Session 304 Operating Abroad: A Primer for US Nonprofit Operations Overseas

1. Session 304Operating Abroad:A Primer for US Nonprofit Operations Overseas Tamara Jack, Vice President, General Counsel & Corporate Secretary, Blumont/IRD Timothy Phillips, General Counsel and Assistant Secretary, American Cancer Society Amy Pena, General Counsel, International Association of Lions Clubs Anita Drummond, Counsel, Venable

2. ROAD MAP • Operations (Anita) • Business registration • Challenges of ongoing operations in the midst of changing law • Business Transactions and Global Employment Considerations (Tamara) • Contract Formation and Administration • Global Employment Issues • Funding/Fundraising (Tim) • Challenges in fundraising • Banking issues • Crisis Management (Amy) • Natural Disasters • Insurance issues

3. OPERATIONS

4. CASE STUDY A director informs you that your organization has received a significant grant for duplicating your organization’s medical emergency training and services to Sowondaful, but your organization just gives grants there now.

5. Operations Scope the Activities Develop an Analysis Select a Model Plan for Operations Ongoing Legal Management

6. Scope the Activity • Short, Medium or Long Term • Define the Activities • Determine Potential Activities • Contractors v. Employees • Government and partner organization relationships • Revenue sources • Types of expenses

7. Develop an Analysis • Framework of Approvals • Look Around • Other similar organizations working in country • Likely “partners” on the ground [hand out of due diligence approach] • Embassy of country and government officials • Visits in country • Engaging Experts • Contractors in-country to evaluate • Legal counsel for both U.S. and country purposes • Tax and accounting specialist for both U.S. and country purposes • Sequencing the work

8. Select a Model • Temporary work under agreement with government • Branch Offices • Use of Partner Organization or secondment • Funding Another Party • Controlled Separate Legal Entity • Independent Separate Legal Entity • For-profit or nonprofit

9. Plan for Operations • Committee/project process • Project Lead • Finance • HR • Legal • Employee travel • Security for people & goods • Intellectual property • Formation • Agents in country • Financial security • Contract/grant management • Tax compliance in and among countries • Insurance • Accounting standards and processes • Bank Accounts • Payrolls • Employment policies • Outside auditors • Compliance monitoring • Leases and operational equipment

10. Ongoing Legal Management • Standing relationship with outside counsel • Annual review of the operations by headquarters or auditor • Revisit the actual activities under the legal form • Revisit fundamental legal basis of form with counsel • Revisit legal assumption with counsel

11. Business Transactions: Formation & Administration of Contracts Tamara Jack Vice President, General Counsel and Corporate Secretary Blumont/IRD

13. Formation & Administration of Contracts • Top Considerations for Protecting Your Interests • Payment: currency, expatriation of funds • Dispute resolution: litigation vs arbitration • Indemnification • Governing law • Language • Termination • Intellectual Property • Contract negotiations are not always straightforward – styles vary by culture

14. Formation & Administration of Contracts • Special Considerations for U.S. Government Contractors • Mandatory flow-down provisions • Mandatory disclosure requirements • Contracts vs grants vs cooperative agreements • Conflicts of interest issues • Trafficking and other consideration when operating overseas

15. Formation & Administration of Contracts • Vetting local partners, vendors and grant recipients • Cultural considerations • FCPA/Anti-bribery considerations • Other international compliance issues – export controls, economic sanctions, antiboycott compliance

16. Employment Considerations Employees vs independent contractors Local nationals vs expatriates vs third country nationals Payroll and benefits, including tax and social security withholding

17. Employment Considerations Exit strategy: lack of at-will employment, notice period, post-employment benefits Background and due diligence Implementing global employment practices Culture and customs

18. Financing Overseas Activities Timothy Phillips American Cancer Society, Inc.

19. Domestic Fundraising for Activities Abroad • Direct Gifts to Foreign Entities • Not deductible • Gifts to US Charities with Overseas Activities • Prohibition against “earmarking” • Requirement to exercise sufficient discretion and control

20. Procedural Safeguards to Establish Discretion and Control • Is purpose consistent with US charity’s 501(c)(3) status? • Written agreement for transfer • Scope of project • Approved purposes for use of funds • Periodic accounting • Right to recover funds • Disclosure to donors • E.g. disclaimer on website donation page or fundraising mailer

21. Business Expense In Lieu of Charitable Deduction • Usually with corporate donors using marketing or other business expense • No earmarking issue but • Form 990, Part V.6 – solicitation of non-tax deductible contribution • Revenue booking problems

22. Regulatory Issues When Fundraising Domestically • US Treasury’s Office of Foreign Asset Control (OFAC) Sanctions • Country-based Sanctions • Restricts a broad range of activities in or with a certain country or its government • List-based Sanctions • Prohibits transactions with specific named entities and individuals • List of Specifically Designated Nationals and Blocked Persons (SDNs) • Other non-OFAC Lists • Penalties • Criminal: Up to $1 million and/or up to 20 years of imprisonment • Civil Fines: $20,000 or twice the value of the transaction, whichever is higher • Multiple violations for single transaction

