Anti-Terrorist Financing Guidelines: Voluntary Best Practices for U.S.-Based Charities, 63838-63848 [06-8961]

Agencies

• DEPARTMENT OF THE TREASURY
• Department of Treasury

[Federal Register Volume 71, Number 210 (Tuesday, October 31, 2006)]
[Notices]
[Pages 63838-63848]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-8961]


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DEPARTMENT OF THE TREASURY


Anti-Terrorist Financing Guidelines: Voluntary Best Practices for 
U.S.-Based Charities

AGENCY: Office of Terrorism and Financial Crime, Treasury.

ACTION: Notice of updated guidelines.

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SUMMARY: The U.S. Department of Treasury (``Treasury'') is publishing 
an updated version of its Anti-Terrorist Financing Guidelines: 
Voluntary Best Practices for U.S.-Based Charities (``Guidelines'') 
along with a new Annex. The Guidelines were originally released in 
November 2002. A revised version of the Guidelines was published for 
public comment on December 5, 2005. Treasury received nine (9) comments 
on the revised Guidelines and, as explained below, made a number of 
additional revisions in response to those comments.

DATES: Effective Date: The updated Guidelines were published on 
Treasury's Web site on September 29, 2006.

FOR FURTHER INFORMATION CONTACT: Office of Terrorist Financing and 
Financial Crime, Department of the Treasury, Washington, DC 20220: 
(202) 622-3786 (not a toll-free call).

SUPPLEMENTARY INFORMATION: The Guidelines, the Response to Comments 
Submitted on the U.S. Department of the Treasury Anti-Terrorist 
Financing Guidelines: Voluntary Best Practices for U.S.-Based Charities 
(``Response''), and additional information concerning the protection of 
charities are available on the Treasury's Web site at https://
www.treas.gov/gov/offices/enforcement/key-issues/protecting/.
    The Response and Guidelines are reprinted below.

    Dated: October 16, 2006.
Patrick M. O'Brien,
Assistant Secretary of the Treasury.

Response to Comments Submitted on the U.S. Department of the Treasury 
Anti-Terrorist Financing Guidelines: Voluntary Best Practices for U.S.-
Based Charities

    In response to the threat of terrorist financing in the charitable 
sector and to assist charities in protecting themselves from such 
abuse, Treasury initially

[[Page 63839]]

released its Anti-Terrorist Financing Guidelines: Voluntary Best 
Practices for U.S.-Based Charities (Guidelines) in November 2002. After 
receiving numerous comments from the sector regarding these Guidelines, 
Treasury hosted an Initial Outreach Event in April 2004, at which time 
Secretary Snow committed that Treasury would continue to work with the 
sector to amend and revise the Guidelines to improve their utility for 
the sector in protecting against terrorist abuse. On December 5, 2005, 
after extensive discussions with other government authorities and the 
charitable sector, Treasury released a draft revised version of the 
Guidelines and invited public comment on the revisions.
    Treasury received a total of nine submissions during the comment 
period from a wide range of organizations. A number of organizations 
prefaced their comments with a general recommendation that Treasury 
withdraw the Guidelines based on their perception that the Guidelines 
are potentially harmful to the charitable sector given existing 
regulations governing the operations of charities. We do not believe 
that the voluntary adoption of the Guidelines--whereby charities with a 
higher risk of vulnerability to terrorist financing should consider 
adopting the best practices to better defend against that risk--would 
adversely affect the financial health, or obstruct the day-to-day 
operations, of the charitable sector.
    Treasury is uniquely positioned to provide recommended measures to 
the charitable sector that are particularly relevant for combating the 
ongoing and pervasive terrorist abuse and exploitation of charities. 
Such voluntary measures are intended to assist charities build upon 
pre-existing controls and protective measures by adopting and applying 
appropriate counter-terrorist financing safeguards. Treasury also 
believes the sector is better served through ongoing dialogue regarding 
the evolving nature of the terrorist threat, particularly with respect 
to the charitable sector, and effective voluntary protective measures 
that the sector can adopt to combat this threat.
    Treasury initially conceived the Guidelines as a direct response to 
requests from the sector for policies and practices to protect against 
potential terrorist abuse and assist in compliance with new terrorist 
financing authorities, including Executive Order 13224. The Guidelines 
not only provide such measures in the form of voluntary ``best 
practices,'' but their release initiated a strong and ongoing dialogue 
with the charitable sector. This dialogue has led to a greater 
awareness of the risks of terrorist abuse in the charitable sector, and 
as a result, charities have adopted more proactive approaches to 
protect their assets and the integrity of their operations. Treasury's 
engagement with the sector has also resulted in the evolution of the 
Guidelines into a more effective, relevant, and applicable resource for 
the sector. In addition, we encourage charities to consult other 
available publications or materials on good governance and sound 
charitable practices. We hope that the adoption of the policies and 
procedures contained in the Guidelines serve to strengthen donor 
confidence and contribute to the charitable sector's continued 
vitality.
    For the above reasons, Treasury has not withdrawn the Guidelines. 
Instead, after careful consideration of all comments and 
recommendations, Treasury has further amended the Guidelines to enhance 
their usefulness for the charitable sector in adopting practices that 
better protect it from the risks of terrorist abuse. The purpose of 
this document is to summarize the content of the comments received and 
describe our response, including any changes to the Guidelines and the 
reasoning supporting those changes. The summary of the comment 
submissions has been organized according to the layout of the 
Guidelines.

