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    1. Legal Framework: International Philanthropy Betsy Buchalter Adler Silk, Adler & Colvin San Francisco, California Symposium: March 11, 2004 University of Southern California

    2. Silk, Adler & Colvin www.silklaw.com

    3. Silk, Adler & Colvin www.silklaw.com Todays Agenda What we know Laws governing charities specifically Laws of general application, including federal sentencing guidelines Treasurys Voluntary Guidelines What we dont know Plenty! What might be coming our way

    4. Silk, Adler & Colvin www.silklaw.com What We Know: Charity Law US law divides charities into public charities and private foundations for tax purposes Public charities generally have more flexibility in their international activity Private foundations must exercise expenditure responsibility or make a public charity equivalence determination

    5. Silk, Adler & Colvin www.silklaw.com Public charities and international philanthropy Most recent IRS advice is 40 years old Guidance focuses on whether US individuals can take a charitable deduction for gifts to a US charity for use abroad IRS emphasizes need for US charity to have discretion & control over assets

    6. Silk, Adler & Colvin www.silklaw.com Expenditure Responsibility (PFs) Pre-grant inquiry, documented in writing Written grant agreement signed by funder and grantee, with specific required limits on how grantee may use funds Separate tracking of grant funds Written reports from grantee to funder, at least annually Funder reports ER grants on Form 990-PF

    7. Silk, Adler & Colvin www.silklaw.com Public Charity Equivalence (PFs) If foreign entity is equivalent of US public charity, private foundation funder does not have to exercise expenditure responsibility 2 common paths to public charity status: Nature of grantee - church, school, hospital Finances of grantee data shows grantee receives financial support from a sufficiently broad donor/consumer base, plus governing documents satisfy technical US standards

    8. Silk, Adler & Colvin www.silklaw.com What We Know: General Law Executive Order 13224 USA Patriot Act Treasury Office of Foreign Asset Control (OFAC) US Sentencing Commissions guidelines for organizations convicted of violating federal law

    9. Silk, Adler & Colvin www.silklaw.com Executive Order 13224 Applies generally, not only to charities Prohibits transactions involving Listed Persons or their property Prohibits transactions with unnamed persons who assist, sponsor, or provide financial support to Listed Persons or are otherwise associated with Listed Persons Prohibition includes humanitarian aid

    10. Silk, Adler & Colvin www.silklaw.com USA Patriot Act Applies generally, not only to charities Imposes criminal penalties for providing material resources or financial support for terrorism, foreign terrorist organizations, or Listed Persons Government must prove defendant knew or intended that the support would be used in terrorist acts or used by foreign terrorist organizations Civil liability those injured by a terrorist act may sue those who funded the group behind the act

    11. Silk, Adler & Colvin www.silklaw.com The Lists Theyre making the lists, were checking them twice the only way to be sure you are not dealing with listed persons Lists are not yet consolidated; searching is harder than it needs to be Links to all lists are at www.usig.org

    12. Silk, Adler & Colvin www.silklaw.com Treasurys Voluntary Guidelines Treasury released Voluntary Best Practice Guidelines in November 2002 Treasury General Counsel: guidelines have no legal force and offer no safe harbor; issued to reassure Muslim groups; no longer promoted Chilling effect on charities appears not to trouble Treasury more focused on deterring financing of terror and violence

    13. Silk, Adler & Colvin www.silklaw.com Voluntary Guidelines: Details Parts 1-3: governance and accountability, mostly ignored; law already covers it Part 4: preventing use of charities for terrorist finance Consensus among charities: unworkable, costly, charities arent banks or law enforcement agents; local staff would become targets; ineffective in any case

    14. Silk, Adler & Colvin www.silklaw.com Federal Sentencing Guidelines Details at www.ussc.gov Currently being updated in response to Sarbanes-Oxley Act An organization shall (1) exercise due diligence to prevent and detect violations of law, and (2) otherwise promote an organizational culture that encourages a commitment to compliance with the law.

    15. Silk, Adler & Colvin www.silklaw.com Sentencing Guidelines: Elements of Due Diligence Conduct ongoing risk assessment Establish compliance standards and procedures Governing body must exercise reasonable oversight of program via reports from compliance officer Implement training programs so staff, board, etc. know the rules

    16. Silk, Adler & Colvin www.silklaw.com Sentencing Guidelines: More Due Diligence Monitor compliance of staff, board, etc.; evaluate effectiveness of compliance program; make whistle-blowing safe Reward compliance, punish non-compliance If violations occur, modify program to prevent recurrences

    17. Silk, Adler & Colvin www.silklaw.com Sentencing Guidelines Dont Tell Us How does an unstaffed charity (e.g. a family foundation) design a compliance program? Does violations of law refer only to US law? What if a charity is active overseas? What if a rogue employee or grantee of an otherwise legally-compliant charity becomes a listed person do the Sentencing Guidelines affect the charitys culpability under the strict liability provisions of the Patriot Act?

    18. Silk, Adler & Colvin www.silklaw.com What Else We Dont Know How much due diligence and oversight is enough to protect a donor from civil or criminal liability for a charitys acts? How much due diligence and oversight is enough to protect a grantmaker or an operating charity from civil or criminal liability? How will the government use its prosecutorial discretion where a charity has acted in good faith?

    19. Silk, Adler & Colvin www.silklaw.com More Unknowns Charities are used to answering to the IRS and state charity regulators; what other government agencies will we hear from, what will they want to know, and what must we tell them? Will the governmental attention to terrorist financing and money laundering affect the traditional practice of informal cash gifts to, and through, religious institutions?

    20. Silk, Adler & Colvin www.silklaw.com IRS Information Request IRS asked how charities protect their assets from diversion to non-charitable ends overseas Consensus of responders: charities exercise great care in their international operations, Treasury Voluntary Guidelines should be withdrawn, and list-checking is severely burdensome No consensus on whether we need more guidance or whether IRS should just enforce current law more vigorously

    21. Silk, Adler & Colvin www.silklaw.com Enforcement: Not Just IRS IRS Small Business/Self Employed group asked a charity about payments to its overseas aid workers, alleging the charity is a financial institution under the Bank Secrecy Act The FBI questioned various donors and funders of charities whose assets were frozen Media coverage of charities as terrorist finance tools may influence local government agencies

    22. Silk, Adler & Colvin www.silklaw.com What Should Charities Do? Assess the risk: how likely is it, in the circumstances, that your money will be diverted to non-charitable ends? Manage/prevent the risk: based on your assessment, do whats reasonably necessary in the circumstances to reduce chance of asset diversion

    23. Silk, Adler & Colvin www.silklaw.com Managing the Risk Adopt and implement a compliance program as described in the Sentencing Guidelines Know your grantees/vendors; check the lists Have a clearly written grant agreement Obtain and review reports from your grantees on how they used the funds Follow up if you see potential problems

    24. Silk, Adler & Colvin www.silklaw.com Working with Intermediaries: Another Way to Manage Risk U.S. charities and donors can work with charitable intermediaries that have staff or volunteers in the region and are better placed to assess and manage any risk of diversion Some operate programs directly in particular areas of interest or need Others have active re-granting or donor-advised programs based on local due diligence and oversight

    25. Silk, Adler & Colvin www.silklaw.com Dont Give Up! U.S. charities have an essential role in cross-border giving, especially in communities with strong ties to countries of origin and especially in times of international turmoil Governmental donor deterrence efforts were not meant to deter the responsible philanthropist