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U.S.

Department of Justice

Criminal Division

Washington, DC 20530-0001

February 14, 2000

MEMORANDUM

- UNCLASSIFIED BUT SENSITIVE -

To: Working Group on NGOs and Terrorist Financing


Laura Cooper, State
Cliff Johnson, State
vince Garvey. Justice
Carol Jeandheur, Justice
Gary Winter, USAID

From: Jeff Breinholt


Terrorism and Violent Crime Section
DOJ Criminal Division

Subject: Prospective Remedy for USAID Terrorist Financing Issue

1. Introduction

Interdicting terrorist financing is a major component of


the United States counterterrorist strategy. Terrorism cannot
occur without funding, and the amount of money needed to plan
and execute terrorist attacks has increased as the most
frequently-targeted nations have fortified their security and
defensive capabilities. At the same time, terrorist groups are
facing new difficulties in secretly moving their money. This
is a direct result of international cooperation and concerted
efforts to attack the sources of terrorist financing.

The United States has been at the forefront of these


efforts, and we have attempted to raise the profile of the
terrorist financing problem in international fora. In
bilateral and multilateral negotiations, we have described the
ultimate goal as disrupting the flow of all funds to groups
that are engaged in terrorism, irrespective of their source.
Deprived of their financial means, terrorist groups represent
less of a threat and will more easily be broken through our
aggressive efforts and those of our counterterrorism partners.
That is the theory that underlies our global approach to this
issue.

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Terrorist financing is an especially sensitive issue where


the relevant funds come from U.S. coffers. Money from U.S.
taxpayers should not find its way into the hands of terrorists.
The United States will continue to provide assistance to
disadvantaged individuals, groups and nations. However, unless
we prevent assistance we provide through our worldwide
financial aid programs from flowing to terrorists, we will
neither be fulfilling our counterterrorist mission nor be true
to our role as a leader in the fight against terrorist
financing.

This issue is being considered in the specific context of


grants and contracts that are administered by the U.S. Agency
for International Development (USAID), a component of the State
Department that finances and coordinates assistance packages,
government contracts and programs in less-developed parts of
the world. How can USAID protect against its grant and
contract monies being provided to terrorists?1

This question is not merely academic. Two ostensible


Islamic charities, Mercy International Relief Agency and the
Islamic Society of Arlington (Texas) have been publicly linked
to Usama Bin Laden.2

Recent discussions of this issue have focused on two


separate questions. First, how can USAID terminate grants

xFor ease of reference, USAID grant and contracts will be


referred to collectively as "grants" throughout this analysis.
The system we are proposing should apply both to USAID grantees
and contractors. Both categories are intended to be included
within the term "grantees."
According to court records reported in the New York Times
(January 23 and January 27, 2000), Usama Bin Laden's
organization, al Qa'ida, used Mercy International, a Kenyan
charity, as a front for terrorist operations. The charity's
director was in contact with Bin Laden's satellite phone, and a
search of the charity's files uncovered receipts that show plans
to obtain weapons from Somalia a few days before the August 7,
1998 bombing of the U.S. Embassy in Nairobi. The iman of the
Islamic Society of Arlington, Moataz Al-Hallack, aided Bin
Laden's purchase of a jet after Bin Laden moved to Sudan. Al-
Hallak's attorney acknowledged this help, but maintains that the
jet was for Bin Laden's businesses.
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where it receives information that some of the grant money is


being provided to terrorists? Second, how can USAID assure
that prospective grant recipients are not providing assistance
to terrorists?

The two analytic papers that have been prepared so far, by


USAID and DOJ Federal Programs Section, respectively, have
dealt almost exclusively with the first question. Each paper
addresses the legal and constitutional issues that are likely
to arise where USAID terminates a grant based on concerns about
the grantee's terrorist connections, where these controversies
are likely to be heard and what the United States could be
required to disclose in the course of the litigation. These
analyses do not, except in passing, address the second issue,
which is the goal of this paper: how to set up a prospective
system to minimize the risk of terrorists accessing funds
controlled by USAID grantees and contractors.

2. Statement of the Goal

In discussing a prospective fix, it is important to first


state the problem we are seeking to remedy. It is not USAID
grant recipients "associating" with terrorist groups. Although
the United States may have an interest in the social and
political affiliations of USAID grant recipients - at least to
the extent that they include occasional contact with known
terrorists - this is far removed from the main issue: what
USAID grantees do with their money. It is, after all, the
threat that U.S. money will be used by terrorists that prompted
this analysis. When compared to such loose concepts as
"association" or "affiliation," financial transactions are more
concrete and subject to clear definitions, criteria, and
demonstrable proof. In our judgment, any prospective remedy
should not be concerned with the social affiliations or
political activities of the grantee and its officers. The
focus should instead be on the more direct question of where
USAID grantees direct their money.3

3Although this point may be obvious, it probably bears


repeating, in light of some of the language of the earlier
papers. The first line of the Federal Programs draft paper, for
example, states, "[USAID] is considering terminating the grants
of two grant recipients who may be * associating' with foreign
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If we limit our focus to the grantee's expenditures, are


we concerned with how it applies all of its resources or only
that portion that can be traced back to the USAID award? Grant
recipients frequently receive money both directly from USAID
and from private foundations and donors. Should we seek merely
to prevent the transfer of the government-sourced money to
terrorist groups? We think not. Any prospective solution
should seek to prevent USAID grantees from providing money or
anything of value to terrorists, irrespective of whether the
source of the money or other material support is the U.S.
Government.