1. Title

    Comments: Many commenters indicated that part of the title of the 
Guidelines, ``Voluntary Best Practices,'' is a misrepresentation for 
two reasons. First, the commenters stressed that it is inaccurate to 
suggest that the Guidelines are a compilation of the charitable 
sector's best practices. Due to the diversity within the charitable 
sector, there is not a commonly agreed upon set of best practices that 
applies to all charities. Second, many commenters expressed the belief 
that the Guidelines are not voluntary. Their concern is based primarily 
upon the recent incorporation of the Guidelines into the memorandum 
accompanying the regulations for the 2006 Combined Federal Campaign 
(CFC), issued by the Office of Personnel Management (OPM). Moreover, 
concern exists that other federal agencies will adopt the 
recommendations included in the Guidelines as requirements, thus 
conferring upon the Guidelines de facto legal authority. A few 
commenters suggested that Treasury should change the title of the 
Guidelines to ``Suggestions for Complying with Anti-Terrorist Financing 
Laws.'' 
    Treasury Response: Although we acknowledge the concerns of the 
commenters, the title of the Guidelines remains unchanged, because it 
does not misrepresent the purpose and intent of the Guidelines. We 
believe the Guidelines represent sound best practices that help to 
prevent terrorist abuse of charitable organizations, and were, in fact, 
conceived after reviewing a wide spectrum of existing due diligence 
best practices employed by the sector. To address the concerns of the 
commenters, we have revised the Introduction to the Guidelines to state 
more clearly that these best practices are neither exhaustive nor 
comprehensive. Rather, the Guidelines represent one set of best 
practices specifically aimed at combating terrorist financing. Other 
best practices may exist that would be more suitable for combating 
other abuses that charities may face, but which may also be relevant or 
helpful in protecting charities from terrorist abuse. Nonetheless, the 
Guidelines contain many best practices that will help charities in 
adopting an appropriate risk-based approach to protect their assets and 
operations from terrorist financing abuse and facilitate their 
compliance with existing U.S. legal obligations, including the Office 
of Foreign Assets Control (OFAC) administered sanctions programs.
    Similarly, we disagree that the Guidelines may become de facto 
legal requirements. We have been clear both in the Introduction to the 
Guidelines, as well in our public discourse regarding the Guidelines, 
that they are voluntary and do not create, modify, or supersede any 
existing U.S. legal requirements. In addition to the title, their 
voluntary nature is reiterated throughout the text of the Guidelines. 
We have also amended Footnote 1 (formerly Footnote 3) to make clear 
that non-adherence to the Guidelines does not, in and of itself, 
constitute a violation of existing U.S. law. Moreover, the 
incorporation of the Guidelines into the CFC commentary does not 
indicate the evolution of the Guidelines from a voluntary undertaking 
to a legal requirement, but, in fact, speaks to their usefulness as 
practical advice to protect charities from abuse. The incorporation of 
the Guidelines by other federal agencies encourages consistency across 
the U.S. Government and signals the acceptance of the central tenet of 
the Guidelines--charities should apply a risk-based approach in 
adopting appropriate measures to protect themselves against the threat 
of terrorist abuse. For these reasons, we have not changed the title to 
the Guidelines.

[[Page 63840]]

2. Introduction

    Comments: Many commenters expressed concern that the introductory 
paragraphs broadly overstate the extent of diversion of charitable 
assets to terrorist organizations and their support networks. In 
particular, several comments singled out the following sentence: 
``Investigations have revealed terrorist abuse of charitable 
organizations, both in the United States and worldwide, often through 
the diversion of donations intended for humanitarian purposes but 
funneled instead to terrorists, their support networks, and their 
operations.'' The commenters recommended that Treasury include data and 
other information to support these statements.
    Treasury Response: We have taken this comment under advisement and 
have revised the sentence quoted above by including an Annex that 
describes and references the various indicators of terrorist financing 
in the charitable sector. There exists a large library of open source 
information describing the use of charities by terrorists and their 
supporters that is available to the public. Terrorist financing risk in 
the sector is evidenced by: (i) open source media reports; (ii) 
designations of charities; (iii) results of investigations and 
prosecutions of charities and individuals associated with charities; 
and (iv) international actions. The Annex also notes that much of the 
information evidencing the terrorist financing risk in the charitable 
sector is available on Treasury's Web site at https://www.treas.gov/
offices/enforcement/key-issues/protecting/index.shtml. 

3. Fundamental Principles

    Comments: Several commenters noted that the Guidelines do not 
include two principles from Principles of International Charity, which 
was developed by the Treasury Guidelines Working Group of Charitable 
Sector Organizations and Advisors and released in March 2005. The first 
principle asserts that charitable organizations are non-governmental 
entities and are not agents for enforcement of U.S. or foreign laws or 
their policies. The second principle states that each charity ``must 
safeguard its relationship with the communities it serves in order to 
deliver effective programs. This relationship is founded on local 
understanding and acceptance of the independence of the charitable 
organization.''
    Treasury Response: We agree with both of these principles. 
Therefore, we have revised the first principle in Fundamental 
Principles to state: ``Charities are independent entities and are not 
part of the U.S. Government. Like all U.S. persons, charitable 
organizations must comply with the laws of the United States, which 
include, but are not limited to, all OFAC administered sanctions 
programs.'' With this revision, we recognize the necessity of 
independence for charities to perform their work effectively. We also 
acknowledge that charities, by virtue of their separation from the 
government, are not agents for the enforcement of U.S. or foreign laws 
or their respective policies. Moreover, we do not believe that 
charities become agents of the government by virtue of their obligation 
to abide by U.S. law, or by applying any of the best practices within 
the Guidelines. Based on this revision, we do not think it is necessary 
to revise the Fundamental Principles further to include the second 
principle, because our revision captures the meaning, and is consistent 
with, the second principle. The recognition of the independence of 
charities ensures that the foundation forming a charity's relationship 
with the community it serves will not be shaken.

