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Introduction
1. This report is the statement of the results of an Inquiry
under Section 8 of the Charities Act 1993.
2. Iran Aid (the charity) was established by declaration of
trust on 20 September 1983 to provide for the relief of conditions of need,
hardship or distress of Iranian refugees and Iranians in Iran who are in
necessitous circumstances. The proposed beneficiaries were orphan children in
Iran who were in need as a result of their families being opposed to the Iranian
government.
Issues
3. In March 1998 the Charity Commission received allegations
that the charity was being used by a terrorist organisation, the Mujaheddin el
Khalq (MKO), to raise funds. Under the Terrorism Act 2001 the MKO is now a
proscribed organisation. Those making the allegations insisted on their details
remaining confidential. This is not unusual in Inquiry cases.
4. In view of the possible political motives of any
complainants, the Commission took what steps it could to establish the bona
fides of the allegations. As a result of these enquiries the allegations
were considered to warrant further consideration. However, because of the
difficulty in obtaining verifiable and reliable evidence either proving or
disproving links with a terrorist organisation, investigators decided to
concentrate their enquiries on whether or not the charity spent its funds on its
intended beneficiaries. The trustees have always denied links with terrorist
organisations.
5. A previous Inquiry in 1996 resulted in the charity being
warned about its fundraising methods. Despite this warning complaints from the
public about Iran Aid’s fundraising methods reduced but continued at an
unacceptable level.
6. On 8 May 1998, the Commission instituted an Inquiry under
section 8 of the Charities Act 1993.
Formal Actions Taken
7. On 22 July 1998, after obtaining information from the
charity's bankers about the destination of the charity's funds, the Commission
froze Iran Aid's bank accounts. The Commission was concerned to find that the
funds, some Ł5 million per year, were all paid into an individual's account in a
country other than Iran.
8. On 23 July 1998, on the basis of information already
obtained about the charity's activities and the possible risk to its funds, a
temporary manager known technically as a Receiver and Manager was appointed. He
was appointed to carry out a range of duties including: -
- The management of the affairs of the charity whilst the Inquiry took place
- An assessment of the methods used by the charity to distribute its funds
- Formulating recommendations as to the long-term viability of the charity.
9. As soon the Receiver and Manager took control of the
charity’s bank accounts the Commission unfroze them.
10. The Commission served Orders on the trustees requiring them
to provide the charity’s records and in particular, those relating to payments
to its beneficiaries.
11. On 6 November 2000, following a period of public notice,
the Commission established a scheme. This had the effect of directing the
Receiver and Manager to dissolve the charity and pass its net assets to a newly
established independent charity, the Iran Aid Foundation (Charity 1082759). This
new charity had been formed, following discussions by the Commission with
supporters of the charity, for the purpose of receiving these assets.
Findings
12. In establishing how the charity operated and how it spent
its funds the Commission came to the following findings and conclusions.
Fund-raising
13. The Commission’s Inquiry identified a number of concerns
about the charity’s fund-raising methods. These concerns included:-
- That some donors were misled into believing that they were personally
sponsoring individual children when this was not in fact the case. The
Commission concluded the sponsorship to be spurious and misleading.
14. During the previous Inquiry into the charity's fund-raising
activities, the Commission warned the trustees of the importance of conducting
public fundraising properly. The present Inquiry highlighted similar concerns
over the propriety of fundraising activities. In particular there were examples
of misleading promotional literature, complaints by donors about high pressure
"selling" techniques and an apparent failure to separate funds raised for
different projects.
15. The Commission’s attempts to investigate fundraising issues
further were hindered by the inability of the trustees to identify properly
those volunteers responsible for fund-raising, and more particularly by the
trustees’ inability or unwillingness to identify the co-ordinators apparently
responsible for organising the volunteers.
The charity's records
16. From the Commission's enquiries it was apparent that the
trustees had not met their obligations to maintain proper accounting records.
These obligations arise under the requirements of the charity’s own governing
document, statute and the common law duties of trustees. The Commission and the
Receiver and Manager were unable properly to examine the books and records of
the charity or to ascertain fully what accounting records existed. This was
caused by a lack of co-operation on the part of the trustees, and an unlawful
occupation of the charity’s premises that occurred between October 1998 and June
2000. As a result, the Commission was unable to conclude that the accounting
records required by law existed or were properly kept. The occupation raised the
following issues:-
17. The occupation of the charity's premises started with the
expressed intention of denying the Commission and Receiver and Manager the full
access to records that both were legally entitled to receive. The trustees said
that they played no part in this illegal occupation and could not identify any
of those responsible, but the occupation had a deleterious effect on the
Commission's ability to scrutinise the charity’s records.
18. The occupation also raised serious concerns about the
charity’s ability to operate in the future. Those in occupation made it clear
that they were unwilling to permit any access to the charity’s premises and
records unless the Commission allowed the charity to function as it did before
the Receiver and Manager was appointed. The occupation ended with the
destruction of all records that might have been expected to show how the charity
distributed its funds.