This conclusion flows directly from our counterterrorist


strategy and the measures that have been adopted to accomplish
it. The United States' goal in the terrorist financing area is
to aggressively disrupt the flow of money to terrorists,
irrespective of its source. We do not view our mission as
being limited to assuring the funds that originate in the U.S.
Treasury remain clean as they travel the world. Our commitment
is more expansive, and involves cooperation with other nations
in an attempt to cut off the flow of terrorist funds, from any
source, whether such funds originate from the U.S. government,
private groups or individuals within the U.S., or public or
private sources anywhere in the world.4

organizations involved in terrorist activities." If this is


truly our focus, it should not be. Describing the problem in
this manner begs the question of whether First Amendment rights
are implicated by our actions. Although the freedoms of speech
and association can be implicated in Government-imposed
limitations on financial transactions, as described below, the
constitutionality of such limits are easier to defend than direct
restrictions on general associational activity.

4The need to prohibit USAID grantees from engaging in any


financial activities with terrorist organizations is further
illustrated by the international obligations we have assumed.
State Parties to the recently-concluded U.N. Convention on the
Suppression of Terrorist Financing are obligated to criminalize
the act of providing financing to anyone for purposes of
terrorism and specifically envisions the prosecution of persons
for providing such support from their private funds. The United
States was active in the negotiation of this Convention and was
one of the principal proponents of these particular provisions.
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This concept is given practical expression in our domestic


laws. In the United States, it is a federal crime, for example
to provide material support to terrorists. 18 U.S.C. §§ 2339A,
2339B. While § 2339A prohibits the providing of material
support, knowing and intending that such support be used
committing, or preparing to commit, an act of terrorism, §
2339B goes even further. It criminalizes the act of "knowingly
providing material support or resources to a foreign terrorist
organization," that is, an organization that has been
designated as such by the Secretary of State.5 At present,
there are 28 designated foreign terrorist organizations to
which it is a crime to provide material support or resources.6

Since the United States has gone so far as to criminalize


such conduct when committed by anyone "within the United States
or subject to the jurisdiction of the United States," it seems
reasonable for us to seek some way to administratively prevent
the same conduct when committed by a recipient of USAID grant
money. Put another way, if USAID grant recipients can be
prosecuted for their acts of providing money to terrorists -
irrespective of the source of that money -- that same conduct

518 U.S.C. § 2339A defines "material support or resources"


as "currency or other financial securities, financial services,
lodging, training, safehouses, false documentation or
identification, communications equipment, facilities, weapons,
lethal substances, explosives, personnel, transportation, and
other physical assets, except medicine or religious materials."
This definition applies to § 2339B as well.
6Listed by their primary name (as opposed to their aliases),
these 28 organizations are: Abu Nidal Organization (ANO), Abu
Sayyag Group, Armed Islamic Group (GIA), Aum Shinrikyo, Euzadi Ta
Askatasuna (ETA), Gama'a al-Islamiyaa (IG), HAMAS, Harakat ul-
Mujahideen (HUM), Hizballah, Japanese Red Army (JRA), al-Jihad,
Kach, Kahane Chai, Kurdistan Worker's Party (PKK), Liberation
Tigers of Tamil Ealam (LTTE), Mujahedin-e Khalq (MEK), National
Liberation Army (ELN), Palestinian Islamic Jihad (PIJ), Palestine
Liberation Front (PLF),Popular Front for the Liberation of
Palestine (PFLP), Popular Front for the Liberation of Palestine -
General Command (PFLP-GC), al Qa'ida, Revolutionary Armed Forces
of Colombia (FARC), Revolutionary Organization 17 November,
Revolutionary People's Liberation Party/Front (DHKP/C),
Revolutionary People's Struggle (ELA), Shining Path (SL), Tupac
Amura Movement (MRTA).

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should certainly represent adequate grounds for rejecting,


terminating, or refusing to renew USAID grants. By stating our
goal as preventing activity that already qualifies as a federal
crime, we will hopefully avoid the entire question of whether
our ultimate goal is fair. Such a goal is, in any event,
required by law.7

Thus, the prospective remedy should be addressed to this


goal: preventing USAID grant recipients from providing any
material support or resources to terrorists, whether such
support/resources derives from grant money or money raised from
independent sources. We suggest that our prospective remedy be
focused, at least initially, on material support and resources
being provided to the 28 designated foreign terrorist
organizations and their agents, as this is the specific conduct
targeted by the criminal sanctions of § 2339B.8 The intent to
engage in such conduct (as shown by a refusal to sign the
certification) should disqualify applicants from USAID grants.
If a grantee is found to have provided such support, it should
be grounds for grant termination or, at the very least, non-
renewal .

