Terrorism and Non-Profits

By Lisa Jordan, Executive Director, 13 August 2010

How can governments make sure non-profit organizations in Europe aren’t being used a front for financing terrorism? This was the subject of the EU Directorate General of Home Affairs’ third meeting on non-profit sector transparency and accountability. Having co-authored a book on accountability in the non-profit sector, I was happy to be asked to share my views.

The subtext of the EU discussion was to develop ‘voluntary guidelines’ for non-profit organizations. I believe that this will be not only unnecessary but harmful – to the non-profit sector and also, paradoxically, to the fight against terrorism.

Let me explain.

To start with, let’s be very clear about what we’re dealing with here. In my experience of ‘voluntary guidelines’ in the United States, they are in practice rarely voluntary when written by governments – especially if those governments have considerable regulatory control, as they often do over non-profit organizations through the granting of tax-exempt status. Failure to comply with the voluntary guidelines in the U.S. can result in a freezing of all your assets while government regulators review your operations. ‘Voluntary’ hardly seems like the right word.

Genuinely voluntary guidelines really can work. In the Netherlands, five separate self-regulation mechanisms developed by membership-based umbrella bodies for public charities and private foundations have improved standards of governance and thus accountability right across the sector. But that is not what’s being discussed by the EU.

Still, the ‘voluntary’ euphemism might matter less if government action was truly necessary. The EU meeting starts from the premise that it is. Why? Because the EU wants to look tough on terrorism by getting a positive evaluation from the Financial Action Task Force, an inter-governmental body which promotes policies against money laundering. And because the non-profit sector is perceived as a weak link, now that the financial sector is improving its defences.

But in reality, how likely are non-profits to be used to fund terrorism? Not very likely at all, if we can believe evidence from England and Wales and the Netherlands.

England and Wales arguably has the best legal apparatus for addressing non-profit accountability within the EU. They have a comprehensive independent regulator and registrar for all charities, the Charity Commission. David Walker, the commission’s Head of Outreach and Development, Compliance and Support, explained at the EU meeting that they receive only a handful of cases each year in which they are called on to investigate questionable activity.

In 2009 only four out of a total of eleven cases resulted in charges of wrong-doing, all unrelated to terrorism. Four, out of 190,000 registered and 100,000 non-registered non-profits in England and Wales. So the chance that a non-profit is financing terrorist activities seems very slim indeed.

The same seems to be true in The Netherlands. ‘Good Intentions’, a report  commissioned by the Ministry of Justice in 2007, called the nonprofit sector “at risk” because of a lack of government control, specifically over trusts (like the Van Leer Group Foundation) and religious groups. But it found no evidence of any serious criminal activity, and no influence of terrorists in the sector.

This suggests that the premise is simply wrong, which is why I think mimicking the US’s ‘voluntary guidelines’ is unnecessary. But I also called such guidelines potentially harmful to the fight against terrorism. How is this so?

In the US, I saw how the so-called voluntary guidelines resulted in many smaller philanthropic organizations curtailing overseas grant making because they do not have the capacity to comply with them. At the EU meeting, a representative from Sweden connected this observation to counter-terrorism: the Swedish government relies in part on Swedish civil society to strengthen democracy, to strengthen solidarity between cultures, to address the inequity that is often at the root of alienation and radicalism; in short, to combat the circumstances that can underlie terrorism.

The Dutch government also expects the non-profit sector to play a counter-terrorism role. Dutch development cooperation subsidies allocated to non-profits require a focus on very poor, post-conflict states, generally with weak civil societies that are commonly understood to be hotbeds of terrorist activities, such as Yemen, Sudan and Afghanistan. 60% of the subsidies have to be used in these types of states by 2015.

In other words, the Dutch Ministry of Foreign Affairs is giving Dutch taxpayer money to Dutch non-profit organisations to counter terrorism – the very same organisations that the Dutch Ministry of Justice considers to be ‘at risk’ of promoting terrorism, because of lack of oversight from… the Dutch government.

Do you have a headache? You are not alone.

Given the interests to improve the Netherlands’s FATF rating, the Dutch Ministry of Justice seems likely to tackle this embarrassment by imposing the additional ‘voluntary’ regulations as suggested by the EU. Experience from the US suggests that this would increase operational costs and generally discourage private foundations from becoming involved internationally in the very places where civil society is needed most and can play a unique role in combating the root causes of terrorism.

What is my alternative to the EU’s ill-conceived plan? It is twofold. First, take a lesson from England and Wales. The model of a comprehensive, independent commission seems to provide an appropriate governance home for the non-profit sector – much more appropriate than direct oversight of the Ministry of Justice – and successfully keeps in check the handful of rogue organizations that pop up from time to time.

And second, take a lesson from Sweden. Sweden has no special non-profit law or pseudo-voluntary guidelines. Criminal activity is dealt with through criminal law, and no one sector is unfairly singled out as more at risk than any other.

We simply don’t need the EU’s proposed guidelines to investigate the handful of non-profit organizations that might be conduits to terrorism. After all, isn’t that what criminal law is for?