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31 October 2006

[Federal Register: October 31, 2006 (Volume 71, Number 210)]

[Notices]               

[Page 63838-63848]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr31oc06-116]                         



=======================================================================

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DEPARTMENT OF THE TREASURY



 

Anti-Terrorist Financing Guidelines: Voluntary Best Practices for 

U.S.-Based Charities



AGENCY: Office of Terrorism and Financial Crime, Treasury.



ACTION: Notice of updated guidelines.



-----------------------------------------------------------------------



SUMMARY: The U.S. Department of Treasury (``Treasury'') is publishing 

an updated version of its Anti-Terrorist Financing Guidelines: 

Voluntary Best Practices for U.S.-Based Charities (``Guidelines'') 

along with a new Annex. The Guidelines were originally released in 

November 2002. A revised version of the Guidelines was published for 

public comment on December 5, 2005. Treasury received nine (9) comments 

on the revised Guidelines and, as explained below, made a number of 

additional revisions in response to those comments.



DATES: Effective Date: The updated Guidelines were published on 

Treasury's Web site on September 29, 2006.



FOR FURTHER INFORMATION CONTACT: Office of Terrorist Financing and 

Financial Crime, Department of the Treasury, Washington, DC 20220: 

(202) 622-3786 (not a toll-free call).



SUPPLEMENTARY INFORMATION: The Guidelines, the Response to Comments 

Submitted on the U.S. Department of the Treasury Anti-Terrorist 

Financing Guidelines: Voluntary Best Practices for U.S.-Based Charities 

(``Response''), and additional information concerning the protection of 

charities are available on the Treasury's Web site at http:// 



http://www.treas.gov/gov/offices/enforcement/key-issues/protecting/.



    The Response and Guidelines are reprinted below.



    Dated: October 16, 2006.

Patrick M. O'Brien,

Assistant Secretary of the Treasury.



Response to Comments Submitted on the U.S. Department of the Treasury 

Anti-Terrorist Financing Guidelines: Voluntary Best Practices for U.S.-

Based Charities



    In response to the threat of terrorist financing in the charitable 

sector and to assist charities in protecting themselves from such 

abuse, Treasury initially



[[Page 63839]]



released its Anti-Terrorist Financing Guidelines: Voluntary Best 

Practices for U.S.-Based Charities (Guidelines) in November 2002. After 

receiving numerous comments from the sector regarding these Guidelines, 

Treasury hosted an Initial Outreach Event in April 2004, at which time 

Secretary Snow committed that Treasury would continue to work with the 

sector to amend and revise the Guidelines to improve their utility for 

the sector in protecting against terrorist abuse. On December 5, 2005, 

after extensive discussions with other government authorities and the 

charitable sector, Treasury released a draft revised version of the 

Guidelines and invited public comment on the revisions.

    Treasury received a total of nine submissions during the comment 

period from a wide range of organizations. A number of organizations 

prefaced their comments with a general recommendation that Treasury 

withdraw the Guidelines based on their perception that the Guidelines 

are potentially harmful to the charitable sector given existing 

regulations governing the operations of charities. We do not believe 

that the voluntary adoption of the Guidelines--whereby charities with a 

higher risk of vulnerability to terrorist financing should consider 

adopting the best practices to better defend against that risk--would 

adversely affect the financial health, or obstruct the day-to-day 

operations, of the charitable sector.

    Treasury is uniquely positioned to provide recommended measures to 

the charitable sector that are particularly relevant for combating the 

ongoing and pervasive terrorist abuse and exploitation of charities. 

Such voluntary measures are intended to assist charities build upon 

pre-existing controls and protective measures by adopting and applying 

appropriate counter-terrorist financing safeguards. Treasury also 

believes the sector is better served through ongoing dialogue regarding 

the evolving nature of the terrorist threat, particularly with respect 

to the charitable sector, and effective voluntary protective measures 

that the sector can adopt to combat this threat.

    Treasury initially conceived the Guidelines as a direct response to 

requests from the sector for policies and practices to protect against 

potential terrorist abuse and assist in compliance with new terrorist 

financing authorities, including Executive Order 13224. The Guidelines 

not only provide such measures in the form of voluntary ``best 

practices,'' but their release initiated a strong and ongoing dialogue 

with the charitable sector. This dialogue has led to a greater 

awareness of the risks of terrorist abuse in the charitable sector, and 

as a result, charities have adopted more proactive approaches to 

protect their assets and the integrity of their operations. Treasury's 

engagement with the sector has also resulted in the evolution of the 

Guidelines into a more effective, relevant, and applicable resource for 

the sector. In addition, we encourage charities to consult other 

available publications or materials on good governance and sound 

charitable practices. We hope that the adoption of the policies and 

procedures contained in the Guidelines serve to strengthen donor 

confidence and contribute to the charitable sector's continued 

vitality.

    For the above reasons, Treasury has not withdrawn the Guidelines. 

Instead, after careful consideration of all comments and 

recommendations, Treasury has further amended the Guidelines to enhance 

their usefulness for the charitable sector in adopting practices that 

better protect it from the risks of terrorist abuse. The purpose of 

this document is to summarize the content of the comments received and 

describe our response, including any changes to the Guidelines and the 

reasoning supporting those changes. The summary of the comment 

submissions has been organized according to the layout of the 

Guidelines.



1. Title



    Comments: Many commenters indicated that part of the title of the 

Guidelines, ``Voluntary Best Practices,'' is a misrepresentation for 

two reasons. First, the commenters stressed that it is inaccurate to 

suggest that the Guidelines are a compilation of the charitable 

sector's best practices. Due to the diversity within the charitable 

sector, there is not a commonly agreed upon set of best practices that 

applies to all charities. Second, many commenters expressed the belief 

that the Guidelines are not voluntary. Their concern is based primarily 

upon the recent incorporation of the Guidelines into the memorandum 

accompanying the regulations for the 2006 Combined Federal Campaign 

(CFC), issued by the Office of Personnel Management (OPM). Moreover, 

concern exists that other federal agencies will adopt the 

recommendations included in the Guidelines as requirements, thus 

conferring upon the Guidelines de facto legal authority. A few 

commenters suggested that Treasury should change the title of the 

Guidelines to ``Suggestions for Complying with Anti-Terrorist Financing 

Laws.'' 

    Treasury Response: Although we acknowledge the concerns of the 

commenters, the title of the Guidelines remains unchanged, because it 

does not misrepresent the purpose and intent of the Guidelines. We 

believe the Guidelines represent sound best practices that help to 

prevent terrorist abuse of charitable organizations, and were, in fact, 

conceived after reviewing a wide spectrum of existing due diligence 

best practices employed by the sector. To address the concerns of the 

commenters, we have revised the Introduction to the Guidelines to state 

more clearly that these best practices are neither exhaustive nor 

comprehensive. Rather, the Guidelines represent one set of best 

practices specifically aimed at combating terrorist financing. Other 

best practices may exist that would be more suitable for combating 

other abuses that charities may face, but which may also be relevant or 

helpful in protecting charities from terrorist abuse. Nonetheless, the 

Guidelines contain many best practices that will help charities in 

adopting an appropriate risk-based approach to protect their assets and 

operations from terrorist financing abuse and facilitate their 

compliance with existing U.S. legal obligations, including the Office 

of Foreign Assets Control (OFAC) administered sanctions programs.

    Similarly, we disagree that the Guidelines may become de facto 

legal requirements. We have been clear both in the Introduction to the 

Guidelines, as well in our public discourse regarding the Guidelines, 

that they are voluntary and do not create, modify, or supersede any 

existing U.S. legal requirements. In addition to the title, their 

voluntary nature is reiterated throughout the text of the Guidelines. 

