Without Reforms, U.S. Aid Still Reaches Terror Groups, Watchdogs Warn

America has spent more than two decades and trillions of dollars fighting terrorism, while at the same time funneling millions in aid dollars to enemies of the state. Yet, efforts to claw back some of that money without structural reforms has analysts wondering if shutting down USAID may have made things worse.The Department of Homeland Security began efforts last summer to retrieve millions in grants awarded to, among others, Iranian regime proxies and mosques with purported ties to September 11 hijackers. The move followed the publication of a study by the Middle East Forum alleging the department had distributed $25 million to radical nonprofits with ties to Al Qaeda, Hamas, Hezbollah, and Iran.That was after the forum’s first study, published early last year, documented $164 million in taxpayer-funded grants funneled to Islamist organizations through USAID and the State Department, with at least $122 million of the total going to groups allegedly aligned with designated terrorist entities. Congressional hearings followed the first study. Criminal referrals are now on the table. But investigators warn that the money is still moving.“The failures are significant; closing USAID has marginalized reform processes,” the executive director of the American Center for South Yemen Studies, Fernando Carvajal, told The New York Sun. “It’s highly unlikely any new United States government institution can initially address this problem.” Watchdogs who have been warning for years about the distribution of aid to sanctioned group say the process to retrieve awards is like closing the barn door after the horses have escaped. Attempts to collect cash doled out by USAID and others miss an important element of counterterror strategy and illuminate more than bureaucratic sloppiness.“Terror organizations, for decades, have operated through charitable proxies that remain undesignated. This is not just a problem at USAID; it is an oversight failure found across the federal government, as well as across city and state governments,” the director of Islamist Watch and the Middle East Forum report’s primary author, Sam Westrop, told the Sun. The sub-grant loophole that feeds terrorismThe road from a Washington grant approval to a jihadist network’s bank account is shorter than most Americans would believe and far better documented than officials have been willing to admit.The mechanism at the heart of the scandal is deceptively simple: primary grantees, often major American humanitarian organizations with sterling reputations, receive federal funds and then subcontract to local partners in conflict zones who are frequently never vetted by the U.S. government itself.The cases pile up quickly. In one instance, a large evangelical charity received more than $700,000 in USAID funds for water and sanitation work in Sudan, then sub-contracted $200,000 of that to a Khartoum-based group that had been on the Treasury’s terror sanctions list since 2004 for funneling millions to Osama bin Laden.Even after the sanctions designation came to light, the Obama administration’s State Department recommended that the Treasury Department approve a $125,000 payment to the group for services already rendered; Treasury complied.A Senate Finance Committee investigation later found no evidence of intentional wrongdoing by the charity, but described its vetting practices as “borderline negligent” for ignoring “elementary-level investigative procedures.” The committee concluded that while the funds were probably used for humanitarian purposes, the transfer “inevitably aids” the sanctioned group’s terrorist activities. No prosecutions followed.In a separate case, a Michigan-based NGO with alleged ties to a designated terrorist organization responsible for the 2008 Mumbai attacks that killed 166 people, six of them Americans, received $110,000 from USAID in October 2021, even after the agency’s own inspector general had opened an investigation into prior grants to the same group. USAID then awarded the same organization an additional $73,000 in 2023, while the investigation was ongoing. The inspector general’s probe has not yet resulted in any public findings of criminal wrongdoing or prosecution. The organization is still operational and fundraising.In Gaza, a charity that openly coordinated with Hamas officials, including the son of the late Hamas leader, Ismail Haniyeh, received over $900,000 in American funding between 2016 and 2023, with the final grant issued just six days before the October 7 attacks, reads the forum report.A second Gaza-based group, whose director publicly called for Jerusalem to be cleansed of the “impurity of the Jews,” received American funding through a partner organization. However, USAID’s public records did not disclose its role as a direct beneficiary. In neither case have criminal charges been filed.Taxpayer dollars reportedly also went to U.S-based mosques and Islamic centers with documented histories of hosting terrorists, including September 11 hijackers. In addition, the Federal Emergency Management Administration’s Nonprofit Security Grant Program, meant to protect houses of worship from hate crimes, instead delivered $750,000 to mosques that the Department of Homeland Security has characterized as outposts of Iran’s revolutionary Shi’a Islamism. It also funded $250,000 to the Council on American-Islamic Relations, which DHS has long been accused of having Hamas ties — a characterization rooted in the group’s designation as an unindicted co-conspirator in the 2008 Holy Land Foundation terrorism financing trial, after which the FBI severed all formal contact with the organization. None of the groups involved in the allegations is designated as a terrorist organization by the U.S. government. The Council on American-Islamic Relations has firmly disputed the terror-ties characterization, calling the accusations politically motivated and part of a broader campaign to stigmatize American Muslim civil rights organizations. The group, referred to as the nation’s largest Muslim civil liberties advocacy organization, says it has never had any operational relationship with Hamas and has repeatedly condemned terrorism in all forms.Nonetheless, political strategist John Thomas says the ideological dimension of federal aid to overseas groups has been systematically underplayed.