Unilateral Silencing of Charities Deemed to be Terrorist Organizations: Pending Legislation
Although it has not made much news, a proposed Bill titled Stop Terror-Financing and Tax Penalties on American Hostages has been making its way through Congress. As of November 21, 2024, the Bill was approved in a vote of 219-184 and received support from all Republicans except for one and by 15 Democrats.
As of December 2, 2024, the Bill was received by the Senate. If approved, it would only take approval by the President for this Bill to become law and potentially silence nonprofits that a presidential administration deems to be involved in terrorist activity.
Nonprofits Are Already Prohibited from Supporting Terrorist Activity
The Internal Revenue Code already provides a mechanism for a nonprofit to lose its tax-exempt status if it is deemed to be engaging in terrorist activity. The definition of terrorist activity, the process of revocation and the rights of the accused charity are outlined in paragraphs (1) through (7) of Section 501(p) the Code.
A terrorist organization whose tax-exempt status may be revoked is defined in paragraph (2). Terrorist classification is determined by other Federal acts and departments, including the Immigration Nationality Act (INA), an Executive Order related to terrorism under the authority of the International Emergency Economic Powers Act, or an Executive Order issued under the authority of any Federal law related to INA or as it pertains to subnational groups. In other words, it’s a method of checks and balances where the Treasury Department relies on the expertise and knowledge of other Federal departments to identify and designate a terrorist organization.
Key Points of the Bill that May Silence Nonprofits
The Bill proposes adding a new paragraph (8), which would vest the Secretary of Treasury with unilateral authority to designate a nonprofit as meeting the definition of a terrorist organization as defined in paragraph (2). The Secretary of Treasury is a Presidential appointment.
Although it appears that the Secretary would be limited to the definition of a terrorist organization based on an outside agency or Act, there is a vulnerability to organizations which may be deemed as a subnational group, which is one that advocates for a certain point of view or policy which may not be supported by the Federal government.
In addition, if the Secretary identifies a nonprofit as a terrorist organization, the organization has only 90 days from the date of the notice to provide a response or certification that it did not support the alleged terrorist activity. This leaves the nonprofit very little time to understand the allegations and prepare a satisfactory response.
Take Action to Improve Internal Controls
Nonprofits support charitable causes throughout the world and advocate for improved human rights with the United States. It is important to maintain updated policies and expenditure responsibility.
This may include the following:
- Reviewing your OFAC Policy to comply with anti-money laundering laws
- Auditing your expenditure responsibility reports and
- Updating your grant agreement policies.
On a regular basis, review your Bylaws and Committee Procedures to determine if they reflect the latest laws and best governance practices.
In addition, maintaining timely and detailed minutes is important for all organizations as they reflect the decisions made and the underlying reasons.
Finally, prepare a team of professionals to support your organization, including an accountant, attorney and other advisors who understand your organization before a need arises. At Abelaj Law, PC, we are committed to assisting nonprofits with their governance needs. Contact our experienced legal team today at 212-328-9568 for an introductory call to learn more.
