Fresh off their success helping international victims of the 2004 Indian Ocean tsunami, former presidents George H.W. Bush and Bill Clinton, bitter rivals from 1992, reunited Sept. 5, 2005, in Houston, Texas, to solicit funds and then give grants to organizations aiding Americans pummeled by Hurricane Katrina.
On the surface level, it was appealing to see two erstwhile political foes look past their stark differences of ideology and opinion to work together on behalf of millions of embattled residents of New Orleans and others across the Gulf Coast, from Texas to Florida.
So donations poured in at the request of the former presidents to the Bush-Clinton Katrina Fund (BCKF), the charity they said repeatedly they had formally established solely for this purpose.
Behind this heartwarming narrative, however, an ongoing review of public filings, many of which are omitted from the website of the Bill, Hillary & Chelsea Clinton Foundation (aka the Clinton Foundation), tells a different story.
Tens of millions of dollars apparently raised for BCKF from Sept. 5, 2005, through Oct. 3, 2005, are not properly accounted for in required federal tax filings. This gap is seen clearly by comparing declarations of American donors, news releases, and other publicly available documents, including many issued in the name of the Clinton Foundation.
Why is the gap so clear? The BCKF was not organized as a Delaware nonprofit corporation until 6:41 p.m. on Oct. 4, 2005, as is evident here, starting at page 14. Yet the Clinton Foundation claimed in a news release that almost $100 million had been sourced for the Katrina fund by Sep. 20, 2005:
“The Bush-Clinton Katrina Fund announced that it has raised more than $6 million in online donations. These donations are in addition to the more than $90 million in corporate contributions and large gifts from individuals. This announcement comes shortly after the NFL pledged the proceeds from this past week’s Monday Night Football to Hurricane Katrina Relief. The $6 million comes from donations from over 37,000 people who have made their donations on their website www.BushClintonKatrinaFund.org.”
But, as the IRS makes clear, an organization (nonprofit corporation, association or trust) can only seek and obtain exemption from federal (then applicable state) taxes on the basis of a truthful and complete application filed on Form 1023. This lengthy guide explains key federal requirements currently in force.
There is abundant evidence of fundraising activity beginning almost a month before BCKF was organized in Delaware. There is no evidence that applications for federal and state tax exemptions explaining these (disqualifying) pre-formation activities were filed before BCKF received federal tax exemption Dec. 13, 2005.
The IRS exemption letter for BCKF was signed by Lois G. Lerner. See pages 20-21 here.
Moreover, public records show that BCKF did not register to solicit in any U.S. jurisdiction during 2005 other than possibly in Washington, D.C, before it commenced raising funds aggressively using the internet and other means.
Anatomy of celebrity charity frauds. Modern American presidents end up as global celebrities, so they have enormous reach inside and outside our nation when they get involved and allow their names to be used in charitable pursuits.
Facilitated by the internet, and not yet appropriately regulated by federal, state and foreign governments using 21st-century tools, solicitations in the name of one or more former presidents evidently can and do source massive sums in donations.
The first major trick in a celebrity charity fraud is to select one official name for the nonprofit organization and one related address for the head office, but to use a raft of other similar-sounding names and offices to ask for contributions.
The second essential trick is to employ lax controls over the gathering of incoming donations, whether by employees, fundraising agents, or affiliated entities. Loose controls allow the near-certainty that criminals will divert donations before they even reach the financial accounts of a charity.
The third important trick is to work with accountants who are not independent and tough enough to challenge celebrities and their coterie of insiders when they spot warning signs that include a longstanding pattern and practice of criminal behavior.
Ineffective accountants who fail to discharge their professional responsibilities then become co-conspirators in celebrity charity frauds.
Use of these three tricks (and others) can allow criminals to divert far more money than is officially raised for a supposed charity, and then fund personal or political activities without paying taxes that are, in fact, due.
For obvious reasons, charity frauds are a gross abuse of the public trust. Once powerful persons, including former Reps. Corrine Brown (D-Fla.) and Steve Stockman (R-Texas), were recently convicted on multiple felony crimes involving raised amounts much smaller than those BCKF sourced in a mere 16 days starting on Sept. 5, 2005.
Does anybody care about large charity frauds? As will be seen in forthcoming reports here, defects in public filings of BCKF do not appear to be mere accidental errors. Nor is the way the Clinton Foundation reported its association with BCKF only marginally at variance with the law.
Donations certainly were diverted and misappropriated by BCKF and by the Clinton Foundation. BCKF made large grants to suspect recipients that were not validly organized or operated as charities.
And two former presidents did a gross disservice to the vital nonprofit sector of the United States, where so many citizens scrupulously follow all applicable laws.
To be continued.
Charles Ortel, a retired investment banker, concentrates on exposing complex frauds in his new career as an investigator, writer and commentator. Since August 2017, he has been hosting the “Sunday with Charles” podcast and covering the Clinton Foundation case in depth, using publicly available source materials. To view his previous LifeZette contributions, go here.
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