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The SPLC has been federally indicted on six counts of wire fraud, four counts of false statements to a federally insured bank, and one count of conspiracy to commit concealment money laundering. And the charges were filed in the Middle District of Alabama. 14-page indictment PDF here.
In brief, the indictment alleges that the SPLC raised money under false pretenses by claiming to fight right-wing extremism, instead funding extremist informants with roughly $3 million dollars of donor money. The informants included members of the KKK and an organizer of the infamous Charlottesville unite the right fiasco. They allegedly did this using illegal means, creating fictitious cutouts and lying to banks to open phony bank accounts to obscure the flow of funds from the SPLC to their informants.
I can't help but feel some schadenfreude here - "no one is above the law" also applies to left-wing NGOs who think they can larp as spies. They even named one of their cutouts Center Investigative Agency... It seems like they flew very close to the sun thinking that their brand and political affiliation would shield them from scrutiny. Project Veritas got a lot more heat for doing a lot less.
From a layman's perspective the indictment seems pretty compelling but I'd be curious to hear what the legal commentators here think. Of course this is only one side of the argument, but those statements to the bank in particular seem quite incriminating. Also, what exactly would be the consequences for the SPLC if the DOJ succeeds on some or all counts?
This is pretty thin gruel. Nonprofits have broad discretion to use unrestricted funds any way they see fit to support their mission. Cases of nonprofit fraud usually fall into five general categories:
Entirely fraudulent nonprofits: These are grifts from the beginning where the founders never intended to spend any of the money they raised on the ostensible purpose and only lined their pockets. This is the most obvious fraud.
Embezzlement: Where an employee or director of a legitimate nonprofit misappropriates funds to line his pocket. Again, an obvious fraud, though it's limited to one person (or a few people) and isn't representative of the organization as a whole.
Questionable nonprofits: This is a term I made up to refer to organizations whose administrative expenses are grossly disproportionate to program expenses. E.g., a food pantry in a large city that raised $45 million one year but only distributed $149,000 worth of food. These are usually the biggest media scandals because they often involve large organizations that do a lot of advertising and fundraising, reflected in financial statements that suggest they spend money on little else than advertising and fundraising.
Improper use of restricted funds: This is often benign in a PR sense but serious in a legal sense. If someone donates money for a specific project, it can't be used for another project or to cover general expenses. If the food bank in the above example solicited donations for a building fund that would pay for planned renovations to their facility, and when food stamps were in jeopardy last fall they raided the fund to buy food for the needy, one could argue that it wasn't that big of a deal, maybe even the right thing to do. But it isn't permitted.
Other improper use of funds: Again, this usually involves some personal benefit to the organization's employees or directors, like directing program services towards them or distributing profits. It also includes other miscellaneous non-nos like spending money on political campaigns or endorsements and improperly paying volunteers in ways that subject you to labor laws that you aren't following.
The first thing I would note for any of these is that none of them is particularly likely to result in a Federal fraud indictment. regulation of nonprofits is done at the state level, usually by the AG. Federal involvement is limited to the IRS for tax status and the FTC if they are large organizations that do a lot of advertising. What SPLC is accused of doing, though, doesn't fit into any of these categories, and there's no clear violation of nonprofit law. What the indictment accuses them of is fraudulently soliciting donations by using the funds in a manner that is inconsistent with the mission statement as it appears on their website. If what they are accused of doing is a matter for Federal criminal charges, then practically every nonprofit in the country should be charged, mostly for stuff that is entirely unobjectionable.
Consider the following fictional example: The Allegheny Trails Alliance is a nonprofit whose advertised mission is to support trail maintenance and construction on public lands in Pennsylvania and West Virginia. They donate $10,000 in unrestricted funds to support a trail construction project in Garret State Forest in Western Maryland, which is outside of their technical operating area but is frequented by the same people who frequent trails in PA and WV. Is this wire fraud? What if they pay a contractor to perform invasive species removal at a state park where they have a maintenance contract? Is this wire fraud because it isn't directly related to trail construction or maintenance?
