Author: LegalEase Solutions

QUESTIONS PRESENTED

1. What are the precautions that a non-profit organization needs to take when documenting its financial contributions to charitable causes?
2. What is the effect of the US Patriot Act on non-profit organizations as it relates to financial contributions?

SHORT ANSWERS

1. Financial contributions by charitable organizations are at risk for being diverted for funding illegal activities and such it is important that non-profits take proper precautions before making financial contributions. The US patriot Act and the Voluntary Best Practices for US based charities, released by the US Department of the Treasury address the issues faced by Non-Profits.
2. The USA Patriot Act (Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism) which was passed following the September 11 events provides a wide range of powers to government officials regarding financial contributions made to ‘questionable organizations’. 501(c) organizations or nonprofits have to be vigilant in their charitable contributions. The Office of Foreign Assets Control provides a list of the individuals and organizations that the Government suspects of any activity related to terrorism, including financial assistance to such groups. Pursuant to the Act, various charities were named Specially Designated Nationals (SDNs) or Specially Designated Global Terrorists (SDGTs) and lost their 501(c) status.

RESEARCH FINDINGS

1. Precautions that a non-profit organization needs to take when documenting its financial contributions to charitable causes:

The US Treasury has published a guide with respect to best practices for US Based Charities found at http://www.treasury.gov/resource-center/terrorist-illicit- finance/Documents/guidelines_charities.pdf: Voluntary Best Practices for US based charities, released by the US Department of the Treasury, (“Best Practices Guide”). The guidelines are formulated to curb the risk of diversion of funds of charities for terrorist activities.

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.

Regarding receipt and disbursement of funds, per the Best Practices Guide:

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, the amount disbursed, the date, and form of payment for each disbursement.
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.

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;
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, email 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, email 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, email 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.

When supplying charitable resources (monetary and in-kind contributions), per the Best Practices Guide, 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.
5. Effect of the US Patriot Act on non-profit organizations:

            Sections 311, 314 and 805 of the US Patriot Act are relevant.

Per Section 311 of the Patriot Act,

The Secretary of the Treasury may require any domestic financial institution or domestic financial agency to maintain records, file reports, or both, concerning the aggregate amount of transactions, or concerning each transaction, with respect to a jurisdiction outside of the United States, 1 or more financial institutions operating outside of the United States, 1 or more classes of transactions within, or involving, a jurisdiction outside of the United States, or 1 or more types of accounts if the Secretary finds any such jurisdiction, institution, or class of transactions to be of primary money laundering concern.

• 311 Patriot Act. The above section makes it clear that a non-profit organization should be vigilant while making financial transactions abroad. A charity is required to maintain record of charitable contributions including humanitarian aid like blankets, food items or medical supplies purchased from suppliers located abroad.

Section 314 of the Patriot Act provides as follows:

The regulations . . . may include or create procedures for cooperation and information sharing focusing on— (A) matters specifically related to the finances of terrorist groups, the means by which terrorist groups transfer funds around the world and within the United States, including through the use of charitable organizations, nonprofit organizations, and nongovernmental organizations, and the extent to which financial institutions in the United States are unwittingly involved in such finances and the extent to which such institutions are at risk as a result; (B) the relationship, particularly the financial relationship, between international narcotics traffickers and foreign terrorist organizations, the extent to which their memberships overlap and engage in joint activities, and the extent to which they cooperate with each other in raising and transferring funds for their respective purposes.

• 314 Patriot Act

Section 314 additionally helps in preventing diversion of funds for terrorism by promoting sharing of information regarding suspects.

Further, Section 805 of the Act makes providing material support to terrorism an offense punishable by law. The said section reads as:

Whoever provides material support or resources or conceals or disguises the nature, location, source, or ownership of material support or resources, knowing or intending that they are to be used in preparation for, or in carrying out, a violation of section *** or in preparation for, or in carrying out, the concealment of an escape from the commission of any such violation, or attempts or conspires to do such an act, shall be fined under this title, imprisoned not more than 15 years, or both, and, if the death of any person results, shall be imprisoned for any term of years or for life. A violation of this section may be prosecuted in any Federal judicial district in which the underlying offense was committed, or in any other Federal judicial district as provided by law.

• 805 Patriot Act

CONCLUSIONS

To conclude, it is critical that a non-profit organization or a charity takes all the necessary precautions outlined in the Best Practices Guide when making charitable contributions. The US Patriot Act considers material support to questionable organizations a punishable crime. Also, the Office of the Foreign Assets Control (OFAC) provides a list of persons and organizations that the government suspects of terrorist activities. The OFAC declares such persons and organizations as Specially Designated Nationals (SDN) or Specially Designated Global Terrorists (SDGT). Non-profit organizations, if listed by the OFAC as SDN or SDGT, lose their 501 (c) status.