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. This spotlight on the Muslim charitable sector may well be warranted in the name of national security. September 11 forced an awakening to the reality that “Al Qaeda, Hamas, and like-minded terrorist groups have abused charities to support hate-filled agendas,” according to a speech by Juan Carlos Zarate, who was recently appointed deputy national security advisor for combating terrorism after a stint monitoring terrorism financing at the Treasury. Nevertheless, as the U.S. marks the fourth anniversary of the September 11 terrorist attacks, none of the investigations has been resolved. The charities’ assets remain frozen. Meanwhile, 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. More Muslim Americans are deciding to bypass charities entirely in favor of giving directly to those in need. Consider Mark Mohammadi, who started a Middle Eastern restaurant in Dallas. Out of fear that he’ll unwittingly contribute to a group that is linked to terrorist activity, he’s decided to stop giving money to charities. To fulfill his charitable obligation, he serves about 30 meals monthly to homeless people. Says Mohammadi: “After 9/11, I don’t trust anyone.” Ahmed Syed, a Pakistani immigrant and a retired quality control manager for the Defense Dept.. (HON ), takes a different approach. “My family abroad donates on my behalf to causes in Pakistan, like hospitals and general education,” says the Walnut Creek (Calif.), resident. 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. UNDUE BURDEN 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. “Who is to say if charities engage in terrorism-related activities after they’re put on the list?” Tiny nonprofits also may find it costly to comply with the reporting required by the council, which will likely address issues such as transparency, audit triggers, and board makeup. Karen Keyworth directs the Islamic Schools’ League, which represents the U.S.’s 215 Islamic schools. She worries that the financial strain of meeting tough transparency measures might force schools, many of which have minuscule budgets, to cut operations. Still, Keyworth says that efforts such as the council’s are needed to persuade donors to keep giving. Unfortunately for Muslim Americans anxious to see the legitimate groups that serve their communities thrive, greatly increased scrutiny — and the bureaucratic hoops that come with it — may be the new order in a post-September 11 world.