Nonprofit Law Prof Blog

Federal Judge Orders Government to Stop Terrorism Investigation of Charity

We previously reported that a federal district court judge concluded the federal government had violated the constitutional rights of KindHearts for Charitable Development, a Muslim charity, when the government froze the charity's assets in 2005 and so prevented it from adequately defending itself against allegations of ties to terrorism.  USA Today reportedlate last month that the same judge has ordered the federal government to halt its investigation into whether KindHearts should be deemed a terrorist organization, apparently effectively preventing the government from labeling the charity a "specially designated global terrorist."

LHM

ACORN Suit Challenges Congress's Denial of Funding

Late last week, besieged ACORN launched a legal counter-attack by filing a lawsuit in the federal district court for the Eastern District of New York.  Represented by the Center for Constitutional Rights, ACORN argues that Congress's decision to deny ACORN and related entities federal funding is an unconstitutional bill of attainder, citing among other sources a Congressional Research Service report that addressed this issue.

Additional Coverage:  Associate Press, New York Times, Volokh Conspiracy.

LHM

Lawsuit Challenging Minister Rental Allowance Could Foreshadow Broader Assault on Religious Nonprofit Benefits

Last month the Freedom from Religion Foundation and several of its members filed a lawsuit in federal district court in California against Treasury Secretary Geithner, IRS Commissioner Shulman, and California Franchise Tax Board Executive Officer Stanislaus challenging the exclusion from income provided for the value of parsonages and rental allowances provided to a "minister of the gospel" under Internal Revenue Code section 107.  While normally such suits would have a taxpayer standing problem - i.e., the long-standing federal court holding that merely being a taxpayer provides insufficient grounds for standing to challenge a tax benefit provided to another taxpayer - the U.S. Court of Appeals for the Ninth Circuit has indicated a willingness to depart from that holding when the Establishment Clause is at issue (see Winn v. Arizona Christian School Tuition Organization (slip. op. pages 4596-4602), rehearing en banc denied).  The attorney representing the Foundation is the well-known atheist Michael Newdow, who previously challenged the constitutionality of "under God" in the Pledge of Allegiance used in public schools.

The lawsuit is significant not only because of the plausible threat it provides to Code section 107, which is of significant financial value to religious leaders and their congregations, but also because if it overcomes the standing issue it may open the door to challenges to the many other tax and non-tax legal benefits provided only to religious bodies.  While many and perhaps most of those benefits are defensible on avoiding entanglement grounds, it is far from clear that all of them could be so defended. 

LHM

Single Individual Control Contributes to 501(c)(3) Exemption Denial

In Ohio Disability Association v. Commissioner, the United States Tax Court denied recognition as a Code section 501(c)(3) tax-exempt organization to a nonprofit corporation formed to create a pooled trust that would hold the assets of disabled individuals that would then, under the applicable law, not be considered in determining Medicaid eligibility.  The IRS agreed and the court ultimately agreed that the denial was justified based not only on the corporation's inability to adequately explain how it would operate exclusively for charitable purposes, but also on the fact that a single individual served as the corporation's sole incorporator, director, officer, and employee.  While carefully noting that control by one individual is not by itself grounds for denial (citing Revenue Ruling 66-219), the court when on to state that the "obvious opportunity for abuse" created by such a situation "calls for an open and candid disclosure of the taxpayer's organization and operations."  The court then found that the lack of a clear description of intended charitable activities, combined with the apparent lack of any other parties who could provide oversight of the corporation's activities, including, for example, overseeing compliance with the corporation's conflict of interest policy (adopted apparently only after IRS inquiries).  The court also noted that while the individual involved had agreed to serve without compensation, the articles of incorporation permitted the payment of reasonable compensation.  The bottom line is that the court's decision indicates any entity solely controlled by a single individual would have to make a strong showing that there were other measures in place to prevent any abuse of that control before the court would be willing to grant recognition of section 501(c)(3) tax-exempt status.

LHM

Donor Control of Charity Does Not Thwart Deduction

In Foxworthy Inc. v. Commissioner, the IRS denied, along with numerous other unrelated claimed deductions, hundreds of thousands of dollars in charitable contribution contributions in part because the individual donors controlled the recipient charity, the Bell Family Foundation (see pages 12-13 of the opinion).  The court flatly rejected the denial on these grounds, finding no authority supporting the position "that merely having control over the foundation disqualifies [the taxpayers] from claiming the charitable contribution deductions" (page 66 of the opinion).  While the conclusion is not surprising, the fact that the IRS would argue that a charitable contribution deduction should be denied on these grounds is troubling. 

