The International Journal
of Not-for-Profit Law
Volume 10, Issue 1, December 2007
Kay Guinane 1
Over the past year, the legal and regulatory environment impacting charities and their program operations has evolved in some troublesome ways, in all three branches of government. However, there appears to be growing acknowledgment of the unique impacts the “war on terror” has on charities, creating openings for the kind of oversight and evaluation that could lead to positive reforms. This article reviews the major events, and suggests that the charitable sector develop consensus around specific reform proposals that can protect both public safety and charitable programs.
When it comes to terrorism-related issues, Congress has most often acted without adequate oversight that evaluates the effectiveness and impact of current counterterrorism laws. Where hearings have been held, they have been one sided, with government witnesses only. However, there are indications that Congress may begin paying more attention to issues relating to the financial war on terror as a whole, which hopefully will include the impact on charities.
Examples of missed opportunities to exercise oversight include the following:
On May 10, Chip Poncy, the Director of Treasury’s Office of Strategic Policy for Terrorist Financing and Financial Crimes, testified before the committee during a hearing on “Violent Islamist Extremism: Government Efforts to Defeat It.” Poncy highlighted Treasury’s revised Voluntary Anti-Terrorist Financing Guidelines, which he claimed are “based on extensive consultation between Treasury and the charitable and Muslim communities.” This misled the committee, since a group of more than 40 U.S. charitable-sector organizations called for withdrawal of these guidelines in December 2006.
On June 20, Grantmakers Without Borders (Gw/oB), a philanthropic network of more than 150 organizations, wrote committee leadership objecting to this portrayal of the agency’s relationship with the charitable sector. Gw/oB’s letter noted that no representatives from the charitable and Muslim communities were called to testify at the congressional hearing, although this would have provided committee members with a more accurate, complete description of the impact Treasury’s counter terrorism procedures have had on charitable programs and Treasury’s lack of trust and credibility within the nonprofit sector on these issues.
The letter states, “Ironically, Treasury’s anti-terrorism policies often chill the valuable work of international grantmakers, including Gw/oB’s member organizations. Thus, philanthropic money that funds, for example, farming projects or support for tsunami victims is too often delayed or discontinued.”
In October, Congress approved S. 1612, the International Emergency Economic Powers Enhancement Act (IEEPA).2 The bill expands penalties for violations of economic sanctions against countries such as Iran and designated terrorist organizations. But it also expands the scope of prohibited activity to include vaguely defined conspiracy and aiding and abetting language that could lead to unpredictable results for the unwary. The terms are undefined and could criminalize behavior far removed from the actual illegal act, such as charitable relief provided in disaster areas where terrorist groups operate or bankers playing an indirect role in a financial transaction.
The bill went through Congress relatively quickly, passing the Senate after a hearing that included only Bush administration officials, and with no hearing before the House Foreign Affairs Committee. Passage of the bill without review of the economic sanctions’ effect on humanitarian aid, development, and human rights programs is unfortunate. OMB Watch wrote to the House Democratic leadership asking for a delay on the vote on the bill until the Foreign Affairs Committee could investigate how the IEEPA has affected the charitable sector. Although the bill passed, the call for oversight continues. Key questions for Congress include the following:
- How has Treasury treated charities under Bush’s Patriot Act executive orders?
- Why does Treasury refuse to meet with charities about ways to release frozen funds for genuine charitable programs?
- Why is there no independent review of designation of charities?
- Why do charities get shut down, whereas companies such as Chiquita pay fines that are small relative to their assets?
Examples of growing Congressional awareness and interest include the following:
- Hearing Raises Questions on Extent of Charities Role in Terrorist Financing
The House Ways and Means Subcommittee on Oversight held a hearing July 24 on tax-exempt charitable organizations. The opening remarks of Rep. Bill Pascrell (D-NJ) challenged the Department of Treasury’s assertion that charities are a “significant source of terrorist funding,” observing that Treasury seems to be “painting the sector with a wide brush.” During questioning, Pascrell asked Steve Gunderson, the President and CEO of the Council on Foundations, if he agrees with Treasury’s claim. Gunderson responded that he does not and went on to explain the difficulties facing the sector as a whole. He also noted that not a single U.S. charity has been found to have redirected funds to a terrorist organization.
