Nonprofits – International Charity Activities

International law systems, justice, human rights and global business education concept with world map on a school globe and a gavel on a desk on blue background.

A 501(c)(3) organization may advance its “charitable” purpose through international activities. But there is much that needs to be considered when operating in a foreign country, including –


It is very common for a country, state/province, and/or city/municipality to require a foreign nonprofit to register with a governmental agency and be subject to its regulations. Operating without proper registration can result in a warning, a fine, or, in a worst case scenario (as might be the case in Egypt), imprisonment.

It makes sense that a country would want some identification of and control over foreign organizations operating within its borders. It also makes sense that a nonprofit would want to look into applicable requirements of operating in a foreign country and be compliant with such requirements.

For foreign nongovernmental organizations (NGOs) operating in the United States, there are multiple levels of qualifications, registrations, and other filings to be considered. For example, in California, a foreign charitable NGO would need to (1) qualify to do business in the state by filing with the Secretary of State, (2) register with the Attorney General’s Registry of Charitable Trusts, and (3) register with the city or county, as required under local laws. If it wanted tax-exemption, it would need to apply for recognition of exemption from both the IRS and California Franchise Tax Board. But if it wanted to be able to receive deductible charitable contributions, it would be out of luck. Only domestic 501(c)(3) organizations are eligible to receive deductible charitable contributions. So, it may make sense for a foreign NGO to set up a domestic “friends of” organization instead of operating itself in the United States.

One big problem with complying with foreign registration requirements is the difficulty in finding then deciphiring the requirements in a particular country at various levels. And in some countries, it may be incredibly burdensome and time-consuming to complete all of the registration requirements, if it’s even possible. The NGO Law Monitor on the website of the International Center for Not-for-Profit Law (“ICNL”) serves as a good introductory resource for what may be required in various countries.

Licenses and Permits

For certain activities like the provision of education or healthcare, charities operating abroad must consider the applicable licensing requirements. Simply setting up shop and operating a school or health clinic without proper licensing may result in harsh consequences for the charity and its staff and volunteers.


U.S. Executive Order 13224, which President Bush issued shortly after the 9/11 terrorist attacks, blocks property and prohibits transactions with persons and entities who commit, threaten to commit, or support terrorism (“Prohibited Persons”). Donations of articles, such as food, clothing, and medicine, intended to be used to relieve human suffering are included among the prohibited transactions with Prohibited Persons, who include those on the Specially Designated Nationals List regularly updated by the Office of Foreign Assets Control (“OFAC”). But strict compliance is challenging particularly where there is somebody on the SDN List who has a very common name.

The USA Patriot Act was signed into law shortly after Executive Order 13224 “to deter and punish terrorist acts in the United States and around the world, to enhance law enforcement investigatory tools, and for other purposes.” As described by the Center for Effective Government:

The Patriot Act gives the executive branch largely unchecked power to designate any group as a terrorist organization. Once designated, a group can have all of its materials and property seized and its assets frozen, “pending an investigation.” Assets can be taken even if the organization faces no criminal charges. Once all assets are seized and frozen, an organization can be denied access to evidence (the organization’s computers, files, documents, etc.) that might prove its innocence; the government has authority to withhold this information for “national security” reasons.

In response to concerns of charities and foundations on how to comply with the anti-terrorist laws, the Department of the Treasury issued Anti-Terrorist Financing Guidelines:  Best Practices for U.S.-based Charities first in 2002 and a revised version in 2006. A coalition of more than 40 nonprofit organizations led by The Council on Foundations vigorously objected to the original version and produced its own Principles of International Charity.

