Decision

Charity Inquiry: Genesis Philanthropy Group

Published 15 December 2023

Applies to England and Wales

The Charity

Genesis Philanthropy Group (‘the charity’) was registered with the Charity Commission (‘the Commission’) on 14 November 2018 as a Charitable Incorporated Organisation and is governed by a Constitution dated 14 November 2018 (the ‘Constitution’).

The charity’s objects are:

1. To advance the education of the public in the arts, culture and heritage of the Jewish people including Russian speaking Jewry, particularly but not exclusively, by the provision of grants for related projects.

2. To advance the Jewish religion for the benefit of the public, mainly but not exclusively, by the provision of grants to charitable organisations that support the study of and engagement with traditional and contemporary texts, customs, practices, and observances.

3. The relief of those in need by reason of youth, age, ill health, disability, financial hardship, or other disadvantage in particular but not exclusively within the Jewish community including Russian speaking Jewry in the UK and worldwide by providing grants to charities or other organisations working to assist those in need.

4. Such other charitable purposes as the trustees think fit from time to time.

The charity’s entry can be found on the register of charities.

Background

His Majesty’s Treasury’s (‘HMT’) Office for Financial Sanctions Implementation (‘OFSI’) is the authority responsible for ensuring financial sanctions are properly understood, implemented, and enforced in the UK. Financial sanctions include restrictions on designated persons, such as freezing their financial assets, as well as wider restrictions on investment and financial services.

The Russia Regulations 2019 were made under the Sanctions and Anti-Money Laundering Act 2018 (‘the Sanctions Act’). These should be considered with the Sanctions (EU Exit) (Miscellaneous Amendments) (No. 2) Regulations 2020 and the Sanctions (EU Exit) (Miscellaneous Amendments) (No. 4) Regulations 2020. These enable the Secretary of State to designate a person, which can result in the freezing of funds and economic resources of certain persons, entities or bodies involved in destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty or independence of Ukraine or obtaining a benefit from or supporting the Government of Russia.

Pursuant to regulation 6(1) of the Russia Regulations 2019, the Secretary of State may not designate a person unless there are (i) reasonable grounds to suspect that a person is an “involved person”, and (ii) the designation of the person is appropriate. An “involved person” means a person who:

• is or has been involved in destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty, or independence of Ukraine;
• is owned or controlled directly or indirectly by a person who is or has been so involved;
• is acting on behalf of or at the direction of a person who is or has been so involved, or;
• is a member of, or associated with, a person who is or has been so involved.

Regulation 6(3)(a) to (g) of the Russia Regulations 2019 sets out the ways a person is involved in destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty, or independence of Ukraine. Examples include providing financial services, or makes available funds, economic resources, goods, or technology that could contribute to destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty or independence of Ukraine and the person obstructs the work of international organisations in the Ukraine.

Issues under Investigation

Between the charity’s creation on 14 November 2018 and 16 March 2022 the individuals recorded as trustees of the charity on the Register of Charities (‘the Register’) were Mr Gennady Gazin, Mr German Khan, Mr Petr Aven and Mr Mikhail Fridman (together ‘the trustees’).

On 11 March 2022 the charity submitted a Report of a Serious Incident (‘RSI’) advising that Mr Aven and Mr Fridman had resigned after being added to a list of individuals subject to financial sanctions by the EU on 28 February 2022.

On 15 March 2022, three of the charity’s recorded trustees were designated under the UK’s Russia (Sanctions) (EU Exit) Regulations 2019, Mr Khan, Mr Aven and Mr Fridman (together ‘the designated trustees’).

On 16 March 2022 the charity submitted a further RSI advising that Mr Khan had resigned on that date and provided copies of the respective resignation letters from the designated trustees.

The charity’s principal bank account was recorded in its financial year end 30 June 2020 accounts as being based in The Netherlands. It was unclear to the Commission who the signatories to this account were, whether they included one or more of the designated trustees, what level of oversight and control the charity had of this account, and whether it could continue to access any funds which may be held in this account.