4. Governance, Financial Practice, and Disclosure/Transparency

    Comments: This section will group together comments falling under 
the sections for Governance, Financial Practice, and Disclosure/
Transparency in Governance and Finances, due to the interrelated nature 
of those comments. Several commenters suggested combining the Financial 
Practice section with the Disclosure/Transparency section into one 
section, entitled ``Accountability.'' The commenters felt that such a 
section, dealing only with financial practices, would be more 
applicable to Treasury's expertise.
    In the event that Treasury should choose to keep the practices 
pertaining to governance in the Guidelines, the commenters recommended 
the following specific changes:
     Section III.B: A few commenters noted the need for an 
appropriate exception to the suggestion that the governing board of a 
charity consist of at least three members. They explained that this 
provision does not take into account certain trusts, religious 
organizations, and corporation soles, which may not be able to have 
more than one member on the board.
     Section III.B.4: Many commenters expressed concern with 
the provision recommending that governing board records be immediately 
turned over to appropriate law enforcement authorities, stating that 
such a provision goes beyond federal and state disclosure laws and 
constitutional protections.
     Section V.B: Two commenters noted that the definition of 
``key employees'' expands on the definition contained in Form 990 from 
the Internal Revenue Service (IRS), and it could be interpreted to 
include people who exert influence over charitable activities, but who 
are not directly related to the charitable projects.
     Section V.A.3: One commenter remarked on the lack of a 
definition for subsidiaries or affiliates and cited the need for 
clarification.
     Section IV.C: One commenter stated that the provision in 
the Guidelines recommending independent audits for charitable 
organizations if the charity's annual gross income exceeds $250,000 is 
inconsistent with the auditing standards issued by OMB Circular A-133.
    Treasury Response: Based on the comments received, we extensively 
reorganized these three sections to clarify the objectives of each 
section:
     We changed the original section, ``Governance,'' to 
``Governance Accountability and Transparency.'' Within this section, we 
incorporated all provisions relating to governance from the original 
``Disclosure/Transparency'' section.
     We renamed the original ``Financial Practice/
Accountability'' section to ``Financial Accountability and 
Transparency'' and incorporated all provisions relating to financial 
practice from the original ``Disclosure/Transparency'' section.
     We revised the original ``Disclosure/Transparency'' 
section and renamed it ``Programmatic Verification,'' which conveys the 
purpose of its remaining provisions more clearly, and aligns more 
closely with existing international best practices for non-profit 
organizations. It also incorporates the provisions on how charities 
should best review the programmatic operations of their grantees, which 
were originally located in the final section on anti-terrorist 
financing best practices.
    We also considered the specific comments received on these three 
sections and made the following revisions (the section numbers 
correspond with the current sections in the Guidelines).
     Section III.B: We deleted the provision calling for a 
minimum of three members on the governing board of a charity. We agreed 
with the commenters that this provision did not adequately take into 
account the existence of certain types of organizations that would not 
be able to

[[Page 63841]]

meet this recommendation. Thus, we revised the section that originally 
discussed best practices for a charity's board of directors, renaming 
it, ``Independent Oversight.'' Within this section, we added a preamble 
conveying the importance of both independent oversight of charitable 
organizations and flexibility for an organization to choose the 
oversight structure that best fits its needs. We have also included the 
acknowledgement that independent oversight may be unfeasible for 
certain charitable organizations, such as houses of worship and 
corporation soles. The remaining provisions within this oversight 
section merely highlight certain basic principles that are hallmarks of 
good governance: (i) Independence of the governing board; (ii) 
development of conflict of interest policies and procedures; (iii) 
accountability of the governing board; and (iv) recordkeeping.
     Section III.B.2: We agreed with one commenter's concern 
about the confusion caused by a governance provision calling for the 
board to adopt, implement, and oversee practices consistent with the 
principles contained in the Guidelines. We understand that some may 
interpret the provision to mean that the best practices provided in the 
Guidelines are either mandatory or represent a comprehensive list of 
best practices to protect against terrorist financing in the charitable 
sector. As stated earlier, the Guidelines do not purport to be an 
exhaustive compilation of best practices, and are voluntary. Therefore, 
we have changed this provision to clarify that members of a charity's 
governing board are responsible for the oversight of practices that 
will effectively safeguard charitable assets.
     Section III.B.6: We have added a footnote (Footnote 6) 
defining subsidiaries and affiliates, as the terms are used in the 
Guidelines. The definition is similar to the one used by Form 990: 
``Subsidiaries or affiliates are organizations that are subject to the 
general supervision or control of a parent or central organization.''
     Section III.B.7: In response to some commenters' concern 
with the provision governing the disclosure of records, we revised the 
provision to state the following: ``When served with process or when 
other appropriate authorization exists, charities should produce 
requested records maintained in accordance with these Guidelines to the 
appropriate regulatory/supervisory and law enforcement authorities in a 
timely fashion.''
     Section III.C: We agreed with the commenters who noted the 
difference between the definition of key employees in the Guidelines 
and the definition used by the IRS. We amended the definition of key 
employees to mirror the definition used by the IRS in Form 990.
     Section IV.C: We disagree that the Guidelines are 
inconsistent with the audit standards set forth by OMB Circular A-133. 
First, OMB Circular A-133 only applies to audits performed on 
expenditures of federal grants or awards. While many charities may 
receive federal grants, the Guidelines are intended to provide best 
practices that charities may apply regardless of whether they receive 
federal funds or private donations. Second, while Circular A-133 sets 
standards among Federal and State governments regarding the audits of 
non-profit organizations expending federal awards, it does not preclude 
charities from having additional independent audits performed if they 
wish. Third, as stated in the eighth footnote of the Guidelines, the 
$250,000 threshold figure is drawn from the June 2005 final report to 
Congress of the Panel on the Nonprofit Sector, convened by Independent 
Sector, and is thereby consistent with industry's suggested threshold. 
Finally, the Guidelines are not obligatory, but voluntary steps that 
charities may choose to take as additional protective measures. Thus, 
the provision on financial audits remains unchanged in the Guidelines.