The Foreign Corrupt Practices Act (FCPA) generally makes it unlawful for persons (including employees, officers, and directors of nonprofits) to make, or to offer to make, payments to foreign government officials to assist in obtaining or retaining business. In other words, it’s unlawful to bribe foreign officials. According to BDO’s Nonprofit Standard:

Violations can result from:


• Making improper payments to obtain government licenses, registrations, special tax or custom treatment which allow a company to do business in a foreign country (i.e., broad application – not just limited to those activities that directly influence the acquisition or retention of government contracts)
• Inappropriate activities conducted by third parties acting on behalf of the company that the company may be deemed to have (or deemed as should have had) knowledge of
• False characterization of improper payments on a company’s books and records – this includes books or records ultimately consolidated for financial reporting purposes

A Resource Guide to the U.S. Foreign Corrupt Practices Act is the Department of Justice’s and Securities and Exchange Commission’s detailed compilation of information about the FCPA.

Sanctioned Countries

OFAC administers a number of different sanctions programs. The sanctions can be either comprehensive or selective, using the blocking of assets and trade restrictions to accomplish foreign policy and national security goals. Among the countries subject to certain sanctions are Burma, Cuba, Iran, Libya, North Korea, Somalia, Sudan, Syria, and Zimbabwe. See Sanctions Programs and Country Information. American nonprofits must be careful not to violate any restrictions against the transfer of assets to a sanctioned country or operation in a sanctioned country without an appropriate license from OFAC where it is necessary. See Guidance Related to the Provision of Humanitarian Assistance by Not-For-Profit Non-Governmental Organizations (OFAC).

Foreign Bank Accounts

For American nonprofits that maintain foreign bank accounts, it is critical to meet the annual filing requirement of the Report of Foreign Bank and Financial Accounts (“FBAR”). The Pro Bono Partnership / Atlanta has a good resource on FBAR reporting requirements:

An FBAR must be filed annually by each United States person having an interest in, or a signature authority over, any financial account in a foreign country if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year. FBAR reports are due by June 30 of the year following the year which the account holder meets the $10,000 threshold.
If your organization meets the requirements above, then at least one FBAR must be filed on behalf of the organization. In addition, one FBAR must be filed for each person with signature authority over the organization’s foreign account(s).

Political Activities and Lobbying

The absolute prohibition against political intervention activities applicable under 501(c)(3) applies regardless of whether the election involves candidates for public office in the United States or in any other country. Furthermore, permissible political activities in the U.S., such as nonpartisan voter registrations and get-out-the-vote drives, may not be permissible in another country and could even constitute a crime. American charities must be careful and make sure they know the rules around political activities and lobbying in the context of the laws of each country in which they are thinking about engaging in such advocacy.


American charities operating in foreign countries must be aware that the trademarks they use domestically (including their name and logo) may be infringing on another person’s or entity’s rights in another country. Having trademark rights in the United States does not mean that a charity has such rights in another country. Accordingly, before using a trademark abroad, charities should find out if such trademark is available and, if it is, how it can be protected.


Insurance must also be considered as operating in a foreign country may not be a covered activity, particularly if operating without the required registrations. An American nonprofit should anticipate in advance the risks of an employee or volunteer getting hurt, getting arrested, and/or creating legal obligations for the nonprofit in the foreign country.


A nonprofit may advance its charitable goals in another country by supporting the work of a local NGO qualified to operate there. Such a partnership may be merely a collaborative effort memorialized in a memorandum of understanding or more of a formal joint venture or legal partnership.

There may also be a governance connection created between the nonprofit and foreign NGO. For example, the governing documents of a foreign NGO might provide an American nonprofit with the right to select one or more board members of the NGO. For an American nonprofit that desires the strongest level of governance control over a foreign NGO, a parent-subsidiary structure could be created with the American nonprofit having the right to select all of the board members of the NGO.


Making grants to foreign NGOs is likely the most common way American nonprofits advance their charitable goals in another country. Private foundations must either exercise expenditure responsibility or obtain an equivalency determination in making such grants. While public charities are not subject to the same requirements, their boards are responsible for exercising reasonable care in making grants in part to ensure that the grants are not diverted from their charitable purpose. Accordingly, many lawyers representing public charities advise that they also follow the private foundation rules when making grants to foreign NGOs. The anti-terrorism and political activity issues described above should also be considered in a charity’s grantmaking policies, and OFAC’s Risk Matrix for disbursing funds and resources to foreign grantees is a helpful resource.

