External Conduct Standard 1 requires a charity to:
- take reasonable steps to ensure its activities outside Australia are consistent with its not-for-profit purpose and character
- maintain reasonable internal control procedures to ensure that funds, equipment, supplies and other resources are used outside Australia in a way that is consistent with the charity’s not-for-profit purpose and character, and
- take reasonable steps to ensure that funds, equipment, supplies and other resources provided to third parties outside Australia (or within Australia for use outside Australia) are applied:
- in accordance with the charity’s not-for-profit purpose and character, and
- with reasonable controls and risk management processes in place.
It also requires charities comply with Australian laws in the following areas while operating overseas:
- money laundering
- financing of terrorism
- sexual offences against children
- slavery and slavery-like conditions
- trafficking in individuals and debt bondage
- people smuggling
- international sanctions
- taxation, and
A charity is required to maintain reasonable internal control procedures to ensure compliance with these laws.
Purpose of the standard
The purpose of External Conduct Standard 1 is to give the public confidence that a registered charity is managed in a way that ensures:
- it remains solvent
- any risks to its assets are minimised
- the charity and its resources further its purposes
- its operations are consistent with its purpose and character as a not-for-profit.
The Standard is intended to promote legitimacy and transparency and ensure a registered charity and its resources are not misused for non-charitable or illegal purposes overseas.
Consistent with not-for-profit purpose and character
A not-for-profit is an organisation that does not operate for the profit, personal gain or other benefit of particular people (for example, its members, the people who run it or their friends or relatives).
All registered charities must operate on a not-for-profit basis.
External Conduct Standard 1 requires a registered charity to take reasonable steps to ensure its operations outside Australia are consistent with its not-for-profit purpose and character.
It also requires a registered charity to take reasonable steps to prevent its resources from being used by other parties in a way that is inconsistent with its not-for-profit purpose and character.
Compliance with the Standard will help charities minimise the risks they face when operating overseas. These risks include:
- funds or other resources being stolen or misappropriated
- payments or other benefits being given to individuals who do not qualify as beneficiaries
- funds inadvertently being used to finance terrorism or other criminal activities
- funds being used for purposes other than the charity’s purposes
- an illegitimate donor using the charity for:
- money-laundering (including disposing of the proceeds of crime)
- tax avoidance
- a third party collaborating with the charity not using funds appropriately, not undertaking agreed actions, or not having procedures in place to prevent the types of risks listed above.
Compliance with Australian laws
Acting lawfully helps protect a charity’s assets, reputation and the people it works with.
External Conduct Standard 1 does not impose a new burden because a registered charity is already required to follow Australian laws. However, it does require a registered charity to take reasonable steps to ensure it complies with these laws.
In most cases, common sense and good practice will reduce the risk of a charity breaching the Standard. For example:
- keep a list of the laws that affect the charity's overseas activities and the relevant requirements under those laws
- periodically review the list to ensure legal obligations are factored into plans for projects and activities
- have regulatory obligations as a standing item on meeting agendas as a way of monitoring changes
- maintain a register of completed and outstanding compliance activities (for example, mandatory reports, submissions, licenses and permissions) and review the register at each board meeting.
Each charity should make its own enquiries about the laws it must comply with.
We have included a list of some of the laws a charity may need to comply with at the bottom of this page.
The ACNC does not prescribe what a charity must do to meet External Conduct Standard 1. Based on its own circumstances, each charity must decide the appropriate action required.
The ACNC expects a charity to have considered the risks associated with its overseas activities and funding – including those done in collaboration with a third party – when making decisions.
The reasonable steps that a charity must take, and the reasonable procedures it must maintain, will depend on its particular circumstances and the associated risks. These considerations will be different for each charity.
To decide these steps, a charity should consider:
- the nature, scale and complexity of its overseas activities or funding
- the locations in which it operates
- its work with third parties
- its size and the number of staff and volunteers it has
- its level of knowledge and experience in managing similar projects or activities
- the effectiveness of current policies and procedures that govern its activities or funding
- any issues or difficulties it has experienced with previous overseas activities or funding
The nature and location of a charity's activities will determine the level of risk it faces and what it will need to do to comply with the Standard.
A large charity with operations in several countries and formal partnerships with several third parties will likely need to do more to comply with the Standard than a small charity providing a small amount of funding to one charity overseas.
