By Jeff Jones

Charities Aid Foundation America (CAFA) is now checking several domestic and international lists of forbidden organizations and individuals as part of its already stringent grantmaking process.

Alexandria, Va.-based CAFA is just one of many international grantmakers attempting to beat the curve of federal and international enforcement officials' ongoing crackdown on terrorism funding that, in some cases, has implicated charities and led to additional scrutiny.

"We wanted to be ahead of the game, and so we have done a variety of things" since the U.S. Treasury Department issued voluntary anti-terrorist guidelines for charities last fall, said Susan Saxon-Harrold, chief executive officer of CAFA, which facilitated roughly $9 million of international grants last year.

Steps included a review of CAFA's international grant administration, processes and agreements by independent legal counsel; forbidden list checks during the grantmaking process; and conducting an independent feasibility study of what challenges international grantees could face if they gathered additional information suggested in the Treasury Department's voluntary guidelines, Saxon-Harrold said

Law changes such as the U.S.A. Patriot Act and President Bush's Executive Order 13224 have strengthened federal enforcement officials' ability to investigate terrorism funding. During a recent speech at a Securities Industry Association conference, David Aufhauser, general counsel of the U.S. Treasury Department, said that two principles control the fight against terror financing. "The man who finances terror is responsible for terror," Aufhauser said. "And, the intermediary who facilitates the transit of such funds is responsible for asking and accountable for indifference."

Aufhauser added that President Bush's executive order, "effectively imposes a duty of care upon the managers and fiduciaries of NGOs, foreign financial institutions and professional service companies. Each risk economic sanction if they facilitate -- even unwittingly -- terrorist financing."

The broader implications are clear. More and more enforcement agents are putting the onus on nonprofits, in addition to the financial institutions they work through, to explain how, where and to whom they move U.S currency and humanitarian aid overseas.

"We're on the line if we inadvertently or worse, knowingly, engage with one of these terrorists or one of these specially designated nationals," said Joe Iarocci, general counsel for Atlanta-based CARE USA. "Ignorance is no excuse. Nonprofits have to be aware of it."

"Every aspect of the financial world has changed 100 percent," said Philip Smith, a director with foreign exchange trading company, New York Bay International (NYBI), in New York City. "Not all of our clients realize that, and not all of our potential clients and NGOs realize that either."

The U.S Department of Justice (DOJ) has taken law enforcement action against some charities and individuals with alleged links to terrorism and in some cases frozen assets. Some of the more prominent cases are:

• The indictment of the Holy Land Foundation for Relief and Development's chairman in Dallas for alleged prohibited financial dealings with terrorists. Attempts to reach Holy Land Foundation representatives were unsuccessful. Foundation president Shukri Abu-Baker said last year that, "The foundation has never provided funds, services, or any other form of support to Hamas or any other group that advocates, sponsors, or endorses terrorism, terrorist acts, or violence in any form or for any purpose."

• Benevolence International Foundation's Executive Director Enaam Arnaout recently pled guilt to a racketeering count for using donations to support the Bosnian Army and Chechnyan fighters with supplies, such as blankets and boots, during the 1990s, while telling donors it was going for civilian purposes. Prosecutors dropped six other charges of alleged terrorism financing, according to published reports.

• Dr. Rafil Dhafir and three others were recently charged in Syracuse, N.Y., with allegedly using their charity, Help the Needy, illegally to transfer money to Iraq. Dhafir's attorney, Edward Z. Menkin, told the Associated Press in March that the government's case is built on unfounded "concerns and suspicions" rather than any real evidence. Menkin told The NPT in April that it wouldn't "be prudent to further characterize" what he thinks of the government's charges beyond those comments.

Responding to concerns of declined giving and possible blocking of assets within the Muslim charitable community, the Treasury Department issued nonprofits voluntary anti-terrorist financing guidelines. The Paris, France-based Financial Action Task Force (FATF) on Money Laundering issued a similar report. A Treasury Department spokesman didn't return repeated calls seeking comment. Attempts to reach the FATF also were unsuccessful.

Nonprofits are still debating the long-term effects of these voluntary guidelines and law changes. The Treasury guidelines give charities the responsibility of collecting information on foreign recipient organizations before sending any funds. A few examples are: collecting the names and addresses of organizations to which a foreign recipient provides funding, services or material support; and the foreign recipient organization's principal purpose, and a detailed report of projects and goals.

Also suggested in the report is that charities be able to demonstrate they conducted a reasonable search of public information to determine whether a foreign recipient is or was implicated in any questionable activity, and verify the recipient organization wasn't linked to money laundering or terrorism by government lists.

