A Pace Law Review Symposium, "Anti-Terrorist Financing Guidelines: The Impact on International Philanthropy", highlighted the need for changes in the guidelines and increased transparency of the reasons behind government decisions to shut down several Muslim charities accused of financing terrorists. The guidelines were published by the Treasury Department in November, 2002, and have been widely criticized. Speakers at the symposium said the current situation has lead to a decrease in international philanthropy, inappropriate application of the guidelines, a perception of ethnic discrimination against Muslim organizations and shut down of several charities with no terrorist-related convictions. A Treasury official acknowledged probems and said the Department is working with the sector to revise the guidelines. Read more for a summary of the presentations: Summary of Presentations at Pace Law Review Symposium on Anti-Terrorist Financing Guidelines A Pace Law Review Symposium, "Anti-Terrorist Financing Guidelines: The Impact on International Philanthropy", highlighted the need for changes in the guidelines and increased transparency of the reasons behind government decisions to shut down several Muslim charities accused of financing terrorists. The guidelines were published by the Treasury Department in November, 2002, and have been widely criticized. Speakers at the symposium said the current situation has lead to a decrease in international philanthropy, inappropriate application of the guidelines, a perception of ethnic discrimination against Muslim organizations and shut down of several charities with no terrorist-related convictions. A Treasury official acknowledged problems and said the Department is working with the sector to revise the guidelines. Read more for a summary of the presentations: Speakers summarized below are:

• Marc Owens, an attorney with Caplan and Drysdale and former director of the Exempt Organizations division of the Internal Revenue Service (IRS),
• Nina Crimm, a law professor at St. John's University,
• Chip Poncy, a senior advisor on terrorist financing at the Treasury Department,
• Daniel Mitchell, of the Heritage Foundation,
• Jennifer Reynoso, an attorney with the firm Simpson, Thacher & Bartlett, LLP,
• Barnett Baron, Executive Vice-President of the Asia Foundation,
• Rob Buchannon, Director of International Programs at the Council on Foundations,
• Ladale George, an attorney with the firm Foley &Lardner in Chicago,
• Dr. Laila Al-Marayati, a physician and board member of Kinder USA, and
• Matthew J. Piers, an attorney representing the Benevolece International Foundation.