5. Anti-Terrorist Financing Best Practices

    Comments: The majority of the comment submissions expressed 
concerns with various provisions in this section. The following 
summarizes the specific comments:
     Section VI: One commenter noted the difficulty of 
assessing risk pursuant to the Guidelines' risk-based approach without 
any corresponding advice.
     Sections VI.A and B: Several comments focused on the 
amount of information-collection provisions, regarding them as onerous, 
unrealistic, and having limited value in protecting against terrorist 
financing.
     Sections VI.B.1 and 4: Many commenters objected to the 
inclusion of the publicly available information, including the 
Internet, as a means to vet grantees or employees. They argued that 
Internet searches would yield widely varying and unverified information 
about certain organizations or individuals.
     Section VI.B.3: A few commenters objected to the 
incorporation of other government lists of designated parties created 
pursuant to UNSCR 1373. They claimed that Treasury is inadvertently 
legitimizing these other lists by citing to them.
     Section VI.B.5: A few comments focused on the provision 
suggesting that charities request certifications from grantees with 
whom they contract or work. They suggested deleting the provision or at 
least revising the certification to adopt the approach of the 2006 CFC. 
This approach would involve a grantee certifying its compliance with 
U.S. law, as opposed to certifying that it has checked certain lists.
     Section VI.D: Some commenters recommended deleting the 
voluntary reporting provision in its entirety, arguing that it creates 
the impression that charitable organizations are agents of the U.S. 
Government.
     One commenter suggested the Guidelines should explicitly 
state that it is permissible for a charity to engage in normally 
prohibited transactions with a group, entity, or individual on the 
Specially Designated Nationals and Blocked Persons List (SDN List) if 
OFAC issues a license to charities for such transactions.
    Treasury Response: We have made the following revisions to the 
anti-terrorist financing best practices section based on the comments 
(the section numbers correspond with the current sections in the 
Guidelines):
     Section VI: In response to the comment requesting further 
assistance in assessing the risk of terrorist abuse or exploitation, 
Treasury continues to produce information and engage in outreach to 
assist charities in understanding the nature of ongoing terrorist 
abuse. Such materials and outreach are available on or through the 
Treasury Web site and are further described or referenced in the Annex 
to the Guidelines.
     Sections VI.A and B: We disagree with the comment that the 
information-collection procedures are burdensome and of little utility. 
We recognize that the information-collection practices are expansive 
and are purposefully designed so that a charity can gather as much 
information as possible to ensure the greatest transparency and 
accountability over charitable operations. This type of information-
gathering is essential for the charity to know its grantees and to be 
assured that its assets will not be diverted to terrorist organizations 
or their support networks. Moreover, the general risk-based approach 
governing the Guidelines affords charities the opportunity to tailor 
the scope of these information-collection procedures to the terrorist 
financing risk they face. A charity

[[Page 63842]]

should perform its own terrorist financing risk assessment based on its 
particular operations and projects. Depending on its particular risk 
profile, a charity should then choose appropriate protective measures 
that will adequately safeguard its assets from terrorist financing 
abuse and ensure their delivery to legitimate beneficiaries. As stated 
above, the best practices of the Guidelines are not a comprehensive or 
exhaustive listing of all best practices. Charities are free to apply 
other measures that they believe will protect their assets from 
diversion.
    In order to lessen any perceived administrative burden on 
charities, we have amended the Guidelines by replacing the word 
``recipient'' with ``grantee'' throughout the document and defining 
``grantee''. This revision is intended to clarify the information-
collection recommendations by explaining what charities should do for 
immediate grantees versus downstream grantees. ``Grantee'' is defined 
as an immediate grantee of charitable resources or services. To the 
extent reasonably practicable, charitable organizations should also 
apply or ensure the existence of applicable safeguards in any 
downstream sub-grantees or recipients to protect charitable resources 
from diversion. Finally, we caution charities against entering into a 
relationship with a grantee where any doubts exist about the grantee's 
ability to ensure safe delivery of charitable resources.
     Sections VI.B.1 and 5: We agree with commenters that the 
Internet often provides information that may be false or unverified. 
For this reason, we have removed the clause suggesting that charities 
look to the Internet for further information about potential grantees 
or employees. However, the Guidelines still encourage charities to 
employ all reasonably available means, including publicly available 
information, to determine the level of risk accompanying a particular 
charitable operation or when engaging in appropriate vetting 
procedures. List-checking alone does not guarantee the safe delivery of 
charitable assets to intended beneficiaries. Properly using publicly 
available resources, such as open source media reports or other federal 
agency lists and information, can provide a charity with adequate and 
comprehensive information from which to make informed decisions about 
the kinds of protective measures it should take.
     Section VI.B.4: We do not agree with commenters that 
Treasury is legitimizing the UNSCR 1373 lists adopted by other 
governments by merely providing information that such lists exist. The 
purpose of including information on UNSCR 1373 lists in the Guidelines 
is not to endorse such lists, but to provide charities with an 
understanding of the varying laws under which they may operate in other 
jurisdictions. However, in response to the objections raised in some 
comments and to clarify the purpose of the information, we have added 
the following sentence to Footnote 14: ``The Guidelines do not 
legitimize or endorse the UNSCR 1373 lists adopted by foreign 
jurisdictions.''
     Section VI.B.6: We agree with the importance of carrying a 
consistent message throughout the U.S. Government. For that reason, we 
have accepted the suggestion of one commenter to align the 
certification more closely with the one adopted in the 2006 CFC. The 
new provision also delineates different certifications for U.S. and 
foreign grantees. Instead of having grantees certify that they checked 
the SDN List, the new certification suggests that U.S. grantees certify 
that they are in compliance with all laws restricting U.S. persons from 
dealing with parties subject to OFAC sanctions. With regard to foreign 
grantees, they should certify that they do not deal with parties 
subject to OFAC sanctions or anyone else known to support terrorism.
     Section VI.D: We disagree with the notion that the 
voluntary reporting provision creates the impression that charities are 
agents of the U.S. Government. As with all parts of the Guidelines, 
this provision is voluntary and charities are not under any obligation 
to report any information. This provision is also consistent with U.S. 
guidance to other sectors regarding terrorist financing or other 
illicit finance risks. In addition, we have clearly acknowledged in the 
Fundamental Principles of the Guidelines that charitable organizations 
are independent entities and are not a part of the U.S. Government. The 
voluntary reporting measure explains what steps a charity may 
proactively take to assist in protecting itself from abuse by 
terrorists and their support networks. Since charities occasionally 
have direct access to evidence of terrorist activities in the course of 
their operations, voluntarily reporting such evidence provides the 
appropriate authorities with the opportunity to conduct further 
investigations, and helps reduce the threat that terrorist financing 
poses to the charitable sector. Thus, the provision is an important 
component of anti-terrorist financing best practices, and it remains in 
the Guidelines with only minor changes.
     While the comment regarding OFAC's licensing authority is 
accurate, we believe that the Guidelines make sufficient reference to 
this authority in Footnote 2 (formerly Footnote 8), which states: 
``OFAC can issue licenses to U.S. persons to engage in transactions 
that would otherwise be prohibited, if there is a policy-permissible 
reason to do so, and if permitted by statute.'' In addition, the 
footnote refers to further information, available on OFAC's Web site, 
regarding licensing procedures for non-profit organizations wishing to 
undertake humanitarian activities in sanctioned countries. To provide 
more information on licensing, we have added the link to OFAC's Web 
site, which has information about the types of available licenses and 
the process for requesting a license.
Conclusion
    As the Annex to the Guidelines illustrates, the risk of terrorist 
abuse of the charitable sector is both ongoing and significant. 
Recognition of this reality is the first step in finding ways to 
protect both donors and charities.
    Treasury is sensitive to the concerns raised by the charitable 
sector and appreciates the insightful comments submitted. The release 
of these revised Guidelines reflects a further positive development in 
the ongoing dialogue between the charitable sector and Treasury. 
Treasury believes that the Guidelines offer a framework of voluntary 
best practices that is attuned to the unique challenges and risks 
facing charities. These best practices provide the necessary framework 
to safeguard against terrorist abuse of the charitable sector by 
offering protective measures to help ensure that the vital services 
provided by charities are not exploited by terrorists or their 
organizations.
    Treasury remains deeply committed to working with the charitable 
community on future initiatives to combat terrorist abuses. While 
Treasury believes that the Guidelines represent a positive step in 
combating terrorist abuse of the charitable sector, the Guidelines also 
underscore the need for continued public outreach as a critical element 
of our comprehensive approach to combating terrorist abuse of the 
charitable sector.