(Hattip:  Christopher Hoyt)

LHM

Court Dismisses Catholic Answers's Challenge to Political Campaign Intervention Ban

We previously mentioned the case brought by the James Madison Center for Free Speech against the IRS on behalf of Catholic Answers, a charitable section 501(c)(3) organization.  Catholic Answers challenged the IRS imposition of excise taxes for political campaign intervention expenditures on void-for-vagueness grounds, asserting that the IRS definition of such intervention is unconstitutional.  Last week a federal district court dismissed the case on procedural grounds, including that the claim was moot in that the government had refunded the taxes initially assessed (as various commentators, including Marc Owens, had predicted would happen).  Another case brought by the James Madison Center on behalf of the Christian Coalition of Florida, a section 501(c)(4) organization, raising similar issues is still pending.

LHM

Philanthropic Advisory Services

The U.S. Court of Appeals for the 9^th Circuit issued an opinion, Warfield v. Alanniz, 569 F.3d 1015 (9th Cir 2009),  recently that classified charitable gift annuities as security instruments.  Defendants in the case promised investors that their investment would create an annuity with a high rate of return and that, upon their death, the remainder of their investment would go towards the charity of their choosing.  Sadly, the investment scheme was just that, a scheme.  The early investors were paid disbursements from the investments of later investors, the brokers skimmed off the top, and the entire structure collapsed in on itself.  Litigation began with the filing of a civil complaint by the SEC and ended with the 9^th Circuit’s ruling and a criminal sentence for at least one of the defendants.

While the Warfield case dealt specifically with a Ponzi scheme, the court's reasoning indicates that its holding applies to legitimate charitable gift annuities and fund advisers as well.  The court applied a three-part test to determine that the gift annuities constituted investment contracts for the purposes of the Securities Acts.  The test for what constitutes a “security” requires “(1) an investment of money (2) in a common enterprise (3) with the expectation of profits produced by the efforts of others.”  This is the test that the Supreme Court expounded over 60 years ago in SEC v. W.J. Howey Co., 328 U.S. 293 (1946).

The focus of the 9^th Circuit’s analysis falls to the third prong of the test.  The arguments and analysis boil down to one central question: whether the investors expected to make a profit.  The court answered this question based on the marketing of the ‘charitable’ foundation.   Specifically, the foundation “marketed its gift annuities as investments, and not merely as vehicles for philanthropy,” promising returns equivalent to stock investments that pay dividends of 19.3%.  Based on the foregoing, the 9^th Circuit found that the charitable gift annuities were investment contracts subject to federal securities regulation.  The court also held that the Philanthropy Protection Act of 1995 did not apply.  The Philanthropy Protection Act exempts charitable organizations that collect funds for the issuance of charitable gift annuities, from the registration requirements of the Securities Acts.  The court held that the fact that the sellers of the gift annuities at issue collected commissions on the sales of the annuities precluded the application of the Philanthropy Protection Act exemption.

The court's conclusions are in line with current calls for tighter regulation of all investment instruments, (whether issued by for-profit or nonprofit entities) and of those who create and broker them

SS

DC Circuit Rejects Rules Limiting Fundraising by Nonprofits for Election-Related Spending

We previously blogged about the pending Supreme Court case of Citizens United v. FEC that may result in the Court holding that all corporations, for-profit and nonprofit, must be allowed under the First Amendment to make unlimited independent expenditures relating to elections.  While the decision in that case is still pending, the U.S. Court of Appeals for the District of Columbia Circuit issued an opinion last week declaring unconstitutional other rules limiting spending by nonprofit entities on elections.  In Emily's List v. FEC, the well known political committee that promotes abortion rights and supports pro-choice Democratic women candidates challenged new Federal Election Commission rules that limited the amounts that any individual donor could give to the group to use for federal election-related activities.  The rules provided that if a nonprofit group is an FEC registered political committee that both makes independent expenditures relating to elections and maintains a separate segregated fund - a "hard-money account"  - from which it makes contributions to candidates and political parties, the group has to pay not only for the contributions but also for at least a significant part of its independent expenditures with hard money.  Hard money is money raised from individual donors but subject to a limit of $5,000 per donor annually.  Emily's List did not challenge the requirement that it only use hard money for contributions, but it did challenge the requirement that it pay for some or all of its independent expenditures with hard money.  It asserted that individual donors should be able to give in unlimited amounts for those expenditures.  It also challenged a rule that imposed the hard money limits on any response to a solicitation that indicated that donations would be used to support the election or defeat of a federal candidate.

The court agreed with Emily's List, with two of the three judges finding the hard money requirements for independent expenditures a violation of the First Amendment as it has been interpreted by the Supreme Court.  The third judge concurred with the result, but he did so solely on the grounds that the rules at issue exceeded the FEC's authority.  If the majority decision stands, Congress will be barred from limiting the amount that individual donors can give to nonprofit entities for independent, election-related expenditures - including 527 organizations and nonprofits registered as political committees(which are also usually tax-exempt under Internal Revenue Code section 527).  There is no word yet on whether the United States will seek certiorari in this case.  That decision is complicated by the pending Citizens Unitedcase, the Supreme Court's decision in which the appellate court may have been anticipating in reaching its conclusion that the FEC had overreached constitutionally.  One interesting issue raised by this decision, if it survives, is it would leave nonprofit groups such as Emily's List in a better fundraising position than national political party committees such as the Democratic National Committee because such committees are currently limited to raising only hard money - i.e., contributions from individuals subject to the $5,000 per donor per year limit. 

