Following the UK's vote to leave the European Union (EU), we consider the potential implications for non-governmental organisations (NGOs) whose activities are funded by the EU.
In order to be eligible for EU funding under EU rules for external actions, NGOs have to meet a nationality requirement. In principle, an NGO having its effective establishment in an EU country is eligible, whereas foreign NGOs are not automatically entitled to receive EU funding.
The European Commission grants aid to NGOs in particular for activities aimed at reducing global poverty, ensuring sustainable economic, social and environmental development and promoting democracy, the rule of law, good governance and the respect of human rights (DEVCO), as well as saving and preserving life, preventing and alleviating human suffering and safeguarding the integrity and dignity of populations affected by natural disasters and man-made crises (ECHO).
To be entitled to receive EU funds, NGOs must fulfil certain eligibility criteria, including the nationality rule. NGOs that are registered and have their decision-making centre in a Member State of the EU automatically fulfil the nationality rule. However the nationality rule varies depending on the instrument pursuant to which the subsidy will be granted. Under certain instruments, only NGOs effectively established in the EU would be eligible to EU funds, and under others, NGOs of third countries might also see their activities subsidised by the EU.
Following Brexit, NGOs that are registered and have their centre of decision-making in the UK would no longer be automatically eligible to EU funding. Furthermore, such NGOs might have their existing grant agreements or participation terminated by the European Commission, thereby losing the benefit of expected EU funds. Even if UK NGOs are not themselves beneficiaries of EU funds, because they are not signatories to particular grant agreements, Brexit may lead to a situation where the costs they incur to implement an EU-funded action - for instance as a subcontractor - can no longer be covered by those funds.
- NGOs should understand the implications of a change to their status under current EU grant agreements, and as regards future calls for proposals to fund specific activities.
- As regards grants requested after Brexit, NGOs should also be conscious of potential consequences, including sanctions, where they have been the recipient of EU funds, even indirectly, whereas they were not eligible in the first place.
- UK NGOs that wish to continue operating with EU funding following Brexit will need to evaluate the extent to which they are or might be at odds with the relevant nationality rule.
- Once the terms of Brexit become clearer, it might be advisable to carry out an audit of current EU funded agreements in order to have an overview of the grants that are potentially at risk and to determine a risk profile for future calls for proposals. Should the NGO be engaged in actions that are subject to strict nationality rules, it may be necessary to adopt flexible business models and be aware of the need for potential restructurings, both at a corporate and operational level.
For a more detailed analysis of the issues, please contact the authors or your usual DLA Piper contact.