(Illustration by Laura Marshall)
The proliferation of global regulatory regimes in recent years, coupled with pre-existing requirements for institutional funders, has made cross-border philanthropic compliance an expensive, onerous, and far-reaching exercise. Funders around the world—including in the United States, Europe, Africa, and the Middle East—have increasingly felt its impact.
The aim of these legal and regulatory obligations, from government filings to risk management assessments, is to ensure that funder and grantee actions don’t support illicit activity. But given their growing burden, it’s important to take a look at who philanthropic compliance really serves. Governments who leverage sanctions to influence policy, or regulators who seek to protect public funds? Private funders whose legal status and reputations are at risk, or communities that the rules seek to safeguard from abuse?
The answer should be all of the above, and in many cases it is. But one group tends not to benefit: civil society organizations (CSOs). Defined here as formal and informal nongovernmental and nonprofit groups, pseudo-government entities, and hybrid for-profit vehicles that are principally focused on the betterment of society, CSOs are commonly unclear about what these systems expect of them, even as they spend significant resources on demonstrating their legitimacy and their effective use of government and philanthropic funds. Regulators, donors, and banks expect them to account for their donors, partners, and subgrantees, tracking risk exposure across jurisdictions. CSOs that need funding to survive willingly take on this liability if it is their only way to fund their work. As the International Council of Voluntary Agencies, a global NGO network, writes:
Most donors and intermediaries enforce a “zero-tolerance approach to risk” rather than a “zero-tolerance approach to inaction” … This leads to risk transfer from international to local [organizations], with donor conditions passed on to downstream partners who often lack the resources and logistical capacity to comply. … Inadequate coverage of administrative and overhead costs further prevents [NGOs] from investing in [organizational] development, risk management, and safety measures. Additionally, [NGOs] face numerous administrative and financial hurdles, including duplicative partner capacity assessment and reporting processes, highly earmarked funding, delayed payments, rigid requirements to return unspent funds, short expenditure windows, and inflexible conditions for no-cost extensions. Risk management measures, including due diligence, auditing and counter-terrorism requirements exacerbate these difficulties.
This reality intensifies the power imbalance between those giving money and those asking for it. In recent years, funders have sought to change this dynamic by committing to trust-based philanthropy, locally led development, power-shifting, and a reduction in application and reporting requirements. And yet, faced with vague and mounting menaces of legal and reputational risk, little has changed in practice.
Philanthropy can maintain strong compliance while also encouraging trust, transparency, and greater diversity in giving, but funders must first understand the extent of existing compliance and where there is room to better operate within the limits of the regulatory reality. Funders have an opportunity and an obligation to identify what true risk is to their missions and operations, and how that risk impacts their grantees. They must move from a zero-risk approach to one that dissects context-specific risk and works directly with grantees to minimize harm on both sides. Only then can they make informed decisions based on reality, not fear, and deepen the impact they seek to achieve.
A Half-Century of Regulatory Expansion
Three moments in history stand out in the evolution of philanthropic compliance, particularly for US funders and international grantees: the US Tax Reform Act of 1969, the regulatory aftermath of the 9/11 terrorist attacks, and, most recently, a global trend of authoritarian drift. Each provoked a series of new regulations impacting compliance and cross-border funding.
The Tax Reform Act of 1969 introduced the “private foundation” as a separate charitable vehicle subject to penalties for self-dealing, minimum annual payouts, limits on investments, and new diligence obligations for grants to non-charitable or foreign entities. Tax practitioner K. Martin Worthy observed, “These provisions frequently have been described as the most far-reaching legislation affecting private philanthropy in our two hundred-year history.”
Critiques of the amendments pointed to greater administrative costs and less funding for organizations. In 2015, after reviewing almost 50 years of data, economist Benjamin M. Marx wrote, “Donations and entry dropped precipitously. Proxy variables suggest significant deterrence of abuses, but half of the decline in donations can be explained by the increased cost of running a foundation. The results highlight the potential for large reductions in the benefits of regulation when the cost of compliance affects … charitable giving.”
While early evidence that funders had increased their payouts to meet the new requirement may seem to contradict this, payouts refer to all expenses related to the operation of a foundation other than investment expenses, so the total annual payout requirement would capture compliance costs as well as grants. Thus, it is not surprising that higher compliance and administrative costs would result in higher annual minimum payouts.
In any case, the legislation was a pivotal moment for the US philanthropic sector, in that it introduced a panoply of new, baseline obligations for private foundation compliance across all aspects of operations.
In 2001, the 9/11 terrorist attacks against the United States birthed a new set of requirements intended to prevent support for terrorism. The USA Patriot Act, the UN counter-terrorism resolution, and FATF Special Recommendations that followed shaped anti-terrorism financial policy around the globe. They also pointed to the nonprofit sector as particularly vulnerable to abuse.