We have also amended Footnote 1 (formerly Footnote 3) to make clear 

that non-adherence to the Guidelines does not, in and of itself, 

constitute a violation of existing U.S. law. Moreover, the 

incorporation of the Guidelines into the CFC commentary does not 

indicate the evolution of the Guidelines from a voluntary undertaking 

to a legal requirement, but, in fact, speaks to their usefulness as 

practical advice to protect charities from abuse. The incorporation of 

the Guidelines by other federal agencies encourages consistency across 

the U.S. Government and signals the acceptance of the central tenet of 

the Guidelines--charities should apply a risk-based approach in 

adopting appropriate measures to protect themselves against the threat 

of terrorist abuse. For these reasons, we have not changed the title to 

the Guidelines.



[[Page 63840]]



2. Introduction



    Comments: Many commenters expressed concern that the introductory 

paragraphs broadly overstate the extent of diversion of charitable 

assets to terrorist organizations and their support networks. In 

particular, several comments singled out the following sentence: 

``Investigations have revealed terrorist abuse of charitable 

organizations, both in the United States and worldwide, often through 

the diversion of donations intended for humanitarian purposes but 

funneled instead to terrorists, their support networks, and their 

operations.'' The commenters recommended that Treasury include data and 

other information to support these statements.

    Treasury Response: We have taken this comment under advisement and 

have revised the sentence quoted above by including an Annex that 

describes and references the various indicators of terrorist financing 

in the charitable sector. There exists a large library of open source 

information describing the use of charities by terrorists and their 

supporters that is available to the public. Terrorist financing risk in 

the sector is evidenced by: (i) open source media reports; (ii) 

designations of charities; (iii) results of investigations and 

prosecutions of charities and individuals associated with charities; 

and (iv) international actions. The Annex also notes that much of the 

information evidencing the terrorist financing risk in the charitable 

sector is available on Treasury's Web site at http://www.treas.gov/offices/enforcement/key-issues/protecting/index.shtml.

 





3. Fundamental Principles



    Comments: Several commenters noted that the Guidelines do not 

include two principles from Principles of International Charity, which 

was developed by the Treasury Guidelines Working Group of Charitable 

Sector Organizations and Advisors and released in March 2005. The first 

principle asserts that charitable organizations are non-governmental 

entities and are not agents for enforcement of U.S. or foreign laws or 

their policies. The second principle states that each charity ``must 

safeguard its relationship with the communities it serves in order to 

deliver effective programs. This relationship is founded on local 

understanding and acceptance of the independence of the charitable 

organization.''

    Treasury Response: We agree with both of these principles. 

Therefore, we have revised the first principle in Fundamental 

Principles to state: ``Charities are independent entities and are not 

part of the U.S. Government. Like all U.S. persons, charitable 

organizations must comply with the laws of the United States, which 

include, but are not limited to, all OFAC administered sanctions 

programs.'' With this revision, we recognize the necessity of 

independence for charities to perform their work effectively. We also 

acknowledge that charities, by virtue of their separation from the 

government, are not agents for the enforcement of U.S. or foreign laws 

or their respective policies. Moreover, we do not believe that 

charities become agents of the government by virtue of their obligation 

to abide by U.S. law, or by applying any of the best practices within 

the Guidelines. Based on this revision, we do not think it is necessary 

to revise the Fundamental Principles further to include the second 

principle, because our revision captures the meaning, and is consistent 

with, the second principle. The recognition of the independence of 

charities ensures that the foundation forming a charity's relationship 

with the community it serves will not be shaken.



4. Governance, Financial Practice, and Disclosure/Transparency



    Comments: This section will group together comments falling under 

the sections for Governance, Financial Practice, and Disclosure/

Transparency in Governance and Finances, due to the interrelated nature 

of those comments. Several commenters suggested combining the Financial 

Practice section with the Disclosure/Transparency section into one 

section, entitled ``Accountability.'' The commenters felt that such a 

section, dealing only with financial practices, would be more 

applicable to Treasury's expertise.

    In the event that Treasury should choose to keep the practices 

pertaining to governance in the Guidelines, the commenters recommended 

the following specific changes:

     Section III.B: A few commenters noted the need for an 

appropriate exception to the suggestion that the governing board of a 

charity consist of at least three members. They explained that this 

provision does not take into account certain trusts, religious 

organizations, and corporation soles, which may not be able to have 

more than one member on the board.

     Section III.B.4: Many commenters expressed concern with 

the provision recommending that governing board records be immediately 

turned over to appropriate law enforcement authorities, stating that 

such a provision goes beyond federal and state disclosure laws and 

constitutional protections.

     Section V.B: Two commenters noted that the definition of 

``key employees'' expands on the definition contained in Form 990 from 

the Internal Revenue Service (IRS), and it could be interpreted to 

include people who exert influence over charitable activities, but who 

are not directly related to the charitable projects.

     Section V.A.3: One commenter remarked on the lack of a 

definition for subsidiaries or affiliates and cited the need for 

clarification.

     Section IV.C: One commenter stated that the provision in 

the Guidelines recommending independent audits for charitable 

organizations if the charity's annual gross income exceeds $250,000 is 

inconsistent with the auditing standards issued by OMB Circular A-133.

    Treasury Response: Based on the comments received, we extensively 

reorganized these three sections to clarify the objectives of each 

section:

     We changed the original section, ``Governance,'' to 

``Governance Accountability and Transparency.'' Within this section, we 

incorporated all provisions relating to governance from the original 

``Disclosure/Transparency'' section.

     We renamed the original ``Financial Practice/

Accountability'' section to ``Financial Accountability and 

Transparency'' and incorporated all provisions relating to financial 

practice from the original ``Disclosure/Transparency'' section.

     We revised the original ``Disclosure/Transparency'' 

section and renamed it ``Programmatic Verification,'' which conveys the 

purpose of its remaining provisions more clearly, and aligns more 

closely with existing international best practices for non-profit 

organizations. It also incorporates the provisions on how charities 

should best review the programmatic operations of their grantees, which 

were originally located in the final section on anti-terrorist 

financing best practices.

    We also considered the specific comments received on these three 

sections and made the following revisions (the section numbers 

correspond with the current sections in the Guidelines).

     Section III.B: We deleted the provision calling for a 

minimum of three members on the governing board of a charity. We agreed 

with the commenters that this provision did not adequately take into 

account the existence of certain types of organizations that would not 

be able to



[[Page 63841]]



meet this recommendation. Thus, we revised the section that originally 

discussed best practices for a charity's board of directors, renaming 

it, ``Independent Oversight.'' Within this section, we added a preamble 

conveying the importance of both independent oversight of charitable 

organizations and flexibility for an organization to choose the 

oversight structure that best fits its needs. We have also included the 

acknowledgement that independent oversight may be unfeasible for 

certain charitable organizations, such as houses of worship and 

corporation soles. The remaining provisions within this oversight 

section merely highlight certain basic principles that are hallmarks of 

good governance: (i) Independence of the governing board; (ii) 

development of conflict of interest policies and procedures; (iii) 

accountability of the governing board; and (iv) recordkeeping.

     Section III.B.2: We agreed with one commenter's concern 

about the confusion caused by a governance provision calling for the 

board to adopt, implement, and oversee practices consistent with the 

principles contained in the Guidelines. We understand that some may 

interpret the provision to mean that the best practices provided in the 

Guidelines are either mandatory or represent a comprehensive list of 

best practices to protect against terrorist financing in the charitable 

sector. As stated earlier, the Guidelines do not purport to be an 

exhaustive compilation of best practices, and are voluntary. Therefore, 

we have changed this provision to clarify that members of a charity's 

governing board are responsible for the oversight of practices that 

will effectively safeguard charitable assets.

     Section III.B.6: We have added a footnote (Footnote 6) 

defining subsidiaries and affiliates, as the terms are used in the 

Guidelines. The definition is similar to the one used by Form 990: 

``Subsidiaries or affiliates are organizations that are subject to the 

general supervision or control of a parent or central organization.''

     Section III.B.7: In response to some commenters' concern 

with the provision governing the disclosure of records, we revised the 

provision to state the following: ``When served with process or when 

other appropriate authorization exists, charities should produce 

requested records maintained in accordance with these Guidelines to the 

appropriate regulatory/supervisory and law enforcement authorities in a 

timely fashion.''

