'Sham' charities uncovered

A recent case raises questions about the Charity Commission's registration process

Charity Commission
Charity Commission

Last month the Charity Commission announced it had removed seven charities from its register and turned down a further 28 applications for charitable status because it suspected the organisations were "sham charities".

A regulatory case report published by the commission indicates that alarm bells started to ring when one of its staff tried to contact one of the seven newly registered charities and realised the address given for the correspondent, a trustee of the charity, was unoccupied.

Further digging by the commission's staff revealed that 35 separate organisations that had applied for charitable status between 16 July and 4 August 2010, although based across England, shared a number of common characteristics.

As well as sharing some financial information, they gave "the advancement of the Christian faith" as their charitable object and submitted non-operational phone numbers and addresses that were unoccupied or did not exist.

The commission tried to contact the various organisations but was unable to get hold of anyone listed as a trustee of any of them. It alerted the police to its findings, struck the charities from the register and closed or discontinued the applications.

Some charity lawyers think the case raises important questions about the legitimacy of some charities on the commission's register and the regulator's ability to investigate cases of potential wrongdoing.

"It is worrying that this wasn't picked up before the seven charities were registered," says Jonathan Burchfield, a partner at law firm Stone King. "It is very rare, in my experience, for the commission to register a charity without first contacting someone there to ask further questions. I would be staggered if no such contact was made in these cases."

Ros Harwood, a partner at Dickinson Dees, agrees. "When a charity applies to register, the commission usually asks how it will provide a public benefit and where it will get its funding from," she says.

It seems, though, that these questions were not asked in this case, and a commission spokeswoman says that, generally speaking, a charity would not automatically be contacted other than to receive acknowledgements or confirmation of registration. The spokeswoman also says registrations involving lawyers are more likely to be complex and involve more engagement by the commission.

Catherine Rustomji, head of the law firm Hempsons' Third Sector North branch, says she is concerned about the wider implications of these cases. "If so many got through in the first place, you have to wonder how many other sham charities are on the register," she says.

Rustomji says this is worrying in the context of funding cuts for the regulator. "It is more difficult now than it was in the past to get the commission to open an inquiry into a charity that has been registered, because its resources are tight," she says. "So there is a strong case for tight checks at registration stage, when this is more cost-effective."

Michelle Russell, the commission's head of compliance, says there is "no evidence to suggest that sham charities are prevalent" but that they are uncovered "from time to time". So the commission might want to avoid costly solutions prompted by the alarm caused in this case.

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