Cummings & Lockwood

How to Handle Gifts from 'Tainted' Donors

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October 8, 2019

Authors: Stefania L. Bartlett, Cara Howe Santoro, and Brianna L. Marquis

Trusts and Estates Magazine Website

Stefania L. Bartlett, Cara Howe Santoro and Brianna L. Marquis, attorneys in the Private Clients Group, wrote an article for Trusts and Estate Magazine Website entitled "How to Handle Gifts from 'Tainted' Donors"  which was published October 8, 2019.

For a link to this article, please click here.

 

How to Handle Gifts From 'Tainted' Donors

 

Charities may need to 'return to sender.'

It’s increasingly easier to find information about almost anyone on the internet. Individuals in the public eye, including celebrities and the ultra-wealthy, know that whether the information is positive or negative, it’s probably out there somewhere. But what do we do when we find out an individual in the public eye doesn’t share our core values or is actually a criminal?

Some might see a moral obligation to cut ties with that individual. She might stop following him on social media, boycott his products or stop watching his movies. But, the question becomes exponentially more difficult when it’s a charitable organization trying to decide what to do with a large gift from that individual. Often, to keep the organization running, charities rely on a few wealthy benefactors to make regular contributions. Now, charities are under intense scrutiny to examine the source of their donations to ensure they aren’t coming, directly or indirectly, from what some in the public sphere may consider “undesirable donors.” Here are some current examples of the moral and reputational dilemmas charities can face.

Recent Events

In light of the ongoing opioid crisis and protests at museums throughout the United States and England, the Solomon R. Guggenheim Museum, Tate and Britain’s National Portrait Gallery announced they aren’t currently accepting or seeking contributions from the Sackler family (owners of Purdue Pharma and creators of OxyContin). 

Harvard University recently reviewed previous contributions received from Jeffrey Epstein and his foundation, between 1998 and 2007. Harvard has no plans to return these gifts. Epstein was a convicted sex offender who faced federal sex-trafficking charges. His 2003 donation of $6.5 million funded a mathematical biologist who later established Harvard’s Program for Evolutionary Dynamics. Harvard explained that the majority of funds from previous gifts from Epstein have already been spent for their intended purposes. Harvard has decided to redirect the remaining unspent funds of $186,000 to organizations that support victims of human trafficking and sexual assault. Harvard didn’t uncover any gifts from Epstein or his foundation dated after his guilty plea in 2008 and specifically rejected a gift following his conviction in 2008.  

Putting aside the ethical and public perception considerations, there are other issues for charities to consider when returning a gift. For example, charities could be bound by contract or state law to keep the gift or fulfill naming rights. Courts have upheld gift agreements involving naming rights and have compelled charities to either refund the gift or keep the name, even if it no longer reflects the charity’s mission. The Smithsonian received millions of dollars from the Sackler family, but it claims that it’s bound by contract to keep the Sackler name on its gallery. While Yale will also keep the Sackler name on one of its reendowed institutes due to contractual obligations, it’s decided to distance itself from the family. Some charities are starting to build into gift agreements a clause that allows the charity to terminate any naming rights in the event of significant negative public attention. 

Now, more than ever, charities must know where their funding comes from. They face a difficult decision if negative information about a donor surfaces after they accept a gift. The charities must consider the potential damage to their reputation if they keep the gift and weigh it against the legal, ethical and financial ramifications that come with returning it. Like the charities mentioned above, charities can decide to reject any future donations from unfavorable donors. They can also return contributions, like the University of Alabama School of Law, or, like Harvard, they can decide to keep the funds. Ultimately, the charities must decide what’s best for themselves and their other supporters, but having all of the facts (and a strong gift agreement) is critical.