- Senate Votes Down Expanded Definition of Material Support
In March, one of many amendments proposed to the Senate bill designed to implement recommendations of the 9/11 Commission, S. 4, could have potentially weakened humanitarian work of U.S. charities overseas. The amendment, introduced by Sen. Jon Kyl (R-AZ), was defeated.
Kyl’s amendment, SA 317, would have increased the maximum penalties for giving material support to suspected terrorists and broadened the definition of material support to anyone who “provides material support or resources to the perpetrator of an act of international terrorism, or to a family member or other person associated with such perpetrator, with the intent to facilitate, reward, or encourage that act or other acts of international terrorism” (emphasis added). The penalty for violating this provision would have been a fine, up to 25 years in prison, or both, or if death results, a prison term of any number of years to life. The terms “family member” or “person associated” were not defined in the amendment. This broad standard could have lead to discrimination in aid programs that would violate Red Cross and international standards.
- House Financial Services Committee Moves to Implement GAO Recommendations
On April 17, legislation was introduced in the House that would require the Departments of State and Treasury to adopt recommendations of an October 2005 Government Accountability Office (GAO) report, which addressed the effectiveness of the U.S. government’s efforts to assist other countries in the war on terrorism. Among other things, the bill would require the Treasury Department to submit in an annual report to Congress more complete information on how the agency tracks and blocks terrorist assets. Although the bill does not include all the GAO recommendations, it opens the door to discussions on the effectiveness of Treasury’s strategy, including how it deals with charities.
The major problems highlighted in the 2005 GAO report, “Terrorist Financing: Better Strategic Planning Needed to Coordinate U.S. Efforts to Deliver Counter-Terrorism Financing Training and Technical Assistance Abroad,” reflect the overall flaws with anti-terrorism financing programs that also greatly impact charities. For example, since the assets of U.S.-based Muslim charities were frozen, no information has been provided about what Treasury plans to do with the money or even an exact amount of the charitable aid lying dormant. In its 2005 Terrorist Assets Report to Congress, Treasury estimated that these designations have resulted in more than $16.4 million in frozen assets. As the GAO report also notes, “The lack of accountability for Treasury’s designations and asset blocking program creates uncertainty about the department’s progress and achievements. U.S. officials with oversight responsibilities need meaningful and relevant information to ascertain the progress, achievements, and weaknesses of U.S. efforts to designate terrorists and dismantle their financial networks as well as hold managers accountable.”
The Executive Branch
Two new Executive Orders and action in three departments, Treasury, State and Justice, have implications for the nonprofit sector.
- Executive Orders Broaden Activities That Can Lead to Designation, Shut Down
Executive Orders extend criteria that can lead to designation and asset seizure in Iraq and Lebanon as a “threat to national security.” The term is undefined, and there is concern that charities operating in these areas could be shut down for political reasons.
- Treasury Department
- Overbroad Claims of Charities Supporting Terrorism Continue
On June 8, charities wrote to the Secretary of the Treasury, Henry Paulson, to express their concern about a May report from the Treasury Inspector General for Tax Administration (TIGTA) that claimed charities are a “significant source of alleged terrorist activities.” The charities’ letter3 called upon Treasury to retract this claim, saying that “Treasury needs to recognize that charities are part of the solution and not part of the problem.” The TIGTA statement was made in conjunction with a recommendation that the Internal Revenue Service (IRS) use the Terrorist Screening Center (TSC) watch list to check for connections between charities and terrorists.
The letter noted that Treasury never provided information to prove that a considerable portion of charitable funds are diverted to terrorist organizations. In fact, its own data shows that overall, charities account for only 8.75 percent of the individuals, companies, and organizations on Treasury’s Specially Designated Nationals (SDN) list. In all, 45 charities appear on that list, only seven of which are based in the United States, so that U.S.-based charities account for just 1.25 percent of designations. The letter said this hardly justifies Treasury’s broad claims about charities’ role in supporting terrorism.