Operational Support

While grantmaking may be the most common way American nonprofits support a foreign NGO partner, many also provide operational support to their partners with technical assistance and staffing. In such case, the American nonprofit may be operating in the foreign country and consequently may need to consider all of the above issues, including registration.

In order to avoid operating in a foreign country and triggering the accompanying requirements, an American nonprofit may want to simply maintain a grantmaking relationship with a foreign NGO and supplement the funding with staff and volunteers who will work for the foreign NGO as agents of the NGO (not as agents of the American nonprofit). This distinction must be clear to protect such individuals from penalties for working without due authorization (which of course presumes that the foreign NGO is properly qualified and authorized). One disadvantage to take into account with this structure is the lack of protection that the American nonprofit may be able to provide through insurance where individuals are not acting as agents of the nonprofit, but as agents of a partner NGO.

Concluding Thoughts

Many nonprofit 501(c)(3) organizations provide funds, goods, and/or services to communities outside of the United States in furtherance of their respective charitable missions. Such work is important on so many levels and is widely understood to benefit our country through the goodwill created internationally. Nevertheless, not all countries’ governments view such assistance as friendly, particularly where it supports advocacy or strengthens individuals that might oppose the status quo. American nonprofits operating abroad must be careful to understand the laws of each country in which they operate, how to comply with such laws, the risks of noncompliance, and how to best protect their employees and volunteers on the ground. We hope this general overview serves as a helpful introduction to such matters. The advice of qualified legal counsel in a foreign country will be invaluable in helping American nonprofits operate there safely.


Principles of Accountability for International Philanthropy, Council on Foundations

Overseas Operations: What Every Nonprofit Should Know Before Crossing U.S. Borders, Venable LLP

Travel Safe: Managing the Legal Risks that Arise from International Operations, Nonprofit Risk Management Center

Deterring Donors: Anti-Terrorist Financing Rules and American Philanthropy, The International Journal of Not-for-Profit Law, vol. 6, issue 2, February 2004

Schedule F, Statement of Activities Outside the United States, Form 990


Foreign Charities Operating in and from Canada, Mark Blumberg


Mexico, Council on Foundations

International Grantmaking: Expenditure Responsibility


Private foundations in the United States are often interested in funding promising organizations and projects that are based outside of the country. When doing so, these foundations are required to follow certain rules and procedures promulgated by the IRS to help ensure that the foreign grantees are properly using those funds for charitable purposes. Currently, when a private foundation engages in international grantmaking, it has two options for complying with these rules: exercising expenditure responsibility or conducting an equivalency determination.

What is Expenditure Responsibility?

Expenditure responsibility (also referred to colloquially as “ER”) means that the foundation exerts all reasonable efforts and establishes adequate procedures:

  1. To take certain precautions to ensure that the grant funds will be spent for proper purposes (in connection with this requirement the foundation must conduct a pre-grant inquiry concerning potential grantees and make all its grants subject to a certain type of written grant agreement with the grantee);
  2. To obtain full and complete reports from the grantee on how the funds are spent; and
  3. To make full and detailed reports to the IRS on the expenditures.

When is an Expenditure Responsibility Required?

ER is generally required whenever a private foundation makes a grant to an organization other than (i) a public charity described by Internal Revenue Code (IRC) §509(a)(1) or (2); (ii) a pubic charity described by IRC §509(a)(3) – or supporting organization – other than a non-functionally integrated Type III supporting organization; and (iii) an exempt operating foundation described in IRC §4940(d)(2), which has been publicly supported for at least 10 years. Accordingly, ER is required when a private foundation makes a grant to:

  • a foreign nongovernmental organization (NGO), unless an equivalency determination is conducted;
  • a private foundation (other than an exempt operating foundation);
  • a 501(c)(4) social welfare organization, 501(c)(5) labor union, or 501(c)(6) business league; or
  • a non-tax exempt (for-profit) business (for exclusively charitable purposes).

