UNITED STATES TREASURY ISSUES REVISED TERRORISM GUIDELINES FOR CHARITIES: THE REGULATED MUST GUESS WHAT THE RULES MIGHT BE, RAISING SERIOUS CONSTITUTIONAL QUESTIONS

The United States Treasury issued revised guidelines for U.S.-based charities to help them avoid violating the law prohibiting U.S. organizations from assisting terrorist organizations.  The revised guidelines have been issued in the form of “voluntary best practices.” 

Non-adherence to the guidelines, in and of itself, does not...

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constitute a violation of existing U.S. law.  Yet, according to the Treasury, adherence to the 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.”

Under the revised guidelines, a charity gains no benefit from complying with the voluntary best practices from the standpoint of protecting itself against criminal prosecution.  Granted many of the voluntary best practices will improve overall governance if a charity adopts them, but they provide no protection from prosecution if a charity inadvertently finances a terrorist group or terrorist activity. So why does the Treasury persist in promulgating meaningless best practices in the context of its efforts to prevent financing terrorist activity?  It offers charities an cellophane fig leaf.

The Treasury should tell charities what steps they must take to avoid running afoul of the law.  If those steps are taken and a charity inadvertently finances terrorist activity, the charity should not be subject to prosecution.  It acted reasonably and had no intent to do wrong, and that should be sufficient.  At some point, accidents happen, but accidents should never be the basis for criminal prosecution if reasonable precautions were taken.  In short, the regulator should tell those who are subject to regulation specifically what is expected rather than making the regulated guess what is required.  Put simply, the U.S. Treasury is being lazy.  It apparently can't figure out a set of rules so it is simply shifting the burden to the charitable sector. 

Even the best practices aren't really tailored to prevening funds from reaching terrorists.  They simply are a "cut and paste job," adopting ideas that have been circulating for some time in the charitable sector.  For example, one of the guidelines provides:

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.

This is already essentially required by Form 990 so it's quite apparent that a lot of thought did not go into these voluntary best practices.  Moreover, these guidelines do not appear to come from the IRS, state charity regulators, or industry groups, all groups with longstanding interest in governance and international philanthropy.  Instead, they come from Treasury's Office of Terrorist Financing and Financial Crime, a group that as far as we know has not had a history of examining governance practices. 

The Treasury did take comments from the public, but the Treasury's response to those comments does not address the fundamental issue: Certainty in the law.  The voluntary best practices look like much of the Bush Administration’s overall approach to the criminal aspects of the War on Terror.  The rules are intentionally vague, providing the Administration with maximum flexibility to engage in prosecution while not providing those subject to the rules clear safe harbors to guide their conduct.  Regrettably that vagueness poses significant constitutional risks and issues.  People have a constitutional right to know what the law is.

We are providing a link to the best practices rather than summarizing them.

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