I am donning my Superman cape (doesn’t everyone have one?) in the hopes of accomplishing the near-impossible task of setting the record straight on what could potentially be a turning-point for Israeli charities.

Since early January of this year, the topic of Funding from Foreign Governments to Israeli NGO’s (Non-Governmental Organization) has been making headlines. Two ideas to promote Transparency, though, in very different contexts — a proposal put forth in January and a bill approved in February — have politicians, nonprofits, and European Governments lamenting the destruction of democracy and human-rights in Israel.

However, the pursuant rhetoric, innuendos, politicking, and here-say makes it near impossible to filter out fact from fiction and to distinguish these two very different initiatives.  

JUST THE FACTS, MA’AM

January 5, 2011 – The House Committee of the Knesset (Israel’s Parliament) proposes establishing a Parliamentary Panel of Inquiry into “left-wing” Israeli organizations that allegedly participate in “delegitimization campaigns again Israel Defense Forces soldiers.” (Ha’aretz)

February 21, 2011 – The Knesset gave final approval to a bill that “requires nonprofit organizations to report which foreign entities contribute to them, whether governmental or government supported.” (Ha’aretz)

Some background:
The Bill was submitted in 2010 way before the Proposal to establish Knesset panels to probe left-wing groups. After passing its first reading (bills need to pass three readings to become law), the Bill lost momentum, finding itself in cryogenic-stasis. A number of months later as the controversy surrounding the Panel Proposal heated up, the Bill got a “push” in late January of 2011, quickly passing both its second and third readings in February. The day after the Bill was passed, the Proposal for the Parliamentary Panel fizzled out, its proponents having asked for the vote to be postponed (effectively shelving the matter entirely).

To summarize:
Parliamentary Panel of Inquiry of only left-wing organizations doesn’t exist.
Bill requiring all nonprofits to report foreign-governmental funding does exist.

REACTIONS: SLANDER & CONFUSION

Immediately after the introduction of the Panel Proposal in early January, critics quickly labeled it anti-democratic, comparing it to the investigations initiated by Joseph McCarthy against Communists in the United States during the 1940′s and 50′s.

These claims of witch-hunting were subsequently hurled onto the Bill, as well, seemingly because both the Proposal and the Bill were within a short time of each other and both dealt with Transparency. The ensuing result was the distortion of the vast differences between the two ideas and in some cases, confusing the pubic into thinking that the two were one-and-the-same.  And I’m not referring to the unknowing masses either – even newspapers and government officials were intentionally or inadvertently grouping the two together.

(See Appendix B below for specific examples.)

THE MOST IRONIC PART IS…

On February 21st when the Bill was approved, a Member of Parliament who had voted against it “criticized the government for becoming increasingly McCarthyist.” And he wasn’t the Bill’s only opponent, not by a long shot.

But here is the punch-line: The Israeli Government hasn’t become increasingly McCarthyist (if a law pertaining to all nonprofits can even be labeled as such). The requirement for charities to report on foreign-governmental funding has existed for years!

Ofer Katz, a lawyer and expert in Israeli nonprofits who participated in Knesset discussions about the bill, said as much in a recent radio interview: February’s bill represents “nothing new.”

A careful review of the Law of Charities [Chok Ha’amutot], Paragraph 36a, shows the pre-existing stipulations:

Charities — with a yearly turnover of more than 300,000 NIS and whom have received at least a combined 20,000 NIS from foreign governments — must state in their financial statements the (1) name of the foreign government or governmental entity (2) amount of the donation (3) purpose or objective of the donation and (4) if applicable, the conditions of the donation.

SURELY, THE LAW MUST ADD SOMETHING NEW!

While not as earth-shattering as some would have us believe, the new law does introduce additional reporting measures.

1. Charities are now required to report foreign-governmental funding four times a year, within a week of the closing of each quarter (in addition to the yearly report in its financial statement).
2. The reporting requirement isn’t dependant upon yearly turnover or aggregate amount of donations. Any organization that receives any amount.
3. If the foreign grant was for a printed ad — billboard, flyer, newspaper, magazine etc. — the ad must state the source of the funding.
4. Everything that is required to appear in the quarterly report, must also be clearly and easily found on the charity’s website.

OBJECTIVE vs SUBJECTIVE

The collapse of the Knesset the Panel of Inquiry was a good thing.

Rules and stipulations of charities should be objective and established by a strict set of criteria.  These conditions can then be used to select relevant charities.  When one of the Proposal’s initiators immediately declared a list of “left-wing” nonprofits that should be examined, the objectivity of the Proposal was called into question.

Furthermore, an adhoc committee isn’t the place for this debate, but rather laws established by Israel’s Parliament (Knesset) and the Registrar of Charities (Rasham Ha’amutot).

