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Giving Magazine
Terrorist Funding and Philanthropy: Dangerous Liaisons
by Suzanne Reisman
One person's terrorist may be another's freedom fighter.

Atrocities, biological warfare, carnage. Aid, best practices, country building. Such are the ABCs of philanthropy in war-torn countries like Syria and the Sudan. While one person’s terrorist may be another’s freedom fighter, the same tragedies are suffered by all sides. And philanthropists who try to alleviate that suffering must negotiate their own minefields, strewn with a morass of government regulation and the threat of fines and criminal prosecution.

Syria is a prime example. It is common knowledge that while the world watches the unimaginable atrocities visited upon its civilian population, donations are frequently intercepted by members of ISIS (otherwise known as the Islamic State of Iraq and Syria). In some instances brave individuals are driving cash and supplies over the borders, attempting to ensure that philanthropic aid is not diverted before it reaches its intended beneficiaries. The Charity Commission of England and Wales has recently published guidance that acknowledges the importance of providing humanitarian aid to those in Syria while warning of various obstacles, which in addition to the obvious physical dangers, include inadvertently engaging in terrorist financing. Syria is subject to a broad sanctions program administered by the U.S. Treasury’s Office of Financial Assets Control (OFAC) in conjunction with the U.S. Department of Commerce’s Bureau of Industry and Security, which apply to all U.S. citizens as well as U.S. entities such as private foundations and other 501(c)(3) organizations. U.S. charities that wish to make donations to Syrian charities must apply for a license from OFAC. Otherwise donations may be made to a U.S. charity that is registered under the OFAC Syria sanctions program or to a charity in a third country.

The most prudent and, in many cases, the most effective strategy is to work through NGOs with significant experience in the region. A Gulf-based donor with close ties to Syria has suggested that Médicins Sans Frontières, as well as the Maram Foundation and Karam, both of which are U.S. charities, continue to be successful in delivering aid to those affected by the Syrian crisis. The Maram Foundation runs the Atmeh Refugee Camp in Idleb, Syria’s largest refugee camp for internally displaced people, providing all food, medical and hygiene supplies. Karam operates a range of projects on the ground within Syria, including vital food distribution, and social and educational projects.

Of course Syria is not the only country in need of humanitarian assistance. It is however, along with Burma (Myanmar), Cuba, Iran and the Sudan, the subject of comprehensive OFAC sanctions programs. Sanctions and other anti-terrorist legislation have long been a part of governments’ foreign policy arsenal.

Various governments and international organizations (including the Financial Action Task Force, the European Union, and the United Nations) have issued guidance and sanctions in an effort to combat terrorism. Various countries, including the United States and the European Union, have also enacted anti-bribery legislation that impacts charities. The regulations and guidance issued by OFAC and the U.S. Department of Commerce include detailed guidance for U.S. donors and their foundations. They are also relevant for non-U.S. donors who may wish to fund projects by making grants to or partnering with U.S.-based NGOs. OFAC has also issued “Anti-Terrorist Financing Guidelines: Voluntary Best Practices for U.S.- Based Charities” which are, as the name suggests, voluntary but may be useful to many donors. (These guidelines in particular have also been the subject of significant criticism.)

As a general matter, donors may begin their due diligence by reviewing the “Specially Designated Nationals and Blocked Persons List,” or SDN list, published by the United States and the United Kingdom’s consolidated list, which includes those persons and entities on the European Union’s and United Nations’ lists. The U.S. list includes individuals and entities throughout the world (including the United States) that are designated due to their activities in targeted countries as well as others such as terrorists and narcotics traffickers. Regardless of whether an entity or individual is on an SDN list, donors are required to undertake their own due diligence to determine if they are providing assets or services to entities that are owned, controlled by or acting on behalf of a person or entity on the SDN list.

