Informal regulation of charities in Hong Kong

Unlike many other advanced jurisdictions, Hong Kong does not currently have a dedicated charities regulator. The Hong Kong Inland Revenue Department (IRD) operates a de facto registration system by approving charities for inclusion in a list maintained on its internet site (accessible at: https://www.ird.gov.hk/eng/tax/ach_search.htm). As a technical matter, however, this is not a regulatory function: the IRD merely acknowledges certain entities as being charitable. It is, however, important to note that merely because an entity is not on the IRD's list does not mean that it is not a charity and, similarly, merely because an entity is on the IRD's list does not necessarily make it charitable at law. Although the IRD carries out random spot-checks on registered charities to determine whether they are still eligible for inclusion on the list, this is not a systematic process and most such inquiries are, in our experience, relatively superficial.

The Secretary for Justice is, at common law, the protector of charities and is authorised to bring claims for and on behalf of charities. Despite a very extensive report published on 6 December 2013 by the Law Reform Commission of Hong Kong recommending the introduction of a charities regulator in Hong Kong, the Legislature has not currently taken any steps in that direction. Unfortunately, this means that charities still have little in the way of guidance on matters such as compliance, due diligence, and best practices.

A recent joint publication entitled the 'Good Practice Guide on Charitable Fund-raising' (Guidelines) and issued by the Social Welfare, Home Affairs, and Food and Environmental Hygiene Departments in August of this year is a welcome move in the right direction (accessible at: https://www.gov.hk/en/theme/fundraising/docs/good_practice_guide.pdf). It provides for a non-binding and voluntary regime for charities by clearly setting out what public bodies consider best practices for charitable fundraising. The Guidelines can be broken down into three principal sections: donors' rights, fundraising practices, and financial accountability.

Donor's rights

Donor's rights are regarded as paramount in the Guidelines. Charities should issue receipts to donors as a matter of course and ensure that all fundraising and communications with donors contain sufficient data and disclosures to enable donors to make an informed decision as to whether to donate. Charities should further provide prompt and comprehensive replies to any requests for information from donors. Of particular interest to charities and their in-house functions is that donors and prospective donors should be entitled to prompt examination of the charity's constitution (whether this be a trust deed, which is in general not publicly available, or articles of association, which may be accessed at the Companies Registry internet site) and its most recent audited financial statements. The identities of the officers and/or governors of the charity should further be disclosed to donors.

Fundraising practices

The focus of these recommendations is fair, transparent, and ethical solicitation and processing of donations. Transparency, accurate accounting, and appropriate mechanisms to handle information requests and requests for reimbursements are all covered. Conflicts of interest between the charity and suppliers of goods and services should be avoided; procurement should be on a fair and competitive system. Generally, the Guidelines in this section seek to address frequent complaints from the public on the lack of transparency and responsiveness in charitable fundraising.

Financial accountability

These guidelines require that a charity's financial affairs be conducted in a manner consistent with all applicable legal, ethical, and professional requirements. Financial statements of individual projects should be made available to be public as far as is practicable, and no more should be spent on administration and fund-raising than is required to ensure effective management and resource development. The purpose of this section of the Guidelines is in essence to promote the financial transparency and efficiency of the charity, and ensure that as many resources as possible are actually applied to the charity's objects.

Some conclusions

Although the Guidelines are voluntary and not legally binding, it would be prudent for all charities to consider adopting them. In the absence of any other published guidance, it seems likely that the Guidelines will in practice be used by the IRD as a relevant benchmark for deciding whether a charity is fit and proper to be retained in the list of recognised charities when it conducts its periodic and random spot-checks of registered charities. It also seems likely that if and when formal charities regulation is finally enacted in Hong Kong, it will cover much of the ground in the Guidelines, such that early adopters may be at a comparative advantage.