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Executive Summary

Since the 9/11 terrorist attacks, U.S.-based charities have become targets, rather than partners, in the government's war on terror financing. Ineffective federal measures have imposed organizational and social costs far beyond the administrative burdens of compliance. This report addresses the critical lack of balance in the body of anti-terrorist financing regulations and guidelines that effect nonprofit organizations and begins to explore ways of bringing balance and clarity so that nonprofit organizations and grant-making foundations can proceed with certainty to pursue legitimate charitable activities.

This report is based on a June 14, 2005 panel sponsored by the Georgetown Public Policy Institute's Center for Public & Nonprofit Leadership. The panelists talked about the underlying laws that seek to curtail the financing of terrorism; President Bush's Executive Order 13224, which addresses terrorism financing and identifies lists of individuals and organizations suspected of terrorism; and the Treasury Department’s Anti-Terrorist Financing Guidelines, Voluntary Best Practices for U.S. Based Charities. The nonprofit sector has focused on the Treasury Department's Guidelines; and, although they are voluntary, they have sparked a number of actions by grant-making institutions, including list-checking and certifications. Yet even those actions do not ensure that the government will not seize or freeze assets. These policies, created behind closed doors without input from charities or foundations, lack a basic understanding of how nonprofits function, and ultimately do not help -- and may even hinder -- the global war on terror.

The testimony of the scholars and nonprofit practitioners on the Georgetown University panel provides insight into the problems of, and threats posed by, the new security regime and paves the way for more effective policy approaches. Their comments expose three prevailing myths that obscure the true nature and impact of current policy:

The myth of "voluntariness." The threat of government investigation and asset seizure effectively bestows the weight of law on problematic, government-prescribed “voluntary best practices.” In other words, the government guidance is anything but voluntary.

The myth of utility. Policies such as the Treasury Guidelines for U.S.-based charities are ineffective as counter-terrorism measures, displacing energy and resources from more useful targets and activities in the war on terror.

The myth of minimal impact. The consequences of these regulatory developments go beyond high administrative costs, posing far-reaching threats to the nature and capacity of the nonprofit sector, including grantmaking and delivery of services.

In the absence of clear, sensible guidance and information from government about what is legally required, confusion and fear are driving the response of the nonprofit sector in the campaign against terror financing. Foundations and grantees alike have widely adopted practices such as terror list checking and certification -- a process requiring signatures from grantees, employees, partner organizations, and even vendors -- without consideration of the consequences to civil liberties and without assurance that these steps will offer protection from legal sanction. Charities are also increasingly fearful that continuing to provide legitimate services and activities might cost them funding from either foundations or the government.

Looking forward, the nonprofit sector's response to anti-terrorist financing policy requires greater vision, clarity, and coordination. It is in the interest of both the nonprofit sector and government to strike an appropriate, effective balance between preventing abuse of charities and fostering charitable outreach both domestically and abroad. A reform agenda should aim for clear guidance for charities that ensures following selected actions will protect the institution from unfair intrusions. It should incorporate measures that introduce due process into the government's treatment of individuals and organizations in the fight against terrorism, allow for correcting potential problem situations, and provide meaningful safeguards for legitimate charitable activity. This report is the first in a series of actions to begin moving toward such clarity.