On the Draft Laws on Making Additions and Amendments to the “Law of the Republic of Armenia on Non-Governmental organisations” and the “Law of the Republic of Armenia on Foundations”
On 1 November 2018, the State Revenue Committee under the Government of the Republic of Armenia (hereinafter referred to as the SRC), published on e-draft.am website for publication of the draft legal acts the Draft Laws on Making Additions and Amendments to the “Law of the Republic of Armenia on Non-Governmental organisations” and the “Law of the Republic of Armenia on Foundations.” We present the following related to this Draft Laws:
A) Draft Law “On Amendments and Additions to the Law of the Republic of Armenia “On Non-Governmental Organisations”
Paragraph 1 of Article 1 of the Draft Law “On Addition and Amendment to the Law of the Republic of Armenia” On Non-Governmental organisations” (hereinafter referred to as Draft) is proposed to amend Article 24 § 2 of the Law which provides that each year, until May 30 of the year following the reporting year, the organisation is obliged to publish on the website for the reports the Report provided for by this Article.
Paragraph 2 of Article 24 of the Law clearly defines that the organisation is obliged to publish a report if the source of the organisation’s property was public funds (assets of state or local self-government bodies, and/or other holder of public funds, or a legal entity). This means that the sole requirement for the publication of the report stipulated by the law for publication of the report of the organisation is the case when the source of the acquired property of the organisation were public resources, and according to the proposed arrangements, the requirement is removed, and therefore, after the adoption of the draft, the Organisations’ reports will also include mandatory information on the use of non-public resources. The above mentioned is justified as proposed by Article 1 (1) of the draft, which stipulates that in Article 24 (1) of the Law, replace the words “in the prescribed manner” with the words “in the prescribed manner and timing”, as well as by formulating Article 24, Part 4 with the proposed amendment in the new edition, which follows that in the sense of Article 24 of the Law, organisations will submit one report.
And according to the substantiation attached to the draft law, the necessity to establish the above-mentioned arrangements is conditioned by excluding misinterpretations during the application of the law, clarifying the existing formulations, and ensuring public accountability.
It should be noted that the above-mentioned “misinterpretations” have been created exclusively by the competent authorities as a result of discretionary interpretation, as the mentioned issue is clearly regulated by the current law.
First of all, the discretionary and not purposeful interpretation of the norm was the result of the Decree No. 59-N of the SRC Chairman, dated 13 February, 2018, “The Model Form of Activity of Non-Governmental organisations, the Order of Filling Out, publication of the Report and Submission to the RA SRC” (hereinafter referred to as the Decree), which came into effect on 11 March, 2018, and since its entry into force the organisations have submitted their reports to the Committee for the fiscal year, which included information on their entire activity. The regulations of the Order are directly contrary to the provisions of Article 24 of the Law, since there is no provision in the Decree which refer to submitting report related to public finances means, and it is unclear how the Decree was issued by the Ministry of Justice of the Republic of Armenia (February 26, 2018, number 12418065) and sent to publication. The regulations envisaged by the Decree, in terms of content contradictions with the Law, as well as in terms of the questions raised in the law enforcement practice, and in the context of comments received from the authorized state bodies, caused a number of issues that led to the imposition of an unlawful obligation on non-governmental organisations. Consequently, we consider that there are all the grounds to challenge the Legitimacy of the Decree.
The next recorded result is that the SRC guided by the “purposeful interpretation” of the normative legal act defined by Article 41 (1) of the Law of the Republic of Armenia “On Normative Legal Acts”, in its written response has considered mandatory to include in the report in addition to the information on public funds, also information on non-public funds and related information in case when the organisation’s report is subject to publication.
However, in its reply the Ministry of Justice expressed principally the opposite position, saying that in accordance with Article 24 (4) of the Law, the organizations whose sources were not acquired by means of the public funds provided for in Article 24 (2) of the Law, have the right to publish in the websites for publication of the organisations’ reports, the report provided for in the mentioned Article as well as information and materials on any results of their activity. Consequently, non-governmental organisations whose property was not acquired from the sources of the above-mentioned public funds, have the right to submit reports, but not the obligation.
Perhaps this position of the RA Ministry of Justice is justified by the fact that prior to adoption of the Law by the National Assembly, it was the Ministry of Justice that initiated elaboration of the law and its further submission to the NA, therefore, it was completely aware about the meaning and significance of the provisions of Article 24 of the Law, and the content of the will of legislator, and in this respect the position of the Ministry of Justice is more clear, including from the viewpoint of objective interpretation of the norm.
In view of the above, we believe that the envisaged arrangements are not only directly contrary to the regulations set out in Article 2 of the Law, referring to organisational-legal peculiarities of the organisations, but also the principles of the activities set out in Article 4 related to governance and accountability standards as non-governmental organisations operate on the basis of self-government, are non-governmental organisations and are not to be accountable to any state body.