23. Anti-Terrorist Financing Guidelines • Treasury Department’s “voluntary” best practice guidelines for US charities • “Investigations have revealed terrorist abuse of charitable organizations (...) to raise and move funds, provide logistical support, encourage terrorist recruitment or otherwise cultivate support for terrorist organizations and operations.” • “The Guidelines are designed to enhance awareness in the donor and charitable communities of the kinds of practices that charities may adopt to reduce the risk of terrorist financing or abuse.” • Voluntary - Non-compliance not violation; compliance not a defense

24. Anti-Terrorist Financing Guidelines • Risk Matrix • Common risk factors associated with disbursing funds and resources to grantees designed to help charities understand their risk factors

26. Export Controls • Regulation by US Commerce Department’s Bureau of Industry and Security (BIS) • Sending items such as computers or telecommunications equipment for use overseas • “Dual-use goods”(items that have commercial purpose but also potential military, intelligence or criminal use), technology and software • Prior authorization

27. Establishing A Compliance Program No one size fits all Risk-based assessment

28. Establishing a Compliance Program What are key elements of a robust and effective compliance program?

29. In-flow Restrictions Banking Issues – Stay Tuned Restrictions by Recipient Country (“In-flow Restrictions”)

30. Financing overseas activities Raising Funds Abroad

31. Cultural Considerations • What are the cultural norms in that country for giving? • Established culture of giving or philanthropy? • What are the cultural motivations and incentives for giving? • Religious? • Anonymity vs Public Recognition • Tax Benefits • Display of wealth • Differences in different population groups?

32. Legal Considerations

33. Legal Considerations RETAIN GOOD LOCAL OUTSIDE COUNSEL • Other Potential Issues • What documentation is the charity required to keep to document the receipt of charitable contributions? • What documentation is it required to give to the donor? • Are there applicable consumer disclosure laws? • What type of information can it collect from donors? • Are there specific procedures or accounting standards for accepting contributions? • Are there notification or reporting requirements?

34. Tax Considerations • Does the foreign country provide tax benefits for charitable contributions? • Would receipt of donations be subject to any taxes (e.g. VAT, sales tax, income tax)? What about revenue generating activities? • Don’t forget UBIT rules apply to foreign-sourced income • Are the tax benefits impaired if the funds are ultimately sent or used outside donor’s country?

35. Outflow Restrictions Will you be sending funds raised in one country to be used in other countries in the surrounding region or back to the US? Examples of outflow restrictions:

36. Banking and Currency Issues • Currency and Foreign Exchange • Certain countries set artificially low currency rates • Currency rate fluctuations • Banking • Reliability and solvency of bank • International reputation or experience with international NGOs or corporation • Applicable not only to bank account of charity but also bank account of foreign recipients or grantees

37. Banking and Currency Issues • Other Banking Considerations • Bank’s due diligence requirements • Signatories – foreign national or US staff? • Internal controls • Account maintenance and balance transfer fees • Bankruptcy/receivership laws? Insurable amounts? • Government seizure or freezing of assets?

38. Banking and Currency Issues • Report of Foreign Bank and Financial Accounts • Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR) • Signature authority over, or financial interest in, one or more foreign financial accounts with a total aggregate balance of more than $10,000 • Due electronically by June 30 of each year • Includes foreign bank accounts, securities brokerage accounts, mutual funds, hedge funds, private equity funds, and certain insurance contracts • Penalty - $10,000 for each unreported foreign financial account • 6 year statute of limitation

39. CASE STUDY ABC Charity with funding from DOL for program in Country Y ABC partners with local NGO to implement program News media reports DOL gave millions to a charity with links to Al Qaeda Congressional inquiry – OFAC reviews records dating back 5 years ABC Charity only did manual checks with no centralized database Total cost to ABC: reputational harm, time, money and energy

40. Natural disaster/ risk management

41. Crisis Management Global non-profits can face many types of risks; cyber breach of donors; offices flooded; natural disasters; property seizure, etc. Add operating in a foreign country with different languages and currency and you have a big challenge to continue to provide the services critical to your mission.

42. Natural Disasters • Developing a Crisis Management Plan to address • Responding to Critical Communications • Delivering Critical/ Essential Services during a Disaster • Rebuilding after a Disaster

43. How to Start • Formulate a crisis communications team to craft messages • Internal and external communications • professional assistance • Develop a calling tree (who are the critical stakeholders? • Assign Official company spokesperson • Have meeting with communications team annually and before major events

44. Establish Friends and Family Network • Identify a network of community institutions that you can call on to assist. • Maintain employee emergency contacts • Reach out to key public safety agencies

45. Business Continuity Plan • Identify Critical Services/Needs that will be required to provide essential services. • Development of a Business Continuity Plan (aside from just IT disaster recovery) is critical. • All business stakeholders should be involved.

46. Insurance/ Risk Management • Event Cancellation Insurance • Determine what types of disasters you are insuring. If existing @ time, may not provide coverage. • General Liability/ Excess- Umbrella Coverage • Cyber Liability • Travel Medical/ Emergency • Kidnap & Ranson • AD&D

47. Contract Clauses • Effective Force Majeure Clauses • How to invoke and communicate (especially if you want to go back) • Addressing Natural Disasters in Bids

48. Advocacy • Develop Relationships with Embassy desks of those countries you are operating in. • Maintain relationships with agencies that can assist in the time of disaster • Have on-site relationships through employees or volunteers that will assist in assessing the risks.