After summarizing current law on how U.S. charities may be shut down for supporting terrorism and citing problems with the lack of due process for charities to defend themselves, this article presents the rationale for a new approach and specific reforms that can bring the system into compliance with constitutional standards.

Summary of Current Law

To designate an organization, the United States government (USG) only needs to have a “reasonable suspicion” that it is providing “financial, material, or technological support for, or financial or other services to” a designated terrorist organization or “otherwise associate[ing]” with a designated organization. [1] Consequences of designation include the seizing and freezing of all tangible and financial assets and significant civil and criminal penalties. Designated organizations may be Foreign Terrorist Organizations (FTO) listed by the Secretary of State or Specially Designated Global Terrorists (SDGT) listed by the Department of Treasury.

In October 2001 the Patriot Act expanded IEEPA by allowing sanctions pending an investigation, so that “all the blocking effects of a designation, including freezing an organization’s assets indefinitely and criminalizing all its transactions, without designating it as a SDGT. [2] The Treasury only needs to assert that it is investigating whether the entity should be designated.” It also allows the court to review classified information in the agency record without notice to or knowledge of the blocked organization.

On June 6, 2003 Treasury issued regulations at 31 CFR 501.807 that “permits designated entities to seek administrative reconsideration by USG after they have been designated and had their property frozen.” However, this procedure is inadequate. For example, groups do not have to be notified in advance that they are under investigation, before their assets are frozen. This limits their ability to respond in their own defense and effectively imposing a severe penalty before any finding of fact is made. Once a group is listed Treasury’s enforcement office needs only to provide the entity with notice of the unclassified administrative record and an opportunity to provide responsive evidence in writing. Classified evidence does not have to be shared, meaning that determinations may be made on hearsay and coerced testimony, and nonprofits are not entitled to cross examine witnesses or present witnesses of their own. In short, once designated, getting off the list is nearly impossible. Charities also cannot present evidence in an appeal to the federal courts.

Before an attorney can represent a designated organization, he or she must get a license from Treasury. [3] Representing a designated organization without a Treasury license is considered “material support” to a designated organization and is illegal. In addition, if an organization wishes to pay its legal fees with assets frozen and seized by Treasury’s Office of Foreign Assets Control (OFAC), typically the only funding available, it must ask for a separate Treasury license. [4] 

Problems with Current Law

The lack of meaningful recourse for nonprofits raises substantial constitutional and human rights problems. OFAC functions as prosecutor, judge, jury and executioner. Combined with a lack of transparency, this wide discretion opens the door to mistake and abuse. The lack of fundamental fairness also undermines public confidence in the USG’s enforcement efforts.

This legal regime is now subject to reconsideration, as two federal courts have held it to be unconstitutional as applied to two U.S. charities. On Nov. 7 Judge Garr King of the United States District Court in Oregon ruled that the Department of Treasury’s action in shutting down Al Haramain Islamic Foundation, Inc. in 2004 violated basic due process rights. The judge also ruled that the definition of “material support” of terrorists is unconstitutionally vague. [5] On Aug. 18, 2009, a federal judge ruled the USG’s seizure of KindHearts for Humanitarian Charitable Development’s assets without notice or means of appeal is a violation of the Fourth and Fifth Amendments. [6]

Rationale for Proposed Solution

The procedures outlined below are specially designed to address the unique circumstances presented when national security laws are applied to the operations of charitable and philanthropic organizations. Because the mission of such organizations serves the public interest and addresses fundamental human needs, USG enforcement policy in this context should address national security issues, be consistent with international human rights standards and protect the ongoing operation of legitimate charitable work.

The proposed procedures provide general standards for adequate notice, legal representation and handling of secret evidence. The Classified Information Procedures Act informs the evidence procedures and the Civil Asset Forfeiture Reform Act generally guides the formal due process procedures. In addition, the emphasis on compliance and cooperation between nonprofits and the USG is reflected in an initial investigation and compliance phase, similar to that used to enforce white collar criminal laws.

