Holy Land was shut down by the federal government in late 2001 and was unsuccessful in a lawsuit challenging the freeze order. (See the OMB Watch Executive Report for details.) A lawyer for the foundation said the court relied on secret evidence, including a 54-page FBI memorandum it claims had distorted and erroneous translations of Israeli intelligence reports. An independent translating service hired by Holy Land found 67 discrepancies and errors in a four-page FBI document used in that case.
The complaint describes several instances of incorrect or misleading information, including mention of Holy Land's financial support for Al Razi Hospital, claimed to have Hamas affiliations. The memo did not disclose that the U.S. Agency for International Development also funded the hospital.
A central issue in the case will be whether funding charities or other groups that have ties to terrorist organizations amounts to funding terrorism. If indirect ties can lead to criminal prosecution many international funders may be reluctant to make grants to troubled areas of the world. The Treasury Department's Office of Foreign Assets Control has issued "voluntary" best practice guidelines that would require grantmakers and service providers to investigate their clients and grantees to ensure they have no ties to terrorism. The guidelines have been criticized for putting foundations in the role of government enforcers.