19. Prior to the occupation the trustees had applied to the
courts for a temporary injunction preventing the removal by the Receiver and
Manager of the charity’s records. The High Court refused an application by the
trustees of the charity to extend this temporary injunction and made it clear
that the Receiver and Manager had a right of possession and control over the
charity’s records. In the Court’s view the assurances given to the trustees
about the security of the records were proper and entirely adequate.
Transmission of funds to Iran and their application.
20. During the course of the Inquiry neither the Commission,
nor the Receiver and Manager, were able to see any substantive and verifiable
evidence to show how the charity spent its funds in Iran, or even that the funds
eventually arrived there. As a result the Commission was unable to confirm that
funds reached Iran or were applied in the furtherance of the charity's objects.
21. The trustees maintained that the methods used to transmit
and distribute funds were necessary, taking into account the vulnerability of
the recipients and the circumstances in Iran. However the way that this was
carried out was inherently unaccountable, and was incapable of any independent
verification.
22. The charity's funds were all sent via a middleman based in
the Middle East, but not in Iran. The Commission interviewed this intermediary
in Germany with the aim of establishing the reason for the charity transmitting
its funds in this way and how these funds might then reach the charity’s
beneficiaries in Iran. Despite this interview, investigators were unable to
establish sufficient details about the individual or his activities to suggest
he was an appropriate person to handle these significant amounts of money. The
trustees claimed to have references for him but would not show them to
investigators.
23. The trustees effectively had no control over the
distribution of funds once these left the charity’s bank accounts in this
country. Furthermore the trustees were unable to provide a satisfactory
explanation for certain missing funds having admitted that by their own
reckoning, 10% of the funds sent to Iran could not be accounted for. The
trustees were also unable to show that adequate financial controls were in place
over the distribution of funds through a complex network of intermediaries.
24. During the Inquiry investigators sought information from
other Government Departments including the Department for International
Development and the Foreign and Commonwealth Office. These bodies had no
knowledge of the charity operating in Iran. Representatives of Charities that
operated in Iran were also asked whether they had had any contact with Iran Aid
during their relief work; none had. These discussions also gave rise to serious
doubts that a charity would be able to run such a large covert organisation
inside Iran, supporting some 14,000 children, without it being detected by the
authorities and stopped.
25. The trustees did not co-operate fully with requests for
information from the Commission’s investigators or the Receiver and Manager.
Notwithstanding the trustees’ claims that records and evidence existed but were
no longer available to them, the trustees did not assist even when the
information requested was expected to be within their control and ability to
deliver.
Outcome
26. Having fully considered the evidence, including the
trustees’ responses to our enquiries, the Commission was satisfied that that
there had been, at the very least, mismanagement in the affairs of the charity.
It was also necessary or desirable for the Commission to act to protect the
property of the charity, or secure a proper application for the purpose of the
charity. The conditions prescribed by section 18(1) of the Charities Act 1993,
needed before the Commission could take formal remedial action, were therefore
met.
27. A remedial scheme was established which had the effect of
directing the Receiver and Manager to dissolve the charity and pass its assets
to a new independent charity, the Iran Aid Foundation.
28. During the occupation of the charity's premises Commission
staff held meetings with a number of people who might have been able to
influence the occupiers to allow the Commission access to the records. A final
decision on the future of the charity was delayed while these discussions took
place. During these discussions the idea of setting up a new charity to carry on
the charitable work of Iran Aid, but under a differently constituted trustee
body, emerged. The Commission was pleased to be able to facilitate this.
29. The Commission reported the illegal destruction of the
records to the police, as an offence under section 11 of the Charities Act 1993
appeared to have been committed. At the time of publication of this report
police enquiries are ongoing.
Wider Lessons
30. In order to support public confidence in the integrity of
charity generally, the activities of any charity must be verifiable and
accountable and permit effective supervision by the Court or the Commission
should that prove necessary. A charity may be required to produce any document
to the Commission where it is relevant to the Commission's statutory functions.
31. Charities working in circumstances where the identity or
other information about beneficiaries needs to remain confidential have the same
requirement of any other charity to keep records that will, if called for, allow
for effective supervision by the Commission.
32. S41 of the Charities Act 1993 requires charity trustees to
ensure that accounting records be kept which are sufficient to show and explain
all the charity's transactions.
33. S 506 of the Income and Corporation Taxes Act 1988 provides
that a payment made (or to be made) to a body situated outside the United
Kingdom shall not be qualifying expenditure for the purposes of tax concessions
unless the charity concerned has taken such steps as may be reasonable in the
circumstances to ensure that the payment will be applied for charitable
purposes.
34. Charities that fundraise, especially when the fundraising
activities take place across a wide area or through a network of volunteer
collectors, must ensure that their control systems are sufficiently rigorous to
ensure proper compliance with good practice so as not to bring the name of the
charity, or charities in general, into disrepute.
35. Trustees must be able to devote sufficient time to their
duties to effectively monitor the actions of their senior volunteers or staff.
In the case of a charity which is run effectively on a day to day basis by
volunteers the trustees should be aware of the identities and addresses of these
individual and the duties they carry out.
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