Charity Due Diligence

Ensuring that donations are legitimate and appropriately managed is essential for any charity. The Charity Commission expects trustees to apply proper due diligence before accepting significant donations, particularly those that may carry reputational, ethical, or legal risks.

This guide outlines the key areas your charity must consider to comply with the Charity Commission’s guidance and to operate responsibly.

1. Why Due Diligence Matters

Due diligence helps charities:

• Protect their reputation and integrity
• Prevent fraud, money laundering, or terrorist financing
• Ensure funds are used as intended
• Build donor trust and accountability

2. Charity Commission Requirements

Under the Charity Commission’s guidance CC20: Charities and Fundraising, trustees must:

• Be able to account for all income received
• Carry out appropriate checks on donors and funders
• Refuse donations where accepting them would be unethical, illegal, or put the charity at risk
• Keep proper records and audit trails

Additionally, charities must comply with:

• The Proceeds of Crime Act 2002
• Terrorism Act 2000
• Money Laundering Regulations (for relevant transactions)

3. Carrying Out Due Diligence on Donations

The level of due diligence should be proportionate to the size, nature, and risk of the donation.

When to Carry Out Checks:

• High-value or unusual donations
• Donations from overseas
• Anonymous donations
• Donations with conditions attached
• Where the donor is a politically exposed person (PEP)
• Donations from companies, trusts, or foundations not known to you

What to Check:

• Donor identity and background (individuals and entities)
• Source of the funds (especially for large donations)
• Any reputational risks (publicly available information, adverse media, sanctions lists)
• Compatibility of the donor’s values with your charity’s aims
• Legal restrictions (e.g. foreign funding laws, anti-terrorism regulations)

4. Anonymous Donations

While not prohibited, anonymous donations should be carefully considered:

• Can you establish a reasonable understanding of the source?
• Is there a risk of money laundering?
• Do the donation terms suggest unusual or suspicious circumstances?

Record decisions made by trustees and reasons for acceptance or rejection.

5. Conditional Donations

Be cautious of donations with strings attached:

• Are the conditions lawful and in line with your governing document?
• Would the condition compromise the charity’s independence or purpose?
• Could the condition lead to reputational or ethical issues?

Trustees must refuse donations where the conditions are inconsistent with the charity’s aims or would cause significant harm.

6. Record Keeping and Audit Trail

Maintain clear records of:

• Donations received and amounts
• Donor due diligence checks performed
• Trustee decisions on acceptance/refusal
• Any concerns or investigations raised

These records will support your charity in case of any regulatory inquiry or audit.

7. Working with Professional Fundraisers or Agents

If your charity works with third-party fundraisers:

• Ensure contracts include obligations to follow due diligence procedures
• Regularly monitor their activity and compliance
• Include clauses that allow termination for misconduct

Trustees remain ultimately responsible for donations received on the charity’s behalf.

8. Reporting Concerns

Trustees must report serious incidents to the Charity Commission if:

• Donations are suspected to be linked to criminal activity
• There is a significant reputational risk
• There are breaches of legal obligations (e.g. AML regulations)

Use the Charity Commission’s serious incident reporting mechanism where appropriate.

9. Practical Steps to Implement Due Diligence

Here’s a practical framework:

1. Risk-based approach – More checks for higher-risk donations
2. Standardised procedure – Create a donation acceptance policy
3. Trustee training – Educate trustees on due diligence responsibilities
4. Monitoring – Review and reassess donation sources periodically
5. Seek advice – For large or complex cases, seek legal or accounting guidance