The proposal does not specify which agency of the U.S. government should be responsible for enforcement of security laws in the context of nonprofit programs. Because OFAC has structural, jurisdictional and resource limitations, and no mandate to take human rights obligations into consideration, it should not be presumed that it is the best agency in this context.  In addition, the proposal suggests use of an Ombudsman to review listing decisions, mirroring a process supported by the USG in UN Resolution 1904, approved in December 2009.

Fair Procedures for Listing and Delisting
When the USG determines there may cause to believe a nonprofit may be supporting a listed SDGT/FTO, the following procedures should apply:

1. Notice and early stage of administrative action

When the USG determines enforcement action may be necessary, it should notify the nonprofit in writing delivered in person to the chief executive officer or chair of the governing body. The notice should:

a. Contain allegations of sufficient specificity to inform the nonprofit of the issues and USG concerns so that it can prepare a response;

b. Set a date for a status conference between the nonprofit and the USG to determine next steps to be held no more than 60 days from the date of the notice.

c. Unless the USG obtains a court order appointing a receiver to assume control of the nonprofit’s funds in order to prevent their transfer out of U.S. jurisdiction, it should allow the nonprofit 30 days to respond, including obtaining counsel, before any adverse action is taken.

d. This notice requirement should apply to any subsequent allegations made by the USG.

2. Legal representation

It should not be necessary for a nonprofit receiving notice from the USG to obtain a license from Treasury to retain counsel or communicate with persons in possession of information necessary to formulate a response to the USG’s specific allegations.

3. Classified evidence

If classified information serves as a basis for government action against the nonprofit, the following provisions apply:

a. NOTICE – Within 10 days of any government action against a nonprofit the USG should provide the nonprofit with fair notice of the classified information at issue.

b. OPTIONS FOR NONPROFIT VIEWING AND USE OF CLASSIFIED INFORMATION: Upon receipt of notice from the USG that classified information is at issue in the investigation, the nonprofit may opt to follow one of the following procedures:

i. ATTORNEY WITH SECURITY CLEARANCE: The nonprofit may request that in lieu of its access to the classified information, the USG allow its attorney, with the appropriate security clearance, to access the classified information. Such counsel will participate in the review of classified information to determine disclosure issues.

• If the nonprofit hires an attorney with security clearance to access to classified information, the attorney may share specified documents with the client upon a particularized showing of the need to share documents with a client. The USG should consider whether specified documents are essential for client review, and, in such cases, consider declassification of the documents or find a substitute means to allow the nonprofit to review the essential information.

ii. SUBSTITUTION OF CLASSIFIED INFORMATION: In lieu of an attorney with security clearance viewing classified evidence, the nonprofit may request:

• the substitution for such classified information of a statement admitting relevant facts that the specific classified information would tend to prove; or

• the substitution for such classified information of a summary of the specific classified information. The summary must be sufficiently detailed to allow the nonprofit to put forth a meaningful legal response. [7]

c. ORGANIZATIONS’ OWN DOCUMENTS NOT CONSIDERED CLASSIFIED: Documents created by the nonprofit or obtained from the nonprofit’s records should be accessible to it.

d. RIGHT TO EXCULPATORY INFORMATION: Whenever the USG determines that classified information may be disclosed in connection with government action, it should provide the nonprofit with the information in its possession that can be used to rebut the classified information. The USG should be under a continuing duty to disclose such rebuttal information.

e. ANONYMOUS WITNESSES: The USG should corroborate any evidence provided by anonymous witnesses before it may base adverse action on such evidence.

f. RELIEF FOR NONPROFIT WHEN USG OPPOSES DISCLOSURE: If the USG declines to disclose information under the process outlined above, after an investigation or adverse government action is initiated and after notice of that classified information is at issue, the nonprofit may petition the federal district court within 45 days for an order under the Classified Information Procedures Act allowing it access to the information.

• The United States could, in connection with such a petition, submit to the court an affidavit of the head of the USG agency certifying that disclosure of classified information would cause identifiable damage to the national security of the United States and explaining the basis for the classification of such information. If so requested by the United States, the court could examine such affidavit in camera and ex parte.

g. PROHIBITION ON DISCLOSURE OF CLASSIFIED INFORMATION BY NONPROFIT: The nonprofit and its legal representative should not disclose classified information shared with it under the provisions of this section. However, summaries substituting for classified information are not covered by this prohibition.

