A flurry of executive orders and the specter of a reorganization of USAID have focused attention on a sphere of policy in need of reform. In addition to the often-cited issue of wasted tax dollars, serious matters such as terror financing and support for violence and incitement are deeply embedded in the debate over aid reform.
The Jan. 20 executive order, establishing the current “90-day pause in United States foreign development assistance for assessment of programmatic efficiencies and consistency with United States foreign policy,” emphasizes the urgency of tackling this issue.
For years, numerous U.S. funding programs have been inconsistent with U.S. policy goals. As demonstrated in numerous analyses by NGO Monitor (the think tank where I serve as director of research) U.S. foreign aid has been marked by incoherent sanctions regimes, diversion of aid to terrorist organizations, funding to NGOs publicly encouraging violence, and support to groups that target American companies with boycotts and other economic sanctions.
One of the clearest examples relates to a second Trump executive order, re-designating the Iranian-backed Houthis as a Foreign Terrorist Organization (FTO). It directs the State Department and USAID to “identify any entities with a relationship with USAID that have made payments to members of, or governmental entities controlled by, Ansar Allah,” as the Yemen-based terror group is sometimes known.
Biden Administration and USAID’s Complicity in Funding Terrorists
Under pressure from influential humanitarian NGOs, the Biden administration removed the Houthis from the U.S. terror list in February 2021, a policy abandoned after the Oct. 7, 2023 massacre.
Pledging their support for Hamas, the Houthis began attacking Israel from Yemen, as well as targeting U.S. forces and international maritime trade. Four U.S. service members died in combat with the Houthis, and the terror group’s Red Sea attacks have disrupted international supply chains, harming the economies of the U.S. and key allies.
Yet, despite U.S. armed forces fighting the Houthis, as well as the nominal resumption of partial sanctions in January 2024, U.S. agencies allowed funds to continue to flow to this murderous organization.
On Feb. 16, 2024, the Treasury Department’s Office of Foreign Asset Control (OFAC) published a guide to U.S. sanctions policy and its impact on NGO activity. According to the document, U.S.-funded NGOs were allowed to make payments to Houthi officials and institutions — as well as institutions controlled by Houthi officials — as long as it was done in the ostensible context of humanitarian assistance.
OFAC even advised U.S.-funded organizations that they could make payments to a “blocked person,” if the transfers were “for the purpose of effecting the payment of taxes, fees, or import duties, or the purchase or receipt of permits, licenses, or public utility services.”
OFAC essentially authorized a “pay-to-play” paradigm, under which NGO payments to the Houthis could be labeled as “taxes” or other fees, thereby skirting American sanctions and defeating their purpose.
Lack of Transparency in Foreign Assistance
Another aspect of U.S. foreign assistance in Yemen is the marked lack of transparency, suggesting a desire to avoid scrutiny and critical analysis. According to usaspending.gov — an official website that tracks federal spending — since 2021, the U.S. has provided over $750 million to “miscellaneous foreign awardees” in Yemen — a shockingly high figure.
However, the data that is available about U.S. grantees in Yemen illustrates the need for recalibrating the selection process.
For instance, according to federal data, the State Department provided Norwegian People’s Aid (NPA) with $1.1 million from August 2023–September 2024 for operations in Yemen.
This is the same organization that, in April 2018, settled a civil fraud case with the Justice Department and USAID. The suit charged NPA with a violation of the U.S. False Claims Act related to its providing material support to Iran and Palestinian terror groups — including Hamas.
U.S. support to NPA, totaling $20 million to the NGO for projects around the world since 2021, also highlights the bizarre phenomenon of taxpayer funding to groups working to sabotage American companies.
While enjoying U.S. government largesses, NPA engages in a campaign demanding that Norway’s sovereign wealth fund divest from firms that do business with Israel. Companies listed on a devoted website maintained by NPA and its partners include major U.S. firms such as Caterpillar, Ford Motor, GE, GM, IBM, and Coca-Cola.
Since Hamas’s Oct. 7 massacre, NPA and its partners have accelerated their economic warfare against companies maintaining relationships with Israel, publishing multiple reports calling for boycotts of and divestment from other American companies, such as Airbnb, Boeing, HP, Lockheed Martin, and Motorola.
These examples are emblematic of how U.S. funding is at times divorced from broader strategic considerations and does not advance U.S. vital interests or values. Moreover, they speak to an aid industry that expects little reciprocity in its dealings with Washington.
Irrespective of whether USAID remains an independent agency or is folded into the State Department, as Trump has suggested, the administration must apply rigorous tests to ensure that potential programs and grantees advance U.S. interests, not harm them.
As concerns Yemen, officials reviewing U.S. foreign assistance should determine whether NPA’s material support was considered before authorizing new taxpayer funds — particularly in a war-torn country partially ruled by an Iranian-backed terrorist organization.
For its part, the aid industry should take this opportunity to implement long overdue reforms, such as committing to strict anti-terror vetting and transparency, to demonstrate that they can be trusted with taxpayer funds.
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