Decision

Charity Inquiry: a fund raised for the charitable purpose of the prevention and relief of poverty of Rohingya Refugees

Published 15 December 2020

This decision was withdrawn on 6 January 2023

This report has been archived in line with our policy as it is over 2 years old.

Applies to England and Wales

The Charitable Fund

A fund raised for the charitable purpose of the prevention and relief of poverty of Rohingya Refugees (‘the Charitable Fund’) was not a registered charity and the funds were raised through donations outside of a formal charity structure.

Issues under Investigation

The Commission identified that the Charitable Fund had solicited and raised funds from two online fundraising portals – Go Fund Me and You Caring (‘the Fundraising Portals’). The pages on the Fundraising Portals for the Charitable Fund shared common written content which stated that the funds donated to and raised through them were charitable and intended to relieve the need and poverty of Rohingya Muslims. This included information that:

• funds were being solicited, in the name of the Charitable Fund, from members of the public to provide aid to the Rohingya minority in Myanmar and Bangladesh in the form of ‘emotional and mental support as well as food and shelter’
• funds were to be used for ‘charitable projects’ being conducted by the Trustees – there are numerous references to charitable projects
• the Trustees were going to be ‘personally….distributing the funds and managing the charitable projects…’
• the Trustees requested direct bank transfers from donors to them, including through using the reference ‘Sadaqah Rohingya’. (Sadaqah is an Islamic term for charity)

The Fundraising Portals indicated that there were two trustees of the Charitable Fund, Mr Mohammed Hasnath (‘Mr Hasnath’) and Ms Ruksana Ali (‘Ms Ali’), together ‘the Trustees’.

The Fundraising Portals encouraged donations to the Charitable Fund including directly to a personal bank account in the name of one of the Charitable Fund’s trustees Mr Hasnath and through his PayPal account. Information on the Fundraising Portals’ pages relating to the Charitable Fund indicated that over £200,000 was raised and donated in its name. The portals also included photos of the Trustees which suggested that that they were helping the Rohingya refugees.

The Commission opened an inquiry, under section 46 of the Act, into the Charitable Fund on 2 April 2018.

The scope of the inquiry was to examine a number of issues including:

• whether the Trustees had properly exercised their legal duties and responsibilities under charity law in the administration, governance and management of the fund
• whether the Trustees had put charitable funds at risk by using them for non-charitable purposes
• whether the Trustees could adequately account for the end use of the charitable funds which had already been applied

On 23 July 2019 the scope of the inquiry was expanded to include:

• the conduct of the Trustees
• the optimal way to apply the protected charitable funds to support the Rohingya refugees who are the intended beneficiaries

Findings

Whether the Trustees had properly exercised their legal duties and responsibilities under charity law in the administration, governance and management of the fund

The inquiry found that the Trustees had failed to comply with their legal duties in the administration and management of the Charitable Fund.

Despite significant funds of over £200,000 being raised (which greatly exceeded the income threshold for charity registration), the Trustees did not formalise the Charitable Fund, by applying to register it as a charity with the Commission. During a meeting with the Commission in May 2019, the Trustees said that they took steps about how to register the Charitable Fund as a charity in both the UK and Bangladesh – and provided copies of emails with a charity registration consultant from December 2017/January 2018. The Commission considers that the Trustees should have sought appropriate advice earlier than they did and/or contacted the Commission to seek and complete registration, as part of their legal duty of acting with reasonable care and skill. As the Trustees had started to fundraise from around July 2017, this meant that the Charitable Fund had insufficient governance structures and controls in places which thereby put the funds held in the Charitable Fund at risk.

During the inquiry, the Trustees failed to safeguard the Charitable Fund which resulted in the regulatory action being taken. This included a number of bank accounts associated with the Trustees having been subject to a restraint order under the Proceeds of Crime Act 2002 by a partner agency, and the inquiry issuing an order not to part with property without the Commission’s approval (freezing order) under section 76(3)(d) of the Act. The inquiry also made an order under section 76(3)(f) to restrict the Trustees from undertaking specified transactions without its prior approval. Additionally, the inquiry made an order under section 84 of the Act to one of the Trustees to transfer charitable funds held in their PayPal account to their personal bank account, for consolidation purposes. These actions were necessary to safeguard the Charitable Fund and protect donors.

The inquiry found that one of the Trustees transferred significant charitable funds raised for the Charitable Fund to the other Trustee’s personal bank accounts. In total six personal bank accounts and one personal PayPal account were identified as holding charitable funds. The Trustees told the Commission that this was for safekeeping purposes, but it is unclear to the Commission how this would be the case given that there was no procedure to ensure separation between the Trustees’ personal funds and the funds of the Charitable Fund. The Commission does not consider that this was an appropriate or prudent course of action. As well as making it harder to distinguish between personal and charitable funds, it also made the audit trial of transactions more difficult to follow. It would not have been unreasonable for the Trustees to have used one personal bank account on a temporary basis – if they could not open a dedicated charity bank account – solely for the purpose of the Charitable Fund. Given the significant funds raised the Commission would have expected the Trustees to open a separate bank account for the Charitable Fund to avoid the mixture of personal and charitable funds and to ensure transparency. Ultimately, the Trustees did not comply with their legal duty of managing the Charitable Fund’s resources responsibly.

Whether the Trustees had put charitable funds at risk by using them for non-charitable purposes

Trustees are under a legal duty to protect and manage their charity’s assets. There should be a clear audit trail of how funds have been expended and appropriate financial controls to reduce risk. The inquiry found the Trustees failed to responsibly manage the Charitable Fund and its financial affairs. The inquiry could not identify or confirm that any charitable expenditure had occurred within the Charitable Fund.

