Russian nonprofit law reform update

Last week I noted that the legal situation for nonprofits in Russia is more complex than the conventional wisdom would have us believe.

There was, of course, a method to my rhetorical madness. Here's an update on one important aspect of the Russian nonprofit world: reforms aimed at encouraging the formation of independent and financially sustainable nongovernmental NPOs.

A few months ago the Russian government formed a working group with a stated goal of facilitating the formation of nongovernmental nonprofit associations, which became a particularly pressing issue after restrictive measures enacted under Vladimir Putin a few years ago. Anyone familiar with Soviet rhetoric knows that sometimes words can have two meanings, and a leading governmental official promised that we'll soon see "many truly innovative proposals" for liberalizing current law, there was ample reason to be skeptical.

However, the first proposed set of amendments to the Russian law "On Nonprofit Organizations" finally went live a few hours ago, and it actually does lighten the regulatory burden in several significant ways.

A major focus of the proposed reforms is to rein in what some see as the unbridled authority of the Ministry of Justice--the state body that incorporates nonprofit organizations--to obstruct the formation and activity of nonprofit NGOs. The bill seeks to accomplish this in several ways, such as

  • limiting the organizational documents the Ministry has the right to request,
  • limiting the number of audits to once in a three years (as opposed to annually),
  • limiting the grounds for the denial of registration,
  • adding the option of suspending registration (as opposed to merely providing for denial), and
  • requiring the government to explain reasons for refusal within a specific period of time.

The bill also has provides for the publication--in the mass media or online--of an annual report, with a simplified statement of ongoing activity for smaller organizations. This is also in keeping with the bill's announced purpose of "lightening but not eliminating accountability for NPOs."

Although the proposed reforms apply for the most part to Russian nonprofits--a subsequent bill is reported to be in the works in regard to foreign groups--the bill does include a welcome amendment in regard to branch offices of foreign NGOs: it would eliminate the current prohibition on foreign affiliates or representative offices deemed to be a "threat . . . to national uniqueness and identity to cultural heritage."

Moreover, in a separate and equally significant legal development, a Russian appeals court recently held that grants made by foreign organizations to Russian nonprofits are exempt from the profits tax. This precedent could, if not overturned, put an end to questions as to whether tax exemption for foreign grants is limited to grants received from just a few charities specified on a list issued by the Russian government.

As Human Rights Watch indicated when the scope of the proposed liberalizations was initially announced, additional changes would be useful, but the proposed bill, if enacted, appears to be a welcome "first step for reform."