Like so many things, the intent behind a non-profit or not-for-profit organization is magnanimous. Because these groups are ostensibly dedicated to doing good works, governments all over the world grant them tax preference, and the US Government is no exception.
But underneath the surface lies an ugly machine that launders money, peddles influence, and enriches a small elite by providing a means of moving money around anonymously and without taxation.
A non-profit group can enrich its principals even without collaborating with other such ‘charitable’ groups. To be a non-profit, it must merely have its expenses equal its income each year, within the legal definitions of each category. Salaries are part of the cost of operations. So are marketing expenses.
Let’s consider a hypothetical non-profit that takes in a million dollars a year in donations (revenue) and has a single employee. Its disclosure for the year might indicate $300,000 in salary for the president of the non-profit, $100,000 in travel expenses, $250,000 in marketing expenses, $100,000 in operating expenses, plus another $250,000 of facilities and infrastructure expenses (real property, office equipment leases, etc).
It may not even spend $100k of its “operating funds” on actual good works or helping people. It may spend the rest on lavish perks like a luxurious office, a limousine, travel by private jet, etc. All of these lavish costs are “expenses” to the non-profit, and they count towards the goal of not making a profit. A tropical vacation that involves a meeting with a wealthy prospective donor can all be written off as a “marketing” expense.
This allows the principal—and others who may eventually work there—to live a lavish lifestyle well beyond what their stated salaries would ever support if they were spending their own money.
Still, disclosure requirements of this kind are such that eventually this kind of conduct comes to light. The Wounded Warrior Foundation was recently disgraced by revelations that it income was being spent on drunken parties and other forms of debauchery. However, the real corruption comes when non-profits work together to launder money and peddle influence.
Let’s say you were a wealthy person looking to bribe the Secretary of State, since your desired purchase of a uranium concern requires State Department approval. It just happens that the SoS is closely tied to a charitable foundation, the Clinton Foundation.
The Clinton Foundation accepts donations from a Canadian Charity. The Canadian Charity is not required to disclose donors. Thus can money be laundered: Uranium Tycoonà Canadian CharityàClinton Foundationà Secretary of State. Non-profits donating to other non-profits are the primary means by which charitable donations are hidden, sometimes behind several layers of intermediary groups.
Privacy laws prevent proving conclusively that a quid pro quo occurred, so illegal actions are difficult to prove. Non-profits provide plausible deniability. Even when the malfeasance eventually comes to light, it we be chalked up to “clerical errors” and a quiet re-filing of tax returns will be done.
In effect, it mirrors the operation of the Mafia, in which illegal profits are laundered through legitimate businesses to hide evidence. And the people that do this are not very different than the Mafia types from whom they learned.