     Section III.C: We agreed with the commenters who noted the 

difference between the definition of key employees in the Guidelines 

and the definition used by the IRS. We amended the definition of key 

employees to mirror the definition used by the IRS in Form 990.

     Section IV.C: We disagree that the Guidelines are 

inconsistent with the audit standards set forth by OMB Circular A-133. 

First, OMB Circular A-133 only applies to audits performed on 

expenditures of federal grants or awards. While many charities may 

receive federal grants, the Guidelines are intended to provide best 

practices that charities may apply regardless of whether they receive 

federal funds or private donations. Second, while Circular A-133 sets 

standards among Federal and State governments regarding the audits of 

non-profit organizations expending federal awards, it does not preclude 

charities from having additional independent audits performed if they 

wish. Third, as stated in the eighth footnote of the Guidelines, the 

$250,000 threshold figure is drawn from the June 2005 final report to 

Congress of the Panel on the Nonprofit Sector, convened by Independent 

Sector, and is thereby consistent with industry's suggested threshold. 

Finally, the Guidelines are not obligatory, but voluntary steps that 

charities may choose to take as additional protective measures. Thus, 

the provision on financial audits remains unchanged in the Guidelines.



5. Anti-Terrorist Financing Best Practices



    Comments: The majority of the comment submissions expressed 

concerns with various provisions in this section. The following 

summarizes the specific comments:

     Section VI: One commenter noted the difficulty of 

assessing risk pursuant to the Guidelines' risk-based approach without 

any corresponding advice.

     Sections VI.A and B: Several comments focused on the 

amount of information-collection provisions, regarding them as onerous, 

unrealistic, and having limited value in protecting against terrorist 

financing.

     Sections VI.B.1 and 4: Many commenters objected to the 

inclusion of the publicly available information, including the 

Internet, as a means to vet grantees or employees. They argued that 

Internet searches would yield widely varying and unverified information 

about certain organizations or individuals.

     Section VI.B.3: A few commenters objected to the 

incorporation of other government lists of designated parties created 

pursuant to UNSCR 1373. They claimed that Treasury is inadvertently 

legitimizing these other lists by citing to them.

     Section VI.B.5: A few comments focused on the provision 

suggesting that charities request certifications from grantees with 

whom they contract or work. They suggested deleting the provision or at 

least revising the certification to adopt the approach of the 2006 CFC. 

This approach would involve a grantee certifying its compliance with 

U.S. law, as opposed to certifying that it has checked certain lists.

     Section VI.D: Some commenters recommended deleting the 

voluntary reporting provision in its entirety, arguing that it creates 

the impression that charitable organizations are agents of the U.S. 

Government.

     One commenter suggested the Guidelines should explicitly 

state that it is permissible for a charity to engage in normally 

prohibited transactions with a group, entity, or individual on the 

Specially Designated Nationals and Blocked Persons List (SDN List) if 

OFAC issues a license to charities for such transactions.

    Treasury Response: We have made the following revisions to the 

anti-terrorist financing best practices section based on the comments 

(the section numbers correspond with the current sections in the 

Guidelines):

     Section VI: In response to the comment requesting further 

assistance in assessing the risk of terrorist abuse or exploitation, 

Treasury continues to produce information and engage in outreach to 

assist charities in understanding the nature of ongoing terrorist 

abuse. Such materials and outreach are available on or through the 

Treasury Web site and are further described or referenced in the Annex 

to the Guidelines.

     Sections VI.A and B: We disagree with the comment that the 

information-collection procedures are burdensome and of little utility. 

We recognize that the information-collection practices are expansive 

and are purposefully designed so that a charity can gather as much 

information as possible to ensure the greatest transparency and 

accountability over charitable operations. This type of information-

gathering is essential for the charity to know its grantees and to be 

assured that its assets will not be diverted to terrorist organizations 

or their support networks. Moreover, the general risk-based approach 

governing the Guidelines affords charities the opportunity to tailor 

the scope of these information-collection procedures to the terrorist 

financing risk they face. A charity



[[Page 63842]]



should perform its own terrorist financing risk assessment based on its 

particular operations and projects. Depending on its particular risk 

profile, a charity should then choose appropriate protective measures 

that will adequately safeguard its assets from terrorist financing 

abuse and ensure their delivery to legitimate beneficiaries. As stated 

above, the best practices of the Guidelines are not a comprehensive or 

exhaustive listing of all best practices. Charities are free to apply 

other measures that they believe will protect their assets from 

diversion.

    In order to lessen any perceived administrative burden on 

charities, we have amended the Guidelines by replacing the word 

``recipient'' with ``grantee'' throughout the document and defining 

``grantee''. This revision is intended to clarify the information-

collection recommendations by explaining what charities should do for 

immediate grantees versus downstream grantees. ``Grantee'' is defined 

as an immediate grantee of charitable resources or services. To the 

extent reasonably practicable, charitable organizations should also 

apply or ensure the existence of applicable safeguards in any 

downstream sub-grantees or recipients to protect charitable resources 

from diversion. Finally, we caution charities against entering into a 

relationship with a grantee where any doubts exist about the grantee's 

ability to ensure safe delivery of charitable resources.

     Sections VI.B.1 and 5: We agree with commenters that the 

Internet often provides information that may be false or unverified. 

For this reason, we have removed the clause suggesting that charities 

look to the Internet for further information about potential grantees 

or employees. However, the Guidelines still encourage charities to 

employ all reasonably available means, including publicly available 

information, to determine the level of risk accompanying a particular 

charitable operation or when engaging in appropriate vetting 

procedures. List-checking alone does not guarantee the safe delivery of 

charitable assets to intended beneficiaries. Properly using publicly 

available resources, such as open source media reports or other federal 

agency lists and information, can provide a charity with adequate and 

comprehensive information from which to make informed decisions about 

the kinds of protective measures it should take.

     Section VI.B.4: We do not agree with commenters that 

Treasury is legitimizing the UNSCR 1373 lists adopted by other 

governments by merely providing information that such lists exist. The 

purpose of including information on UNSCR 1373 lists in the Guidelines 

is not to endorse such lists, but to provide charities with an 

understanding of the varying laws under which they may operate in other 

jurisdictions. However, in response to the objections raised in some 

comments and to clarify the purpose of the information, we have added 

the following sentence to Footnote 14: ``The Guidelines do not 

legitimize or endorse the UNSCR 1373 lists adopted by foreign 

jurisdictions.''

     Section VI.B.6: We agree with the importance of carrying a 

consistent message throughout the U.S. Government. For that reason, we 

have accepted the suggestion of one commenter to align the 

certification more closely with the one adopted in the 2006 CFC. The 

new provision also delineates different certifications for U.S. and 

foreign grantees. Instead of having grantees certify that they checked 

the SDN List, the new certification suggests that U.S. grantees certify 

that they are in compliance with all laws restricting U.S. persons from 

dealing with parties subject to OFAC sanctions. With regard to foreign 

grantees, they should certify that they do not deal with parties 

subject to OFAC sanctions or anyone else known to support terrorism.

     Section VI.D: We disagree with the notion that the 

voluntary reporting provision creates the impression that charities are 

agents of the U.S. Government. As with all parts of the Guidelines, 

this provision is voluntary and charities are not under any obligation 

to report any information. This provision is also consistent with U.S. 

guidance to other sectors regarding terrorist financing or other 

illicit finance risks. In addition, we have clearly acknowledged in the 

Fundamental Principles of the Guidelines that charitable organizations 

are independent entities and are not a part of the U.S. Government. The 

voluntary reporting measure explains what steps a charity may 

proactively take to assist in protecting itself from abuse by 

terrorists and their support networks. Since charities occasionally 

have direct access to evidence of terrorist activities in the course of 

their operations, voluntarily reporting such evidence provides the 

appropriate authorities with the opportunity to conduct further 

investigations, and helps reduce the threat that terrorist financing 

poses to the charitable sector. Thus, the provision is an important 

component of anti-terrorist financing best practices, and it remains in 

the Guidelines with only minor changes.

