Wall Street Journal - July 6, 2004
Rachel Emma Silverman, rachel.silverman@wsj.com

Terrorism has made it trickier for international charities to be sure their money is winding up in the right hands. Now, they're offering donors some new reassurances.

As the government heightens its scrutiny of charities that donate abroad, many are adopting tougher procedures to track the groups that receive their donations. This has sparked the growth of charitable funds that act as middlemen, vetting and monitoring donations to overseas projects and causes.

GLOBAL GRANTS See some U.S.-based charities that make grants in specific areas abroad.

At the same time, a number of community foundations, which have long supported local causes like the neighborhood food bank, are now allowing their donors to make grants abroad.

This method of giving has a considerable benefit for individual donors: it makes overseas gifts tax-deductible. Tax laws generally prohibit individual donors from taking a deduction when sending money abroad directly. But since these charities are registered in the U.S., donors can take the maximum tax deduction.

Isabel Chiu, a Milpitas, Calif., accountant, wanted to give money to help her father's high school near Shanghai. She considered several charities, as well as the option of starting her own private foundation, but decided to set up a fund with Give2Asia that makes grants to the school. "It cuts out a lot of red tape, and I can set up these particular projects," Ms. Chiu says.

For givers, the bar to entry is often steep. The Meaningful Assets fund, for instance, is available only to clients of Citigroup Private Bank who have at least $5 million in investable assets; the fund requires a minimum donation of $250,000. But some options are less expensive. Charities Aid Foundation America requires a minimum of only $5,000 to set up a fund, while Give2Asia requires $10,000.

The funds typically charge a 1% fee for holding and investing the money; some charities also charge additional fees to disburse money from the fund.

Interest in international causes has jumped in recent years, even amid growing wariness about sending money overseas. In 2003, donations to charities involved in international affairs rose nearly 15% from the year before, to $5.3 billion, while total charitable giving rose less than 3%, according to the American Association of Fundraising Counsel Trust for Philanthropy. Still, international-affairs groups made up only about 2% of total giving.

These new vehicles for directing gifts overseas are a twist on so-called donor-advised funds, which have been offered by charitable groups for some time. They allow individuals to give a lump sum to a charitable fund, while taking an immediate tax deduction. Donors can then direct which causes get the money and when.

Now, in response to the growing complexity of giving to organizations overseas, more of these funds are directing donations to international causes. That means that donors who want to give to, say, a particular school or health clinic abroad don't have to set up their own foundation or give their money to a large charity that might have a less-targeted mandate.

Also gaining in popularity are donor-advised funds sponsored by community foundations. In the past, these foundations, which are generally public charities, have given money mainly to local groups. Now, some are allowing donors to direct their grants overseas. Last year, for instance, the Community Foundation Silicon Valley gave about $4.1 million to international recipients, compared with only about $800,000 in 2000.

Last month, donor-advised funds were in the spotlight as the Senate Finance Committee held a hearing on abusive practices by charities, driven by a series of pay and governance scandals. The funds have been accused of, among other things, allowing donors to use grants to pay for personal expenses. The committee proposed tighter requirements for donor-advised funds, including restrictions on grants to certain foreign organizations; requiring contributions, other than cash or publicly traded securities, to be sold within one year of the gift; and prohibiting donor-advised funds from making grants to certain private foundations or to individuals.

All this comes at a time of increased concern about donating abroad. After the Sept. 11, 2001, terrorist attacks, President Bush issued an executive order giving government the power to freeze assets of charities linked to terrorist activities -- even if the groups had no knowledge of the connection. The order prompted many charities to check their grant recipients against government terrorist lists. Additionally, the Treasury Department issued a list of voluntary guidelines, among them that charities review the financial accounts of their grant recipients to ensure that no money is being laundered by terrorists.

The U.S. government has already frozen the assets of several U.S.-based charities because of alleged terrorist ties. One charity, al Haramain Islamic Foundation, which was based in Saudi Arabia but also has had a U.S. presence, was dissolved last month by Saudi officials.

Most U.S. charities have long had extensive monitoring systems to ensure that their grants are being used effectively. But keeping track of terrorist ties has been especially tough on small charities and family foundations, which might not have the money or know-how to do the necessary background checks for international grants.

To address those problems, industry groups have issued handbooks and organized seminars to help charities deal with the new measures. And a handful of software programs and consulting services have started to help them investigate grant recipients for terrorist links, matching grantees against various international terrorist lists.

One for-profit group, Geneva Global Inc., assesses the effectiveness of overseas charitable projects for its clients -- mainly family foundations or wealthy individuals -- levying a 10% fee for its services. Since the Sept. 11 attacks, the group has assigned a staffer to check grant recipients for terrorist ties.

Some charities are touting their antiterrorist policies as a marketing tool to attract more donations. One group, Charities Aid Foundation America, even features a lawyer-written "clean bill of health" letter on its Web site, attesting that its due-diligence procedures seem sound.

Such claims, though well-intentioned, may not hold much weight. There is no group that officially issues seals of approval to charities on due diligence. In fact, there is still some confusion and debate about how exactly to comply with the new rules and recommendations.

Copyright © 2004 - The Wall Street Journal. Reproduction of this article (other than one copy for personal reference) must be cleared through the WSJ Permissions Desk.

AEGiS is made possible through unrestricted grants from Boehringer Ingelheim, Elton John AIDS Foundation, John M. Lloyd Foundation, the National Library of Medicine, and donations from users like you. Always watch for outdated information. This article first appeared in 2004. This material is designed to support, not replace, the relationship that exists between you and your doctor.

AEGiS presents published material, reprinted with permission and neither endorses nor opposes any material. All information contained on this website, including information relating to health conditions, products, and treatments, is for informational purposes only. It is often presented in summary or aggregate form. It is not meant to be a substitute for the advice provided by your own physician or other medical professionals. Always discuss treatment options with a doctor who specializes in treating HIV.

Copyright ©1980, 2004. AEGiS. All materials appearing on AEGiS are protected by copyright as a collective work or compilation under U.S. copyright and other laws and are the property of AEGiS, or the party credited as the provider of the content. .