LHM

What the Citizens United Case May Mean for Nonprofits

I just finished listening to today's Supreme Court oral re-argument in Citizens United v. FEC.  For those readers not already familiar with the case, Citizens United is a tax-exempt nonprofit corporation that sought to distribute a 90-minute movie about Hillary Clinton through a video-on-demand cable arrangement during the 2008 primaries.  The FEC objected on the grounds that Hillary: The Movie cannot be reasonably interpreted as anything other than an attempt to convince viewers not to vote for Hillary Clinton and as such federal election law prohibits corporations, including nonprofit corporations, from paying for its broadcast shortly before a relevant election.  Citizens United sued, and the Court then threw the government a curve ball when it decided to order re-argument in the case on the question of whether the entire prohibition on corporations funding independent election communications should be declared unconstitutional (overturning two Supreme Court precedents).  For more details, see the ScotusWiki entry for the case.  A ruling is expected before the 2010 primary season.

If oral argument questions are any indication, it looks like a majority of the Court is in fact ready to throw out the prohibition on corporate spending for independent election communications.  What might this mean for nonprofits?  Well, history indicates that business corporations are hesitant to spend directly on political ads, presumably for fear of alienating customers, shareholders, and employees.  Instead, they channel such spending through groups like Citizens United, Chambers of Commerce, and trade associations - almost all of which are tax-exempt, nonprofit corporations.  If the Court's decision leads to a significant increasing in such spending - as supporters of the prohibition strongly believe - it will put pressure on the two weak spots when it comes to these tax-exempt but not charitable entities.  First, they can only maintain 501(c)(4) or 501(c)(6) tax-exempt status if political activity is not their "primary" activity - whatever that means.  Second, it is not completely clear what is political activity given the IRS' facts and circumstances approach to that topic.  It is on this latter pressure point that highly successful campaign finance law challenger Jim Bopp (who originally represented Citizens United) is focusing in the Catholic Answers and Christian Coalition of Florida cases (complaints available at the James Madison Center for Free Speech website).  While the value of 501(c)(4) or 501(c)(6) status is limited if such entities still have to disclose the identity of their donors because they engage in activity covered by federal election law (the disclosure provisions could well survive even if the corporate funding prohibition goes down), such status will probably still be sought so as to avoid classification by the IRS as a 527 organization that has proven to often be a short path to classification by the FEC as a PAC (with strict limits on contribution sources and amounts).

So the bottom line is a decision in Citizens United's favor may lead to many more challenges to the political activity rules for tax-exempt organizations.  We may be in for quite a ride.

LHM

DC Circuit Rejects Nonprofit's Challenge to Lobbying Disclosure Law

In a decision issued yesterday, the U.S. Court of Appeals for the District of Columbia Circuit rejected a constitutional challenge by the National Association of Manufacturers to the Honest Leadership and Open Government Act of 2007 (HLOGA).  The relevant part of HLOGA amended the federal Lobbying Disclosure Act (LDA) to require the disclosure of any organization that "actively participates" in the planning, supervision, or control of lobbying activities engaged in by a registered lobbyist and contributes more than $5,000 to support that lobbying.   Previously, the LDA only required disclosure of organizations that exceeded the dollar limit and "in whole or in major part" planned, supervised, or controlled the lobbying activities.  According to the National Association of Manufacturers (NAM), under the old standard it did not have to disclose the identify of its members who exceeded the dollar threshold as long as at least several members were involved in any lobbying effort such that no single member met the "in whole or in major part" requirement.  Under the new standard, however, NAM would have to disclose the identities of many of its members.

NAM challenged the new standard on the grounds that it would chill the speech of NAM members and was unconstitutionally vague.  The Court of Appeals rejected both challenges, concluding that Congress' explicitly stated goal of increasing "public awareness of the efforts of paid lobbyists to influence the public decisionmaking process" is a compelling governmental interest that the expanded disclosure provision was narrowly tailored to serve, and that the new standard was not unconstitutionally vague.  The Court also, however, carefully noted that the door remained open to an as applied challenge by an organization whose members faced a demonstrated risk of retaliation if their identities became public.  It found, however, that NAM failed to make anything close to such a demonstration.

