Barnett Baron

Shortly after 9/11, the US Government introduced a series of anti-terrorist funding regulations that had the effect of making international grantmaking more cumbersome and expensive for grantmakers. More than a decade later, new regulations introduced by outgoing Secretary of State Hillary Clinton in September make international grantmaking easier and less cumbersome for US private foundations and public charities. 

The easiest way for a US donor to make a tax-deductible grant overseas (or to have the grant count towards meeting a private foundation’s annual distribution requirements) is for the donor to select a grantee that is already recognized by the US Government as a charitable organization.  Otherwise the donor must either establish that the grantee is the ‘equivalent’ of a US public charity or exercise ‘expenditure responsibility’ for the grant, ensuring that the funds are intended solely for charitable purposes and then monitoring the use of those funds until they are fully expended by the grantee. [1]   

Equivalency determination requires preparation of an affidavit with detailed documentation in English about the potential grantee’s origins, activities and finances. Under the old rules, equivalency determination had to be conducted separately by each donor (or grantee) and the information collected could not be relied upon for grantmaking purposes by other donors. Hence a prospective grantee would have to provide this detailed information each time it sought a grant from a US donor. Under the new rules announced by Secretary Clinton, the affidavit process will be simplified, affidavits can be prepared by a broader range of ‘qualified legal practitioners’, and the information can be placed in a repository and relied upon by other interested donors.  Once a grantee qualifies as ‘equivalent’ to a US charitable organization, donors are not required to collect detailed reports at the end of the grant period or provide detailed information on a Form 990-PF.

However, not all potential foreign grantees will be able to qualify under these simplified procedures for equivalency determination. Some will not be able to produce the necessary legal charters, or meet the public funding criteria, or have three years of prior financial history.  In addition, for-profit organizations doing charitable work in a foreign country cannot qualify as charities under equivalency determination. This could be an issue in some countries (eg China) where some NGOs may only be able to register as for-profits owing to local restrictions. Expenditure responsibility may also be the correct choice when working with a social enterprise. For-profits and social enterprises can be funded using expenditure responsibility, provided that the activities undertaken are charitable in nature and implementation.

The new rules have made it possible to create a shared repository of data on foreign charitable organizations that have achieved equivalency determination. US donors will now be able to rely upon information in this repository instead of having to conduct their own equivalency determination process every time they wish to make a grant to an overseas organization.

NGOsource has established such a repository and Give2Asia is proud to partner with NGOsource to enable us to incorporate equivalency determination seamlessly in our services for corporate, family, foundation and individual donors.  Give2Asia will exercise expenditure responsibility or carry out equivalency determination with NGOsource when that approach is more appropriate.

Our partners will now be able to get the best of both worlds.

1 For details on these two procedures and a choice matrix on when to use either approach, see http://www.usig.org/basics/legal-requirements-private.asp.

Barnett F Baron was formerly president and CEO of Give2Asia