Having defined the goal, a prospective remedy should


endeavor to put the United States in the best possible posture
to take action against USAID grant recipients who are providing
material support to terrorist organizations. In addition to
being constitutional, the remedy should seek to avoid, to the

7This strategy will not, of course, prevent aggrieved


applicants from challenging its grant denial from making the same
constitutional arguments it would make in defending a § 2339B
prosecution: that the United States has no authority to prohibit
it from transacting business with terrorist organizations, for
example, because such transactions are protected by the First
Amendment. So far, however, these challenges have fallen flat.
See Humanitarian Law Project v. Reno. 9 F. Supp. 1176 (C.D.
Cal.)(preliminary injunction motion in which court rejected
argument that § 2339B unconstitutionally infringes on donor's
First Amendment rights.)

8The certification list we are proposing could be expanded,


for example, to include individuals not designated for § 2339B
purposes who are nonetheless the subject of the "Executive Order
Prohibiting Transaction With Terrorist Who Threaten to Disrupt
the Middle East Peace Process."

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extent possible, many of the litigation risks that are


discussed in the two earlier papers, and to minimize the
disclosure of classified national security information that
will frequently form the basis for the Government's suspicions
about a particular grantee's activities.

3. The Proposal

(a) Special Certification on USAID Grant Applications

Case law that is specific to USAID grant procedure


suggests a means for accomplishing this goal, or at least a
good first step in that direction. It consists of two parts.

First, we propose that USAID require all grantees, as a


condition either of a new grant or a renewal of an existing
one, certify in writing that they will not provide any material
support or resources in any form, either directly or
indirectly, to the 28 designated foreign terrorist organization
(which will be listed by name and alias on the face of the
certification) or their agents.9 The grantee's refusal to sign
such an agreement, prior to either receiving a new grant or the
renewal of an existing grant, will disqualify it from the grant
or renewal. Such failure will essentially render the
application incomplete. Once certified, a violation of this
term will be grounds for unilateral termination.

Second, we recommend that this systemic change be


accompanied by a process in which the intelligence community
reviews the names of all current USAID grant recipients to
determine if there is any information suggesting that they have
engaged in financial transactions with any of the designated
terrorist organizations, or groups believed to be their fronts
or agents. Prospectively, the names of new USAID grant
applicants should be vetted in the same way, in order to
determine whether the applicant's certification is accurate.

'Currently, the designation of foreign terrorist


organizations occurs every two years. Because the terms of USAID
grants and contracts can be longer than this, the text of the
certification should probably refer to the fact that the list
also encompass organizations that may be designated in the
future, with a reference to where this new information can be
found.

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Such vetting process has been suggested in earlier


analyses and is not discussed here. The balance of this paper
is instead addressed the certification part of the proposal.

(b) Constitutionality of Eligibility Clause

The constitutionality of such conditional certifications,


in the specific context of USAID grant applications, has been
consistently sustained by the courts against First Amendment
challenges. Significantly, the United States may have been on
weaker footing in those cases than we are here. Those
certifications were nonetheless upheld.

During the 1980s, USAID imposed such a certification


requirement on non-governmental family planning organizations
that receive federal family planning funds. USAID grant
applicants were required, on their applications, to certify
that they will not provide financial support to any other
foreign nongovernmental organizations that perform or actively
promote abortion as a means of family planning.

The abortion counseling limitations were premised on a


government policy that derived both from statute and executive
order. The Foreign Assistance Act of 1961, 22 U.S.C. § 2151 et
seq. , while authorizing foreign aid to increase the
opportunities and motivation for family planning, prohibited
the use of funds to pay for abortions as a means of family
planning. This policy was expanded by a Reagan Administration
policy, announced at the U.N.-sponsored International
Conference on Population in Mexico in August 1984 and
thereafter referred to as the "Mexico City Policy," which
stated, in part, "the United States will no longer contribute
to separate nongovernmental organizations which perform or
actively promote abortion as a method of family planning in
other nations." This prohibition would apply, even if the
foreign organization's abortion activities were financed
entirely by private funds.

Based on this policy, USAID adopted new eligibility


provisions for both foreign and domestic nongovernmental
organization (NGOs) to be incorporated into the text of grants
and cooperative agreements that USAID required its grantees to
sign as a condition of receiving funds. The actual
certification requirement and language of these provisions,
which came to be known as the ^Eligibility Clause," depended on

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whether the applicant was a domestic or foreign non-government


organization (NGO). Foreign NGOs were required to certify
that:

[They do] not now and will not during the term of
this grant perform or actively promote abortion as a
method of family planning in AID-recipient countries
or provide financial support to any other foreign
nongovernmental organization that conducts such
activities.