The letter also expressed concern about Treasury’s overreliance on inaccurate watch lists, such as the SDN list. The TSC list is much larger, including the no-fly list and a variety of lists from different agencies using different standards. The letter said that the addition of yet another inaccurate watch list is not the most effective use of resources.
- Treasury’s Voluntary Anti-Terrorist Financing Guidelines for U.S.-Based Charities
The Guidelines remain in place, despite continued calls from the nonprofit sector for their withdrawal. Widespread sector criticism of the Guidelines led Treasury to revise them in 2006, but the changes were insufficient and the calls for withdrawal continue.
- Treasury Posts Risk Matrix for Charities
In March, without public announcement or comment, the Treasury’s Office of Foreign Assets Control (OFAC) published a Risk Matrix for the Charitable Sector on its website. The Introduction of the publication says the matrix is meant to help charities comply with U.S. sanctions programs that prohibit transactions with designated terrorists or certain countries. In 2006, Treasury said it was working on a draft of the matrix, and in June 2006, a group of nonprofits wrote Treasury asking for a public comment period. Treasury did not respond, which is a t odds with their claims of close cooperation with sector. The matrix has been criticized by groups such as Grantmakers Without Borders, which has called for it to be withdrawn, because it stigmatizes international grantmaking.
- Frozen Funds:
Treasury has not responded to a November 2006 letter from a group of 20 charities seeking a meeting to discuss ways to release frozen funds of charities Treasury has designated as supporters of terrorism to alternative charitable programs. As of this writing it appears Treasury is now willing to meet after intervention from a member of Congress. It remains to be seen whether this will be a good faith dialog or a token meeting to give appearance of cooperation where there is none.
- State Department
- Guiding Principles on Non-Governmental Organizations
In one of the few positive developments for nonprofits, in December 2006 the State Department published a set of principles that recognize the essential role non-government organizations (NGOs) play in “ensuring accountable, democratic government.” The preamble cites the United Nations Universal Declaration of Human Rights and other international standards that support “the right of freedom of expression, peaceful assembly and association.” The ten standards include the following statement:
Criminal and civil legal actions brought by government against NGOs, like those brought against all individuals and organizations, should be based on tenets of due process and equality before the law.
The principles were published in response to repression of NGOs in such countries as Russia and Turkmenistan, but are equally needed in the United States. The lack of due process U.S. charities face when the Treasury Department shuts them down clearly violates these standards. This contradiction should call attention to the need to reform the process.
- Justice Department/FBI
- Surveillance of U.S. organizations based on political beliefs and dissent
Since 9/11 there have been disturbing revelations about use of anti-terrorism resources, including the Joint Terrorism Task Force (JTTF) and Department of Defense (DOD) databases, to track and sometimes interfere with groups that publicly and vocally dissent from administration policies. In this way lawful protest is mischaracterized as terrorist activity. Although since 9/11 antiwar groups have suffered from these abuses the most, it is not limited to them. Other instances have been exposed by the American Civil Liberties Union (ACLU) Spy Files project.
A report by the ACLU revealed that the Pentagon monitored at least 186 anti-military protests in the United States and collected more than 2,800 reports involving Americans in an anti-terrorist threat database.4 For example, in 2005 DOD added the American Friends Service Committee, a 90-year-old pacifist Quaker organization and 1947 winner of the Nobel Peace Prize, to its database of suspected terrorist groups. The Threat and Local Observation Notice (TALON) database also “identified a 79-year-old Quaker grandmother attending an anti-war meeting at a Quaker meeting house in Florida as ‘potential terrorist activity.”5 The TALON database6 has been discontinued as a result of public protest.
The American Civil Liberties union as used the Freedom of Information Act to obtain and expose FBI surveillance files on itself, peace groups including Code Pink and United for Peace and Justice, Greenpeace, People for the Ethical Treatment of Animals, the American-Arab Anti-Discrimination Committee and the Muslim Public Affairs Council.