[[Page 63843]]

U.S. Department of the Treasury Anti-Terrorist Financing Guidelines: 
Voluntary Best Practices for U.S.-Based Charities \1\
---------------------------------------------------------------------------

    \1\ This document is a revised version of the original Anti-
Terrorist Financing Guidelines: Voluntary Best Practices for U.S.-
Based Charities released by the U.S. Department of the Treasury in 
November 2002. This revised version incorporates comments received 
in response to the issuance of the draft revised Guidelines released 
for public comment in December 2005.
    These Guidelines are designed to assist charities that attempt 
in good faith to protect themselves from terrorist abuse and are not 
intended to address the problem of organizations that use the cover 
of charitable work, whether real or perceived, to provide support to 
terrorist groups or fronts operating on behalf of terrorist groups. 
Non-adherence to these Guidelines, in and of itself, does not 
constitute a violation of existing U.S. law. Conversely, adherence 
to these Guidelines does not excuse any person (individual or 
entity) from compliance with any local, state, or federal law or 
regulation, nor does it release any person from or constitute a 
legal defense against any civil or criminal liability for violating 
any such law or regulation. In particular, adherence to these 
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. Please see Footnote 12 
for an explanation of the master list of Specially Designated 
Nationals (the ``SDN List''), which includes all such designated 
persons. These Guidelines are also separate and apart from 
requirements that apply to charitable organizations under the 
Internal Revenue Code (``IRC'').
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Table of Contents

I. Introduction
II. Fundamental Principles of Good Charitable Practice
III. Governance Accountability and Transparency
IV. Financial Accountability and Transparency
V. Programmatic Verification
VI. Anti-Terrorist Financing Best Practices

I. Introduction

    Upon issuance of Executive Order 13224, President George W. Bush 
directed the U.S. Department of the Treasury (``Treasury'') to work 
with other elements of the federal government and the international 
community to develop a comprehensive and sustained campaign against the 
sources and conduits of terrorist financing. Investigations have 
revealed terrorist abuse of charitable organizations, both in the 
United States and worldwide, to raise and move funds, provide 
logistical support, encourage terrorist recruitment or otherwise 
cultivate support for terrorist organizations and operations. This 
abuse threatens to undermine donor confidence and jeopardizes the 
integrity of the charitable sector, whose services are indispensable to 
both national and world communities.
    In response to this threat, Treasury first released the Anti-
Terrorist Financing Guidelines: Voluntary Best Practices for U.S.-Based 
Charities (``Guidelines'') in November 2002. In December 2005, based on 
extensive review and comment by public and private sector interested 
parties, Treasury revised and released the Guidelines in draft form for 
further public comment. Based on the comments received, Treasury has 
further amended the Guidelines to improve their utility to the 
charitable sector in adopting practices that can better protect it from 
terrorists and their support networks.
    The Guidelines are designed to enhance awareness in the donor and 
charitable communities of the kinds of practices that charities may 
adopt to reduce the risk of terrorist financing or abuse. These 
Guidelines are voluntary and do not create, supersede, or modify 
current or future legal requirements applicable to U.S. persons, 
including U.S. non-profit institutions. Adherence to these guidelines 
does not constitute a legal defense against any civil or criminal 
liability for violating any local, state, or federal law or 
regulations. In addition, these Guidelines do not represent an 
exhaustive or comprehensive compilation of best practices. Many 
charities, through their extensive experience and expertise in 
delivering international aid, have already developed effective internal 
controls and practices that lessen the risk of terrorist financing or 
abuse. In view of this fact, Treasury does not want charities to 
abandon proven internal controls and practices. Rather, the Guidelines 
are intended to assist charities in developing, re-evaluating, or 
strengthening a risk-based approach to guard against the threat of 
diversion of charitable funds or exploitation of charitable activity by 
terrorist organizations and their support networks.
    In addition, these Guidelines are intended to assist charities in 
understanding and facilitating compliance with preexisting U.S. legal 
requirements related to combating terrorist financing, which include, 
but are not limited to, various sanctions programs administered by the 
Office of Foreign Assets Control (``OFAC''). These preexisting legal 
requirements are clearly marked in the text of the Guidelines.
    The risk-based nature of these Guidelines reflects Treasury's 
recognition that a ``one-size-fits-all'' approach is untenable and 
inappropriate due to the diversity of the charitable sector and its 
operations. Accordingly, certain aspects of the Guidelines will not be 
applicable to every charity, charitable activity, or circumstance. 
Moreover, Treasury acknowledges that certain exigent circumstances 
(such as catastrophic disasters) may make application of the Guidelines 
difficult. In such cases, charities should maintain a risk-based 
approach that includes all prudent and reasonable measures that are 
feasible under the circumstances. Charities and donors are encouraged 
to consult these Guidelines when considering protective measures to 
prevent infiltration, exploitation, or abuse by terrorists. Although 
adherence to these Guidelines does not guarantee protection from 
terrorist abuse, effective internal controls which incorporate the 
principles and practices set forth in these Guidelines can prevent the 
diversion of charitable resources from their proper uses, as well as 
identify situations involving terrorist financing or abuse.
    Treasury recognizes the vital importance of the charitable 
community in providing essential services around the world. Treasury 
also understands the difficulty of providing assistance to those in 
need, often in remote and inaccessible regions, and applauds the 
efforts of the charitable community to meet such needs. The goal of 
these Guidelines is to facilitate legitimate charitable efforts and 
protect the integrity of the charitable sector and good faith donors by 
offering the sector ways to prevent terrorist organizations from 
exploiting charitable activities for their own benefit.