Pre-Grant Inquiry

The pre-grant inquiry should concern itself with matters such as:

  • the identity, prior history, and experience of the grantee and its managers; and
  • whether the grantee has a history of compliance or noncompliance with the terms of previous grants, and any knowledge concerning the management, activities, and practices of the grantee.

The scope of the pre-grant inquiry will vary in each case depending on —

  • the size and purpose of the grant;
  • the period over which it will be paid; and
  • any prior experience the grantor has had with the grantee.

The Internal Revenue Service Manual provides that “[o]rdinarily, no further pre-grant inquiry is necessary where a grantee has properly used all prior grants and filed the required reports.”

The grant agreement for an ER grant must include the following:

  • the grant purposes, which can include contributing to capital endowment, purchase of capital equipment, specific program or series of programs, or general support of the grantee, provided that neither the grants nor the income thereof may be used for a non-501(c)(3) purpose or for testing for public safety;
  • a provision indicating that the grantee must repay any funds not used for grant purposes;
  • a covenant that the grantee must submit annual reports on the use of funds (unless the grant is to a private foundation for endowment or other capital purposes, in which case other rules apply – see Treas. Reg. 53.4945-5(c)(2));
  • a covenant requiring complete records of receipts and expenditures to be maintained, and made available to the grantor;
  • a covenant not to use any funds (1) to influence legislation, (2) to influence the outcome of elections or carry on voter registration drives, (3) to make grants to individuals for travel, study, or other similar purposes by such individual, unless such grant satisfies the requirements of IRC §4945(g), (4) to make grants to other organizations except as provided in IRC 4945(d)(4) (it’s generally okay for the grantee to regrant to any organizations the private foundation can grant to, subject to the same conditions), or (5) to undertake any activity for any purpose other than a 501(c)(3) purpose (but not for testing for public safety).

Reports from Grantee

Reports from the grantee must be required annually and after all the grant funds have been expended (though an annual report may suffice as a final report if the grant funds are fully expended in a single year). Such reports should address the following:

  • the use of the funds;
  • compliance with the terms of the grant; and
  • the progress made by the grantee toward achieving the purposes for which the grant was made.

Reports to the IRS

Reports to the IRS from the grantor (made in its Forms 990-PF) must include the following information:

  • The name and address of the grantee;
  • The date and amount of the grant;
  • The purpose of the grant;
  • The amounts expended by the grantee (based upon the most recent report received from the grantee);
  • Whether the grantee has diverted any portion of the funds (or the income therefrom in the case of an endowment grant) from the purpose of the grant (to the knowledge of the grantor);
  • The dates of any reports received from the grantee; and
  • The date and results of any verification of the grantee’s reports, but only if undertaken pursuant to and to the extent required because the grantor had reason to doubt the accuracy or reliability of such reports.

Additional Resources

Grants to Organizations from Private Foundations: Is Expenditure Responsibility Required? – Council on Foundations

Office of Chief Counsel IRS Memorandum No. 200504031 – IRS

Expenditure Responsibility – A Primer & Ten Puzzling Problems – Adler & Colvin

IRC §4945 – Taxes on Taxable Expenditures

Treasury Reg. §53.4945-5 – Grants to Organizations

Draft Foreign NGO Management Law (China)

Great Wall of China at the Jinshanling section.

China’s draft Foreign NGO Management Law released in May 2015 would, according to an Opinion piece in the New York Times (Will China Close its Doors?), require foreign nonprofits to be vetted by China’s security police before conducting activities in China and subject them to penalties for vaguely defined offenses such as subverting state power, destroying ethnic harmony, and damaging the national interest. Such penalties could apply regardless of whether the offenses occurred in China. Accordingly, if this law passes, the Chinese authorities could penalize a nonprofit and its agents operating in China for any criticism of the Chinese government or Chinese policy even if such criticism was made in the United States.

According to Reuters:

The draft law “governing foreign NGOs”, which has triggered a storm of criticism since it was made open for public consultation last month, requires foreign non-profits to find an official sponsor, typically a government-backed agency, and gives broad latitude to the police to regulate activities and funding.


