OMB Watch has filed comments on the Combined Federal Campaign's (CFC) proposed anti-terrorist financing certification for fiscal year 2006 (FY06) that support CFC's shift away from its FY05 requirement that participating charities check employee names against government terrorist watch lists. The CFC is the federal government's workplace charitable giving program. The comments suggest ways the proposed certification can be improved to provide clearer guidance and suggest that CFC develop procedures for organizations to cure any noncompliance discovered during the program year. OMB Watch is one of 12 nonprofit plaintiffs that have challenged the current certification in federal court

In 2004, CFC added language to its funding agreement that required participating organizations to certify that they do not "knowingly employ individuals or contribute funds to organizations" listed as terrorists on various U.S. government watch lists. CFC interpreted this to impose an affirmative obligation for charities to check their employees' names, as well as groups they give money to, against the lists. The proposed rule seeks public comment on a new approach for the FY06 program. It has three elements:

• A certification by the charity that it is in compliance with all laws, Executive Orders and regulations that bar transactions with groups or individuals subject to sanctions by the Treasury Department
• Acknowledgement of awareness of lists of blocked entities and individuals on Treasury's website
• A promise to notify CFC if the group "becomes noncompliant" after the certification. CFC would then "take such steps as it deems appropriate under the circumstances," including suspension from the program and recouping funds already disbursed.

OMB Watch's comments praised CFC's shift away from the express requirement for employee list checking, noting that the new approach recognizes the variety of ways different types of organizations can comply with anti-terrorist financing laws. The new approach also recognizes the many structural protections against diversion of funds for non-charitable purposes that are inherent in charitable operations, including Internal Revenue Service (IRS) regulations and other CFC certifications on financial accountability and governance. The comments cite the Principles of International Charity developed by the nonprofit sector as a resource for charities to ensure their funds are not diverted to terrorist organizations.

However, the comments suggest the language of the proposed certification be clarified to recognize that no entity can ensure absolute compliance. For instance, standards drawn from the certification used by the U.S. Agency for International Development (USAID) provide a clearer and more realistic statement. It requires that charities certify they do not "knowingly provide material support or resources to any individual or entity" involved in terrorist acts, "to the best of its current knowledge." It also clearly states that checking government watch lists for names of beneficiaries of service, vendors and the others is not required unless the organization "has reason to believe" the person or entity is involved in terrorist acts.

The importance of encouraging due diligence and providing due process to charities participating in CFC is cited in the comment's recommendation regarding discovery of noncompliance during a program year. OMB Watch suggests that CFC provide a process that allows charities an opportunity to cure the problem without interrupting their participation in the program. In addition, the comments say that, absent negligence in oversight, the CFC should not attempt to recoup donations already received when a charity comes forward to report and cure noncompliance. Any other approach is inherently unfair and discourages charities from coming forward to report and correct problems.

The background information CFC published to explain and justify the proposed rules notes a "pattern of abuse of U.S. and foreign charities" by terrorists to divert funds for illegal purposes. The OMB Watch comments argue that only a small number of U.S. charities have been shut down for alleged terrorist financing activity. Overall, other sources of money laundering, including trafficking in drugs and weapons, cigarette smuggling and misuse of informal banking systems, present a greater danger of diversion of funds to terrorism than charities. A 2004 research paper, Terrorism and Money Laundering: Illegal Purposes and Activities by attorneys Victoria Bjorklund, Jennifer Reynoso and Abbey Hazlett reviewed alleged links between charities and terrorist organizations, and found "few, if any, of these 'links' alleged that U.S. charities were unwittingly being used to support terrorist activities." CFC needs to substantiate its claim about abuses by charities.