II. Fundamental Principles of Good Charitable Practice

    A. Charities are independent entities and are not part of the U.S. 
Government. Like all U.S. persons, charitable organizations must comply 
with the laws of the United States, which include, but are not limited 
to, all OFAC-administered sanctions programs.\2\
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    \2\ OFAC sanctions programs include those relating to particular 
countries or regimes (country-based programs), as well as those 
relating to groups, individuals, or entities engaged in specific 
activities (list-based programs). Sanctions programs normally: (i) 
prohibit U.S. persons from engaging in certain transactions, such as 
trade in goods and services and financial transactions, and/or (ii) 
require U.S. persons to block the assets and property of persons 
designated under the relevant Executive order or law. The particular 
prohibitions and/or obligations of U.S. persons vary by program. 
OFAC can issue licenses to U.S. persons to engage in transactions 
that would otherwise be prohibited, if there is a policy-permissible 
reason to do so, and if permitted by statute. Further information on 
how to apply for specific licenses is available at https://
www.treas.gov/offices/enforcement/ofac/faq/index.shtml#license.
    For further information on OFAC-administered sanctions programs 
and general licensing under these programs, please see https://
www.treas.gov/offices/enforcement/ofac.
    OFAC guidelines for non-governmental organizations wishing to 
undertake humanitarian activities in sanctioned countries are 
available at https://www.treas.gov/offices/enforcement/ofac/
regulations/ngo_reg.pdf.
    Other helpful guidance materials for charities relating to 
protection from terrorist abuse may be found at https://
www.treas.gov/offices/enforcement/key-issues/protecting/index.shtml.
    The United States relies on a wide array of federal criminal 
statutes in fighting the threat of terrorist financing. Charities 
should be particularly aware that in its efforts against the 
financing of terrorism, the U.S. relies on, among others, the 
federal statutes that prohibit:
     the financing of terrorism (18 U.S.C. 2339C),
     providing material support or resources to terrorists 
(18 U.S.C. 2339A), and
     providing material support or resources to designated 
terrorist organizations (18 U.S.C. 2339B).
    In that effort, the U.S. also particularly relies upon the 
federal statutes which criminalize:
     the laundering of monetary instruments (18 U.S.C. 
1956), and
     engaging in monetary transactions in property derived 
from specified unlawful activity (18 U.S.C. 1957).

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[[Page 63844]]

    B. Charitable organizations are encouraged to adopt practices in 
addition to those required by law that provide additional assurances 
that all assets \3\ are used exclusively for charitable or other 
legitimate purposes.\4\
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    \3\ An asset is any item of value, including, but not limited 
to, services, resources, business, equitable holdings, real estate, 
stocks, bonds, mutual funds, currency, certificates of deposit, bank 
accounts, trust funds, and the property and investments placed 
therein.
    \4\ A charitable organization may never use charitable assets 
for illegal purposes; however, a charitable organization may accrue 
unrelated business taxable income in the course of legitimately 
doing business as a charitable organization. Even though an 
organization is recognized as tax exempt, it still may be liable for 
tax on its unrelated business taxable income.
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    C. Individuals acting in a fiduciary capacity for any charitable 
organization should exercise due care in the performance of their 
responsibilities, consistent with applicable common law as well as 
local, state, and federal statutes and regulations.
    D. Governance, fiscal and programmatic responsibility and 
accountability are essential components of charitable work and must be 
reflected at every level of a charitable organization and its 
operations.
III. Governance Accountability and Transparency
    A. Governing Instruments: Charitable organizations should operate 
in accordance with governing instruments, e.g., charter, articles of 
incorporation, bylaws, etc. The governing instruments should:
    1. Delineate the charity's basic goal(s) and purpose(s);
    2. Define the structure of the charity, including the composition 
of its governing body, how such body is selected and replaced, and the 
authority and responsibilities of the body;
    3. Set forth requirements concerning financial reporting, 
accountability, and practices for solicitation and distribution of 
funds; and
    4. State that the charity shall comply with all applicable local, 
state, and federal laws and regulations.
    B. Independent Oversight: It is important for charitable 
organizations to have independent oversight of charitable operations, 
and each charitable organization should determine what oversight 
structure best suits that organization and will provide for unbiased 
scrutiny of its operations. The following provisions set forth basic 
principles for the creation of a transparent and accountable oversight 
body (the ``governing board'').
    1. Members of the governing board ordinarily should not have an 
active role in the day-to-day management of the charitable 
organization.\5\
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    \5\ Certain charitable organizations, such as houses of worship, 
certain trusts, and corporations sole, may not be able to apply this 
practice due to their varying organizational and operational 
structures.
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    The charity should establish a conflict of interest policy for both 
members of the governing board and employees. That policy should 
establish procedures to be followed if a member of the governing board 
or employee has a conflict of interest or a perceived conflict of 
interest relating to the management or operations of the charity.
    2. The governing board should be responsible for the charitable 
organization's compliance with relevant laws, its finances and 
accounting practices and for the adoption, implementation, and 
oversight of practices, including financial recordkeeping that will 
safeguard charitable assets effectively.
    3. The governing board should maintain records of its decisions.
    4. Charities should maintain and make publicly available a current 
list of members of the governing board, their salaries and their 
affiliation with any subsidiary or affiliate of the charitable 
organization.
    5. While fully respecting individual privacy rights, charities 
should maintain records of additional identifying information about the 
members of the governing board, such as available home, email and URL 
addresses, social security number, citizenship, etc.
    6. While fully respecting individual privacy rights, charities 
should maintain records of identifying information for the members of 
the governing boards of any subsidiaries or affiliates \6\ receiving 
funds from them.
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    \6\ Subsidiaries or affiliates are organizations that are 
subject to the general supervision or control of a parent or central 
organization.
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    7. When served with process or when other appropriate authorization 
exists, charities should produce requested records maintained in 
accordance with these Guidelines to the appropriate regulatory/
supervisory and law enforcement authorities in a timely fashion.