(Hat tip: Election Law Blog)

LHM

New Mexico Federal District Court Holds State Law Violates Nonprofits's First Amendment Rights: Nonprofits Appear Engaged in Campaign Intervention

A federal judge in New Mexico ruled yesterday (full text) that New Mexico violated the free speech rights of two nonprofit organizations, New Mexico Youth Organized and Southwest Organizing Project, when it required the two organizations to register as political committees under the New Mexico Campaign Report Act..  The requirement was imposed after the two organizations sent letters to constituents that were critical of certain state lawmakers, according to a story in The New Mexico Independent. 

In the closely watched federal case, Judge Judith Herrera overwhelmingly sided with the two nonprofits — New Mexico Youth Organized and SouthWest Organizing Project — ruling that requiring such action was infringing on the two organizations’ free speech rights.  Specifically, Secretary of State Mary Herrera and Attorney General Gary King contended last year that several mailings the two nonprofits sent out in 2008 triggered a state law requiring them to register as “political committees” engaged in electioneering.

While the two nonprofits seem to have won the free speech issue, one has to wonder if the victory has opened them up to a campaign intervention charge.  According to the opinion, the two groups letters criticized 

"several incumbent state legislators for the stances they took on certain initiatives in the legislative session that had just concluded, pointing out the primary sources of the individual legislators' campaign funding, and urging recipients to contact the legislators to express their concerns about the legislators' votes and funding sources.  The mailings suggested that the legislators were beholden to corporate interests rather than actually working for the public good.  The mailings were targeted to the individual legislators' constitutents, and each mailing mentioned an upcoming special legislative session focused on healthcare that wa to take place in the summer of 2008."

The opinion also notes that one of the nonprofits website was owned by a 501(c)(4) that seems clearly operated for political campaign purposes.  indeed, much of the opinion is written in the language realting to the rights of individuals to participate in campaign activities rather than legislative activities.  Me thinks the two organizations better be careful what they complain about.

dkj

Defining "Church": Foundation of Human Understanding v. U.S.

Last week, the Court of Federal Claims held that a religious group that was once properly recognized as a "church" for tax exempt purposes lost its "church" status.  According to Chief Judge Hewitt's opinion, the organization lost its "church" status because the extent to which it "brings people together to worship [became] incidental to its main function . . .[of] dissemination of its religious message through radio and internet broadcasts, coupled with written publications."  Here is the courts conlusion:

To qualify as a church, "an organization must serve an associational role in accomplishing its religious purpose."  The associational test is a "threshold" standard which religious organizations must satisfy in order to obtain church status. Id. In creating the associational standard, the United States District Court for the District of Columbia stated that demonstrating associational aspects is the "minimum" requirement necessary for a religious organization to gain church status.

During the tax years in question, Foundation's activities were similar to the activities of those plaintiffs whose suits for church status were unsuccessful primarily because their activities lacked the associational aspects which convinced the Tax Court to grant church status to Foundation in its prior declaratory judgment action. . . .

In explaining its rejection of plaintiff's declaratory judgment action in VIA, the Tax Court summarized the key characteristics exhibited by plaintiff in Foundation I which were sufficient to support recognition of church status: plaintiff conducted services "three to four times a week by ordained ministers for congregations of no less than 50 to 300 members[;] [Foundation] ministers were ordained only after having completed a three-year apprenticeship under the tutelage of [Foundation's] founder and leader[;] [and] Foundation operated a regular school for children in which the teaching of [Foundation] principles formed part of the curriculum."  There is no evidence in the record presently before the court in this case to show that the distinguishing characteristics of plaintiff in Foundation I, as delineated by the Tax Court in VIA, continue to exist. See supra Part IV.B.1.a-n. In fact, the evidence before the court shows that plaintiff's primary activities are those which caused the most concern for the Tax Court in Foundation I and subsequent cases. In VIA, the resemblance between plaintiff in VIA and Foundation I which cut against the plaintiff in VIA was the plaintiff's use of the mass media and commercial activities. The court noted that Foundation's use of mass media and commercial activities in order to spread its beliefs, including radio broadcasts, a magazine, and the sale of audio tapes and books, were "of concern" to the court in Foundation I. Id. It appears that the Tax Court decision relied on the fact that Foundation also exhibited "associational aspects" which were "much more than incidental" when the court recognized plaintiff in Foundation I as a church. The evidence now before the court presents a picture of Foundation that resembles the plaintiff in VIA much more closely than it resembles the plaintiff described in the court's findings in Foundation I. Plaintiff no longer provides religious services to an established congregation. See supra Part IV.B.1.m-n. Plaintiff's primary activities are internet and radio broadcasting, activities which are no longer supplemented by the associational activities in existence at the time of the Tax Court's decision in Foundation I. See supra Part IV.B.1.n (discussing the irregularity of plaintiff's Sunday meetings, seminars and weddings). The court in VIA stated that VIA, unlike plaintiff in Foundation I, exhibited a form of worship which was only incidental to petitioner's other activities, and was therefore insufficient to obtain church status.