The charity also had a bank account in the UK. Bank statements obtained by the Commission using its power under section 52 of the Charities Act 2011 (‘the Act’), showed a transfer of £434,614 paid into this account from the charity’s Netherlands bank account on 25 February 2022 – a few days before Mr Aven and Mr Fridman became subject to sanctions in the EU. The bank mandate for the UK account showed that Mr Khan was a signatory to the account. The Commission considered that Mr Khan would be unable to access, direct, hold or otherwise use or control the funds held in the UK bank account owing to his designation under the UK’s sanctions regime.

The trustees’ annual report for the financial year ending 30 June 2020 showed that the charity was, at that time, in receipt of donations from a company controlled by the designated trustees called LetterOne, registered in Luxembourg. In the financial year to 30 June 2020 the charity received $1,100,000 in donations from LetterOne, which was almost its entire income. It was unclear to the Commission whether, since 30 June 2020, the charity had continued to be solely or primarily funded by LetterOne and/or by the designated trustees, or entities connected to them.

The Commission was aware of another entity which uses the name of the charity and is registered in another jurisdiction, Genesis Philanthropy Group RA (‘GPG RA’) based in Israel. GPG RA previously shared trustees with the charity. The charity’s relationship with this organisation was unclear. The Commission was also aware of a Genesis Philanthropy Group operating in the USA which appeared to be a separate organisation. During the inquiry, as detailed below, it was established that no separate entity existed in the USA.

On 16 March 2022 the Commission opened a statutory inquiry into the charity under section 46 of the Act.

The scope of the inquiry was to:

• consider the conduct of the trustees and whether they have discharged their legal duties and responsibilities in their management and administration of the charity
• determine whether the charity can continue to operate and is viable following sanctions being imposed on three of its recorded trustees

The inquiry was closed on 15 December 2023, with the publication of this report.

Findings

The conduct of the trustees and whether they have discharged their legal duties and responsibilities in their management and administration of the charity

Sanctions

The designated trustees took immediate steps to remove themselves from the charity after they were designated in the UK. The inquiry finds this was the correct course of action - in the Commission’s view the legal consequences of being designated make it impossible for a designated person to be a trustee. This is because it is a criminal offence for funds or economic resources to be made available to a designated person.

Charitable funds and conflicts of interest

In March 2022 the designated trustees were recorded as three of six signatories to the charity’s UK bank account. As of 8 March 2022, the charity’s UK bank balance was over £400k with an expected incoming receipt of over £1m from the charity’s overseas account. In addition, as noted above, the charity’s primary source of funds was a $1.1m donation from LetterOne, which was controlled by the designated trustees before they later resigned from LetterOne’s board following their designations.

As such, the inquiry found there was a risk to the charity’s property that the sanctions on the designated trustees could lead to the charity’s assets also being sanctioned by HMT. To reduce this risk, and as an immediate protective measure, on 16 March 2022 the Commission used its powers under section 76(3)(d) of the Act to place restrictions on the charity’s UK bank account.

Under the Sanctions Act, a General Licence allows for specified activities to be undertaken which would otherwise be prohibited by financial sanctions. On 30 May 2022, OFSI issued General Licence INT/2022/1834876 (‘the General License’) which allows for an Interim Manager, appointed by the Commission, to act as receiver and manager in respect of the property and affairs of a charity. In practice, this means an Interim Manager (appointed by the Commission) can lawfully act to apply charitable funds that have been frozen because of the Russia Regulations 2019.

Due to the ongoing risk that the charity’s funds could become subject to sanctions, and the wider governance concerns identified within the charity, on 28 March 2022, the inquiry appointed Emma Moody as Interim Manager of the charity under section 76(3)(g) of the Act with all the powers and duties of the trustees of the charity and to the exclusion of the trustees. By appointing an Interim Manager, the inquiry protected the charity’s assets in its bank account (by changing the bank mandate), reduced the risk of HMT acting against the charity or its funds, and once the General License came into force, allowed the charity to continue to function.

Part of the Interim Manager’s appointment was to review the charity’s transactions with related parties, both companies linked to one or more trustees and GPG RA. During this process the Interim Manager established that no separate Genesis Philanthropy Group exists in the USA, with instead a US based office controlled by the charity.

