The Grail Trust: mixed messages from the Charity Commission on managing relationships with overseas partners

The report concerns the Grail Trust UK (GTUK), a charity registered in England and Wales which "provides financial support and advice" to Grail Trust India (GTI), a separately constituted and regulated Indian registered society whose activities include the operation of a home for disadvantaged children. In the report, the Commission finds that there had been misconduct and mismanagement by the trustees of GTUK in connection with a safeguarding incident concerning a child at the home run by GTI, and the subsequent handling of media interest in the story by GTUK. 

The report begins by noting (in now familiar terms) the Commission’s relatively limited role in relation to safeguarding matters, while also emphasising the broader scope of its regulatory remit to look at charities’ general governance and management, including compliance with other regulatory regimes and legal requirements. Amongst other things, the trustees of GTUK were criticised for their failure to notify the UK police of the incident and to make a Serious Incident Report to the Commission as soon as they became aware of it. The Commission also emphasised the importance of effective media handling and the need to respond to reports in an "impartial" way, even where allegations initially appear to lack substance. This reflects the approach endorsed by the Commission in the consultation draft of its revised guidance on Serious Incident Reporting.

However, the report is perhaps most notable for the questions it raises regarding relationships between UK charities and overseas organisations they fund and work with, including the scope of the responsibility borne by the trustees of UK charities in relation to the acts or omissions of partners' employees and volunteers. While trustees have a clear duty to understand and comply both with the general regulatory environment within which they operate and with any specific obligations arising as a result of their activities, the case raises questions as to how far these obligations extend where a partner organisation is involved.

One of the matters investigated by the Commission was whether GTUK itself had adequate safeguarding policies and procedures in place that were properly implemented to protect vulnerable beneficiaries. When asked about this, the GTUK trustees responded that, as they did not work directly with children, they did not have policies on safeguarding in place themselves, and that the Indian trustees and staff were responsible for compliance with Indian state guidelines. While the Commission accepted this argument to some extent, it maintained that the close association between GTUK and GTI placed a greater responsibility on GTUK to ensure that GTI's policies and procedures were adequate in the circumstances. The fact that GTI worked with vulnerable beneficiaries also appears to have been material to the Commission's assessment.

The report highlights the importance of carrying out appropriate due diligence on partner organisations to ensure that they are capable of carrying out the activities for which funding and other assistance is provided, and of managing relationships with partners prudently. In particular, the report notes that "Where a registered charity supports or has overseas partners it works closely with, the Commission’s regulatory remit is over holding the registered charity to account over the prudence and management of that relationship, including management of the risks and ensuring the proper use of any funds transmitted to the partner. Charities should ensure they have reasonable assurance that the partner is capable of delivering the proposed activities or services and also has appropriate systems of control in place" (our emphasis).

The report suggests that this duty is enhanced where there is a reputational risk to the UK charity due to a clear link between the organisations (for example, a shared name and/or brand): in this case, GTUK and GTI shared a website, a founder and a number of trustees, and the majority of funds were raised in the UK – the Commission thus concluded that there was a clear connection between the two. The report also notes that GTI consulted GTUK on matters of policy; as such, it may have been appropriate to expect GTUK to have knowledge and understanding of the regulatory framework and best practice in relation to GTI's areas of operation, including safeguarding issues.

However, the report does not provide clear guidance on how far UK trustees are required to go in assessing whether an overseas partner is capable of delivering particular activities or services. In making such an assessment, it may assist trustees to understand the policies and procedures which a charity registered in the UK would usually have in place in relation to those activities or services including, where organisation works with children or vulnerable individuals, safeguarding matters.  However, trustees should also be able to take a proportionate, risk-based approach to such assessments, and should have a clear sense of how far their responsibilities extend.

What is unclear from the report is the extent to which the Commission now expects UK charities working with overseas partners (including, potentially, some grant-making charities) to:

• adopt their own policies on areas which are of relevance to their partner's activities, notwithstanding that the activities of the UK charity may be limited to funding the partner and providing general support;
• look more closely at the regulatory framework within which partners operate, and their internal policies and procedures, in order to assess robustness and equivalence with their own policies and/or UK regulatory expectations; and
• look at each partner's compliance with the regulatory regime and its or the UK charity's policies.

In some jurisdictions, it is unlikely to be possible to ensure equivalence: in Brazil, for example, it is not possible to carry out the equivalent of a DBS check on individuals working with children. The implication of the report is that UK trustees proposing to fund organisations working with children in such jurisdictions may need to consider whether the regulatory regime in the area where funds will be applied is sufficiently compatible with their own requirements (particularly in areas which carry a higher reputational risk) to enable them to be satisfied that funds will be applied appropriately and that potential reputational risk to the UK charity is acceptable. This could pose real challenges to UK charities working in less well-regulated parts of the world.

It is also unclear what application the case may have for relationships that do not have the status of formal partnerships, but which nonetheless establish a clear connection between a UK charity and an organisation overseas: for example, where an overseas charity establishes a UK-based fundraising arm that shares its name and potentially some trustees, but which limits its activities to raising funds and making grants. Often, charities in this position do not have the capacity to carry out extensive due diligence on their partner organisation, and will instead rely on the partner's assurance that its policies and procedures are appropriate to its activities.

While the report is primarily concerned with overseas partnerships, it is perhaps unhelpful that it does not clarify whether the broad statements which are made in relation to partnering (in particular under the heading "Whether the trustees adequately discharged their legal duties and responsibilities as charity trustees") are considered to apply differently, or to a different extent, in contexts which are closer to home – in particular where the partner is itself a UK registered charity. Where this is the case, it is arguable that trustees should be entitled to rely to a greater extent on the fact that a partner is itself regulated by the Commission and operates in accordance with the same legal and regulatory principles.

If – as would appear to be the case – the report is intended to be of broader application for the sector, clearer guidance will evidently be needed on what constitutes "working closely" with a partner organisation and what degree of connection will be sufficient to mean that the UK charity needs to look in more detail at an organisation's internal policies and procedures; guidance is also needed on how charities should go about assessing the compatibility of those policies and procedures (and/or the regulatory environment within which the organisation operates) with UK regulatory expectations. It would be helpful for the Commission to make clearer the nature of the distinction between partnering and simple grant funding, and to provide a final version of its guidance on grant-funding organisations that are not charities (including any overseas organisation), which met with criticism from the sector when it was published in draft last year.

For the time being, it seems reasonable for charities working with overseas partners to take a proportionate, risk-based approach to managing such relationships. Where a charity is not itself undertaking particular activities, it is unlikely to need its own policies in respect of those activities; however, trustees will wish to satisfy themselves as to a partner's compliance with its own policies and procedures and the regulatory regime in which it is operating, and this may in turn require them to familiarise themselves with good practice in relevant areas.  In higher risk areas (both geographic and operational), including where a partner works with children, trustees may wish to consider whether any features of the local regulatory regime give rise to potential reputational risk for the UK charity which should be factored into the overall approach taken to the relationship. In certain circumstances, trustees may not be able to satisfy themselves that a particular regime offers sufficient protections on its own, and may wish to specify that partners comply with more rigorous requirements in order to protect beneficiaries and avoid reputational damage. If the UK charity does not have its own policy in the relevant area, it may be appropriate for the trustees to seek external legal advice on how best to address this.

If you require further information on anything covered in this briefing please contact Laetitia Ransley ([email protected]; 020 3375 7152) or your usual contact at the firm on 020 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, July 2017