Moreover, the draft law also contradicts to the state guarantees of the organisation’s activities as provided for in Article 9 (4) of the Law, according to which “4. State authorities and local self-governing bodies and their officials shall be prohibited to intervene or to interfere with the legitimate activities of the organisation.”
Consequently, the idea provided in the justification of the draft that the draft is aimed at ensuring public accountability is not substantiated by the fact that the activities of the organisations referred to in Article 24 § 2 of the Law (assets of government or local self-governing bodies, and/or other holder of public funds, or a legal entity), the requirement for reporting is exclusively aimed at raising the control over public resources and public accountability which is fully reflected in the content of the spirit of the Law and has not in any way been aimed at controlling the activities of organisations.
Therefore, we propose to leave unchanged the provisions of paragraph 1 of Article 24 of the Law, and formulate Paragraph 2 as follows:
“2. If public funds (assets of state or local self-government bodies, and/or other holder of public funds, or a legal entity) have been the source of property for the organisation, the organisation shall each year, until May 30 of the year following the reporting year, publish on the website for the reports the Report provided for in this Article only in respect of public funds.”
We also report that the current regulations of Article 24 § 3 of the Law are also problematic, with which we have addressed the SRC for clarifications. It is necessary to note that the clarifications provided, do not give a substantial answer to a number of key issues raised, so we recommend the following in the new edition of Article 24, Part 3 of the Law :
«3. an organisation’s statement on cash flows includes:
- Company’s full name, taxpayer identification number (TIN), location, state registration number, year, month, date, telephone number, e-mail and official website (if available).
- the name and venue of the project implemented with public funds, the status of the project (completed or in process) and information about them (goals and objectives, expected outcome);
- The total amount and receipt of annual cash inflows (cash and/or property) and source of public funds.
- Costs of using public money and / or property;
- The conclusion of the independent auditor in cases specified in Article 26 (1) of this Law.
B) Draft Law “On Amendments and Additions to the Law of the Republic of Armenia “On Foundations”
Article 1 (2) of the Draft Law “On Amendments and Additions to the Law of the Republic of Armenia “On Foundations” “(hereinafter referred to as Draft Law) provides to add a new Paragraph to the Point 1 of Article 39 of the Law of the Republic of Armenia” On Foundations” (hereinafter referred to as Law) by which an attempt has been made to clarify the concept of “sources of financing” by defining what kind of information it includes and which part of the information it may have to be public, the range of personal data, the terms of their publication and accessibility in the Internet.
In this regard, it is important to note that the draft law should have prioritized and sufficiently defined to determine the extent of information which the report on the foundation’s activities should contain. For example, whether the requirement to include the total amount of funds used in the financial year, regardless of funding in the annual report of the Foundation is justified or not and what was its purpose?
If the report contained only information about public sector cash funds of Foundations (including those involving government and local self-governing bodies), including their use, in this context, a detailed description of the information could be reasoned as its purpose was to control the movement of public funds publicity and transparency .
In this respect, we consider that in the case of foundations and non-governmental organisations, it is necessary to adopt a common approach and consider the need to introduce such a mechanism for the publication of the reports in which case the organizational and legal peculiarities and the principles of operation, of those organizations will be explicitly taken into consideration, including self-government and accountability, and the minimal amount of personal data included in the report, must be adequate, necessary and proportional.
It is necessary to note that the presented draft laws have not been complied with the rules of the legislative technique, which are in line with the Law of the Republic of Armenia on Normative Legal Acts, in particular, the systematization of the provisions prescribed and the sequential numbering of parts and points of the articles.
On the Draft Laws on Making Additions and Amendments to the “Law of the Republic of Armenia on Non-Governmental organisations” and the “Law of the Republic of Armenia on Foundations”
Please be informed that public discussion on “the Draft Laws on Making Additions and Amendments to the “Law of the Republic of Armenia on Non-Governmental organisations” and the “Law of the Republic of Armenia on Foundations” developed by the SRC, organised by the Armenian Lawyers’ Association on 9 November, 2018, within the framework of the “Commitment to Constructive Dialogue” project, representatives of non-governmental organisations and foundations participating in the discussion raised additional questions and issues on the above-mentioned drafts, which should become subject to additional discussion during future workshops for review and elaboration of the draft. Those questions were as follows:
- Wouldn’t it be appropriate through making changes and amendments in the Law to recognize the Ministry of Justice as the authorized body responsible for supervision of compliance of the organisations with the requirements of the law; and the State Revenue Committee in terms of tax control?
