Many U.S.-based nonprofit organizations have an international component to their operations. If your nonprofit organization provides charitable resources to organizations and individuals overseas, whether in the form of goods, cash grants, or services, it is crucial that you perform and memorialize certain due diligence procedures concerning where and to whom you are sending such resources. The U.S. imposes significant civil and criminal penalties on any person, including nonprofit organizations, who finances or otherwise supports terrorism. The good news is that there are basic steps a nonprofit organization may take to manage its risk of directly or indirectly supporting terrorism while it furthers it global mission.
Legal Backdrop
After the September 11 terrorist attacks in 2001, great measures were taken by the U.S. to fight the threat of terrorism, including legislation passed by Congress prohibiting U.S. persons, including nonprofit organizations, from directly or indirectly financing terrorism (18 U.S.C. § 2339C) and from providing material support or resources to terrorists or terrorist organizations (18 U.S.C. §§ 2339A and 2339B). Additionally, President George W. Bush issued Executive Order 13224, which prohibits U.S. persons, including nonprofit organizations, from transacting with entities or individuals that are designated by the U.S. Secretary of State or Department of Treasury to be associated with terrorism. The Department of Treasury’s Office of Foreign Assets Control (“OFAC”) adds such designated persons to its Specially Designated Nationals list (“SDN list”) and is authorized to freeze such persons’ assets if held in the U.S. or possessed or controlled by U.S. persons. OFAC also, more generally, administers economic and trade sanctions programs against foreign countries, individuals, and groups engaged in activities that are considered a threat to U.S. national security or foreign policy.
Failure to comply with the above-described laws and regulations or with OFAC-administered sanctions programs may result in significant fines or even imprisonment. This is why it is imperative that a nonprofit organization sending resources overseas creates policies and procedures that reduce its risk of supporting terrorist activities and ensures its compliance with U.S. laws and regulations. To that point, the Treasury Department has issued helpful guidance for nonprofit organizations called the Anti-Terrorist Financing Guidelines: Voluntary Best Practices for U.S.-Based Charities (“Guidelines”). Nonprofit organizations that provide charitable assistance overseas should read the Guidelines carefully and implement its suggested best practices before making any overseas grants or contributions. We have highlighted a few practical steps from the Guidelines below.
Best Practices – Reducing Your Risk of Financing Terrorism
Risk-Based Approach
Nonprofit organizations should adopt a risk-based approach when developing policies and procedures for their foreign activities, remembering that protective measures may vary depending on various factors, including the following:
(1) the nature of the foreign recipient;
(2) the size, scope, and duration of charitable assistance; and
(3) the foreign country’s legal structure and political climate.
The Department of Treasury has issued a Risk Matrix for the Charitable Sector (“Risk Matrix”) to assist nonprofit organizations in determining whether their proposed activities are at low, medium, or high risk of funding terrorism. Nonprofit organizations should evaluate the Risk Matrix’s factors to determine what level of due diligence, screening, and monitoring is appropriate and necessary.
Due Diligence
Nonprofit organizations should take reasonable efforts to obtain information regarding the foreign recipient and the region in which it is located. This might include the following:
(1) any names associated with the recipient (in English and the language of origin);
(2) the jurisdiction in which the recipient was formed and maintains a physical presence;
(3) reasonably available historical information about the recipient, including copies of its governing documents, its operating history, and copies of its public filings;
(4) the recipient’s contact information;
(5) the recipient’s purpose, projects, and goals;
(6) the names and contact information of individuals or organizations to which the recipient provides goods, funds, or services;
(7) the names and contact information of the recipient’s subcontractors; and
(8) the recipient’s sources of income.
This information can be gathered through basic Internet searches and by requiring the recipient organization to complete a pre-grant inquiry that requests such information.
Anti-terrorism Compliance Screening and Sanctions Monitoring
Additionally, nonprofit organizations should conduct a reasonable search to determine whether the recipient is suspected of being involved in terrorist activities. At a minimum, the nonprofit organization should check the recipient organization’s name, the names of its key employees and leaders (e.g., directors and officers), and any subgrantees against the SDN list before providing any charitable assistance. Depending on the risk-level involved based on the results of the nonprofit organization’s due diligence, the organization may need to take additional steps, such as routinely monitor OFAC’s country-specific sanctions programs and SDN list to ensure that the recipient organization remains unconnected to any terrorist activities. The SDN list and sanctions programs may be accessed here. The organization should maintain good records of its screening and monitoring activities.
Licensing in High-Risk Areas
If a nonprofit organization determines that its proposed overseas activities are located in a high-risk area or a sanctioned country or region, it may still be able to provide charitable assistance by obtaining a license from OFAC to engage in what would otherwise be a prohibited transaction. In many situations, OFAC maintains general licenses available that authorize US-based charities seeking to provide humanitarian support in otherwise sanctioned countries.
One Size Does Not Fit All
As mentioned above, your nonprofit organization’s specific procedures may vary significantly depending on the various factors involved. For example, if you wish to provide charitable grants in a low-risk country to a reputable charitable organization with which you are familiar, the due diligence and screening procedures may be minimal compared to providing grants to an unfamiliar charitable organization in a high-risk country. Keep in mind that the ultimate goal of these counter-terrorism efforts is to ensure that U.S. charities are able to continue providing necessary assistance to those in need around the world while also ensuring that such assistance does not fund activities contrary to U.S. security and foreign policy. By implementing the appropriate best practices from the Guidelines, your nonprofit organization should be able to continue its good works with confidence that its charitable assistance is not ending up in the wrong hands.