In Spiritual Outreach I, the Tax Court entertained a declaratory judgment action in which petitioner contested the IRS's initial determination that petitioner did not qualify as a church under I.R.C. sections 509(a)(1) and 170(b)(1)(A)(i).  The court held that petitioner failed to satisfy the associational test. In that case, petitioner maintained an outdoor amphitheater on its grounds at which petitioner held bimonthly musical programs. Petitioner held a total of twenty gatherings during the two years at issue in the case. The musical programs always included congregational singing, and opened and closed with a prayer facilitated by a minister. Id. Also during the two years at issue, petitioner held several retreats on the church grounds "wherein followers of different religions met for the purpose of meditation study and spiritual advancement." Id. A total of five wedding ceremonies were conducted in petitioner's chapel by ministers from guest churches. Id. The court was unpersuaded that "musical festivals and revivals . . . and gatherings for individual meditation and prayer by persons who do not regularly come together as a congregation for such purposes" was sufficient to satisfy the "cohesiveness factor which . . . is an essential ingredient of a 'church.'" Id. The court distinguished petitioner in Spiritual Outreach I from plaintiff in Foundation I, describing the associational factor as "critical." Id. The court stated that the presence of the associational factor in Foundation I was essential to resolving what was a "close question" in that case. Id. The record before the court describes an organization similar to the petitioner in Spiritual Outreach I, and is therefore similarly distinguishable from plaintiff's record presented in Foundation I.

In Church of Eternal Life, the court held that plaintiff failed the threshold associational test based on a finding that petitioner's principal activities included "the operation of a library containing about 4,000 items, bi-monthly meetings, the distribution of literature, the sale of merchandise and the publication of a newsletter."  Based on the court's factual findings in this opinion, Foundation is an institution that closely resembles the plaintiff in Church of Eternal Life. Foundation similarly fails to satisfy the associational standard.

Here, as in First Church of In Theo, plaintiff is a "self-described non-membership organization" whose "religious purposes were accomplished through the writing, publishing, and distribution of religious literature rather than through the regular assembly of a group of believers to worship together."  In addition to failing to meet most of the fourteen criteria, the court in First Church of In Theo also concluded that plaintiff "fail[ed] to satisfy the threshold criteria of communal activity necessary for a church." Id. Accordingly, here, as in First Church of In Theo, the court finds that plaintiff is not a church within the meaning of section 170(b)(1)(A)(i) as interpreted by the weight of persuasive authority.

Because plaintiff no longer exhibits the associational characteristics which were critical to convincing the Tax Court to grant church status to Foundation in 1987, what may have been a "close question" on the facts before the court in Foundation I is more readily determinable in this case.

The extent to which Foundation brings people together to worship is incidental to its main function which consists of a dissemination of its religious message through radio and internet broadcasts, coupled with written publications. "When bringing people together for worship is only an incidental part of the activities of a religious organization, those limited activities are insufficient to label the entire organization a church."

The case is Foundation of Human Understanding v. U.S. (July 21, 2009) (available on LEXIS in the Tax Analysts at 2009 TNT 139-8).

(Hat Tip:  Ellen Aprill)

DAB

Muslim Groups Want to Be Removed from Holy Land Co-Conspirators List

The Dallas Morning News reported that the American Civil Liberties Union (ACLU) filed a request in Dallas federal court to have two Muslim organizations removed from a list of unindicted co-conspirators compiled by prosecutors in a case known as the Holy Land Foundation terrorism financing case.  The list originated from the case, which was tried last fall and involved the trial of five former organizers of The Holy Land Foundation, once the largest Muslim charity in the U.S., for funneling millions of dollars to a U.S. designated terrorist group. 

The Islamic Society of North America (ISNA) is a national community-based Muslim group and the North American Islamic Trust (NAIT) is a charitable trust that holds deeds on mosques and Islamic centers across the U.S.  The leaders of both groups say that they were blindsided by their inclusion as unindicted co-conspirators, noting that they were told by government authorities before last year's public release of the list that they were not suspected of any criminal activity.

According to the prosecutors, the list of 300 individuals and entities was compiled so that the statements from people in the named organizations could be used at trial without them being considered hearsay.  The ACLU lawyers filed papers with the U.S. District Judge Jorge Solis, arguing that ISNA and NAIT are mainstream Muslim organizations that have been unfairly branded as criminals by being included on the government’s list of individuals and entities allegedly linked in some way to the Holy Land case.  The Council on American-Islamic Relations (CAIR), a Muslim civil rights group, made a similar request in August to have it's name removed from the list, which is still pending.  The government's list says that ISNA, NAIT and CAIR have been tied to the U.S. Muslim Brotherhood. Prosecutors at last year's trial called it an Islamist group that is the parent organization of the Hamas movement.

