Are Charity Regulator Investigations of 9/11 Charities Illegal?

The Chronicle of Philanthropy covers the Associated Press report that New York and Arizona are investigating 9/11 charities that may have failed to “keep promises to create memorials or contribute to 9/11 causes.”

AP reports that “New York Attorney General Eric Schneiderman’s office said state lawyers are conducting their own ‘broad review’ of 9/11 charities to make certain that all documentation [for the charities] is in order and that all rules on fundraising and public disclosure are being followed.”

There are, of course, many charities that have noble ambitions, but fail to meet them.  Failure is not unlawful.

Fraudulent fundraising would be unlawful.  Charity regulators justify their jobs by claiming they are needed to prevent fraud.

Through charitable solicitation registration laws, states and their regulators have created a maze of prior restraints on fundraising communications that are protected by the First Amendment.  Instead of being used to prevent fraud, charity regulator enforcement is mainly targeted at those who fail to comply with the registration laws themselves.

So what are the purported unlawful acts that form the bases of these New York and Arizona charity regulator investigations of the 9/11 charities?

Conversely, are these charity regulators violating the law?  State investigations of charities that do not meet the requirements of Fourth Amendment protections against unreasonable searches and seizures may be unlawful.

The Fourth Amendment has procedural requirements that must be met before government officials may search charities.  These include probable cause supported by oath or affirmation, “and particularly describing the place to be searched, and the person or things to be seized.”

The New York statute authorizing charity regulators to conduct searches, Estate Powers and Trust Law 8-1.4(i), appears on its face to violate the Fourth Amendment:

(i)   The   attorney   general   may   investigate   transactions  and  relationships of trustees for the purpose of determining whether or  not  property  held  for  charitable  purposes has been and is being properly  administered. The attorney general, his or her assistants, deputies  or  such other officers as may be designated by him or her, are empowered   to subpoena  any  trustee,  agent,  fiduciary,  beneficiary,  institution, association or corporation or other witness, examine  any  such  witness  under  oath  and,  for this purpose, administer the necessary oaths, and  require the production of any books or papers which they  deem  relevant  to the inquiry.

The New York statute has no requirement of cause supported by oath or affirmation, nor does it require particularity of what is to be searched.

Searches conducted pursuant to that statute should be considered unlawful.

The statements by the New York and Arizona AGs’ offices described in the AP story are troubling from a number of perspectives.  Charity regulators typically claim — at least when they are asked for information — that investigations are confidential.

Here, the charity regulators have gone public.  They have placed a pall on fundraising by 9/11 charities.

Secondly, the Fourth Amendment requires narrowly tailored searches, but the New York charity regulators admit they are engaging in a “broad review.”  Are their subpoenas and demands for documents too “broad?”

I just renewed our New York registration and paid the $800 annual registration fee.  Registration is expensive enough for entities that are solvent.  Charity regulators help suck the life out of charities through burdensome, expensive registration requirements.

If this is simply a matter that the 9/11 charities did not raise enough money to accomplish their intended big dreams, then these charity regulator investigations are a farce.  It is unlikely these 9/11 charities will have enough money to hire lawyers to sue charity regulators in the event the regulators break laws and violate rights.  But that’s what charity regulators rely on.

First Circuit Reminds Nonprofits That Citizens United Did Not Free Them

Nonprofits believing the Citizens United case freed them to engage in expressly advocating election or defeat of candidates need to be careful.

The First U.S. Circuit Court of Appeals upheld both Maine and Rhode Island statutes requiring nonprofit organizations to register as political action committees when engaging in express advocacy about electing or defeating candidates.

The challenger to those two state statutes, the National Organization of Marriage (NOM), is a 501(c)(4) organization.  NOM challenged the Maine and Rhode Island statutes regulating express advocacy about candidates, and requiring registration as political action committees (PAC).

PACs must not only register, but they must report donors and provide certain disclaimers on their communications.

Rick Hasen’s Election Law Blog reports about the NOM cases here. Constitutional Law Prof Blog reports here.