Domestic NGOs, meanwhile, were required to certify that:

[They] will not furnish assistance for family


planning under this grant to any foreign
nongovernmental organization which performs or
actively promotes abortion as a method of family
planning in AID-recipient countries or which provides
financial support to any other foreign
nongovernmental organization that conducts such
activities.10

The Eligibility Clause was challenged by several domestic


organizations and consistently upheld. DKT v. AID. 887 F.2d

10The limitations imposed on domestic NGOs are analogous to


the § 2339B restrictions. In the abortion context, domestic NGOs
were prohibited from providing any assistance to any foreign
group involved in abortion promotion, even if the domestic NGO
intends the particular assistance to be used for non-abortion
activities. Domestic NGOs were free to continue to engage in
those abortion activities itself, but they could not give money
to foreign groups that do so. The fact that a foreign NGO
engages in abortion activities, in essence, pollutes it; such
foreign groups are ineligible to receive any money from domestic
USAID grant recipients, irrespective of the intent of the
domestic group. In the terrorism context, § 2339B prohibits
individuals from providing any material support or resources to
designated foreign terrorist organizations, irrespective of the
whether the donor expects such support to be used for
philanthropic, non-violent activity. Thus, the designation of a
foreign terrorist organization pollutes it, making it ineligible
to receive any money from any public or private U.S. source, even
for ostensible non-terrorism purposes.
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275 (2nd Cir. 1989); Planned Parenthood v. AID, 915 F.2d 59 (2nd
Cir. 1990) Pathfinder Fund v. AID. 746 F. Supp. 192 (D.C. Cir.
1990) . These challenges were statutory and constitutional in
nature. The courts' handling of the constitutional claims
provides guidance on how courts may view similar challenges to
the type of certification we are proposing.11

The constitutional arguments in these cases were premised


on the First Amendment, and the claim that, with the
certification requirement, the grant applicant was deprived of
its right to associate with persons and entities whose
abortion-related activities, including the dissemination of
information, conflict with USAID's policy.

In rejecting these claims, the courts in DKT and


Pathfinder drew a key distinction between punishing the
exercise of a constitutional right and refusing to subsidize
it. The government's refusal to subsidize the exercise of a
constitutionally-protected right is not tantamount to an
infringement of that right, or, as the court approvingly
described USAID's position in DKT. "[The grantee] is just as
free to associate with [the foreign abortion groups] as they
were ever. They just can't do it with our money." DKT.
supra.. at 292. The DKT court reasoned that the certification
creates no obstacle to the grantees' associating with other
groups and individuals that would not be there absent the grant
program in the first place. A similar conclusion was reached
by the court in Pathfinder, which noted that "a First Amendment
violation is not found if governmental action has merely made
it somewhat more difficult for domestic organizations to
associate with the organizations of there choice." Pathfinder,
supra., At 196.

The plaintiff in Planned Parenthood had a slightly


different argument: the certification requirement imposed an
unconstitutional condition on an important government benefit
by requiring it to enforce restrictions on speech in order to

"The statutory claims involved arguments about the proper


interpretation of the Foreign Assistance Act of 1961, and whether
it permitted the Executive Branch to go beyond the statutory
language, as it did in the Mexico City Policy. Because we are
not depending on that statute in the current proposal, the
resolution of these statutory claims is irrelevant here.
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participate as a conduit for AID funds to foreign NGOs. While


stressing the need to defer to government action in the area of
foreign affairs and nearly ruling the issue non-judiciable
under the political question doctrine, the court ultimately
rejected the constitutional argument on the merits in much the
same way as the courts did in DKT and Pathfinder:

The government's 'decision not to subsidize the


exercise of a fundamental right does not infringe the
right and thus is not subject to strict scrutiny.'
... A policy of not subsidizing the exercise of a
fundamental right differs in an important respect
from the prohibition on the exercise of a fundamental
right, or from the imposition of an unconstitutional
condition on the exercise of a fundamental right,
because the mere refusal to subsidize a fundamental
right 'places no obstacle in the path' of a plaintiff
seeking to exercise that right . ..[U]nlike statutes
imposing criminal penalties ...the [Eligibility]
Clause does not prohibit plaintiffs-appellants from
exercising their first amendment rights. Plaintiff-
appellants may use their own funds to pursue whatever
abortion-related activities they wish in foreign
countries. Indeed, the [Eligibility] Clause permits
Planned Parenthood to grant AID funds to a foreign
NGO for all aspects of family planning except
abortion and to use its own funds to establish an
abortion-related facility next door.

Planned Parenthood, supra.. at 63-64 [citations omitted].12

The terrorist financing certification we are suggesting,


at least insofar at it relates to the 28 designated foreign
terrorist organizations and their agents, should not be as
controversial as the Eligibility Clause in the DKT line of
cases. All U.S. persons are, after all, already prohibited

"Our proposal is analogous to scenario described in this


excerpt from Planned Parenthood. Just as domestic NGOs are free
to engage in abortion activities itself but prohibited from
providing funds to foreign NGOs for this purposes, our NGOs can
use their own money for humanitarian activitities, but they may
not provide money to designated terrorist organization to engage
in those same activities.

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from violating § 2339B. USAID grant applicants will not be in


a position to claim that this requirement infringes on their
right to associate; they are merely affirming that they will
not engage in activity that is a U.S. crime, as a condition of
receiving U.S. grant money. In contrast, in the abortion
scenario, grant applicants had to affirm that they would not
engage in activity - abortion counseling - that is legal and
protected in the United States. As it is currently illegal for
anyone in the United States to provide material support or
resources to designated terrorist organizations, the proposed
certification will result in USAID grant applicants merely
foreswearing illegal activities. To the extent they have any
constitutional challenge, it would be to § 2339B and to the
designation process itself, and they probably would not have
standing in either case.