The Interim Manager identified the following situations/transactions that could have given rise to conflicts of interests or conflicts of loyalty for one or more of the trustees:

• the receipt of funding from other entities, including LetterOne, LetterOne Group and associated companies or GPG RA
• the sharing of resources with any of the above entities

The inquiry established that the charity had an adequate conflict of interest policy which supplemented requirements to manage conflicts set out within the charity’s Constitution. Combined, the Constitution and policy required the trustees to identify and manage conflicts in an effective manner, including maintaining a register of interests, identifying and declaring conflicts at trustee meetings, identifying and managing conflicts with other organisations the trustees are involved in, and undertaking training on managing conflicts.

However, the trustee meeting minutes reviewed by the Interim Manager recorded no declarations of conflicts of interest despite this being a standing agenda item at meetings, and despite the trustees’ links to other organisations, including GPG RA and LetterOne. There is no evidence of any trustee having received training about conflicts as required by the charity’s policy.

The Interim Manager reviewed a copy of the charity’s register of interests which only referenced the trustees’ conflict with GPG RA. The register of interests did not mention the trustees’ directorships, trusteeships, employment positions or other interests in any other entity, including the LetterOne entities, meaning the register was not a comprehensive statement of the other interests of trustees which could have from time to time conflicted with those of the charity.

Taken as a whole, the inquiry finds that the trustees did not take steps to adequately identify and manage conflicts of interest and/or loyalty arising from their role in the charity. Whilst the Interim Manager did not find that any breach of duty to manage conflict of interest caused a loss to the charity, nor did there appear to be any deliberate concealment of conflicts, the above demonstrates a lack of understanding and appreciation around the scope for conflicts arising, and inadequate declaring of other business and personal interests, meaning certain conflicts may not have been identified in the first place. This was misconduct and/or mismanagement in the administration of the charity by the trustees.

Trusteeship

Trustees have a legal duty to comply with their charity’s governing document and the law. The trustees were appointed on 14 November 2018 for a period of three years. Under the terms of the Constitution the trustees’ terms of office came to an end on 14 November 2021. However, prior to 14 November 2021 no action was taken to either reappoint the trustees or appoint alternative trustees.

The trustees sought to rectify this situation by signing a resolution to facilitate their reappointment, but this resolution was ineffective because in March 2022 when it was signed, the trustees were no longer trustees of the charity (and no longer therefore members of it) and in that situation had no authority under the terms of the Constitution to make any resolutions in connection with the charity.

To provide certainty, and following the resignations of the designated trustees, on 22 March 2022 the Commission used its powers under section 76(3)(b) of the Act to appoint Mr Gazin – who is not subject to sanctions – as a trustee for three years, in accordance with the charity’s Constitution. Following a request from Mr Gazin, the Commission revoked its s76(3)(b) Order on 6 November 2023. Mr Gazin ceased to be a trustee from that date.

During March 2022 the Commission received four RSIs from separate registered charities that had received funds from the charity by way of a grant. The RSIs made clear that the charity continued to be operational and intended to make further charitable grants. Based on this, the inquiry found that the charity was operational and continued its work between 14 November 2021 and 22 March 2022, despite having no validly appointed trustees. Any decisions that the trustees took between 14 November 2021 and 22 March 2022  would be invalid as they had no authority to make them.

The Interim Manager considered this matter as part of her appointment. The Interim Manager established that the trustees only met once per year in June and had previously delegated substantial decision-making authority, a documented decision that was properly made. The trustees made very few actual decisions in relation to the management and administration of the charity with the charity being operationally led by its CEO and executive team, with schedules of delegated authority in place. As such, the inquiry found that no trustee decisions were made during the period where there were no validly appointed trustees. However, the inquiry finds that this is due to the unusual way in which the charity operated, rather than by design, and remains critical of this failing by the trustees. The inquiry is also critical of the limited level of effective oversight that the trustees retained of the charity and its operations.

The inquiry found that in failing to reappoint themselves before the end of their term of office on 14 November 2021, or ensuring the appointment of alternative trustees, the trustees left the charity with no validly appointed trustees with authority to take decisions. The trustees did not comply with the charity’s Constitution which requires there to be a minimum of three trustees. The failure to adhere to the Constitution and/or recognise the requirement to ensure reappointments took place in good time demonstrates misconduct and/or mismanagement in the administration of the charity by the trustees, and a failure to discharge their legal duties and responsibilities in their management and administration of the charity.

Reputation

A charity’s reputation is an asset and forms part of its property which its trustees have a duty to protect.

