The Charity Commission has wielded the full force of its enforcement powers removing the Trustees of a Charity and distributing over £13m to good causes following an inquiry. Whilst the circumstances were extreme, there are some important points to come out of the case which all charity trustees should be aware of, if they are not already.
The Charity in question was the Relief for Distressed Children and Young People. Its charitable objects were:-
“The relief of poverty, sickness and distress of persons under the age of 21, whether or not they are resident or temporarily located in Iraq, but in particular citizens of Iraq, who are in conditions of need, hardship or distress as a result of local, national or international disasters or by reason of their social or economic circumstance provided always that such relief is charitable and exclusively charitable according to the Law of England and Wales.”
The Charity derived most of its income from property investments and rental income. In 2004 it purchased properties for over £60m which were subsequently sold generating profits of over £12M. The Charity Commission received information from another government agency raising concerns about its management and administration and commenced an inquiry.
Main point of contact
The Charity Commission’s main point of contact was the Chair of the Trustees with whom it raised queries. Responses were received but these led to further inquiries being raised relating to its expenditure in Iraq. Following those further inquiries the Trustees conceded that the evidence did not properly account for the use of the funds: approximately $5.5m was passed to non-charitable organisations or friends of family. Funds equivalent to that sum plus interest were immediately paid back to the Charity.
The other Trustees claim to have little or no knowledge of the financial controls of the Charity or its activities.
The Chair of the Charity was removed in September 2007 as a result of the inquiry and the remaining Trustees stood down.
There followed a period during which HMRC sought to claim circa £3.5m in tax which the Charity’s interim manager challenged and saw off. The interim Manager was then able to pursue claims against the former Trustees.
Between 2011 and 2016 the interim manager made grants of over £13.3M to UNICEF UK, Save the Children Fund and Christian Aid working in Iraq, in furtherance of the Charity’s purposes.
Points for trustees to take away from this case
- trustees who cannot provide information requested by The Charity Commission or only provide partial information, are likely to be found by the Commission to have failed to discharge their legal duty keep adequate records; and
- Ignorance of what your co-trustees are doing is simply not good enough. An innocent Trustee cannot hide behind their ignorance of what his or her fellow Trustees are doing and expect to avoid liability.