Foreign Contribution Bill 2012: draft law to impact investment policies: SECP

The Securities and Exchange Commission of Pakistan (SECP) has categorically observed that promulgation of the draft regulation of Foreign Contribution Bill 2012 would directly impact the investment policies of Pakistan, and objective of the proposed law to check currency transactions of the NGOs could be met through amendments in the Anti-Money Laundering Act, 2010 and Foreign Exchange Regulations Act, 1947.
It is learnt here on Tuesday that the SECP has drafted initial comments on the Private Member Bill named Regulation of Foreign Contributions Bill 2012. The SECP was of the view that the main target of the draft law appears to get hold of "currency transactions'' of the NGOs through amendments to the Anti-Money Laundering Act, 2010 and Foreign Exchange Regulations Act, 1947.
According to the SECP viewpoint, the draft law once promulgated will directly impact the investment policies of Pakistan hence, it is necessary that thorough analysis of the draft law be conducted to avoid any conflicting situation. At present foreign investment is fully protected and repatriation mechanism is also in place. In this context the Draft Law should be shared with Board of Investment.
The SECP said that the basic purpose of draft Law is to consolidate the law to regulate the acceptance and utilisation of foreign contribution by (i) citizen of Pakistan and (ii) non-governmental organisations in Pakistan whether registered or not and to prohibit acceptance and utilisation of foreign contribution for any activities detrimental to the national interest and for matters connected therewith or incidental thereto.
The main target of the Draft Law appears to get hold of "currency transactions'' of the NGOs, however, the existence of two regulatory framework provided by Anti-Money Laundering Act, 2010 and Foreign Exchange Regulations Act, 1947 has not provided any nexus. Moreover, the purposes of the draft Law can be met to a large extent under the above referred laws or through introducing amendments therein, if necessary.
Thus, the Draft Law covers two classes of regulates ie citizens of Pakistan (as whole without any categorisation/classification) and all Non-Governmental Organisations (NGOs). The present laws and regimes relating to registration and regulation of NGOs (Pakistani Laws do not provide a single uniform definition of the term "NGO") in Pakistan are as follows: The Societies Registration Act, 1860; The Religious Societies Act, 1880; Trusts Act, 1 882; Charitable Endowments Act, 1890; The Mussalman Wakf Validating Act, 1913; Charitable and Religious Trusts Act, 1920; The Mussalman Wakf Act, 1923; The Co-operative Society Act, 1925; Charitable Funds (Regulation of Collections) Act, 1953; Voluntary Social Welfare Agencies (Registration and Control Ordinance) 1961; Companies Ordinance, 1984 and International NGOs working in Pakistan through MOU signed with Economic Affairs Division - Not registered under any Pakistani law except a few NGOs registered as foreign company under the Companies Ordinance, 1984.
Thus, all the entities created/established under the aforementioned laws can be termed as NGOs because of the fact that they are formed for the welfare of society or a section of society. Further, the afore-stated laws and regimes are being administered by different Federal/Provincial authorities and their respective departments. SECP has the mandate to administer the Companies Ordinance, 1984 and some NGOs (Associations not for profit) are licensed under Section 42 thereof. However, the number of NGOs registered under the Ordinance is limited and most of the NGOs are registered under the other laws mentioned above.
After all, the avowed purpose of the Draft Law is to regulate and prohibit acceptance and utilisation of foreign contribution for any activities detrimental to national interest. However, the draft Law has generally included all the NGOs without any regard to the distinction between Federal and provincial administration, SECP stated.
The SECP further said that we expect that the draft Law has also been shared as SBP is performing its statutory obligations with respect to foreign exchange and anti-money laundering framework. The draft Law imposes restriction to utilise foreign contribution for administrative purpose; however, it does not restrict the NGO/person receiving foreign donation from transferring the same to any other person, SECP said.
The Draft Law has brought all citizens of Pakistan to regulatory framework and has not given any exclusion. The SECP is of the opinion that the draft Law should provide exclusions to the citizen for accepting foreign contribution in the following circumstances to avoid overburden on part of the Federal Government:
A): By way of remuneration for himself or for any group of persons working under him.
B): By way of payment in the ordinary course of business transacted in or outside Pakistan or in the course of international trade or commerce.
C): As agent of a foreign source in relation to any transaction made by such foreign source with the Federal or Provincial Government.
D): By way of gift or presentation as a member of any Pakistani delegation. However, a condition may be imposed that such gift or present should be accepted in accordance with the rules made by the Federal Government; from a person''s relative.
E): By way of any scholarship or stipend or any payment of like nature.
The draft Law provides two methods pursuant to which a person/NGO can accept foreign contribution ie registration; and Prior Approval. However, the draft Law does not specify the instances for which registration will be required and instances where prior approval will be required. Further, in case where the NGO is regulated by the Provincial Government, how will the Federal Government give its approval and how will such conflicting situation be addressed in the light of contradictions. The Draft Law also lacks with respect to effective provisions for the post registration/approval process.
The Draft Law at various instances refers to Corporate Law Authority. In this context, please note that Corporate Law Authority was subsequently transformed into Securities and Exchange Commission of Pakistan through promulgation of Securities and Exchange Commission of Pakistan Act, 1997. Hence, all references to the Corporate Law Authority may be replaced with Securities and Exchange Commission of Pakistan.
On the definition of "foreign Contribution" under the proposed law, the SECP said that the term foreign contribution has only been linked with transfer of currency, however, the contribution by way of transfer of any article and foreign hospitality have been kept out of the purview of the Draft Law.
If the law is only applicable to companies registered under section 42 of Companies Ordinance, 1984 with Securities and Exchange Commission of Pakistan it will discourage corporatisation in Pakistan. It is therefore, suggested that the said definition should be reworded to include Trust, Societies, charitable organisation, Wakf, Co-operative societies etc and Constitutional bar needs to be deliberated upon the issue. Further, the word "Corporate Law Authority shall be substituted with "Securities and Exchange Commission of Pakistan."
The SECP understands that the draft law will be applicable on foreign donations however, in terms of section 5 of the proposed law, Pakistani donations are also being brought into the regulatory ambit of the Draft Law. As suggested earlier transfer of foreign contribution should not be transferred to other person, if such restriction is inserted then local donations should remain out of the ambit of the Draft law.
Under the proposed law, all the NGOs and persons have been prohibited to accept foreign contribution unless registered with Federal Government. However, the Draft Law does not provide minimum threshold for disclosure and registration. Further by virtue of existing clause all the citizens of Pakistan fall within the regulatory purview of the Draft Law.
Foreign students studying in Pakistan and persons whose relatives live abroad and send contributions to Pakistan have not been excluded. All NGOs and persons have been prohibited to accept foreign contributions, however, utilisation has not been covered.
The SECP understand that a chartered accountant or a cost and management accountant can perform the audit. How a Gazetted Officer can conduct audit. If the intention is to include the office of the Auditor General of Pakistan then same should be specifically provided and the specific section requires re-drafting to this effect.