Navigating the Regulatory Compliance Landscape in Corporate Philanthropy

There is a dizzying array of regulations in corporate philanthropy. How do you ensure you are compliant and avoid the risks that can diminish your philanthropy impact?

Over the years, corporate philanthropy has evolved from a series of disconnected individual acts to a vital strategic component of a company’s corporate social responsibility (CSR) program… and has attracted increased regulatory scrutiny of the recipients of corporate largesse for links to international money laundering, organized crime, terrorism financing, financial mismanagement, fraud, and related issues. Therefore, to avoid reputational risk and deeper legal/tax/financial infringements, companies must ensure full regulatory compliance and due diligence before the disbursement of funds or other forms of corporate giving, and can do so with technology-enabled vetting solutions. Vetting allows organizations to review nonprofit organizations that receive tax exemptions from the Internal Revenue Service and file an annual report, called a 990, which guides how they operate and an overview of their program spending.

Corporate Philanthropy Is  a Strategically-Important Multi-Billion Dollar Industry

Companies now understand that well-channeled corporate giving enhances a company’s brand – in the eyes of employees, job seekers, customers, and partners – and delivers significant tangible benefits such as higher employee morale and productivity, and improved customer and partner relations that carry through to top-line revenue growth, bottom-line profit and long-term share price appreciation. Moreover, today’s customers and consumers see social impact as a key differentiating factor in their purchasing decisions.

Since the earliest days of this global pandemic, Charities Aid Foundation of America (CAF America) has been collecting giving data and making it available to philanthropists who want to make a difference. Despite unfolding trends amid the disruption and uncertainty of the COVID-19 pandemic, giving has increased: According to the report, 72% of respondents have increased their giving over the last three months, including one-quarter of the corporations surveyed giving 10-25% more, and over 12% giving over 50% more. 

Corporate Philanthropy and Nonprofit Fraud Cross International Borders, Concern Regulators

Moreover, as technology makes the world a smaller place, and as corporations increasingly operate across borders in growing economies, corporate philanthropy programs have evolved to address global issues such as disaster relief, humanitarian crises, health, and education. As CECP’s 2019 Giving in Number Report found, “international partnerships face operational and compliance challenges more than domestic partnerships do. In 2018, companies reported that, on average, half of their giving to international end-recipients went indirectly through philanthropic intermediaries.”   

In parallel, rogue nonprofits too have jumped borders in an increasingly global world and have become ever-more sophisticated in masking themselves – in the U.S. and abroad – with false fronts to collect cash and other forms of charity which they then misuse or misappropriate in creative ways. In response, regulatory organizations have stepped-up compliance requirements and put the onus on corporations to ensure legitimate giving.

Corporate Giving Programs Have to Step-Up Due Diligence and Compliance Against Fraud

Corporate philanthropy managers now need to be extra careful in verifying and screening charities to avoid damaging the company’s public reputation or risk legal/financial/tax ramifications that could cause deep collateral damage and discourage employees from future giving. For example, employees could be majorly put-off if they discover that donations they made for education were misappropriated to fund, say, terrorism, or lavish rogue lifestyles.

So corporate philanthropy programs now need to comply with a broad range of domestic and international rules, inflow and outflow restrictions, enacted by the USA Patriot Act, the Office of Foreign Assets Control (OFAC), the U.K. Anti-Bribery Act, Mexico’s anti-money laundering laws, India’s FCFRA (Foreign Contributions Regulations Act), and other organizations – to ensure that charitable contributions accurately support legitimate causes. Risks associated with financial crimes are another flashpoint, where money transfers are subject to an extensive body of regulations and requirements that include:

  • Anti-money laundering (AML) 
  • Economic sanctions and customer due diligence (CDD)
  •  Know your customers' guidelines 
  • Regulations issued by the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN)

Checklist to Ensure Globally Compliant and Legitimate Corporate Philanthropy

Charities must be screened against a matrix of relevant global laws, sanctions screening, and watch lists. And, regardless of size or scope, all giving programs must stay current with cross-border money transfer declarations, tax filings, and data privacy legislation.

So here’s a short checklist that corporate philanthropy program managers can use to ensure regulatory compliance before they select local and global nonprofits:

  • Is the nonprofit or receiving organization a qualified charitable entity that can receive tax-deductible donations?
  • In the U.S., is the charity a valid and current 501(c)(3) organization or equivalent?
  • Has the nonprofit been screened against a comprehensive and up-to-date sanctions database?
  • Does your giving initiative meet local and international tax laws, filing requirements, etc.?
  • Is there adequate security to protect the personal and financial data of employees participating in giving programs?

While all this may seem daunting, it isn’t something program managers have to do from scratch because there are corporate-philanthropy-focused technology platforms that address multiple aspects of corporate giving, including screening and verification, that make regulatory compliance and due diligence a breeze.

Despite being selective and sporadic, enforcement of CSR regulations is increasing, and if you are interested to learn more about compliance as well as other  threats to your corporate philanthropy initiatives, download our latest eBook The Biggest Threats To Your Corporate Philanthropy Initiatives

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