Thanks and kudos are due to the House Financial Services Oversight and Investigations Committee for conducting the first post-9/11 oversight hearing into the impact of Treasury’s anti-terrorist financing enforcement on legitimate U.S. charities. It was the first time representatives from the U.S. nonprofit sector were able to testify about these issues. While the hearing raised more questions than answers, it did reflect an important acknowledgement that the current enforcement regime is causing problems for legitimate charities and their donors. The question now is how to fix it.

The testimony of both Daniel Glaser, Treasury Deputy Assistant Secretary for Terrorist Financing and Financial Crimes, and Matthew Levitt of the Washington Institute for Near East Policy recognized problems for legitimate charities. But they lumped together everything from a social wing of a terrorist organization to an independent charity that is inadvertently used for a public relations benefit for a terrorist group. This one-size-fits-all view of the charitable world leads to the current one-sanction-fits-all enforcement strategy: shut it down and freeze all funds indefinitely.

Both Glaser and Levitt propose fixes, but their ideas reflect a lack of understanding about how effective charities operate, the principle of separation between government and civil society and the ethical standards of non-discrimination in providing aid. That’s not surprising: both are money laundering and financial crimes experts, with no background in charity operation or management. Treasury’s proposal is for what it calls “alternative delivery mechanisms,” as demonstrated in a pilot program it carried out with USAID and a specially created group, American Charities for Palestine.

This is not a new idea. It essentially requires a private charity to funnel its privately funded aid through USAID. The U.S. nonprofit sector has made it clear to Treasury that this structure violates the principles of independence of the nonprofit sector, in addition to other problems. It is somewhat surprising that Treasury persists with this idea when it is clearly a non-starter. While they may induce some well-intentioned groups desperate to get aid into conflict zones controlled by terrorists to participate, the program is too fundamentally flawed to ever become a widespread solution to the problems charities and government both confront when aid is needed in these places.

The other problem with Treasury’s “alternative delivery mechanism” is that it assumes there are no conditions under which the U.S. charitable sector can provide aid and development in conflict zones without somehow supporting terrorism. This ignores a host of due diligence efforts that go much further than anyone at Treasury seems to realize. Perhaps, before trying to engage in discussion of due diligence issues, some U.S. charities and development programs should invite Treasury staff to accompany them on a site visit to a program in a conflict area so they can see what is actually involved.

Levitt’s testimony promoted USAID’s proposed Partner Vetting System (PVS) as a solution. This controversial substitute for due diligence relies on secret U.S. intelligence databases and notoriously inaccurate watchlists to screen foreign charitable partners, their board members, workers and in some cases, beneficiaries. The screening is based on collection of highly personal data by the charity, which is then turned over the U.S. government. The debate over PVS has been going on for several years. As Evan Elliott, a former public policy expert at InterAction said, “It’s almost silly to think that an FBI analyst here in the United States, sitting at a computer looking at a list, is going to be more effective in screening a potential employee than an NGO would be that has years of experience working in a particular community.”

The U.S. nonprofit sector has better ideas, based on the extensive experience and expertise of people who operate programs.  As I said in my testimony, we welcome the opportunity to discuss these proposals with the subcommittee and Treasury. For these discussions to be productive, it will be important for Treasury to have an open mind about alternatives to its “alternative delivery mechanism.”

A summary of the hearing  is here.