BILL ANALYSIS Ó
AB 556
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB
556 (Irwin)
As Amended June 19, 2015
Majority vote
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|ASSEMBLY: | 78-0 | (May 14, |SENATE: | 38-0 | (July 16, 2015) |
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Original Committee Reference: JUD.
SUMMARY: Strengthens the Attorney General's ability to enforce
disclosure requirements for commercial fundraisers for
charities, and establishes a 10-year statute of limitations for
enforcement actions against these commercial fundraisers,
consultants and other third parties who engage in fraud or
prohibited conduct. Specifically, this bill:
1)Expands the definition of "commercial fundraiser for
charitable purposes" to include any person or entity that
plans, manages, advises, counsels, consults, or prepares
material for, or with respect to, the solicitation of funds,
assets, or property for charitable purposes but who is
disqualified as "fundraising counsel for charitable purposes",
as defined.
2)Clarifies the definition of "fundraising counsel for
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charitable purposes" to include any individual, corporation,
or entity that, for compensation, other than as a percentage
of the funds, assets, or property received as a resultof a
solicitation campaign, plans, manages, advises, counsels,
consults, or prepares material for, or with respect to, the
solicitation in this state of funds, assets, or property for
charitable purposes.
3)Clarifies that "fundraising counsel for charitable purposes"
does not include any person or entity that receives or
controls funds, assets or property solicited for charitable
purposes, and that such receipt or control is established when
any of the following are true of the person or entity:
a) It has the right to approve or veto any payment from an
escrow account to which funds received from a solicitation
for charitable purposes are subject.
b) It maintains an interest in an account into which
solicited funds are deposited.
c) It has the right to access funds, assets, or property
received from a solicitation for charitable purposes and
held by a caging company.
d) It has any ownership or management interest in any other
entity that receives or controls the funds, assets, or
property solicited for charitable purposes, including, but
not limited to, an escrow agent or caging company, but not
including any federally insured financial institution.
e) It receives any financial benefit, directly or
indirectly, from any other individual or entity that
receives or controls the funds, assets, or property
solicited for charitable purposes, other than the trustee
or charitable corporation soliciting the funds, assets, or
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property for charitable purposes.
4)Provides that any individual, corporation, unincorporated
association, or other legal entity who, for compensation,
plans, manages, advises, counsels, consults, or prepares
material for, or with respect to, the solicitation in this
state of funds, assets, or property for charitable purposes,
but does not meet the qualifications of a fundraising counsel
for charitable purposes, shall be deemed to be a commercial
fundraiser for charitable purposes, unless specifically
exempted.
5)Exempts from the definition of "commercial fundraiser for
charitable purposes" certain specified entities, including,
among others, trustees; charitable corporations; employees or
agents of commercial fundraisers, and any financial
institution, escrow agent, or caging company that holds or
controls funds received as a result of a solicitation for
charitable purposes.
6)Establishes a 10-year statute of limitations for the Attorney
General to bring a civil action to enforce the Supervision of
Trustees and Fundraisers for Charitable Purposes Act, as well
as to enforce existing anti-fraud statutes under Civil Code
Sections 2223 and 2224.
7)Provides that specified disclosures about fundraising counsel
that entities that solicit funds for charitable purposes with
the participation of fundraising counsel must make at the time
of solicitation shall be clear and conspicuous and appear in
at least 12-point type, if printed or presented
electronically.
The Senate amendments:
1)Reorganize and clarify elements of the definitions for
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"commercial fundraiser for charitable purposes" and
"fundraising counsel for charitable purposes" to better
distinguish between the two categories, so that it is clearer
who must register as a commercial fundraiser for charitable
purposes.
2)Clarify which specific entities are excluded from the
definition of "commercial fundraiser for charitable purposes,"
including trustees, charitable corporations, and caging
companies, which are defined as businesses that receive
contributions, process donor mail, and deposit all
contributions into an account under the sole control of a
charitable organization.
FISCAL EFFECT: According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
COMMENTS: This bill, sponsored by Attorney General Kamala
Harris, seeks to revise the definition of "commercial fundraiser
for charitable purposes" in order to strengthen the Attorney
General's ability to enforce disclosure requirements for charity
fundraising campaigns, and extends the statute of limitations
for enforcement actions against charity fundraising firms and
other third parties who engage in fraud or prohibited conduct.
According to the author, this bill is needed to ensure that
companies soliciting charitable donations cannot exploit an
apparent loophole in the law and circumvent existing disclosure
requirements through the use of commercial fundraisers who
instead register as "fundraising counsel." Using one recent
example, the author explains:
Existing law regulates for-profit companies that raise
money on behalf of a charity but keep a portion of the
money raised as profit. Companies that raise money on
behalf of charitable organizations, known as
commercial fundraisers, are required to disclose to
donors that a paid professional fundraiser was
involved in the solicitation campaign. "Fundraising
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counsel," persons or entities that plan, manage, or
advise charities on their charitable solicitations
activities and receive a portion of the funds raised,
are not subject to the same transparency requirements.
