The responsible role for international charitable grantmaking in the wake of the September 11, 2001 terrorist attacks.

AuthorAnthony, Christine Holland

ABSTRACT

This Note argues that a collaborative information collection and sharing effort would protect charities from becoming law enforcement agencies and would ensure that U.S. altruism is properly monitored and reaching the areas of the world most in need. A robust system of international charitable giving is a vital element in the promotion of "civil society" and the fight against terrorist attitudes and sympathies. The U.S. government and non-profit sector must combine resources and efforts to continue to promote global charitable participation with an updated approach to grant-making and fund oversight.

TABLE OF CONTENTS I. GENERAL HISTORY OF DOMESTIC CHARITABLE GIVING AND THE POLICIES UNDERLYING THE DEVELOPMENT OF TAX EXEMPTIONS AND DEDUCTIONS A. Tax Relief Given to Those Organizations Whose Activities Reduce the Burden on Government by Addressing Poverty, Health, Education, and Science B. Development and Expansion of This Historical Policy to Modern Day C. Current Tax Laws Applicable to Charitable Organizations D. Rise of Global Economic Markets and Consequently, the Growing Interest and Need of Global Altruism III. TAX LAWS OF THE UNITED STATES DO NOT PROVIDE A DEDUCTION FOR CHARITABLE CONTRIBUTIONS MADE DIRECTLY TO INTERNATIONAL ORGANIZATIONS AND THE INDIRECT BENEFITS OF THIS POLICY IN THE WAKE OF THE 2001 TERRORIST ATTACKS A. Individual Tax Deductions for International Charitable Efforts Must be in Conjunction with Grantmaking or Operations of Domestic Non-Profit Organizations B. Ironically a Beneficial Policy: This Limits the Scope of Funds Sent Abroad Which Must be Scrutinized and Monitored to Prevent Diversion to Terrorist Organizations IV. RESPONSES TO SEPTEMBER 11, 2001 TERRORIST ATTACKS HAVE HAD SIGNIFICANT EFFECTS ON CHARITIES AND NON-PROFIT ORGANIZATIONS MAKING INTERNATIONAL GRANTS OR WITH ACTIVITIES ABROAD A. Executive Order 13224 B. The Patriot Act C. Treasury Department Guidelines: "Voluntary Best Practices". V. THE NEED FOR GOVERNMENT AND CHARITABLE ORGANIZATIONS TO LAUNCH A COLLABORATIVE EFFORT OF INFORMATION COLLECTION AND SHARING A. Critique U.S. Responses Intended to Prevent Diversion of International Grants to Individual Terrorists and Foreign Terrorist Organizations 1. "One-Size Fits All" Approach Does not Accommodate the Reality of the Extensive Diversity of International Grantmakers in the United States B. The Council on Foundations and American Bar Association's Proposal for a Risk-Based Approach Based on Current Practices and Procedures Larger Grantmaking Foundations Already Observe C. Use the Practices and Procedures Already in Place, but Make the Information Collected Available to All Grantmaking Organizations Through the Use of a Secure Database D. Charities are not Law-Enforcement Aagencies and Should not be Tasked with Investigative Requirements to Make International Grants as Other Checks Monitor Charitable Behavior and such Requirements Diminish Grant Efficacy VI. CONCLUSION The Preamble to The Principles of International Charity begins:

International charitable work fills critical gaps in the global socioeconomic infrastructure. Governments alone cannot solve every social problem. Businesses alone cannot meet every economic need. Without international charity, more people in the world would die of hunger and disease, fewer children would learn to read and write, and more people would live in poverty. There would be more environmental destruction and fewer scientific advances. The participation of charitable organizations based in the United States is vital to maintaining a level of international charity sufficient to address some of the world's most critical needs. (1) A wide-variety of U.S. charitable organizations, including private foundations, public charities, corporate foundations, corporate grantmaking programs, donor advised funds, friends' organizations, churches, and religious organizations provide monetary or in-kind support abroad. (2) These resources fund and provide charitable services through medical care, food, agricultural training, disaster relief, shelter, education, clothing, water, professional exchanges, institutional reform, technical assistance, and support of human rights and civil liberties. (3) The role and influence of U.S. altruism is far-reaching and relied on by millions around the world. (4) Furthermore, the goodwill that U.S. altruism creates is an important byproduct of the global reach of U.S. charities, especially with the popularity and credibility of the U.S. government waning abroad. (5)