Its unclear when Judge Solis will issue rulings on the three groups' requests.  The Holy Land Foundation case ended in mistrial last fall and the retrial is set for September 8

ss

2nd U.S. Circuit Court of Appeals Reverses Lower Court Ruling Excluding Muslim Scholar on Basis of $1336 Donation to Swiss Charity With Alleged Ties to Hamas: Whose right, Obama or Cheney?

Yesterday, in American Academy of Religion v. Napolitano, the 2nd U.S. Circuit Court of Appeals reversed a lower court ruling upholding the denial of a visa to a Muslim scholar on the basis of his $1300 contribution to a charity suspected of supporting terrorist.  The opinion is summarized in today's New York Times :  

A federal appeals court in Manhattan on Friday reversed a lower-court ruling that had allowed the government to bar a prominent Muslim scholar from entering the United States on the ground that he had contributed to a charity that had connections to terrorism.  The scholar, Tariq Ramadan, 46, a Swiss academic, was to become a tenured professor at the University of Notre Dame, but the Bush administration revoked his visa in 2004 and again denied him a visa in 2006. The government cited evidence that from 1998 to 2002, he donated about $1,300 to a Swiss-based charity that the Treasury Department later categorized as a terrorist organization because it provided money to Hamas, the militant Palestinian group.  

The American Civil Liberties Union's press release states:  

Ramadan was invited to teach at the University of Notre Dame in 2004 but the U.S. government revoked his visa, citing a statute that applies to those who have "endorsed or espoused" terrorism. In January 2006, the ACLU and the New York Civil Liberties Union filed a lawsuit challenging Professor Ramadan's exclusion on behalf of the American Academy of Religion, the American Association of University Professors and the PEN American Center. After the ACLU filed suit, the government abandoned its claim that Ramadan had endorsed terrorism, but it continued to defend his exclusion on the grounds that he had made small donations to a Swiss charity that the government alleged had given money to Hamas.

There is logical appeal to the notion that the government should vigorously pursue terrorists, using every legal tool at its disposal.  But relying on a $1,336.00 donation to a charity (the Association de Secours Palestinien or ASP) is tenuous at best.  I suppose a donation of even just a nickel to a terrorist organization is sufficient reason to initiate legal process to protect our families and our way of life.  All the more reason, though, that the government should dot every "i" and cross every "t" when it pursues those whose charitable contributions results in penal or even negative civil consequence.  By the way, the Bush administration issued an executive order labeling ASP a supporter of HAMAS terrorism in August 2003 and according to the Jewish Virtual Library:  

HAMAS raises tens of millions or dollars per year throughout the world using charitable fundraising as cover.  While HAMAS may provide money for legitimate charitable work, this work is a primary recruiting tool for the organization's militant causes.  HAMAS relies on donations from Palestinian expatriates around the world and private benefactors located in moderate Arab states, Western Europe and North America.  HAMAS uses a web of charities to facilitate funding and to funnel money.  Charitable donations to non-governmental organizations are commingled, moved between charities in ways that hide the money trail, and then often diverted or siphoned to support terrorism. The funds pouring into HAMAS coffers directly undermine the Middle East peace process.  These funds allow the group to continue to foment violence, strengthen its terrorist infrastructure, and undermine responsible leadership.  The political leadership of HAMAS directs its terrorist networks just as they oversee their other activities.  HAMAS leader Yassin confirms this relationship, stating to al-Sharq al-Awsat on August 12, 2002: "When we make decisions on the political level and convey them to the military wing, it abides by it normally.” 

The document goes on to argue that ASP is basically a fundraiser for HAMAS in Switzerland and has collected "large amounts of money from mosques and Islamic centers, which it then transfers to suborganizations of Hamas."  Though it is easy to dismiss former Vice President Cheney as a scowling lunatic, its perhaps naive to dismiss his ill-articulated fear and sentiment in a dangerous world.  After all, Cheney was alone in voting against sanctions for South Africa.  My own opinion is that he is not a racist, he is just willing to step on anybody regardless of race or nationality, not to mention the Constitution, to protect the American way of life (as he understands it).  So while he is a poor spokesperson at best, his ultimate goal is grounded in our shared belief in the rights of all to the pursuit of happiness. 