If you’re confused, it’s probably because you think clearly.  Campaign finance laws are often goofy.

This is a good example of the principle that nonprofits need to know what they don’t know, then learn it.

'Hmmm,' back to a FOCR (friend of charity regulators)

A reader and defender of charity regulators writes, “I [meaning, he] and others have proposed ideas like your online posting process for many years.  When and how did NASCO ‘oppose’ it?”

The opposition from NASCO first came in private correspondence after I asked them to support it, and also asked that NASCO make disclosures about its finances and operations.

NASCO stated publicly its opposition when questioned by The Chronicle of Philanthropy and The NonProfit Times.  Here’s a quote by then-NASCO President Hugh Jones from The NonProfit Times piece, “Mark’ed Man”:  “As a voluntary system, no enforcement sanction could exist to volunteer accurate and complete information.”

What I may have left out in prior reports is that NASCO mischaracterized my proposal as “voluntary.”  The proposal is an alternative, and to describe it as voluntary is misleading.

The reader also writes, “You rail against anonymity, yet you don’t identify yourself.”

He must be wondering why I criticized charity regulators who issue threats or demand actions under color of law, yet fail to identify themselves.

The reader fails to distinguish between state-compelled disclosure of “private” information and the First Amendment right to publish anonymously versus due process requirements imposed on government that purports to act as “public” law enforcement.

The reader’s comments highlight a problem in America.  People seem to have gotten things backwards about privacy, government authority, and especially how the Bill of Rights makes those distinctions.

That’s one reason why I have this blog.  And, my name is Mark Fitzgibbons.  I thought everybody knew that!

Charity regulators use anonymity to cloak failures to follow the law

I’ve said it many times, charity regulators often fail to cite to any law supporting their demands made on registrants.  Often their demands are either unsupported by the law or rely on lopsided and aggressive interpretations of the law.

Whenever you receive such a demand, your first reaction may be to reply by asking for citation to the legal authority supporting the demand.  Otherwise, we merely allow charity regulators to make up authority, which enables them to violate your rights.  Don’t let them get away with it.  If they have legal authority supporting their demand, they should disclose it.  It’s called due process of law.

The other annoying practice charity regulators employ is they send demands anonymously; that is, no individual charity regulator puts his or her name on the demand.  This anonymity makes it easier for charity regulators to cloak their failures to follow the law.  It wasn’t always this way.

These people work for the government.  They are not entitled to privacy in the conduct of their official actions.

We read about “shadowy” groups.  Well, now we have shadowy bureaucrats.  Given how charity regulators claim their jobs are needed to promote transparency, it’s rather hypocritical of them to operate anonymously, don’t you think?

Come on, charity regulators, tell us who you are.  What are you hiding?


Significance of today’s release of Project Veritas videos and charity regulators

The Daily Caller broke the story about James O’Keefe’s Project Veritas latest sting. This one shows state Medicaid officials not only aiding scofflaws, but I imagine breaking some laws themselves.

My mantra about charity regulators is that they are the biggest violators of the laws that govern charitable solicitation.  They are unaccountable, and that fosters their lawbreaking.  They exert tremendous amounts of control over private philanthropy and the rights of nonprofit organizations.  It seems, though, that the bigger problem of corruption involves taxpayer money being doled out to charities.  How many government officials have been caught in recent years diverting taxpayer money for their personal benefit?  How many politicians have been involved in these scams?  The bigger question may be, how many have not been caught?

The real issue is that government isn’t nearly as benevolent as it claims to be.  As to charity regulators, we need to be more circumspect about what they do and why they do it.  They need to be challenged more often.

Charity regulators, particularly their umbrella group the National Association of State Charitable Officials (NASCO), fail to provide information about their operations and costs.  They bash their critics, and even threaten them.

The nonprofit sector should push for audits of charity regulators.  Maybe they need to be “stung” themselves.  In the mean time, keep an eye on the regulators.  Government itself doesn’t seem to be keeping an eye on them.