Despite the importance of and dependence on international grants from the United States and the increasing desire of U.S. individuals to support charitable programs worldwide, the U.S. Tax Code still limits charitable contribution deductions solely to domestic charities. (6) Domestic non-profit organizations use donated funds to provide grants or operate programs internationally. (7) Historically, Congress distinguished its tax treatment of international donations from domestic donations because grants abroad did not relieve the government of any burden to justify the loss of tax revenue. (8) This policy was articulated and adopted at a time when the United States displayed feelings of isolationism due to political instability around the world. (9) This distinction between domestic and international charitable contributions seems archaic as the growth of globalization in the marketplace and the prominence of international organizations reveals the interdependence of economic and political influences. (10) The International Monetary Fund, United Nations, World Bank, and other international organizations exemplify the global approach taken to economic, political, and humanitarian issues in each participating country. (11) Even President George W. Bush acknowledged the role of the United States in the field of international charity, calling for tsunami relief participation and appointing two former presidents to lead the private fund-raising effort. (12) In reality, this distinction of permitting a tax deduction only when international grants originate from domestic organizations is a beneficial policy as it augments the government's ability to monitor potential fund diversion to foreign terrorist organizations.

In addition to the Tax Code effectively limiting international grantmakers to reporting domestic charitable organizations, responses to the terrorist acts of September 11, 2001, have substantially increased the government's oversight capacity. (13) These executive, legislative, and administrative actions have impacted significantly the operation and participation of international grantmaking organizations. (14) Early allegations against the Afghan Support Committee, the Revival of Islamic Heritage Society, and the Holy Land Foundation indicated the potential for the diversion of charitable monies to terrorist organizations. (15) Consequently, the government enacted Executive Order 13224 and the USA Patriot Act to allow more stringent punishment and to increase the risk of civil liability associated with grant funds diverted to terrorist organizations, even without knowledge of such diversion. (16)

The Department of Treasury issued a release entitled "Anti-Terrorist Financing Guidelines: Voluntary Best Practices for U.S.-based Charities" in an effort to assist international grantmakers understanding of and compliance with the Executive Order and Patriot Act obligations. (17) Many grantmakers and operating foundations have criticized the "one-size fits all" approach of the Voluntary Financing Guidelines for failing

to account for current IRS due-diligence requirements or the history and experience a grantmaker has with a specific grantee. (18) The Guidelines are also unworkable in requiring information unavailable in the developing world or unattainable without subjecting grant recipients to significant safety risks. (19) Unfortunately, the increased risk of liability and criminal sanctions do not justify the due-diligence required. Effectively, the Guidelines have discouraged the provision of support in the areas of the world where it is needed most, as these are often the same places with the highest risk of fund diversion. (20) In particular, smaller grantmaking organizations are unable to afford the substantial increase in administrative costs associated with pre-grant inquiries and the oversight of international grants necessary to limit liability and prevent fund diversion. (21) Furthermore, the Guidelines fail to acknowledge non-legal monitors on charitable entity behavior, including the importance of reputation and maintenance of public confidence, as their survival depends on public and private funding. (22)

The Council on Foundations and the American Bar Association have endorsed a risk-based approach to address the difficulties arising from the new liabilities associated with international grantmaking. (23) This approach considers procedures many larger grantmakers already observe and outlines factors a grantor should consider to assess the likelihood of fund diversion and, consequently, to determine the level of oversight and due-diligence required to limit liability. (24) This solution, however, does not account for the fact that a higher risk assessment is likely on account of the same reasons heightened due diligence is difficult, if not impossible, to perform. (25)

This Note argues for a collaborative effort of information collection and sharing between government agencies tasked with identifying terrorist organizations and charitable organizations, of all sizes, with experience and information regarding specific grantees in certain regions and with procedures often already in place for monitoring international grants. U.S. humanitarian, educational, and economic efforts abroad are vital elements in the long-term struggle to eradicate terrorism. (26) The fight against terrorism would suffer if U.S. charitable...

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