Ways to meet the standard
The ACNC does not prescribe what a charity must do to meet External Conduct Standard 1. The actions your charity takes will depend on its individual circumstances.
As a first step, a charity should identify how its overseas activities or funding could be at risk of misuse. It can then develop a plan to manage these risks.
The reasonable steps to manage the risks of activities outside Australia may include some of the following:
- Ensure all overseas activities and funding requests are properly approved. Have clear policies outlining the approval process and keep records of decisions.
- Make sure the charity's funds and projects are approved by more than a single person.
- Use secure, monitored services when transferring funds – for example, formal banking systems – and ask recipients to confirm receipt of the funds.
- Check the reputation and experience of third parties to decide whether they are suitable and whether they share the the charity's values.
- Make sure third parties have appropriate management policies and procedures.
- Have written agreements with third parties that clearly set out the functions and responsibilities of everyone involved.
- Have thorough recruitment procedures for staff and volunteers that include appropriate background checks.
- Monitor overseas projects – including those undertaken by third parties – and ask for regular reports on progress and finances. Review the progress reports at each board meeting.
- Establish procedures to detect wrongdoing – keep records of transactions and review them to ensure they're accurate and consistent with approved funding levels.
- Keep a register of the charity’s equipment and monitor its use. Make sure the equipment is stored securely.
- Monitor the continued eligibility of the charity’s beneficiaries.
- Make sure the charity has a process that allows people to report suspected wrongdoing without fear, recrimination or disadvantage.
Most of these actions are simple and, where appropriate, most charities will be able to do them. But if you think your charity doesn’t have anyone available with enough knowledge and experience, it is a good idea to seek expert help or advice.
Commonwealth legislation that may be relevant to External Conduct Standard 1 includes:
Criminal Code Act 1995 (Cth) – including, but not limited to, Part 10.
Anti-money Laundering and Counter-Terrorism Financing Act 2006 (Cth)
Criminal Code Act 1995 (Cth) – including, but not limited to, Part 5.3
- Crimes (Currency) Act 1981 (Cth)
- Crimes (Overseas) Act 1964 (Cth)
In 2017, AUSTRAC and the ACNC together published a report that assessed money laundering and terrorism financing risks affecting Australian not-for-profits.
Sexual offences against children
- Criminal Code Act 1995 (Cth) – including, but not limited to, Divisions 271A and 272
- Crimes (Overseas) Act 1964
Slavery and slavery-like conditions
- Criminal Code Act 1995 (Cth) – including, but not limited to, Division 270
- Modern Slavery Act 2018 (Cth)
- Crimes (Overseas) Act 1964 (Cth)
Trafficking in individuals and debt bondage
- Criminal Code Act 1995 (Cth) – including, but not limited to, Division 271
- Criminal Code Act 1995 (Cth) – including, but not limited to, Division 73
- Migration Act 1958 (Cth)
- Charter of the United Nations Act 1945 (Cth)
- Autonomous Sanctions Act 2011 (Cth)
- Customs Act 1901 (Cth)
Laws for which the Commissioner of Taxation has the general administration, including, but not limited to:
- Taxation Administration Act 1953 (Cth)
- Income Tax Assessment Act 1936 (Cth)
- Income Tax Assessment Act 1997 (Cth)
- Fringe Benefits Tax Assessment Act 1986 (Cth)
- A New Tax System (Good and Services Tax) Act 1999 (Cth)
For more information about charities’ taxation obligations, see to the ATO’s website.
- Criminal Code Act 1995 (Cth) – including but not limited to, Division 70 and Part 7.6
- Crimes (Overseas) Act 1964 (Cth)
In 2017, the Australian Federal Police and the Commonwealth Director of Public Prosecutions published guidelines to help corporations with self-reporting foreign bribery.
Further information can be found via the links contained in the Other Resources section on this page.
If things go wrong...
While good planning and the presence of good policies and procedures will reduce the chances of something going wrong, they will not entirely eliminate the risk.
A charity might have a plan to help manage the consequences of something going wrong. But if not, it should act to:
- prevent or minimise any further loss or damage
- report the incident to the responsible authority (for example, the police) if required
- plan any statements to the media, the public or its own staff and volunteers
- update its risk management plan and take reasonable steps to prevent the incident from re-occurring.