The answer is no, because advertising gets a lot of leeway when it comes to promises like this. Practically every product you buy contains some kind of statement that would constitute fraud if we held the manufacturers to their exact word. The biggest risk to a nonprofit spending program funds like this is from donors, who might not donate again if they don't like the projects. From a legal perspective, what matters is the mission statement that appears in official filings, and even then, most nonprofits write these as widely as possible, state AGs will only pursue the most egregious violations, and the penalties are civil, not criminal. But in SPLC's case, it's not even clear that what they did violated their ostensible mission. I don't think Todd Blanche or anyone else in the administration is going to argue that SPLC gave money to hate groups because they really like white supremacy. It's pretty uncontroversial that they were using the money to pay informants, and that they notified the authorities if any illegal activity was discovered. It may be a shady practice, but it's not directly contrary to their mission, and when you add that to the fact that the government is relying on an advertising statement on a website as an inducement for fraud, it's hard to see how this stands up.
The bank fraud allegations seem more serious, but upon closer inspection, they aren't. What they basically did is have an employee open up various accounts in the name of fictitious sole proprietorships. The SPLC then put money into these accounts, which were used to funnel money to organizations they targeted. The purpose of the fictitious businesses was to disguise the origin of the money from the organizations. If we look at the text of the statute they are indicted under:
I omitted a lot of surplussage there. In fact, I admitted so much surplussage that I wouldn't be surprised if the attorney presenting this to the grand jury read the part up to the ellipses and skipped to the end, because, and I never thought I'd say this, the indictment doesn't allege facts that make a prima fascia case! I don't see anything in that statute about opening a bank account. If you read the entire section, including the short title, it's clear that it is referring to loan applications. There are no allegations in the indictment that the SPLC ever applied for a loan. There might be some FinCen reporting requirements or something that they violated, but cursory searching has failed to uncover anything that would have been in force when the accounts were opened in 2008, which incidentally creates a statute of limitations problem as well.
The money laundering charges are subordinate to the fraud charges, and are thus bogus. I predict this goes nowhere.
I see your point, but I think a better analogy would be if they paid a contractor to organize a "Let's Trash the Trails" event and then cited that event to potential donors as a reason why they should donate. At a certain point, the use of the money is so different from the organization's stated goals that a decent argument can be made that the donors were defrauded. For purposes of criminal prosecution, organizations should get a good amount of leeway on this issue, but depending on how the facts shake out, it looks like SPLC may have crossed the line.
That seems like money laundering to me. I mean, they are setting up phony bank accounts in order to conceal the source of money. If Donald Trump had pulled something like that in order to discretely pay a few sugar babies, he surely would have been prosecuted.
I would guess it's pretty unusual for not-for-profits to help fund and organize activities which they nominally oppose.
An even better example would be if investigators discovered several invoices to contractors for "trail obliteration" totaling hundreds of thousands of dollars. Trail obliteration is the process of disbanding and renaturalizing eroded, worn out trails to limit additional damage and provide a better user experience through reroutes. At minimum, this can be done by volunteers in an afternoon by disguising the entrance of the old trail with brush for the first 50 yards or so. At maximum, this can involve going in with heavy equipment to regrade the entire corridor, followed by covering the disturbed area with brush and new plantings. It's a necessary management practice where appropriate, but it's always a hard sell to donors, land managers, and even within the organization, because when you have to fight tooth and nail to get every mile of trail built no one wants to hear how much money you plan on spending to get rid of mileage. But identifying old, unsustainable trails and getting rid of them is a best practice, and this type of work is related to the core mission of any trail development organization, regardless of how contradictory or unpopular it may be. It is not, however, evidence that the organization hates trails and is trying to get rid of them.
Do you seriously believe that the reason the SPLC gave these groups money is because their directors are actually white supremacists who are trying to fleece their liberal donors? Because that's what would be required for their donations to constitute the kind of fraud that you're alleging. It seems more likely to me that, whatever their exact thought process, it was part of a scheme that they thought would benefit their mission. It may have been a dumb, misguided scheme that was unlikely to work and that would have pissed off their donors had they known about it, but wire fraud isn't about making misleading statements over the internet that some people don't like. It's a crime with specific elements that must be satisfied, and there's no evidence that they were satisfied in this case.
Whether or not it seems like money laundering to you is irrelevant. Let's look at the statute:
I've omitted a lot of irrelevant surplussage, but the upshot is that you can't launder legally earned money. It isn't a crime to play secret Santa. If there's no fraud, then there's no laundering.
