This summary is intended to share the information and generate discussion about significant issues that emerged in a Sept. 22, 2008 conference call between the Treasury Guidelines Working Group (TGWG) and officials of Treasury's Office of Terrorism and Financial Intelligence. The agenda covered:

• The current nature of the terrorist threat to charities
• The extent to which charities are conducting risk assessments and consulting terrorist lists
• Conducting relief operations in high risk areas of the world.

TGWG is a group of nonprofits, grantmakers and lawyers that have worked to limit the damage caused by the Department of the Treasury's Anti-Terrorist Financing Guidelines: Voluntary Best Practices (Guidelines). In March 2005 the TGWG published Principles of International Charity as an alternative to the Guidelines. Treasury rejected this recommendation. Approximately 30 members of the working group participated and Treasury's spokesman was Chip Poncy, Director, Office of Strategic Policy for Terrorist Financing and Financial Crimes. Issue #1: Treasury's broad and vague definition of the nature of the threat Over the past several years Treasury has made broad statements charging the charitable sector with being a significant source of terrorist financing and support. U.S. nonprofits, including members of the TGWG, have asked for evidence to support these claims, but it has not been forthcoming. As a result, there has been significant disagreement between Treasury and the nonprofit sector on the extent and nature of the relationship between charities and terrorists. In the call Poncy opened this discussion by saying Treasury is continually concerned with how terrorists use charities, the issue is "a primary concern" and he "cannot overstate the magnitude of the threat." He went on to say that terrorist organizations rely on charities to cultivate "support." Although he was unclear about how Treasury defines "support" Poncy said the most pervasive type of "abuse" of charities by terrorists is "exploitation" as opposed to deliberate fraud. This echoes the argument he has made in Senate testimony: that designated organizations have engaged in genuine charity as well as "support" of terrorism, and these dual purpose organizations act on behalf of terrorists, in violation of U.S. law. His description of this line of reasoning went back and forth between intentional and unintentional "support" for terrorism without every clearly distinguishing one from the other. In the end, it does not matter to Treasury: Poncy said both fraud and "exploitation" are prohibited by U.S. law. Call participants pressed for concrete information, asking whether Treasury has any plans to "put their claims of terrorist support in a more factual context" and noted that court cases indicate Treasury's evidence is thin, undercutting their credibility. Poncy responded that Treasury will never have exact numbers, and he believes the sector understands the problem "as well as we do" and the sector "should be honest in its assessment." He went on to say the TGWG had not refuted his statements that designated charities have offered charitable programs as well as engaged in charitable activities. This attempt to shift the focus from Treasury's failure to back up its statements generated comments that:

• The nonprofit sector has a different view of the nature of the threat and has honestly assessed the situation.
• Our concern is with the breadth of Treasury's statements, which taint the entire U.S. charitable sector with a broad brush and slams innocent organizations.

