American Muslims are finding it more difficult to donate money to help Palestinian refugees and other Middle Eastern causes because of court decisions showing that some charities were using the money for terrorism.

On Nov. 24, the formerly Richardson-based Holy Land Foundation and five of its organizers were found guilty in a Dallas federal court of sending millions of dollars to Palestinian charity committees controlled by banned group Hamas.

A week later, the 7th U.S. Circuit Court of Appeals in Chicago delivered another blow, upholding a $156 million civil judgment against Holy Land, which had previously been found liable for the death of an American-Israeli teenager, David Boim, killed by Hamas gunmen in 1996.

"This creates a fundamental Catch-22 for all U.S. charities and grant-makers that do any kind of international work," said Kay Guinane, a lawyer who monitors legislative and regulatory effects on nonprofits for OMB Watch, which advocates openness in government.

"Either you risk having your group shut down, your funds frozen and your leaders prosecuted by providing aid in international hot spots where people are neediest, or you stay away to stay safe," she said. "Neither choice is acceptable for a society that prides itself on its respect for human life."

Writing on Dec. 3, 7th Circuit Judge Richard Posner echoed Holy Land Foundation prosecutors when he argued that one need not directly put money in militants' hands to be responsible for their actions.

"Anyone who knowingly contributes to the nonviolent wing of an organization that he knows to engage in terrorism is knowingly contributing to the organization's terrorist activities," he wrote.

'On edge'

American Muslims "need to be on edge," said Stephen Landes, an attorney for the Boim family. "The court is saying you have to be very careful who you send money to."

Holy Land is one of several Muslim charities shut down since Sept. 11, 2001, on suspicion of supporting terrorism. Some have been designated as terrorist entities by the Treasury Department's Office of Foreign Assets Control. Some have been charged with federal crimes.

But critics complain that the government does not "white list," or deem certain charities acceptable, in the same way that it labels some as off-limits.

The end result is that donors to Muslim causes "have become far more cautious," said Dalell Mohmed, director of KinderUSA, a Dallas charity created after Holy Land was shuttered to help Palestinians in the Israeli-occupied territories.

Mohmed said she did not follow the Holy Land trial, although she used to work as the group's emergency relief coordinator.

"I just think that these verdicts cannot be used as a vehicle to be a stranglehold on the Palestinian people and prevent aid getting to them," she said.

In 2005, KinderUSA briefly stopped taking donations after it said it was being targeted by the FBI. Mohmed was called to testify before a federal grand jury, but no charges were ever filed.

John Kilroy, the charity's attorney, said nothing ever came of the government scrutiny.

"Subpoenas were served for some documents, and that was complied with," he said. "They never asked anything further." He added that the charity was in full compliance with all laws and regulations.

The charity filed a lawsuit against author Matthew Levitt for suggesting in a book about Hamas that KinderUSA had picked up where Holy Land left off in funneling money to the terrorist group. Levitt was an expert witness for the government in both Holy Land criminal trials. KinderUSA dropped its suit against Levitt last year.

This period of soul-searching ultimately will benefit Muslim charities, according to a report by the Muslim Public Affairs Council, or MPAC, in Washington.

"In the past, Muslim groups did not publish annual reports, conduct audits or engage in the same kind of oversight that is commonplace among other charitable institutions. This was a result of inexperience as opposed to any devious intentions," the report states.

"Now, there is a growing awareness of basic expectations, not only to protect an organization from attack by law enforcement, but mainly to provide assurances to donors that their money is being spent according to their wishes."

Salam Al-Marayati, MPAC's director, said it is "in no one's interest to create an adversarial relationship between Muslim charities and the U.S. government.

"We have to accept the realities of the post-9/11 era," he said. "We have to come up with answers, instead of complain."

Partnering with U.S.

One Muslim group has found answers by partnering with the U.S. government.

The American Charities for Palestine recently signed an agreement with the U.S. Agency for International Development, which helps rebuild war torn regions around the world, to help get donors' money to needy Palestinian families.

"This arrangement marks the first time that USAID has joined forces with a private sector entity to create a mechanism to facilitate American donations for charitable causes in the West Bank and Gaza," said Harry Edwards, USAID spokesman.

Ziad Asali, a retired doctor who is leading the project, said the public-private partnership is meant to ease concerns about sending money to the Middle East.

"We want to reassure the donors that there is a secure and meaningful way for them to contribute, and that the process is accountable and transparent," he said.

He said a Palestinian businessman in Houston has already given $100,000 to pay for streetlights leading to a West Bank school.

Ultimately, Asali envisions attracting donations from a wider segment of Americans, who he says would directly benefit from a peaceful resolution to the Arab-Israeli conflict.

"Hungry people, people who don't have money to send their kids to schools, are subject to old forces to radicalization," he said. "We have to pull them away from that and help them build a state."