     While the comment regarding OFAC's licensing authority is 

accurate, we believe that the Guidelines make sufficient reference to 

this authority in Footnote 2 (formerly Footnote 8), which states: 

``OFAC can issue licenses to U.S. persons to engage in transactions 

that would otherwise be prohibited, if there is a policy-permissible 

reason to do so, and if permitted by statute.'' In addition, the 

footnote refers to further information, available on OFAC's Web site, 

regarding licensing procedures for non-profit organizations wishing to 

undertake humanitarian activities in sanctioned countries. To provide 

more information on licensing, we have added the link to OFAC's Web 

site, which has information about the types of available licenses and 

the process for requesting a license.

Conclusion

    As the Annex to the Guidelines illustrates, the risk of terrorist 

abuse of the charitable sector is both ongoing and significant. 

Recognition of this reality is the first step in finding ways to 

protect both donors and charities.

    Treasury is sensitive to the concerns raised by the charitable 

sector and appreciates the insightful comments submitted. The release 

of these revised Guidelines reflects a further positive development in 

the ongoing dialogue between the charitable sector and Treasury. 

Treasury believes that the Guidelines offer a framework of voluntary 

best practices that is attuned to the unique challenges and risks 

facing charities. These best practices provide the necessary framework 

to safeguard against terrorist abuse of the charitable sector by 

offering protective measures to help ensure that the vital services 

provided by charities are not exploited by terrorists or their 

organizations.

    Treasury remains deeply committed to working with the charitable 

community on future initiatives to combat terrorist abuses. While 

Treasury believes that the Guidelines represent a positive step in 

combating terrorist abuse of the charitable sector, the Guidelines also 

underscore the need for continued public outreach as a critical element 

of our comprehensive approach to combating terrorist abuse of the 

charitable sector.



[[Page 63843]]



U.S. Department of the Treasury Anti-Terrorist Financing Guidelines: 

Voluntary Best Practices for U.S.-Based Charities \1\

---------------------------------------------------------------------------



    \1\ This document is a revised version of the original Anti-

Terrorist Financing Guidelines: Voluntary Best Practices for U.S.-

Based Charities released by the U.S. Department of the Treasury in 

November 2002. This revised version incorporates comments received 

in response to the issuance of the draft revised Guidelines released 

for public comment in December 2005.

    These Guidelines are designed to assist charities that attempt 

in good faith to protect themselves from terrorist abuse and are not 

intended to address the problem of organizations that use the cover 

of charitable work, whether real or perceived, to provide support to 

terrorist groups or fronts operating on behalf of terrorist groups. 

Non-adherence to these Guidelines, in and of itself, does not 

constitute a violation of existing U.S. law. Conversely, adherence 

to these Guidelines does not excuse any person (individual or 

entity) from compliance with any local, state, or federal law or 

regulation, nor does it release any person from or constitute a 

legal defense against any civil or criminal liability for violating 

any such law or regulation. In particular, adherence to these 

Guidelines shall not be construed to preclude any criminal charge, 

civil fine, or other action by Treasury or the Department of Justice 

against persons who engage in prohibited transactions with persons 

designated pursuant to the Antiterrorism and Effective Death Penalty 

Act of 1996, as amended, or with those that are designated under the 

criteria defining prohibited persons in the relevant Executive 

orders issued pursuant to statute, such as the International 

Emergency Economic Powers Act, as amended. Please see Footnote 12 

for an explanation of the master list of Specially Designated 

Nationals (the ``SDN List''), which includes all such designated 

persons. These Guidelines are also separate and apart from 

requirements that apply to charitable organizations under the 

Internal Revenue Code (``IRC'').

---------------------------------------------------------------------------



Table of Contents



I. Introduction

II. Fundamental Principles of Good Charitable Practice

III. Governance Accountability and Transparency

IV. Financial Accountability and Transparency

V. Programmatic Verification

VI. Anti-Terrorist Financing Best Practices



I. Introduction



    Upon issuance of Executive Order 13224, President George W. Bush 

directed the U.S. Department of the Treasury (``Treasury'') to work 

with other elements of the federal government and the international 

community to develop a comprehensive and sustained campaign against the 

sources and conduits of terrorist financing. Investigations have 

revealed terrorist abuse of charitable organizations, both in the 

United States and worldwide, to raise and move funds, provide 

logistical support, encourage terrorist recruitment or otherwise 

cultivate support for terrorist organizations and operations. This 

abuse threatens to undermine donor confidence and jeopardizes the 

integrity of the charitable sector, whose services are indispensable to 

both national and world communities.

    In response to this threat, Treasury first released the Anti-

Terrorist Financing Guidelines: Voluntary Best Practices for U.S.-Based 

Charities (``Guidelines'') in November 2002. In December 2005, based on 

extensive review and comment by public and private sector interested 

parties, Treasury revised and released the Guidelines in draft form for 

further public comment. Based on the comments received, Treasury has 

further amended the Guidelines to improve their utility to the 

charitable sector in adopting practices that can better protect it from 

terrorists and their support networks.

    The Guidelines are designed to enhance awareness in the donor and 

charitable communities of the kinds of practices that charities may 

adopt to reduce the risk of terrorist financing or abuse. These 

Guidelines are voluntary and do not create, supersede, or modify 

current or future legal requirements applicable to U.S. persons, 

including U.S. non-profit institutions. Adherence to these guidelines 

does not constitute a legal defense against any civil or criminal 

liability for violating any local, state, or federal law or 

regulations. In addition, these Guidelines do not represent an 

exhaustive or comprehensive compilation of best practices. Many 

charities, through their extensive experience and expertise in 

delivering international aid, have already developed effective internal 

controls and practices that lessen the risk of terrorist financing or 

abuse. In view of this fact, Treasury does not want charities to 

abandon proven internal controls and practices. Rather, the Guidelines 

are intended to assist charities in developing, re-evaluating, or 

strengthening a risk-based approach to guard against the threat of 

diversion of charitable funds or exploitation of charitable activity by 

terrorist organizations and their support networks.

    In addition, these Guidelines are intended to assist charities in 

understanding and facilitating compliance with preexisting U.S. legal 

requirements related to combating terrorist financing, which include, 

but are not limited to, various sanctions programs administered by the 

Office of Foreign Assets Control (``OFAC''). These preexisting legal 

requirements are clearly marked in the text of the Guidelines.

    The risk-based nature of these Guidelines reflects Treasury's 

recognition that a ``one-size-fits-all'' approach is untenable and 

inappropriate due to the diversity of the charitable sector and its 

operations. Accordingly, certain aspects of the Guidelines will not be 

applicable to every charity, charitable activity, or circumstance. 

Moreover, Treasury acknowledges that certain exigent circumstances 

(such as catastrophic disasters) may make application of the Guidelines 

difficult. In such cases, charities should maintain a risk-based 

approach that includes all prudent and reasonable measures that are 

feasible under the circumstances. Charities and donors are encouraged 

to consult these Guidelines when considering protective measures to 

prevent infiltration, exploitation, or abuse by terrorists. Although 

adherence to these Guidelines does not guarantee protection from 

terrorist abuse, effective internal controls which incorporate the 

principles and practices set forth in these Guidelines can prevent the 

diversion of charitable resources from their proper uses, as well as 

identify situations involving terrorist financing or abuse.

    Treasury recognizes the vital importance of the charitable 

community in providing essential services around the world. Treasury 

also understands the difficulty of providing assistance to those in 

need, often in remote and inaccessible regions, and applauds the 

efforts of the charitable community to meet such needs. The goal of 

these Guidelines is to facilitate legitimate charitable efforts and 

protect the integrity of the charitable sector and good faith donors by 

offering the sector ways to prevent terrorist organizations from 

exploiting charitable activities for their own benefit.



