(Registered Charity 326460)
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.
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: -
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.
12. In establishing how the charity operated and how it spent its funds the Commission came to the following findings and conclusions.
13. The Commission’s Inquiry identified a number of concerns about the charity’s fund-raising methods. These concerns included:-
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.
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.
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.