(For a more detailed analysis, please see “NGO Inquiry Committee Has Wrong Focus, Framework” by Jason Edelstein and Prof. Gerald Steinberg of NGO Monitor.)

WHY DO WE NEED THIS NEW BILL?

Israel’s charitable-waters are a little murky.

Israel allows political advocacy groups to be considered charities and for their donations to be tax-exempt.  In America, for example, donations to political advocacy groups (designated as “c4″ organizations) are not tax-exempt and, as such, other tax-exempt charities are not allowed to forward monies to these 501(c)4 organizations.

Before February’s adoption of the new bill, the only place where one could find details about foreign funding was in an organization’s financial statements and reporting to the Registrar of Charities.  There was a large consensus that the Public was not seeing this information.

Generally, countries interact and influence each other through diplomacy.  Not so with Israel’s nonprofits.  The bill is aimed at NGOs that are advocacy and education nonprofits that are receiving grants from foreign governments.  This financial support is bypassing the diplomatic arena and is appearing in the guise of homegrown nonprofit organizations; thereby, allowing these foreign powers to push their own agendas in a much more unassuming manner.

The new bill forces charities to be more transparent on their printed media so that those seeing the content of these billboards, advertisements, and websites can get a clearer picture of whose interests are being represented.

Additionally, nonprofits that receive foreign-government funding will now report these donations quarterly, instead of yearly; thus, allowing the Israeli Government to react much faster should the need arise.

(For a more detailed argument, please read, “Transparency for NGOs is not Anti-Democratic” by Prof. Gerald Steinberg of NGO Monitor.)

CONSEQUENCES FOR THE FUTURE

The claim that the new law was made to single out government funding — while leaving other types of foreign-funding untouched — is correct.

Dissidents, though, should not be so quick to judge the unfairness of the new Bill.  Yes, the Knesset passed a law only about foreign-government funding, but this is because the foundations for the extra reporting-measures were already in place in the preexisting, previously mentioned paragraph of the Law of Charities.

However, the true significance of the Bill, what makes it a potential turning-point for Israel’s nonprofit sector, is that it lays the groundwork for further transparency measures for all types of foreign-funding.

How’s that for democratic?

Tizku Lemitzvot,

Shuey

Disclaimer: This blog expresses my own personal opinions and is for informational purposes only, not advice.  As charity laws can be quite complex and ever-changing, please refer all questions to qualified and licensed professionals. Read the full disclaimer.

Photo Credit: “Flags” by RambergMediaImages

Appendix A: Additional Recommended Reading

The President and staff of NGO Monitor (Amuta for NGO Responsibility) have written various reports and op-eds in the previous years that are dead-on.

1. “NGO Inquiry Committee Has Wrong Focus, Framework” by Jason Edelstein, Communications Director of NGO Monitor, and Prof. Gerald Steinberg, President of NGO Monitor. January 12, 2011 in the Jewish Telegraphic Agency.
2. “Transparency for NGOs is not Anti-Democratic” by Prof. Gerald Steinberg, President of NGO Monitor. February 23, 2011 in Ha’aretz.
3. “Manipulating the Marketplace of Ideas” by Prof. Gerald Steinberg, President of NGO Monitor. November 2009 in Ha’aretz.
4. ”Resetting Europe-Israel Relations” by Prof. Gerald Steinberg, President of NGO Monitor. June 2010 in The Jerusalem Post.
5. “Europe’s Hidden Hand” June 2008 Report by NGO Monitor.

Appendix B: Examples of Inadvertent or Intentional Misrepresentation

1. In the March 25th weekend-edition of Ha’aretz, an author wrote that “Peace Now [a left-wing organization] is on the brink of a parliamentary investigation.” As the Proposal has been shelved, the author’s wording is incorrect.
2. Ha’aretz headline on February 22nd read “Knesset Passes Bill to Make Israeli NGOs Report Foreign Contributors.”  In reality and as detailed previously, the Bill didn’t “make” NGOs report anything, this requirement already existed. The new Bill only adds additional reporting measures.
3. In the above article, on the day the bill was passed a government official asked: “Why is money from the Netherlands’ government, by definition, dangerous, but money from radical evangelist organizations permitted?”  By using the word “permitted,” this minister is misrepresenting the true nature of the new bill.  February’s bill only relates to transparency and reporting; it does not touch upon what is permitted or not allowed. (Not to mention, money from the Netherlands’ Government is permitted anyway.)