In a confidential diplomatic document seen by Reuters, the European Union said China was using the law to “silence dissenting voices”.

American nonprofits operating in China will need to be very cautious about operating in China, particularly if they are involved in any type of human rights or social justice advocacy efforts. And it will be particularly important for such nonprofits to make their employees and volunteers aware of the additional personal risks they may face and to mitigate such risks to the extent possible.  It is unfortunate that such a law will very likely result in much less charitable support going to the residents of China and significantly more corruption.

See also China Asserts More Control Over Foreign and Domestic NGOs (Wall Street Journal).

International Grantmaking: Equivalency Determinations

equal sign

Private foundations in the United States are often interested in funding promising organizations and projects that are based outside of the country. When doing so, these foundations are required to follow certain rules and procedures promulgated by the IRS to help ensure that the foreign grantees are properly using those funds for charitable purposes. Currently, when a private foundation engages in international grantmaking, it has two options for complying with these rules: exercising expenditure responsibility or conducting an equivalency determination.

What is an Equivalency Determination?

An equivalency determination refers to the review and evaluation by a private foundation of whether a potential grantee is the foreign equivalent to a U.S. public charity. This involves a review of its organization (governing documents) and operations to ensure it meets the following requirements described in Section 501(c)(3) of the Internal Revenue Code (IRC):

  • It is organized exclusively for a charitable, educational, or other 501(c)(3) exempt purpose;
  • It is operated primarily for a qualified exempt purpose;
  • It does not engage in any transactions that would result in private inurement or a prohibited private benefit;
  • Its assets, upon dissolution, would be distributed to another nonprofit for a qualified exempt purpose or a government instrumentality;
  • It does not engage in substantial lobbying; and
  • It does not engage in prohibited political campaign intervention.

In addition, the review must ensure that the foreign grantee would qualify as a public charity (and not a private foundation) if it were to apply for IRS recognition of exemption under 501(c)(3). Most public charities qualify as such because they are “publicly-supported” (i.e., they receive a significant portion of their financial support from public sources). For such organizations that do not receive a significant amount of earned income, this may be proven using one of two tests referenced in IRC Sections 509(a)(1) and 170(b)(1)(A)(vi).

First, an organization can demonstrate that it receives at least 1/3 of its total support from governmental units or the public. If the organization cannot meet this first test, it may pass an alternative facts and circumstances test, which requires the organization to establish that, under all of the facts and circumstances, it normally receives a substantial part of its support from government units or the general public.  (For more information about public support, see Adler and Colvin’s Qualifying For Public Charity Status).

The equivalency determination process, outlined in IRS Revenue Procedure 92-94, requires the grantmaker to collect comprehensive information about the foreign organization’s operations and finances to make a “good faith determination” of whether the grantee would be given tax-exempt, public charity status in the U.S., including whether it is publicly supported.

Often, these requirements can be difficult to satisfy because of differences in a foreign grantee’s accounting system, language, and sometimes governing legal system and reporting procedures in the grantee’s own country.

Basic Requirements

The equivalency determination may be done either by the grantor itself, based on information provided in an affidavit completed by the grantee, or by written opinion of legal counsel of the grantor or the grantee. The affidavit is meant to extract all the necessary information about the foreign grantee including financials for the current and previous years, governing documents (often a translated copy is required), details about the board of directors, and descriptions of program activities.

More specifically, in order for a grantee to be equivalent to a public charity based on its level of public support, it must provide the grantor with a financial support schedule for the current year as well as the four most recently completed years. The schedule must be detailed and include information such as grants and contributions received, net income from unrelated business activities, and gross receipts for services performed. Furthermore, the schedule must show contributions from donors that are in excess of 2% of the total support received (because such excess is not included as public support in the public support test).

