Treasury Should Heed Call to Re-write Rules for Shutting Down Charities

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July 25, 2012
Kay Guinane

In 2012 the Department of Treasury has an opportunity to address a long-standing problem: the process it uses to shut down charities and freeze their funds. This is due to the conclusion of two federal court cases finding the current Treasury process to be constitutionally deficient. The ball is now in Treasury’s court- and it should respond by re-writing its rules in a way that conforms to the basic due process principles cited by the courts. 

I was a co-signatory on a letter to Treasury Secretary Timothy Geithner on July 16, 2012 urging him to do just that. Dr. Azizah al-Hibri, Professor Emerita, the T.C. Williams School of Law, University of Richmond and Chair of KARAMAH:Muslim Women Lawyers for Human Rights and Sharon Bradford Franklin, Senior Counsel at the Constitution Project joined me, urging Geithner to “conduct a review of the relevant current Treasury regulations and to propose new regulations that reflect the key elements of the court decisions in Al-Haramain and KindHearts …"  We urged him to make the process open to public comment and offered our input and expertise to assist with the process.
Under the current regulation, when a charity is put on the terrorist list it can write Treasury asking it to reconsider. That is the extent of the process. Without a list of reasons for Treasury’s actions, as a practical matter, the charity cannot submit rebuttal evidence. Its funds are frozen indefinitely, with no process for them to ever be put to charitable use. Our letter suggested new regulations that would do the following:
  • Provide organizations with adequate notice of the reasons for the listing and freezing their assets and a meaningful opportunity to contest the Treasury department’s decision.
  • Conform to the Fourth Amendment’s requirement that a “seizure” of a charities’ funds requires judicial authorization based upon probable cause.
  • Take steps to mitigate the unfairness that can result when the government relies on classified information. This can be done by allowing an attorney with security clearance to view the evidence or providing the charity with an unclassified summary.  
  • Ensure that organizations can use frozen funds to pay attorney’s fees.
Writing new regulations would be good for all concerned, including Treasury. As our letter pointed out,
“such a change would have enormous benefits for both the U.S. government and the charitable sector. It would give the Treasury process credibility it currently lacks, due to the many constitutional deficiencies identified by the court in both cases. It would assure charities that the legal black hole KindHearts fell into has been eliminated and replaced by a process they can have confidence in. It ensures that the ultimate beneficiaries of charitable funds, the people in need around the world, do not do without badly needed services because funds are frozen.”
Improved due process would also be consistent with the growing international consensus that terrorist listing processes must be fair. The United Nations established an Ombudsperson program in 2009 to improve their process. This is one of the models the U.S. should consider for its own listing process. 
While it is rare for Treasury to shut down a U.S. charity, the current system creates a possibility of arbitrary closure that hovers over any charity working in a conflict zone where terrorists are present. This limits their ability to fully function in the places they are most needed, both to address humanitarian needs and to confront the conditions that breed terrorism. 
Treasury must take some steps to address the constitutional problems in the listing and delisting process that the courts identified. It can do this most constructively by consulting with the U.S. nonprofit sector and establishing a process that is fair and respects the charitable mission of U.S. groups involved in international programs. 
It is my hope that such a dialog will begin in September and conclude before the end of the year.