On the other hand, it could be dangerous to accept the "feel good" theology that President Obama (and me too) want so badly to embrace.  The notion that perhaps there are real injustices to which the Palestinien people object and therefore we ought to simply assume the complete opposite of Cheney's view -- that Islamic charities invariably support terrorism -- can legitimately be described as Utopian and maybe even dangerous.  Certainly, real terrorist exploit our tendency to want to believe that all people are basically good and mean no harm.  In the past, I have railed against what the ACLU has termed as knee jerk, racist inspired responses to the allegation that a charity that merely seeks humanitarian goals for "the other side" must invariably be fronts for terroism financing.  But American Academy of Religion v. Napolitano requires that we face the difficult task of distinguishing between terrorism and charity.  Suppose the petitioner's small $1300 donation was used to purchase a glock or a suicide vest?  How to make the distinction without trampling on the Constitution is harder to do than simply expressing revulsion and summarily dismissing Cheney-esque responses.  At the least, though, we better comply with even the most technical requirements of due process, lest our fear turn us into suit wearing terrorists ourselves.

dkj

AIG Bonus Fund Stays in Foundation

Some years ago, Starr International Company was created, its assets used primarily to pay bonuses to employees of AIG.  The boards of the two companies - AIG and Starr - were the same, and Maurice R. Greenberg headed both companies.  IN 2005 Greenberg was forced out of AIG, and shortly therefore he ended the bonus plan. In 2006 the assets of Starr International Company were transferred to Star International Foundation, which now owns Starr International Company.  The Foundation makes charitable grants and has made over $27 million in grants since it was created.  

The Chronicle of Philanthropy describes the outcome of a federal jury trial that determined that assets were not improperly removed from the AIG bonus plan and transferred to the Foundation.  Starr produced documents that showed that the funds had "long been held in a charitable trust" and that the assets held in the charitable trust were transferred to the Foundation, but the article does not explain the connections between the charitable trust and the bonus plan.

The judge will issue a final ruling, taking the jury's decisions into consideration, by the end of August.

sng

Leaders of Muslim Charity Sentenced to 65 Years in Prison

The New York Times (based on an AP story) reports that a federal court sentenced the two founding members of the Holy Land Foundation for Relief and Development to 65 years in prison each for funneling millions of dollars to Hamas.  We previously blogged about their conviction on 108 counts in a second trial, after their first trial ended in a mistrial, as well as about the closing arguments in the second trial, the decision by prosecutors to drop a number of charges after the failed first trial, and the ACLU's attempt to remove the names of two other Islamic Charities removed from all court documents.  The Dallas Morning Newsreports that the three other convicted defendants received sentences ranging from 15 to 20 years, and that all five defendants continued to defend their actions.

For early commentary on the sentences, see this OMB Watch statement ("Holy Land Foundation Sentencing Raises Questions for U.S. Charitable Sector") and this Dallas Morning News editorial ("Holy Land Defendants Got What They Deserved").  I am not familiar enough with the facts of the case to comment on the correctness of the convictions or the sentences, but the convictions underline the need for U.S. based charities engaging in international charitable work to ensure they know where their funds are going and that the recipients have not been identified as terrorist organizations, even if they also do truly charitable work.

LHM

Madoff Bankruptcy Trustee Sues Charity that Invested with Madoff

The Boston Globe reports that Trustee Irving Picard, who is overseeing the liquidation of Bernard Madoff's assets, has sued the Picower Foundation and several related entities that made nearly $7 billion by investing with Madoff.  According to an earlier New York Times article, the Foundation was at one point the 71st largest foundation in the nation and funded programs to promote justice, equality, human dignity, and tolerance.  It was forced to close its doors, however, when Madoff's Ponzi scheme collapsed.  The lawsuit alleges that the foundation's founders, Jeffrey Picower and his wife Barbara, and the Foundation "knew or should have known that they were benefiting from fraudulent activity or, at a minimum failed to exercise reasonable due diligence."  The suit is part of a larger effort by the Trustee to recoup money from successful Madoff investors, including those that withdrew funds before the collapse.  For additional coverage, see this Fox News story.  For a copy of the complaint, along with other court filings by the Trustee, see this court filings list (the complaint against the Picower Foundation is listed by its filing date of 05/12/2009).

LHM

4th Circuit U.S. Court of Appeals Upholds Raids on Virgina Muslim Charities in 2002

The Washington Post reported on May 7 that, "An appeals court yesterday [(May 6)] upheld the legality of federal raids on a Herndon-based network of Muslim charities, businesses and think tanks, a case that caused a firestorm in the Muslim community.

The U.S. Court of Appeals for the 4th Circuit said the March 2002 raids on homes and business in Herndon and elsewhere in Northern Virginia were "a harrowing experience" for the targets but did not violate their constitutional rights. The court said agents exercised "lawful force" in drawing their guns and handcuffing a family whose home was searched."

For the full story, please click here.

AMT 

D.C. Appellate Court: Professors at Religious Colleges Can't Unionize

Union organizing of professors at private colleges has largely been squelched since 1980, when the U.S. Supreme Court ruled in NLRB v. Yeshiva University that faculty members at private institutions should be considered managerial employees ineligible for collective bargaining. A rare breakthrough for such union drives came in 2005, when the National Labor Relations Board ruled that faculty members at Carroll University had the right to unionize. But on Friday, in a ruling that focused primarily on whether Carroll was entitled to be exempt from unionization because of its religious ties, the U.S. Court of Appeals for the District of Columbia Circuit quashing the union drive.

