Text of Internet-Registration Guidelines Proposed by State Attorneys General

Whereas:

1. Most charitable organizations provide valuable services to society–services that are not provided by government or the private for-profit sector.

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   ALSO SEE:

   Internet Appeals and the Law

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   At the same time, deceptive charitable solicitations, including fraud and misuse of charitable contributions, are significant problems in our country. Reasonable state oversight can remedy or minimize such abuses while facilitating the charitable missions of those who provide needed services to our nation and communities;

2. Registration and financial reporting by charitable organizations and their internal fund raisers, their external commercial fund raisers and, where applicable, their fund-raising counsel and commercial co-venturers is critical to (a) providing information to the public in order to increase donor confidence in those who solicit their support and (b) providing information to law enforcers to enable them to fight deception and misuse of contributions;

3. Existing registration statutes generally, of their own terms, encompass and apply to Internet solicitations. The application of those statutes beyond more established fund-raising techniques, such as telephone, direct mail, and in-person solicitations, raises a number of issues that state charity officials are often called upon to address;

4. The proliferation of Web site solicitations compels state charity officials to address the issue of who has to register where;

5. State charity officials consistently gain valuable insights when the views of the regulated communities are sought;

6. Consistent guidelines addressing online charitable solicitations will assist state charity officials, as well as donors, charities, and online entrepreneurs, throughout the nation. These principles have been adopted as guidance to state charity officials, but with the express intention of both creating a climate in which creativity and enterprise in the use of the Internet to support charitable activities is encouraged and in which the public interest is vigorously protected; and

7. Therefore, state charity officials discussed the formation of these principles while gathered at the National Association of Attorneys General/National Association of State Charity Officials (“NAAG/NASCO”) Conference in Charleston, S.C., in October 1999. During the public portion of that conference, which was devoted to the subject of Internet solicitations, state charity officials began a dialogue with invited guests on this topic.

Therefore we, the board of directors of NASCO, recommend the following principles:

I. General Principles

1. These principles are offered as a guide to states as to when charities, and their fund raisers, fund-raising counsel and commercial co-venturers may be required to register, or may be subject to enforcement action, and in what jurisdictions, with regard to charitable solicitations via the Internet. States are encouraged to use these principles to develop common policies to implement their specific state laws, but these principles are not necessarily the views of any particular individual, office, or state. These principles recognize that the laws of individual states vary, and that implementation of these principles may also vary.

2. These principles are necessarily dynamic, and may change as laws, technology, and business models change. Further discussions among states and between states and the regulated community are desirable.

3. The Internet can be a valuable and efficient forum for conducting charitable solicitations. State charity officials do not desire to discourage or limit its use.

4. The basic premise of these principles is this: Although existing state laws govern charitable solicitations on the Internet, in many instances the use of the Internet raises new questions that state charity officials must answer in order to effectively carry out their statutory missions. Therefore, state charity officials should require registration of those over whom their state courts could constitutionally assert personal jurisdiction to enforce a registration requirement. State charity officials and those who solicit contributions using the Internet should note that in actions to enforce state laws against deceptive charitable solicitations, including fraud and misuse of charitable funds, jurisdiction typically exists over some organizations not required to register in the state.

5. Nothing in these principles is intended to limit jurisdiction available under common law. The traditional jurisprudence analysis for jurisdiction is the appropriate rule with which states need to comply.

II. Actions to Enforce State Laws Against Charitable Solicitation Fraud

States will enforce the law against any entity whose Internet solicitations mislead or defraud persons physically located within a particular state, without regard to whether that entity is domiciled in the state or is required to register in that state pursuant to these principles.

III. Application of Registration Requirements to Internet Solicitation

1. Entities That Are Domiciled Within the State

   1. An entity that is domiciled within a state and uses the Internet to conduct charitable solicitations in that state must register in that state. This is true without regard to whether the Internet solicitation methods it uses are passive or interactive, maintained by itself or another entity with which it contracts, or whether it conducts solicitations in any other manner.