Click here to return to the article “The Most Ironic Part Is…”

For years we have been witnessing charitable institutions hiring business executives in order to increase fundraising or professionalize the organization.  I remember the big news when the President of Columbia University, George Rupp, accepted the presidency of the International Relief Committee in 2002.  Some of us alumni were bewildered by the move — leaving the private sector for the public sector, unheard of!?!?  However, what seemed like an isolated incident then, was actually indicative of many nonprofit organizations.

But is the reverse true?  Are the corporate and public sectors luring away nonprofit executives in the hope of improving their social standing and/or activities?

The corporate sector seems to have caught on to the trend that charity is in style.  Many organizations in the United States and in Israel donate a percentage of their profits to charitable causes.  In some professions, like banking in the United States, there are laws demanding as such.  Here in Israel, every serious bank has a page on their website entitled “BaKehila,” [in the community] that details the bank’s charitable efforts.

I would like, though, to leave the corporate sector aside for the moment.  What sparked this post was really my experience vis-à-vis the public sector, more specifically the Israeli Government.

I think that all too often we have seen nonprofit giants and social innovators (even before such lingo became commonplace) jump ship to a position in some form of the government, leaving their non-profit life behind.  Once in the public sector, the constituents – myself included – quickly lose faith in these leaders when seeing them in action. Sometimes, even to the point that their past deeds and accomplishments are completely forgotten.

Why can’t these past directors and founders of nonprofits continue to work for the common good while simultaneously holding public office?

Thus, I was pleasantly surprised — almost giddy even — when I read about two would-be laws brought forth by former nonprofit lay leaders who are currently members of The Knesset [Israel's Parliament].  The Hebrew nonprofit support site, Zavit Shalosh [The Third Perspective], reported last month the following:

• MK [Member of Knesset] Ilan Ghilon, board chairman and youth coordinator for various amutot [Israel nonprofit organization] from 1986 through 1995, put forth a change in the law that would allow children under the age of 15 to volunteer with nonprofit organizations.  The goal of the law is to allow children above the age of 12 to use their free time (which they have plenty of) productively, volunteering their time and growing from the experience gained from helping the less fortunate (in all of its myriad forms).
• MK Zeev Bielski, head of the Jewish Agency from 2005-2009, put forth a change to the law that would grant new immigrants and other less fortunate groups the opportunity to apply for free legal help from volunteers who are experts in the relevant law fields through an initiative (aptly) called “Certified Volunteer Advocates.” The goal of the addendum is to allow these underprivileged plaintiffs level the playing field with the defendants — generally companies and business owners that can afford to be represented in small claims courts with paid professionals.

The two updates by themselves are not earth-shattering.  However, I do think they represent thoughtful initiatives that will actually help nonprofit organizations and the people that require their services.

I have always been a believer that if you are willing to criticize then you should be willing to praise.  My hat goes off to these two members of parliament.  Call me an optimist, naïve, or just plain foolish, but, all in all, I think it’s an encouraging sign:  The passion is still alive, nonprofit executives can enter the public sector AND work for the common good.

Tizku LeMitzvot [May you continue to merit doing good deeds],

Shuey

P.S.  Know of any other examples?  Please share.

For those individuals or corporations familiar with nonprofit organizations in the United States, any analysis of the status of an Israeli charity should begin with a comparison.  This contrast will shed light on the many differences that exist in the two countries’ legislation and definition of a nonprofit organization.

American Nonprofit Organizations

In the United States, all for-profit and nonprofit organizations are companies.  Each company is registered in the state where it is headquartered; the definition and governance of these companies differs slightly from state to state.  In the United States the title of nonprofit is a federal one, referring to any organization that is exempt from some federal income taxes (although many states use the federal guidelines to exempt similar organization from state taxes, as well).  All organizations that fall into this category are labeled as 501(c).  While there exist 28 categories, only those organizations belonging to the 501(c)3 category will allow an individual’s donation to be tax-exempt.  This group is divided into public charities and private foundations.  For the purpose of this article, the definitions of the two groups are not relevant.  In short, it is these 501(c)3 organizations that have been colloquially dubbed “nonprofits” in the United States.

Israeli Nonprofit Organizations

In Israel, traditional nonprofits are called amutot (or amutah in singular) and have their own governmental oversight body, called the Rasham Ha’amutot (Registrar of Nonprofit Organizations).  Companies have a separate federal group tasked with overseeing them called the Rasham Hata’agidim (Registrar of Companies).   Both registrars can contain organizations that would be considered non-profit and for-profit under American standards.

Further investigation reveals that within each registrar are subcategories that will be referred to as licenses or statuses for the purpose of this article.  As most nonprofits are registered with the Rasham Ha’amutot (Registrar of Nonprofit Organizations), it is logical to start the analysis from here.