- Is the approach that the state control mechanisms should be tightened due to violations of law in operations in some organisations or foundations that are currently operating thereby violating the principles of self-governing guaranteed to the organisations by law? We consider that violations of individual legislation requirements by these organisations should be thoroughly analysed by the competent state authorities, and if these findings are explicitly linked to incomplete or unclear regulations, then only initiate amendments and additions to the legislation. Perhaps, in such cases, only the need for the State to introduce new mechanisms for controlling the activities of the Organization, in exceptional cases, will be substantiated.
- The need to further debate the toughening of the state control mechanisms provided by the draft laws is also conditioned by the use of surveillance and enforcement measures within the framework of the fight against money laundering and terrorist financing (ML/TF), whereas the Council of Europe’s The Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) 2018 Armenia’s progress report, published in July, has noted a progress in implementing the 8th Recommendation related to Non-Governmental organisations, as a result of which it has been re-evaluated as adequate, pointing out that non-governmental organisations have a low risk of money laundering and terrorism financing. It is necessary to reasonably estimate what risks may arise in the context of the above-mentioned international obligations of the Republic of Armenia.
- According to Article 26 of the Law, if the organisation has been financed from public funds at the rate of five million drams or more in thereporting year, its annual financial statements submitted to state bodies in accordance with the law shall, no later than May 15 of the following year, shall be subject to mandatory audit, by an independent auditor selected by the meeting of the organisation in part of part financing from public funds. It is necessary to evaluate the extent to which the obligation to fulfil the commitment provided for by the Law is based on the extent to which financing from public funds is not included separately in the amount of funding necessary for the holding of statutory audit, which subsequently becomes an additional burden for non-governmental organisations. In most cases, the amount of cash paid to independent audit organisations is relatively large, compared to the amount of public funds provided to the organisation. At the same time, additional issues arise when independent audit organisations require the organisation to submit all the documentation related to their activities so that they can have a complete picture. These problems occur especially when the public funds attracted by the organisation for certain programs are not sufficient and there is a need for other financial resources to be attracted, therefore the whole project is audited. It should be noted that international donor organisations provide a certain amount of financial resources to the organisations for the audit of the projects carried out by the organisation and such an approach should be fixed in the case of public funds as well.
- There is a need to revise the scope of the information contained in the report of the organisation as provided for in Article 24, Part 3 of the Law, if it concerns only the publicity of the report on the involvement of public funds, the scope of that information should include information on the results and outcomes of the project achieved by the use of the spent public funds, and not details about all the activities of the organisation.
- It is necessary to further discuss the issue of providing the public funds to the organisations through the state or local self-government bodies, and/or other holder of public funds, or a legal entity, on the basis of competitive bidding and options for legislative regulation, in order to ensure transparency and accountability in that process.
- It is necessary to make a detailed study of the existing international experience in the planning of the proposed arrangements and to consider their relevance and adequacy to the Armenian reality.
- There is a need for a detailed study, especially in relation to the regulations of the drafts, according to which the published reports will have non-public disclosure parts to include personal data relating to the source of annual receipts, including individuals. In this regard, it is important to note that natural persons who donate or grant funds to organisations often do not wish that information to become public, and in the case of donations practically it is impossible to register all legal and physical persons who provide funds. We find that these issues should be considered in the context of the personal data processing principle, according to which the data processing should be pursued legitimate objective, and the means to achieve it should be useful, necessary and proportional, and in the context of setting clear rules that exclude the transfer of personal data to third parties.
In addition to the above-mentioned questions, a number of other issues raised by the organisation in the past remain on the agenda; they relate to simplification of tax burden and administration for organisations. They refer for example: a) the clear definition of the term “grant” in the Tax Code and the clarification of the tax liabilities arising therefrom; (b) the reduction of income tax deductions to natural persons as much as the individual will contribute to the preference paid to the preferred organisation pursuing public interest from its annual paid income tax that does not generate additional burden; for donating entities, but rather redistribution of paid income tax (in Poland – 1%, in Slovakia – 2%), which is an incentive for the improvement of the financial status of the Organizations; (c) Facilitating the burden of tax liability arising from the business activities of enterprises.
Taking into consideration the above said, we suggest recalling the draft laws proposed for public discussions and creating a working group with key actors: the non-governmental organisations and foundations to make the proposed amendments a subject of content discussion, as the presented drafts do not provide exhaustive answers to the questions about the regulations of the laws that were previously submitted, but just on the contrary the drafts had provided stringent requirements to the reports of the organisation’s activities and thus enabling the supervisory authority to have more tools to oversight the Organizations’ activities.
The aforementioned does not aim at preventing public initiatives by public authorities aimed at raising public accountability of the non-governmental organisations, just on the contrary, suggestions on draft laws and raised questions are aimed at promoting constructive dialogue between the competent authorities and stakeholders and finding legislative solutions in which the interests of the interested parties will be combined.
Basing on the above said, we suggest recalling the drafts, establishing a joint working group and involving experts in a constructive debate with NGOs and foundations to have participatory and bilateral acceptable draft laws.