A couple points from these opinions further support the


constitutionality of the certification we are proposing.
First, according to the court in Pathfinder, the right of
"expressive association" - that is, the right to associate for
purposes of engaging in those activities protected by the First
Amendment - is more limited when the rights of Americans to
associate with foreigners is at issue. In such cases, the
proper test is whether the associational rights have been
significantly burdened. If not, courts need only find that the
Eligibility Clause is rationally related to a legitimate
government interest - in the abortion cases, the Mexico City
Policy - in order to uphold it.

Secondly, it is far from clear that organizations (as


opposed to individuals) enjoy a First Amendment right to
associate with other organizations. The court in DKT noted
that the plaintiff had offered no case in which the Supreme
Court had extended the protection of the right of "expressive
association" to the decision of two or three organizations to
"associate" together for the conduct of an undertaking. DKT,
supra., at 292.

Lastly, if organizations have such rights, foreign


organizations may fall outside of the zone of interests
protected by the First Amendment and thus lack standing to
raise the constitutional issue. The DKT court noted that
aliens beyond the territorial jurisdiction of the United States
are generally unable to claim the protections of the First
Amendment and reasoned that foreign NGOs lacked standing to

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challenge the Eligibility Clause. 13

The proposed certification as it relates to the agents of


the foreign terrorist organization may be slightly more
problematic, although not so much that they should be omitted
in the terms of the certification. Since not all of a
terrorist organization's agents may be designated by name, the
act of providing material support or resources to them may not
constitute a § 2339B violation, unless it could be shown that
the donor knew of the donee's true connection to the foreign
terrorist organization.14 By including agents within the terms
of the certification, USAID will be prohibiting conduct that
falls short of a clear-cut criminal violation.

However, as the DKT line of cases show, the certification


need not be limited to conduct that is criminal. Indeed, none
of the activity that family planning NGOs were required to
renounce - financial transactions with foreign organizations
that perform or advocate abortion - is illegal in the United
States. In fact, the courts specifically noted that the
domestic grant applicants there could themselves perform
abortion services, as long as they did so without USAID money.
They were required only to certify that they would not provide
USAID monies to foreign organizations that are engaged in such
conduct. It was left to them to determine which foreign
organizations fit into that category.

Retaining the reference to terrorist organizations' agents


carries additional benefits. By expanding the prohibition to
include front groups, we will be maximizing the grounds for
taking action against NGOs we find are dealing, even
indirectly, with terrorists. Secondly, retaining the reference
may result in NGOs being more vigilant in checking the
background of persons and groups with whom they transacts

13This conclusion may have been eased by the fact that the
DKT court went on to deny on the merits the same constitutional
arguments made by the co-plaintiff domestic NGO, which did have
standing. Thus, even if the foreign NGO was ruled to have had
standing, the result would have been the same.

14We anticipate that much of the litigation arising out of


§ 2339B prosecutions will involve defendants' claims that they
were unaware the group it was helping financially was, for
example, a front organization for HAMAS or Hizballah.

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business, out of concern that they may be unwittingly dealing


with a designated terrorist organizations through their fronts.
Lastly, including agents within the prohibition will be in
accordance with the Department of Justice's expectations on how
§ 2339B investigations will play out. We expect that the
designation of groups as foreign terrorist organizations will
cause them to alter their fundraising methods, and that they
will increasingly rely on front organizations that are set up
to appear unlinked to them and to terrorist activity. Once the
link is established, the prosecutive challenge will be showing
that the donor knew that the entity to whom it gave money was
in fact a front for the designated terrorist organization.
However, we believe that there will be cases where § 2339B
investigations are initiated on the basis that someone is
providing material support and resources to an entity that,
though not designated itself, is linked to one of the
designated groups. The criminal investigation would focus on
whether the person was aware of the connection between the
entity and the designated group. We believe such conduct, even
without this intent evidence, should be grounds for USAID grant
disqualification and termination, a civil remedy in which the
defendant's mental state is less of an issue, and the
government bears lighter burden, than in a criminal
prosecution.15

"Including agents changes slightly the goal described


above, "preventing activity that already qualifies as a federal
crime." Our goal might more accurately be described as
preventing activity that qualifies as a federal crime or which
could be grounds for the initiation of a criminal investigation.
As USAID noted in its analysis (redacted version, page 4), OMB
Circular A-110 already permits USAID to terminate grants with
non-profit organization if the grantee "fails to comply with the
terms and conditions of the award," or if USAID determines that
continuation of the funding "would be in violation of particular
law." We are suggesting something of a hybrid: making compliance
with the law a condition of the agreement, and treat violations
as a breach of contract rather than a criminal offense. To the
extent that the providing of material support or resources to
agents may not be a technical violation of § 2339B (a point which
we will ultimately dispute in the criminal courts), they will
nonetheless be covered by the grantee's agreement, if not the law
itself. That is, the grantee is agreeing to exercise more than
the minimum that is required by criminal law.
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4. Efficacy of Certification Requirement

With the certification we are suggesting, USAID grantees


will simply be agreeing to forgo activity that is prohibited by
U.S. law. This idea appears simple, and it has been mentioned
in the previous analyses.16 However, those discussions
apparently did not extend the idea to its full conclusion or
fully consider its advantages or efficacy. The certification
idea we are proposing will put the United States in a better
position to prevent USAID grant recipients from engaging in
financial transactions with terrorists. The impact, we hope,
will be initially in the area of prospective grantee compliance
and deterrence. Ultimately, it will place the United States in
a better posture to defend any action to terminate a particular
USAID grant.

