[Judgment] "Membership fees paid by regular members of civic groups are not subject to the Donation Act" Civic group acquitted in retrial after remand

Taepyeongyang and Dongcheon Lead Victory Representing Civic Groups

A civic organization that has been providing free meal services to vulnerable groups was found guilty in the first and second trials on charges of violating the Act on the Collection and Use of Donations (Donation Act), but was acquitted in the retrial. Last year, the Supreme Court ruled that membership fees regularly paid by sponsoring members to the civic organization are not considered 'donations' under the Donation Act and can be used without legal restrictions; the retrial court made the same judgment.

The Criminal Division 4 of Daegu District Court (Presiding Judge Kim Hyung-han) acquitted both the organization A and its representative Mr. B on the retrial on charges of violating the Act on the Collection and Use of Donations (Case No. 2023No466) on the 31st of last month. Since the prosecution did not file a further appeal, this ruling became final.

[Image source=Beomryul Newspaper]

Organization A was established as a corporation in 2013 and has been conducting volunteer activation projects and free meal services for solitary elderly and impoverished groups. From 2013 to 2018, Organization A and Mr. B were indicted in 2019 on charges of violating the Donation Act by allocating more than 15% of the monthly collected donations from regular or sponsoring members to 'recruitment expenses' and using approximately 181 million KRW of donations for purposes other than the intended fundraising objectives.

The Donation Act limits the recruitment expenses that an organization can use for fundraising, management, operation, and reporting to within 15% of the total amount raised. The prosecution claimed that the amount Organization A used for promotional expenses and staff salaries exceeded this limit.

The Donation Act excludes money paid by 'members' from its scope. Therefore, the key issue in this case was whether the 200,000 'regular members' and 'sponsoring members,' who account for 92% of Organization A's resources, should be recognized as 'members' under the law.

The prosecution argued that "Organization A did not distinguish between donations collected from corporate sponsors and membership fees regularly paid by regular or sponsoring members, and all should be considered donations subject to the Donation Act," insisting that all expenses incurred should be subject to the restrictions under the Donation Act.

The first and second trials ruled guilty, stating that "members who regularly pay sponsorship fees are merely sponsors and cannot be considered members of Organization A."

The prosecution also charged Organization A and Mr. B with falsifying records by listing 12.776 billion KRW of donations as 'membership fees' in the corporate income ledger from 2016 to 2017, but the lower courts acquitted them of this charge.

In February last year, the Supreme Court overturned the guilty verdict of the lower courts and remanded the case. The Supreme Court ruled that "it is reasonable to exclude funds paid by members who obtained sponsoring membership status according to the articles of incorporation from the scope of 'donations' regulated by the Donation Act."

The retrial court ruled similarly to the Supreme Court. The court stated, "Funds collected by the defendant corporation from 'regular members' or 'sponsoring members' fall under 'funds collected by a corporation from its members according to its articles of incorporation for membership fees or common interests' under the Donation Act," adding, "Considering the corporation's purpose of establishment and the management and usage status of membership or management fees paid by members, it is highly likely that membership fee payments are not made indiscriminately and that appropriate use is guaranteed."

Following the Supreme Court ruling in February last year, the Donation Act was partially amended to explicitly exclude from its application "funds collected from members who have joined as members, party members, or members of corporations or social clubs according to their articles of incorporation, regulations, or bylaws." The amended provision will take effect on July 31 of this year.

Law firm Taepyungyang (Chief Attorney Lee Jun-ki) and the Dongcheon Foundation (Chairman Kang Yong-hyun) represented Organization A and Mr. B in the retrial and appeal, leading to their victory.

A representative of Dongcheon explained, "Most domestic non-profit corporations that have raised operating funds through membership fees or sponsorships received in a manner similar to Organization A have been at risk of violating the Donation Act even if they complied with tax laws and government administrative guidance in spending business expenses, which could have caused difficulties in corporate operations in the future."

He added, "With the confirmation of this ruling, it is expected that controversies over the scope of donations subject to the Donation Act will decrease, and the overlapping regulations of tax law and the Donation Act on donations may be significantly eased."

Hong Yoon-ji, Legal Times Reporter

※This article is based on content supplied by Law Times.

This content was produced with the assistance of AI translation services.