Little Regulation Online

September 1, 2010       Mark Hrywna      

State charity regulators gathered for their annual conference in Charleston, S.C., in late 1999 as the world awaited the expected computer catastrophe known as Y2K. Most of the computers on the planet were not programmed for the year 2000 and it was expected vast amounts of data would be lost.

From that conference came what are known as The Charleston Principles, guidelines from The National Association of State Charity Officials (NASCO) on charitable solicitations via the Internet, which was expected to cause just as much disruption, if you talked to professional fundraisers. At the time, the use of the Internet for charitable solicitations was growing in popularity but still a novelty, and not the ubiquitous staple of every fundraiser’s toolbox that it is today.As it turns out, they both had little impact.

The Charleston Principles were meant to provide guidance to regulators and to the charitable sector about when registration would be required when it comes to Internet solicitation. Organizations were developing Web sites and there was media interest in how nonprofits were using the Web to fundraise, recalled Karl Emerson, former director of the Pennsylvania Bureau of Charitable Organizations who served as president of NASCO in 1999.

"State regulators were being asked, "Does soliciting on the Internet trigger registration requirements?" When you read the statute strictly, it does. If soliciting directly or indirectly, through any medium, you’re supposed to register," said Emerson.

The process that ultimately resulted in The Charleston Principles started in 1999, before NASCO formally adopted the principles as advisory guidelines and distributed them to state regulators in March 2001. There was much discussion among regulators and the charitable community before and after NASCO’s annual conferences in 1999 and 2000, Emerson said.

"There was a big outreach to the charitable sector, private attorneys, a lot of input into the development" of The Charleston Principles, he said.

Ten years later only two states — Colorado and Tennessee — have formally adopted The Charleston Principles into their charity regulations and those only have come within the past few years. Nearly two-dozen states use the principles as a guideline but have not formally adopted them.Chris Cash, charities program manager for the Colorado Department of State and a past president of NASCO, said attorneys look to statutes and regulations when advising clients. "It was going to help attorneys have a little more certainty on advising clients, especially when representing organizations outside of the state," he said. "We needed to pass some comparable rules anyway and The Charleston Principles needed to be in there. Frankly, it was our desire to make it more clear," said Cash.

The Charleston Principles were never intended to lay the groundwork for laws but to keep overly aggressive attorneys general from creating bad law and precedent. "It was really a yellow light to proceed cautiously in this area because of the analysis at the time of what jurisdiction issues were," Emerson said. "There was a lot of pressure at the time to answer questions from the marketplace," he said.

Internet solicitation isn’t an issue for most national charities because they already have direct mail or telemarketing campaigns that reach across state lines, so they generally register in each state that requires it. "It’s only an issue for organizations that are not soliciting in states other than through their Web sites," Emerson said.

The dilemma for regulators was that a strict reading of most of the statutes indicated a registration requirement if soliciting via the Internet, Emerson said, which would be more likely to affect smaller, out-of-state charities.

For example, should a small Utah-based charity with annual revenue of less than $30,000 register in Pennsylvania if they’ve received a random donation from a donor in that state? In that case, The Charleston Principles would suggest to the various states that they not make an out-of-state entity — that is solely soliciting in their state through the Web — register until they have raised a"substantial" amount of contributions through the Internet, according to Emerson. What happens when a charity with $26,000 in annual income develops a Web site to collect contributions via Donate Now button? Suddenly, that small charity might have to register in all 39 states that require registrations, and Washington, D.C., simply because it has a Web site with the ability to make a donation.

"That’s pretty burdensome for a small charity. That’s what precipitated regulators in trying to come up with some kind of guidance to the regulated community and fellow regulators," Emerson said. "Under what situations are we going to make organizations register, because they’re soliciting over the Internet, and where is there a certain latitude and discretion exercised," he asked.

The trouble with The Charleston Principles, said Emerson, "is it’s a great academic exercise." The reality of fundraising is that it’s inevitable that a charity will solicit a donor again, be it by mail phone or email.

