Treasury Dept. Hosts Dialog on Terrorist Financing and Charities

by Kay Guinane, 5/3/2004

Related Developments
Senate Finance Committee leadership has written Treasury Secretary John Snow asking for details on their efforts to shut down sources of terrorist financing. Senators Charles Grassley (R-IA) and Max Baucus (D-MT) asked for a response by May 17.

A federal court in California has ruled that the portion of the PATRIOT Act defining “expert advice or assistance” as a form of material support for terrorism is unconstitutionally overbroad. In Humanitarian Law Project v. Ashcroft, C.D. CA, No. 03-6107 (ABC), 3/17/04, the court granted an injunction against enforcement of the provision. The Humanitarian Law Project (HLP) works for peaceful resolution of conflicts, and wished to provide assistance to the Kurdistan Workers Party in Turkey and the Liberation Tigers of Tamil Eelam in Sri Lanka, but both groups are on the government’s list of terrorist organizations. HLP can now provide advice on international law, the art of peacekeeping and negotiation and United Nations procedures.

On April 28, representatives of nonprofits and foundations met with Department of Treasury (Treasury) officials to voice their concern over the anti-terrorist funding guidelines. The representatives questioned the guidelines usefulness and spoke on its potential negative impact on legitimate charitable activities. Treasury Secretary John Snow told the group his department would listen carefully and try to incorporate nonprofit comments into the final guidelines.Participants in the meeting were groups, including OMB Watch, that responded to the Treasury’s request for public comments ( IRS Announcement 2003-29) on the guidelines last August. OMB Watch’s comments called for Treasury to withdraw the guidelines because they are overbroad, place unnecessary burdens on charities, and are inconsistent with federal and state laws. Treasury noted several ways terrorists divert funds to finance their operations, including diversion of charitable assets, sale of untaxed cigarettes and transportation of bulk cash, but no real information was given on which methods are the biggest problems.

Concerns raised at the meeting included lack of information about the number of cases where charities are used as conduits for terrorist financing, whether the guidelines are truly voluntary, the negative impact on international grantmaking and failure to distinguish between public charities and private foundations, and the witting and unwitting use of charities to funnel money for terrorist purposes. Participants also pointed out that corporate philanthropy, which is subject to less transparency than private foundations, needs more attention in this area.

Treasury officials reviewed the nature of the problem from their perspective: charities are being unwittingly used to funnel money to terrorists, that some charities are being created for this purposes or used to raise funds, and individuals within charities misdirect aid. They are interested in revisions to the guidelines that will prevent or minimize the risk of these things occurring.

Several “red flag” factors were cited as indicators that charitable funds might be diverted to terrorists. These included:

  • Small charities, especially if there is only one staff person that signs checks
  • Grants made primarily to third world charities or other causes overseas
  • Money given to families of suicide bombers
  • Lack of documentation to show a charity is actively fundraising
  • Few or no small donors
  • No fundraising events
  • Charitable objectives and expenditures do not match
  • Overlapping corporate officers and bank signatory
  • Multiple corporations located at the same address
  • Use of multiple corporations to collect funds and funnel to foreign beneficiaries
  • Account transactions that are inconsistent with past transactions or withdrawals
  • Charity with offices overseas or affiliated with overseas charities that make significant donations to.

Treasury officials described four cases of charities accused of diverting assets to terrorists that were shut down by the federal government, and noted “one bad apple spoils the barrel.” One international nonprofit participating in the meeting said the red flag factors are what international grantmaking looks like, and should be refined to better distinguish between legitimate activities and charities that abuse their status and divert funds. There was a suggestion that more consultation with nonprofits would produce better red flags.

Treasury officials were clear that the guidelines would be revised after receiving more nonprofit input. They have revised the Introduction to the Guidelines to stress that they are voluntary, and agreed to follow up meetings with the nonprofits.