The SDN lists can be problematic. Once an individual or organization appears on the list, it can be difficult to get off, regardless of circumstances. On July 18, 2013, the European Court of Justice issued an opinion confirming that the procedures used to list the plaintiff, whose removal from the list had been recommended over 10 years ago by the United Nations, were flawed. One U.S. court has found that the U.S. government froze charitable assets without probable cause, in violation of the Fourth Amendment to the U.S. Constitution. A second district court determined that illegal wiretaps were used to gather evidence supporting inclusion on the SDN list; however on appeal it was determined that the government had not waived sovereign immunity and the district court decision was vacated. OFAC issued guidance in 2010 relating the release of limited amounts of blocked funds to cover legal fees and costs incurred by U.S. persons who seek to challenge their designation as blocked persons.

The next step for charities interested in countries subject to sanctions programs is to review the relevant sanctions. Broadly speaking, the comprehensive sanctions programs allow for philanthropic activity through either general licenses (which may require reporting but do not require a license before the activity takes place) or specific licenses, which apply specifically to the applicant. Sanctions programs are subject to change at any time—changing even as this article was written. Donors are encouraged to continuously monitor OFAC licensing procedures and related guidance and regulations.

The United States first imposed sanctions on Burma in 1988 when it suspended aid to the country after the shooting of protesters by the military junta. Humanitarian assistance was permitted to continue. In light of the momentous changes that have taken place in the country over the past few years, the United States has eased its policy, paving the way for full economic engagement with Burma, while at the same time providing safeguards in the event that the Burmese government changes its policies. Sanctions relating to philanthropy have been eased accordingly. In April 2012, OFAC expanded the types of support for humanitarian, religious and other non- profit activities that could be provided in Burma, provided that they do not benefit any “blocked persons.” These developments should also pave the way for the creation of micro-finance projects in Burma.

Up until the recent announcement of reinstated relations between the two countries, OFAC maintained a comprehensive sanctions program against Cuba, and a new FAQ published by the Treasury Department updates the information as of January; licenses are available for a wide variety of philanthropic undertakings. The thawing of U.S. relations with Iran, historically referenced as part of the “axis of evil,” is also evident in the easing of OFAC’s sanctions programs. On September 10, 2013, OFAC issued two new general licenses as part of the Iran Transactions and Sanctions Regulations. One authorizes NGOs to export services to Iran in support of non-profit activities, subject to certain reporting requirements and a cap of $500,000 on the transfer of funds over a 12-month period. The other authorizes the importation and exportation of certain professional and amateur sports services and exchanges, including activities related to exhibition matches, sponsorship or players coaching, refereeing and training.

OFAC sanctions apply differently to different regions of the Sudan and to a large extent no longer apply to the Republic of South Sudan, which gained its independence in 2011. Generally, humanitarian relief is permitted in Darfur and “specified regions” of Sudan and favorable licensing policies are applicable in other regions. It appears that relations with the Sudan may be easing as well in light of a deal struck between the U.S. company, General Electric, in the Sudan and a reported statement by Sudanese Foreign Minister Ali Kharti that several U.S. companies which applied for licenses to operate in Sudan were granted, which he believes “is an indicator that investments and commercial relations could overcome political difficulties.” In the meantime, it is permissible to donate articles that relieve human suffering such as food, clothing and medicine.

The United States has targeted programs which prevent individuals from doing business with blocked persons in Somalia, Western Balkans, Belarus, Cote d’Ivoire, Democratic Republic of the Congo, Iraq, Liberia (Former Regime of Charles Taylor), Persons Undermining the Sovereignty of Lebanon or Its Democratic Processes and Institutions, Libya, North Korea, Somalia and Zimbabwe, as well as other programs targeting individuals and entities around the world. In certain cases OFAC has been more flexible. For example, the U.S. Treasury website’s Frequently Asked Questions regarding private relief efforts in Somalia recognize that, due to the highly unstable environment and urgent humanitarian needs in the country, some food, medicine or payments may unintentionally be provided to al-Shabaab, a terrorist group. The FAQs state that, so long as the donor did not have reason to know it was dealing with al-Shabaab, “such incidental benefits . . . would not be a focus for OFAC sanctions enforcement.”

