Should U.S. charities and foundations be required to turn over funds to the United States Agency for International Development (USAID) in order to support humanitarian aid and development in areas where designated terrorist groups are operating? The Department of the Treasury (Treasury) is promoting a partnership between USAID and American Charities for Palestine (ACP) as a model for providing assistance and complying with counterterrorism laws. Treasury recently indicated such coordination may become a requirement. This approach has the potential to undermine the independence of grantmakers and nonprofits and to fundamentally alter their relationships with grantees and local communities. It is based on an expansive interpretation of counterterrorism laws that seeks to prohibit vaguely defined "abuse and exploitation" of charities by terrorists. In a Sept. 25 speech at Treasury's annual Iftar dinner (an evening meal for breaking the daily fast during the Islamic month of Ramadan), Deputy Treasury Secretary Robert M. Kimmit told attendees the new project between USAID and ACP is an example of "alternative distribution mechanisms" that can get aid into areas where designated terrorist groups are operating. Kimmit said ACP "raises funds from the American charitable sector and donor communities and transfers these funds to USAID in order to finance specific projects…." (emphasis added) He characterized the project as "protecting the integrity of giving."

The USAID-ACP project was also promoted by Treasury Assistant Secretary for Terrorist Financing Patrick O'Brien at a meeting with Muslim charities on Aug. 15. In his introductory remarks, O'Brien said:

"[T]his type of partnership allows individual U.S. donors to tap into the government resources and distribution networks, thereby leveraging counterterrorism mechanisms only available to the government. It is our hope that this type of collaboration will take root and serve as a model for other areas of concern as well as encompass other funding streams including that of the international community."

Few details of the project have been made public. On Aug. 1, USAID and ACP signed a Memorandum of Understanding (MOU) establishing the partnership to channel charitable donations from U.S. individuals and entities to the West Bank and Gaza Strip. The USAID press release on the project is consistent with Kimmit's indication that the funds will be controlled by USAID, saying it "seeks to offer a secure and efficient means of transferring charitable donations from individuals and entities in the U.S. to USAID-managed programs for the Palestinians." (emphasis added) According to founder Dr. Ziad Asali, ACP is a 501(c)(3) organization formed specifically for the joint project with USAID by the American Task Force on Palestine (ATFP). Although a link to the MOU was originally posted on the ATFP website, OMB Watch staff were not able to view it, and it has since been taken down.

O'Brien called the project a "safe and effective way for individuals to contribute" without violating U.S. laws that bar any interaction with designated terrorist organizations, even if they control areas where aid is needed and all funds are used for charitable purposes. O'Brien makes the false assumption that independent aid distribution mechanisms operated through foundations and U.S. charities are not as "safe" or "effective" as those provided by the government. The government method for screening out interaction with terrorist organizations is likely to be based on USAID's pilot Partner Vetting System (PVS), which would require grantees to provide U.S. intelligence services with personal information on their leaders and employees as well as those of their grantees and partners. PVS has been strongly criticized by the U.S. nonprofit sector. The "alternative delivery mechanism" could have the practical effect of extending this requirement to private philanthropy and programs with no federal funding.

In a Sept. 22 conference call between the Treasury Guidelines Working Group (TGWG) — a group of foundations and charities concerned about the Treasury counterterrorism guidelines covering philanthropy — and officials from Treasury's Office of Terrorism and Financial Intelligence, Treasury's Chip Poncy indicated that the USAID-ACP partnership may be expanded. Call participants expressed concern that the USAID-ACP pilot may lead to a requirement that donors and grantmakers go through such an entity in global hot spots. Poncy responded that it is not clear where this project is going, and this is a potentially necessary way of getting aid into certain areas because of the threat of "terrorist abuse."

Treasury's references to preventing terrorist "exploitation and abuse" of charities have been increasing since nonprofits have challenged the agency to show evidence of earlier claims that charities are a significant source of terrorist financing. That evidence has not been forthcoming. However, Poncy told the TGWG that Executive Order 13224 extends Treasury's regulatory authority through language referring to those "associated with or otherwise working on behalf of" terrorist organizations, and the issue is "more complicated than direct support." This is a shift from the first few years after 9/11 when Treasury's statements were focused on diversion of funds to terrorism. This changed when Treasury published the Annex to the latest version of the Anti-Terrorist Financing Guidelines in September 2006, but the agency has never defined "exploitation" or "abuse."