KindHearts ruling exposed Treasury Department's unconstitutional freezing of Muslim charity assets

Sahar Aziz [Pro Bono Counsel, Bill of Rights Defense Committee]: "A recent ruling [PDF file] by a federal district court signifies an encouraging shift for Muslim charities in the United States. For many such non-profits, mere investigation by the Department of Treasury's Office for Asset Control (OFAC) into their humanitarian activities abroad has become a kiss of death.

Under the USA PATRIOT Act, Treasury's authority to designate organizations suspected of supporting terrorism as Specially Designated Global Terrorists ("SDGT") pursuant to Executive Order 13224 [PDF file] was expanded to asset blockage pending mere investigation into whether an organization meets the standards for an SDGT. This authority enables OFAC to effectively shut down charities pre-emptively, leaving a cloud of suspicion over anyone affiliated in any way with their work (e.g., as donors, staff, or beneficiaries). Hence the ultimate question of whether a particular charity actually supports terrorism quickly becomes a moot point.

The ruling relates to KindHearts, which was founded in January 2002 with the stated purpose of providing humanitarian aid in the Middle East and elsewhere after OFAC shut down the largest American Muslim-affiliated charities in the fall of 2001. Exercising its broad authority, OFAC froze KindHearts' $1 million of humanitarian donations in February 2006 pending investigation as to whether it provided material support to Hamas. The freeze was imposed just weeks after Hamas won parliamentary elections in Gaza. Indeed, KindHearts had been donating humanitarian aid to poor Palestinians in Gaza, and others in impoverished areas across the globe, for four years with no objection from the US government.

One especially troubling aspect of the KindHearts case is that its founders purposely took great care to ensure compliance with anti-terrorism financing laws, sought guidance from the US Department of Treasury during the organization's inception, and proactively implemented Treasury's voluntary guidelines [PDF file] for charitable organizations. These efforts were ultimately futile, raising concerns throughout the nonprofit sector. Rather than reflect legitimate efforts to combat terrorism, this authority penalizes charitable giving by Muslims in America to Muslims abroad and politicizes humanitarian charity.

More than three years after the asset block, the US District Court for the Northern District of Ohio recently held [PDF file] that KindHearts has "a fundamental right to be informed on what basis and for what reasons the government deprived it of its assets and shut down its operations." The Court found that KindHearts never received timely or adequate notice of the basis for the investigation or why it was "preliminarily" designated. The charity thus was unable to prepare a meaningful defense to the government's allegations.

Moreover, the inadequate notice came after long and inexplicable delays by OFAC. As a result, the court concluded that OFAC failed to provide KindHearts with pre- and post-deprivation process in violation of Fifth Amendment due process rights. Specifically, the allegations required the government to provide an estimate of the approximate amount of allegedly illegal donations and to whom the donations went. The government also has a duty to promptly provide a charity the unclassified administrative record on which it relied. While OFAC eventually provided such information to KindHearts, the Court reproached OFAC for a 30-month delay in violation of KindHearts' due process rights.

Representing a dramatic change, the Court also found that OFAC's asset-blocking constitutes a seizure subject to Fourth Amendment analysis. Equating OFAC's preliminary investigation prior to an asset freeze pending further investigation to traditional law enforcement investigatory activities, the Court found that OFAC is required to obtain a judicial warrant based on probable cause prior to issuing a blocking order.

Finally, the Court found that OFAC acted arbitrarily and capriciously in limiting the extent to which a charity can access its frozen funds to compensate counsel. Though a charity does not have a constitutional claim to its own funds to pay counsel, the court reasoned, OFAC's decision to approve $27,040 - a meager amount in light of the complexity of the case and extensive delay caused by OFAC - increased the risk to KindHearts of erroneous deprivation in violation of Fifth Amendment due process rights.

In a post-September 11 judicial and statutory landscape that has favored government counterterrorism authority at the expense of individual rights, the thoughtful KindHearts ruling spells a long overdue change. In June 2009, President Obama acknowledged that "in the United States, rules on charitable giving have made it harder for Muslims to fulfill their religious obligation. That's why I'm committed to working with American Muslims to ensure that they can fulfill zakat." Whether his administration will act on his commitment in practice remains to be seen."

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