November 22, 2010; Source: Council on Foundations | A coalition of foundations, nonprofits and other organizations announced on Monday that it is giving up efforts to try to change what it described as "confusing and misleading" guidelines that the U.S. Department of Treasury put in place seven years ago to prevent the diversion of philanthropic funds to terrorist groups. In a statement, Janne Gallagher, general counsel for the Council on Foundations, said that the guidelines "serve as significant deterrent to the important work of philanthropy here in America and around the world."

Specifically, the Council said in its statement that the Treasury's guidelines fail to "recognize the important role of global philanthropy in increasing national security through funding to address poverty, inequality, disease, and other pressing needs." For years, those pressing for a change in the guidelines said the Treasury Department's fears of charitable funds being used for terrorist purposes are overblown. The group has also maintained that "U.S. charities and foundations have long-established due-diligence procedures to minimize the risk that grants or operations will be diverted to any improper use."

The coalition called the Treasury guidelines counterproductive and said they imposed "excessively burdensome and impractical barriers to global relationships and grantmaking." Nearly all the examples of abuse cited by Treasury over the years involved foreign charities, not domestic charities. Foundations have reacted to the guidelines in a number of ways, including putting in onerous clauses in their grants letters to charities making them pledge they are not involved in terrorist activities. Others have debated whether or not to even make grants to groups that might someday cause them to have to defend themselves.

As an alternative to the government's guidelines, the coalition produced a widely circulated report, Principles of International Charity, that summarized best practices in international grantmaking, but Treasury never showed any interest in the nonprofits' constructive suggestions. The department's response went exactly the other direction. It announced instead that it would expand rather than retract the guidelines.

The working group said it was essentially throwing in the towel after trying for more than seven years to get the Treasury Department to implement modified guidelines that would be "more effective at reducing risk." The unanswered question is what is behind the Treasury Department's continuing opposition to modifications through both the Bush and Obama administrations. Also unclear is why it bypassed normal procedures to subject the "voluntary" guidelines to notice and comment—as would be customary for a rulemaking agency like the Treasury. If the guidelines aren't appropriate or necessary, and the foundations are following rules that are addressing the potential problem, how to explain Treasury's years of recalcitrance?—Bruce Trachtenberg