Decision

Charity Inquiry: Effective Ventures Foundation UK

Published 22 May 2024

Applies to England and Wales

The charity

Effective Ventures Foundation UK (‘the charity’) was registered with the Charity Commission (‘the Commission’) on 20 November 2012. It is a company limited by guarantee governed by a Memorandum and Articles of Association incorporated on 23 February 2012.

The objects of the charity are: for the public benefit, such charitable purposes which are exclusively charitable purposes according to the law in England and Wales, as the Trustees may from time to time determine; they shall in particular include, without prejudice to the generality of the foregoing:

• the promotion and improvement of the efficiency and effectiveness of charities and the application of charitable resources by informing, advising and educating those who work for or with charities and voluntary organisations, or who are otherwise concerned with charities and voluntary organisations, with a view to improving fundraising and planned giving to charities and for charitable purposes
• the advancement of education by providing sources of information about the ethics of career choices
• the prevention or relief of poverty and the improvement of the conditions of life in socially and economically disadvantaged communities through undertaking and supporting research into factors that contribute to poverty and the most appropriate ways to mitigate these

 The charity’s entry can be found on the register of charities (‘the register’)

Background

On 19 November 2022 the charity filed a Serious Incident Report (‘SIR’) with the Commission stating that one of the charity’s funders, FTX Trading Ltd (‘FTX’) which operated a cryptocurrency exchange, and a number of entities affiliated with FTX, had filed for bankruptcy on 11 November 2022.  Media speculation suggested that the bankruptcy may have been linked to alleged illegal activity in relation to the founder of FTX and other individuals. 

The Commission was informed that at that time, the charity held £3.3 million and $300,000 in funding from FTX, or entities affiliated with FTX. The SIR also stated that two of the trustees of the charity were connected with FTX and its affiliates, with one of them holding the position of CEO with FTX Foundation (a non-profit organisation funded by FTX) and the other serving as an unpaid advisor to the FTX Future Fund (a philanthropic fund created by the FTX Foundation).

The Commission sought clarification from the trustees in relation to the issues raised in the SIR. The trustees responded on 2 December 2022, stating they had taken steps to exclude those trustees, who had actual or perceived conflicts of interest, from decisions and discussions relating to the FTX bankruptcy, defining them as ‘non-participating’ trustees.

The Commission opened a statutory inquiry (‘the inquiry’) into the charity, under s46 of the Charities Act 2011 (‘the Act’), on 19 December 2022.

Issues under investigation

The inquiry examined:

• the extent of any risk to the charity’s assets and the extent to which the trustees were complying with their legal duties with regard to the protection of the charity’s property

• the governance and administration of the charity by the trustees, including relationships between the charity’s trustees and its funders and the identification and management of conflicts of interest and / or loyalty

Following the opening of the inquiry, the trustees filed a second SIR on 12 February 2023 as they became aware of a historic safeguarding incident involving one of the former trustees prior to that individual’s appointment as a trustee of the charity.

The inquiry closed with the publication of this report.

Findings

The extent of any risk to the charity’s assets and the extent to which the trustees were complying with their legal duties with regard to the protection of the charity’s property following the collapse of FTX

The inquiry found that the trustees took appropriate steps to protect the charity’s funds and complied with their legal duties acting diligently and quickly following the collapse of FTX. The trustees, ringfenced the funds it had received (£3.3 million and $300,000) and requesting and obtaining a Defence against Money Laundering from the National Crime Agency (‘NCA’). A Defence Against Money Laundering (‘DAML’) can be requested from the NCA where a reporter has a suspicion that property, they intend to deal with is in some way criminal, and that by dealing with it they risk committing one of the principal money laundering offences under the Proceeds of Crime Act 2002 (‘POCA’).

During the inquiry the charity took the decision to reach a settlement agreement in relation to the repayment of funds it received from FTX in 2022. The charity made this decision following independent legal advice they had received. The charity then notified the Commission once this course of action had been taken. The charity returned $4,246,503.16 USD (stated as £3,340,021 in its Annual Report for financial year ending 30 June 2023). The Commission had no involvement in relation to the discussions and ultimate settlement agreement to repay the funds.

The governance and administration of the charity by the trustees, including relationships between the charity’s trustees and its funders and the identification and management of conflicts of interest and / or loyalty

Safeguarding

The inquiry found that following the second SIR, the trustees pro-actively investigated a historic safeguarding incident that occurred within the altruistic community to which the charity belongs, to assess its impact upon the charity. The investigation found that outside of this isolated serious incident there were no systematic or wider issues of a similar nature within the charity, but that clearer processes could be put in place to ensure that complaints or any future serious incidents were handled appropriately. The trustees then reviewed and updated their safeguarding policies and procedures and whilst these revised policies and procedures were generally in accordance with the Commission’s guidance, there was scope for further revision to provide more robust safeguarding. The Commission provided the trustees with regulatory guidance and advice in accordance with s.15(2) of the Act about this. The individual named in the SIR resigned from their position at the charity.