   2. An entity is domiciled within a particular state if its principal place of business is in that state.

2. Entities That Are Domiciled Outside the State

   1. An entity that is not domiciled within a state must register in that state if:

      1. Its non-Internet activities alone would be sufficient to require registration;

      2. (1) The entity solicits contributions through an interactive Web site; and

         (2) Either the entity:

         1. Specifically targets persons physically located in the state for solicitation, or

         2. Receives contributions from the state on a repeated and ongoing basis or a substantial basis through its Web site.; or

      3. (1) The entity solicits contributions through a site that is not interactive, but either specifically invites further offline activity to complete a contribution or establishes other contacts with that state, such as sending e-mail messages or other communications that promote the Web site; and

         (2) The entity satisfies Principle III(B)(1)(b)(2).

   2. For purposes of these principles, each of the following terms shall have the following meanings:

      1. An interactive Web site is a Web site that permits a contributor to make a contribution, or purchase a product, by electronically completing the transaction, such as by submitting credit card information or authorizing an electronic funds transfer. A Web site is interactive if it has this capacity, regardless of whether donors actually use it.

      2. To specifically target persons physically located in the state for solicitation means to either (i) include on its Web site an express or implied reference to soliciting contributions from that state; or (ii) to otherwise affirmatively appeal to residents of the state, such as by advertising or sending messages to persons located in the state (electronically or otherwise) when the entity knows or reasonably should know the recipient is physically located in the state. Charities operating on a purely local basis, or within a limited geographic area, do not target states outside their operating area, if their Web site makes clear in context that their fund-raising focus is limited to that area even if they receive contributions from outside that area on less than a repeated and ongoing basis or on a substantial basis.

      3. To receive contributions from the state on a repeated and ongoing basis or a substantial basis means receiving contributions within the entity’s fiscal year, or relevant portion of a fiscal year, that are of sufficient volume to establish the regular or significant (as opposed to rare, isolated, or insubstantial) nature of those contributions. States should set, and communicate to the regulated entities, numerical levels at which it will regard this criterion as satisfied. Such numerical levels should define “repeated and ongoing” in terms of a number of contributors and “substantial” in terms of a total dollar amount of contributions or percentage of total contributions received by or on behalf of the charity. Meeting any threshold would give rise to a registration requirement but would not limit an enforcement action for deceptive solicitations. For example, a state might explain that an entity receives contributions on a repeated and ongoing basis if it receives at least one hundred online contributions at any time in a year and that it receives substantial contributions if it receives $25,000, or a stated percentage of its total contributions, in online contributions in a year.

   3. An entity that solicits via e-mail into a particular state shall be treated the same as one that solicits via telephone or direct mail, if the soliciting party knew or reasonably should have known that the recipient was a resident of or was physically located in that state.

   4. Questions may arise as to whether individual charities are required to register in a particular state when the operator of a Web site through which contributions for that charity are solicited or received is required to register, but the charity itself would not independently satisfy the criteria of Principle III(B)(1)(b). As to such charities:

      1. If the law of the state does not universally require the registration of all charities on whose behalf contributions are solicited or received through a commercial fund raiser, commercial co-venturer, or fund-raising counsel who is required to register, then states should independently apply the criteria of Principle III(B)(1)(b) to each charity and require registration only by charities that independently meet those tests; but

      2. If the law of the state universally requires registration of all charities under such circumstances, states should consider whether, as a matter of prosecutorial discretion, public policy, and the prioritized use of limited resources, it would take action to enforce registration requirements as to charities who do not independently meet the criteria of Principle III(B)(1)(b); and

      3. For purposes of this principle, a charity satisfies the interactivity criterion of Principle III(B)(1)(b)(2)(i) if (i) any Web site through which contributions are solicited or received for that charity satisfies that requirement, and (ii) that Web site is operated by an entity with whom the charity contracts. This paragraph does not define the concept of interactivity, but merely addresses the application of that concept in this specific context.

   5. Solicitations for the sale of a product or service that include a representation that some portion of the price shall be devoted to a charitable organization or charitable purpose (often referred to as “commercial co-venturing” or “cause marketing”) shall be governed by the same standards as otherwise set out in these principles governing charitable solicitations. Registration is therefore required in those states that require registration for such activities.

