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Regulatory compliance

Khamidullina Ye. Anti-Corruption Compliance in Charitable Activities // Petroleum. – 2022.-6.; KPLA Journal. – 2023.-1.

  As the culture of corporate and social responsibility becomes more common, many local companies have started paying special attention to charity and allocating considerable funds to provide charitable assistance each year.

  The Kazakhstan Charity Law (hereinafter, the "Charity Law") was adopted in 2015. Over the recent years, it has been amended six (6) times. The latest amendments were introduced according to the Law of 4 July 2022, most provisions of which entered into effect on 5 September 2022.

  This article addresses the latest amendments to the Charity Law and shares recommendations to companies on the aspects worth paying attention when considering and approving requests for charitable assistance to comply with requirements of the Charity Law, anti-corruption legislation of Kazakhstan, and applicable foreign laws.

Latest Amendments to the Charity Law

  The Law of 4 July 2022 introduced many amendments into five (5) codes and fourteen (14) laws, among which are the Labor Code, Code on People's Health and Healthcare System, Volunteering Law, State and Social Mandate Law, and other. We will consider the most significant amendments introduced into the Charity Law:

Introduction of new concepts:

  • "corporate charity" – voluntary activities of business entities to provide charitable assistance;
  • "fundraising" – process of raising voluntary donations and/or seeking for charitable assistance;
  • "electronic charity" – activities to raise voluntary donations in the form of money made in the electronic form. According to the Dossier of the draft Law of 4 July 2022, electronic charity was introduced to increase transparency of charitable activities and reporting by charity organizations and beneficiaries on the use of donations;
  • "authorized agency in the sphere of charity" – central executive agency carrying out management in the sphere of charity. The Ministry of Information and Social Development of Kazakhstan is the authorized agency in the sphere of charity;
  • Competence of the authorized agency in the sphere of charity now covers the issues of implementation of the state policy in the sphere of charity, interaction with individuals, legal entities and governmental agencies in the sphere of charity, awarding of an honorary degree in the sphere of charity, and exercise of other powers stipulated by the Kazakhstan legislation;
  • Minor clarifications were introduced into definitions of the concepts of "sponsor activities" and "voluntary donations";
  • Important amendment is the introduction of an obligation for business entities to develop internal documents on provision of charitable assistance in case of deciding to develop corporate charity. Internal documents must determine the principles, key directions, procedure for providing charitable assistance to users, and procedure allowing to form the expenditure budget of a business entity. Purposes of the provided charitable assistance must be determined according to the Charity Law;
  • Introduction of an obligation of a charity organization to publish reports on the implemented charitable programmes in mass media and/or on an Internet resource at least once a year. Such reports must contain brief information on income and expenses, and goals achieved when implementing a charitable programme;
  • Additional information was added with respect to requirements to a charitable programme, pursuant to which a charitable programme is developed, approved and implemented by a charity giver and/or a charity organization. A charitable programme must encompass the goals, objectives, period of implementation (term), estimate of contemplated income and expenses, and procedure for providing charitable assistance. A charity giver and/or a charity organization may implement one or several charitable programmes.

Algorithm of Company's Actions when Providing Charitable Assistance

  Below is a recommended algorithm of actions, which companies may apply when providing charitable assistance in order to comply with requirements of the Kazakhstan legislation, applicable foreign laws (in certain cases) and provisions of internal acts of companies.

STEP 1 – Approval of internal acts of companies relating to provision of charitable assistance

  Before providing charitable assistance, a company needs to approve a charitable programme and Regulations on Provision of Charitable Assistance, which must specify the goals, principles, key directions, procedure for providing charitable assistance, and procedure allowing to form the expenditure budget of the company. In the Regulations, we also recommend specifying the company's responsible persons participating in the company's approval of provision of charitable assistance.

  When drafting the Regulations on Provision of Charitable Assistance, the company's management may provide for certain restrictions (e.g. charitable assistance must be provided only in the sphere of education, healthcare and to support the development of a certain region of Kazakhstan). The company may also provide for charitable assistance of a certain type only (philanthropic, sponsor or patron activities).

  Since we receive many requests relating to application of the anti-corruption legislation and Charity Law from local companies with foreign participation, we have accumulated significant experience of developing various internal regulations (policies) according to requirements of the Kazakhstan legislation and foreign legislation applied by subsidiary organizations of foreign companies doing business in Kazakhstan. As a rule, such companies strive to specify in documents with counterparties that, in addition to requirements of the Kazakhstan Charity Law, it is necessary to comply with provisions of foreign legislative acts, such as the US Foreign Corrupt Practices Act (the "FCPA"), UK Bribery Act 2010 and other.

STEP 2 – Receipt of request and legal analysis

  According to the Charity Law, understood as charitable assistance is "property provided by a charity giver on a free-of-charge basis to assist a user in improvement of financial and/or material status:

  • in the form of social support to an individual;
  • in the form of sponsor support;
  • to a non-profit organization to support its charter activities; and
  • to an organization carrying out its activities in a social sphere as defined under the Tax Code.

  According to our practice, in major cases charitable assistance is provided to non-profit organizations to support their charter activities. Accordingly, when receiving a request for the provision of this type of charitable assistance, it is necessary to review a charter and certificate of registered legal entity.

  The charter must specify that a legal entity is a non-profit organization, for example, a charity organization, fund, public association or any other type of a non-profit organization stipulated by the Kazakhstan Law on Non-Profit Organizations. To decide on whether the contemplated purpose of spending the requested funds specified in a request for charitable assistance meets the objectives and types of activities of a non-profit organization, it is also necessary to review a charter of such organization. Kazakhstan companies with foreign participation complying with provisions of the FCPA must pay attention to the fact that one of key purposes of the FCPA is to prevent from the provision of charitable assistance as a mechanism allowing to allocate funds or provide other benefits to foreign officials.

