Charity law expert, Dr John Picton, uses a legal framework to examine the impact of recent revelations involving Britain’s heir to the throne

Prince Charles faces questions over his judgement after it was revealed by the Sunday Times that he collected millions of euros in cash from the former Qatari Prime Minister, Sheikh Hamad bin Jassim bin Jaber Al Thani.

The public relations crisis is also a potential legal headache for the Prince of Wales’s Charitable Fund, which ultimately received the cash. The sector watchdog, the Charity Commission for England and Wales, is reported to be considering an investigation. All charities have a right to receive donations. There are no rules against anonymous transfers, or gifts made in cash. But trustees still have a duty to protect the reputation of the organisation they serve.

If foundation trustees cannot satisfy themselves about the legitimacy of a gift, they should contact the Charity Commission immediately. Trustees should not act alone without advice. Some trustees might be tempted to give the money back, but this could also harm the charity.

Like many high-profile foundations, the Prince of Wales’s Charitable Fund has a high calibre board with a wealth of experience behind it. But all charities are at risk of being dominated by their founder, particularly if that founder brings in cash for the organisation.

The trustees must be independent and stand-up for the best interests of their charity. They will have to take legal responsibility if there is a public relations crisis. Clarence House has said that there was no governance failure, and that all due diligence was done.

As guardians of a charity, the trustees must also take a firm line in relation to how donations are spent. Some charities have restricted purposes. This is not true for The Prince of Wales’s Charitable Fund, which can spend money on any charitable cause.

But at all foundations, the trustees must still use their discretion to ensure that funds are spent well. They will be held responsible if money is wasted, regardless of what the founder has directed them to do.

In common with sector watchdogs across the world, the Charity Commission has wide-ranging powers. At the top end, it can impose an interim management, freeze bank accounts and replace the trustees. At the lower end, it might issue an ‘official warning’. Although warnings have no further legal implications, they might put off future donors. They are also embarrassing.

In relation to this scandal, the Charity Commission is likely to move slowly. Its modus operandi is to work behind the scenes. This low-key approach is intended to protect the reputation of the sector. Even if decides to launch a formal investigation, the Commission would take its time.

The Commission eventually publishes reports quietly, without fanfare, in carefully worded legalese, sometimes years after the scandal initially broke. But this caution is not necessarily good news for foundation trustees. It can drag investigations out over many years.

Being so closely connected with the British establishment, the Prince of Wales Charitable Fund is not a typical charity. But the public relations crisis still contains lessons for foundations across the world. While only a few trustees deal directly with royalty, many will work day-to-day with a wealthy or influential founder.

All trustees should ask themselves if they have the skill set to manage the inevitably complex relationship with their founder. This must include questioning whether they share the founder’s values and respect their way of working.

The most practical lesson is that trustees should ensure that they have an ethics policy on major gifts. They should be satisfied that that there are ‘red flag’ procedures in the charity, so they will hear about any donations coming from a suspicious source.

Ultimately, the trustees must ensure that foundation governance is watertight. If things go wrong, they will need to produce a paper trail to show that their choices have been carefully made and that they weighed the relevant risks.

John Picton is a Senior Lecturer in Charity Law at the University of Liverpool
Twitter: @JohnPicton5