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The Patriot Act and the Nonprofit Sector: Charitable Organizations after 9/11

September 2006

Note: The following discussion is provided for informational purposes only and is not intended to serve as legal advice. For specific information about the Patriot Act and its implementation, consult an attorney.

What happens to tax-exempt organizations that the federal government identifies as being linked to terrorism? What does GuideStar do when the U.S. government takes action against a charity under the provisions of the Patriot Act?

Just six weeks after the events of September 11, 2001, President Bush signed the USA Patriot Act into effect. The act was designed to "Unite and Strengthen America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism." Its many sections and provisions, some controversial among lawmakers and civil libertarians alike, give federal officers greater authority for surveillance, closely monitoring financial activities, and enforcing old and new immigration laws.

Because the act stipulates that financial contributions to questionable organizations are a punishable crime, the nonprofit sector now pays close attention to the publications of the Office of Foreign Assets Control (OFAC), part of the U.S. Department of the Treasury. OFAC lists individuals and organizations that the government suspects have ties to terrorism and whose assets have therefore been frozen. The list, an alphabetical compilation that currently totals 98 pages, gets updated whenever OFAC takes action.

OFAC actions range from blocking assets temporarily to declaring a person or company a Specially Designated National (SDN) or Specially Designated Global Terrorist (SDGT), thereby freezing all assets permanently. As soon as OFAC announces its most recent decisions, we at GuideStar check the newly published organizations against our database. The vast majority of offenders are for-profit companies, such as banks, travel agencies, or shipping businesses, but a few charities have appeared on the list.

Enterprises such as Kindhearts for Charitable Humanitarian Development were flagged on our Web site immediately after the OFAC made its decisions about them public; search Kindhearts to see an example of a flagged charity. Our policy is to inform our users of such organizations' exact status on both the search results page and their GuideStar Report pages. We update that information with any new action taken by the OFAC. We also remove the organizations' listings from our partner sites (e.g., JustGive.org and Network for Good) to avoid accidental contributions to charities with frozen assets.

Typically, the IRS quickly follows up by revoking the organization's 501(c)(3) status. When that happens, the revocation is published in the IRS Bulletin, which is also monitored by GuideStar. We add that information to the search results and each organization's GuideStar Report pages. The listings remain searchable, however. To see an example of a charity that was flagged and then lost its tax exemption, search Al Haramain Islamic Foundation, Inc. or Rabbi Meir Kahana Memorial Fund; a list of all six charities whose exemptions have been revoked is at the end of this article.

Although everybody in the sector is worried about funding terrorism under the guise of charity, grantmakers are especially anxious about giving money to organizations that would misuse the grants. Not only is the funding of organizations with terrorist ties obviously illegal but large international grantmakers have a lot to lose if their monies are blocked by the U.S. Treasury. Consequently, foundations are keeping a very close watch on what happens at OFAC and GuideStar.

To help with the concerns of nonprofits and donors, the Treasury Department developed recommendations for "Voluntary Best Practice for U.S.-based Charities." They advocate more transparency about nonprofit governance and visibility and accountability in all financial practices, including the compensation of officers and employees.

Many in the sector, however, are concerned about the impact of the guidelines. A group of 40 nonprofits and foundations led by the Council on Foundations has formed the Treasury Guidelines Working Group. They have raised concerns that the guidelines impose a costly and unfair burden on foundations and charities. The working group has asked the Treasury Department to withdraw their guidelines and instead support principles for international activity. See the working group's full report >

To date, OFAC has named only seven U.S. charities as having suspected links to terrorism; these organizations are listed below. Each of these organizations is clearly identified on GuideStar as a nonprofit whose assets have been frozen; six are clearly identified as organizations whose tax-exempt status was been revoked after their assets were frozen.

U.S. Charities Named Specially Designated National (SDN) or Specially Designated Global Terrorist (SDGT)

  • Al Haramain Islamic Foundation Inc.–SDGT; tax exemption has been revoked
  • Benevolence International Foundation–SDGT; tax exemption has been revoked
  • Global Relief Foundation–SDGT; tax exemption has been revoked
  • Holy Land Foundation for Relief and Development–SDGT; tax exemption has been revoked
  • Islamic American Relief Agency–USA–SDGT; tax exemption has been revoked
  • Kindhearts for Charitable Humanitarian Development–SDN; remains tax exempt, but assets are frozen
  • The Rabbi Meir Kahana Memorial Fund–SDGT; tax exemption has been revoked
Christine Aube, September 2006
© 2006, Philanthropic Research, Inc.

Christine Aube is GuideStar's director of data management.