The Foreign Contribution (Regulation) Amendment Act, 2020

The Foreign Contribution (Regulation) Amendment Act 2020 (Amendment Act) was notified by the Central Government on 29 September 2020, to amend certain provisions of the Foreign Contribution (Regulation) Act 2010 (Act / FCRA).

FCRA Act

  • The Act regulates the acceptance and utilisation of foreign contribution by individuals, associations and companies. In order to receive foreign funds, an NGO has to register with the Ministry of Home Affairs. It is assigned a unique FCRA registration number, to be renewed every five years. NGOs had to make quarterly filings of foreign grants received. They also had to notify within 15 days any changes in bank account, name, address, aims, objectives and key functionaries.

Provision

What the 2010 Act says?

Amendments

Prohibition to accept foreign contribution

Under the Act, certain persons are prohibited to accept any foreign contribution.These include: election candidates, editor or publisher of a newspaper, judges, government servants, members of any legislature, and political parties, among others.

It adds public servants (as defined underthe Indian Penal Code) to this list.

Transfer of foreign contribution

Foreign contribution cannot be transferred to any other person unless such person is also registered to accept foreign contribution (or has obtained priorpermission under the Act to obtain foreign contribution).

It amends this to prohibit the transfer of foreign contribution to any other person. The term ‘person’ under the Act includes an individual, an association, or a registered company.

Aadhaar for registration

A person may accept foreign contribution if they have: (i) obtained a certificate of registration from central government, or (ii) not registered, but obtained priorpermission from the government to accept foreign contribution.

It adds that any person seeking prior permission, registration or renewal of registration must provide the Aadhaar number of all its office bearers, directors or key functionaries, as an identification document.

FCRA account

A registered person must accept foreign contribution only in a single branch of a scheduled bank specified by them. However, they may open more accounts in other banks for utilisation of the contribution.

It amends this to state that foreign contribution must be received only in an account designated by the bank as “FCRA account” in such branch of the State Bank of India, New Delhi, as notified by the central government.

Restriction in utilisation of foreign contribution

If a person accepting foreign contribution is found guilty of violating any provisions of the Act or the Foreign Contribution (Regulation) Act, 1976, the unutilised or unreceived foreign contribution may be utilised or received, only with the prior approval of the central government.

The government may also restrict usage of unutilised foreign contribution for persons who have been granted prior permission to receive such contribution. This may be done if, after an inquiry, the government believes that such person has contravened provisions of the Act.

Renewal of license
 Every person who has been given a certificate of registration must renew the certificate within six months of expiration.

The government may conduct an inquiry before renewing the certificate to ensure that the person making the application: (i) is not fictitious or benami, (ii) has not been prosecuted or convicted for creating communal tension or indulging in activities aimed at religious conversion, and (iii) has not been found guilty of diversion or misutilisation of funds, among others conditions.

Reduction in use of foreign contribution for administrative purposes

A person who receives foreign contribution must use it only for the purpose for which the contribution is received. Further, they must not use more than 50% of the contribution for meeting administrative expenses.

It reduces this limit to 20%.

Surrender of certificate

A new provision has been added, allowing the central government to permit a person to surrender their registration certificate.

Suspension of registration

Under the Act, the government may suspend the registration of a person for a period not exceeding 180 days.

It adds that such suspension may be extended up to an additional 180 days.

Implications

The significant financial and compliance implications of the amendments are as follows:

  • Regional Disparity: Every FCRA-registered NGO will have to open an FCRA-marked bank account with a designated branch of State Bank of India in New Delhi. It would be cumbersome for NGOs operating in rural India and far away from the Capital. This would lead to further regional disparity in distribution of NGOs.
  • Weaken Networking of NGOs: FCRA NGO cannot transfer foreign grants received by it to other FCRA NGOs. This would weaken cooperation and spirit of collaboration among NGOs leading to poor and disorganized networking in them. It would hamper smaller NGOs as a majority of FCRA NGOs don’t receive big foreign grants.
  • Widening Trust Deficit: Lowering the cap on administrative expenses from 50% of foreign funds received to 20% is a form of micro-management. It will be difficult to manage for NGOs whose work revolves around advocacy rather than projects. It has increased discretion in the hands of bureaucrats and will further widen the trust deficit between NGOs and the centre.

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