The General Accounting Office (GAO) has published a report by two Senators that reviews use of alternative financing mechanisms for terrorism and recommends changes to address challenges. The report, Terrorist Financing: U.S. Agencies Should More Systematically Assess the Use of Alternative Financing Mechanisms (GAO-04-163), has implications for nonprofits.

GAO notes three major alternative financing means used by terrorist networks: selling contraband cigarettes and drugs, misusing charities, and moving commodities (such as gold).
Since Sept. 11, 2001, use of these mechanisms has increased due to “deterrence efforts focused on terrorists’ use of the formal banking or mainstream financial systems…”—the study reports. However, the extent to which terrorist networks have turned to alternative funding mechanisms is unknown.

The report recommends that the Federal Bureau of Investigation and other relevant agencies collect and analyze information to learn more. The report notes that the Secretary of the Treasury and the Attorney General are overdue on a report to Congress on the links between terrorism and use of precious stones as commodities.

GAO’s last recommendation directly affects nonprofits. GAO recommended that the Internal Revenue Service (IRS) establish procedures, in consultation with state charity officials, to share information about charities. The IRS agrees that this should happen, but has not had the resources to implement, due to competing priorities.