Proposed Regulations

In September of 2012, the IRS issued proposed regulations that allow private foundations to rely on a broader class of practitioners, not just legal counsel, in making the good faith determination.  The person issuing the opinion may be a “qualified tax practitioner,” such as an attorney, a certified public accountant (CPA), or an enrolled agent.  Foreign counsel is no longer included in this class unless they meet the requirements of a qualified tax practitioner. Although these changes are technically “proposed,” the regulations indicate that a private foundation may rely upon these changes for grants made on or after September 24, 2012.


While the regulations aim to simplify and expand equivalency determinations, the process is quite burdensome and costly. For many years, there was no mechanism for sharing information about foreign grantees among grantmakers, and no uniform standard for collecting and processing the equivalency determination information. Thus, grantees were, and many continue to be, asked to provide affidavits and supplemental materials to multiple grantmakers in various forms. The regulations required each grantmaker to use its own reasonable judgment and good faith determination based on the materials collected. Therefore, foundations were not permitted to rely upon each other’s determinations.

To address these issues, several leading organizations such as The Council on Foundations, InterAction, the Foundation Center, and Independent Sector, worked to create a centralized repository of information to improve the efficiency of international grantmaking. The product of this effort, NGOsource, recently launched an online equivalency determination service and repository . NGOsource members can easily access which projects and organizations are approved for grantmaking purposes, thus eliminating redundant determinations and lowering costs for both the grantmaker and the foreign grantee.

For information about how NGOsource’s equivalency determination service works, click here.

Underlying Law

[Grants to] Certain foreign organizations. If a private foundation makes a grant to a foreign organization which does not have a ruling or determination letter that it is an organization described in section 509(a)(1), (2), or (3), such grant will not be treated as a grant made to an organization other than an organization described in section 509(a)(1), (2), or (3) if the grantor private foundation has made a good faith determination that the grantee organization is an organization described in section 509(a)(1), (2), or (3). Such a “good faith determination” ordinarily will be considered as made where the determination is based on an affidavit of the grantee organization or an opinion of counsel (of the grantor or the grantee) that the grantee is an organization described in section 509(a)(1), (2), or (3). Such an affidavit or opinion must set forth sufficient facts concerning the operations and support of the grantee for the Internal Revenue Service to determine that the grantee would be likely to qualify as an organization described in section 509(a) (1), (2), or (3). See paragraphs (b)(5) and (b)(6) of this section for other special rules relating to foreign organizations. – Treasury Regulation §53.4945-5(a)(5)

2009 Western Conference on Tax-Exempt Organizations – Day Two

Day Two of the WCTEO began with EO attorney Bruce Hopkins delivering his always informative and
entertaining program on new developments over the past year, focusing
particularly on private letter rulings (PLRs).  Here are some of the notable PLRs:

  • Denying recognition of exemption under 501(c)(3) because of operation in substantially commercial manner:  200944053
  • Denying recognition of exemption under 501(c)(3) because of violation of public policy doctrine:  200826043
  • Denying recognition of exemption under 501(c)(4) because organization does not serve a community but rather its members:  200809035
  • Arrangement where novel written by director, which may be used in exempt functions, generates royalties payable to director's former spouse ruled to provide private benefit:  200913067
  • Online "seminary" failed to qualify as church:  200912039
  • Sale of grantmaking services by community foundation to charitable organization in its community held to be related business; sale of administrative and clerical services to them held to be unrelated business:  200832027, 200832028

With respect to the redesigned Form 990, Hopkins said he was "struck by how much law the Form introduces."  Here are some additional developments he discussed:

Next, there were three concurrent breakout sessions:  (1) global issues for private foundations and public charities; (2) licensing, self-generated software and other intellectual property issues; and (3) charitable giving update.  I attended the global issues program presented by EO attorney Jane Peebles. She covered all the basics and, with fellow EO attorney Betsy Adler, provided a very helpful set of materials. I particularly appreciated the sample affidavit used for an equivalency determination (one of two alternative due diligence methods required to be used by private foundations when giving to a foreign charity).