  The FCPA provides for a number of prohibitions and restrictions for certain persons, and such persons' failure to comply with them is qualified as a corruption offense. Such persons are the issuers, "domestic enterprises", individuals and legal entities determined based on a territorial criterion. Thus, the actions listed in the FCPA are prohibited with respect to:

  • foreign official;
  • foreign political party and/or its members, candidate for a foreign public office;
  • any person contributing to corrupt practices of a foreign official, foreign political party and/or its members, candidate for a public office.

  The FCPA is not an international agreement ratified by Kazakhstan, but an internal regulatory legal act of a foreign state. Accordingly, in our view, it may be applied to legal relations in the Kazakhstan territory only in case there is an agreement between the parties to a civil contract on applicable law. However, in any case, such application must not violate the imperative requirements of the Kazakhstan legislation. Specifically, a corruption offense committed in the Kazakhstan territory will in any case be considered by the authorized agencies of Kazakhstan, and the persons at fault will be brought to liability according to the Administrative Code and the Criminal Code.

  At the same time, in case such violation also falls under the definition of a corruption offense under the FCPA, we believe that issuers and "domestic enterprises", their officers, shareholders (participants) and representatives (as defined in the FCPA) may be actually brought to liability both in the USA and in Kazakhstan.

  In light of the above, Kazakhstan companies, which have internal regulations (policies) and enter into contracts with counterparties providing for compliance with requirements of the FCPA, must thoroughly check as to whether there is any affiliation between a non-profit organization submitting a request for charitable assistance and Kazakhstan officials and persons performing management functions at a public organization or a quasi-public sector entity of Kazakhstan according to requirements and restrictions established by the Kazakhstan Law on Corruption Control and other applicable regulatory legal acts.

  Furthermore, it is necessary to confirm that provision of charitable assistance is not conditioned by the receipt of future orders or any other benefits for a company in the future.

When conducting analysis, it is important to distinguish the forms of charity stipulated by the Charity Law:

  • Patron activities are intended to develop science, education, culture, art, sportsmanship, preservation of historical and ethnocultural heritage of public and state.
  • Philanthropy is aimed at satisfaction of the needs of public and persons, improvement of their living conditions and, as a rule, associated with assistance to specific individuals in difficult circumstances.

  According to the latest amendments, sponsor activities mean the activities of a sponsor intended to provide sponsor support on the condition of promotion of the sponsor's name under the Kazakhstan legislation. Accordingly, unlike any other forms of charity, sponsorship pursues the aim of advertising. In light of the fact that governmental agencies cannot perform advertising functions, we believe that the events held by governmental agencies cannot be sponsored.

  If a company intends to provide charitable assistance and does not pursue the objective of promoting the sponsor's (company's) name, we recommend using the opportunity of providing the patron assistance in the form of a charitable grant.

STEP 3 – Entering into a contract

  Once a company approves the provision of charitable assistance, it is necessary to enter into a contract between a charity giver and a recipient of charitable assistance where we recommend to clearly set out the purpose of providing charitable assistance, amount of such assistance expressed in monetary terms, including all possible taxes, procedure for provision of charitable assistance, liability of the parties, provisions on compliance with the anti-corruption legislation, dispute resolution procedure, procedure for submission of a report and other documents by the charitable assistance recipient, including accounting documents confirming the expenditure of money to achieve the contractually predetermined purpose. We also recommend using a sponsorship contract to additionally specify the procedure for promoting the sponsor's name.

  It is worth mentioning that the procedure for using a charitable grant or individual scholarship may be changed by a user in case of the charity giver's (patron's) consent.

STEP 4 – Verifying a report on the use of charitable assistance

  According to legislation, a charity giver or a charity organization transferring property to a user may demand that the user submits a report on the use of such property. In turn, a user receiving money as special purpose charitable assistance from a charity giver or a charity organization must submit a report upon the charity giver's or charity organization's request within the timeframes and under the procedure specified by a contract. The undrawn part of a charitable grant or an individual scholarship is refundable financial assistance and must be refunded to the charity giver. Kazakhstan residents must publish annual reports in mass media on the use of funds provided free of charge by international organizations, foreigners and/or stateless persons for the provision of charitable assistance. STEP 5 – Submission of reports by charity giver and/or charity organization Implementation of a charitable programme must be confirmed a charity giver's and/or charity organization's report.

  According to the latest amendments to the Charity Law, Kazakhstan charity givers must also keep records and submit information regarding the performed charitable activities to the authorized governmental agencies under the procedure stipulated by the Kazakhstan legislation. In light of the fact that a charity giver means a person, philanthropist and/or sponsor, and/or patron, and/or person providing support to the home area and/or carrying out charitable activities, we believe that legislation provisions relating to the charity giver's obligation to keep records and provide information to an authorized agency are set out in a very broad manner and can hardly "work in practice". For example, as the practice of money transfers has been becoming more widespread, many people transfer money for charitable purposes, and it is unlikely that most of them will submit information to an authorized agency.

  Finally, it is worth mentioning that the Kazakhstan legislation on charitable activities is developing at its initial stage now. In the Western world, charity is profitable from the viewpoint of tax exemptions. Certain European countries and the USA provide for significant tax benefits (up to 20%-30%) in case of charitable activities. On the other hand, charity is prestigious, as it enhances the social status and reputation of a charity giver. At the same time, Kazakhstan provides for the 3% benefit to major taxpayers that are subject to monitoring, and 4% to all other taxpayers.