Money Laundering in Nonprofits

My colleague from Stanford's Center on Philanthropy and Civil Society, Professor Rob Reich, is a smart political theorist. He even makes tax incentives interesting. For a long time Rob has been asking whether the "blunt tool" of tax exemption is right for all charitable giving.

On a recent panel discussion with Rob I realized that the post "Citizens United year" may well give us the opportunity to revisit that structure. Rob said something akin to "After Citizens United was decided by the United States Supreme Court this January, we expected to see huge corporate dollars flow into politics. What we're seeing is nonprofits playing the big funding role."

I hadn't seen it that way. To me, it's corporate money that just happens to be flowing through nonprofits. The nonprofits are, in effect, laundering the corporate money. Yes, that's strong language. Intentionally. Now that the law of the land allows corporations unlimited spending on campaigns, why else would they bother to move the money through nonprofits unless they want to mask their involvement? The lack of transparency around these organizations provides the donors with unfettered funding opportunities while letting them hide their identities (except when four intrepid reporters spend countless hours digging through document trails). When these nonprofits then spend 50 percent or more of their money on issue and political ads, it's hard to see them as anything but shills for that money. To me, that's money laundering.

When you think of money laundering, trust and integrity are not what comes to mind. Yet trust and integrity are the calling cards of nonprofits. This is just one reason everyone in the social sector needs to be thinking about what it means if 501(c)(4)s and 501(c)(6)s start gaining a reputation as fronts for company money. That's not a reputation your local food bank or youth organization wants to have to live down, and talking tax code subtleties with the general public is not going to be an effective way to deal with this issue.

I'm working on a more nuanced, thoughtful, and less deliberately inflammatory sets of posts on the impact of Citizens United. But, now that I've got your attention, please go think about the impact of these dollars on nonprofits, on the sector, and on politics. There are a lot of strategies to consider -- including changing the way broadcasters charge for political ads since so much of the "money in politics" just winds up at TV and radio stations anyway. And there are other things to do as well, campaign finance reform, DISCLOSE Act, shareholder proxy voting, new disclosure rules -- stay tuned, I'm going to get at all that.

As this is a partial thought (a Random Philanthropy Observation) I had posted it on my Tumblr blog but had some trouble with that technology so moved this post over here. Please bear with me.