Are we assuming that the organization boasts on its website about how it opposes "trail obliteration"?
Totally disagree. Another possibility -- consistent with this kind of fraud -- is that in reality, the SPLC values fund-raising (and its continued existence) far more than its nominal mission. Something which, to put it mildly, is not unheard of among not-for-profits.
I agree that there is a difference between common parlance and what's contained in federal statutes. And that for purposes of actually prosecuting someone, one needs to go by the actual words in the statute. And it looks like the feds did just that, using 18 USC 1014.
So really the question is whether 18 USC 1014 applies. Here's the argument you made:
Looking at pattern jury instructions for 18 USC 1014, it does NOT appear that an element of the crime is that a false statement be made in connection with a loan or credit application. And there have in fact been prosecutions under 18 USC 1014 against people for opening bank accounts under false names. For example United States v. Glanton, 707 F.2d 1238 (11th Cir. 1983).
Do you have any authority to support your claim that 18 USC 1014 applies only to situations where the defendant is applying for a loan, for credit, etc.?
If there's case law suggesting that it applies to opening a checking account, I'll concede the point. But that doesn't mean there's criminal liability in this case, because we still have to meet the elements of the crime. As @odd_primes points out, there are three elements:
I get why 1 and 2 would seem self-evident, but it isn't clear to me whether either of these prongs have been met. The alleged false statements were contained in documents called "Sole Proprietorship Resolution of Authority", which stated, for each of the at-issue accounts:
The evidence that they present of these statements being false is that, following an investigation by the bank, the accounts were closed and the SPLC had a discussion with the bank memorialized in a letter stating that the accounts were opened for the benefit of SPLC operations and under their authority. The confusion here arises from the difference between legal ownership and beneficial ownership. To cite an example that explains the difference, we'll go with one I'm familiar with, the lawyer trust account.
Suppose a client hires my law firm to handle a commercial real estate transaction worth several million dollars. They give me a check for 5 million dollars so that when the closing date arrives, I will have the cash on hand and be able to pay the seller. In the meantime, though, there will be due diligence and continuing negotiations, and the actual closing date may be several months from when the client gives me the money. I can't just deposit the check in my firm's operating account, because it's not mine to spend, and comingling client funds with my own would get me in trouble. Since the money is likely to generate a non-negligible amount of interest during the time the transaction is pending, I have to open up a client trust account with a bank so that the client doesn't lose anything because of the delay. I am legally responsible for this money and I'm legally the only one with the authority to spend it. But the only way I can spend it is by paying the seller of the property, and if the deal falls through I have to return it, along with any interest it accrued. I am the legal owner, and the client is the beneficial owner.
This distinction comes up a lot in the context of contemporary FinCen and KYC regulations because criminal enterprises will often try to hide behind webs of LLCs. The LLC is the legal owner of the money, but since the LLC has an owner, that owner is the beneficial owner. So If I start a single-member LLC it's easy because I'm the beneficial owner. It gets more complicated when the LLC in question is owned by other LLCs, which are in turn owned by other LLCs, and it takes a day on the Secretary of State's website and lots of money spent ordering incorporation documents that are on microfilm in order to figure out who the physical person is behind everything. The implication that the prosecution appears to be making here is that since the accounts were being used for SPLC purposed, the SPLC was actually the beneficial owner of the accounts, and the statements that the employee was the sole owner of the accounts were therefore false.
There's one problem with this theory, though—sole proprietorships do not have beneficial owners. All a sole proprietorship is is a business name that an individual uses. There is no separate corporate structure apart from the individual. The way counties record them is instructive, either as "fictitious names" or "doing business as". e.g. Robert T. Beck dba Beck Paving Company. The idea of a sole proprietorship having a separate beneficial owner is similar to the idea of an individual having a separate beneficial owner. For that reason, all the various regulation that's been put in place over the years regarding disclosure of beneficial owners doesn't apply to sole proprietorships. The point of the Resolution of Authority is to certify to the bank that you are the person legally authorized to open the account, and to appoint agents who will have access the account. A beneficial owner does not have this authority; if I open a client trust account the client doesn't have any authority to access the account or to designate agents. The same is true for an LLC. If there is a web of legitimate LLCs, and the one I'm in charge of running is owned by another LLC with a different board and different management four layers above, those owners/managers can't open bank accounts in their capacity as beneficial owners. If you look at Resolutions of Authority for LLCs, they don't ask about beneficial ownership at all; in fact, they don't ask about ownership at all. All they ask is for the person opening the account to affirm that they have been authorized to open the account and to provide paperwork to that effect.
