CSN Comments on Treasury's FAQ for "Protecting Charitable Giving"

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Treasury's FAQ, titled, "Protecting Charitable Giving" fails to acknowledge the importance of protecting charitable operations and beneficiaries. The entire chain of events, from donation to delivery of services to people in need, must be protected from expropriation by terrorists and from unduly restrictive U.S. government enforcement policies. Treasury must broaden its vision.

Below is an analysis from CSN of the introduction, each of the 20 questions and answers, and additional resources provided in Treasury’s FAQ.  There is also a printer-friendly version that contains a chart with Treasury's FAQ along side CSN's analysis.

Introduction

The quote from Stuart Levey demonstrates a fundamental flaw in Treasury's approach to enforcing security laws, by implying the only way to shut down terrorist funding is to cut off humanitarian assistance. This is a false choice. Treasury should listen to recommendations from the U.S. charitable sector on how to achieve both goals.

Paragraph 2 – Treasury has never clarified what this "exploitation" consists of, and it makes no distinction between legitimate charities operating in good faith and terrorist front organizations. The use of anti-terrorist financing powers to deal with "exploitation" is questionable, and should be the subject of public discussion and review by Congress.

Paragraph 3 – Treasury states its objective as "assisting the U.S. charitable sector," but its primary tool, the Anti-Terrorist Financing Guidelines: Voluntary Best Practices for U.S.-Based Charities, has been universally criticized by the U.S. charitable sector. Treasury could be more helpful if it were willing to engage in dialog about addressing key issues the charitable sector has identified.

Questions:
 
1. What is the purpose of a terrorist designation?

This question and its answer assume that designation is the only enforcement tool available to Treasury. However, there are a number of less drastic sanctions that can be imposed under the International Emergency Economic Powers Act (IEEPA). For example, IEEPA allows the President to "investigate, regulate, or prohibit" a host of financial transactions with Specially Designated Global Terrorists (SDGTs) by means of regulations, licenses, instructions or other means. (See Section 1702(a)) This would allow Treasury to require cancellation of a charity’s particular program, or restructuring by making staff changes, adopting new due diligence procedures and the like. In the meantime, the rest of the charity could continue to operate and the people in need could continue to receive vital aid.
 
2. Who in the U.S. Government is responsible for designating individuals and entities, including charities?
 
This description of the two different lists is helpful, but it would be more helpful if these lists could be consolidated so that the public would only need to refer to one list to determine whether or not a group or individual is either a SDGT or FTO.
 
3. How does a Treasury designation work?
 
This description of Treasury's internal process makes it clear there is no opportunity for informal resolution of problems involving legitimate charities operating in good faith. Opportunities to cure deficient procedures and/or proportional sanctions (such as the fine levied on Chiquita Brands International for financially supporting designated groups) would allow Treasury greater flexibility and minimize interruption of the flow of humanitarian aid.
 
Item (4) of the listed procedures makes no mention of giving a newly designated group any information about the reasons it has been listed. This is one of the constitutional deficiencies cited by the federal courts. Item (5) describes an administrative challenge to the designation, but this process has also been found deficient by the courts. See details in comments on Question 4.
 
The next-to-last paragraph notes that OFAC may use its licensing authority to allow selected transactions. There are no standards in the OFAC regulations for when it should issue licenses, and no deadlines for them to make a decision. This has resulted in 1.) denial of every application to release frozen funds to other charities and 2.) delays and barriers for operating charities to deliver crisis aid in areas controlled by SDGT/FTOs.
 
4. Does the Treasury designation process include safeguards to ensure adequate due process and fairness for those designated pursuant to E.O. 13224?
 
While Treasury may feel that its designation process is fair and transparent, there is widespread disagreement with that position. In fact, two federal courts have held its process to be unconstitutional, a fact that Treasury conveniently overlooks in this "fact" sheet. The last sentence of the last paragraph misrepresents the facts by ignoring the court cases that have found Treasury's application of their powers to be unconstitutional. 

 
For example, a charity can be shut down and have all its assets seized and frozen without explanation or opportunity to see evidence against it or present evidence on its own behalf. It can ask Treasury to reconsider, but there is no independent review and no deadlines for a Treasury decision. On appeal to federal court, a charity cannot present evidence on its own behalf.
 
As Treasury notes, its burden of proof for designation is a "reasonable basis" to believe, which is a very low standard. This requires a robust due process for challenging designations in order to avoid error or abuse of such broad discretionary powers.
 