Marc Owens, an attorney with Caplan and Drysdale and former director of the Exempt Organizations division of the Internal Revenue Service (IRS), noted that a major problem with the guidelines is their failure to distinguish between private foundations, whose major purpose is to make grants, and public charities, that operate programs and provide services. He noted that the IRS is considering new rules to govern international grant making in order to address anti-terrorist financing issues. This presents difficult issues because most countries do not regulate nonprofits based on tax status and many do not have registration requirements. He also noted that public enforcement efforts tend to reduce giving. Owens provided an example of the impossibility of creating standards that can prevent one bad actor in or served by a nonprofit from breaking the law. He asked if a student went into the basement of the law school and smoked pot, would the university be implicated? Should they be shut down and have their assets frozen? If the principles behind the Treasury guidelines were applied, the university would be held responsible. Nina Crimm, a law professor at St. John's University, reviewed the legal authority for the guidelines and argued for increased "due diligence" by foundations and nonprofits as a way of addressing anti-terrorist financing issues. She noted that the government's authority to shut down organizations and freeze assets under the International Emergency and Economic Powers Act was expanded by the Patriot Act and Executive Order 13224, signed by President Bush in September 2001. She noted that the Patriot Act requires a "knowing" standard before action can be taken against an entity, while the Executive Order does not. She noted that these expanded legal powers give the federal government the right to seize and freeze assets of a nonprofit "pending an investigation", without the opportunity for the nonprofit to learn the evidence against it or effectively challenge the designation. As of June 2003 $36 million in nonprofit assets have been seized. Owens commented that there is no way to know whether these actions are justified because of the secrecy surrounding the decisions. Chip Poncy, a senior advisor on terrorist financing at the Treasury Department, reviewed the guidelines from their perspective of preventing financial crime. He noted the guidelines were intended to serve as a marker for steps that can be taken, and to be voluntary. Poncy acknowledged that Treasury has not done a good job of explaining its actions, and recognizes that the guidelines may not be useful. As a result they are working with the nonprofit sector to come up with revisions. Poncy suggested that the sector pool resources to increase its ability to conduct due diligence in its international activities in order to prevent funding for terrorists. He emphasized appeal procedures for organizations that are designated. However, Harvey Dale, a professor of philanthropy and law at New York University School of Law, noted that this review process is ex parte, taking place with no notice to the nonprofit involved, with no right to learn of or confront the evidence against it. The standard for freezing and seizing assets is a "reasonable basis to suspect or believe", which Dale noted is the same standard rejected by the Supreme Court in the Guantanamo Bay detention case. Dale noted that the IRS can revoke the tax exempt status of any charity shut down by Treasury, but "bad actors could just form a new charity", limiting the real effectiveness of these powers to prevent terrorist financing. In response to questions from the audience Poncy acknowledged the need for alternative funding mechanisms for designated groups so that their good work can continue. He described some instances where Treasury has worked with Saudi charities to restructure them to avoid collateral damage caused by designating an entire organization. He did not offer any explanation of why U.S. based charities that have been designated did not receive similar treatment. He also noted that assets of some groups that have been shut down are being made available to pay judgments in lawsuits by victims of terrorist acts. (see details in summary of Dr. Laila Al-Marayati's presentation below.) Poncy acknowedged that legitimate charitable work may be halted as a result of the drastic impact freezing and seizing assets has on an organization. He said this 'collaterol damage' is something Congress indicated it was willing to accept by writing the law the way it did. Daniel Mitchell, of the Heritage Foundation, criticized Treasury's "significant expansion of anti-money laundering laws without any attempt to balance costs and benefits." He noted the lack of research and evidence to support the focus on charities, and asked, "is there is any reason to think these guidelines will hinder terrorists?" Noting the guidelines create more bureaucracy and regulation, he suggested an old-fashioned approach of traditional investigation and targeting government resources where the threat is highest. He noted the charitable sector "does not exist to act as deputy of law enforcement", and can play a positive role in providing international humanitarian relief. Jennifer Reynoso, an attorney with the firm Simpson, Thacher & Bartlett, LLP, summarized the findings of a research paper written with colleagues Victoria Bjorklund and Abbey Hazlett, that reviewed publicly available information on charities that have been shut down by the Treasury Department to determine what the problem is and how diversion of funding to terrorists may have occurred. Their extensive documentation lead them to conclude:

• Diversion of funding to terrorism is most likely to occur when an individual acts out of ideological and criminal motivation, and in some cases using charities for these purposes.
• None of the cases involve diversion of funds by a U.S. based grant maker to a foreign organization "where the diversion would have been uncovered but for the lack of appropriate due diligence…"
• Evidence of "links" to terrorist organizations has not resulted in criminal convictions.

Barnett Baron, Executive Vice-President of the Asia Foundation, which operates extensively in conflict areas, cited three concerns with the Treasury guidelines:

• The guidelines mix voluntary and mandatory provisions:
• There is no single set of "best practices" for the entire nonprofit sector; and
• The list checking and information collection provisions are impractical in the third world, intrusive to collect and would create suspicion and hostility that would be counterproductive to U.S. foreign policy goals.

Baron noted that international grant making has slowed down as a result of the guidelines, and urged greater attention by Treasury to other, more dangerous forms of money laundering than international philanthropy. He noted that the amount of nonprofit funds frozen by Treasury is small relative to potential sources of terrorist financing. Some of those cited include:

• Trafficking in drugs, cigarettes, and alcohol;
• Weapons sales;
• Trade in diamonds, gold and other precious metals'
• Kidnapping, extortion and armed robbery.

