Nonprofits Call for Withdrawal of Anti-Terror Financing Guidelines

Nonprofit leaders recently called on the Treasury Department to withdraw its anti-terrorism financing guidelines for charities and to replace them with principles developed by the charitable community. Treasury's Anti-Terrorist Financing Guidelines: Voluntary Best Practices for U.S.-Based Charities, were initially issued in 2002 and revised on Dec. 5, 2005. Treasury sought comments on its revision, despite their having been operational since Dec. 5; it is unclear how the department will use the comments submitted by the nonprofits.

Comments submitted by the Treasury Guidelines Working Group [1], a representative group led by the Council on Foundations of more than 40 charities, foundations, umbrella organizations and advisors, called for withdrawal of the Treasury guidelines stating that "the revised Guidelines continue to suggest onerous and potentially harmful procedures to charities....without providing any protection from terrorist abuse that is not already present under the laws and practices that are currently followed..."

OMB Watch, a part of the Working Group, in separate comments, explained its position that "[t]he goal of the Guidelines is laudable and we fully support Treasury's efforts to prevent diversion of charitable assets to terrorists. However, the Guidelines are not the best way to achieve this goal."

Comments from the nonprofit sector reflect objections to information collection and reporting that turn charities into agents of government; duplication of and conflict with existing laws regulating nonprofits; and the lack of safe harbor procedures to protect charities from asset seizure by the Treasury Department.

Many of those submitting comments, including the Working Group and OMB Watch, strongly objected to a statement in the introduction to the revised guidelines stating, "Investigations have revealed terrorist abuse of charitable organizations, both in the United States and worldwide, often through the diversion of donations intended for humanitarian purposes but funneled instead to terrorists, their support networks, and their operations." Comments noted the utter lack of cited evidence for these allegations.

Comments submitted by the Muslim Public Affairs Council (MPAC) [2] note that "[t]here are many throughout the U.S. charitable community, both Muslim and non-Muslim, who take issue with such broad and sweeping statements about the evidence of actual criminal abuse within established institutions of the Muslim American community." The comments of Muslim Advocates [3] suggest donor confidence problems have resulted from government anti-terrorism activities, noting that "a major, persistent factor in the weakening of charitable giving in the Muslim community is the continuing perception, whether accurate or not, that government investigations are arbitrary, capricious, without basis in fact and perhaps politically motivated...."

OMB Watch identified a host of reasons that the guidelines should be withdrawn:

• The voluntary nature of the Guidelines is questionable, given the broad powers Treasury has under the Patriot Act and Executive Order 13224 to seize and freeze charitable assets based on secret evidence and without meaningful recourse for affected charities.
• Treasury's emphasis on broad information collection and reporting by charities and foundations indicates a lack of focus in its program to stop diversion of funds to terrorism.
• The Guidelines continue to take a one-size-fits-all approach.
• There should be safe harbor procedures, opportunities to cure problems, and intermediate sanctions that allow charitable programs to continue to serve their intended beneficiaries.
• The guidelines can make funders risk averse, at the cost of programs that reach out to vulnerable populations and address the political and economic hardships at the root of terrorism.
• The sections which address governance and transparency are outside the Office of Foreign Assets Control's (OFAC) area of expertise, and are not relevant to the goal of preventing diversion of funds to terrorists.
• The Guidelines are being used by other regulatory agencies in ways that conflict with their supposed voluntary nature.

The Working Group expressed further concerns:

• Provisions that suggest charities are agents of government threaten the safety of humanitarian workers "who may be targeted as a result of their perceived lack of independence from the government."
• The proposed increase in vetting procedures "suggest that charitable organizations run a gauntlet of information collection and reporting procedures that exceed due diligence practices which are routinely followed by organizations and which have, to our knowledge, proved adequate to prevent the unintentional diversion of assets to terrorist uses."
• Treasury's inclusion of matters already covered by state or federal laws, combined with the substantial civil and criminal penalties for violation of anti-terrorist financing laws, raise concern that "the revised Guidelines will evolve into de facto legal requirements through incorporation into other federal programs, despite the inclusion of the word "voluntary" in the title."

Nonprofits also argued that some of the due diligence suggestions in the guidelines are impossible to carry out as a result of government action. Comments from Kinder USA [4], a charity that provides aid to children in the Middle East, point out that on-site audits of grantees cannot be done because the Israeli government has denied visas to Kinder USA's board members and staff, and "[a]ppeals to the U.S. State Department and other government officials for assistance have been futile".

The American Civil Liberties Union (ACLU), in its comments [5], challenges the guidelines' heavy reliance on checking names of board members, key employees, recipients and others against its Treasury's Specially Designated Nationals (SDN) list as a means of preventing diversion of funds to terrorists, noting, "While the Guidelines are voluntary, alternatives to list checking that would promote compliance are not fully spelled out..." The ACLU maintains that this may hinder nonprofits from taking more effective steps. In addition, the ACLU notes that the guidelines encourage charities to take a risk-based approach, but do not define "how a charity should measure risk,"leading to concern "that risk-based assessments will become code words for racial profiling."

Comments from Friends of Charity (FOCA) [6], an organization of Islamic charities in the Middle East and Europe, point out that the problems arising from the guidelines are likely to "stem from laws, regulations and practices that underlie the guidelines, rather than the guidelines themselves." FOCA goes on to argue that "the guidelines rely upon a process of designating terrorist supporters that is severely flawed." The organization then suggests steps Treasury can take to improve both the guidelines and the enforcement process:

• Increased resources for OFAC and related agencies, since "we have found that in many cases these organizations are unresponsive or uninformed on important matters. Undoubtedly, this is due to lack of resources."
• Provide Advisory Opinions that would eliminate the uncertainty in the current system. This would help speed delivery of aid, particularly in times of disaster.
• Commission "an analysis of the cost and benefits of the current regulatory system and the revised guidelines."
• Establish a process to transmit frozen assets "to recipient populations that were originally targeted for such aid."
• Broaden the dialog with the nonprofit sector "by inviting input on the underlying legal, regulatory and administrative structure" that governs anti-terrorist financing programs.