Decision

Charity Inquiry: Chabad UK (1118547) and seven other charities

Published 16 March 2020

This decision was withdrawn on 16 March 2022

This Inquiry has been archived as it is over 2 years old.

The charities

Chabad UK (1118547) was registered with the Charity Commission (‘the Commission’) on 26 March 2007 under its former name, Brocho Vhatzlocho Limited. Its current name was adopted on 15 December 2011. It is governed by a Memorandum and Articles of Association (the ‘governing document’) dated 18 January 2007.

The charity’s entry can be found on the register of charities.

Havenpoint Limited was registered on 10 June 1985 and removed from the register on 4 January 2013, when the trustees transferred the charity’s assets to Chabad UK.

Pikuach Nefesh Limited was registered on 28 July 2006.

Worldwide Hatzala Ltd was registered on 31 July 2006.

Ozer Dalim Limited was registered on 26 March 2007.

Mamosh Worldwide Limited was registered on 10 April 2007.

Or Simcha was registered on 6 June 2007.

Havenpoint Worldwide was registered on 28 December 2007. It was removed from the register on 9 June 2011 for failing to submit its annual accounts and appearing not to operate. At the request of a trustee the charity was re-instated to the register on 1 May 2012.

The charities’ objects included, or were an amalgam of

i) the advancement of the Orthodox Jewish faith and religious education

ii) the relief of poverty/ sickness/ infirmity (also stated as “the poor, the aged, sick and feeble”) amongst members of the Jewish faith

iii) such other purposes as are recognised by English law as charitable, as the trustees may from time to time in their absolute discretion determine

iv) to benefit of such one or more charities, charitable institutions or charitable purposes in any part of the world as the trustees in their absolute discretion think fit/determine provided that such charities, charitable institutions and charitable purposes are recognised as charitable according to English law.

Issues under investigation

On 13 June 2014, the Commission opened a class statutory inquiry under section 46 of the Charities Act 2011 (‘the Act’), following the receipt of information from the Metropolitan Police London Regional Asset Recovery Team (‘RART’) that they were conducting an investigation into the eight charities, as there was suspicion that they were being used as a conduit to launder the financial proceeds of crime.

The scope of the inquiry included looking at whether:

• the charities have been used for a non-charitable purpose and as a conduit to launder the proceeds of crime
• the trustees have misapplied charitable funds for an improper or criminal purpose
• the trustees have personally benefitted from charitable funds in breach of trust
• the charities were set up and registered with the Commission for an improper purpose
• the trustees of the charities have committed offences under section 60 of the Act by knowingly or recklessly providing the Commission with information which is false or misleading in a material particular
• the trustees have complied with their legal duties and responsibilities as charity trustees in the proper administration of the charities

The inquiry did not include the investigation of any criminal offences that may have been committed, these were investigated by the police.

Findings

Failure to submit accurate accounts

Information received from the RART and bank accounts analyses indicated that the charities had received significant income through their bank accounts for which the trustees had failed to properly account.

Bank records showed that over £9million had passed through the charities’ bank accounts between January 2012 and May 2014. However, these sums had not all been accurately disclosed to the Commission in the charities’ annual returns for the relevant periods. Pikuach Nefesh Limited declared an income of £312,198 and expenditure of £283,702 for the financial year ending 31 May 2012 and all the other charities either stated nil income and expenditure or did not submit an annual return for these years.

The inquiry established that the Commission had been provided with false or misleading information about the charities’ annual returns as a result of the discrepancy between some of the information provided to the Commission and the charities’ bank account statements. This was a clear breach of the trustees’ duties and was mismanagement and/or misconduct.

It may be an offence under section 60 of the Act to knowingly or recklessly provide the Commission with information which is, or which a trustee may know to be, false or misleading in a material particular. As charity trustees, the trustees were obliged to provide accurate information in their charities’ annual returns, accounts and annual reports about the financial position of their charities.

In addition to the filing obligations and trustee duties under charity law, there are also statutory obligations on trustees in charitable companies to submit annual returns and accounts to Companies House under the Companies Act 2006.

There were delays in some of the charities submitting their annual returns and accounts to Companies House, with Pikuach Nefesh Limited and Havenpoint Worldwide both receiving notice on 9 September 2014, warning them that they would be dissolved as a result.

The trustees’ failure to comply with other statutory requirements also amounted to a breach of the trustees’ duties and was also mismanagement and/or misconduct.

Payments to a trustee from the charities’ bank accounts

Analysis of the charities’ bank accounts revealed that payments totalling £60,850 had been made to a trustee between 2007 and 2014. The inquiry has seen no evidence in the charities’ records to justify these payments, and no record of any repayment of these funds to the charities by the trustee. This may therefore have been in breach of the charities’ own governing documents and a breach of trust.

Regulatory action taken

As a result of their involvement in mismanagement and/or misconduct, in 2016 two trustees (who at some stage had been trustees for each of the eight charities) were removed as trustees of Chabad UK under section 79(2)(a) of the Act. Consequently, under section 178 of the Act, they are disqualified from acting as a charity trustee or trustee of any charity (or acting in a role involving senior management functions) in the future.

The inquiry was then placed on hold from 27 April 2016 pending the outcome of the police investigation.

On 21 June 2019, the manager of the charities (who was also connected to a former trustee) was convicted of an offence under section 60 of the Act for providing false or misleading information to the Commission, two charges of money laundering, theft (of approximately £165,000) and fraud, for which he received a total prison sentence of nine years and nine months, including fifteen months for the section 60 offence.

The inquiry closed with the publication of this report. However, the Commission is still considering its options in relation to the recovery of charitable funds, including those held in a number of the charities’ bank accounts and currently restrained by a court order under section 41 of the Proceeds of Crime Act 2002. The Commission will ensure that, where possible, any charitable donations recovered are transferred to another charity to be spent in accordance with the charitable objects to which they were initially given. The Commission will consider removing the charities from the register once this has concluded.

Conclusions

The charities were used for a non-charitable purpose and as a conduit to launder the proceeds of crime. The inquiry found that the trustees had failed to meet their statutory reporting requirements, as false or misleading information had been provided, and this was serious mismanagement and/or misconduct by the trustees in the governance and administration of the charities.

Issues for the wider sector

Trustees are jointly and equally responsible for the management of their charity. They must ensure that their charity has adequate financial and administrative controls in place, and that the funds of their charity are applied for the benefit of the public for which it has been set up.

Trustees of charities are under a legal duty as charity trustees to submit annual updates, returns, annual reports and accounting documents to the Commission as the regulator of charities depending upon the level of the charity’s income. Failure to do so is a criminal offence.

The conduct of trustees can be a key driver of public trust and confidence in the charity sector. When the conduct of trustees falls below the standards expected there can be damage to the reputation of individual trustees, the charity and possibly the wider charity sector.