Tainted Donor, Tainted Money?

SEE ALSO >>> Nonprofit Organizations

How to Handle Controversial Contributions

In 2019, as waves of lawsuits accused Purdue Pharma of knowingly contributing to the opioid crisis, numerous nonprofits announced they would no longer accept gifts from the Sackler family, several members of which owned the company. That same year, the Massachusetts Institute of Technology came under fire for accepting multiple donations from convicted sex offender Jeffrey Epstein.

Situations like these put nonprofits in a tough position. They may desperately need funds, but accepting such gifts may result in negative attention. So, what should you do if a donation turns out to be “tainted”?

The Debate

Some say that in a time when socially conscious investors are trying to align their investments with their values, nonprofits should do the same. In other words, you should reject or return tainted contributions.

The risk of reputational damage — especially in a social media world where accusations quickly go viral and cause loud backlash — provides another solid rationale for turning down controversial contributions. You might find that some of your most loyal supporters are among the most vociferously opposed to such donations. Moreover, the uproar can divert attention from your positive accomplishments and alienate future donors.

Arguments can be made to hold on to controversial donations, though. After all, not every donor is an angel or operating from purely altruistic motives. Insisting otherwise could drastically reduce revenues. Even Mother Teresa allegedly accepted donations from dictators and crooks, arguing that the money’s source didn’t outweigh the good it could do.

She’s not alone in believing that tainted money is better spent on charitable purposes than, say, another yacht or mansion for the donor. Money given to a nonprofit goes the argument, generally benefits society as a whole, particularly when the recipient does social welfare work. And, if you turn away funds, you could have to cut programs, dip into your endowment or sell other assets.

Formal Guidelines

These decisions are more easily rendered when you’re working from a formalized framework. Rather than making decisions on the fly while in the glare of the public spotlight, follow a protocol that you can point to when pressed on your reasons. Begin by establishing a “Know Your Donor” process for prospective donations above a certain amount. Some preliminary due diligence (see “Donor due diligence isn’t just for the big guys”) can help ensure your donor’s past or current actions don’t conflict with your mission.

Also, develop a written gift acceptance policy with clear limitations. Take some time to think through potential scenarios. Most organizations refuse donations of stolen funds or funds generated by illegal means — but what about donations that are “clean” but obviously given as a means of furthering the donor’s public relations? What about anonymous gifts? Some nonprofits find them too risky by nature.

Next, identify a process for handling gifts that turn out to be controversial after receipt. Don’t base your decision solely on gift size. Instead, evaluate gifts through an ethical prism that takes into account your values and the perspectives of your various stakeholders.

Looking at an example

Different organizations might make different decisions about the same donor. Consider a case where the donor’s business actions directly harm a nonprofit’s clients’ interests. After so-called “Pharma Bro” Martin Shkreli made the news for purchasing a pharmaceutical company and dramatically hiking the cost of critical medications, some of his charitable contributions came to light. One recipient, an organization that assists homeless people, some of whom depend on such drugs, returned his donation. But the donor’s alma mater didn’t. The latter apparently decided that his history in the pharmaceutical world didn’t undermine its educational mission.

If you accept a donation from a controversial donor, you’ll likely need to explain your decision. So, develop communications guidelines, as well. Determine who will speak for your organization, which communication channels will be used and how much information will be shared, with a preference for transparency.

Be prepared to stop

There’s no way to completely eliminate risk when raising and accepting funds — you can’t run full background checks on every donor. You can, however, take some steps to mitigate the risk and save your organization a PR nightmare down the road.

Need Additional Information?

If you need more information, please contact us so we can connect you with one of our CPA advisors who will be committed to your business and personal success. BLS is here to help!