II. Fundamental Principles of Good Charitable Practice



    A. Charities are independent entities and are not part of the U.S. 

Government. Like all U.S. persons, charitable organizations must comply 

with the laws of the United States, which include, but are not limited 

to, all OFAC-administered sanctions programs.\2\

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    \2\ OFAC sanctions programs include those relating to particular 

countries or regimes (country-based programs), as well as those 

relating to groups, individuals, or entities engaged in specific 

activities (list-based programs). Sanctions programs normally: (i) 

prohibit U.S. persons from engaging in certain transactions, such as 

trade in goods and services and financial transactions, and/or (ii) 

require U.S. persons to block the assets and property of persons 

designated under the relevant Executive order or law. The particular 

prohibitions and/or obligations of U.S. persons vary by program. 

OFAC can issue licenses to U.S. persons to engage in transactions 

that would otherwise be prohibited, if there is a policy-permissible 

reason to do so, and if permitted by statute. Further information on 

how to apply for specific licenses is available at http://www.treas.gov/offices/enforcement/ofac/faq/index.shtml#license

.



    For further information on OFAC-administered sanctions programs 

and general licensing under these programs, please see http://www.treas.gov/offices/enforcement/ofac

.



    OFAC guidelines for non-governmental organizations wishing to 

undertake humanitarian activities in sanctioned countries are 

available at http://www.treas.gov/offices/enforcement/ofac/regulations/ngo_reg.pdf

.



    Other helpful guidance materials for charities relating to 

protection from terrorist abuse may be found at http://www.treas.gov/offices/enforcement/key-issues/protecting/index.shtml

.



    The United States relies on a wide array of federal criminal 

statutes in fighting the threat of terrorist financing. Charities 

should be particularly aware that in its efforts against the 

financing of terrorism, the U.S. relies on, among others, the 

federal statutes that prohibit:

     the financing of terrorism (18 U.S.C. 2339C),

     providing material support or resources to terrorists 

(18 U.S.C. 2339A), and

     providing material support or resources to designated 

terrorist organizations (18 U.S.C. 2339B).

    In that effort, the U.S. also particularly relies upon the 

federal statutes which criminalize:

     the laundering of monetary instruments (18 U.S.C. 

1956), and

     engaging in monetary transactions in property derived 

from specified unlawful activity (18 U.S.C. 1957).



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[[Page 63844]]



    B. Charitable organizations are encouraged to adopt practices in 

addition to those required by law that provide additional assurances 

that all assets \3\ are used exclusively for charitable or other 

legitimate purposes.\4\

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    \3\ An asset is any item of value, including, but not limited 

to, services, resources, business, equitable holdings, real estate, 

stocks, bonds, mutual funds, currency, certificates of deposit, bank 

accounts, trust funds, and the property and investments placed 

therein.

    \4\ A charitable organization may never use charitable assets 

for illegal purposes; however, a charitable organization may accrue 

unrelated business taxable income in the course of legitimately 

doing business as a charitable organization. Even though an 

organization is recognized as tax exempt, it still may be liable for 

tax on its unrelated business taxable income.

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    C. Individuals acting in a fiduciary capacity for any charitable 

organization should exercise due care in the performance of their 

responsibilities, consistent with applicable common law as well as 

local, state, and federal statutes and regulations.

    D. Governance, fiscal and programmatic responsibility and 

accountability are essential components of charitable work and must be 

reflected at every level of a charitable organization and its 

operations.

III. Governance Accountability and Transparency

    A. Governing Instruments: Charitable organizations should operate 

in accordance with governing instruments, e.g., charter, articles of 

incorporation, bylaws, etc. The governing instruments should:

    1. Delineate the charity's basic goal(s) and purpose(s);

    2. Define the structure of the charity, including the composition 

of its governing body, how such body is selected and replaced, and the 

authority and responsibilities of the body;

    3. Set forth requirements concerning financial reporting, 

accountability, and practices for solicitation and distribution of 

funds; and

    4. State that the charity shall comply with all applicable local, 

state, and federal laws and regulations.

    B. Independent Oversight: It is important for charitable 

organizations to have independent oversight of charitable operations, 

and each charitable organization should determine what oversight 

structure best suits that organization and will provide for unbiased 

scrutiny of its operations. The following provisions set forth basic 

principles for the creation of a transparent and accountable oversight 

body (the ``governing board'').

    1. Members of the governing board ordinarily should not have an 

active role in the day-to-day management of the charitable 

organization.\5\

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    \5\ Certain charitable organizations, such as houses of worship, 

certain trusts, and corporations sole, may not be able to apply this 

practice due to their varying organizational and operational 

structures.

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    The charity should establish a conflict of interest policy for both 

members of the governing board and employees. That policy should 

establish procedures to be followed if a member of the governing board 

or employee has a conflict of interest or a perceived conflict of 

interest relating to the management or operations of the charity.

    2. The governing board should be responsible for the charitable 

organization's compliance with relevant laws, its finances and 

accounting practices and for the adoption, implementation, and 

oversight of practices, including financial recordkeeping that will 

safeguard charitable assets effectively.

    3. The governing board should maintain records of its decisions.

    4. Charities should maintain and make publicly available a current 

list of members of the governing board, their salaries and their 

affiliation with any subsidiary or affiliate of the charitable 

organization.

    5. While fully respecting individual privacy rights, charities 

should maintain records of additional identifying information about the 

members of the governing board, such as available home, email and URL 

addresses, social security number, citizenship, etc.

    6. While fully respecting individual privacy rights, charities 

should maintain records of identifying information for the members of 

the governing boards of any subsidiaries or affiliates \6\ receiving 

funds from them.

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    \6\ Subsidiaries or affiliates are organizations that are 

subject to the general supervision or control of a parent or central 

organization.

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    7. When served with process or when other appropriate authorization 

exists, charities should produce requested records maintained in 

accordance with these Guidelines to the appropriate regulatory/

supervisory and law enforcement authorities in a timely fashion.



C. Key Employees \7\

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    \7\ Key employees include not only highly compensated employees 

but employees who have responsibilities, powers, or influence 

similar to those of officials, directors, or trustees. Key employees 

also include chief management and administrative officials of a 

charitable organization, including those involved in the 

disbursement of funds.

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    1. Charities should maintain and make publicly available a current 

list of their five highest paid or most influential employees (the key 

employees) and the salaries and direct or indirect benefits they 

receive.

    2. While fully respecting individual privacy rights, charities 

should maintain records containing identifying information (such as 

available home, email and URL addresses, social security or other 

identification number--e.g., taxpayer identification number, national 

identity, or passport number--citizenship, etc.) about their key, non-

U.S. employees working abroad. Such information should be similar to 

that maintained by charities in the normal course of operations about 

all U.S. employees, wherever employed, and foreign employees working in 

the United States.

    3. While fully respecting individual privacy rights, charities 

should maintain records containing identifying information for the key 

employees of any subsidiaries or affiliates receiving funds from them.



IV. Financial Accountability and Transparency



    A. The charity should have a budget, adopted in advance on an 

annual basis and approved and overseen by the governing board.

    B. The governing board should appoint one individual to serve as 

the financial/accounting officer who should be responsible for day-to-

day control over the charity's assets.



[[Page 63845]]



    C. If the charity's total annual gross income exceeds $250,000,\8\ 

the governing board should select an independent certified public 

accounting firm to audit the finances of the charity and to issue a 

publicly available, audited financial statement on an annual basis.

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    \8\ The $250,000 figure is drawn from the June 2005 final report 

to Congress of the Panel on the Nonprofit Sector, convened by 

Independent Sector. This report, which offers a comprehensive 

approach to improving oversight and governance of charitable 

organizations, recommends independent financial audits for charities 

that have more than $250,000 in total annual revenue. This report is 

available at http://www.nonprofitpanel.org/final/.



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D. Solicitations for Funds



    1. The charity should clearly state its goals for and purposes of 

soliciting funds so that anyone examining the charity's disbursement of 

funds can determine whether the charity is adhering to those goals.

    2. Solicitations for donations should accurately and transparently 

tell donors how and where their donations are going to be expended.

    3. The charity should substantiate on request that solicitations 

and informational materials, distributed by any means, are accurate, 

truthful, and not misleading, in whole or in part.

