Australian Charities and Not-for-profits Commission Amendment (2021 Measures No 2) Regulations 2021 [F2021L00863]-Disallowable instruments raising significant scrutiny issues [2021] AUSStaCSDLM 154 (29 September 2021)

• Chapter 1
• Instruments raising significant scrutiny concerns
• Part 1
• Disallowable instruments raising significant scrutiny issues

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Chapter 1

Instruments raising significant scrutiny concerns

1.1 This chapter details the instruments which raise significant scrutiny concerns in relation to which the committee is seeking further information from the relevant minister or of which the committee has concluded its examination.

1.2 This chapter is divided into two parts. Part 1 deals with instruments subject to disallowance and Part 2 deals with instruments which are exempt from disallowance.

Part 1

Disallowable instruments raising significant scrutiny issues

1.3 This part details those instruments subject to disallowance which raise particularly significant scrutiny concerns. Where necessary, the committee may give a notice of motion to disallow an instrument contained in Part 1 to emphasise its scrutiny concerns or to provide the Senate and the committee with additional time to consider the instrument while it is still subject to disallowance.

Australian Charities and Not‑for‑profits Commission Amendment (2021 Measures No. 2) Regulations 2021

FRL No.	F2021L00863[1]
Purpose	To amend the governance standards to provide that registered entities must not engage in conduct that may be dealt with as a relevant kind of summary offence, and to require registered entities to maintain reasonable internal control procedures in relation to its resources.
Authorising legislation	Australian Charities and Not-for-profits Commission Act 2012
Portfolio	Treasury
Disallowance	15 sitting days after tabling (tabled in the Senate on 3 August 2021).

Overview

1.4 The instrument amends the Australian Charities and Not-for-profits Commission Regulation 2013 (the Principal Regulations) to alter certain governance standards relating to charities' engagement in, or promotion of, unlawful activities. These amendments include providing that a registered entity must:

• not engage in conduct or omit to engage in conduct that may be dealt with as a summary offence under an Australian law relating to certain types of actions; and

• maintain reasonable internal control procedures to ensure its resources are not used to actively promote another entity's acts or omissions that may be dealt with as such an offence.

1.5 Registered entities must comply with these standards in order to qualify for certain exemptions, benefits and concessions under the Australian Charities and Not-for-profits Commission Act 2012 (ACNC Act). Failure to comply with these governance standards may result in revocation of the entity's registration under section 35-10 of the ACNC Act and the exercise of certain enforcement powers under Part 4-2 of the ACNC Act.

1.6 The explanatory statement explains that the purpose of these amendments is to 'give the public greater confidence that a registered entity is governed in a way that is consistent with its purposes, and that it protects its assets, reputation, and the people it works with' and 'make clear that in all cases, a registered entity may not be entitled to registration under the Act if it engages in any of the relevant summary offences'.^[2]

Scrutiny concerns

1.7 The committee's most significant outstanding scrutiny concerns with regard to the instrument centre on subsection 45.15(3). This provision requires registered entities to maintain reasonable internal control procedures to ensure that its resources are neither used nor continued to be used to actively promote another entity's unlawful acts or omissions that may be dealt with under paragraphs 45.15(2)(a), (aa) or (b). The committee's comments in relation to these issues are detailed in Delegated Legislation Monitor 12 of 2021.^[3] In summary, the committee is concerned that:

• this provision appears to enable the Australian Charities and Not-for-profits Commission (ACNC) Commissioner to exercise a broad discretion in determining compliance with the governance standards;

• the lack of clarity on what will constitute 'reasonable internal control procedures' may inhibit charities' ability to understand their obligations under the instrument;

• this provision may limit a registered entity's ability to support or promote certain types of political protest, without having committed an unlawful act themselves; and

• it is unclear whether this provision may impermissibly burden the implied freedom of political communication in its terms, operation, or effect.