According to the public grounds setting out the reasons for the designated trustees being sanctioned, all three have been involved in destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty or independence of Ukraine or obtaining a benefit from or supporting the Government of Russia. The Commission considers that links between a charity and a designated person corrode public confidence in the integrity of a charity and of the charitable sector in general.

Correspondence on the designated trustees’ behalf during the inquiry recognised the damage caused to the charity’s reputation by the designations.

As noted above, following the sanctions placed on the designated trustees the Commission received four RSIs from charities in receipt of grant funding from the charity. All the grantees had decided, following the sanctioning of the designated trustees, not to accept any further funds from the charity. However, following the appointment of the Interim Manager, all the charity’s existing grant recipients accepted the grants to which they were legally entitled, with the Interim Manager’s appointment and authority to spend funds under the General Licence providing reassurance.

The inquiry found that the sanctions placed on the designated trustees damaged the reputation of the charity and charities in general. The impact of the reputational damage caused, particularly in relation to grant recipients, was mitigated by the appointment of the Interim Manager who enabled the charity’s grant funding to resume.

Whether the charity can continue to operate and is viable following sanctions being imposed on three of its recorded trustees

On 19 October 2022 the Interim Manager concluded that there were a number of challenges to the future viability of the charity, including the main historical source of funding from LetterOne no longer being available to the charity, the charity having not previously fundraised from the public or a section of the public, it not having an long-established presence in the UK and also the reputational damage caused to the charity by the circumstances as detailed above.

Following discussions between the Interim Manager and the charity’s executive team, and with agreement from the Commission, it was determined that it would be in the best interests of the charity to spend its remaining funds in furtherance of its charitable purposes, following which the charity would be wound up.

The Interim Manager, working with the charity’s staff, identified a range of grant recipients including further payments to existing grant recipients, and new grants to charities with compatible objects. It included significant payments overseas, including to a US not for profit organisation to spend in Ukraine in response to the charitable need caused by the ongoing war, to support the humanitarian effort. Detailed due diligence was conducted by the Interim Manager on all proposed recipients.

The Interim Manager has now paid the final grants. Given the significant amount of charitable funds granted - over £1m - including to charities based overseas and in high risks areas, the Interim Manager will remain in place to monitor the proper expenditure of these funds under the terms of grant agreements. The Interim Manager appointment will naturally come to an end when the charity is dissolved after the spend out plan is complete.

Conclusions

The Commission concluded that there was misconduct and/or mismanagement in the administration of the charity by the trustees.

The Commission concludes that the designated trustees acted properly by promptly resigning from the charity after being designated, recognising that they could no longer effectively act as trustees.

The Commission welcomes the positive benefit that will arise from the charity’s spend out plan, overseen by the Interim Manager and charity staff, which will ensure over £1m goes to a range of charitable causes, including to support those in need in Ukraine. The Commission notes the time, commitment and support provided to the Interim Manager by the charity’s executive team.

Regulatory Action Taken

The inquiry exercised the Commission’s regulatory powers under section 47 of the Act on multiple occasions to obtain information and copy documents, including from the trustees and the charity’s bank.

On 16 March 2022 the inquiry froze the charity’s UK bank account under section 76(3)(d) of the Act to protect the charity’s funds from any potential risk of misapplication or abuse. The order was revoked on 7 June 2022 under section 337(6) of the Act as it was no longer required following the appointment of an Interim Manager as detailed below and her having secured the UK account.

On 22 March 2022 the inquiry appointed Mr Gazin as an ordinary trustee of the charity under section 76(3)(b) of the Act. Following a request from Mr Gazin, the Commission revoked its s76(3)(b) Order on 6 November 2023. Mr Gazin ceased to be a trustee from that date.

Interim Manager

On 28 March 2022, the inquiry appointed Emma Moody as Interim Manager of the charity under section 76(3)(g) of the Act with all the powers and duties of the trustees of the charity and to the exclusion of the trustees of the charity. Although the inquiry closed with the publication of this report, the Interim Manager remains in place to monitor the expenditure of the charity’s final grants totalling c.£1,462,000. This figure reflects the amounts for new grants entered into as part of the spend out plan and does not include final instalment payments of existing grants.

The Interim Manager will wind up the charity at the end of this monitoring period, and her appointment will then come to an end. As of the end of November 2023, the cost of the Interim Manager appointment was £38,863.80 including VAT and disbursements.