    4. The charity should fully, immediately, and publicly disclose if 

it makes a determination that circumstances justify applying funds for 

a charitable purpose different from the purpose for which such funds 

were contributed or solicited.



E. Receipt and Disbursement of Funds



    1. The charity should account for all funds received and disbursed 

in accordance with generally accepted accounting principles and the 

requirements of the Internal Revenue Code. The charity should maintain 

records of the salaries it pays and the expenses it incurs 

(domestically and internationally).

    2. The charity should include in its accounting of all charitable 

disbursements the name of each grantee,\9\ the amount disbursed, the 

date, and form of payment for each disbursement.

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    \9\ The term ``grantee,'' as it is used throughout these 

Guidelines, means an immediate grantee of charitable resources or 

services. To the extent reasonably practicable, charitable 

organizations should also apply or ensure the existence of 

applicable safeguards (as described in Sections III, IV, V, and VI) 

in any downstream sub-grantees or recipients to protect charitable 

resources from exploitation by terrorists, terrorist organizations, 

or terrorist supporters. Charities should not enter into a 

relationship with a grantee where any doubts exist about the 

grantee's ability to ensure safe delivery of charitable resources 

independent of influence by or association with any terrorist 

organization.

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    3. The charity, after recording, should promptly deposit all 

received funds into an account maintained by the charity at a financial 

institution. In particular, all currency donated should be promptly 

deposited into the charity's financial institution account.

    4. The charity should make disbursements by check or wire transfer 

rather than in currency whenever such financial arrangements are 

reasonably available. Where these financial services do not exist or 

other exigencies require making disbursements in currency (as in the 

case of humanitarian assistance provided in rural areas of many 

developing countries, or in remote areas afflicted by natural 

disasters), the charity should disburse the currency in the smallest 

increments sufficient to meet immediate and short-term needs or 

specific projects/initiatives rather than in large sums intended to 

cover needs over an extended time frame, and it should exercise 

oversight regarding the use of the currency for the intended charitable 

purposes, including keeping detailed internal records of such currency 

disbursements.



F. Mechanisms for Public Disclosure of Distribution of Resources and 

Services



    1. The charity should maintain and make publicly available a 

current list of any branches, subsidiaries, and/or affiliates that 

receive resources and/or services from the charity.

    2. The charity should make publicly available or provide to any 

member of the general public, upon request, an annual report. The 

annual report should describe the charity's purpose(s), programs, 

activities, tax exempt status, the structure and responsibility of the 

governing board of the charity, and financial information.

    3. The charity should make publicly available or provide to any 

member of the general public, upon request, complete annual financial 

statements, including a summary of the results of the charity's most 

recent audit. The financial statements should present the overall 

financial condition of the charity and its financial activities in 

accordance with generally accepted accounting principles and reporting 

practices.



V. Programmatic Verification



A. Supplying Resources



    When supplying charitable resources (monetary and in-kind 

contributions), fiscal responsibility on the part of a charity should 

include:

    1. Determining that the potential grantee of monetary or in-kind 

contributions has the ability to both accomplish the charitable purpose 

of the grant and protect the resources from diversion to non-charitable 

purposes or exploitation by terrorist organizations and/or their 

support networks;

    2. Reducing the terms of the grant to a written agreement signed by 

both the charity and the grantee;

    3. Ongoing monitoring of the grantee and the activities funded 

under the grant for the term of the grant; and

    4. Correcting any misuse of resources by the grantee and 

terminating the relationship should misuse continue.



B. Supplying Services



    When supplying charitable services, fiscal responsibility on the 

part of a charity should include:

    1. Appropriate measures to reduce the risk that its assets would be 

used for non-charitable purposes or exploitation by terrorist 

organizations and/or their support networks; and

    2. Sufficient auditing or accounting controls to trace services or 

commodities between delivery by the charity and/or service provider and 

use by the grantee.



C. Programmatic Review



    The charity should review the programmatic and financial operations 

of each grantee as follows:

    1. The charity should require periodic reports from grantees on 

their operational activities and their use of the disbursed funds;

    2. The charity should require grantees to take reasonable steps to 

ensure that funds provided by the charity are neither distributed to 

terrorists or their support networks nor used for activities that 

support terrorism or terrorist organizations. Periodically, a grantee 

should apprise the charity of the steps it has taken to meet this goal; 

and

    3. The charity should perform routine, on-site audits of grantees 

to the extent reasonable--consistent with the size of the disbursement, 

the cost of the audit, and the risks of diversion or abuse of 

charitable resources--to ensure that the grantee has taken adequate 

measures to protect its charitable resources from diversion to, or 

abuse or influence by, terrorists or their support networks.



VI. Anti-Terrorist Financing Best Practices



    Charities should consider taking the following steps before 

distributing any charitable funds (and in-kind contributions). As 

explained in Section I, these suggested steps are voluntary. The 

purpose of these steps is to enable charities to better protect 

themselves from the risk of terrorist abuse and to



[[Page 63846]]



facilitate compliance with U.S. laws, statutes, and regulations, with 

which all U.S. persons, including U.S. charities, must comply. 

Depending upon the risk profile of an individual charitable 

organization, adopting all of these steps may not be applicable or 

appropriate. When taking these steps, charities should apply a risk-

based approach, particularly with respect to engagement with foreign 

grantees due to the increased risks associated with overseas charitable 

activity.

    A. The charity should collect the following basic information about 

grantees:

    1. The grantee's name in English, in the language of origin, and 

any acronym or other names used to identify the grantee; \10\

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    \10\ Charities should also be mindful of the possibility that a 

grantee may have changed its name or transformed its organizational 

structure to avoid being associated with prior questionable 

activity. If a charity has any reason to believe that the grantee is 

operating under a different identity or has used a different name in 

the past, the charity should undertake reasonable efforts to uncover 

any such prior identity or name.

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    2. The jurisdictions in which a grantee maintains a physical 

presence;

    3. Any reasonably available historical information about the 

grantee that assures the charity of the grantee's identity and 

integrity, including: (i) the jurisdiction in which a grantee 

organization is incorporated or formed; (ii) copies of incorporating or 

other governing instruments; (iii) information on the individuals who 

formed and operate the organization; and (iv) information relating to 

the grantee's operating history;

    4. The available postal, e-mail and URL addresses and phone number 

of each place of business of a grantee;

    5. A statement of the principal purpose of the grantee, including a 

detailed report of the grantee's projects and goals;

    6. The names and available postal, e-mail and URL addresses of 

individuals, entities, or organizations to which the grantee currently 

provides or proposes to provide funding, services, or material support, 

to the extent reasonably discoverable;

    7. The names and available postal, e-mail and URL addresses of any 

subcontracting organizations utilized by the grantee;

    8. Copies of any public filings or releases made by the grantee, 

including the most recent official registry documents, annual reports, 

and annual filings with the pertinent government, as applicable; and

    9. The grantee's sources of income, such as official grants, 

private endowments, and commercial activities.

    B. The charity should conduct basic vetting of grantees as follows:

    1. The charity should conduct a reasonable search of publicly 

available information to determine whether the grantee is suspected of 

activity relating to terrorism, including terrorist financing or other 

support. Charities should not enter into a relationship with a grantee 

where any terrorist-related suspicions exist; \11\

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    \11\ List-checking alone (as described throughout this section) 

does not guarantee the safe and secure delivery of charitable funds 

and services in high-risk areas. For this reason, the Guidelines 

encourage charities to employ all reasonably available resources 

both when determining the level of risk in a particular charitable 

operation and when engaging in appropriate vetting procedures. One 

example of publicly available information of which charities should 

be aware is the Terrorist Exclusion List (the ``TEL''). The TEL was 

created pursuant to the USA PATRIOT Act, which authorizes the 

Secretary of State to designate organizations or groups for 

inclusion on the TEL in consultation with or upon the request of the 

Attorney General. Inclusion on the TEL allows the U.S. Government to 

exclude or deport aliens who provide material assistance to, or 

solicit assistance for, designated TEL organizations. Although many 

of the organizations included on the TEL are also included on the 

Office of Foreign Assets Control (``OFAC'') SDN List, several TEL 

organizations are not listed on the SDN List because of the 

different purposes and legal criteria associated with these lists.