In describing its "publicly known delisting process" Treasury says a delisting petition must show "they no longer engage in or plan to engage in the activity….or that the circumstances resulting in the designation otherwise no longer apply." But when the Islamic American Relief Agency offered to change its structure, board and staff in order to be delisted, Treasury only sent them a denial with boilerplate language stating such action would not be in the national interest. But it did not say why turning a charity around in such a manner would hurt the U.S.

Treasury notes that it has "publicly known procedures for licenses and exceptions" but, as noted above, there are no standards in the OFAC regulations for when it should issue licenses, and no deadlines for them to make a decision. This has resulted in 1.) denial of every application to release frozen funds to other charities and 2.) delays and barriers for operating charities to deliver crisis aid in areas controlled by SDGT/FTOs.
 

5. How can a person designated pursuant to E.O. 13224 be removed from the OFAC list of sanctioned persons?

As Treasury's answer to this question indicates, it has complete discretion on whether to remove a group or person from the list. There is no formal process, so the listed person may not be able to know what evidence Treasury has used against it, making it impossible to mount an effective defense. In addition, Treasury places barriers or extreme limits on legal representation to facilitate a review. Although Treasury must render a written decision, it has no deadline for doing so. For an example of how such a review can be lopsided and bungled, see the timeline for the KindHearts case.
 
6. Has OFAC ever delisted a person designated pursuant to E.O. 13224?

In December 2009 the UN approved Resolution 1904, which provides a more robust and transparent delisting process. Since this resolution passed with the support of the U.S., it should be the minimum standard for Treasury to follow. However, the process described by Treasury falls far short.
 

7. Why and how are charities exploited by terrorist groups or otherwise used to support terrorism?

This answer focuses on social wings of terrorist organizations, and then lists some characteristics that apply to "well-intentioned charities." It fails to take the analysis a step further and identify different ways these two very different scenarios could and should be treated in the enforcement regime.
 
8. What is the extent of the terrorist financing risk for U.S.-based charities?
 
The last sentence of the first paragraph is another example of the overly broad, sweeping statements that indict the entire sector. This is especially egregious since the question focuses on U.S. charities. Representatives of U.S. charities have repeatedly asked Treasury for examples to support this statement, since we want to know what the problems are so we can take steps to stop and/or avoid them. But the replies are always the same as in this document: examples of foreign charities are cited.
 
Treasury lists the nine U.S. organizations it has shut down, with limited information about what conduct lead to this action. In any event, even if one assumes all nine designations were justified, that is 9 out of 1.8 million U.S. nonprofits. It does not justify the kind of negative generalization of the entire sector that Treasury makes. The net result of this kind of over-statement is reduced credibility for Treasury within the charitable community.
 
9. What are the U.S. and the international community doing about this global threat?
 
References to the international community's common goal of stopping terrorist financing should not be read to imply that the international community shares Treasury's approach to national security laws and charities. For example, the United Kingdom's Charity Commission has a more sophisticated regulatory regime that focuses on solving problems and protecting program beneficiaries. It has published a toolkit for charities that provides practical advice based on extensive consultation with UK charities. 
 
The UK Charity Commission's Toolkit is vastly superior to Treasury's Anti-Terrorist Financing Guidelines: Voluntary Best Practices for U.S.-Based Charities, which Treasury cites as one if its primary tools for "raising awareness" in the U.S. charitable sector. These Guidelines are so fundamentally flawed that the U.S. charitable sector has unanimously called for their withdrawal. (See letter to Treasury from the Council on Foundations and an analysis of problems with the Guidelines.)
 
Treasury's references to its outreach efforts should not be interpreted as charitable sector support for Treasury enforcement policies and procedures. For a summary of a typical meeting between Treasury and sector representatives, see here.

 
10. Can Treasury designate a charity for supporting terrorism even if it also engages in charitable activity?
 
This answer references terrorist front groups, or social wings of terrorist organizations. It does not mention that the law provides a very limited humanitarian exemption, allowing provision of medicine and religious materials.
 
By limiting itself to designation (effectively, the death penalty for a charity) as its sole tool for sanctioning charities, Treasury has by-passed an opportunity to define situations where donors may contribute goods or skills that serve to separate the social wing from the violent organization. This ignores the potential for peacebuilding and transformation of groups that might lead their constituency away from violence. 
 
11. How many charities have been designated by the Treasury Department?
 
According to the data Treasury presents here, U.S. charities account for only 1.45% of all designations.