Issues for the Wider Sector

The purpose of this section is to highlight the broader issues arising from the Commission’s assessment of the issues raised publicly that may have relevance for other charities. It is not intended as further comment on the charity in addition to the findings and conclusions set out in the earlier sections of this report but is included because of their wider applicability and interest to the charity sector.

Financial sanctions

Financial sanctions are generally imposed to:

• coerce a regime, or individuals within a regime, into changing their behaviour (or aspects of it) by increasing the cost on them to such an extent that they decide to cease the offending behaviour
• constrain a target by denying them access to key resources needed to continue their offending behaviour, including the financing of terrorism or nuclear proliferation
• signal disapproval, stigmatising and potentially isolating a regime or individual, or as a way of sending broader political messages nationally or internationally
• protect the value of assets that have been misappropriated from a country until these assets can be repatriated

Whilst the Foreign, Commonwealth and Development Office is responsible for the UK’s international sanctions policy, OFSI is the authority responsible for implementing financial sanctions. OFSI helps to ensure that financial sanctions are properly understood, implemented, and enforced in the UK. They have produced a factsheet for charities which provides answers to frequently asked questions on financial sanctions.

The main implication of being designated is that the designated person or entity is subject to financial restrictions. Financial sanctions come in many forms but one of the most common types of financial sanctions is a targeted asset freeze. This means that it is a criminal offence for a person (including the designated person) to deal with funds or economic resources belonging to, or owned, held, or controlled by a designated person. It is also a criminal offence to make funds or economic resources available, directly, or indirectly, to or for the benefit of, a designated person or entity.

Trustees have a legal responsibility for the administration of their charity. They are custodians of charitable funds and hold them on trust for their charity. They have control over the management and administration of the charity and therefore, its assets.

If a serving trustee becomes a designated person, they would be unable to act in the administration of the charity without committing an offence (unless licensed to do so by OFSI). Conversely, if the trustee remained but did not deal with charity funds, then they would be failing to discharge their legal duties as a trustee in the management and administration of a charity. In either scenario, this amounts to misconduct and/or mismanagement in the administration of a charity. If a trustee becomes designated, then they must resign from their position immediately or they will be in breach of charity law.

If the trustee does not resign, the charity’s other trustees should see if they have the power under the charity’s governing document to remove them from office. If the trustees do not have this power, they should immediately seek the Commission’s advice. If the designated person does not resign as a trustee and the charity’s other trustees cannot or do not remove them, the Commission will consider using its legal powers to do so.

If trustees fail to promptly take steps to remove a designated person or neglect to inform the Commission when lacking the authority to do so, it will constitute misconduct and/or mismanagement in the charity’s administration. In addition to the designated person, the Commission would assess the need to exercise its legal powers to address the trustees’ inaction.

If a charity has appointed a designated person as a trustee, or a trustee is subsequently designated, this should be reported to OFSI and the Commission immediately as a serious incident.

The Commission has produced a quick guide for cross-checking trustees with the consolidated list of financial sanctions targets.

Conflicts of interest

Conflicts of interest are more likely when there are only a small number of trustees on the board, when trustees are closely related, or when the charity has dealings with organisations in which the trustees have interests. It is vital that trustees avoid becoming involved in situations in which their personal interests may be seen to conflict with their duties as trustees. Trustees should put in place policies and procedures to identify and manage such conflict. Further guidance and advice on conflicts of interest can be found on GOV.UK.

An effective charity is run by a properly appointed, clearly identifiable board or trustee body with at least the minimum number of trustees required by its governing document. Holding the position of trustee in name but failing to fulfil the legal duties and responsibilities of a trustee may amount to misconduct and mismanagement in the administration of a charity.

Charities that are funded by family members or corporate entities which established them need to consider the potential for particular conflicts to arise because of this this arrangement. In particular the conflicts that arise where there are connections between the charity and the end recipient of grants. The Commission promotes charitable giving, but it is the responsibility of the trustees of each charity in this situation to understand the scope for conflicts arising and to ensure their conflicts policy, and approach to the management of conflicts, covers these specific situations.

Management of conflicts should be meaningful, and trustees should ensure they receive proper training to support them to discharge their duties.