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Posts Tagged ‘honest services fraud’

Should Trust Be Enforced?

In Non Profit on December 4, 2009 at 8:58 am

I recently saw a documentary called Mr. Schneider Goes to Washington. Filmmaker Jonathan Schneider wanted to take a close look at the money-engine of D.C. to see how it corrupts our political process. From a conservative couch, I fully expected a heavy liberal bias where all the democrats are heroes and republicans are Lex Luthors but Mr. S, although obviously left-leaning, at least made a decent attempt at casting the blame on both sides of the partisan line. Because of this, I listened and listening made me want to do some more reading which lead me to Jack Abramoff which introduced me to a legal term I had never given much thought of until now: Honest Services Fraud.

Honest Services Fraud is defined as a scheme or artifice to deprive another of the intangible right of honest services. Seems vague doesn’t it? Turns out, the nebulous nature of the definition is by design in order to give far reaching powers to prosecutors who use it with regularity as a barbed-wire-broom-of-justice. Consequently, its use is highly controversial as explained in excellent detail by Gary S. Chafetz in his article The Fraud of Honest-Services Fraud.

Chafetz lays out his criticism quite nicely but I confess, I’m happy to know this legal tool exists and regardless of its misty definition, I see it as a way to slap the unethical hand of those who dare to betray our public trust. For those, like Mr. Chafetz, who are disturbed by the lack of coherency provided by the redundant wording, I’d like to offer up a new one to clarify the HSF term. Honest Services Fraud: A scheme or artifice created for personal gain at the expense of a trusting supporter.

If political servants must adhere to ethical practices that maintain the public trust, shouldn’t non-profit organizations also be subject to the same legal sway? As far as I know, HSF is almost exclusively used in the political arena with only a scant track record of force in the private sector. The non-profit sphere, however, seems to remain unaffected. Sure, there are plenty of legal restrictions in place to convict non-profits for misappropriations, but in regards to the establishment of ethical relationships as related to the trust of donor donations, the enforcement mechanism does not exist.

To impress my point, non-profits are permitted to create for-profit entities with the intent of generating a money-making-engine that provides the non-profit with a flow of dependable donated income. That is absolutely legal, and one that I fully support. However, to my knowledge, there are no legal restraints that force consistency between the mission of the non-profit and the activities of their established for-profit-entity. Therefore, it would be perfectly legal for Susan B. Komen, the leading center for cancer research, to set up a for-profit entity that manufactures tobacco. It would be legal, but certainly void of ethics. Not only would they be allowed to formulate such a system, they would not be required to tell their donors that the relationship exists.

Do I think Susan B. Koman would do such a thing? No. Do I think there should be legal ramifications for those who would? I’m definitely leaning toward yes.

I spoke with a friend of mine about this who is a grant writer and he warned me that the implementation of such a suggestion could possibly do more damage than good. He pointed out that the non-profit sector is already burdened by so many regulations that he fears another one like HSF would do more to prohibit great services than ensure them. I definitely see his point and come on, I’m a conservative so I’m supposed to abhor regulations, right? Maybe a better compromise on the issue would be to force full disclosure rather than regulate the relationship between the two separate entities. I don’t know exactly what the solution should be but I do know that if you gain my money by persuading me to support a particular ideological mission only to use my money in a way that contradicts the mission you convinced me to support, I’m not going to be happy about.