International Grantmaking: Best Practices for Responsible and Effective Grantmaking

Natalie Silver, Co-Director of JFN Philanthropic Services 212.726.0177 ext 207

Eve Rodsky, Co-Director of JFN Philanthropic Services 212.726.0177 ext 223

October 6th, 2009

Agenda

The Complex Environment for International Giving US Federal Tax Law New Rules and Regulations

Top Three Ways of Giving Internationally Giving Intermediaries Equivalency Determination Expenditure Responsibility

Best Practices and Recommendations

JFN: Give to Israel Overview Benefits Process Fees

The Complex Environment for International Giving

In recent years, the environment for making gifts internationally has become more complex and challenging with new regulations requiring in-depth due diligence of foreign charities.

U.S. Federal tax law requires that:– Individuals cannot get a tax deduction on gifts made directly to

foreign charities. – Foundations and their managers are subject to penalty taxes on

grants to foreign charities and such grants will not count towards the foundation’s five per cent payout if the foundation is not undertaking appropriate due diligence or using an intermediary to do so.

– Donor Advised Funds and their managers are subject to penalty taxes on gifts to foreign charities if the DAF is not undertaking appropriate due diligence or using an intermediary to do so.

The Complex Environment for International Giving

New Rules and Regulations– USA Patriot Act increases existing criminal penalties for knowingly or

intentionally providing material support or resources for terrorism.– Executive Order 13224 requires international giving intermediaries to

check the principals of every group funded against the relevant prohibited persons lists.

– US Department of the Treasury: Anti-Terrorist Financing Guidelines provide additional recommendations on compliance.

– Pension Protection Act of 2006 requires that one of two due diligence procedures are followed: Determining that the non-US grantee is the equivalent of a US

public charity through an “equivalency determination” or Undertaking “expenditure responsibility.”

Top 3 Ways of Giving Internationally: Intermediaries – US 501(c)(3)s

“Friends of” organizations – Established in the US as a 501(c)(3) to raise funds for a specific

overseas organization.– Typically for larger institutions, such as museums, universities and

hospitals. “Re-granting” Intermediaries

– A 501(c)(3) that raises funds in the US and re-grants them internationally.

– Federal tax law requires that US public charities maintain legal ownership of, and control and discretion over the use of, any contributed funds that will be re-granted to an overseas charitable organization.

– Requires that the public charity have a due diligence procedure and approval process for each grant made.

Top 3 Ways of Giving Internationally: Equivalency Determination

Applies to private foundations and donor advised funds. Method of making a grant directly to a non-US organization by making a

“good faith determination” as to whether the organization is a 501(c)(3) equivalent.

Requires:– Collecting extensive information and documentation from the

organization about its origins, activities and finances through an affidavit;

– Financial information that must be current as of the most recent fiscal year;

– Updating documentation on a regular basis. No “magic list” of organizations. Cannot rely on another foundation’s equivalency determination.

– The Repository Project of COF, InterAction, Foundation Center and Independent Sector seeks to address this issue.

Top 3 Ways of Giving Internationally: Expenditure Responsibility

Applies to private foundations and donor advised funds. Method of making a grant directly to a non-U.S. organization

by ensuring that the funds are used for charitable purposes. Requires:

– conducting a pre-grant inquiry into the organization and its planned use of the grant funds;

– entering into a written grant agreement with the organization prior to disbursing the grant funds;

– obtaining annual reports from the organization until the grant funds are fully expended; and

– annually reporting the grant to the IRS until the grant funds are fully expended.

Israel has specific laws governing the operations of charitable organizations.

Additional Due Diligence: Terrorism Concerns Anti-Terrorist Financing Guidelines contain steps that US

organizations should take prior to making a grant to a foreign charitable organization, including:– Conducting a “reasonable search of public information” to

determine if the foreign organization is suspected of activity relating to terrorism; and

– Ensuring that the foreign organization and its trustees, directors, officers or other key employees do not appear on the Specially Designated Nationals (SDN) List maintained by the Treasury Department.

Practical concerns– Check SDN list for organization and its board members.– Include anti-terrorism language in grant agreement.