New Jersey Readies Another Dumb Regulation that Needs Your Opposition

I highly recommend this report from  Mr. Siegel makes some excellent points about a proposed rule change from the New Jersey Division of Consumer Affairs.

I agree with the post.  Well, maybe except where Mr. Siegel writes, “We like charity regulators, but this proposal if adopted, will be another example of regulatory laziness.”

We like charity regulators?


Regulatory laziness?

Don’t get me going.

Nothing personal, you understand.

What is a “public charity?”

I recently found this article written by two lawyers about the dual federal and state regulatory jurisdiction over charities, and how charity regulators and the Internal Revenue Service share information to regulate nonprofits.

The article asserts, “Public charities, created to benefit the public, have always been subject to state and federal regulation.” I don’t think that claim is true. I don’t recall Chief Justice John Marshall making that observation in the 1819 case Trustees of Dartmouth College v. Woodward, which pre-dated the IRS. Chief Justice Marshall, as I recall, also made the distinction about charities whose purposes may affect or benefit the public, but that didn’t make them “public charities.”

Early in the article the authors also makes this observation:

State governments have concurrent jurisdiction with the federal government with respect to the oversight of, and regulatory control over, charities. After all, nearly every U.S. charity is a creation of state law, formed under a specific state’s trust, unincorporated association, or nonprofit corporation law. In other words, most charities would not legally exist but for state law.

So if I understand the authors correctly, the fact that a charity is legally organized under state law authorizes concurrent federal and state jurisdiction over charities. Or, perhaps, the fact that a charity is organized under state law gives states certain powers to regulate charities in ways that states may not regulate other entities organized under state law. I am unclear of the authors’ meaning, but that paragraph troubles me.

Wouldn’t the federal government and state governments have essentially the same level of concurrent jurisdiction over law firms organized under state law as charities organized under state law? Don’t the private services law firms render affect the public? When a law firm negotiates a deal to erect a “public” building, that seems to affect the public interest. Lawyers go to “public” court to defend clients, conduct civil litigation often with “public” implications, etc.

Would state attorneys general be able to invade law firms the way they do charities simply because law firms are organized under state law? I’d like to see them try it just to see the response from the law firms. Boy oh boy, we’d see pleadings flying out of those law firms asserting rights, seeking injunctive relief and claiming damages.

Most law firms would not legally exist but for state law, yet few if any lawyers or law firms I know would concede such jurisdiction over themselves as the authors concede for charities.

This may sound too legal and theoretical, I know. My point, though, is while the law governing nonprofits is complex, it’s appropriate to question even so-called legal experts. Sometimes they have a bias in favor of complexity of the law and more power for government, and perhaps that doesn’t fully protect your rights. You might want to ask them, if the government tried to do this to your law firm, how would you respond?

POCAA Adopted as Model Law by Uniform Law Commission

Lawyers meeting in the resort town of Vail, Colorado adopted the Protection of Charitable Assets Act (POCAA) according to a Uniform Law Commission news release.

POCAA would add yet another registration requirement for charities and religious organizations.  It would also allow charity regulators to conduct investigations of covered entities under vague and very poorly defined standards, and without court supervision or guaranteed First Amendment protections of speech and Fourth Amendment protections against unreasonable searches and seizures.  POCAA is badly written and is ripe for abuse by the charity regulators who pushed this legislation.

Here’s the draft that was considered for approval.

Charity regulators will now begin their insider lobbying at taxpayer expense for states to adopt this model law.  Undoubtedly they would soon lobby to increase their staff and their budgets to pay for the extra paper shuffling that POCAA would require.  The lawyers who wrote POCAA will undoubtedly discuss this special interest legislation over a good steak, and law professors probably have already begun writing their law review articles praising POCAA.

Meanwhile, charity revenues are suffering from a prolonged poor economy.  State budget problems are resulting in cuts of funding for charities, domestic violence shelters, senior centers and mental health facilities.  From The Nonprofit Quarterly, here’s what’s happening just in Minnesota:

A mental health facility in Duluth staffed by the Community Partnership Network stopped operating, initially offering no information to people calling for assistance.