Legitimate concerns have been raised about the breadth of the power that governments may marshal to investigate and audit philanthropic endeavors and freeze assets. Depending on where one’s sympathies lie, these sanctions may be seen as necessary or the misguided edicts of Western governments. Some jurisdictions such as the European Union have promulgated regulations prohibiting compliance with U.S. sanctions where they conflict with the EU’s. Furthermore, the applications of sanctions may differ, based on whether the individual or entity is a charity, a corporation, or a branch of the U.S. government.

Chiquita Brands International Logo

Take, for example, the case of Chiquita Brands International (“Chiquita”), which through its Banadex Unit owned banana operations in Colombia. From 1997 to 2004 Banadex made payments to United Self Defense Forces of Colombia (also known as AUC), a violent paramilitary and drug trafficking organization, for protection from guerrillas that had previously murdered Chiquita employees. As of September 10, 2001, it was a crime to finance AUC. In 2004 Chiquita sold Banadex to Banacol, which then provided bananas to Chiquita. Chiquita was subsequently indicted by the U.S. Department of Justice in connection with its payments to AUC, and in 2007, pled guilty to doing business with a terrorist organization and paid a $25 million fine. However “Chiquita turned a $49.4 million profit from its Colombia operations during the period while it was making the illegal payments to the AUC. . . . Defendant Chiquita’s payments may have protected its workers while they were working on the company’s profitable farms, but Defendant Chiquita’s payments field the AUC’s terrorist violence everywhere else.” During the sentencing hearing Chiquita’s lawyer noted that Chiquita had voluntarily approached the Department of Justice when it asked whether it should stop making payments, the government’s response was equivocal. The “government did not want to say ‘stop’ explicitly because it did not want to have blood on its hands if someone was, in fact, killed. It couldn’t say ‘continue’ because it did not want to hurt its case and so it looked for...a middle ground.”

If a charity made payments to a “specially designated global terrorist” its assets would be frozen and likely its directors would be subject to prosecution. Apparently when a corporation makes such payments, it is one of the costs of doing business in Colombia.

Could Chiquita’s predicament have been resolved if NGOs had trained managers to use nonviolent methods of conflict resolution? In Holder v. Humanitarian Law Project, the U.S. Supreme Court determined that it was a crime for a U.S. NGO to train Kurdish and Tamil groups on the SDN list to use peaceful methods of reaching their objectives, such as petitioning the United Nations and other entities and to engage in political advocacy for groups. Ironically while everyone’s stated wish is “world peace,” it is a crime to assist terrorists to find peaceable methods of making themselves heard on the world stage. While it is understandable that tax relief is denied those who assist parties who are not in alignment with U.S. foreign policy, providing groups designated as terrorists with alternatives to terrorism is also a laudable result.

While donors are required to follow these rules under threat of civil penalties and criminal prosecution, the U.S. government struggles to end its own terrorist financing. In his July 2013 Quarterly Report to the U.S. Congress, John F. Sopko, the Special Inspector General for Afghanistan Reconstruction (SIGAR) expressed concern about 43 cases in which material “supporters of the insurgency” in Afghanistan, including supporters of the Taliban, the Haqqani Network and al-Qaeda, had received government contracts. SIGAR reported that the Army Suspension and Debarment Office declined to act on these cases as it would violate the contractors’ due process rights if they were suspended or disbarred based upon classified information or findings of the Department of Commerce. Sopko concluded: “I am deeply troubled that the U.S. military can pursue, attack and even kill terrorists and their supporters, but that some in the U.S. government believe we cannot prevent these same people from receiving a government contract. I feel such a position is not only legally wrong, it is contrary to good public policy.... I continue to urge you to change this faulty policy and enforce the rule of common sense in the Amy’s suspension and debarment program.”

RELATED: United States Treasury, Office of Foreign Assets Control

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