The Department of Social Security is not equipped to deal with the registration of every non-profit organisation (NPO) in the country, while the failure of NPOs to register will have dire consequences for organisations that serve the most vulnerable in South Africa, according to the NPO Working Group.
The NPO Working Group, which represents about 180 NPOs, on Tuesday expressed its concerns about the implications of the amendments to the Non-profit Organisations Act contained in the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill.
The NPO Working Group’s Nicole Copley told the National Assembly’s Standing Committee on Finance it was essential that the bill was passed because the non-profit sector will probably be the first to be hit by grey-listing. About R17 billion a year flows into South Africa from international donors, and grey-listing will result in this funding being paused or diverted to other regions.
The Group submitted that only those amendments that are required to prevent grey-listing should be implemented now, to avoid a collapse of foreign funding.
Improvements could be made to mechanisms that encourage transparency, accountability and good governance in the non-profit sector. However, these improvements could not be implemented within a short time frame and without broad consultation across the sector.
Copley told the committee that currently the only unregulated part of the non-profit sector that fits the Financial Action Task Force’s functional definition of a non-profit organisation are unregistered donor/conduit voluntary organisations.
There are only three types of legal entities through which non-profit activities can be operated in South Africa:
- Voluntary associations, which exist under common law and do not have to be registered;
- Charitable trusts, which are registered with the Master of the High Court and are governed by the Trust Property Control Act; and
- Non-profit companies, which are registered with the Companies and Intellectual Property Commission (CIPC) and are governed by the Companies Act.
Any of the three types of entity can voluntarily apply to be registered as NPOs with the Department of Social Development’s NPO Directorate and can apply for tax-exempt status with the South African Revenue Service. An NPO is not a legal entity; it is a status that any type of non-profit can acquire.
As charitable trusts and non-profit companies are already regulated by legislation, for the purposes of addressing the FATF’s concerns, the Working Group believed it was necessary to focus only on voluntary associations, Copley said.
Voluntary associations include a wide variety of organisations of different sizes. The way the bill is currently worded, even associations such as knitting clubs and choirs would have to register as NPOs, Copley said.
‘Directorate doesn’t have the capacity’
The Group submitted that the NPO Directorate was not equipped to cope with the registration of every non-profit or to tackle financial crime.
As it is, the directorate is under-capacitated to process the current level of (voluntary) applications, and the NPO register is 10 years out of date, Copley said.
The directorate will not be able to keep track of every organisation or shift through “the deluge of data” to detect and report on criminal activities.
The reports currently lodged with the directorate are a tick-box exercise; there is no interrogation of the data as envisaged by anti-money-laundering legislation.
The directorate will require a massive injection of funding and resources, including a major upgrade of its IT system, to handle an onslaught of registrations.
If NPO registration is made compulsory for every non-profit in the country, even for those organisations that are unaware of the requirement, Copley said there is likely to be “an over-reaction” from the banking sector and non-profits’ bank accounts will be frozen, which means they won’t be able to function.
Does it work?
FATF does not only require laws to be written and upfront compliance; it also tests whether those laws and systems are effective, Copley said.
The Group submitted that “it is no good building something that we cannot maintain”. If NPO registration is made compulsory, irrelevant, excess data will hide the information that is being sought; it will slow down the system even further, which will have a negative impact on non-profits that are already registered with the NPO and are compliant, Copley said.
She said if registration is made mandatory for every non-profit, the NPO sector will reject it, and South Africa will, in the long term, fail the FATF’s effectiveness test.
The Group recommended the scrapping of compulsory registration of all non-profits with the NPO Directorate. Instead, conduit (on-donating) voluntary associations that have large amounts of money flowing through them should have to register as non-profit companies in terms of the Companies Act.