Deemed by the courts as one of the many non-essential services, the Senior Linkage Line offering help to seniors and their caregivers on topics such as in-home services, meals, transportation, and housing shut down in the Twin Cities area.

The Associated Press reports that, “Arc Minnesota, a St. Paul nonprofit that helps people with disabilities, has suspended 90 percent of a housing service since losing its state funding.” Arc Minnesota has helped 200 people who were homeless or formerly institutionalized find their own housing in the past 18 months.

There are 21,000 families with 37,000 kids in day care programs in Minnesota and 4,000 more on waiting lists. State subsidies pay approximately half the cost. The shutdown has caused many day care providers to cut back their hours or clients, though Governor Dayton has appealed to the courts to reclassify day care as an essential service.

Some domestic abuse shelters such as Anne Marie’s Alliance in St. Cloud have been able to survive the shutdown, so far, by drawing on reserves. But the Minnesota Coalition of Battered Women says that most domestic violence shelters are small and few have anything like the St. Cloud organization’s resources. According to the AP, “Shelters in Thief River Falls, Fergus Falls and Dakota County have closed because of the state shutdown.”

Trixie Ann Golberg, president of Life Track Resource, a nonprofit that provides services for immigrants, refugees, and people with disabilities, told National Public Radio, that the shutdown forced the organization to close its services for refugees and immigrants and since July 1 has laid off one-third of its staff.”

Quite frankly, instead of more burdens on charities and taxpayers that POCAA would create, I like my idea much better:  Cut charity regulator budgets.

Stayed tuned for how to defeat POCAA when it comes to your state.  Oh, and way to go, Uniform Law Commission!

State Budget Cuts and Charity Regulators

Charities that receive taxpayer money are suffering as the result of state budget problems. States looking to cut their budgets should also look at their charity regulators.

States can cut back budgets for charity regulators and yet still increase the amount of information available to the general public and charity regulators themselves, as I explain in one of my posts.

Not all states have charity regulator offices, yet we see no statistics showing states without such offices suffer from any greater nonprofit malfeasance.

Charity regulators have vested interests in their own jobs and bureaucracy. They won’t make suggestions for the good of their states, taxpayers or charities. It will be up to others to suggest reviews, audits and ultimately budget cuts for charity regulators. What are the budgets for charity regulators? Can their work be accomplished more efficiently? Is their work wasteful of taxpayer dollars, and can it be streamlined?

Charity regulators will criticize and malign the suggestion to cut their budgets. But do they offer an alternative? Meanwhile, states are cutting funding to charities. Who’s hurt, and who’s selfish?

Are You Preserving Your Rights When You Register under Charitable Solicitation Laws?

Charitable solicitation laws require charities and their agents to register before the charity issues communications asking for contributions. That is unquestionably a prior restraint on First Amendment rights, but courts so far have managed to convince themselves that this particular prior restraint doesn’t violate the First Amendment.

I’m not convinced that will hold true in the future, especially as courts come to learn how charity regulators abuse their powers and actually violate the laws they claim to enforce.

When you file your state registrations, do you preserve your rights? Here is a disclaimer I use every time I file my renewals:

This is filed under duress and protest, and without waiver of rights, claims, causes of action and defenses, including those based on jurisdiction.

I not only use that disclaimer in my cover letters, I use it as a footnote whenever states require my signature under oath and penalties of perjury. Many state registration forms are already in violation of the law, or demand answers under poorly worded questions. In fact, some forms that require signatures under oath aren’t even authorized by law to make that demand. Nevertheless many states condition issuance of licenses on registrants’ signing under penalties of perjury. It’s a bit of a trap.

Why should registrants be subject to penalties of perjury when the forms themselves often violate the law or ask “trick” questions?

I’d like to question a few charity regulators under oath and penalties of perjury.

Protect your rights!