When a complaint was lodged with the Charity Commission in August 2009 that The Atlantic Bridge was breaking the rules about political activity by charities, it was not hard to predict that it was going to be a difficult and sensitive investigation.
A general election was in view in which the Conservatives looked likely to win the most seats, and the charity had been founded by Liam Fox, who was a virtual certainty for the Cabinet. Baroness Thatcher was honorary patron of the charity, which had objects including the fostering of relations between Europe and the US, and its advisory council included the Tory luminaries George Osborne, William Hague, Michael Gove and Chris Grayling.
The chair of the commission, Dame Suzi Leather, was already regarded with suspicion by many on the right for her membership of the Labour Party and the measures taken by the commission to oblige independent charitable schools to demonstrate their public benefit; another potential twist was that the complaint came from Stephen Newton, a freelance PR consultant, political blogger and Labour supporter.
There was also a difficult judgement to be made about whether to deal with the case through a full-scale statutory inquiry, a format that is usually reserved for cases of serious misconduct and mismanagement, but which is generally more expensive and is open to challenge in the charity tribunal. The alternative was a less formal regulatory compliance case, in which a solution is sought by consultation and negotiation.
That judgement had to be made against a harsh financial background. The commission's budget had already been frozen, it was cutting down the number of statutory inquiries as part of what it called a more proportionate and targeted approach to regulation, and it must have been conscious that its next four-year budget settlement would probably be decided by an incoming government, some members of which would potentially be under scrutiny in the investigation.
Once the commission's compliance assessment unit had looked at the complaint, it agreed there was cause for concern. The commission opted for a regulatory case report and began to examine whether Atlantic Bridge was using its funds for party political activities that would be incompatible with its charitable status. More than a year later, two months after the coalition had formed the new government and Fox was made Secretary of State for Defence, the watchdog came down against the charity.
It issued a 10-page regulatory case report that concluded Atlantic Bridge did indeed promote a political policy closely associated with the Conservatives, and its activities must cease at once. It gave the charity 12 months to ensure its activities were compatible with its charitable objects.
Atlantic Bridge continued to operate for the next 14 months. But on September 23 this year, just before it was due to report to the commission and the controversy over Liam Fox's assistant Adam Werritty broke out, it closed and transferred its assets to an unnamed charity with similar objects. One of the details that emerged during the controversy was that Werritty had been a director of The Atlantic Bridge and had been paid a total of about £90,000 for his services.
Last year's regulatory case report did not satisfy Newton, whose solicitors wrote to the commission threatening a judicial review of its conduct. He contended that the watchdog had failed to conduct an effective investigation, failed to get the right balance between its statutory objective of increasing public trust and those of investigating and taking remedial action, and failed to take action against the trustees of Atlantic Bridge to recover assets that had been misapplied.
The solicitor's letter also said regulatory inquiries were "not an appropriate mechanism for investigating allegations that might amount to fraud or tax evasion"; and it added that the move by the commission to conduct fewer statutory regulatory case inquiries was "damaging the reputation of charities as a whole".
The commission's 16-page response asserts that it did succeed in balancing its statutory objectives of public confidence in charities, public benefit, compliance, securing charitable resources and accountability. "Our experience shows that in most cases a complaint can be cleared up by providing advice or by highlighting information in our guidance, using a facilitative approach," it says. "Only complaints that identify the most serious risks to charity, its assets or beneficiaries will be dealt with by an inquiry under Section 8 of the Charities Act 2003."
It also says that the trustees had told the inquiry that it was their honestly held belief that they had been acting in accordance with the law: "The commission found that the trustees did not act dishonestly, but mistakenly believed they were pursuing a correct interpretation of their objects. Furthermore, they gave their full cooperation during the investigation, and made no attempt to conceal or distort the information they provided to us ... These were important factors to be taken into account."
On the question of legal proceedings for recovery of misapplied funds, the response points out that the Charities Act 1993 says the watchdog has to seek the consent of the Attorney-General for such action and cites legal precedents that the grounds for them would need to be "pretty copper-bottomed", with "a near certainty that liability can be established". The response concludes that "the trustees did breach charity law principles; however, they did so unknowingly, and on a rather technical and difficult area of charitable law". As a result, "it would not be proportionate or appropriate to seek restitution"
'Sound legal ground'
Tom Murdoch, a charity lawyer with the firm Stone King, says the arguments in the response indicate the commission was on sound legal ground. There may have been a case for a statutory inquiry, he says, but it is bound by the Charities Act 1993 to use its powers proportionately and in this case it felt it could achieve its objectives without opening a statutory inquiry.
He says the reference to the legal precedents is also a reminder that, although ignorance is not an excuse for breaking the law, the commission does have the right to excuse "forgivable lapses".
Newton, however, thinks the commission gave Atlantic Bridge an easy ride by failing to hold individuals to account. He believes the commission should have opened a statutory inquiry, which would have allowed it to inspect documents and question trustees more thoroughly.
The commission, he feels, did not adequately examine an offer Atlantic Bridge made to donors, which involved trips to the US in return for donations, and which Newton claims contravened charity tax laws and raised the possibility of fraud. He is also unhappy that Atlantic Bridge did not have to publish its final year accounts or say which charity received its assets.
He says: "It is unclear whether MPs associated with The Atlantic Bridge were fully aware of this scam, whether they were unwitting beneficiaries or if they were innocents whose names, along with that of Lady Thatcher, were used to lend the organisation an air of respectability. My view is that the commission has colluded with The Atlantic Bridge to protect it, Liam Fox, other MPs and Baroness Thatcher from further public scrutiny."
A commission spokeswoman says: "We consider that in this case the direction and nature of our investigation were appropriate to the concerns about the charity. We have no further regulatory action to take in relation to the charity."
No one from Atlantic Bridge was available for comment.
THE COMMISSION CAN OPT FOR ONE OF TWO TYPES OF INQUIRY:
The Charities Act 1993 gives the commission extensive statuory powers to investigate the most serious abuses of charity law. These include the power to require information or documents, to order individuals to meet and answer questions and to intervene in the running of a charity by, for example, freezing assets or suspending trustees. The number of statutory inquiries opened has fallen from 19 in 2008/09 to three in 2010/11. The reports are published.
Non-statutory regulatory compliance cases
If the risks are considered less serious, the commission chooses this option. Most investigations are dealt with this way. The commission attempts to resolve problems using supervision, regulatory advice and guidance to trustees. Case reports are published only if the commission thinks it will be helpful to other charities or there is a public interest.