- Double Standard: Chiquita Banana Fined, Not Shut Down, for Transactions with Designated Terrorists
In a March plea agreement with the U.S. Department of Justice (DOJ), Chiquita Brands International agreed to pay a $25 million fine after admitting it had paid $1.7 million to the United Self-Defense Forces of Colombia (AUC) and had also made payments to the leftist Revolutionary Armed Forces of Colombia (FARC), both of which are U.S.-designated terrorist organizations. The payments, made between 1997 and 2004, continued despite the company’s knowledge of their illegality. The company was allowed to continue profitable production during the investigation. The Chiquita fine is unlikely to affect its operations, as the company has annual revenues of approximately $4.5 billion.
DOJ’s slap on the wrist exhibits unequal enforcement of anti-terrorist financing laws. In contrast to Chiquita’s direct funding of AUC, no significant evidence points to terror financing by U.S.-based charities. Instead, questionable evidence was used to shut down the largest U.S.-based Muslim charities, including the Holy Land Foundation.
- Court Upholds Islamic American Relief Agency Asset Freeze
On February 13, the U.S. Court of Appeals for the District of Columbia upheld a lower court decision that allowed the Treasury Department’s Office of Foreign Assets Control (OFAC) to freeze the assets of the Missouri-based Islamic American Relief Agency (IARA-USA). The court said the asset seizure was lawful because the court found the organization is affiliated with a Sudanese group that was designated as a terrorist organization in 2004, making this the first case to allow such designation based solely on an alleged branch relationship. There was no finding that the U.S. group used funds to support terrorist activities, and no criminal charges have been filed.
IARA-USA provided nearly $23 million in such relief from 1992 to 2002. Founded by a Sudanese immigrant as the Islamic African Relief Agency USA in 1985, the organization changed its name to the Islamic American Relief Agency and established a separate board of directors and finances in 2000.
The IARA-USA case is significant, since the court states that a charity can be shut down even without any allegation of direct support of terrorism, if the organization is sufficiently linked to a group that is designated by OFAC through a relationship, history, or other ties. The opinion notes, “IARA-USA argues that OFAC cannot block an entity’s assets unless it determines that the entity poses an ‘unusual and extraordinary threat to national security.’ The district court rejected this argument, holding that the threat need not be found with regard to each individual entity…. We agree.”
Conclusions and Recommendations
Both government and the charitable sector need to take steps to reform the current system, so that people in need receive help and civil society as a whole is not diminished by intrusive governmental controls. Such reforms require the following:
- Congress must provide more thorough oversight, including committee hearings that provide a complete picture of what is happening.
- A process for charitable use of frozen funds must be implemented.
- Policymakers must assess current use of the designation/asset-blocking system in context of charities and counterterrorism programs.
- The charitable sector must develop common-sense alternatives to propose to lawmakers.
The problems are systemic. Although there are good arguments that the Bush administration has been overly draconian, matters will not improve significantly under the next administration without a new regulatory structure.
2 Charities and other entities are subject to asset seizure under Patriot Act amendments to IEEPA, which give the president discretion to declare an emergency for “any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States.” President Bush used these powers on Sept. 24, 2001, granting the Treasury Department (among other powers) the ability to freeze the assets of all persons the Secretary of the Treasury determined “. . . assist in, sponsor, or provide financial, material, or technological support for . . . such acts of (foreign) terrorism . . . or to be otherwise associated with those persons listed in the Annex to this order.” (Executive Order 13224, 66 Fed. Reg. 49079 (2001), at Sec. 1(d)(i), (ii).) The threshold for asset seizure is low. Under the Patriot Act revisions to IEEPA, the Treasury Department can freeze an organization’s assets pending an investigation into possible associations with a designated terrorist group.
3 The letter was signed by the following organizations: American Civil Liberties Union, Fellowship of Reconciliation, Fund for Nonviolence, Global Fund for Women, Grantmakers Without Borders, Islamic Society of North America, Kinder USA, Life for Relief and Development, Moriah Fund, Muslim Advocates, Muslim Public Affairs Council, National Council of Nonprofit Associations, and OMB Watch.
4 ACLU Report Shows Widespread Pentagon Surveillance of Peace Activists, ACLU, January 17, 2007