(a) Deterrence and Voluntary Compliance

The certification proposal, it is hoped, will encourage

16The USAID paper (redacted version, page 2), for example,


suggests a similar certification as a precondition to non-profit
groups registering as "private voluntary organizations" (PVOs),
which is a prerequisite to USAID grant applications. It then
notes (page 4):

Further, USAID is revising its grants and cooperative


agreement to provide for termination if USAID should
receive disclosable information about the linkages
between the assistance recipient and [terrorist
groups]. All assistance recipients would be required
to furnish a certification to the effect that they have
not engaged in any prohibited transactions with nor
made any prohibited donations.

Thus, we are not suggesting something that has not already been
considered. Our analysis will hopefully guide the particular
text of the certification and the mechanics of its
implementation. We suggest, for example, that these
certifications include the names and aliases of the 28 designated
foreign terrorist organizations within its text.

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voluntary compliance with the U.S. goals, and deter underhanded


activity that may otherwise occur. Although § 2339B prohibits
providing material support and resources to designated foreign
terrorist organizations, it is possible that those involved in
philanthropic activities overseas will be ignorant of the
groups with whom the U.S. currently forbids financial dealings,
despite the fact that the list is published in the Federal
Register. Requiring USAID grant applicant to review this list
will put them on actual notice, and NGOs that intend to comply
with this requirement will be in a better position to know what
is expected of them.

By couching the prohibition in terms of a consensual


agreement between USAID and its grantees, the United States may
be able to deal with terrorist financing problems in this
context in an informal manner short of litigation, at least
when it comes to grantees who appear to be operating in good
faith. In dealing with sincere grantees who may be
inadvertently helping terrorist fronts, USAID could use the
certification clause to obtain compliance in ways similar to
the Internal Revenue Service, when it obtains information that
a non-profit organization is operating outside of the §
501(c)(3) criteria. The issue of terrorist organizations and §
501(c)(3) recognition is the subject of a October 12, 1999
analysis prepared by this office. As noted in that paper, the
IRS can, and commonly does, ask an organization at the
application stage to alter its activities or substantially
amend its charter to qualify for §501(c)(3) status. In fact, a
favorable IRS determination letter can specify that the
organization has agreed not to engage in certain activities.
See AHW Corp v. Commissioner, 79 T.C. 390 (1982),17 Similarly,
if the U.S. receives information that a grantee is having
financial dealings with a group that is secretly connected to
one of the prohibited organization, and it appears that the
grantee is truly unaware of the connection, they might be
brought into compliance simply by being told of it in very

17Based on our earlier analysis of the §501 (c) (3) issue, we


question one of the statements in the USAID paper. It asserts
(redacted version, page 2), that organizations that are denied
501 (c) (3) status are thereby ineligible for registration as
Private Voluntary Organizations (PVOs), a prerequisite for USAID
grantees. Our understanding is that PVOs need not be §
501 (c) (3)-qualified and that many are not.

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general terms. Hopefully, such general notice need not involve


disclosure of national security information nor intelligence
sources and methods.18

At the same time, NGOs that fully intend to secretly


assist terrorist organizations will not be able to claim that
they were not aware of the U.S. assessment of an entity's
involvement in terrorist activity. By reviewing the list and
signing the certification, they will be unable to claim
ignorance or to help these groups openly, as they will have
already agreed that such dealings are grounds for grant
termination.

(b) Litigation Posture

A more significant advantage to this proposal is the


impact it will have on our ability to take action once we
receive information of a terrorist link. The various
litigation risks that we face under the current system are
addressed in the earlier papers.

The analysis prepared by the Federal Programs Section, for


example, discusses possible civil claims a terminated grantee
or unsuccessful grant applicant could bring against the United
States, if the adverse action is based on the plaintiff's
connection to terrorist organizations or activity. We believe
that the certification proposal will minimize these litigation
risks, at least prospectively.

As noted, we suggest that, in addition to including the


certification clause, future USAID contracts explicitly provide
that failure to comply with the certification provision will be
grounds for USAID's termination of the grant, even before its
expiration. The stated reason for the termination will be
failure to comply with the terms of the agreement, rather than

"The general good faith of USAID grant recipients is


illustrated by the very fact of the DKT line of cases. If the
NGOs there were inclined to be cavalier with the commitment they
were being asked to make with the Eligibility Clause, they
probably would not have bothered with the lawsuits. They simply
would have assumed the obligation and then violated it.
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"national interest."13 This will effect many of the risks that


are described in Federal Program's and USAID's papers.