3. General Exclusions from Registration

   1. Maintaining or operating a Web site that does not contain a solicitation of contributions but merely provides program services via the Internet — such as through a public information Web site — does not, by itself, invoke a registration requirement. This is true even if unsolicited donations are received.

   2. Entities that provide solely administrative, supportive, or technical services to charities without providing substantive content, or advice concerning substantive content, are not required to register. Such service providers (a) include Internet service providers and entities that do nothing more than process online transactions for a separate firm that operates a Web site or provide similar services, but (b) do not include commercial fund raisers, commercial co-venturers, or fund-raising counsel. Administrative, supportive, or technical service providers may be required to register if they do more than simply provide such technical services and actually solicit, promote a Web site, or engage in other conduct that requires registration. Compensation for services based on the amount of funds raised may be a strong indication the entity is doing more than simply providing technical services.

IV. Principles Related to Minimizing Regulatory Responsibilities for Multi-State Filers

1. State charity officials recognize that the burden of compliance by charitable organizations and their agents, professional fund raisers, commercial co-venturers and/or professional fund-raising counsel should be kept reasonable in relation to the benefits to the public achieved by registration. The acceptance and use of the Unified Registration Statement by state charity offices and the development and acceptance of other related projects to create such common forms are strongly encouraged.

2. State charity officials recognize the power of the Internet to assist in the registration of charitable organizations and their agents. State charity offices are strongly encouraged to publish their registration and reporting forms, their laws and regulations, and other related information on the Internet to facilitate registration and reporting by charitable organizations and their agents while assuring proper public accountability by regulated entities.

3. State charity officials and charitable organizations have a mutual interest in exploring how to develop the information technology infrastructure so that registration and reporting can be accomplished electronically in the future. Collaboration on this project between state charity officials and charitable organizations, where appropriate, will advance the time frame for establishing electronic filing. This collaboration may include discussion of the types of information that entities soliciting through the Internet should be required to retain, so that these principles can be applied to a particular Web site. This would include information sufficient to determine, within the scope of the law and relevant donor privacy concerns, whether an entity’s ties to a particular state are sufficient to give rise to a registration requirement.

4. Because disclosure to the public promotes informed giving, charitable organizations are encouraged to satisfy the IRS “widely available” standard by posting, without charge, their current Unified Registration Statement, their last three IRS Forms 990, and their complete IRS Form 1023 or 1024 application and resulting determination letter on their Web pages. Links to other sites that provide such information, including any relevant state agency, or other Web sites, are also encouraged. Such postings, however, do not currently fulfill any applicable registration requirements.

Following are hypothetical examples offered by the attorneys general to show how the above guidelines would work:

Illustration Number 1: A charity solicits money for various local charitable projects in a particular town. Most of its money comes from local fund raising, such as bake sales, jars near the checkout counters in local businesses, and appeals at the local Kiwanis and Rotary meetings. The charity maintains a Web site that describes the services they provide in the local area, and includes an appeal for contributions. The Web site makes clear that the charity operates on a purely local basis. George, a resident of another state who grew up in the town where the charity operates, discovers the Web site and mails in a contribution, but the charity does nothing else to solicit money in George’s state.

Illustration Number 2: A charity located in State A maintains a Web site in which it describes the charitable services it provides in State A and State B. It includes the statement, “We urgently need the financial support of all of the good people in State A and State B,” followed by a link to a page that allows donors to contribute money interactively through the Web site by entering their credit card information.

Illustration 3: George lives in State A. He maintains a Web site through which he asks for money, saying that all of the money he receives will be used to provide food, clothing, and shelter for children recently made homeless in a widely publicized earthquake. The Web site allows contributors to make contributions by submitting credit card information interactively. Mary, who lives in State B, makes a contribution using her credit card. George receives Mary’s contribution, as well as other contributions from residents of other states. He does not devote any of the money he receives to the charitable causes he described. Instead, George buys himself a fancy car, adds three rooms to his personal residence, and enjoys a long vacation in an exotic land not susceptible to earthquakes.