Regulation of the Voluntary Sector

Freedom and Security in an Era of Uncertainty

Mark Sidel

• Publisher: Routledge-Cavendish
• Year: 2009
• ISBN:
  9781134096701
• Edition: 1
• Topic: Law
• Subtopic: Law Theory & Practice
• Index: Law

Have we gone too far in enacting laws, promulgating regulations and announcing policies that threaten freedom of association, either now or 'in waiting' for the future?

Regulation of the Voluntary Sector focuses on the legal and political environment for civil society in an era in which counter-terrorism policy and law have challenged civil society and civil liberties in a number of countries. The ways in which counter-terrorism law and policy affect civil society can and do differ dramatically by country and region. Through the lens of developments since September 11th, Mark Sidel provides the first comparative analysis of state responses to voluntary sector activity. Comparing the situations in the UK and the US, as well as in Australia, Canada, India and within the European Union, he surveys the increasing efforts to delimit and restrict voluntary sector activities – such as fundraising and grant-making – as well as opposition to them.

Chapter 1
The United States

As the leading country in the ‘war on terror’, it is not surprising that counter-terrorism law and policy have provoked significant anxiety about the enabling legal, political, and policy environment for civil society in the United States. The impact of counter-terrorism policy and law on civil society in the United States has been both real and perceived, and it has spread across the full range of government action. This chapter discusses the most important ways in which counter-terrorism law and policy have affected the enabling environment for civil society in the United States, as well as the responses by American charities, foundations, and other nonprofits in the United States to US counter-terrorism policies and statutes since September 2001.¹

These responses have taken many forms, some overlapping across nonprofit sub-sectors and some specific to particular parts of the nonprofit community or even a few institutions. Responses differ at times by public charities and foundations, for example, although at other times they have been allied in response to government initiatives such as the ‘voluntary guidelines’ on overseas giving. One particular subset of affected institutions, indicted Muslim charities, has had a more severe set of challenges and thus a differing set of responses. In the broadest sense, the American nonprofit sector has sought to maintain the autonomy and vibrancy of the sector and of individual organizations while agreeing to and acceding in the government’s interest in preventing nonprofit organizations from being conduits in terrorist finance or otherwise supporting terrorist organizations or goals.

The framework of counter-terrorism law and policy and its impact on civil society in the United States

In the United States, enhanced regulation of charitable ties to terrorism (usually reflecting concerns about terrorist financing) goes back to the 1993 bombing of the World Trade Center, including legal provisions that allow proscription of terrorist organizations and that bar ‘material support’ to terrorist organizations. These provisions have been the subject of extensive litigation in the United States and have generally been upheld.

By the time of the September 2001 attacks, a fairly comprehensive legal framework for investigating and prosecuting charitable links to terrorism was in place. In particular, the Antiterrorism and Effective Death Penalty Act, adopted in 1996, criminalized ‘material support’ for terrorist organizations through charitable and other vehicles. The International Emergency Economic Powers Act (IEEPA), originally enacted in 1977, also prohibits transactions that the US executive branch has determined to be inimical to the national security of the United States, including terrorist financing through charities.

These pre-2001 statutes were supplemented almost immediately after September 11 by Executive Order 13224 (October 2001), which eased the process of proscription and freezing of terrorist assets, and by several provisions of the Patriot Act (November 2001), which were made applicable to the charitable sector. Among its provisions, the Patriot Act expanded the ability of the government to seize assets of ‘persons engaged in planning or perpetrating … terrorism’, ‘acquired or maintained’ for that purpose, or ‘derived from [or] involved in terrorism’. The Patriot Act also expanded the ‘material support’ prohibition to further bar ‘expert advice or assistance’ to terrorist organizations, a bar that has been applied to charitable organizations and has been the subject of extensive litigation. Such provisions are of course applicable to charitable and nonprofit institutions as well as a much broader range of individuals and organizations (Sidel 2004, 2007).

