Sometimes, a donor-related scandal can offer up useful lessons, both for charities and the people looking to support them. Donald Trump’s philanthropy-adjacent activity has provided plenty of fodder in this regard, and the latest such alleged transgression comes from one of the president’s former advisers, Steve Bannon.
Bannon and three others were recently arrested and charged with defrauding thousands of donors via a GoFundMe campaign called We Build the Wall, Inc., which raised private funds toward the construction of a wall along the Mexican border. The effort raised approximately $25 million in cash and pledges, and the charges state that organizers inappropriately used funds for purposes other than building new sections of the wall, including for personal spending. According to prosecutors, one of the men arrested repeatedly promised he would not take any compensation, indicating that “100% of the funds raised… will be used in the execution of our mission and purpose.” Bannon, who had described the effort as a “volunteer organization,” is accused of diverting $1 million to another nonprofit he operated, and using at least some of those funds to cover hundreds of thousands of dollars in personal expenses.
So setting aside for a moment the broader political implications of this story, let’s take a look at We Build The Wall as a fundraising entity, what it communicated to donors, and what donors might take away from this fiasco. The case raises some important issues for average donors to consider, particularly when it comes to understanding what, exactly, they are supporting, and the language often used in fundraising appeals.
I reviewed the We Build the Wall, Inc. website and found a July 17, 2019 determination letter in which the IRS indicates that the organization is, in fact, recognized as a tax-exempt organization. The resulting corporation is a 501(c)(4), or social welfare organization, a nonprofit that operates under looser restrictions than a 501(c)(3) charitable organization. As a result, the second paragraph of the letter makes it clear that “Donors cannot deduct contributions they make to your organization.”
This serves as a reminder that donors should ask to see an organization’s IRS determination letter before donating, especially when dealing with a newly established entity. They should also read those letters carefully and be aware of what kind of legal entity the group is. While the letter opens with the IRS saying they are “pleased to tell you we determined you’re exempt from federal income tax,” this does not mean that the organization is a public charity. Donations to public charities are deductible, but not all tax-exempt organizations qualify as public charities. To the fundraisers’ credit, the website does make it clear that donations to We Build the Wall are not tax deductible. But the fact that this corporation is not a public charity does add a further hurdle that prosecutors must clear in order to make their case that the principals committed fraud. Charities are subject to a higher standard of public trust than other corporations and provide prosecutors with statutes to punish wrongdoers.
Looking over the corporation’s website, I didn’t see a claim that “100% of the funds raised… will be used in the execution of our mission and purpose.” Of course, it’s entirely possible that detail was removed between the indictment and my review, or that it was expressed elsewhere. Assuming for our purposes that the claim was made, this can still be a sticky subject with which donors and fundraisers will be all too familiar.
Back in 2016, I delved into this very topic—specifically, the common assurance that “all proceeds go to charity” as it related to Donald Trump’s questionable business and charitable dealings. While the case of Trump is an extreme one, it goes to show that such catch-all language used by fundraisers is often too vague to carry much meaning.
The legal issue around We Build the Wall is similar to the one discussed in that post. The big difference is that this fundraiser claimed that 100% of the funds raised would be used in the execution of the mission. Prosecutors state that some of the money was used to compensate the organizers of the effort, which might appear to be contrary to assurances given to donors.
These allegations will be investigated, but this reflects a common point of contention for donors, who must realize that executing the mission of an organization does not always mean spending money directly on mission projects—in this case, construction of a wall. There are administrative costs in every endeavor, and someone has to pay those costs. Administrative costs are considered by most experts in this arena to be valid mission-related expenditures. Thus, a claim that “all of the funds” are directed toward the mission could very well mean many indirect costs are being paid for with your donation. Be careful what you assume as you read fundraising literature.
If a donor wants their donation to go only toward a specific purpose—such as construction—they should make that a condition of their gift. To do this, you should have a written gift instrument clearly expressing your intentions, and this should be recognized by the recipient organization in writing as being the accepted terms of your gift.
This is by no means meant to absolve or justify the alleged actions of Bannon and We Build the Wall. It may be that there was some or much inappropriate spending by this corporation. I don’t know if that amounts to defrauding the donor or not. And hopefully, this is not the kind of experience your average donor will come across in their own philanthropic endeavors.
That being said, it offers a lurid reminder of the importance for donors to fully understand the organizations they are supporting. Also, the donor must understand the marketing and language used in fundraising appeals and try to avoid jumping to a conclusion that isn’t actually being communicated.