C. Key Employees \7\
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    \7\ Key employees include not only highly compensated employees 
but employees who have responsibilities, powers, or influence 
similar to those of officials, directors, or trustees. Key employees 
also include chief management and administrative officials of a 
charitable organization, including those involved in the 
disbursement of funds.
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    1. 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.
    2. While fully respecting individual privacy rights, charities 
should maintain records containing identifying information (such as 
available home, email and URL addresses, social security or other 
identification number--e.g., taxpayer identification number, national 
identity, or passport number--citizenship, etc.) about their key, non-
U.S. employees working abroad. Such information should be similar to 
that maintained by charities in the normal course of operations about 
all U.S. employees, wherever employed, and foreign employees working in 
the United States.
    3. While fully respecting individual privacy rights, charities 
should maintain records containing identifying information for the key 
employees of any subsidiaries or affiliates receiving funds from them.

IV. Financial Accountability and Transparency

    A. The charity should have a budget, adopted in advance on an 
annual basis and approved and overseen by the governing board.
    B. The governing board should appoint one individual to serve as 
the financial/accounting officer who should be responsible for day-to-
day control over the charity's assets.

[[Page 63845]]

    C. If the charity's total annual gross income exceeds $250,000,\8\ 
the governing board should select an independent certified public 
accounting firm to audit the finances of the charity and to issue a 
publicly available, audited financial statement on an annual basis.
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    \8\ The $250,000 figure is drawn from the June 2005 final report 
to Congress of the Panel on the Nonprofit Sector, convened by 
Independent Sector. This report, which offers a comprehensive 
approach to improving oversight and governance of charitable 
organizations, recommends independent financial audits for charities 
that have more than $250,000 in total annual revenue. This report is 
available at https://www.nonprofitpanel.org/final/.
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D. Solicitations for Funds

    1. The charity should clearly state its goals for and purposes of 
soliciting funds so that anyone examining the charity's disbursement of 
funds can determine whether the charity is adhering to those goals.
    2. Solicitations for donations should accurately and transparently 
tell donors how and where their donations are going to be expended.
    3. The charity should substantiate on request that solicitations 
and informational materials, distributed by any means, are accurate, 
truthful, and not misleading, in whole or in part.
    4. The charity should fully, immediately, and publicly disclose if 
it makes a determination that circumstances justify applying funds for 
a charitable purpose different from the purpose for which such funds 
were contributed or solicited.

E. Receipt and Disbursement of Funds

    1. The charity should account for all funds received and disbursed 
in accordance with generally accepted accounting principles and the 
requirements of the Internal Revenue Code. The charity should maintain 
records of the salaries it pays and the expenses it incurs 
(domestically and internationally).
    2. The charity should include in its accounting of all charitable 
disbursements the name of each grantee,\9\ the amount disbursed, the 
date, and form of payment for each disbursement.
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    \9\ The term ``grantee,'' as it is used throughout these 
Guidelines, means an immediate grantee of charitable resources or 
services. To the extent reasonably practicable, charitable 
organizations should also apply or ensure the existence of 
applicable safeguards (as described in Sections III, IV, V, and VI) 
in any downstream sub-grantees or recipients to protect charitable 
resources from exploitation by terrorists, terrorist organizations, 
or terrorist supporters. Charities should not enter into a 
relationship with a grantee where any doubts exist about the 
grantee's ability to ensure safe delivery of charitable resources 
independent of influence by or association with any terrorist 
organization.
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    3. The charity, after recording, should promptly deposit all 
received funds into an account maintained by the charity at a financial 
institution. In particular, all currency donated should be promptly 
deposited into the charity's financial institution account.
    4. The charity should make disbursements by check or wire transfer 
rather than in currency whenever such financial arrangements are 
reasonably available. Where these financial services do not exist or 
other exigencies require making disbursements in currency (as in the 
case of humanitarian assistance provided in rural areas of many 
developing countries, or in remote areas afflicted by natural 
disasters), the charity should disburse the currency in the smallest 
increments sufficient to meet immediate and short-term needs or 
specific projects/initiatives rather than in large sums intended to 
cover needs over an extended time frame, and it should exercise 
oversight regarding the use of the currency for the intended charitable 
purposes, including keeping detailed internal records of such currency 
disbursements.

F. Mechanisms for Public Disclosure of Distribution of Resources and 
Services

    1. The charity should maintain and make publicly available a 
current list of any branches, subsidiaries, and/or affiliates that 
receive resources and/or services from the charity.
    2. The charity should make publicly available or provide to any 
member of the general public, upon request, an annual report. The 
annual report should describe the charity's purpose(s), programs, 
activities, tax exempt status, the structure and responsibility of the 
governing board of the charity, and financial information.
    3. The charity should make publicly available or provide to any 
member of the general public, upon request, complete annual financial 
statements, including a summary of the results of the charity's most 
recent audit. The financial statements should present the overall 
financial condition of the charity and its financial activities in 
accordance with generally accepted accounting principles and reporting 
practices.

V. Programmatic Verification

A. Supplying Resources

    When supplying charitable resources (monetary and in-kind 
contributions), fiscal responsibility on the part of a charity should 
include:
    1. Determining that the potential grantee of monetary or in-kind 
contributions has the ability to both accomplish the charitable purpose 
of the grant and protect the resources from diversion to non-charitable 
purposes or exploitation by terrorist organizations and/or their 
support networks;
    2. Reducing the terms of the grant to a written agreement signed by 
both the charity and the grantee;
    3. Ongoing monitoring of the grantee and the activities funded 
under the grant for the term of the grant; and
    4. Correcting any misuse of resources by the grantee and 
terminating the relationship should misuse continue.

B. Supplying Services

    When supplying charitable services, fiscal responsibility on the 
part of a charity should include:
    1. Appropriate measures to reduce the risk that its assets would be 
used for non-charitable purposes or exploitation by terrorist 
organizations and/or their support networks; and
    2. Sufficient auditing or accounting controls to trace services or 
commodities between delivery by the charity and/or service provider and 
use by the grantee.