“Negligence and ideological sympathy play a much larger role than many want to admit,” Mr. Thomas told the Sun. “Others operate with a worldview that downplays or excuses jihadist groups as ‘resistance’ movements. The result is the same: American donations, often tax-deductible, end up supporting organizations tied to Hamas, Hezbollah, or other designated terrorists.”Mr. Westrop is more matter-of-fact.“Most humanitarian aid charities are the product of political agendas. Too many of these charities know exactly what their funds are supporting,” he told the Sun, adding that giant coalitions such as InterAction have “lobbied, hand-in-hand with dangerous Islamist charities to remove terror de-risking regulations.” His verdict: “The humanitarian aid industry is deeply corrupt and wildly unpoliced.”The $164 million identified by the Middle East Forum represents just a fraction of the roughly $50 billion the United States government was distributing annually for foreign-based, non-military operations, and corruption, waste, and misappropriation are by no means exclusive to Islamist-linked recipients. The same broken vetting architecture has enabled fraud and abuse across the ideological spectrum.In 2021, a prominent New York-based humanitarian organization settled False Claims Act allegations for $6.9 million after its staff was found to have participated in a bid-rigging and kickback scheme on USAID-funded Syria relief work. The Vatican’s largest social justice network, a longtime USAID partner, was engulfed in a $71 million fraud scandal in 2024, prompting Luxembourg’s government to freeze all funding.Moreover, a 2025 House Judiciary Committee investigation found that the Biden administration had funneled grants through a chain of American and Israeli NGOs, including Jewish philanthropic institutions, that were used to help finance political protests against Prime Minister Benjamin Netanyahu’s government.A 2023 Government Accountability Office report found systemic weaknesses in contractor oversight across multiple federal agencies, resulting in billions of dollars lost to fraud and abuse unrelated to extremism.The concern raised by Middle East Forum and others is not that Islamist groups are uniquely corrupt within the broader aid architecture. It is that the ideological dimension of this particular funding stream carries consequences that financial waste or political meddling alone do not: weapons, recruitment, and violence directed at Americans and allies alike.Accountability gaps and the road forwardBeyond federal grants, a parallel and harder-to-police stream of terror financing runs through the same digital platforms millions of Americans use every day. This past July, a Gaza-based cleric with one million TikTok followers launched a GoFundMe campaign seeking 500,000 euros for ostensible humanitarian needs, until investigators using facial recognition software surfaced footage of him urging Gazan youth to become “soldiers of the next October 7.” GoFundMe froze the campaign within 36 hours.The United Nations Counterterrorism Committee has identified donation-based crowdfunding as the form most likely to be exploited for terrorist financing — yet GoFundMe is currently the only major platform with explicit anti-terror financing provisions in its terms of service.Mr. Westrop said the domestic problem has scaled alarmingly and pointed to crowdfunding platforms that he says raise hundreds of millions annually with little enforcement against terror-adjacent organizations.“Currently, the law is simply not being enforced,” he said. “The most effective way to deal with this crisis is to make use of existing statutory powers, while also seeking complete reform of the 501 (c) nonprofit system and prosecution of those who break the rules.”Critics note that the platforms Mr. Westrop wants regulated have no designated terror ties, according to U.S. authorities, and have funded causes with broad public support, including a campaign to rebuild black churches burned by arsonists in the South and a drive that raised more than $160,000 to repair vandalized Jewish cemeteries across the country.Others counter that accountability failures run deep. Over the past 18 years, nearly 2,000 USAID grants totaling more than $29 billion have been listed as “miscellaneous foreign awardees,” making it virtually impossible to trace the final recipients. Among them: in November 2024, a Syrian national was indicted on federal charges for allegedly diverting more than $9 million in USAID-funded humanitarian aid — food kits meant for Syrian refugees — to commanders of al-Nusra Front, an Al Qaeda affiliate. USAID’s own inspector general called it one of the most significant diversions of humanitarian aid it had ever investigated.The Trump administration’s January 2025 freeze on foreign aid and the absorption of USAID into the State Department were partly framed as responses to these findings, though some say it is still not enough. Reports from the agency’s own inspector general suggest that the rapid termination of USAID has backfired in some regards. As recently as this month, an audit report showed that when the administration pulled the plug on USAID programs in Yemen, agency representatives sought to distribute its remaining U.S.-funded assets, including vehicles and other physical inventory, to local awardees. The inventory ended up in the hands of the Houthis. Awardees said they complied with Houthi demands due to concerns over the safety of their staff. “Bureaucratic reshuffling without real reform is just moving deck chairs on the Titanic,” Mr. Thomas warned.

Without Reforms, U.S. Aid Still Reaches Terror Groups, Watchdogs Warn

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