Best Practices & Recommendations

Know your intermediary– Make sure not a “conduit” or donor will face penalties– Ask about due diligence process (equivalency

determination or expenditure responsibility, plus terrorism)

– Transparency around fees (any hidden fees?)– Consider using intermediary who ensures compliance

with US legal and regulatory requirements Know your grantee

– Due diligence process (equivalency determination or expenditure responsibility, plus terrorism)

– Post-grant monitoring to ensure funds are being used as intended

JFN: Give to Israel – Overview

Offers a complete mechanism that facilitates the making of grants to charitable organizations in Israel.

Available to foundations, donor advised funds and individual funders Two Programs:

– standard program for making grants to qualified Israeli charitable organizations

– custom program with add-on services designed to help you meet your philanthropic goals

The Process:– You identify the charitable organizations and programs in Israel you

want to support– You make a tax-deductible gift to JFN and recommend where you

want your charitable contribution to go – JFN facilitates the gift and handles all the details to ensure your gift

is being used as you intended

Give to Israel – Benefits One-stop-shop for all qualified Israeli charitable organizations

– Open to all charitable organizations in Israel Quick turnaround time on grants

– Approximately 2 to 3 weeks, depending on when information is received from Israeli organization

Transparency of fees and process– JFN tells you exactly what you’re paying for

Personalized service– JFN has staff available to answer your questions

Understanding of the Israeli nonprofit landscape– JFN established an Israel office in 2008 and has staff with experience

working with charitable organizations in Israel Expertise navigating complex US regulatory environment

– JFN ensures gifts in compliance with current laws and guidelines and monitors changing regulatory landscape for international grantmaking

Rigorous due diligence process– JFN uses expenditure responsibility for a more flexible and expedient

due diligence process that is less onerous on the nonprofit– JFN complies with the Anti-Terrorist Financing Guidelines

Give to Israel – The Process

Give to Israel Standard Program:– Donor makes a grant recommendation using JFN’s donor form and

releases funds to JFN– JFN conducts a pre-grant due diligence inquiry into the organization

to determine its eligibility and its planned use of the grant funds– Grant is approved by JFN directors– JFN enters into a written grant agreement with the organization

prior to disbursing the grant funds and grant funds are disbursed– Donor receives donor letter with confirmation of the grant– JFN staff monitor grant’s progress by obtaining annual reports

from the organization until the grant funds are fully expended

Give to Israel – Custom Program

For funders interested in developing a grantmaking program for Israel

In addition to services provided in the standard program, custom programs include add-on services such as:– Developing customized program strategies– Conducting research on potential organizations and

projects in Israel– Soliciting and reviewing grant proposals– Monitoring and evaluating grantee organizations and

projects– Providing regular progress reports to donors

Give to Israel – Fees

Fees support the direct costs associated with the grant, including all grant preparation and due diligence, grant administration, monitoring and reporting

Standard program– Fees are assessed based on the size of the grant as follows:

• $250 for grants $1,000 - $9,999• $500 for grants $10,000 - $24,999• $750 for grants $25,000 - $74,999• $1,000 for grants $75,000 - $99,999• $1,500 for grants $100,000 - $499,999• $1,750 for grants $500,000 - $999,999• $2,000 for grants $1,000,000 and over

– A 10% discount is provided to JFN members Custom program

– Fees are based on the scope of the work, including the size and volume of grants to be made

JFN Philanthropic Services: About Us

Design and implement customized philanthropic strategies and giving programs

Create training programs for funders and foundation professionals new to the field

Advise on foundation governance, legal compliance and international gifts

Prepare family members to carry out philanthropic legacy

Our Expertise Our Team

Our DifferentiatorsOur Clients

Team of senior advisors with advanced degrees in law, nonprofit management and rabbinical studies

Extensive experience in philanthropy and the nonprofit sector

Knowledge base on wide array of program areas, both secular and Jewish – Secular: arts, education, environment, human rights, medical research, social services, youth – Jewish: Jewish education, Jewish identity, Jewish outreach, Israel

Nonprofit organization whose fees are designed solely to cover costs

Philanthropic advisory group with nonprofit attorneys on staff Unique leverage and networking opportunities for grantmaking through membership base

Medical research and prize philanthropy expertise

Provide advisory services to over 75 clients annually

Currently oversee grantmaking and administration for 10 clients

Distribute approximately $40 million to nonprofit organizations each year

Distribute approximately $16 million internationally annually