First, the First Amendment claims should be easily


defensible, as the constitutionality of the certification
requirement is already established. Although not addressed in
the DKT line of cases, it can be logically inferred from these
opinions that the United States would be acting within
constitutional limits if it terminates a USAID grant based on
the grantee's failure to comply with the Eligibility Clause
upheld in these cases. In other words, the fact that the
Eligibility Clause has been ruled constitutional necessarily
means that USAID, by enforcing it, would be acting within
constitutional limits. The opposite would be an absurdity,- a
grantee that fails to comply with certification - the
constitutionality of which is clear - cannot renew its First
Amendment arguments in challenging the constitutionality of a
termination action based on the Eligibility Clause. Those same
constitutional issues, involving the Government's right to
limit funding of foreign NGOs engaged in abortion activities,
are resolved in the direct challenges to the certification
requirement itself.

As noted above, a terrorist financing Eligibility Clause,


in which USAID grantees certify that they will not engage in
financial transactions with designated terrorist organizations
or their agents, is constitutional under the DKT line of cases.
If anything, the United States is on stronger constitutional
footing; here, the mischief we are seeking to prevent - unlike
the act of providing funds for abortion services - is already
prohibited by § 2339B or, at the very least, grounds for a
criminal investigation. If the certification we are proposing
is constitutional, the USAID actions taken to enforce it will
be as well.

Prospectively, then, the certification will make much of


the First Amendment risks, described in the earlier papers,
more remote. In discussing the First Amendment claims that

l9The analysis by Federal Programs suggests that the


regulatory authority for terrorist-based terminations could be 22
C.F.R. § 226.61, which permits USAID to terminate a grant
"because such assistance would not be in the national interest of
the United States."

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could arise where USAID terminates a grant or denies a grant


application, the Federal Programs paper (pages 2-9) concludes
that the result of such challenges will depend on the type of
"association" at issue and its purpose. By drawing up
certification language that meets constitutional standards, and
by shifting our emphasis away from "association" towards more
concrete financial transactions, we believe that the entire
First Amendment issue that would arise from a terminated grant
would be controlled by DKT. Planned Parenthood, and Pathfinder,
to our benefit.20

Moreover, when compared to a grant termination, The


constitutional arguments to challenge a grant denial will be
even more attenuated. There, the plaintiff would be arguing
that it was entitled to the USAID grant despite the fact that

20The Federal Programs Section paper seems to have


considered the certification idea we are proposing, albeit
without carrying it far enough. It notes (page 8):

AID could place in its agreements a proviso


that no federal funds may be provided to any
organization the recipient knows or should
know is engaged in terrorist activities.
This provision should be upheld regardless of
whether the recipient intended to transfer
federal funds for the purposes of advancing
"core" First Amendment activities. AID would
be free to restrict funds where the
association at issue is in furtherance of
criminal conduct.

This possibility seems to answer the question. Under our


proposal, all funds that are sent to designated terrorist
organizations are illegal per se. Note that the forwarded funds
need not be in "furtherance of criminal conduct." Under § 2339B,
the act of sending funds is criminal in and of itself. Federal
Program's analysis was based on assumption (articulated on page
1) that the government had no information that the grantees were
providing material support to designated terrorist organizations.
Our analysis assumes the opposite: that most of the national
security information we receive will involve financial
transactions with designated foreign terrorist organizations and
their fronts.

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it refused to sign the certification. The Government could


defend this action without resort to constitutional analysis;
the grant was denied because the applicant failed to submit a
completed application.

The certification proposal will also impact the sensitive


issue of what information the United States would be required
to disclose in defending challenged to USAID grant terminations
which Federal Programs addresses of its analysis (pages 15-19).
After the certification requirement, adverse actions can be
couched in terms of a violation of the terms of the grant
rather than the more amorphous concept of "national interest."
The Government's decision, if challenged, could then be
justified by the more narrow proof of the violation. The
simple fact the grantee engaged in prohibited transactions
would suffice. Disclosure - and the need to declassify records
maintained by the intelligence community - could be limited to
what is necessary to show the occurrence of a particular
transaction prohibited by the certification. It would not
require the United States to go a step further and show that
the grantee's activities represent a threat to U.S. national
security, nor the concomitant release of information about
sensitive sources and methods. Proof of a prohibited
transaction, in direct violation of what the grantee promised
up front, should involve less disclosure.21

Moreover, it is not clear that the Government would need


to show that the grantee was actually aware of the terrorist
connection. The certification could be worded such the
grantee's specific knowledge of how its donated monies are be
applied is not a necessary precondition to termination. As the
purpose of the grant termination action (as well as our goal in

21A1though not addressed here, we might also consider


whether the standards USAID agreements can be amended to provide
for mandatory arbitration in all disputes arising out of
terminations premised on the new terrorist financing
certification. This new contractual term could include a specific
acknowledgement of USAID's right to present classified
information to the arbitrator ex parte and in camera. without
disclosing it to the aggrieved grantee. However, this type of
provision - which arguably involves a grantee foreswearing
certain due process rights - would not be controlled by the DKT
line of cases.

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this entire exercise) is avoid the problem of U.S. Government


money being routed to terrorist activity, the culpability of
the courier - which would surely be an issue in a § 2339B
prosecution premised on such conduct - is irrelevant.22
Relieved of the burden to show the grantee's intent, the United
States need only cite the particular financial transaction
itself and be prepared to show proof of it." The grantee's
specific intent, if not irrelevant, would at least be a
secondary consideration. USAID will have essentially
established a due diligence requirement for grantees, and
grantee dereliction of this new duty will be grounds for
adverse action.