 
12. What is the amount of assets blocked due to an interest of U.S.-based charities designated by Treasury?
 
Treasury indicates the amount of frozen funds of U.S. charities is only "about $3 million." This is not consistent with what has been reported in the press, which indicates that at least $7 million has been frozen. ($5 million from Holy Land Foundation, $1 million for KindHearts, and $1 million for the Islamic American Relief Agency) Treasury needs to provide the public with more detailed information that explains this discrepancy. One likely explanation is that the Holy Land Foundation funds were forfeited to the government when it was convicted of criminal material support of terrorism. The forfeiture takes title away from the charity and gives it to the government. However, Holy Land Foundation was not represented by counsel during the trial and was unable to mount a defense. It has since obtained counsel, who has filed an appeal.
 
General information on frozen charitable funds can be found on the CSN website and in Chapter 7 of Collateral Damage: How the War on Terror Hurts Charities, Foundations and the People They Serve.
 
13. Why are the assets of designated charities frozen and not provided to another charitable organization or returned to the donor community?
 
Treasury is correct when it says it does not have legal title to frozen funds. Additionally, donors do not retain a property interest in charitable contributions. Instead, the assets of a U.S. charity are dedicated to the charitable mission stated in its governing documents, and are to be used exclusively for that purpose. This principle is consistent with state laws that govern incorporation of charities, rules governing tax-exempt status under Section 501(c)(3) of the Internal Revenue Code and the common law of charitable trusts.
 
Unfortunately, Treasury has ignored the principle that charitable assets must be used exclusively for charitable purposes, even though its regulations allow it to grant specific licenses that would allow transferring the funds to legitimate charities. Several U.S.-based charities that have been shut down by Treasury have requested that some or all of their assets be transferred this way. However, Treasury has rejected every request, saying said it would not in the national interest.[1] Examples are listed in Chapter 7 of Collateral Damage: How the War on Terror Hurts Charities, Foundations and the People They Serve.
 
Treasury also says Congress intended that all frozen funds be held in case victims of terrorism or their families file suit and obtain judgments under the Terrorism Risk Insurance Act (TRIA).[2] Section 201 of the act allows blocked assets to be used to pay judgments from litigation “against a terrorist party.” However TRIA does not authorize funds to be held where no lawsuits have been filed or judgments rendered. Only one of the designated organizations, the Holy Land Foundation, has been brought into civil litigation by victims of terrorism. 
Based on data from UNICEF, the United Nations Children’s Fund release of $ 7 million in frozen funds would assist needy children as follows:

• 11,480,000 children could receive basic health supplies 
• 12,180,000children could be vaccinated against polio
• 25,900,000severely malnourished children could get a ready-to-eat high-nutrition spread
• 9,549families could get tents

14. What is Treasury doing to mitigate the collateral consequences of terrorist exploitation of Muslim charities and the Muslim donor community, as well as the designations of several Muslim charities located in the United States?

While Treasury should be commended for acknowledging the chilling effect its enforcement actions have had on Muslim-American donors, its response falls short in significant ways. First and foremost, it ignores the negative impacts on Muslim-American charitable operations and the intended beneficiaries of their services, particularly in predominately Muslim areas of the world. Secondly, Treasury's response to the problem is merely a recitation of its publications in this area, including the widely criticized Anti-Terrorist Financing Guidelines. Thirdly, while Muslim-American donors and charities have suffered disproportionate impact from Treasury's policies, the entire U.S. charitable sector is impacted. Charities and grantmakers that operate international programs are particularly impacted, whether they are Muslim groups or not.

Treasury should be taking proactive steps, including release of frozen charitable funds to legitimate charities that can fulfill the intent of the donors, to address the chilling impact. It can also address the chilling impact by addressing the constitutional deficiencies in its current procedures for listing and shutting down charities.

15. Can I donate to a charity that has been designated as a Specially Designated Global Terrorist?

This is correct. It is also illegal to donate to a Foreign Terrorist Organization listed by the Department of State. It would be helpful to donors and charities alike if the Treasury and State Departments created a one-stop online source for these lists.

16. Could I be designated by Treasury or prosecuted by the Department of Justice if I made a good-faith donation to a charity that was later designated by the U.S.?

The policy stated here is fair and reasonable, and should be made into law. Otherwise, Treasury is free to change the policy at any time, and designate and sanction innocent donors, whether institutional or individual. See more about the good faith issue in the CSN blog, Now is a Good Time for a Good Faith Standard. 

17. What is the difference between a designation and a criminal prosecution?

This explanation makes it clear that designation is a foreign policy tool, not a comprehensive list of bad-actors worldwide.   That means that charities and grantmakers should continue to conduct their due diligence assessments of local partners in international programs and not rely on the list of designated entities as a comprehensive information resource.

