FCRA made applicable to Liaison offices of INGOs

Establishment of branch office / liaison office / project office or any other place of business in India by foreign entities (for-profit or non-profit) is regulated in terms of Section 6(6) of Foreign Exchange Management Act (FEMA), 1999. Until recently provisions of the Foreign Contribution Regulation Act (FCRA) 2010 were not applicable to such entities [e.g. International NGOs (INGOS) or International Donor Agencies (IDAs)] having their liaison offices in India, as long as such liaison offices received funds/grants in India directly and only from their head office situated overseas.  Such Liaison offices had to be registered with the Reserve Bank of India (RBI) and were regulated by FEMA and not FCRA.

FCRA News

The Amendment

However, the Reserve Bank of India’s earlier Notification No. FEMA 22(R) /RB-2016 of March 31, 2016 has been amended on 31st August 2018 such that “where approval of the Reserve Bank is required in certain cases for establishment of branch office, liaison office or project office or any other place of business in India and if the applicant is a Non-Government Organization, Non-Profit Organization, Body/Agency/Department of a foreign government, if such entity is engaged, partly or wholly, in any of the activities covered under Foreign Contribution (Regulation) Act, 2010 (FCRA), they shall obtain a certificate of registration under FCRA and shall not seek permission under FEMA.”

INGOs or International Donor Agencies seeking registration under FEMA will now be required to apply to MHA under FCRA 2010 and not RBI and if they choose to register with RBI and not with MHA under FCRA 210, they will be required to declare in the amended Form FNC (Annex C):We will not undertake either partly or fully, any activity that is covered under Foreign Contribution Regulation Act, 2010 (FCRA) and we understand that any misrepresentation made or false information furnished by us in this behalf would render the approval granted under the Foreign Exchange Management (Establishment in India of a branch office or liaison office or a project office or any other place of business) Regulations, 2016, automatically as void ab initio (Latin for ‘from the beginning’) and such approval by the Reserve Bank shall stand withdrawn without any further notice

The amendment is not clear on two counts:

1) Must every INGO having a definite Cultural, Religious, Economic, Educational or Social (CREES) program in its Memorandum of Association or running such CREES programs or activities in its home country or other countries, apply for registration under FCRA to establish its liaison office in India, even if the liaison office would not be carrying out or funding any definite CREES program or activity in India?

2) Will existing Liaison offices now have to apply for registration under FCRA or will this amendment apply prospectively only to INGOs seeking to register liaison office in India after this Amendment of 31st August 2018?

MHA’s all-sweeping control

Ministry of Home Affairs had been eying liaison offices with suspicion since several years. Way back on 29th August 2016 the Economic Times had reported:  “The Home Ministry wants Finance Ministry to stop registering NGOs under Foreign Exchange Management Act (FEMA) so that there’s only one custodian to monitor flow of foreign funds to these organisations. To make its case, the Home Ministry has drawn up a list of 67 NGOs which were found violating the Foreign Contribution Regulation Act (FCRA) but, tried to escape penalty by invoking their FEMA registration.”

It was a long held belief by MHA that INGOs from Europe and the USA smartly avoided coming under the FCRA scanner by registering as liaison office with RBI under FEMA. With the Amendment of 31st August 2018 it would seem Ministry of Home Affairs has succeeded in making the Ministry of Finance withdraw its power to regulate INGOs under FEMA 1999 and make FCRA 2010 become the “umbrella legislation” for registering all NGOs, (international or otherwise), receiving funds from foreign sources.

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