    TEL designations do not trigger any legal obligations for U.S. 

persons; however, the TEL does provide charities with additional 

terrorist-related information that may assist charities in making 

well-informed decisions on how best to protect themselves from 

terrorist abuse or association. For further information regarding 

the TEL, including access to the list containing all TEL designees, 

please refer to the U.S. Department of State's Web site at http://www.state.gov/s/ct/rls/fs/2004/32678.htm

.



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    2. The charity should assure itself that grantees do not appear on 

OFAC's master list of Specially Designated Nationals (the ``SDN 

List''), maintained on OFAC's Web site at http://www.treas.gov/offices/enforcement/ofac/sdn/

,\12\ and are not otherwise subject to OFAC 



sanctions.\13\

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    \12\ The master SDN List is an integrated listing of designated 

parties with whom U.S. persons are prohibited from providing 

services or conducting transactions and whose assets are blocked. 

OFAC's designations are available in a variety of formats and can 

easily be broken down into subsets of the master list by program, by 

country of residency, individuals vs. entities, and other variations 

for appropriate use in a charity's risk-based approach. Each charity 

should determine which OFAC listings align with the specific risks 

the charity faces in its operations and should check grantees 

accordingly.

    OFAC routinely updates information on its targets, including 

persons designated under country-based and list-based economic 

sanctions programs, such as individuals and entities designated 

under the various Executive orders and statutes aimed at terrorism. 

OFAC offers a free email subscription service that enables 

subscribers to keep current with these updates. With respect to 

terrorism-related OFAC sanctions programs, SDN listings include 

persons designated under Executive Order 13224, Executive Order 

12947, or the Antiterrorism and Effective Death Penalty Act of 1996, 

as amended; such persons are called ``Specially Designated Global 

Terrorists'' or ``SDGTs'', ``Specially Designated Terrorists'' or 

``SDTs'', or ``Foreign Terrorist Organizations'' or ``FTOs'', 

respectively. SDN listings also include parties subject to OFAC 

sanctions pursuant to other list-based programs (such as counter-WMD 

proliferation and counter-narcotics) and country-based programs.

    In addition to checking appropriate SDN listings, charities 

should consult OFAC's Web site for other information relating to 

sanctioned activities or countries that may implicate their 

operations.

    \13\ As discussed in Footnote 12, the SDN List is an integrated 

list of individuals, organizations, and entities that the U.S. 

Government has designated pursuant to both country-based and list-

based OFAC administered sanctions programs. U.S. persons, including 

U.S.-based charities, are prohibited from dealing with any of the 

parties included on the SDN List. A charity wishing to engage in 

activity in a country subject to economic sanctions should contact 

OFAC directly about any authorizations necessary to engage in such 

activity. Although the SDN List includes persons meeting the 

criteria established in the authorities or Executive orders that 

define certain OFAC sanctions programs, transactions with actors not 

named on the SDN List may nevertheless violate U.S. sanctions due to 

interests of designated parties in such transactions or prohibitions 

owing to country-based OFAC administered sanctions programs. For 

example, if a charity engages in a particular transaction with a 

party not on the SDN List that involves the property or interests in 

property of a designated actor, the transaction may be subject to 

OFAC sanctions. This underscores the importance of charities knowing 

their grantees and monitoring their programs and transactions 

through the use of appropriate due diligence measures. Therefore, 

while the SDN List is a critically important compliance tool that 

can assist charities in meeting their legal obligations under the 

variety of sanctions programs that OFAC administers, it should only 

form one part of a charitable organization's broader risk-based 

approach to protect against the risks of terrorist abuse.

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    3. With respect to key employees, members of the governing board, 

or other senior management at a grantee's principal place of business, 

and for key employees at the grantee's other business locations, the 

charity should, to the extent reasonable, obtain the full name in 

English, in the language of



[[Page 63847]]



origin, and any acronym or other names used; nationality; citizenship; 

current country of residence; and place and date of birth. The charity 

should assure itself that none of these individuals is subject to OFAC 

sanctions.

    4. Charities should be aware that other nations may have their own 

lists of designated terrorist-related individuals, entities, or 

organizations pursuant to national obligations arising from United 

Nations Security Council Resolution 1373 (2001).\14\

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    \14\ Under United Nations Security Council Resolution 1373 

(2001) (UNSCR 1373), UN Member States must generally freeze without 

delay the funds and other financial assets or economic resources of 

persons financing or otherwise supporting terrorist activity or 

terrorist-related individuals, entities, or organizations. In 

addition, UN Member States must generally prohibit their nationals 

from engaging in transactions with such parties. In order to 

implement these obligations under UNSCR 1373, each UN member state 

should, as a practical matter, develop its own list of parties 

sanctioned under the criteria of UNSCR 1373. For example, the SDN 

List incorporates those parties designated by the United States 

pursuant to its national obligations under UNSCR 1373.

    The Guidelines do not legitimize or endorse the UNSCR 1373 lists 

adopted by foreign jurisdictions. Rather, this information is 

intended to assist charities in developing their own risk-based 

programs based upon a full understanding of the law in those 

jurisdictions in which they may operate. Charities operating in a 

foreign jurisdiction may choose to take the additional precautionary 

measures of determining whether that jurisdiction maintains a 

national list under UNSCR 1373 and screening the identities of 

grantee organizations (including their directors and key employees) 

against any such list. Such precautionary measures may protect 

charities from potential sanctions or other consequences to which 

they might be subject from foreign jurisdictions as a result of 

engaging in transactions with individuals, entities, or 

organizations deemed to be financing or otherwise supportive of 

terrorist activity under the laws of those jurisdictions.

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    5. With respect to the key employees, members of the governing 

board, or other senior management described in the preceding paragraph, 

the charity should also consider consulting publicly available 

information to ensure that such parties are not reasonably suspected of 

activity relating to terrorism, including terrorist financing or other 

support; and

    6. As a pre-condition to the issuance of a charitable grant, the 

charity should require grantees to certify that they are in compliance 

with all laws, statutes, and regulations restricting U.S. persons from 

dealing with any individuals, entities, or groups subject to OFAC 

sanctions, or, in the case of foreign grantees, that they do not deal 

with any individuals, entities, or groups subject to OFAC sanctions or 

any other persons known to the foreign grantee to support terrorism or 

to have violated OFAC sanctions.

    C. The charity should conduct basic vetting of its own key 

employees as follows:

    1. The charity should conduct a reasonable search of publicly 

available information to determine whether any of its key employees is 

suspected of activity relating to terrorism, including terrorist 

financing or other support. Charities should not employ a person where 

any terrorist-related suspicions exist; and

    2. The charity should assure itself that none of its key employees 

is subject to OFAC sanctions or have violated OFAC sanctions.

    D. Should a charity's vetting practices lead to a finding that any 

of its own key employees, any of its grantees, or any of the key 

employees, members of the governing board, or other senior management 

of its grantees is suspected of activity relating to terrorism, 

including terrorist financing or other support, there are a number of 

available mechanisms and resources that a charity may utilize:

    1. If the charity believes there is a match between the name of one 

of the individuals or organizations listed above and a name on the SDN 

List, the charity should take appropriate due diligence steps to 

ascertain whether the match is valid. These steps and further guidance 

are available on OFAC's Web site at http://www.treas.gov/offices/enforcement/ofac/faq/answer.shtml#hotline

; and



    2. The charity should provide information on any suspicious 

activity relating to terrorism, including terrorist financing or other 

support, which does not directly involve an OFAC match, through a 

referral form available on Treasury's Web site at http://www.treas.gov/offices/enforcement/key-issues/protecting/index.shtml.

 In addition, the 



Federal Bureau of Investigation maintains local field offices to which 

charities should provide such suspicious information. A list of the 

locations and phone numbers of the FBI's field offices is available at 

http://www.fbi.gov/contact/fo/fo.htm.