Actions to date

Initial correspondence

1.8 Since July 2021, the committee has been corresponding with the Assistant Treasurer to resolve its technical scrutiny concerns. The committee also considers that this instrument may raise significant policy issues which should be considered by the Senate. Accordingly, the committee drew the instrument to the attention of the Senate in accordance with Senate standing order 23(4) in Delegated Legislation Monitor 10 of 2021,^[4] and wrote to the Senate Economics Legislation Committee.^[5]

1.9 Since raising concerns in relation to the instrument, the committee has also received considerable correspondence from numerous charities and non-government organisations in both writing and by telephone. This correspondence has served to heighten the committee's scrutiny concerns about the conferral of discretionary powers on the ACNC Commissioner and the potential impact the instrument may have on the implied freedom of political communication.^[6]

Recent correspondence

1.10 As a number of its key concerns were not adequately addressed via correspondence, the committee drew its significant outstanding concerns to the attention of the Senate in Delegated Legislation Monitor 12 of 2021. In addition, the committee requested more detailed information from the Assistant Treasurer about:

• what objective test will be applied to determine whether a registered entity has complied with the requirements of subsection 45.15(3);

• what factors the ACNC Commissioner must consider in making this determination; and

• how the instrument as a whole, including subsection 45.15(3), does not impermissibly restrict the implied freedom of political communication.

1.11 The Assistant Treasurer responded to the committee's concerns in a letter dated 26 August 2021.^[7] With regard to the committee's concerns about the conferral of discretionary powers under subsection 45.15(3), the Assistant Treasurer advised that there are no legislatively prescribed factors that the ACNC Commissioner must consider in determining whether a registered entity has complied with the requirements of subsection 45.15(3). Instead, it is a question of fact to be determined on the evidence available to the ACNC Commissioner and what evidence is required will vary from case to case.

1.12 The response further advised that, at a general level, the ACNC Commissioner will be required to comply with administrative law principles. If the ACNC Commissioner is satisfied there has been or will be non-compliance with the governance standards, the decision whether or not to take regulatory action, and what regulatory action to take, is subject to the ACNC Commissioner having regard to the matters set out in section 15-10 of the ACNC Act.

1.13 The Assistant Treasurer also reiterated that the requirement to maintain reasonable internal controls and procedures is a feature in many other governance and external conduct standards in the Principal Regulations, and a note to subsection 45.15(3) provides some examples of the types of matters that may be dealt with in the internal control procedures.

1.14 With regard to the committee comments regarding the impact of the instrument on the implied freedom of political communication, the Assistant Treasurer stated that he does not consider that the instrument burdens the implied freedom of political communication as it does not prevent the registered entity engaging in conduct that is not otherwise already unlawful.

1.15 The response noted that, as the requirement in subsection 45.15(3) centres on the registered entity's governance arrangements around the use of its own resources, the registered entity will not contravene this new requirement simply because another entity has ultimately used the registered entity's resources to actively promote unlawful activities.

Committee comment

1.16 The committee thanks the Assistant Treasurer for his constructive engagement with the committee in relation to this instrument. However, the committee retains significant concerns regarding the instrument.

1.17 As the committee has been unable to resolve these technical scrutiny concerns with the Assistant Treasurer, the committee has resolved to draw some further remarks to the attention of the Senate. The committee's comments with regard to these unresolved concerns are outlined below.

Conferral of discretionary powers

1.18 While noting the Assistant Treasurer's response, it remains unclear to the committee how the ACNC Commissioner will not be required to exercise a broad discretion in exercising their powers under subsection 45.15(3). The committee's view is informed by the fact that the determination of what constitutes a reasonable internal control procedure requires the ACNC Commissioner to consider the individual circumstances of each registered entity.

1.19 In the absence of a convincing explanation from the Assistant Treasurer, it does not appear to the committee that determinations made for the purposes of subsection 45.15(3) will be limited to questions of objective fact. In this regard, it appears that this will require the ACNC Commissioner to exercise a broad discretion in determining whether a registered entity has complied with the governance standard.

1.20 In addition, the committee considers that the amendments to both subsections 45.15(2) and 45.15(3) significantly expand the discretion granted to the ACNC Commissioner to exercise revocation powers under section 35-10 and enforcement powers under Part 4-2 of the ACNC Act without sufficient guidance being provided in the law as to how this discretion is to be exercised. In particular, the committee notes that the revocation and enforcement powers may be exercised in circumstances where the Commissioner reasonably believes that 'it is more likely than not' that an entity will not comply with the significantly expanded scope of government standard 3 to encompass what, in at least some cases, are relatively minor summary offences.