CPA Jody Blazek and Stephen Clarke of the IRS presented on Form 990 developments.  Blazek provided many helpful tips and cheat sheets to use when preparing the complicated new Form.  Among her materials:  When is Schedule O Required, Sample Board Questionnaire to Obtain Information Required in Revised 990, and Schedule L Interested Parties by Part and Organization Type. 

The final program was an experts panel with three incredibly knowledgeable panelists: Blazek, Hopkins, and Douglas Mancino. They were each asked for 10
quick pearls of wisdom. Here are some of them:

  • JB:  Public charities should follow foreign grant equivalency determination procedures (or expenditure responsibility).
  • BH:  Organizations should periodically review their websites for business transactions, lobbying, political activities, and the like (particularly important if they have affiliated organizations).
  • DM:  Organizations should always analyze the statute of limitations when faced with Ch. 42 taxes, including new taxes on Type III SOs and DAFs.
  • JB:  The IRS will (eventually) follow up on its FBAR initiative to require reporting of ownership in offshore partnerships and other accounts.
  • BH:  Charitable gift annuities are investment contracts under federal securities law and not covered by the Philanthropy Protection Act (Warfield v. Bestgen (9th Cir. 2009)).
  • DM:  Private foundations should consider if there are multiple acts of self-dealing rather than just a single act (foundation managers may be liable for up to $20,000 per act).

Read my post on Day One of the WCTEO here.

Schedule F of Redesigned Form 990 – Statement of Activities Outside the U.S.

The Redesigned Form 990, which goes into effect for tax years ending after December 31, 2008, contains a new Schedule F, Statement of Activities Outside the United States.  Schedule F, Part I, General Information on Activities Outside the United States, must be completed by organizations that have had aggregate revenues or expenses of more than $10,000 from grantmaking, fundraising, business, and program service activities outside the United States.  Part II requires a disclosure of grants or other assistance to organizations or entities outside the United States if over $5,000.  Part III requires a disclosure of grants or other assistance to individuals outside the United States if over $5,000.  Part IV requires the organization to describe its procedures for monitoring the use of grant funds outside of the United States.

The requirement of disclosing foreign recipients of grants posed concerns of the safety of recipients involved in furthering a U.S. charity’s mission, particularly in areas that are dangerous or hostile to Americans and those who work with American organizations or in furtherance of American interests.  The IRS explained that it cannot redact or withhold from public disclosure such information without legislative authority.  As a concession, in the 2008 Form, the IRS will require reporting on a regional (rather than on a country by country) basis and not require the identification of individual grantee organizations.

Nonprofits and Antiterrorism: GuideStar Interview with Treasury’s Amit Sharma

GuideStar recently published an interview it conducted with Amit Sharma, Treasury’s senior advisor to the assistant secretary for terrorist financing, focusing on the topic of charities and antiterrorism.  Among Sharma’s responses were the following comments:

  • "… the threat is very real, and it is ongoing."
  • "Designated terrorist groups around the world have been found, and continue to be seen, engaged in charitable activities, and this takes advantage of good faith donors."
  • "What leaders should also be aware of is how they can protect themselves from this risk — which means doing their due diligence."
  • "… we look to charities to understand the risks they face, and apply measures that are appropriate for their risks."
  • The benefits of due diligence to prevent terrorist financing exploitation in charities can not be underscored and ultimately outweigh the alternative.

Click here for the entire interview available on GuideStar’s website.

Anti-Terrorist Guidelines: Revised Best Practices for Charities

The U.S. Department of the Treasury released a revised version of its Anti-Terrorist Financing Guidelines:  Best Practices for U.S.-based Charities (the "Guidelines") on September 29, 2006.  According to the accompanying Treasury press release, this latest version takes into consideration "the comments and suggestions provided by the public to assist the charitable community in efforts to safeguard itself from the threat of abuse and exploitation by terrorist organizations."

Compliance with the Guidelines, the original version of which was first issued by Treasury in 2002, is voluntary, not mandatory.  A working group of charitable sector organizations and advisors, coordinated by the Council on Foundations, requested that Treasury withdraw the 2005 version of its Guidelines and endorse in their place the group's own Principles of International Charity.  Reaction to the latest version will be detailed in future posts.