In the recent charity enforcement case brought by the
Attorney General's Charitable Trusts Section, People
v. Help Hospitalized Veterans, the cost of charitable
fundraising was 65% to 72% of the gross annual revenue
received from donors. Because the professional
fundraisers were classified as "fundraising counsel,"
Help Hospitalized Veterans was not required to
disclose to donors that paid professional fundraisers
were involved in the solicitation campaigns.
Background on oversight of charity fundraising. According to
the 2014 Causes Count report by CalNonprofits, there are more
than 70,000 active 501(c)(3) public charities in California.
California's charitable organizations contribute 15% of
California's Gross State Product and employ nearly 1 million
people. Nonprofits are also generally highly trusted
institutions, with over 80% of Californians surveyed by the
Causes Count report stating that they are confident that
nonprofits act on the public's behalf and deliver quality
services.
To preserve this public trust and safeguard against fraud and
questionable solicitation practices, the Attorney General is
responsible for regulating charities and the professional
fundraisers who solicit on their behalf. The purpose of this
oversight is to protect charitable assets for their intended use
and ensure that the charitable donations contributed by
Californians are not misused and squandered through fraud or
other means. All charitable trustees and fundraising
professionals are required to register and file annual financial
disclosure reports with the Registry of Charitable Trusts in the
Attorney General's office before soliciting in California. The
attorneys and auditors of the Attorney General's Charitable
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Trusts Section investigate and bring legal actions against
charities, their officers and directors, and fundraising
professionals that misuse charitable assets or engage in
fraudulent fundraising practices.
Revised definition of "commercial fundraisers" and "fundraising
counsel" to ensure continued transparency in solicitation
activities. For-profit companies that solicit money on behalf
of charitable organizations but keep a portion of the money
raised as profit are regulated as "commercial fundraisers" under
existing law, which requires them to disclose to donors that the
solicitation is being conducted by a commercial fundraiser for
charitable purposes, and to identify themselves by the name
under which they are registered with the Attorney General. By
contrast, "fundraising counsel" are persons or entities that
plan, manage, or advise charities on their charitable
solicitations activities for profit but do not directly engage
in solicitations, and are not subject to the same disclosure
requirements. For this reason, whether a person falls under the
statutory definition of "commercial fundraiser" or "fundraising
counsel" is key with respect to the Attorney General's ability
to enforce these transparency protections under existing law.
According to the author, recent enforcement cases have
highlighted examples where persons performing professional
fundraising services attempted to circumvent disclosure
requirements by registering as fundraising counsel rather than
as commercial fundraisers. In response, this bill would help
close the loophole in the law, by better defining who is a
commercial fundraiser, and who is a fundraising counsel. First,
this bill would expand the definition of a commercial fundraiser
to also include any person or entity who for compensation plans,
manages, advises, counsels, consults, or prepares material for,
or with respect to, the solicitation in this state of funds,
assets, or property for charitable purposes, but is otherwise
disqualified as a fundraising counsel under the latter's
definition. Further, this bill would modify the definition of
fundraising counsel to clarify that "compensation" received for
its services, is something other than a percentage of the funds,
assets, or property received as a result of a solicitation
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campaign, and to clarify that a person or entity is deemed "to
receive or control funds, assets, or property" - and therefore
not a fundraising counsel - if it meets any one of certain
conditions reflecting the entity's control or interest in the
funds.
The author contends this bill will help close loopholes in the
disclosure statutes by requiring persons helping to raise funds
who have any ownership or management interest in any other
entity that receives or controls funds or assets of the charity
to register as commercial fundraisers, not fundraising counsel,
and thereby become subject to disclosure requirements protecting
donors and the public.
Extended statutes of limitation for enforcement actions. Under
Government Code Section 12596 of the Supervision of Trustees and
Fundraisers for Charitable Purposes Act, the Attorney General
may bring an enforcement action for fraud or other violations by
the trustees, officers, or directors of a charitable
organization at any time within 10 years of the cause of action.
Because cases involving charity fraud are often complex and
cover misconduct from an extended period of time, the author
contends, the 10-year statute of limitations is appropriate.
However, Section 12596 does not apply to other parties such as
fundraisers, consultants, or accountants who may have directly
participated in, or aided and abetted the fraud; instead they
are subject to either a three or four year statute of
limitations, depending on the cause of action. The author notes
that in the Help Hospitalized Veterans case, the Attorney
General was unable to bring an action for civil liability
against the persons registered as "fundraising counsel" who
participated in the fraud because they were not officers or
directors of the charity, so the applicable three year statute
of limitations on filing charges against them had already
passed. Accordingly, this bill would establish a 10 year
statute of limitations for all persons or entities involved in
the fraud to make this consistent with the same period that
applies to directors and officers of the charity.
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Analysis Prepared by:
Anthony Lew / JUD. / (916) 319-2334 FN: 0001279