C. Programmatic Review

    The charity should review the programmatic and financial operations 
of each grantee as follows:
    1. The charity should require periodic reports from grantees on 
their operational activities and their use of the disbursed funds;
    2. The charity should require grantees to take reasonable steps to 
ensure that funds provided by the charity are neither distributed to 
terrorists or their support networks nor used for activities that 
support terrorism or terrorist organizations. Periodically, a grantee 
should apprise the charity of the steps it has taken to meet this goal; 
and
    3. The charity should perform routine, on-site audits of grantees 
to the extent reasonable--consistent with the size of the disbursement, 
the cost of the audit, and the risks of diversion or abuse of 
charitable resources--to ensure that the grantee has taken adequate 
measures to protect its charitable resources from diversion to, or 
abuse or influence by, terrorists or their support networks.

VI. Anti-Terrorist Financing Best Practices

    Charities should consider taking the following steps before 
distributing any charitable funds (and in-kind contributions). As 
explained in Section I, these suggested steps are voluntary. The 
purpose of these steps is to enable charities to better protect 
themselves from the risk of terrorist abuse and to

[[Page 63846]]

facilitate compliance with U.S. laws, statutes, and regulations, with 
which all U.S. persons, including U.S. charities, must comply. 
Depending upon the risk profile of an individual charitable 
organization, adopting all of these steps may not be applicable or 
appropriate. When taking these steps, charities should apply a risk-
based approach, particularly with respect to engagement with foreign 
grantees due to the increased risks associated with overseas charitable 
activity.
    A. The charity should collect the following basic information about 
grantees:
    1. The grantee's name in English, in the language of origin, and 
any acronym or other names used to identify the grantee; \10\
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    \10\ Charities should also be mindful of the possibility that a 
grantee may have changed its name or transformed its organizational 
structure to avoid being associated with prior questionable 
activity. If a charity has any reason to believe that the grantee is 
operating under a different identity or has used a different name in 
the past, the charity should undertake reasonable efforts to uncover 
any such prior identity or name.
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    2. The jurisdictions in which a grantee maintains a physical 
presence;
    3. Any reasonably available historical information about the 
grantee that assures the charity of the grantee's identity and 
integrity, including: (i) the jurisdiction in which a grantee 
organization is incorporated or formed; (ii) copies of incorporating or 
other governing instruments; (iii) information on the individuals who 
formed and operate the organization; and (iv) information relating to 
the grantee's operating history;
    4. The available postal, e-mail and URL addresses and phone number 
of each place of business of a grantee;
    5. A statement of the principal purpose of the grantee, including a 
detailed report of the grantee's projects and goals;
    6. The names and available postal, e-mail and URL addresses of 
individuals, entities, or organizations to which the grantee currently 
provides or proposes to provide funding, services, or material support, 
to the extent reasonably discoverable;
    7. The names and available postal, e-mail and URL addresses of any 
subcontracting organizations utilized by the grantee;
    8. Copies of any public filings or releases made by the grantee, 
including the most recent official registry documents, annual reports, 
and annual filings with the pertinent government, as applicable; and
    9. The grantee's sources of income, such as official grants, 
private endowments, and commercial activities.
    B. The charity should conduct basic vetting of grantees as follows:
    1. The charity should conduct a reasonable search of publicly 
available information to determine whether the grantee is suspected of 
activity relating to terrorism, including terrorist financing or other 
support. Charities should not enter into a relationship with a grantee 
where any terrorist-related suspicions exist; \11\
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    \11\ List-checking alone (as described throughout this section) 
does not guarantee the safe and secure delivery of charitable funds 
and services in high-risk areas. For this reason, the Guidelines 
encourage charities to employ all reasonably available resources 
both when determining the level of risk in a particular charitable 
operation and when engaging in appropriate vetting procedures. One 
example of publicly available information of which charities should 
be aware is the Terrorist Exclusion List (the ``TEL''). The TEL was 
created pursuant to the USA PATRIOT Act, which authorizes the 
Secretary of State to designate organizations or groups for 
inclusion on the TEL in consultation with or upon the request of the 
Attorney General. Inclusion on the TEL allows the U.S. Government to 
exclude or deport aliens who provide material assistance to, or 
solicit assistance for, designated TEL organizations. Although many 
of the organizations included on the TEL are also included on the 
Office of Foreign Assets Control (``OFAC'') SDN List, several TEL 
organizations are not listed on the SDN List because of the 
different purposes and legal criteria associated with these lists.
    TEL designations do not trigger any legal obligations for U.S. 
persons; however, the TEL does provide charities with additional 
terrorist-related information that may assist charities in making 
well-informed decisions on how best to protect themselves from 
terrorist abuse or association. For further information regarding 
the TEL, including access to the list containing all TEL designees, 
please refer to the U.S. Department of State's Web site at https://
www.state.gov/s/ct/rls/fs/2004/32678.htm.
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    2. The charity should assure itself that grantees do not appear on 
OFAC's master list of Specially Designated Nationals (the ``SDN 
List''), maintained on OFAC's Web site at https://www.treas.gov/offices/
enforcement/ofac/sdn/,\12\ and are not otherwise subject to OFAC 
sanctions.\13\
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    \12\ The master SDN List is an integrated listing of designated 
parties with whom U.S. persons are prohibited from providing 
services or conducting transactions and whose assets are blocked. 
OFAC's designations are available in a variety of formats and can 
easily be broken down into subsets of the master list by program, by 
country of residency, individuals vs. entities, and other variations 
for appropriate use in a charity's risk-based approach. Each charity 
should determine which OFAC listings align with the specific risks 
the charity faces in its operations and should check grantees 
accordingly.
    OFAC routinely updates information on its targets, including 
persons designated under country-based and list-based economic 
sanctions programs, such as individuals and entities designated 
under the various Executive orders and statutes aimed at terrorism. 
OFAC offers a free email subscription service that enables 
subscribers to keep current with these updates. With respect to 
terrorism-related OFAC sanctions programs, SDN listings include 
persons designated under Executive Order 13224, Executive Order 
12947, or the Antiterrorism and Effective Death Penalty Act of 1996, 
as amended; such persons are called ``Specially Designated Global 
Terrorists'' or ``SDGTs'', ``Specially Designated Terrorists'' or 
``SDTs'', or ``Foreign Terrorist Organizations'' or ``FTOs'', 
respectively. SDN listings also include parties subject to OFAC 
sanctions pursuant to other list-based programs (such as counter-WMD 
proliferation and counter-narcotics) and co