If it Ain’t Broke …..

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Date: 
August 14, 2017
Author: 
Andrea Hall

As the old saying goes, if it ain’t broke, don’t fix it.

The spokesman for the “let’s-shut-down-U.S.-charities-because-they’re-conduits-for-terror-finance” school of thought has been pushing this outdated and discredited narrative in Washington, D.C. over the past year or more. He seems to believe that the Obama administration’s enforcement policy was negligent in its duty to “bust terrorist charities” (his words, not ours), that U.S. nonprofits have been given a free pass over the past eight years, and the result has got to be more terror financing. He is urging lawmakers and the new administration to take us back to the time when he served as a terrorism finance analyst at U.S. Treasury during the George W. Bush administration, and his research seems to reflect those outdated strategies. Since a Hill hearing was held in September 2016, this spokesman has been active in the blogosphere. He has convinced Rep. Ted Poe (R-TX) to introduce a bill that, if passed, would create more problems than it would solve.

In this March 2017 blog, Jonathan Schanzer, currently vice president for research at the Foundation for the Defense of Democracies, asserts that “it is hard to believe that not one charity has run afoul of our laws.”

There’s just one problem with this line of thinking: it’s wrong. It assumes that terrorists are getting significant funds from charities, that the shutting down charities and freezing assets is the only effective method of enforcement, and that just because no charities have been shut down since January 2009, there is no enforcement.

Let’s first address the question of where terrorists get their money. In Treasury’s National Terrorist Financing Risk Assessment (2015), the discussion on misuse of charitable organizations focuses on the problem of sham charities set up to funnel money to terrorists. It describes the problem as fraudulent fundraising conducted “under the auspices of charitable giving,” as well as foreign charities, not abuse of legitimate charities based in the U.S. “There are approximately one million charitable organizations in the United States that have been determined by the IRS to be eligible for tax-exempt status, the vast majority of which pose little or no TF risk,” the Risk Assessment explains.

These findings are consistent with the evidence globally, which indicates that charities are overall at low risk for terrorist financing and that incidents of abuse are rare. The Financial Action Task Force, the global standard setter for anti-money laundering and counter-terrorist financing laws has recognized this fact, going so far are as to revise its standards on nonprofit organizations in June 2016.

By Schanzer’s own admission, Treasury has conducted targeted outreach over the past decade to make charities more aware of the potential for abuse. Where there have been problems with charities, the government has, consistent with FATF standards, moved toward a targeted and proportional approach, using other tools or powers rather that shutting down organizations. As Treasury’s Risk Assessment explains, “the United States engages a wide variety of agencies and authorities to promote effective supervision of relevant sections of the charitable sector that are most at risk as well as to obtain information about specific threats to the sector and consider appropriate actions to take.” (p. 35)

Take, for example, the 2008 prosecution of the now-defunct charity Care International, which was initiated during the George W. Bush administration. Federal prosecutors asserted that the organization funded publications supporting jihad, but instead of pursuing remedies via Treasury’s Office of Foreign Assets Control and freezing the charity’s assets, the government instead successfully brought charges of conspiracy to defraud the IRS and making false statements against three of the charity’s leaders. No charges of material support of terrorism were brought against the charity.  This approach avoids the constitutional problems the courts have found with Treasury’s process for shutting down U.S. charities.

As Daniel Glaser, former assistant secretary for terrorist financing at U.S. Treasury, stated in a hearing in June 2016, there are fewer designations of U.S.-based charitable organizations and affiliated individuals because by working with the charitable sector over many years, it has “reduced the opportunity for [charities] to be abused to facilitate financial support for terrorist groups.” In addition, Glaser explained, the traditional terrorist group fundraising model of relying on charitable organizations is “not as prevalent as it used to be” in the U.S. Instead, terrorist groups now seek to raise funds “under the auspices of charitable giving, but outside of any charitable organization recognized by the U.S. Government.” Yeah, you guessed it – sham charities.

More importantly, however, charities do not want to see their funds diverted any more than you or I would want our personal bank accounts diverted. That is why they have implemented stringent due diligence programs to protect their assets and ensure that funds reach beneficiaries and the programs that serve them.

Schanzer concedes that domestic charities may be “off the table” for Treasury due to a “dearth of targets.” Indeed, Treasury’s outreach, combined with enhanced due diligence by charities, has resulted in a lack of bad actors to go after within the U.S. charitable sector.

Before you ask Congress to step in and fix something, it is important to make sure it’s really broken. In this case, it ain’t.

Rep. Poe’s bill, which adopts a proposal from Schanzer, would impose reporting requirements on U.S. charities that amount to a “guilt by association” standard. It would require U.S. charities and foundations to disclose to the Internal Revenue Service whether any leadership and highly compensated employees have at any time been “implicated in terror finance,” broadly defined as past employment or membership in a group found to be a supporter of terrorism or being named as an unindicted co-conspirator in a “terrorist financing scheme.” It would apply to applications for tax exemption and annual Form 990 returns, both of which are available to the public.

Including the names of individuals listed as unindicted co-conspirators in cases involving terrorist financing appears to be a reference to such a list associated with the Holy Land Foundation case, in which the list was published despite a Justice Department policy that such lists are sealed. In that case, the Fifth Circuit Court of Appeals held that such disclosure violated the due process rights under the Fifth Amendment. Furthermore, government attorneys in that case told both the federal district court and the Fifth Circuit Court of Appeals that filing the list was a legal maneuver. By naming co-conspirators, the government could use out-of-court statements as evidence that would normally be inadmissible as hearsay. Federal Rule of Evidence 801(d)(2)(E) specifically states that such statements "are not alone sufficient to establish…..the existence of a conspiracy and the participation therein" of either the person the statement is attributed to or the defendants.

The Foundation for the Defense of Democracies needs to update its analysis of terrorist financing charities, recognize the important due diligence work charities do, and help address the real and serious problem of terrorist financing in a more targeted and effective manner.  C&SN stands ready to engage FDD on this issue and provide information and resources to assist in this process.