Twenty-five years later, little has slowed the regulatory war against terror. One of the most problematic aspects of the requirements is that they are highly ambiguous but carry “strict liability,” meaning regulators can penalize funders even if funders were unaware of a violation or took ample measures to prevent one. A common response from funders has been over-compliance, leaving grantees struggling to keep pace. Smaller organizations are particularly vulnerable, as described in a joint “Submission to the Special Rapporteur on Counter-Terrorism and Human Rights” in 2025:
The “strongly recommended” compliance programs for the sanctions regime, and associated overlapping federal criminal laws (anti-money laundering, material support laws, wire fraud, etc.), are incredibly burdensome for smaller civil society organizations in particular. … The consequences are so severe, and the punishments so grievous, that this chills the operations of these small nonprofit organizations, jeopardizing their work and limiting the aid provided to those most in need.
Large philanthropic institutions have more capital to spend on these exercises, but ultimately at a cost to the number of grants they can distribute, the kind of organizations they can support, and their relationships with these partners, as Barnett Baron, prophetically remarked in 2004:
Requiring grant-makers to collect detailed information about a prospective grantee’s staff, trustees, donors, sub-contractors, and bankers, even if they are not directly involved in the program to be supported by the proposed grant, will inevitably raise questions about the role and objectives of U.S. grant-makers. In some cases, prospective grantees may view grant-makers as agents of the host government, which may be a repressive one, or as agents of the U.S. intelligence community. This could jeopardize the ability of U.S. foundations to operate effectively, and in extreme cases could even put in-country staff at physical risk.
Much has been written on this topic, including by the Charity & Security Network (US), Human Security Collective (Netherlands), Brot für die Welt (Germany), and the Council of Europe Commissioner for Human Rights. The impact on civil society continues to be significant.
Finally, the global rise of authoritarianism has also increased compliance obligations worldwide. In 2026 alone, governments introduced or adopted new laws specifically aimed at making it harder for CSOs to receive foreign funds in Angola, Georgia, Sierra Leone, Israel, and Vietnam, and local governments in Peru, Ecuador, Hungary, and Benin adopted a wave of laws and in 2025.
The increase in laws restricting NGO activities and funding over the past two decades is partly due to post-Cold War geopolitical shifts toward authoritarianism, and the continued impact of the war against terror and isolationist policies. The latter have introduced onerous foreign agent registration laws in many democracies, including the United States, the United Kingdom, Australia, and the European Union. As described by Lloyd Hitoshi Mayer, professor of law at the University of Notre Dame:
Cross-border funding is a critical resource for NGOs in many countries for a variety of reasons, including limited domestic resources and the lack of a domestic philanthropic culture. At the same time, such funding is often viewed with suspicion by the governments of these countries … because they are concerned about potential challenges to government authority, foreign influence, and possible cultural conflicts. While such concerns are generally not sufficient to justify limiting or regulating such support under international law, they provide motivations for governments to do so while publicly relying on other, more defensible justifications, such as national security and accountability.
This kind of regulatory behavior is commonly associated with authoritarian regimes, where non-democratic decision-making enables one ruling party to censor whole segments of society. However, the term “authoritarianism” may more generally describe behaviors characterized by a governing party’s imposition of rules that materially deprive citizens of rights or freedoms, which may also manifest in democratic societies.
These developments sit within the larger context of pre-existing and growing regulatory regimes. Taken together, philanthropic compliance is an expanding web of obligations and prohibitions that funders attempt to address through vastly divergent methods, that, as noted above, typically manifest in inconsistent and often excessive diligence requirements for grantee partners.
Leveraging Compliance to Meet the Moment
While these events have powerfully influenced philanthropic regulation over time, philanthropy itself—which has been slow to address the impact on grantees—may be partly to blame for the state of compliance today. Commitments to give more directly, more equitably, and more transparently have stalled in the face of political attacks, risk aversion, and a lack of investment in infrastructure. Indeed, funders’ risk-avoidant response to overreaching regulatory action gives oxygen to authoritarian rulemaking, whose very purpose is to silence civil spaces and societies. Broadly speaking, philanthropy’s retreat from what it perceives as risk and its standard offloading of risk to grantees further strains a sector struggling with diminished funding and government repression.
Legal counsel and tax advisors, who often aim to eliminate rather than understand risk within a larger philanthropic mission, often view risk narrowly as legal and reputational, rather than considering the risk of failing to achieve meaningful impact. What about the risk to communities if CSOs cannot deliver medical care, or schools shut down, or governments imprison activists?
This series sheds light on how philanthropy can leverage compliance to meet the moment. Articles include: practical tips from bold and compliant funders who give globally; an analysis of Ecuador’s new foreign funding regulations in the context of Latin America’s closing civil spaces; how one intermediary uses due diligence as a means to empower and resource its grantees; and how some NGOs in Asia are using compliance as a form of resistance. Each presents a political, legal, or regulatory obstacle that stifles or slows international philanthropy, and articulates concrete ways in which philanthropy and civil society can better understand or overcome that obstacle.
Philanthropy faces an opportunity. Even amid increased persecution and a rapidly evolving regulatory environment, the sector can both protect itself and strengthen civil society. Compliance practices offer a ready mechanism for philanthropists to gain greater awareness of local context, strengthen mutual accountability, and create learning paths to appropriately address risk. Importantly, this means not just identifying risk, but understanding how to manage it in a way that is proportionate, intentional, and fit for context—and ultimately using compliance as a means to advance, rather than obstruct, healthy and sustainable partnerships.
Read more stories by Martha Lackritz-Peltier.