"It just seems that there's a heavy burden on charitable organizations to know a great deal about the chain of consequences of the aid that they distribute abroad," said Ingrid Mattson, vice president of the Plainfield, Ind.-based Islamic Society of North America, an umbrella organization for Muslim groups. "I don't think the current (Treasury) guidelines have made, at least Muslim charities, feel that they are a lot safer right now than when they were issued."

Other concerns nonprofit officials expressed about the Treasury Department's voluntary guidelines and other law changes included:

• Complying with the guidelines could stretch the resources of nonprofits, especially smaller organizations;

• Even if charities follow the guidelines they don't receive a safe harbor like the financial industry receives when filing reports;

• International field offices that investigate banking practices and family relationships of staff and board members they work with could jeopardize field workers' safety;

• Muslim charity donors are concerned that they could be held accountable if a specific program to which they give is later linked to terrorism;

• The guidelines could somehow become de facto measures for what constitutes good grantmaking or management practices and become part of future legislation.

Nonprofits aren't standing flatfooted as the enforcement tides rise. Membership and advocacy organizations, such as Independent Sector (IS), the Council on Foundations (COF) and the National Association of Muslim Lawyers (NAML) are working to identify the impact of these issues on nonprofits and determine viable solutions.

"Grantmakers and nonprofits agree with the intent of the Treasury Department, that we don't want to see our funds diverted for violent ends," said Pat Read, vice president of public affairs at IS. "It's going to be critical for the nonprofit and philanthropic community to be able to speak out to provide positive alternatives of what is possible, and reasonable steps we can take to protect our charitable funds without really discouraging the value and importance of our philanthropic activities overseas."

Some larger public charities that make grants abroad have changed their operation systems so they can check the Treasury Department's list of terrorists, said Janne Gallagher, acting general counsel for COF.

Gallagher has heard that downloading the list and the automated system required to check it aren't as formidable as it seems. But simply checking the list isn't enough. Gallagher explained that Treasury Department officials have made it clear in talks that checking the list isn't enough because people on the list would probably change their name.

"It's important for readers to understand that the voluntary guidelines are a law enforcement tool," which is a "softer" area than the tax rules that provide clear guidance and mostly automatic penalties, Gallagher said.

Mohammad Fadel, president of NAML, in Washington, D.C., said that while the Treasury Department guidelines are helpful, they don't go far enough to protect charities. "You can do everything the government wants you to do, but then for political considerations they can still choose to go after you," Fadel said.

Fadel suggested that the government work more closely with charities to designate countries where money and aid shouldn't be sent, but acknowledges that probably won't happen. "The problem with this system is it relies completely on discretion of the Treasury Department," he said.

Dean Boyd, spokesman for Operation Green Quest, said that the federal multi-agency financial task force doesn't target charities, but "discourages them from being exploited by criminal organizations." It follows the money trail and investigates if that leads to a charity or business.

"We don't pick targets and then hope there's something there," Boyd said. "You've got to have evidence."

Another angle may be to look at abuse in the same light as the Internal Revenue Service's (IRS) intermediate sanctions, which punish an executive at fault without revoking a nonprofit's tax-exempt status, Read said.

A main thrust of the federal government's anti-money laundering campaign to combat terrorism has been to increase oversight of currency moving through unofficial venues. "We often do encounter situations where the local offices are involved in less-than-perfect financial business," Smith said. In some cases NYBI has highlighted to a nonprofit client's headquarters that local offices have been putting their foreign exchange through black market rates, or using bureaus only legally registered to deal with cash, he added.

Paul Nelson, president of the Winchester, Va.-based watchdog group Evangelical Council for Financial Accountability (ECFA), said he's aware of a number of member organizations that are leery and distrustful of putting money through the formal bank system. Nelson added that ECFA has no evidence that any of its approximately 1,100 members consciously or unconsciously supported terrorism.

"I believe in some cases wiring money in is too risky, and the only money that gets in there gets in there carried by somebody," Nelson said.

In many cases, the places where people are the most needy are the farthest from financial institutions, Fadel said. It's not that the money may be going to support terrorism, but that the local financial system could be underdeveloped, Fadel said.

Aufhauser mentioned in his speech that the Treasury Department has gone to institutions abroad that have been violated by wrongdoers, branches or poor management, and given them technical assistance to reform.

Foundations should be aware of the executive order, the Patriot Act, the voluntary guidelines, and know their grantees and evaluate the risk, Gallagher said.

"There's a push for more and more certifications in contracts and grants that we're not doing business with terrorists," Iarocci said. "It's a system, or another layer of regulations, on us above and beyond the (Office of Foreign Assets Control) sanctions that all of us have to be much more careful of now."

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