Among the criticisms of the 2005 version of the Guidelines is the $250,000 annual gross income threshold for an audit.  In Treasury's Response to Comments Submitted on the Guidelines ("Treasury's Response"), Treasury explains that this figure "is drawn from the June 2005 final report to Congress of the Panel on the Nonprofit Sector [the "Nonprofit Panel"], convened by Independent Sector, and is thereby consistent with [the] industry's suggested threshold."  This explanation is misleading because the Nonprofit Panel set the amount of $250,000 as the threshold for requiring a financial statement review rather than a full-blown audit, which the Nonprofit Panel recommended should be mandatory at a $1,000,000 threshold.  The Guidelines' $250,000 audit threshold remains unchanged.


Click here for the September 29, 2006 version of the Guidelines.
Click here for Treasury's Response.

Patriot Act and Nonprofits

Guidestar recently published an article on "The Patriot Act and the Nonprofit Sector: Charitable Organizations After 9/11."  The article makes the following points:

  • The Act stipulates that financial contributions to questionable organizations are a punishable crime.
  • Treasury’s Office of Foreign Assets Control (OFAC) lists individuals and organizations that the government suspects have ties to terrorism and whose assets have therefore been frozen (click here for the updated list).
  • To date, OFAC has named only seven U.S. charities as having suspected links to terrorism.
  • Guidestar records identify that each of these seven suspected charities have had their assets frozen and six have had their exempt status revoked.

Click here for the Guidestar article.

Executive Order 13224

The following description of Executive Order is from the U.S. Department of State:

President Bush signed Executive Order 13224 on September 23, 2001.  Executive Order 13224 gives the U.S. Government a powerful tool to impede terrorist funding and is part of our national commitment to lead the international effort to bring a halt to the evil of terrorist activity.  …  In issuing Executive Order 13224, President Bush declared a national emergency to deal with the unusual and extraordinary threat to the national security, foreign policy, and economy of the United States posed by grave acts of terrorism and threats of terrorism committed by foreign terrorists, including the terrorist attacks in New York and Pennsylvania, and on the Pentagon committed on September 11, 2001, and the continuing and immediate threat of further attacks on U.S. nationals or the United States.

In general terms, the Order provides a means by which to disrupt the financial support network for terrorists and terrorist organizations by authorizing the U.S. government to designate and block the assets of foreign individuals and entities that commit, or pose a significant risk of committing, acts of terrorism.  In addition, because of the pervasiveness and expansiveness of the financial foundations of foreign terrorists, the order authorizes the U.S. government to block the assets of individuals and entities that provide support, services, or assistance to, or otherwise associate with, terrorists and terrorist organizations designated under the Order, as well as their subsidiaries, front organizations, agents, and associates.

Legal Consequences

1.  With limited exceptions set forth in the Order, or as authorized by OFAC [Office of Foreign Assets Control], all property and interests in property of designated individuals or entities that are in the United States or that come within the United States, or that come within the possession or control of U.S. persons are blocked.

2.  With limited exceptions set forth in the Order, or as authorized by OFAC, any transaction or dealing by U.S. persons or within the United States in property or interests in property blocked pursuant to the Order is prohibited, including but not limited to the making or receiving of any contribution of funds, goods, or services to or for the benefit of individuals or entities designated under the Order.

3.  Any transaction by any U.S. person or within the United States that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions in the Order is prohibited.  Any conspiracy formed to violate any of the prohibitions is also prohibited.

4.  Civil and criminal penalties may be assessed for violations.

Current List of Terrorists and Groups Identified Under E.O. 13224

For a current list, updated regularly, or terrorists and groups identified under E.O. 13224, see the 13224 List.

The Department of the Treasury, Anti-Terrorist Financing Guidelines:  Voluntary Best Practices for U.S. Charities (November 2002) also suggests that nonprofits and grantmakers check the following lists:

* Not referenced in the November 2005 Revised Guidelines