The Clinton Foundation: A Miasmic Swamp Of Legal Issues & Implications

An Arkansas Swamp (photo: J. Sparks)(the Clinton Foundation is an Arkansas Corporation)

One indication that the awareness of problems at the Clinton Foundation has reached a critical threshold is that in recent days the suggestion — or rather demand — has been made more than once that it be shut down if Hillary is elected President. By far the most significant of such demands has come from the well respected former governor of Pennsylvania, Ed Rendell. On August 18th, news reports began appearing indicating that the Clinton Foundation would not accept donations from corporations or foreign governments if Hillary is elected.

Charity Fraud Is Not A Partisan Issue

Rendell’s demand and the Clinton Foundation’s proposal that plainly was made in reaction to it and other similar demands seems to be predicated on the belief that what should or should not happen to it is largely a partisan issue. Yet, even if it has not been expressly stated what ultimately underlies such demands is hardly a partisan issue, but rather numerous informed opinions, expressed independently, that the Clinton Foundation is a fraud. In a recent interview about his own research into and writing about the Clinton Foundation, Charles Ortel insists that charity fraud as a general matter should not be deemed a partisan issue (listen here to the entire interview for a summary of many of the specifics with respect to the Clinton Foundation).

Therefore, whether or not Hillary is elected President is hardly a deciding factor with respect to what should be done with the Clinton Foundation. Furthermore, to think that it simply can be “shut down” betrays a stunning naivete about just how miasmic a swamp of legal issues and implications are lurking beneath the surface of what has appeared so far from public disclosure by the Clinton Foundation and independent analysis of it. Rather than fantasize that the Clinton Foundation can simply be ‘shut down’ or its future operations restricted in such a way as to avoid problems and that with Hillary as President the US can somehow move on, there needs to be a realistic discussion of the sort of constitutional crisis her election might precipitate if, as seems likely, she begins to be served with subpoenas even before she is sworn into office.

Investigating The Clinton Foundation: Like Dredging A Swamp

Because of the issues involved, any investigation of the Clinton Foundation is going to need to look beneath the corporate charitable form under which it operates and look into the personal finances not just of those nominally in charge of it but also into each and every one of its donors and beneficiaries — direct and indirect. Such an investigation is analogous to a dredging operation: you really do not know what you are going to find until you find it. Given the nearly two decades of the Clinton Foundation’s activities and the global scope of many of them, it is likely to be years before there is anything like closure (indictment, trial, conviction — not to mention appeals) regarding what actually has been going on at the Clinton Foundation.

That means that any investigation of it is going to delve into relationships and transactions involving both friendly and unfriendly foreign governments, whether direct or indirectly. The investigatory process, not to mention the substantive conclusions that may arise from it, is sure to be awkward and generate controversy, if not conflict. Consequently, there is a very real prospect that foreign relations in general are going to be problematic, to say the least, directly as a result of disclosures likely to arise from investigating the Clinton Foundation.

Merely The Risk Of Criminal Charges Will Trigger Civil Actions

Complicating a consideration of the implications of any investigation into the Clinton Foundation is the fact that even if the underlying criminal collusion is limited to only a few individuals or entities (that is, the criminal reality beneath the fraudulent corporate form), donors in particular have reason to be concerned and perhaps initiate legal (civil) action themselves. Anyone who has donated to the Clinton Foundation and taken a tax deduction for such donation may find themselves with a very unwelcome tax liability. Look at the language of the IRS in its ‘Determination Letter’ addressed to the Clinton Foundation back in 1998, which essentially warns that if a donor is “aware of” something the Clinton Foundation did or failed to do that “resulted in [its] loss of status” as a tax exempt organization, then such donor may not take a tax deduction for a donation to it (see Item B of screen grabs of Clinton Foundation Disclosure here ). Significantly, the effectiveness of such loss of status as it relates to the donor is not whenever the IRS gets around to saying or doing something about it, but the date of the underlying act or failure to act of the Clinton Foundation.

Therefore, if you donated to the Clinton Foundation, but can be shown to have known (and every donor is likely to be deemed to have knowledge of the relevant IRS Determination letter(s) or lack thereof) at the time you made such donation that the Clinton Foundation had failed timely to make appropriate filings with the IRS or to respond to its requests and such failure ultimately leads the IRS to deem it not to be tax exempt, then you have a problem. The bigger your donation, the bigger the problem. Furthermore, with the legal proceedings looming over the Clinton Foundation, your ability to do anything about your problem is likely soon to be complicated by a priority battle involving competing claims. For it is likely civil claims for the repayment of prior donations will be initiated well before any criminal charges are brought against the Clinton Foundation.

The legal basis for such claims (which will vary depending on the applicable jurisdiction) would probably be common law fraud (the ultimate basis for analogous Federal securities law based charges and claims). The size of such claims, moreover, is likely to be far in excess of the ability of the Clinton Foundation even to set aside a reasonable reserve to pay for them. Given the publicity about the Clinton Foundation, its donations by now must be decreasing at an alarming rate relative to prior periods of its operations and assets accordingly dwindling. Hence the “offer” of the Clinton Foundation to reduce its fund raising can actually be interpreted as a cover for the bleak reality it is now facing.

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