Annex to Guidelines



    The risk of terrorist abuse facing charitable organizations is 

ongoing and significant and cannot be measured from the important but 

relatively narrow perspective of terrorist diversion of charitable 

funds to support terrorist acts. Rather, terrorist abuse also includes 

the exploitation of charitable services and activities to radicalize 

vulnerable populations and cultivate support for terrorist 

organizations and activities. As reported through a wide range of media 

sources, terrorist organizations deliberately establish, infiltrate, or 

otherwise exploit charitable organizations to build terrorist support 

networks.\15\ Recent developments--such as the exploitation by Lashkar 

e Tayyiba (a.k.a. Jamaat-ud-Dawa) and other terrorist entities/

charitable fronts of relief efforts following the October 2005 

earthquake in South Asia, the critical role of Hamas-associated 

charities in building popular support in the Palestinian territories 

for the terrorist organization, and Hezbollah's substantial control of 

charitable distribution networks in southern Lebanon--demonstrate the 

ongoing intent and effectiveness of terrorist organizations in 

exploiting charitable organizations and relief efforts.

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    \15\ See, e.g., Matthew Levitt, HAMAS: Politics, Charity and 

Terrorism in the Service of Jihad; New Haven, CT: Yale Univ. Press, 

2006 (documenting the logistical and financial support Hamas 

charities provide for the group's political and terrorist 

activities); Heather Timmons, British Study Charitable Organizations 

for Links to Plot, N.Y. Times, Aug. 25, 2006 (describing the risks 

inherent in delivering charitable aid and resources to high-risk 

areas where terrorist organizations are known to operate); Robert F. 

Worth & Hassan M. Fattah, Relief Agencies Find Hezbollah Hard to 

Avoid, N.Y. Times, Aug. 23, 2006 (describing Hezbollah's efforts to 

cultivate support by controlling the provision of charitable 

resources and services across southern Lebanon); Laila Bokhair, 

Political Struggle Over Earthquake Victims, Norwegian Defense 

Research Establishment, Nov. 23, 2005 (documenting terrorist 

organizations such as Lashkar-e-Taiba and Jaish-e-Mohammed efforts 

to provide humanitarian aid to affected areas in the months 

following the earthquake in South Asia); Christopher Kremmer, 

Charities Linked to Extremists Lead Quake Relief, Age, Nov. 21, 2005 

(reporting that in addition to providing relief in South Asia, 

terrorist organizations are recruiting and indoctrinating orphan 

children in their extensive network of orphanages); Evan Kohlmann, 

The Role of Islamic Charities in International Terrorist Recruitment 

and Financing (2006), Danish Institute for International Studies: 

available at http://www.diis.dk/graphics/[fxsp0]Publications[fxsp0]/



WP2006/DIIS%20WP%202006[fxsp0]-7.web.pdf (tracing the historical 

link between charitable organizations and terrorist activities from 

the Soviet-Afghan war through to the present); BBC News, Faith, hate 

and charity: Transcript, BBC One, Recorded from Transmission, July 

30, 2006 (reporting on one of Britain's leading Islamic charities, 

Interpal, and illustrating Interpal's use of a network of charities 

in Gaza and the West Bank to support and fund Hamas, a terrorist 

organization designated by the U.S. Government and the European 

Union).

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    Treasury, together with other Departments across the U.S. 

Government, is continuing to combat such terrorist abuse of the 

charitable sector by: (i) Administratively sanctioning terrorist-

related charities and charitable officials through terrorist financing 

designations; (ii) contributing financial information and investigative 

resources and expertise to advance criminal investigations and 

prosecutions of charities and charitable officials providing material 

support for designated terrorist organizations or



[[Page 63848]]



activities; (iii) facilitating international action to address these 

abuses; and (iv) conducting comprehensive outreach to the charitable 

sector to raise awareness of terrorist exploitation and the steps 

charities can take to protect themselves from such abuse.

    U.S. designations of charities and charitable officials demonstrate 

the breadth of the problem of terrorist infiltration and exploitation 

of the charitable sector. To date, the United States has designated 

forty-three charities worldwide and twenty-nine associated individuals 

for their support of terrorist organizations and operations. These 

seventy-two charities and individuals comprise over fifteen percent of 

all U.S.-designated terrorist supporters or financiers, indicating the 

primary importance of charities as a critical means of support for 

terrorist organizations and activities. Treasury maintains a summary of 

all designated charities, including unclassified background information 

summarizing the basis of each designation, to assist the donor and 

charitable communities in identifying those charities associated with 

terrorist financing and support. Further information and press releases 

relating to these designations are available on the Treasury Web site 

at http://www.treas.gov/offices/enforcement/key-issues/protecting/charities_exec-orders.shtml

.



    In addition to these ongoing efforts by Treasury and the U.S. 

Government, other countries and organizations from around the world 

have recognized and helped curb abuse of the charitable sector by 

terrorist organizations. The Financial Action Task Force (FATF)--the 

premier inter-governmental organization responsible for developing and 

promoting global policies to combat money laundering and terrorist 

financing--has studied the problem of terrorist financing and abuse 

across the charitable sector globally and has published typologies of 

such abuse. The FATF has also published Best Practices for Non-Profit 

Organizations and more recently issued interpretive guidance 

strengthening the international standard for combating terrorist abuse 

of non-profit organizations. Additionally, FATF style regional bodies 

(FSRBs) such as the Asia Pacific Group (APG), Eurasian Group (EAG) and 

the Middle East and North Africa Financial Action Task Force (MENA 

FATF) are developing typologies and studies on the active threat of 

terrorist financing and support through charities that operate within 

their regions.\16\ These organizations and their member countries are 

implementing measures to actively combat this threat through the 

development and application of supervisory, investigative, and 

financial authorities to identify and dismantle charities engaged in 

terrorist financing or support. Many of these documents, which 

underscore the threat that terrorist organizations and operations pose 

to the charitable sector, are available on the Treasury Web site at 

http://www.treas.gov/offices/enforcement/key-issues/protecting/index.shtml.

 



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    \16\ The efforts of the MENA FATF are particularly exemplary of 

international efforts to combat terrorist abuse of charities. MENA 

FATF Member States have issued a best practices paper, based on the 

FATF's international standard for combating terrorist abuse of the 

non-profit sector, tailored to the specific religious, social, and 

economic values of the region. The comprehensive framework, crafted 

by the MENA FATF, outlines legislative, regulatory, and procedural 

measures to ensure that the charitable sector is not misused or 

abused by terrorist financiers. The MENA FATF charities best 

practices paper is an indispensable tool for the Middle East and 

North Africa region in helping to protect against terrorist abuse of 

charities by offering guidance to promote transparency and 

accountability in the charitable sector.

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    Treasury continually engages in outreach and updates its Web site 

to communicate useful information regarding: (i) The ongoing risks of 

terrorist abuse in the charitable sector; (ii) ongoing U.S. and other 

governmental efforts to mitigate these risks and combat terrorist 

abuse, and (iii) steps the sector can take to protect against such 

abuse. Treasury's Guidelines represent one essential component and 

product of the ongoing outreach that Treasury is conducting with the 

charitable sector to empower and protect the sector from terrorist 

abuse. Another example of available resources is Treasury's December 

2005 advisory paper, which provides information to charities delivering 

relief in areas affected by the 2005 South Asia earthquake by detailing 

typologies of terrorist abuse of charities and reports on activity by 

militant and terrorist groups in those areas. This paper also shows, 

through media reports, the extent to which terrorist organizations pose 

a risk to charities trying to deliver aid in unstable areas, where 

terrorist organizations themselves and/or their charitable fronts are 

often engaged in delivering relief as an effective recruitment 

mechanism in building broader support for their organizations.

    Treasury will continue its outreach and informational efforts as 

part of its larger mission to combat terrorist financing and safeguard 

the charitable sector from terrorist abuse.

[FR Doc. 06-8961 Filed 10-30-06; 8:45 am]



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