SEC to crack down on phony foundations

The Securities and Exchange Commission (SEC) is drafting new rules to stop fraudulent fundraising schemes and help donors avoid scam artists and phony charities that prey on people’s generosity.

Hubert Guevara, head of the SEC’s Compliance and Enforcement Department, said the agency is tightening its requirements for non-stock, non-profit organizations to curb fly-by-night foundations that have been making a killing in their solicitation activities.

Guevara said the move is also intended to address concerns raised by the Anti-Money Laundering Council on the legitimacy of some foundations.

"We were informed that some foundations have been pretending to represent foundations for worthy causes and ask victims to contribute. But the money collected from unsuspecting individuals go directly to the incorporators. With these new rules, we hope to send a strong signal to unscrupulous individuals that we will clamp down on any illegal investment solicitation activity," he said.

He said the SEC is looking into the operations of seven to eight non-profit organizations posing as legitimate foundations. He, however, refused to name these foundations pending completion of the CED’s investigation.

Guevara said some foundations use the name of politicians to back up their solicitation activities.

Last year, the SEC issued additional requirements for the registration of non-stock, non-profit organizations to ensure that donations are utilized according to the foundation’s purpose as stated in its articles of incorporation.

A foundation is defined by the SEC as a non-stock, non-profit corporation with funds established to maintain and aid charitable, religious, educational, athletic, cultural, literary, scientific, social welfare or similar activities primarily through extending grants or endowments.

Foundations applying for registration with the SEC are required to submit their plan of operations, executed under oath by the president of such organization, specifying their mode of operations and source of funds. Applicants are also required to submit a certificate of bank deposit in the amount of not less than P1 million representing the funds to be used for extending grants or endowments.

Apart from this, foundations are required to submit to the SEC, together with the financial statements, a statement of funds application, how much funds were raised, the names of beneficiaries and the corresponding amounts of funds granted or endowed. The corporate name should also contain the word "Foundation".

The proliferation of foundations in the Philippines over the past years have put into serious question their true motives. Some foundations are being put up to accept bribes from political leaders and businessmen. From a little over 110,000 in Dec. 2001, the number of active non-stock corporations, which include foundations and other non-government organizations, increased to about 160,000 this year.

Benito Cataran, who heads the SEC’s Company Registration Department, said the significant jump in the number of foundations set up was due to the latter’s growing popularity as an alternative source of income for unscrupulous individuals. He was quick to admit though that not all foundations are illegal.

"Some are using it to source money from other people. They are using their SEC registration license to legalize their solicitation activities. But there are also foundations that are for humanitarian projects or are not for business – those who only want to help," Cataran earlier said.

Cataran, however, said it is difficult to distinguish which among the foundations are legitimate because the SEC does not know where these organizations channel their money. The SEC official said the commission, though, requires non-stock corporations to submit annual financial statements and general information sheets.

Financial statements, he said, are essential in determining whether funds of a company are sourced from an unlawful activity.

Cataran said another reason why foundations have mushroomed in the country is because of the tax incentives given them.

A foundation applying for a registration license with the SEC must have an initial authorized capital of at least P100,000.