Assuming that the person who opened the accounts was indeed the legal owner of the sole proprietorships, and the indictment doesn't suggest that he wasn't, you have imply that the language in the Resolution of Ownership implied that it was also refering to some type of beneficial ownership, which wouldn't make any sense. Now, one could make the argument that due to some kind of collateral agreement between the legal proprietor and the SPLC that some sort of beneficial ownership did exist. I can't find any law suggesting that such an arrangement is possible; maybe you can. But even then, in order to prove that the statement was a lie, you'd have to prove that the bank contemplated such an interpretation at the time, and it's highly unlikely that the government has such proof, since the nature of the paperwork they are using as evidence isn't used to determine beneficial ownership even when a beneficial owner who would not appear on that paperwork could theoretically exist. And that still doesn't get you all the way there, because that only gets us to the second prong, that the person opening the account interpreted it this way as well, and thus knew they were making a false statement. If someone asks you if you own a company without any qualification, and you are the only legal owner, and you say yes, you can't say they knew they were lying because some obscure interpretation that you weren't made explicitly aware of exists which would make the statement untrue.
And we haven't even gotten to the third prong yet, and it's likely to fail here as well, that the false statement was made to mislead the bank. It's unclear why the person opening the account would have a motive to mislead the bank. In the case you cited, it was clear that the guy was trying to mislead the bank because he was using the accounts to deposit checks made out to somebody else. The indictment alleges that the accounts in the present case were used to mislead third parties as to the source of the funds, but that isn't an element of the offense. The SPLC had its own account with the same bank, and there's nothing in the indictment to suggest that the bank would have refused to open the accounts had they known that the SPLC was behind them, or that the employee who opened them was deliberately trying to conceal their purpose. This is the weakest argument, since one could argue that any false statement was made to mislead the person to whom it was made, but it would take a miracle to even get this far, and such an implication is just as weak for the prosecution.
No, but if you want to split that particular hair then it works both ways. Where on the SPLC website did it say they wouldn't give money to a particular group? That's beside my point though, which is that the language is simply too vague to prove fraud. Look at a typical fraud case: I tell you that if you invest your money with my firm I'll put it in the stock market, and you chose a few funds to invest in. In the meantime, I use your money to make loans to my son's unsuccessful woodworking business, and I produce fraudulent statements showing the amount of money you would have had if I had invested the way I told you I was going to. In other words, there was a clear promise that I would do something, made to you in particular, you relied on that promise, and you can imply from the circumstances that I never intended to invest your money the way I promised. That's a very different circumstance than a general statement made on a website that you can't prove that any individual donor actually saw, let alone relied upon. In the nonprofit environment, misusing restricted funds comes looks a lot more like traditional fraud than using general funds that may be at odds with what is said on a website, in that you made a specific promise to a specific donor to use funds a certain way, and then used them for something else. And even in those cases, the result isn't a fraud prosecution, but a civil suit from the state AG to recover the money, and possibly loss of tax status.
Look, I don't have much love for the SPLC, would never consider giving them money, and I understand your arguments. But I'm not willing to squint hard enough to believe that this indictment is any more than an attempt to spin straw into gold.
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That's obviously true, but not criminal. It is, unfortunately, perfectly legal for the Save-the-World foundation to raise a million dollars (using chuggers who take a 40% commission), and spend $400k on executive salaries and the other $200k on a big celebrity-studded party to "raise awareness" of worldsaving.
If, as seems likely, the only crime (in the legal sense) here is opening bank accounts in false names, then absent losses to the banks or IRS, the likely penalty is a slap on the wrist. That said, using banking-related process crimes that the SPLC is clearly guilty of to throw the book at a fake charity doesn't seem like an abuse given US norms re. prosecuting white-collar crime.
What’s interesting is if Save-the-World took their donors to make the world needing more saving in order to drive further donations.
That seems different than overhead and dinners etc.
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I would say it depends. See below.
If the Save-the-World foundation lies about these spends to its donors, then it might very well be criminal fraud.
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