The efficacy of the certification proposal is illustrated


by how USAID grantees have reacted to their grants being
terminated under the current system. By letter dated December
29, 1999, the Islamic African Relief Agency (IARA) acknowledged
its receipt of USAID termination notice, which described
continuing funding of the grant as "not be in the national
interests of the United States." After noting its "profound
shock and utter bewilderment," IARA complains that the notice
fails to discuss the factual basis for the termination, noting
that there is no allegation that it was due to lARA's "failure
to comply with the terms and conditions of the awards in all
material respects."

The certification requirement we are proposing will not


eliminate this type of correspondence or legal challenges that
are likely to result from USAID termination actions. Groups in
IARA's position will continue to complain and threaten legal
challenges. Such challenges, however, will be easier to defend
where the termination is based on a grantee's failure to comply

"Conviction under § 2339B only requires proof that the


defendant knew he/she was providing material support or to a
designated foreign terrorist organization, and not the knowledge
that the particular support or resources would be used for
terrorist purposes. Thus, a donation to HAMAS that is
specifically intended to be used to build schools and hospitals
could be the basis for a § 2339B prosecution. That the donation
was specifically intended for HAMAS will suffice.

23Truly innocent grantees, who are likely to cease certain


activities upon be apprised of them, could be dealt with
informally in the manner described above.
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with the terms of its agreement, specifically its promise to


avoid financial dealings with designated terrorist
organizations and their agents. This particular complaint by
IARA would be unavailable. USAID will have alleged in the
termination notice that IARA had failed to comply with the
terms and conditions of the grant.

5. Conclusion

What we are suggesting will not impact the procedure that


USAID must follow to legally terminate grants. The
administrative and judicial review that is described in the
papers by Federal Programs (pages 9-14) and by USAID could
continue to apply, and the USAID would remain constrained by
Due Process and APA "arbitrary and capricious" limitations.
Our proposal is simply that we impose a new eligibility
requirement and an explicit term with the standard agreements,
which will create a wider grounds for action, in the event the
United States receives information that a grantee is secretly
engaged in financial transactions with known terrorist
organizations. The DKT/Pathfinder line of cases offer a model
for promulgating a certification that will withstand
constitutional scrutiny, one that will assure the USAID
terminations taken on the basis of certification violations are
similarly constitutional. Once in place, this new eligibility
requirement will relieve the United States of its burden of
justifying grant terminations by the difficult concept of
"national interest," thereby obviating the need to consider
disclosure of sensitive intelligence. Although this paper
addressed the USAID problem in particular, we see no reason why
the concept cannot be expanded beyond the USAID context and
considered as part of a solution the government-wide problem of
U.S. financial assistance being funneled to terrorists.

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APPENDIX

SAMPLE CERTIFICATION

Special Condition Relating to Financial Transactions


with Terrorist Organizations and Their Agents

As a condition of entering into the referenced


cooperative agreement between the undersigned applicant
between the United States Agency for International
Development (USAID), the applicant hereby certifies that
it will not provide material support or resources to any
other individual or organization that the applicant knows,
are has reason to know, is an individual or organization
that engages in terrorist activity, including but not
limited to the individuals and organizations listed below
and other such individuals and organizations that may be
designated by the United States under (statutes). The
applicant further agrees that it will not provide material
support to any organization or individual who the
applicant knows, or has reason to know, is acting as an
agent for any such individual or organization that engages
in terrorist activity.

For purposes of this certification, "material support


and resources" includes currency or other financial
securities, financial services, lodging, training,
safehouses, false documentation or identification,
communications equipment, facilities, weapons, lethal
substances, explosives, personnel, transportation, and
other physical assets, except medicine or religious
materials.

This certification is an express term and condition


of the agreement, and violation of it shall be grounds for
termination of the agreement prior to the end of its term.

Agreed:
(Applicant)

Date:

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Individuals and Organizations Engaged in Terrorist


Activity

Abu Nidal Organization (ANO), aka

Abu Sayyag Group, aka

Armed Islamic Group, (GIA) aka

Aum Shinrikyo, aka

Euzadi Ta Aakatasuna (ETA), aka

Gama'a al-Islamiyaa (IG), aka

HAMAS, aka

Harakat ul-Mujahideen (HUM), aka

Hizballah, Japanese Red Army (JRA), aka

al-Jihad, aka

Kach, aka

Kahane Chai, aka

Kurdistan Worker's Party (PKK), aka

Liberation Tigers of Tamil Ealam (LTTE), aka

Mujahedin-e Khalq (MEK), aka

National Liberation Army (ELN), aka

Palestinian Islamic Jihad (PIJ), aka

Palestine Liberation Front (PLF),aka

Popular Front for the Liberation of Palestine (PFLP),


aka

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Popular Front for the Liberation of Palestine -


General Command (PFLP-6C), aka

al Qa'ida, aka

Revolutionary Armed Forces of Colombia (FARC), aka

Revolutionary Organization 17 November, aka

Revolutionary People's Liberation Party/Front


(DHKP/C), aka

Revolutionary People's Struggle (ELA), aka

Shining Path (SL), aka

Tupac Amura Movement (MRTA) aka.

(Add HEPA individuals)

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