1.21 Where an instrument confers broad discretionary powers on a person, the committee considers that there should be a clear explanation of the factors that must be considered in exercising this power and the safeguards in place. In this instance, the committee does not consider that requiring the ACNC Commissioner to comply with broad level administrative law principles is a sufficient substitute for legislatively prescribed criteria to guide the exercise of their powers. Moreover, the committee does not consider that consistency with existing arrangements, including other governance standards, is a sufficient justification for the lack of clarity in this instance.

1.22 The committee reiterates that the lack of clarity around what constitutes 'reasonable internal control procedures' may inhibit registered entities' ability to understand their obligations under the instrument and, as such, may ultimately lead to the deregistration of the entity if they fail to comply. The committee generally considers that provisions which impose obligations on a person should be drafted with sufficient clarity to enable them to understand those obligations. Failure to do so undermines legal clarity and certainty.

1.23 The committee's concerns in this instance have been heightened noting the potential impact this may have on registered entities. In this regard, the committee notes that, since initially seeking advice from the Assistant Treasurer, it has continued to receive correspondence from registered entities outlining concerns about the lack of clarity in the governance standards.

1.24 From a scrutiny perspective, the committee considers that the instrument, as drafted, confers an overly broad discretion on the ACNC Commissioner in circumstances where sufficient guidance is not provided in the law as to how this discretion is to be exercised.

Implied freedom of political communication

1.25 While noting that subsection 45.15(3) centres on the use of a registered entity's own resources, rather than just the unlawful activities of another entity, it remains unclear to the committee whether the instrument as a whole could burden the implied freedom of political communication.

1.26 Whilst acknowledging the Assistant Treasurer's view that the instrument does not prevent registered entities from engaging in activity that is not already unlawful, it remains unclear to the committee whether any element of the obligations imposed in the instrument could limit the implied freedom. In this regard, while the instrument does not create new offences which may make a registered entity's actions unlawful, this does not necessarily preclude the instrument from affecting the implied freedom as it may still restrict the behaviour of registered entities. The committee does not consider that the Assistant Treasurer has adequately engaged with how the restrictions on the actions and behaviour of registered entities imposed by the instrument could impact on the implied freedom.

1.27 The committee retains the view that, at a minimum, any potential limitations on the implied freedom should be soundly explained and justified.

1.28 While appreciating his responsiveness to the committee, the committee does not consider that the Assistant Treasurer has provided a sufficient explanation for why the instrument as a whole does not impermissibly limit the implied freedom. In absence of such an explanation, the committee does not consider that the instrument meets its expectations under standing order 23(3).

1.29 In light of the comments above, the committee draws the attention of the Senate to the committee's significant scrutiny concerns regarding the conferral of broad discretionary powers on the ACNC Commissioner and the impact of the instrument on the implied constitutional freedom of political communication.

1.30 Noting the significance of its technical scrutiny concerns, the committee recommends that the Senate disallow the instrument.

1.31 On 18 October 2021 the committee intends to give notice of a motion to disallow the instrument, to be moved 15 sitting days after that day. Based on the current sitting pattern this would mean that the motion would be moved on the fourth sitting day in 2022 to provide the Senate with additional time to consider the instrument and the committee's recommendation that the instrument be disallowed. The committee notes that, under section 45-20 of the ACNC Act, the instrument will not commence until the day after:

• the disallowance notice is resolved;^[8] or

• both Houses of the Parliament pass a resolution approving the instrument.

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[1] Accessible on the Federal Register of Legislation at https://www.legislation.gov.au/.

[2] Explanatory statement, p. 4.

[3] Senate Standing Committee for the Scrutiny of Delegated Legislation, Delegated Legislation Monitor 12 of 2021.

[4] Senate Standing Committee for the Scrutiny of Delegated Legislation, Delegated Legislation Monitor 10 of 2021, p. 4.

[5] Copies of the letters are available on the committee's website.

[6] A summary of all prior correspondence on this instrument is set out in Delegated Legislation Monitor 12 of 2021.

[7] Copies of the letters are available on the committee's website.

[8] The disallowance notice may be resolved by being withdrawn or negatived by the Senate. The disallowance notice would also be resolved if it was agreed to by the Senate or it was not considered at all by the Senate by the end of the 15^th sitting day after it was given. In both of these latter instances the instrument would not commence at all.