High alert: the government's war on the financing of terrorism and its implications for donors, domestic charitable organizations, and global philanthropy.

• Author: Crimm, Nina J.

TABLE OF CONTENTS INTRODUCTION I. ECONOMIC SANCTIONS--FREEZING ASSETS AND BLOCKING TRANSACTIONS A. Background 1. Statutory Authority for Economic Sanctions 2. Seven Decades of Reliance on TWEA and IEEPA Powers B. Executive Order 13,224 C. Outcomes 1. Background 2. Foreign Terrorist Organizations and SDGTs 3. Blocked Assets 4. Cases Involving Blocked Assets of Domestic [section] 501(c)(3) Organizations a. Global Relief Foundation, Inc b. The Holy Land Foundation for Relief and Development c. Benevolence International Foundation, Inc. d. Summary D. Permanent Civil Asset Forfeiture II. FEDERAL CRIMINAL SANCTIONS A. Background B. Anti-Money Laundering Initiatives 1. The Virginia-Based SAAR Network 2. Sami Amin Al-Arian C. Prohibition on the Provision of Material Support to Terrorists and Terrorist Organizations Under 18 U.S.C. [subsections] 2339A and 2339B 1. Background 2. Constitutional Challenges 3. Implications for Donors and [section] 501(c)(3) Organizations a. Section 501(c)(3) Organizations as "Financial Institutions" for Purposes of 18 U.S.C. [section] 2339B--31 U.S.C. [section] 5312(a)(2)(Z) b. Section 501(c)(3) Organizations as "Financial Institutions" for Purposes of 18 U.S.C. [section] 2339B--Treasury's Voluntary Best Practices Guidelines May Portend the Future D. Unlawful and Willful Provision or Collection of Funds to Carry Out Terrorist Acts III. SUSPENSION OF DESIGNATED ORGANIZATION'S TAX-EXEMPT STATUS IV. PRIVATE CIVIL ACTIONS V. DUE DILIGENCE A. Due Diligence by Members of Governing Bodies of [section] 501(c)(3) Organizations B. Due Diligence by Donors CONCLUSION ABSTRACT

Within days after the September 11 terrorist attacks, the U.S. government extended its already existing commitment to combat terrorism. President Bush declared a financial war on terrorism, with the aim of depriving terrorists of their necessary financial support. He issued Executive Order 13,224, which ordered the blocking of assets of specially designated global terrorists. (1) Congress enacted legislation that not only fortified previously existing criminal and civil laws, but also added new ones for use in combating terrorists and terrorism. The Bush Administration dedicated resources to existing and newly created governmental structures that would be responsible for enforcing these laws and for waging the financial war on terrorism. This enhanced legal and structural arsenal contains multiple means by which the U.S. government, as well as citizens injured by activities of foreign terrorists, can pursue economic or criminal sanctions against terrorists and their private sponsors, including individuals, as well as foreign nongovernmental organizations, domestic charitable organizations, and their governing bodies.

Awareness of this greatly expanded potential exposure to liability, and even criminal sanctions, has already engendered unforeseen side effects. Some well-intentioned donors reportedly now are reticent to make charitable contributions to domestic charitable organizations. Law-abiding Muslim charities have documented a decline in contributions received, and charitable organizations are struggling to maintain their pre-September 11 levels of commitment to global philanthropy. As the financial war on terrorism evolves and the arsenal of weapons is strengthened, the government's successes not only may starve terrorists financially, but also may have the unfortunate and unintentional consequence of significantly reducing resources committed to legitimate global philanthropy. Such a result, ironically, would contribute to fundamentalists' and radical terrorists' goal of disrupting globalism, which, if otherwise uninterrupted, could help to foster civil liberties and to achieve social and economic security and prosperity abroad that might diminish the intrinsic potency of terrorist groups and could lessen much of their appeal to outsiders.

Preventive measures thus are essential to minimize the potential negative consequences of the government's financial war on terrorism. To guard against exposure to liability, donors and leaders of domestic charitable organizations must undertake adequate due diligence. Moreover, the government must take great care to protect against overzealous legislation and enforcement actions. Absent sufficient safeguards, the government's actions may exacerbate, rather than diminish, the ultimate effects sought by terrorists.