The inquiry examined the Trustees’ responses to its section 47 direction of 9 August 2019, alongside other relevant evidence such as bank statements, to establish that:

• the total charitable funds raised and held within the Trustees’ multiple bank accounts and PayPal account amounted to £213,898.60
• although the Trustees told the inquiry that £115,344.92 had been expended on charitable activities, this sum included internal transfers between the Trustees’ bank accounts which the Commission does not consider to be charitable expenditure, and the Trustees did not provide adequate evidence (such as receipts) to substantiate any of the charitable expenditure

The balances in the Trustees’ personal bank accounts, when frozen during the inquiry, was around £145,149.79.

This figure was £68,748.81 less than the total funds raised of £213,898.60.

The inquiry therefore considered that £68,748.81 of charitable funds could not be properly accounted for. Given the mixture of charitable and personal funds the inquiry concluded that the funds had potentially been used for non-charitable private expenditure by the Trustees.

Whether the Trustees could adequately account for the end use of the charitable funds which had already been applied

As noted above, the inquiry could not identify or confirm that any charitable expenditure had occurred within the Charitable Fund.

The inquiry considers that the Trustees are collectively responsible for not being able to adequately account for the end use of the charitable funds. The Trustees have been unable to provide adequate records to show whether, how and where the Charitable Funds have been applied.

The conduct of the Trustees

The inquiry found that there had been misconduct and/or mismanagement by the Trustees including:

• not properly exercising their legal duties and responsibilities under charity law in the administration, governance and management of the Charitable Fund.
• putting the Charitable Fund at risk by mixing it with personal funds and potentially using it for non-charitable purposes

On 3 June 2020 the Commission notified the Trustees of its intention to remove them, under section 79(4) of the Act, from acting as trustees of the Charitable Fund. The Trustees were given an opportunity to offer representations, but the Commission did not receive any such representations. The Commission therefore proceeded to remove both Trustees from acting as a trustee of the Charitable Fund on 23 July 2020. The (former) Trustees are also now disqualified from being a charity trustee or trustee and from holding an office or employment in a charity with senior management functions. If they wish to hold either role in the future, they can apply for a waiver from the Commission.

The optimal way to apply the protected charitable funds to support the Rohingya refugees who are the intended beneficiaries

During the inquiry the Commission used its power under section 85 of the Act to direct the transfer of funds raised by the Charitable Fund to two registered charities that support Rohingya refugees. The two registered charities will ensure that the charitable funds are used the prevention and relief of poverty for the Rohingya refugees as intended by the donors. In total £196,528.58 was redirected to the two recipient charities.

Conclusions

The inquiry concluded that the Trustees were responsible for misconduct and/or mismanagement in the administration of the Charitable Fund. The Trustees ultimately failed to comply with their trustee duties which are outlined in the Commission’s guidance CC3 – the essential trustee.

The inquiry was particularly concerned by the Trustees’ failure to implement appropriate governance and financial controls, at any point, for managing the Charitable Fund. This ultimately made it impossible for them to ensure that charitable funds were properly protected and applied.

The Commission recognises that the Trustees co-operated, as they are expected to, with the inquiry.

Regulatory Action Taken

The inquiry made an order under section 76(3)(f) of the Act to the Trustees not to enter into any transactions involving fundraising services or to solicit further money and property for the benefit of the Charitable Fund. The inquiry froze three bank accounts held in the name of one of the Trustees by making an order under section 76(3)(d) of the Act.

The inquiry made an order section 76(3)(f) of the Act to one of the Trustees not to enter into any transactions relating to their personal bank accounts and PayPal account which held charitable funds.

The inquiry ordered the Trustees to transfer charitable funds held in one of the Trustee’s PayPal account to their personal bank account, which was already frozen by the Commission, for consolidation under section 84 of the Act.

The inquiry served directions under section 47 of the Act to banks and the Trustees to obtain information.

The inquiry exchanged information with partner agencies under sections 54 to 56 of the Act.

The inquiry removed the Trustees by making orders under section 79(4) of the Act.

The inquiry ordered the transfer of the charitable funds held in six bank accounts in the name of the Trustees to two established and regulated charities under section 85 of the Act.

Issues for the Wider Sector

The purpose of this section is to highlight the broader issues arising from the Commission’s assessment of the issues raised publicly that may have relevance for other charitable funds or charities which raise funds either within or outside a formal charity structure. It is not intended as further comment on the Charitable Fund in addition to the findings and conclusions set out in the earlier sections of this report, but is included because of their wider applicability and interest to the charity sector.

Trustees are custodians of their charities. They are publicly accountable, and have a responsibility and duty of care to their charity which will include taking the necessary steps to safeguard their charity and its beneficiaries. Trustees must ensure that their charity has adequate financial controls in place, It is important that the financial activities of charities are properly recorded, and their financial governance is transparent. Charities are accountable to their donors, beneficiaries and the public. Donors to charity are entitled to have confidence that their money is going to legitimate causes and reaches the places that it is intended to, this is key to ensuring public trust and confidence in charities.

Trustees are jointly and equally responsible for the management of their charity. To be effective and to meet their statutory duties as charity trustees they must contribute to the management of the charity and ensure that it is managed in accordance with its governing document and general law. All charities should have appropriately tailored internal policy documents which address the specific risks associated with the kind of activities that are undertaken.

Trustees should ensure that these policies are implemented and reviewed at appropriate junctures. A failure to implement internal policy documents could be evidence of mismanagement in the administration of the charity and can put assets, beneficiaries and a charity’s reputation at risk.