By Caroline Preston

A top official at the Treasury Department told a Congressional panel today that he has no doubt that the agency’s efforts to prevent nonprofit groups from financing terrorism have had a chilling effect on legitimate charity but that the department is doing what it can to smooth its relationships with nonprofit organizations while trying to keep the United States safe.

“It’s something that troubles us and we feel we have a responsibility to work with the charitable community to mitigate,” said Daniel Glaser, deputy assistant secretary for terrorist financing and financial crimes.

Speaking at a House Financial Services subcommittee hearing -- “Anti-Money Laundering: Blocking Terrorist Financing and Its Impact on Lawful Charities” -- Mr. Glaser defended Treasury against criticism that it has too much power in policing and shutting down charities suspected of having terrorism ties.

Treasury is cooperating with nonprofit groups to help create a “safe giving space,” providing them relevant information and guidance on how to avoid unfair scrutiny, Mr. Glaser said.

Mr. Glaser also said Treasury’s process of designating charities as terrorist organizations had adequate safeguards against unfairly targeting legitimate organizations. He said Treasury’s final actions, such as shutting down charities, were subject to review by U.S. courts, which had generally upheld the constitutionality of the moves.

Since the 2001 terrorist attacks, Treasury has closed seven U.S. charities and prosecuted one. Six of the eight groups have been Muslim.

In response to a question, Mr. Glaser said the Obama administration had not directed Treasury to take a different approach from its predecessor in scrutinizing charities.

'Discriminatory Enforcement’

Three officials from nonprofit groups also spoke at the hearing, two of whom—Kay Guinane of the Charity and Security Network and Michael German of the American Civil Liberties Union—criticized what they described as Treasury’s unfettered authority to close charities without independent oversight, probable cause, or due process.

Ms. Guinane said that while the Obama administration was more open to dialogue with charities than the Bush administration, it had not introduced any new policies or made other changes.

She said her organization had identified specific changes Treasury could make that would allow legitimate charities to operate without fear and welcomed a discussion with the agency on implementing them.

Mr. German criticized what he called Treasury’s “capricious, arbitrary, and discriminatory enforcement” of vague anti-terrorism laws. He said Treasury’s actions have undermined goodwill among Muslims in the United States and abroad, many of whom believe that Muslim groups are being signaled out for extra scrutiny.

He urged Congress to investigate Treasury’s conduct and put in place a system that would compel the agency to be more open about why it takes actions against charities and give groups an opportunity to learn why they are being targeted so they can defend themselves.

A third speaker, Matthew Levitt, director of the Stein Program on Counterterrorism and Intelligence at the Washington Institute for Near East Policy, defended the government’s approach, saying that charities are especially susceptible to abuse by terrorists and their supporters. He cited a report by the British government stating that “the risk of exploitation of charities is a significant aspect of the terrorist finance threat.”

'Unfortunate but Needed’

Speakers were met with a mixed reaction from members of Congress.

Perhaps the most sympathetic to Mr. German's and Ms. Guinane’s arguments was Keith Ellison, Democratic congressman from Minnesota, who asked about what happens to frozen funds of charities, the lack of appeal process for groups whose money has been frozen, and whether the government could combine various watch lists to create a list of prohibited charities that donors could use to ensure their gifts to other groups would not come under scrutiny.

Other lawmakers seemed less concerned about an adverse impact on charities.

“That some lawful charities face an extra burden is an unfortunate but needed response,” said Ed Royce, Republican Congressman from California. “No apology is needed.”