Charities and Terrorist Financing
Romaniuk, Peter, Haber, Jeffry, The CPA Journal
What CPAs Need to Know
During the summer of 2007, two trials under anti-terrorist financing laws-both involving charities-made headlines. In Florida, of three men found guilty of conspiracy to commit terrorism and of offering material support to terrorists, one ran the American Worldwide Relief Organization, which is reported to have funneled support to Chechen rebels in the 1990s. In Texas, the Holy Land Foundation (HLF) and several of its officers were accused of providing material support to a designated Foreign Terrorist Organization. Though the case ended in a mistrial, the Foundation was shut down. These cases serve to illustrate the role that charities may play in funding political violence and the determination of federal authorities to crack down on terrorist financing.
CPAs who work in the nonprofit and private foundation sectors should be aware of the federal anti-terrorist financing rules. Accountants are well positioned to provide advice regarding compliance in this area They have access and exposure to critical and sensitive information-for example, regarding grantees and financial transactions-that is useful in spotting and identifying terrorist financing issues. Compliance requires awareness of the relevant rules and regulations as well as how the laws and rules apply to specific activities.
To be clear, the authors do not wish to contribute to the perception that CPAs are in the "front line" of the war on terrorist financing (although it is the case that CPAs abroad are increasingly expected to undertake regulatory tasks previously reserved for banks, such as reporting suspicious activity). Rather, they seek to raise consciousness about relevant developments, as prudence demands.
One further caveat: The description of laws and regulations provided herein should not be interpreted to mean that CPAs should approach individuals with suspicion. Far from it. Charities provide valuable services to needy populations in the U.S. and abroad. While cases involving the misuse of charities for terrorism purposes have come to light, they contrast sharply with the vast legitimate majority of charitable activity. Moreover, the nonprofit sector has taken proactive measures in the past several years to ensure that the donating public maintains trust in the operations of charities, providing significant input into the federal government guidelines discussed below. In this regard, CPAs can contribute to the ongoing vitality and integrity of this critical sector of the economy.
Terrorist Financing: The Basics
Terrorist groups incur both organizational and operational costs. Evidence indicates that terrorists use diverse methods-bom licit and illicit-to raise and move funds. The misuse of charities represents one illicit method. By presenting themselves as charities, terrorists can exploit unwitting donors and provide a cover for the disbursement of funds. In recognition of these vulnerabilities, the oversight of charities has attracted increased attention among governments and international organizations in recent years.
Under U.S. law, it is an offense to provide or collect funds for acts of terrorism (18 USC section 2339C), to provide material support to terrorists (18 USC section 2339A), or to provide material support to designated terrorist organizations (18 USC section 2339B). The U.S. has a range of legislative and executive authorities under which individual terrorists, entities linked to terrorism, and terrorist organizations can be designated. The consolidated list-the specially designated nationals (SDN) list-is maintained by the U.S. Treasury's Office of Foreign Asset Control (OFAC), which also has responsibility for administering sanctions programs not related to terrorism. The list is available from OFACs website at www.treas.gov/offices/enforcement/ofac/sdn/index.shtml. The SDN list is a critical reference point for charities (in their dealings with grantees) and dieir accountants and auditors. …