Earlier this year, Treasury released an Exposure Draft and Explanatory Statement setting out proposed changes to expand the scope of Governance Standard 3.  We looked at the initial Exposure Draft and accompanying Explanatory Statement in March this year.

Scrutiny of the Exposure Draft by the sector

The ACNC Act[1] requires that before any Governance Standards can be made or amended, the Minister responsible for the ACNC Act must be satisfied that, amongst other things, there has been appropriate consultation with the sector, expert entities and entities who will be affected by the regulation.

Since the release of that Exposure Draft, Treasury received a number of submissions from the sector, many decrying the rationale and form of the proposed changes for various reasons, including that:

  • there is a risk that the new laws could be used to prevent charities from engaging in necessary activism and advocacy within the sector, which is fundamental to many charities;
  • the amended Governance Standard creates uncertainty by expanding categories of conduct and adding obligations without objective criteria or well defined parameters;
  • the new obligations increase charities’ compliance burden in an unreasonable manner – this runs counter to one of the fundamental objects of the ACNC Act which is to reduce red-tape for charities;
  • there is no apparent need for the amendment.

The collective concerns of many charities are well canvassed in the ‘Hands Off Our Charities’ Joint Submission.

Following the consultation period, in June 2021, the Honourable Michael Sukkar, Assistant Treasurer, Minister for Housing, and Minister for Homelessness, Social and Community Housing, introduced proposed regulations which differ slightly from the form of Exposure Draft.

The amendments set out in the proposed regulations can be briefly summarised as follows:

  1. Inserting a new obligation on charities to not do something, or omit from doing something, which may be dealt with as a summary offence under Australian law in relation to property or personal injury – this is a significant lowering of the current standard which relates only to more serious indictable offences;
  2. Inserting a new note which empowers the Commissioner to consult with law enforcement agencies or other entities when forming a reasonable belief about whether or not a charity has complied with a Governance Standard; and
  3. Inserting a new requirement that charities maintain “reasonable internal control procedures” to ensure that its resources are not being used to “actively promote” another charities’ unlawful activities.

Amendments 1 and 3 already appeared in the initial Exposure Draft.

Scrutiny by the Senate Standing Committee

On 15 July 2021, the Senate Standing Committee for the Scrutiny of Delegated Legislation wrote to Member Sukkar setting out a number of concerns that it had in relation to the proposed amendments and seeking a detailed response to various issues raised.

In their letter, the Committee takes issue with the apparent conferral of discretionary powers on the Commissioner in determining whether a registered charity has failed to comply with the Governance Standard through engaging in or promoting unlawful conduct. The Committee states that not only does the drafting make it unclear what the full scope of the relevant offences may be (and suggests that such offences should be specified), it also notes that the drafting suggests that the Commissioner may exercise his discretion in determining what summary offences he considers to be relevant for the purposes of the new proposed paragraph.

The Committee also takes issue with the lack of guidance regarding the scope of the Commissioner’s discretion in consulting a law enforcement agency, or indeed which entities may be contacted.

In terms of the apparent discretion being granted to the Commissioner, the Committee’s expectation is that the Explanatory Statement which explains the Regulations at least explain the factors to be considered in the exercise of the discretion, and the nature and source of any relevant limitations and safeguards, including whether they are contained in law or policy. In the Committee’s view, the explanatory statement is deficient in this regard.

More broadly, the Committee states that it in its view it is unclear whether the proposed amendments purport to limit charities’ implied freedom of political communication by broadening the type of conduct which may be contrary to Governance Standard 3. On this point, the Committee stated that explanation around how the regulation does not impermissibly restrict the implied freedom of political communication should be included in the Explanatory Statement accompanying proposed Regulation.

Committee’s Request

The Committee has requested the Member’s detailed advice regarding:

  • Why it is considered necessary or appropriate to expand the discretion of the Commissioner in determining whether a registered charity complies with the Governance Standards;
  • In terms of the Commissioner’s power:
    • the scope of powers that the Commissioner may exercise under the proposed amendments, including what specific summary offences that registered charities may not engage in;
    • the factors the Commissioner must consider when determining when to seek advice from law enforcement agencies or other relevant entities; and
    • what objective test is to be applied to determine whether a registered charity has complied with the requirements to have internal control procedures;
  • The nature and scope of any limitations or safeguards on the exercise of the Commissioner’s discretionary powers under the amended section, including whether they are set out in law and policy; and
  • How the amendment is compliant with the implied freedom of political communication and whether the explanatory statement can be amended to include this analysis.

The Committee has requested a response from the Member by 28 July 2021.

What now?

From here, and subject to the response to the Committee, the proposed Regulations could:

  1. come into effect if passed by both the House of Representatives and the Senate; or
  2. be disallowed by either House.

The Regulations could also be referred to a Senate Committee for further hearing.

Numerous questions arise in terms of the wide reaching practical consequences that may result for many charities should the Regulations be passed in their current form. For example, will charities be reluctant to collaborate freely for fear of their resources being misused by their partner? How will this effect funding decisions? What does this mean for onboarding and utilising volunteers? What conduct will the Commissioner target?

Needless to say, many in the sector are keeping a close eye on the progression of the proposed Regulations.

[1] Section 45-15, ACNC Act.