1. Mispar Ha’amutah [Nonprofit Organization Number] – This is simply a number that the charity receives letting the public know that this organizations is registered with the government under the Registrar of Charities; as such, this charity is subject to government scrutiny under the Amutah (Nonprofit) Law.  This number will function like an I.D. number (for Israelis) or like a social security number (for Americans).  This number is for identification purposes only and does not label donations the charity receives as tax-exempt.  The process for receiving a nonprofit ID number takes approximately a month, according to the staff at the Registrar of Charities.   
2. Nihul Takin [Sound Management] – This is a certificate awarded to organizations that follow an additional set of management guidelines as decreed by the Registrar of Nonprofits.  This status is assigned to organizations that have been in activity for no less than two years.  For the first two years, there is an interim document that can be obtained called “Certification of Validity of Presentation of Documents.”  An organization will not be able to obtain grants or contracts from the government without the nihul takin status.  For better of for worse, many institutions outside Israel are using the nihul takin as their benchmark, as well. 
3. Mosad Tziburi [Public Institution] – This status is given by the Ministry of Finance and declares the organization’s funds are to be tax exempt; for example, profit earned from investments made with a bank or financial institution would be tax exempt for this kind of organization.  This status does not brand the donations that the charity receives as tax deductable.  A nihul takin license is required when applying to be a “public institution.” 
4. Se’if 46 [Paragraph 46] – This status is granted by the Finance Committee of the Knesset on the recommendation of the Finance Committee to organizations that have obtained status as a public institution.  It is the “Paragraph 46” status that is comparable to the nonprofit 501(c)3 status in the United States.  Individuals that donate to charities that have Paragraph 46 status can get up to a 35% refund on their taxes.  An expert accountant in the field estimated the minimum time required to receive Paragraph 46 status as six months.  Practically speaking, this means that two and a half years of existence is the absolute earliest an Israeli nonprofit can expect money donated to them to be tax-exempt.  It is important to note that only approximately a third of the charities operating in Israel have this status. 
5. Malkar [Institute Not-Intended for Profit] – This license is granted from the Ministry of Finance and can be interpreted as “additional level of fiscal approval.”[1]  Organizations with this status can sell goods and services without charging VAT [Value Added Tax], or sales tax.  Purchases made by the charity, however, are still subject to VAT. 

A small fraction of nonprofit organizations exist as Chevrot Leto’elet Hatzibor [Companies for the Benefit of the Public].  These organizations are governed by company laws and are registered with the Rasham Hata’agidim [Registrar of Companies].  These institutions can also apply for all of the above licenses, if they are founded “for the promotion of commerce, arts, science, religion, charity, or any other social function with the aim of benefiting the public.”[2]

While the Amutah (Nonprofit) Law established by the Knesset is quite clear and concise, the guidelines managing nonprofits in Israel are murky, cumbersome, and confusing; this is due to the Israeli Government having created additional licenses and leaving them in the control of different branches of the government.  Those individuals or institutions looking to make a comparison between organizations registered in the United States and Israel will, thus, find their compass missing its needle.  The simple charity ID number does not tell a donor or oversight committee anything about the organization.  The additional steps of obtaining public charity, tax-exempt, or malkar status are less an evaluation of the management of the amutah and more of an internal argument to the Israeli Government that the organization has earned to right to be tax-exempt.  This leaves the general public with only the nihul takin (albeit its own deficiencies and stringencies) as the only fair judge of an organization’s true nonprofit status.

 ________________________________________________________________________________________________________________

Works Cited 

[1]  Eliezer David Jaffe “The State, Volunteers and Nonprofit Organizations in Israel: the Nature of the Relationship” (Giving Wisely, The Internet Directory of Israeli Nonprofit
and Philanthropic Organizations), http://givingwisely.org/State.htm

[2]  Ibid

Bibliography

To supplement my own knowledge and experience, I drew upon the following resources:

“501(c)” (Wikipedia, The Free Encyclopedia), http://en.wikipedia.org/wiki/501(c)

“Application to be Recognized as a Public Institution” (Israeli Tax Authority), http://www.finance.gov.il/taxes/docs/malkar_2006-09-20.pdf

“Presentation of Documents to Obtain Certification of Sound Management for 2010” (Israeli Ministry of Justice) http://www.justice.gov.il/NR/rdonlyres/AA0674DA-C669-4242-B2A2-448BAE3257B2/14849/2012.pdf

“The State, Volunteers and Nonprofit Organizations in Israel: the Nature of the Relationship” Eliezer David Jaffe, (Giving Wisely, The Internet Directory of Israeli Nonprofit and Philanthropic Organizations), http://givingwisely.org/State.htm

Translations of Hebrew words to English were done through Morfix @ http://milon.morfix.col.il