Islamic charities trying to win back donors

Last January the board of Dallas charity KinderUSA made an unusual request to its 6,800 donors: Please don't send gifts. The Islamic charity, which delivers food and aid to children in war zones, had just received a federal grand jury subpoena asking its officials to turn over all meeting minutes, tax returns, and other documents. It feared that the government could freeze its assets or seize its list of donors at any moment.

After four months with no word from the FBI about whether KinderUSA was being investigated, the board resumed fund-raising. But board chair Dr. Laila Al-Marayati worries for her donors, who want to support charity but fear being caught up in a terrorism investigation. "Charities are in the position of being guilty until proven innocent," she says. "Our donors are afraid. They don't know what to do." (The FBI would not confirm or deny an ongoing KinderUSA investigation when contacted by BusinessWeek.)

Donors and charities alike have reason to be on guard. Since September 11 federal authorities have frozen the assets of five Islamic charities in the U.S., including three of the largest, for alleged links to terrorist groups -- in effect, shutting the groups down. The U.S. Treasury Dept., which is charged with cutting off monetary support for terrorists, has frozen the assets of 41 aid organizations globally for alleged connections to terrorism.

These inquiries resonate powerfully across the Islamic charity sector, shifting the direction of millions of dollars as donors fret that giving to organized Islamic charities could lead them into a legal morass. Muslim Americans are now looking for methods beyond traditional charitable giving to fulfill Zakat, a pillar of Islam, which requires Muslims to give 2.5% of their income to the poor.

To bring donors back, charities are employing new measures to prove that their work is legitimate. KinderUSA has gained a reputation among Islamic charities for good governance and transparency and posts audited financials on its Web site. But such measures did little to prevent a formal inquiry, and Al-Marayati remains frustrated by how little she knows about the inquiry's status.

Such situations have led Muslim-American leaders from more than 20 Islamic charities to unite to find a solution. Last March they launched an umbrella organization called The National Council of American Muslim Nonprofits that will offer a seal of approval to charities that meet their criteria, which are still being developed. The council is working closely with the Treasury Dept. to ensure rigorous standards that will offer some protection to donors and charities.

But some say the council, with its rigorous application process, could put an undue burden on charities without offering them much in return -- such as the assurance that if they meet all the standards they won't be pulled into a probe. Treasury Dept. spokesperson Molly Millerwise says the seal won't shield charities from the possibility of investigation. "Donors want a vetted list of charities. We can't provide that," she says.

[Ecerpts from BusinessWeek article by Jessi Hempel, with Bremen Leak]