We recently added a new guidance note to our portfolio of charity documents: Guidance Notes: Know Your Donor/Refusing Donations. If a charity from time to time receives cash or other donations, it should have arrangements in place to enable it to identify whether the trustees need to consider refusing a donation in any given case or, where it has already been received, whether it should be returned. Our new guidance notes are designed to help trustees to establish such arrangements.
We thought it would be useful to highlight here some of the points covered more fully in the Guidance Notes. It is important to note, however, that this post looks only at issues relating to the refusal of a donation, not the return of a donation, whereas the Notes deal with both refusal of proposed donations and the return of donations already received by a charity. (Return of donations is a more difficult situation than refusal and we recommend that where a charity decides that it needs to consider the question of return of a donation, it should seek professional advice.)
When to Consider Refusing a Donation
The starting point is that trustees are bound to ensure that their charity accepts each and every donation unless there is a good reason in a particular case for refusing one.
What do we mean by “starting point”? It is really a presumption that each particular donation should be accepted. However, as a mere presumption, it can (and should) easily be rebutted by evidence received suggesting existence of a possible reason why it might not or should not be accepted. The evidence need not amount to proof of any particular facts in order for it to rebut the presumption; it might be no more than a reasonable suspicion (based on some particular factor or circumstance) that there is a need to investigate to see whether there is a good reason for refusing the intended donation.
The Need for Due Diligence
If trustees have no knowledge about their donors or donations, they may never have a reason to be suspicious about them, and that is precisely why they should have arrangements in place to ensure that, as far as is practicable, they do know about their donors and proposed donations. They cannot adopt an attitude of wilful blindness. Trustees should pro-actively try to gather evidence to assist them in reaching a decision as to whether to accept a donation.
In this regard, trustees should ensure that there are arrangements in place (i.e., a written policy and system) to carry out appropriate due diligence so that they can be reasonably assured of the provenance of charitable funds and confident that they know the people and organisations the charity works with. It means that the charity should have a system for ensuring that it carries out proper checks on the individuals and organisations that donate money.
A charity's responsibility is not to establish clearly whether or not a proposed donation is one that must be refused. Their responsibility is only to ensure that they carry out good due diligence which is adequate to reveal whether there is reason for concern or suspicion.
The charity should take reasonable steps to ensure that they know who they are dealing with; that they know what the organisation's or individual's business is; that they can be assured this is appropriate for the charity to be involved with; and that they watch out for unusual or suspicious activities, conduct, or requests, particularly where significant sums are being donated or the circumstances of the donation give rise to notable risk.
Which Donors and Donations Might be Problematic?
Charity trustees need to try to avoid any involvement with donors or donations that might cause any reputational, financial, or other loss or damage, or other problems for their charity.
Where they are entitled (but not bound) to refuse a donation for that reason, the trustees must weigh up the benefits of receiving the donation versus the reputational damage that may be caused by accepting it. Making such a decision might in some cases prove to be a difficult balancing act. It can sometimes be challenging for trustees involved in the decision to separate their own moral views from what is in the best interests of the charity, whilst taking fully into account the presumption that charities should accept donations.
However, where the circumstances are such that the trustees are bound to refuse a donation (e.g., the donation is or might be proceeds of crime), they will not need to be involved in such a balancing act – this is simply because they then have no discretion as to whether to accept the donation. They must refuse it. This also applies where, if certain matters could be negotiated with the donor, it would be acceptable to receive the donation but in the particular case it proves impossible to negotiate such changes. The Guidance Notes give some examples of situations in which a donation must be refused in this way.
The duty to carry out due diligence does not mean that charities have to question every donation. Nor do they have to accumulate a mass of personal and other details about every donor. A charity can accept anonymous donations. Charities do not need to know the identity or take steps to find out the identity of every small cash donor. A charity might decide to have a policy of refusing donations below a certain value if it thinks that it would require a disproportionate amount of time and resources to investigate and evaluate such cases.
The key to identifying suspicious donations is to look out for exceptional features, such as unusually large amounts, conditions, or complex banking and transfer arrangements.
Once appropriate due diligence has been carried out, trustees should make a careful assessment of the facts and circumstances having due regard to those factors which either drive them towards or away from the view that the donation should be refused.
What to do if a Suspicious Donation is Identified
If due diligence checks reveal evidence of crime, trustees must report the matter to the police and/or other appropriate authorities. Where trustees judge these incidents to be serious, they should be reported to the Charity Commission: RSI@charitycommission.gsi.gov.uk.
Recording Reasons for Decisions
All decisions, and full details of the reasons for decisions, either to refuse donations or to accept high risk donations should be clearly recorded to demonstrate that the charity has properly identified and considered risks and is transparent about its decision-making process.
Further Guidance
For more detailed guidance on this topic, it is recommended that you read the Charity Commission’s guidance: Accepting, Refusing and Returning Donations (external link) issued on 4 March 2024.