Rob Buchannon, Director of International Programs at the Council on Foundations, said the guidelines are confusing, impossible to comply with, costly, inconsistent with some legal requirements, place charities in an inappropriate law enforcement role and are potentially dangerous for overseas staff. He suggested that due diligence procedures by grant makers would be more effective in preventing diversion of funds to terrorism. Such procedures include site visits, getting references for grantees, disbursement of grants in installments, checking government terrorist lists and requiring anti-terrorism certification language in grant agreements. Buchanan described the work of the charitable sector to develop alternative guidelines, noting there is no 'one size fits all" approach. A working group of sector organizations will meet with Treasury representatives early next year to discuss revision of the guidelines. The eight principles in the alternative are:

• With tax-exempt status comes the obligation to pursue exclusively charitable purposes;
• Charities are non-governmental organizations and not law enforcement agents;
• Charities may choose to go beyond legal requirements to adopt practices that provide additional assurances against diversion of assets;
• Governing boards of charities bear the ultimate responsibility for legal compliance and fiscal integrity of the organization;
• A charity must be committed to fiscal responsibility at every level of the organization;
• When supplying charitable resources, fiscal responsibility generally involves qualifying a grantee in advance, obtaining a written grant agreement, monitoring the grant activities, and seeking correction of any misuse of funds;
• When supply charitable services, the appropriate measures a charity chooses to take to reduce the risk of diversion will vary but the key is having sufficient financial controls in place to trace funds through to the service delivery;
• The relationship of charities to communities they serve is based on the organization's independence which must be safeguarded.

Ladale George, an attorney with the firm Foley &Lardner in Chicago, who represents nonprofit hospitals and the Islamic Society of North America, noted the constitutional problems with the shut down of several Islamic charities in the U.S. Asking "whose money is it anyway?", he argued that the intent of the donors- to provide humanitarian aid in the Middle East, should be honored. The Treasury Department has a licensing process that allows an organization with frozen assets to apply for their release through another group, so that the donors' intent can be honored. He said to date the Treasury Dept. has denied two such requests. George suggested strategies nonprofits can pursue to avoid asset seizure, including creation of separate legal entities for separate projects, reimbursement funding and restricted trusts for specific projects. Dr. Laila Al-Marayati, a physician and board member of Kinder USA, provide extensive detail about the impact the war on terror has had on American Muslim charities. Although the religious tradition of charitable giving, or zakat, is well established, there is no reliable data on giving trends among American Muslims. In the past most donations have focused on international humanitarian aid, but many have now diverted their donations to U.S. based organizations in order to avoid being placed on a government watch list. The lack of due process available to nonprofits designated as aiding terrorism has caused great concern in the Muslim community, since only Muslim organizations have been shut down in the U.S. Dr. Al-Marayati noted that these actions "have little, if any, impact on making the rest of the American public more secure". She noted that "The government appears to function under the basic assumption that charitable donations on behalf of Muslims have been and will be corrupted intentionally or unintentionally and therefore, all acts of Muslim giving overseas are suspect. To date, the government has not been able to demonstrate a 'money trail' that would confirm unequivocally the allegation that American Muslim charitable funds have been used to finance terrorism." After the Treasury Guidelines were released Muslim groups began meeting with Treasury to discuss "next steps" in order to establish safe ways for American Muslims to donate to international relief efforts. Treasury suggested creation of an umbrella organization of Muslim groups similar to the Evangelical Council on Financial Accountability. However, Dr. Al-Marayati pointed out that such a group would not give Muslims assurance that a group could not be designated a supporter of terrorism. She cited the case of the Islamic American Relief Agency, which had its assets frozen at the beginning or Ramadan in 2004, although it met standards of InterAction, an umbrella group of humanitarian organizations, and the Better Business Bureau of Eastern Missouri and Southern Illinois. The Holy Land Foundation, one of the groups that had its assets frozen and its request for a license to release the funds to another humanitarian group denied by Treasury, has been found liable for about $600 million in damages in a lawsuit filed the family of a victim of a terrorist attack in Israel. The case is being appealed. Matthew J. Piers, an attorney based in Chicago, described the "malevolent destruction of a Muslim charity", summarizing the prosecution of the Benevolence International Foundation. Noting that the government's case was found to be based on bad intelligence and a case of mistaken identity, based on information from an Attorney General Emergency Physical Search Authorization. In concluding the story of this group, Piers said, "It is hard to see how the government's activities with regard to Muslim charities have had any positive effect on the war on terrorism…One thing is clear: critically needed resources for the many refugees and people living in poverty and other dire circumstances throughout the Islamic world have been terminated."