While the Treasury's designation authority is civil in nature, the consequences of the sanctions are similar to criminal penalties. For charities, it is the functional equivalent of the death penalty. A charity can be effectively shut down under Treasury's civil designation authority without ever being charged with the crime of material support under AEDPA. This is another reason that more robust due process protections are needed. More about the material support laws, including AEDPA is here.

18. Why do most designations of charities appear to be directed at Muslim charities?

The question here ought to be "Why does Treasury use designation powers against Muslim charities but only fines corporations like Chiquita Brands International?" Between 1997 and 2004 Chiquita Brands International paid approximately $1.7 million to the United Self-Defense Forces of Colombia (AUC) and the leftist Revolutionary Armed Forces of Colombia (FARC), both U.S. designated terrorist organizations, for protection in a dangerous region of Colombia. Instead of designating Chiquita and freezing its assets, the Department of Justice put three of its officers under investigation. No criminal charges were filed, but on March 14, 2007, Chiquita agreed to pay a $25 million fine. 

Treasury's failure to use less drastic sanctions against Muslim charities, including the opportunity to cure problems and revise governance or program operations to address Treasury's concerns, has created an impression that Treasury has targeted Muslim populations for punishment by cutting off aid. This is a public diplomacy problem for the U.S.

19. Why has Treasury not issued a “white list” of approved charities?

We agree that a "white list" would be both impractical and inappropriate. The U.S. government should not be in the business of favoring some charities over others.

20. What can charities and donors do to help protect themselves and the charitable sector as a whole?

Treasury's suggestions rely too much on checking its lists as a due diligence tool for charities. The U.S. nonprofit sector has augmented its traditional due diligence with guides and programs that provide responsible practices to protect charitable and philanthropic activities from terrorist diversion. These include the Treasury Guidelines Working Group’s Principles of International Philanthropy, the Council on Foundations and Independent Sector’s Handbook on Counter-Terrorism Measures: What U.S. Nonprofits and Grantmakers Need to Know,[3]a special website sponsored by the Council on Foundations and the International Center for Not-For-Profit Law, and Muslim Advocates Muslim Charities Accreditation Program.

The specific due diligence procedures used by any one charity depend on a variety of factors, including the location of the program, cultural factors, local financial systems, the regulatory structure and level of independence from government interference in civil society, logistical barriers and urgency, such as responding to a natural disaster. 
 
Treasury's suggested resources

The following publications reflect the on the ground experience and expertise of U.S. charities and grantmakers:

• InterAction’s Private Voluntary Organization Standards, which define “the financial, operational, and ethical code of conduct for InterAction and its member agencies.”[4] With more the 180 members, InterAction is the largest coalition of U.S.-based international nongovernmental organizations.

• Humanitarian Accountability Partnership,[5] (HAP) founded in 2003, “certifies those members that comply with the HAP Standard in Humanitarian Accountability and Quality Management, providing assurance to disaster survivors, staff, volunteers, host authorities and donors that the agency will deliver the best humanitarian service possible in each situation.”  
   
• Transparency International’s (TI) Preventing Corruption in Humanitarian Operations” Handbook of Good Practices [6] which “includes ways to track resources, confront extortion and detect aid diversion. The handbook, part of TI’s broader work to stop corruption in humanitarian assistance, covers policies and procedures for transparency, integrity and accountability, and specific corruption risks, such as supply chain management and accounting.”
• The Council on Foundations and Independent Sector’s Handbook on Counter-Terrorism Measures: What U.S. Nonprofits and Grantmakers Need to Know

[1] OMB Watch review of correspondence between Treasury and three designated U.S. nonprofits.

[2] 107 P.L. 297, § 201.

[3] Handbook on Counter-Terrorism Measures: What U.S. Nonprofits and Grantmakers Need to Know, Independent Sector, Council of Foundations, InterAction, Day Berry & Howard Foundation (2004).

[4] http://www.interaction.org/document/interactions-pvo-standards

[5] http://www.hapinternational.org/

[6] The Feinstein International Center (FIC) of Tufts University, the Humanitarian Policy Group (HPG) of the Overseas Development Institute, and TI in collaboration with seven leading international non-governmental humanitarian organisations: Action Aid, CARE International, Catholic Relief Services, Islamic Relief Worldwide, Lutheran World Federation, Save the Children USA and World Vision International. http://www.transparency.org/news_room/in_focus/2010/hum_handbook