The principles "make it very clear that once you send an email to someone…asking for a contribution, it’s no different than sending a letter or picking up the phone. It’s not unusual for an unsolicited donation to come in and almost instantaneously get receipted. Suddenly you’ve now solicited that person by email and technically require registration," Emerson said. Every charity eventually follows up with its previous donors, he added, but the reality is that the principles don’t apply in that particular situation."

To have nonprofits register everywhere would be a "nightmare scenario…that seemed to be nonsensical and administratively overwhelming," said Dan Moore, a former registrar of charitable organizations for the New Mexico Attorney General’s Office. Today he is vice president of nonprofit programs at GuideStar, a research firm based in Williamsburg, Va.There was a lot of debate not only among regulators but also in the sector about the scope and reach of registration requirements, according to NASCO President Eric Carriker. "There was and is, and probably will continue to be, a longstanding debate about the burdens of multistate charities registering in multiple states, especially if all they’re doing is soliciting on the Web,"said Carriker, who serves as assistant attorney general in the Nonprofit Organizations/Public Charities Division of the Massachusetts attorney general’s office.

A frequent critic of state registration requirements and regulators, Mark Fitzgibbons believes the process could be simpler. "The Charleston Principles are a monument to the stubborn refusal of NASCO to make multi-state registrations easier for nonprofits and easier for the general public to obtain information," said Fitzgibbons, president, corporate and legal affairs at American Target Advertising in Manassas, Va.

NASCO has put the burden on nonprofits rather than making the Internet registration process easier, said Fitzgibbons. He has pushed a proposal in which nonprofits would register in their home state and post that information on the Web since it’s usually similar to all states" requirements. "That would be deemed sufficient by all states rather than going through the process of registering in all states," he said.

The Charleston Principles, however, have confused nonprofits about whether their Web sites are subject to registration requirements, he contended.

"It’s almost worse that they’re guidelines, because it leaves a question of who are they going to enforce those guidelines against. They could’ve come up with an easy, online disclosure system instead of requiring registration in each state. They want to maintain the difficulty of the regulation process rather than making the disclosure process simpler," Fitzgibbons argued.

In the 10 years since the Charleston Principles were developed, one area that has emerged is solicitation through online social networks, such as Facebook and Twitter, and mobile giving, by cell phone and text message.

"Social media is what’s got most people scratching their heads right now," Cash said, and whether the principles are still adequate. He believes they still are for most situations."I think they do provide quite a bit of clarification. It would be interesting to see what a court thought if somebody challenged our law and our rule," Cash said."They’re much more helpful than harmful."

The rationale for not doing more than making the principles guidelines is the flexibility they offer as technology is evolving, Carriker said. To the extent that the principles were crafted for Internet solicitation, to what extent do they apply to different networks, such as Facebook and Twitter. Hard and fast rules would have to be modified to apply to different situations, he said.

Putnam Barber, who addressed the ’99 NASCO conference about Internet solicitation, believes The Charleston Principles were — and still are — a big help."I understand the reluctance of many members of NASCO to make them a more crisp and definitive statement because [they] basically come down to, in the end we’re going to know it when we see it, when we run into somebody who’s stretching the rules unacceptably," he said."I don’t know that they can say any more than that."

The alternative of trying to require every Web page, email or Twitter message"that might reach a citizen of my state is unthinkable; it is simply too large to fit within the structure of regulation that is in place across the country," said Barber, a senior researcher with who was executive director of the Evergreen Society when he addressed NASCO.

Ten years later after they were developed, the principles are still applicable since they"try to differentiate between intentional and incidental solicitationÉThat distinction is kind of the fundamental distinction," said Barber.

Whether a Web page, a Tweet, or an iPhone application, if the sender or creator of the message was looking for a specific donor or donors in a particular state, they should be registered in that state, Barber said, but it’s an"iffier question" if the nonprofit is trying to tell people about their work and finding supporters. NPT