The Union Home Ministry has placed a US based NGO on its watchlist following an investigation that foreign contributions it sent were being used for climate awareness campaigns, an activity not permissible under the FCRA [Foreign Contribution (Regulation) Act].

About Foreign Contribution Regulation Act (FCRA)

• The FCRA regulates foreign donations and ensures that such contributions do not adversely affect internal security.
• First enacted in 1976, it was amended in 2010 when a slew of new measures was adopted to regulate foreign donations.
• The FCRA is applicable to all associations, groups and NGOs which intend to receive foreign donations.
• It is mandatory for all such NGOs to register themselves under the FCRA.
• The registration is initially valid for five years and it can be renewed subsequently if they comply with all norms.

Why was FCRA enacted?

• The FCRA sought to consolidate the acceptance and utilisation of foreign contribution or foreign hospitality by individuals, associations or companies.
• It sought to prohibit such contributions from being used for activities detrimental to national interest.

What was the recent Amendment?

• The FCRA was amended in September 2020 to introduce some new restrictions.
• The Government says it did so because it found that many recipients were wanting in compliance with provisions relating to filing of annual returns and maintenance of accounts.
• Many did not utilise the funds received for the intended objectives.
• It claimed that the annual inflow as foreign contributions almost doubled between 2010 and 2019.
• The FCRA registration of 19,000 organisations was cancelled and, in some cases, prosecution was also initiated.

How has the law changed?

There are at least three major changes that NGOs find too restrictive.

• Prohibition of fund transfer: An amendment to Section 7 of the Act completely prohibits the transfer of foreign funds received by an organisation to any other individual or association.
• Directed and single bank account: Another amendment mandates that every person (or association) granted a certificate or prior permission to receive overseas funds must open an FCRA bank account in a designated branch of the SBI in New Delhi.
• Utilization of funds: Fund All foreign funds should be received only in this account and none other. However, the recipients are allowed to open another FCRA bank account in any scheduled bank for utilisation.
• Shared information: The designated bank will inform authorities about any foreign remittance with details about its source and the manner in which it was received.
• Aadhaar mandate: In addition, the Government is also authorised to take the Aadhaar numbers of all the key functionaries of any organisation that applies for FCRA registration or for prior approval for receiving foreign funds.
• Cap on administrative expenditure: Another change is that the portion of the receipts allowed as administrative expenditure has been reduced from 50% to 20%.

What is the criticism against these changes?

• Arbitrary restrictions: NGOs questioning the law consider the prohibition on transfer arbitrary and too heavy a restriction.
• Non-sharing of funds: One of its consequences is that recipients cannot fund other organisations. When foreign help is received as material, it becomes impossible to share the aid.
• Irrationality of designated bank accounts: There is no rational link between designating a particular branch of a bank with the objective of preserving national interest.
• Un-ease of operation: Due to Delhi based bank account, it is also inconvenient as the NGOS might be operating elsewhere.
• Illogical narrative: ‘National security’ cannot be cited as a reason without adequate justification as observed by the Supreme Court in Pegasus Case.

What does the Government say?

• Zero tolerance against intervention: The amendments were necessary to prevent foreign state and non-state actors from interfering with the country’s polity and internal matters.
• Diversion of foreign funds: The changes are also needed to prevent malpractices by NGOs and diversion of foreign funds.
• Fund flow monitoring: The provision of having one designated bank for receiving foreign funds is aimed at making it easier to monitor the flow of funds.
• Ease of operation: The Government clarified that there was no need for anyone to come to Delhi to open the account as it can be done remotely.

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