Giving to Japan: More Complicated Than You Think.

We all love Japan: this tiny island nation gave the world sushi, karate, and yes — the word “tsunami.”

(Japan is the first country I ever backpacked solo. I was 18 and spent one month traveling everywhere from Tokyo to Hiroshima to remote Shinto temples. It changed my life — and awoke my passion for travel.)

Unfortunately, this beautiful country is having a horrible week: first a tsunami, then an earthquake, and now a potential nuclear disaster. 2011 is just not Japan’s year. When we see devastation like this on television, it’s natural to want to give.

But how do you know to whom to give? A few pointers …

The Patriot Act makes Donating more Complicated.

I’m not trying to be political; I’m not casting any opinion on the Patriot Act. The basic fact is: the Act makes it tougher for a U.S. nonprofit to send money overseas, for better or worse.

The Act is designed to prevent people from funneling money to terrorist groups abroad. One of the ways the Act does this is by preventing U.S. charities from giving money to “for-profit” groups overseas. If a U.S. charity wants to fundraise locally and give that money to another organization abroad, the recipient group MUST be a registered nonprofit.

That sounds great in theory — until you remember that many schools and hospitals are for-profit entities. The only way to get money to these groups is by giving it to a “middle-man” charity.

Here’s how it works:

You give $100 bucks to a U.S. nonprofit that’s raising money to help rebuild a clinic overseas. But the destroyed clinic is a for-profit. The U.S. nonprofit wires money to a “middle-man” overseas nonprofit, which receives the funds on the clinic’s behalf. If the middle-man entity is honest and trustworthy, it promptly passes that money to the clinic. If the middle-man nonprofit is a little corrupt, it “leaks” some money out, or sits on the cash for a month or two.

How do I know this?

I help run a foundation that sends orphaned children in Kathmandu, Nepal to boarding school. The mission of our foundation is simple: to pay tuition for orphans. Once they’re at boarding school, they’ll have not only education but also shelter, food, and emotional support.

But the boarding school is a for-profit. So once a year, we wire the tuition money to a nonprofit orphanage in Kathmandu. The orphanage proceeds to sit on the cash. Tuition doesn’t get paid. The kids don’t go to school. After several months of us asking our friends in Kathmandu to go to the orphanage in person and harass the leadership, the orphanage finally sends the tuition to the school, and the kids are allowed to start taking classes. Sheesh.

We’ve asked a lawyer to find any loophole through which we can send money to the school directly, but so far, he hasn’t come up with a way.

Give to a U.S. group physically present in Japan.

The takeaway lesson is that if the U.S. nonprofit to which you’re donating money doesn’t have a physical presence in Japan, there’s a higher risk that the money won’t go where it’s intended to go.

In other words: local fundraising groups and foundations are, in general, not the best groups to donate your money to if they don’t have a physical presence in the recipient country.

If you give money to a larger organization, like the Red Cross or Doctors without Borders, you’ll have the assurance that the money will stay within the organization. The Red Cross operates its own, “in-house” services overseas; it doesn’t need to funnel that money to a small local organization in a Japanese village.

Why give the money to a U.S. nonprofit rather than a Japanese charity? Quite simply, because you want the assurance of reporting and accounting standards. U.S. registered 501c3 organizations have to track every penny and report it to Uncle Sam. REALLY GOOD U.S. charities will even post a copy of their tax forms on their website so that everyone can see where their money goes. (I will only donate to charities that post their tax returns online. Transparency and accountability is the antidote to corruption.)

Size matters.

In theory, I’d like to advice people to send their money to smaller charities: these don’t have the overhead that larger ones do. Small charities tend to have staff with smaller salaries (mega charities hire highly-paid top leadership), and small charities don’t have to pay for TV and radio advertising, sponsorships, legal services, accounting services, and all those other pesky overhead costs.

But in the case of donating money overseas, stick with the tried-and-true blockbuster organizations. They can fly their staff to Japan and DIY the care and treatment of others.

As a side note, DON’T respond to donation solicitations — like emails, letters and text-messages — from groups you’ve never heard of. Scammers love tragedies.

Charity Navigator ranks nonprofits for effectiveness; this Motley Fool article lists the ranking of several organizations that are collecting money for Japan, including Mercy Corps, World Vision and Save the Children.

Write a check.

Because if you donate by credit card, Visa or Mastercard will keep 1- 2 percent of your donation. If you donate by PayPal, even more of your money gets eaten in processing fees.

Don’t forget the tax exemption!

It’s never a good idea to spend money for the sake of a tax deduction; this is the equivalent of saying, “For every dollar I spend, I save 28 cents.”

But if you’re planning on donating money anyway, you should certainly take advantage of the deduction.

This year it’s become popular to donate to the Red Cross by text-message, and fortunately, the IRS has caught on. Rather than requiring a receipt to prove that you’ve donated money, the IRS will accept a copy of your phone bill as proof.

So if you donate by text-message, just save your phone bill (this is super-easy if you get electronic bills). If the IRS comes a-knockin’, that bill is the only proof you need.


  1. says

    Wow, I never thought that the Patriot Act affects overseas charities–I wonder how many people do know that, and if it affects their view of the Act?

    The “non-profit” label is problematic since Japan is a country, and just like any other country, it IS a for profit entity! That really creates a lot of issues.

    On giving by check, wouldn’t it be better to give by PayPal rather than by check, just in case the “charity” does turn out to be a scam? If you give a check, they’ll have your name, address and account number–as well as the bank routing number–without having to do a bit of research.

    I’ve gotten very leary about sending checks anywhere. I’ll gladly let PayPal take their cut!

    • says

      @Kevin : If I were giving to a large reputable charity, like the Red Cross or Doctors without Borders, I would feel comfortable giving a check. If I were giving to a smaller charity that might run the risk of being part of a scam …. well, I wouldn’t give to a charity like that. But if someone I know is planning on doing that, then yes, PayPal would give you two layers of protection — you could dispute the charges with both your credit card company and with PayPal.

  2. says

    That is really unfortunate about the side effect of the act. This was an enlightening post and backpacking solo must have been a great experience to have especially at a young age.

  3. says

    Wow. Thanks for this insightful explanation. I definitely didn’t know about the Patriot Act tidbit. Another good thing about donating to big charities is that it’s easier to avoid scams since larger organizations tend to have more streamlined ways for receiving donations. It kind of saddens me that it’s less efficient to give to smaller charities because sometimes they really fill a niche that large organizations overlook. But I guess I rather have the majority of my money be put to the actual cause.

  4. says

    Just found your blog by way of the Financial Bloggers conference. I had no idea that the Patriot Act affected charities. Definitely suggest showing support by way of donating money towards reputable charities or donating items, time and going over there and doing something. Would love to hear more about your backpacking trip too!

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