The Draft Statement-Standpoint was elaborated by the Armenian Lawyers’ Association within the framework of the EU-funded “Commitment to Constructive Dialogue” project and finalised based on the results of by public discussion.
The application-position is presented on behalf of the following organisations:
- “Armenian Lawyers’ Association” NGO
- International Center for Human Development NGO
- “SME Cooperation Association” NGO
- Small and Medium Business Fund
- Center of Economic Rights NGO
- OxYGen Foundation for Protection of Youth and Women’s Rights
- Civic Development and Partnership Foundation
- “Union of Banks of Armenian ” NGO
- “Association of Accountants of SME of Armenia ” NGO
- “Taxpayer Protection” NGO
- Armenian EyeCare Project Charity Foundation
- Children of Armenia Fund
- “Armavir Development Center” NGO
- “Tapan Eco-Club” NGO
- “Pyunik” NGO
- “Development Principles” NGO
- “Araza” Benevolent NGO
- “The Future is Yours” Charitable Social Non-Governmental Organization
- Institute for Development Solutions Foundation
- “Trust” Health NGO
- Law Foundation of Armenia
- Armenia Renewable Resources and Energy Efficiency Fund
- “Diaspora Armenian Students’ Council” NGO
- “Local Democracy Development and Research Center NGO” NGO
- Union of Advanced Technology Enterprises
- French-Armenian Development Foundation
- Armenian Association of Social Workers
- “Soldier’s Mother” NGO
- NPAK Foundation
- PINK Armenia
- Habitat for Humanity Armenia Foundation
- “HaiConsult” Consulting Fund
- “Union of Builders of Armenia” NGO
- “Women’s Development Resource Center” Foundation
- Pan-Armenian Patriotic Movement
- “Armenian Young Women’s Association” NGO
- IDeA Foundation
- “Association of Young Journalists” NGO
- “Armenian Young Lawyers Association” NGO
- “Socioscope” NGO
- “Armenian Association of Young Doctors” NGO
- “Territorial Development and Research Center” NGO
- Association of Social Enterprises of Armenia
- “Center for Community Mobilization and Support” NGO
- “International Society of Human Rights” NGO
- “Astghatsolk” NGO for Sustainable Development Initiatives
- “Sevan” Youth Club NGO
- Equality Index Human Rights NGO
- “Civil Initiatives Platform” NGO
- Aregouni NGO
- Meghri Women’s Resource Center NGO
- “Selen Club of Journalists” NGO
- “International Academy of Culture and Performing Arts” NGO
- “Ijevan Youth Alliance” NGO
- “Winnet Armenia” Network of Women Resource Centers
- “Partnership and Teaching” /GUM/ NGO
- Global Developments Fund
- “Ekotim” NGO
- “Civil Society Institute” NGO
- “Sisian Adult Education Center” Foundation
- “Goris Youth Initiatives Center” NGO
- “NGO Center” NGO
- Together for Economic Development NGO
- “BLEJAN” Environmental, Social and Business Support NGO
- “Armash” Rural Community Support and Development Center
- “Community Pulse” Youth NGO
- “Argina” Cultural NGO
- “Intercommunity Cooperation for Rural Communities’ Development NGO
- “Center for Social Technologies ” NGO
- Open Borders NGO
- “Work and Homeland” Regional Development NGO
- “Compass Research, Training and Consulting Center” NGO
- “Azhdakak” Community Development NGO
- “Kapan Teachers” NGO
- Civic Development and Partnership Foundation
- “Spring Revival” Social-Cultural, Charitable NGO
- Yeghegnadzor Women’s Resource Center Foundation
- “Improve Our Village” NGO
- “Young Tavush” NGO
- “Youth Ideas” Youth NGO
- “Equal Rights, Equal Opportunities” NGO
- “Armtumar” ECNGO
- International Academy of Advanced Training for Doctors NGO
- “Sose Women Issues NGO
- “Kenac Tsar” Educational and Cultural NGO
- Gyumri Center for Youth Initiatives NGO
- “Martuni Women’s Community Council” NGO
- “The Law for the Rule of Law” NGO
- Robert Boghossian and Sons Foundation
- “Shogher Union” Social-Educational NGO
- “Foundation to Save Energy” NGO
- “Gyumri Club” CSO
- Free Citizen CISC
- “National Team of Trainers” NGO
- “International Center for Intercultural Research, Learning and Dialogue” NGO
- “Tukhmanuk” NGO
- Centre for Human Rights ResearchNGO
- “Association of Audio-Visual Reporters” NGO
- Women’s Development Resource Center Foundation
- “Ivan Skay” Youth Community Development Fundation
- “Territorial Center for Human Capital Development” NGO
- “Akhuryan Youth” NGO
- “Innovative and Technological Community” NGO
