Charitable giving plays a critical role in the global response to humanitarian, development, environmental, and other challenges. U.S. grantmakers recognize the important function fulfilled by cross-border philanthropy, and have long played a leadership role in this domain.
Philanthropic dollars flowing abroad from the United States have steadily increased over the past several decades and show no signs of slowing. Among the factors contributing to this rise in foreign giving are the popularity of donor-advised funds, increased efforts in corporate social responsibility, donors’ desire for leverage and diversification of their charitable dollars, and, of course, our rising global connectedness.
Although opportunities abound for U.S. grantmakers to make a positive difference around the globe, grantmakers need to be aware of important regulatory requirements, particularly pertaining to anti-terrorist financing.
International grantmaking entails an increased risk of diversion of charitable funds by terrorist organizations and their support networks. Despite this reality, many internationally engaged U.S. foundations, donor-advised funds, and corporations are not fully aware of anti-terrorist financing regulations, nor of the correct steps to follow, and the potential consequences of not following mandated steps. In addition to adverse publicity and damage to a foundation or company’s reputation, these consequences can include asset freezing, civil penalties, the loss of 501(c)(3) status, and even criminal prosecution.
Recommended Actions for U.S. Grantmakers
Although the existing regulatory landscape pertaining to anti-terrorist financing may be complex and daunting, valuable resources and practical procedures are available. U.S. grantmakers may wish to consider some or all of the following actions before supplying charitable resources abroad.
- Review the recommendations of the Treasury Department’s Voluntary Guidelines, OFAC’s Risk Matrix for the Charitable Sector, and TGWG’s Principles of International Charity.
- Orient and train staff and board members on current anti-terrorist financing requirements and on the consequences of noncompliance.
- Conduct a comprehensive risk assessment for current or planned international grantmaking operations, drawing particularly on guidance from OFAC’s Risk Matrix.
- Design compliance procedures in accordance with your organization’s level of tolerance for risk (see 3 above), drawing on the Treasury Department’s Voluntary Guidelines as a core resource.
- As part of your compliance program, establish a list-checking policy, including which lists to check, and specific list-checking steps to follow. Section VI of the Treasury Department’s Voluntary Guidelines covers list-checking in detail. While the primary list referenced by the Treasury Department is the Specially Designated Nationals list (SDN list), you may wish to consider including other lists when screening to avoid contravening anti-terrorism measures in effect in other countries, which may have listed individuals not reflected on the SDN list. Other than the SDN list, common lists included in screening are the United Nations Security Council Sanctions list and the European Union terrorist list.
- Before each grant to a foreign country, review OFAC economic and trade sanctions to ensure that the grant will not be running afoul of any current embargoes.
- Document your organization’s assessment of risk, due diligence and list-checking steps, and grantmaking procedures.
- Consider consulting with competent legal counsel or obtaining specialized support to develop and implement your compliance procedures, and stay abreast of new regulations pertaining to anti-terrorist financing.
It is the view of the authors that U.S. grantmakers should not avoid direct international grantmaking for fear of running afoul of counter-terrorism regulations. The likelihood of any negative outcome is low if basic steps are taken, while the benefits to the global community afforded by cross-border philanthropy are beyond measure. Each grantmaker must become familiar with the requirements, assess the risks in accordance with its goals, and develop a compliance program that allows it to further its charitable mission with confidence.
Andrzej Kozlowski is principal at Paragon Philanthropy, a company specializing in international grantmaking compliance and vetting for U.S. foundations, donor-advised funds, and corporations. Write to firstname.lastname@example.org
Kia Sullivan, Esq., is the founder of SourcePoint Philanthropy, a private practice specializing in tax-exempt law and philanthropic strategy for private foundations, public charities, and individuals. Write to email@example.com
The information in this article is not legal advice, and is provided only for general informative purposes. The reader should be aware that the legal context for anti-terrorist financing is fast evolving.