Conflicts of interest

The inquiry found that as two members of the trustee board had connections with FTX (one trustee was the CEO of the FTX Foundation and the other was an unpaid advisor to the FTX Future Fund as mentioned above), this led to a lack of clarity as to whether they were acting for the charity or on behalf of FTX Foundation at any given time. The inquiry noted that whilst the charity had provisions within its governing document which explained how to manage conflicts of interest there was no formal training or guidance provided to trustees or employees as to what would constitute a conflict of interest, how to raise it or how it should be managed and resolved.

The inquiry found that the trustees were not required to disclose potential conflicts of interest when joining the trustee board, and such a requirement was only introduced in October 2022. Although in practice no issues arose, this lack of a formal process setting out how the trustees would identify conflicts of interest (particularly in relation to the two trustees connected to the FTX Foundation and the FTX Future Fund) opened the charity up to risk. The inquiry notes that despite the two trustees’ involvement with the FTX Foundation and the FTX Future Fund, there is no evidence to suggest that there were any unmanaged conflicts of interest regarding funds the charity received from the FTX Foundation or that any trustee had acted in a way contrary to the interests of the charity.    

During the inquiry, the two trustees with connections to FTX resigned from their positions at the charity.

The inquiry found that the charity had financial policies and procedures but that these were not adhered to or reviewed regularly as the charity’s income grew. It was only in  2022 did the charity have a dedicated finance team to monitor and control the charity’s finances. This lack of control highlights a weak point which the inquiry notes has now been remedied by the charity.

The inquiry found that following the collapse of FTX, the trustees who were not connected to FTX acted quickly to assess the risk to the charity and installed measures to protect charitable assets and continued operations. Both the finance and legal teams at the charity have been strengthened and policies have been bolstered or created with more robust frameworks.

Conclusions

The Commission concluded that the trustees acted diligently and quickly in assessing the risk to the charity and installed measures to protect their assets and continued operations. The Commission concluded that whilst the inquiry highlighted weaknesses within the charity and its governance the trustees sought to put these things right at the earliest opportunity.

The trustees cooperated fully with the Commission throughout the inquiry and were proactive in updating it of ongoing developments within the charity.

The Commission concluded that the trustees sought to act in the charity’s best interests and had sought independent legal advice in order to support their decisions throughout the inquiry.

Regulatory Action Taken

The inquiry exercised its powers under section 47(2)(a) and (b) of the Act on several occasions to obtain information and documentation from the trustees and a range of third parties.

On 3 January 2024 the inquiry used section15(2) of the Act to give advice or guidance with respect to the administration of the charity as it considered appropriate.

Issues for the wider sector

The purpose of this section is to highlight the broader issues arising from the inquiry 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.

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. Charity trustees should ensure that they have a conflicts of interest policy in place to ensure that they are fully aware of their responsibilities and that any conflicts that do arise are appropriately managed. Where a charity trustee has a conflict of interest they should follow the basic checklist set out in the Commission publication Conflicts of interest: a guide for charity trustees (CC29)  and where necessary or appropriate take professional advice.

A serious incident is an adverse event, whether actual or alleged, which results in or risks significant:

• harm to your charity’s beneficiaries, staff, volunteers or others who come into contact with your charity through its work
• loss of your charity’s money or assets
• damage to your charity’s property
• harm to your charity’s work or reputation

A serious incident should be reported to the Commission immediately, not just on completion of the annual return. More information can be found on How to report a serious incident in your charity.

Charity trustees are responsible for governing their charity and making decisions about how it should be run. Making decisions is one of the most important parts of the trustees’ role. Trustees can be confident about decision making if they understand their role and responsibilities, know how to make decisions effectively, are ready to be accountable to people with an interest in their charity, and follow the 7 principles that the courts have developed for reviewing decisions made by trustees.

Trustees must:

• act within their powers
• act in good faith and only in the interests of the charity
• make sure they are sufficiently informed
• take account of all relevant factors
• ignore any irrelevant factors
• manage conflicts of interest
• make decisions that are within the range of decisions that a reasonable trustee body could make

It is important that charity trustees apply these 7 principles when making significant or strategic decisions, such as those affecting the charity’s beneficiaries, assets or future direction. More information can be found on Making decisions at a charity.