US charities propose alternative to Treasury Guidelines

Following the September 11 terrorist attacks, the US Government took a number of steps to tighten rules governing international financial transactions, philanthropic grantmaking, and other resource flows from US-based charitable institutions. These included Executive Order 13224 (September 2001), the Patriot Act (October 2001), and the Anti-Terrorist Financing Guidelines: Voluntary Best Practices for US-based Charities, issued by the Treasury Department in November 2002.

Numerous US philanthropic and other charitable organizations responded to the Executive Order and the Guidelines with detailed criticisms, the central message of which was that charitable organizations are already governed by a comprehensive set of laws, regulations and IRS (Internal Revenue Service) rulings that effectively prevent the diversion of charitable funds for any illegal purpose. The Treasury Guidelines, in particular, were felt to be excessively burdensome and impractical, unlikely to achieve their goal of reducing the flow of funds to terrorist organizations but very likely to discourage international charitable activities by US-based organizations.[1]

Following these criticisms, the Treasury convened a meeting in April this year, inviting a number of organizations that had shown themselves to be critical, with a view to improving the Guidelines. But these organizations argued that the Guidelines were unworkable and that a better starting point for discussion was the accumulated experience of the charitable sector itself. Subsequently, representatives of more than 25 organizations, including the Council on Foundations, Independent Sector, InterAction and Grantmakers Without Borders, set up their own working group. Over the past several months they have drafted the Principles of International Charity as an alternative to the Treasury Guidelines (see here.). The Principles statement demonstrates the US charitable sector’s long tradition of responsible engagement in the international arena, underscores the existing legal framework within which it operates, and demonstrates the sector’s commitment to ensuring that funds are not diverted to terrorist purposes while supporting legitimate charitable activities abroad.

The draft document was shared informally with the Treasury in early October and is being widely distributed within the US charitable community for comment and support. The aim is to help persuade the Treasury either to endorse the Principles as a replacement for the Guidelines, or to substantially revise them to incorporate and reflect the Principles. The Treasury has so far not indicated a date by which it will respond.

[1] The text of the Treasury Guidelines and detailed responses by the Council on Foundations, the American Bar Association, and InterAction/Independent Sector can be found on the US International Grantmakers website, www.usig.org. See also Barnett F Baron, ‘Deterring Donors: Anti-Terrorist Financing Rules and American Philanthropy’, Alliance Extra, December 2003.

Barnett F Baron is Executive Vice President at the Asia Foundation. He can be contacted at bbaron@asiafound.org