Non-Profit Organizations to Get Security Clearance for Foreign Fundings & Dealings

The Securities and Exchange Commission of Pakistan (SECP) has come up with new security clearance guidelines for licensed non-profit organizations and charity entities, under which a company after it is granted a license shall obtain prior security clearance for matters pertaining to foreign dealings.

The SECP issued SRO. 1325 (I)/2021 on Wednesday and made amendments to the Association with Charitable and Not for Profit Objects Regulations, 2018.

As per the new guidelines, the non-profit or charity organizations shall obtain prior security clearance in accordance with the policy approved by the government in respect of foreign funding or donation or foreign promoters, directors, or chief executive officers of the applicant organizations seeking a license under these regulations.

A company, after it is granted a license, shall make an application for security clearance to the Commission in case it intends to:

1. Receive foreign funding or donation
2. Induct foreign member
3. Appoint foreign director or chief executive officer

The company may make an investment, whatsoever, in any of its associated companies or associated undertakings subject to compliance with the specified requirements and the regulations made thereunder. The Board shall also frame and follow a broad policy specifying a mechanism for such investments and shall carry out due diligence before making such investment and shall also disclose the interest of directors of the company if any.

The company shall receive all funds, grants, contributions, and donations (except funds, grants, contributions, and donations received in-kind) through proper banking channels, provided that amounts equivalent to or less than Rs. 20,000 can be received in cash. For this purpose, proper entries in the books and records of the donor shall be maintained by the company and such amounts shall be deposited in the bank account of the company not later than three working days of the receipt.

The company shall ensure that its income and expenditure accounts clearly exhibit a statement of all funds, grants, contributions, donations separately received from local and foreign sources. The directors’ report prepared shall also include information pertaining to:

1. Compliance with the relevant provisions of the Act
2. Compliance with all the provisions and conditions of these regulations
3. Compliance with all conditions provided in the license (if any)
4. Confirmation to the effect that prior security clearance in terms of these regulations, in respect of foreign donation, foreign member, foreign director, and chief executive officer, if any has been obtained.

According to the SECP order, the company shall comply with any other condition(s) as may be imposed by the Commission at the time of grant of license or imposed from time to time subsequent to grant of license.

Each of the promoters, directors, chief executive officers and members of an association shall meet the criteria as provided in these regulations:

• Provided that the Commission shall assess the fitness and propriety of the promoters, directors, and the chief executive officer at the time of grant of license whereas the company shall assess the fitness and propriety of its members, directors, and the chief executive officer for any subsequent changes after incorporation of the company;
• Provided that the fit and proper criteria shall remain applicable at all times and in case of any non-compliance at any point in time, the company shall be responsible for the replacement of the above-referred persons.