4. Confidentiality
Because of the potential for public misunderstanding of the nature and extent of an USG investigation and the resulting negative impact on a nonprofit’s operations and fundraising, proceedings in the investigation and compliance phase should be confidential unless waived by the nonprofit.

1. Written Response from Nonprofit

After receiving the USG notice and specific allegations, the nonprofit may submit a written response within 30 days. The written response should become part of the administrative record. The nonprofit should be able to present information to rebut claims in the USG notice or notify USG of steps taken to correct the problems cited in the notice.

2. Response from USG

The USG must consider the information presented and respond in writing within 10 days. If it does not consider the matter settled it must set a date for a status conference, which must take place within 60 days of the notice.

3. Status Conference

a. The purpose of the status conference is for the nonprofit and USG officials to discuss resolution of the issue that would be proportionate to the problem and protect legitimate activities. The nonprofit should be allowed to be represented by counsel.

b. The USG and the nonprofit may enter into agreements to cure identified problems. Any agreement should be reduced to writing and signed by all parties and be part of the administrative record.

c. In the event there is no agreement a summary of the meeting should become part of the administrative record. If the nonprofit disagrees with the summary it could submit a response for the record.

d. Any follow-up correspondence should also be part of the administrative record.

4. Remedies Available to the USG

a. In the event no agreement is reached at the status conference, USG could issue a notice adopting the least disruptive remedy available to resolve problems, in order to protect the ongoing operation of legitimate charitable activity and meet the needs of program beneficiaries. These remedies could include:

• Cease and desist orders

• Appointment of a conservator to examine operations and recommend appropriate corrective measures

• Sanctions limited to particular problematic programs/areas or persons, allowing other operations to continue

b. The USG should consider the nonprofit’s good faith efforts to comply and use due diligence in making its decisions. Bias should not be a factor (religious, ethnic, ideological distinctions aimed at the nonprofit or population it serves).

5. Request for Formal Review

In the event the nonprofit disagrees with the USG decision, it should have 30 days to notify the agency that it wishes to invoke its rights under the formal phase described below.

1. Right to review: If a nonprofit disagrees with the USG finding in the investigation and compliance phase, or does not wish to take advantage of that process, it should be able to request a formal review within 30 days of receiving the notice or USG written decision. All documents produced by the USG and the nonprofit in the formal phase should become part of the administrative record.

2. Procedures: The formal review should consist of the following steps:

a. The nonprofit or its counsel should be given an opportunity to review USG evidence (according to the procedures for classified evidence above) no more than 60 days after receiving the USG notice.

Within 60 days of reviewing the evidence the nonprofit and its counsel, if any, should submit a written response, including exhibits and affidavits, to the specific allegations in the USG notice.

b. The USG should review the written response and 1.) notify the nonprofit that its concerns have been addressed, or 2.) set a date for an in-person review by an Ombudsman no later than 60 days from the date of the notice.

c. At the in-person review the Ombudsman should consider each point in the notice, including rebuttal information and arguments of the nonprofit and render a decision in writing. The in-person review should be recorded and become part of the administrative record.

If the nonprofit is subsequently designated as an SDGT it should have 120 days to appeal to the federal district courts. The standard of review should be whether USG action was supported by substantial evidence, and if so, whether the least drastic available sanctions were imposed. If not, the case should be remanded to consider lesser sanctions or opportunities to cure.

Each designation should be reviewed every two years by the USG to determine whether or not it is still appropriate.

[1] Ibid.

[2] 50 USC 1702(a)(1)B

[3] 31 C.F.R. 595.204.

[4]OFAC may issue licenses authorizing a designated entity to access frozen funds for paying attorneys’ fees. 31 C.F.R. 595.506; Global Relief Found., 207 F. Supp. 2d at 786.


[6]KindHearts for Charitable Humanitarian Development v. Geithner, et. al United States District Court for the Northern District of Ohio, Western Division Case No. 3:08CV2400

[7] See 18 USCS Appx. § 6(e) (Classified Information Procedures Act)