Initial prosecutions, organizational defiance, and sectoral disengagement

The government’s first moves in this area were against several Muslim charities, initially the Benevolence International Foundation, Global Relief Foundation, and the Holy Land Foundation for Relief and Development, and later others. Each was closed and its assets frozen in late 2001 and thereafter, on charges of violating the prohibition against providing ‘material support and resources’ to a foreign terrorist organization, as well as violations of the IEEPA, money laundering, tax evasion, and other charges. Other organizations were added to the proscription list and their assets frozen in the years that followed.

The government’s offensive against several Muslim charities was pursued with a vigor that convinced many in the American nonprofit sector that the government’s actions were based on solid evidence. But in the heat of the environment after the horrendous and murderous attacks of September 2001, the remainder of the American nonprofit sector – with virtually no exceptions – did not criticize the breadth of government tactics in the investigation and closure of Muslim charities that admittedly distributed funds in the Muslim world and in some cases to terrorist organizations and the families of suicide bombers (Sidel 2004, 2007).

Some, however, criticized the breadth and potential implications of government’s approach. Key Muslim community organizations warned that the government’s actions contributed to an anti-Muslim backlash. But outside the Muslim community, there were few dissenting voices. One of the few was the director of an umbrella association of nonprofits in Ohio, in the American industrial Midwest. This nonprofit leader stepped forward in 2002 to warn of the ‘implications of the unprecedented effort by federal agencies, working in concert, to shut down significant charities, seize their records and assets, and force the organizations to suspend operations until their innocence can be proven’ (Moyers 2002).

But those voices were solitary ones in the sector. Most of the nonprofit sector in the United States hoped for a kind of unspoken bargain with the government: government criminal enforcement would be limited to Muslim charities that had funneled donations to some combination of terrorist and charitable activities abroad, and those organizations would be considered guilty until proven innocent. Meanwhile, in the other side of this unspoken bargain, the rest of the American nonprofit sector seemed to hope that the broader sector would remain unaffected, undisturbed by the investigations, indictments, and broad statements about a group of registered Muslim charities, and that the new Patriot Act would not be applied vigorously against the nonprofit sector beyond a handful of Muslim charities.

The director of the Ohio nonprofit association challenged that unspoken bargain. ‘Will any organization be subject to the same treatment if the government claims links to terrorism? How broadly will terrorism be defined. … ? What about eco-terrorism, or domestic disruptions such as the protests organized against global trade and financial institutions? If a major U.S. philanthropic institution is discovered to have made a grant to an organization that the government claims is linked to terrorism, will it be subject to the same “seize and shut-down” treatment?’ (Moyers 2002). Thus, at this first stage of prosecution of Muslim charities on ‘material support’ and other grounds, the response from the affected charities was defiance in an atmosphere in which the government was clearly the stronger actor, and, for the most part, disengagement from the remainder of the nonprofit community.

Broadening sectoral opposition and self-regulation as a response to broadening government policy against the nonprofit sector

In late 2002, however, the US administration took a broader action that more deeply concerned a wider range of the American philanthropic and nonprofit sector. That step was the release of the Anti-Terrorist Financing Guidelines: Voluntary Best Practices for US-based Charities, by the US Treasury Department in late 2002. The Guidelines provided a broad and detailed range of new provisions for charitable and philanthropic organizations to use in their overseas giving, intended to prevent the channeling or diversion of American funds to terrorist organizations or purposes. These steps included the collection of considerably more information about grantees than is often available, the vetting of grantees, extensive donor review of financial operations beyond industry norms, and other requirements in quite detailed terms (US Treasury Department 2002).

In the words of Barnett Baron, Executive Vice President of the Asia Foundation, the 2002 Treasury Guidelines carried the danger of ‘setting potentially unachievable due diligence requirements for international grant-making, [and] subjecting international grant-makers to high but largely undefined levels of legal risk, [which] could have the effect of reducing the already low level of legitimate international grant making’ (Baron 2004). And the Guidelines carried the risk that legitimate and well-meaning charities would struggle to comply with standards while less professional or less well-meaning groups might just ignore them.