[F]ew actions are more reprehensible than diverting money intended for charity and using it to support hatred and cruelty. Such abuse corrupts the sanctity of charitable giving, diverts funds and resources from those in need, betrays the trust and goodwill of donors, and is a danger to us all. (2) The most serious threat to our well being was now clean money intended to kill, not dirty money seeking to be rinsed in a place of hiding. (3) INTRODUCTION

On May 20, 2003, the nation once again was jolted into high alert after terrorist bombings in Saudi Arabia and Morocco. (4) In the wake of the terror attacks of September 11, 2001, anxiety has been building about terrorists' worldwide activities, and for good cause. With increasing regularity, terrorist acts have devastated human lives, destroyed property, and thrown countries' economies into decline. It is clear that the terrorists' deadly goals--on September 11, 2001, and during the two and one-half subsequent years--could not have been achieved without adequate financing. (5) Terrorist financing reportedly has involved not only classic money laundering, where the proceeds of illicit activities are washed or layered in order to conceal their origin, (6) but also the diversion or skimming of funds from such legitimate sources as profits from small storefront businesses and charitable donations to domestic [section] 501(c)(3) organizations and large international nongovernmental organizations. (7)

The terrorists' heinous acts and their perverse use of funds donated by well-intentioned contributors to domestic [section] 501(c)(3) organizations generated outrage across the civilized world and incensed the U.S. government. In response, the U.S. government extended its already existing commitment to combat terrorism in the Middle East to target threats from wherever they might emanate, whether from other regions of the world or from within domestic borders. Within weeks of September 11, this commitment was strongly manifested militarily, as well as nonmilitarily. On the nonmilitary front, Congress enacted the USA Patriot Act and President Bush initiated a financial war on terrorism. Not only did the USA Patriot Act fortify the previously existing criminal and civil laws that can be used to combat terrorists and terrorism, but it also added new ones to the arsenal. Moreover, the Bush administration dedicated resources to existing and newly created governmental structures that would be responsible for enforcing these laws and for waging the financial war on terrorism.

The enhanced legal and structural arsenal produced by these swift reactions contains multiple means by which the U.S. government, as well as citizens injured by activities of foreign terrorists, can pursue economic or criminal sanctions against terrorists and their private sponsors, including individuals, foreign nongovernmental organizations, and domestic charitable organizations and their governing bodies. For example, the available arsenal enables the U.S. government to freeze assets in order to "starve" terrorists of their financial "life-blood." (8) The government can bring a criminal action against persons who knowingly provide "material support or resources" to a terrorist or a foreign terrorist organization, (9) or who intentionally or knowingly collect or provide funds for use in carrying out terrorist activities. (10) Moreover, the government has authority in connection with an individual's violation of either of these criminal offenses to impose a civil penalty on a domestic entity, including a [section] 501(c)(3) organization, if the perpetrator was responsible for the management or control of that entity and committed the offense in that capacity. (11) The government also can bring charges pursuant to the Racketeer Influenced and Corrupt Organizations Act (RICO) based on predicate crimes that include the offenses of providing material support or resources to a foreign terrorist organization, or intentionally or knowingly collecting or providing funds for use in carrying out terrorist activities, as well as money laundering. (12) Congress recently proposed legislation to permit the Internal Revenue Service (IRS) to suspend the tax-exempt status under Internal Revenue Code (I.R.C.) [section] 501(a) of an organization that is identified or designated as a terrorist organization. (13)

Although the arsenal mainly contains weapons available for governmental use, there exist federal statutes that give individuals the means of redressing certain injuries caused by terrorism. Most relevant for purposes of this Article is 18 U.S.C. [section] 2333, enacted as part of the Antiterrorism Act of 1992. (14) Pursuant to this statute, the courts have permitted U.S. nationals injured by an act of international terrorism, and their estates, survivors, and heirs, to bring civil actions for damages against domestic [section] 501(c)(3) organizations that have channeled funds to terrorist groups. (15)

This is not an exhaustive list of weapons that can be used to fight the nonmilitary war on terrorism. Nonetheless, this sampling clearly indicates that the U.S. government (and its citizens) potentially can bring legal actions that reach donors, domestic [section] 501(c)(3) organizations, and the organizations' officers, directors, and trustees.

Awareness of this potential exposure to liability, and even to criminal sanctions, has already engendered unforeseen side effects. The media have reported that well-intentioned, law-abiding U.S. Muslims have been reticent to...