Carroll argued the NLRB erred in finding the university's professors were not barred by Yeshiva from organizing. But once the Appeals Court determined that Carroll was exempt as a religious institution, it declined to consider the Yeshiva issues. In the Carroll decision, the Appeals Court applied what it called a "bright line" test of whether the university is entitled to a religious exemption from collective bargaining. This three-pronged test is whether an institution describes itself as providing a religious education, is nonprofit, and is affiliated with a religious group. The court found that Carroll, as a Presbyterian liberal arts institution in Wisconsin, "easily" met that test.

The NLRB had applied a more stringent standard, which it said Carroll did not meet. In its analysis, the board noted that the Presbyterian Church has no administrative control over the college, nor do they own it; that the Presbyterian Church does not appoint trustees, the president or the faculty; that students are not required to have any religious beliefs or to attend church services; and that while students are required to take one religion course, the criteria for fulfilling that requirement are so broad that qualifying courses include "Literature in Black America" and "Playing Crazy: Cultural Constructions of Madness."

The distinction between these two tests of a college's religious nature matters to many institutions. While there are many colleges where the religious roots of an institution are so omnipresent that these institutions would pass the NLRB test, there are many others like Carroll that were founded by religious groups and still identify in some ways with the groups, but where church ties are much less visible. The Appeals Court said that the NLRB test was a dangerous one because it could involve federal officials investigating religious practices and philosophies in ways that Congress and the Constitution found antithetical to religious freedom.

The faculty union at Carroll was organized by the United Auto Workers, but the UAW declined to comment on the decision. Carroll issued a statement praising the decision and pledging to continue to work with professors. The university has consistently opposed the unionization effort.

Much of the legal discussion about Carroll's faculty has focused on the institution's religious status. But the case has also involved important skirmishing over the Yeshiva decision. (The NLRB has control only over unions at private institutions; state laws govern unionization at public institutions, which is why Yeshiva does not limit faculty unions at state institutions.)

Advocates for unionization have maintained for years that Yeshiva was incorrectly decided. But some have argued that, even if Yeshiva was correct, the degree of faculty autonomy and institutional control has so eroded at many institutions that there should be no presumption that private college faculties have managerial authority. The NLRB rulings on Carroll appeared consistent with that view; for example, a 2007 ruling rejected Carroll's claims that the faculty were managers. The board noted that, even in academic matters, the administration "exercises substantial independent control." The board added: "After discussing the faculty’s authority over hiring, tenure and promotion, budget matters, staffing levels, terms of employment, and structural changes, the acting regional director determined that the respondent’s faculty do not exercise managerial authority over non-academic matters. In this regard, he found it significant that the administration had recently changed the structure of the college from one to two schools despite faculty opposition, and had restructured the administration system without any input from the faculty."

Carroll objected to this analysis of whether its faculty members were managers. And it received backing in a brief filed in the case by the American Council on Education, the National Association of Independent Colleges and Universities and the Wisconsin Association of Independent Colleges and Universities. The brief argued that the NLRB was improperly applying the Yeshiva decision. The traditions of shared governance, the brief said, mean that the faculty role is not diminished just because decisions are also made by administrations and boards. Further, the brief argued that the most important faculty role involves academic matters, and that the NLRB placed too much emphasis on the faculty role in non-academic matters.

Union leaders who are focused on higher education said that the NLRB had correctly decided the case. Many are hopeful that with the appointees President Obama will place on the board and in federal courts, Yeshiva will be questioned increasingly in the years ahead.

SS

Troubles for the Angel Food Network Deepen

Just yesterday, we posted a story about the lawsuit filed by board members of the Angel Food Network against its Founders, including family members.  Today, The Atlanta Constitution reports that:

Tioni King, now Tioni Barish, alleges in her federal suit filed Friday that Andy Wingo, son of founder Joe Wingo, made numerous physical advances toward her, e-mailed her nude pictures of himself, took her on company trips, gave her $3,550 worth of furniture, cash and a job, and threatened her job and others’ jobs for not accepting his advances in 2007. The nonprofit fired her.

. . .

Her suit also names the nonprofit’s associated businesses, and Joe, Linda and Wesley Wingo, the family that runs the organization.

Edward D. Buckley, King’s Atlanta attorney, said he was unaware he filed the case the same day that two board members of the nonprofit also filed a state suit, trying to bar the four Wingos from the organization’s business.

. . .

Also, the FBI and IRS searched the nonprofit’s offices last month. Agents refused to say what they were looking for, but a statement from Angel Food says the investigation is into “alleged financial irregularities” of individuals there.

Buckley said Tuesday before noon that he did not know if the Wingos were aware of the sexual harassment suit.

For the full story, please click here.

AMT