When threatened by government action that many prominent public charities active in overseas aid and foundations considered overbroad, vague, and impossible to implement effectively, a significant portion of the American philanthropic and nonprofit community providing aid and support overseas began to complain about the breadth of the government’s so-called ‘voluntary’ prescriptions, and banded together in opposition. A band of major charities and foundations, angered and anxious at the sweep of Treasury’s new guidelines and fearful that ‘voluntary best practices’ would be treated as law even though they had not been adopted by Congress or formally adopted by a government agency, sought to engage the US Treasury in discussions on the Anti-Terrorist Financing Guidelines. When they did not receive satisfactory responses in those sporadic conversations, and after a lengthy process among themselves, these foundations and charities active overseas also proposed a new approach that sought to employ the power of alliance and opposition to strengthen self-regulation as a means of forestalling government action: what they called the Principles of International Charity.

They prefaced their new Principles by noting that:

… after consideration of both the effectiveness of existing procedures and the implications of strict compliance with the [Anti-Terrorist Financing] Guidelines, charitable organizations concluded that that Guidelines are impractical given the realities of international charitable work and unlikely to achieve their goal of reducing the flow of funds to terrorist organizations, but very likely to discourage international charitable activities by U.S. organizations.

(Treasury Guidelines Working Group 2005)

The nonprofits asked the government to withdraw the onerous and ineffective Treasury Department Guidelines and to substitute the new Principles of International Charity drawn up by the nonprofit and philanthropic sector.

Those Principles of International Charity emphasized that charitable organizations and foundations ought to comply with American law, but also that they are not agents of the US government. They stressed that charities are responsible for ensuring, to the best of their ability, that charitable funds do not go toward terrorist organizations, and that there are key baseline steps that can be taken to help in reaching that goal – but also that there are a diverse range of ways to accomplish that goal, and that different methods of safeguarding and protection will work for different kinds of organizations with different types of risk. The organizations concluded:

… each charitable organization 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. If this foundation is shaken, the organization’s ability to be of assistance and the safety of those delivering assistance is at serious risk.

(Treasury Guidelines Working Group 2005)

In response to the charitable and philanthropic sector’s concern, and because of the unworkability of the earlier, hastily drafted Guidelines, the Treasury revised its Guidelines on overseas giving in December 2005. The ‘revised’ Anti-Terrorist Financing Guidelines: Voluntary Best Practices for US-Based Charities did make some improvements, particularly in reducing some of the onerous and unworkable due diligence burdens on American organizations providing charitable funds overseas (US Treasury Department 2005).

But three basic issues remained that were of continuing and deep concern to the nonprofit sector. In the words of the concerned charities and foundations, ‘the revised Guidelines contain provisions that [continue to] suggest that charitable organizations are agents of the government’. Such an assumption could lead both to declining effectiveness and to severe harm to American aid personnel working overseas. Second, the revised Guidelines seem to require nonprofits funding overseas to collect even more data than the original 2002 Guidelines required. And third, the nonprofit community remained deeply concerned that these so-called ‘voluntary best practices’ were in fact stealth law, adopted without consideration by Congress or formal rulemaking by an agency. In the words of the charities and foundation Wo...

Table of contents

• Critical Approaches to Law
• Contents
• Acknowledgements
• Introduction
• Chapter 1 The United States
• Chapter 2 The United Kingdom
• Chapter 3 Canada
• Chapter 4 India
• Chapter 5 Multilateral responses, counter-terrorism, and civil society: The United Nations and the European Union
• Chapter 6 Initiatives in response to the pressure of counter-terrorism policy: The Montreux Initiative, Humanitarian Forum, and other steps
• Conclusion
• Bibliography
• Index