Alternative language for Treasury to use when referring to terrorism and charities was offered: "designated groups have often been the charitable arm of terrorist organizations." Poncy made no commitment to alter the agency's rhetoric, although he recognized that only seven U.S. charities have been designated, out of more than 1 million recognized by the IRS. Poncy said Treasury understands that the vast majority of charities are legitimate, but that does not change their argument that charities are used as a "source of support." Issue #2: Question of Treasury's legal authority to regulate "exploitation" and "abuse" under economic sanctions laws. Poncy's broad view of prohibited "exploitation" and "abuse" raised the question about Treasury's legal authority to treat "exploitation" and "abuse" the same as terrorist financing and material support. (The designation and asset blocking regime comes from the International Emergency Economic Powers Act as amended at 50 U.S.C. Sec.1701-1707 (2006)). Poncy responded that Executive Order 13224 extends Treasury's regulatory authority through language referring to those "associated with or otherwise working on behalf of" terrorist organizations. He said the designation regime is "more complicated than direct support." Throughout the call the definitions of "source of support" and "exploitation" were fuzzy but Poncy was clearly referring to more than financial and material support. This Treasury argument uses EO 13224 in ways that Congress was unlikely to have anticipated. In the first few years after 9/11 Treasury's statements were all focused on diversion of funds to terrorism. This changed when Treasury published the Annex to the latest version of the Guidelines in September 2006 and these arguments first appeared. If the problem has been redefined, the sanctions regime should be re-examined and revised to appropriate scaled responses. Issue #3: Treasury's new "alternative delivery system" initiative raises serious questions. Poncy described an arrangement between USAID and American Charities for Palestine (ACP) that provides an alternative route for delivery of services for nonprofits working in conflict zones. He said the program may be expanded. Although the details were sketchy Poncy said the USG and nonprofit sector should partner for anti-terrorist vetting, and that these partnerships are needed despite concerns that it could make the nonprofit sector an arm of government. When asked how ACP was selected for the USAID pilot Poncy only said Treasury facilitated the agreement because they wanted an alternative for charitable programs in the area. He said further discussion should include USAID and he is willing to have another meeting for this purpose. Call participants expressed concern that the ACP/AID pilot is heading toward a requirement that donors and grantmakers go through such an entity in global hot spots. Poncy responded that it is not clear where this project is going, but viable alternatives are needed to get aid into Palestine. He then went on to say this is a potentially necessary way of getting aid in because of the threat of terrorist abuse. Then, seeming to contradict himself, he said Treasury wants to make this an option, not a requirement. Poncy said Treasury could follow up providing more information about the ACP/USAID initiative and its possible expansion. The ACP/USAID project was first announced in press releases from USAID from ACP on Aug. 1, 2008. The "alternative delivery mechanism" concept was briefly presented in remarks Treasury Assistant Secretary for Terrorist Financing Patrick O'Brien made to a meeting with Muslim charities on Aug. 15. In that speech he said, "In some circumstances, effectively and safely operating in regions where there are known terrorist activities may require creating alternative distribution means. Essentially, this type of partnership allows individual U.S. donors to tap into the government resources and distribution networks, thereby leveraging counterterrorism mechanisms only available to the government. The aim is straightforward — to provide a safe and effective way for individuals to contribute to critical regions where aid is desperately needed, such as the West Bank and Gaza. Such partnerships also have the potential to weaken the hold that foreign terrorist organizations have on vulnerable populations by harnessing a competitive force — the generosity of the American people. Dr. Ziad Asali, the American Charities for Palestine, and other government partners who work with USAID are doing just that. It is our hope that this type of collaboration will take root and serve as a model for other areas of concern as well as encompass other funding streams including that of the international community." (emphasis added) This approach has the potential to undermine the independence of grantmakers and nonprofits and to fundamentally alter their relationships between grantees and local communities. USAID participation must be assessed in light of their pilot Partner Vetting System (PVS), which would require grantees to provide U.S. intelligence services with personal information on their leaders and employees as well as those of their grantees and partners. PVS has been strongly criticized by the U.S. nonprofit sector. The "alternative delivery system" could have the practical effect of extending this requirement to private philanthropy and programs with no federal funding. O'Brien's statement is based on several faulty assumptions that must be evaluated and challenged to avoid faulty conclusions. For example, he assumes that independent aid distribution mechanisms operated through civil society are not as "safe" or "effective" as those provided by the government. The experience of TGWG members and their clients demonstrates that close ties to U.S. government personnel can put aid workers in danger, expose innocent people to suspicion and hinder aid delivery. For example, one TGWG caller pointed out problems NGOs in Afghanistan have with perceptions they are too closely tied to the USG and urged Treasury consider another model. Poncy responded that "we need to be creative" in dealing with the special circumstances that arise when a designated terrorist organization controls territory or government, but made no further comment. Another caller pointed out that the behavior of USG officials outside the US has sometimes been inappropriate, forcing NGOs to distance themselves. It is also not clear that government sponsored charities are by definition more able to function without dealing with Hamas, since they are the elected government. For example, one caller pointed out that Hamas is closing independent NGOs, making it more difficult to get aid in without going through them. Poncy responded that this is one reason for the ACP-USAID pilot, although he did not explain how the ACP/USAID pilot would get around this problem. Issue #4: Humanitarian principles are not incorporated into Treasury's idea of risk assessment. During the call the contradiction between the Guidelines and long-established principles of humanitarian aid were repeatedly pointed out. Early on the question was asked: how are charities doing relief work in hot spots of the world supposed to function- are they required to let people starve? One caller asked how the threat of death for a population in a conflict zone, or for a person in need of aid, fit into the risk calculation, giving Somalia as an example. Attorneys said their clients complain that there is no way to clear a false positive on a watchlist check without becoming an investigator, an inappropriate role for a nonprofit. In addition, groups believe their relationship with their grantees is a better vetting technique and checking false positive issues with USG can put innocent grantees at risk. Issue #5: Treasury continues to insist its Guidelines and designation process are adequate. Since the TGWG called for withdrawal of the Guidelines in 2006 Treasury has continued to promote them, and this discussion did not indicate much potential for positive change. Poncy asked about how risk assessment is being used by TGWG members. The responses consistently emphasized that nonprofits have continued due diligence assessments, which they find more useful than the Treasury Guidelines. Poncy was asked if there is any evidence of inadvertent diversion of support by a U.S. charity that could have been prevented by adherence to the Treasury Guidelines. His answer was non-responsive. Instead he focused on the Holy Land Foundation case, which has just started, and raised the point that no facts of support had yet been established in court. Poncy responded that Treasury uses classified intelligence, which cannot be publicly shared, but that review of their information is built into the designation process and the courts have upheld the designations. He was reminded that the LA Times has published stories about major flaws in the intelligence used in this case, including mistranslations. Treasury was asked to do a better job vetting its information. It was also pointed out that the courts have limited review of Treasury decisions, which Poncy acknowledged. Poncy offered to have a follow up meeting about how the designation process works, but did not indicate any reconsideration of the process. When asked why the Guidelines focus on the legitimate portion of the sector when the problem is with a few designated organizations whose illegal activities would not have been prevented by adherence to the Guidelines Poncy only said they have changed the Guidelines substantially.