivalency Determination regime could enable more tax-efficient and compliant cross-border giving by:
- Enabling more repeat grants in a defined timeframe or multiple smaller donations bundled that go to the same foreign charity (e.g. crowdfunded disaster giving, cross-border payroll giving, repeat small donations etc.)
- Making more expedited grant-making possible whereby UK donors would get immediate access to validated charities across the globe.
- UK charities could self-certify and ED review to substantiate its own grants and evidence that due diligence has been carried out, with agreed upon guidelines with regulators and HMRC. This would enable also more charities to implement their own cross-border where funds go directly to local partner organisations.
This would not remove the problem that payments may not be processed if local organisations cannot access financial services to begin with. However, it would provide UK charities with an additional tool and an established framework in which donations to trusted charity partners on the ground can be facilitated more quickly and easily, as well as in a compliant manner.
The UK has a relatively liberal system for cross-border giving and there is an opportunity to position itself as a global frontrunner, by enabling a system that better supports all types of donors: the general public, high-net-worth donors, institutional funders and businesses.
