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The Trump Foundation shows just how preposterously light our oversight of charity is

How sure are we there aren’t other scams like this out there?

NY State Probe Into Trump Foundation Widens With Subpoena Of Trump’s Former Lawyer Michael Cohen Spencer Platt/Getty Images
Dylan Matthews is a senior correspondent and head writer for Vox's Future Perfect section and has worked at Vox since 2014. He is particularly interested in global health and pandemic prevention, anti-poverty efforts, economic policy and theory, and conflicts about the right way to do philanthropy.

The Trump Foundation is no more.

Following years of incredible, careful reporting by a number of reporters but most of all the Washington Post’s David Fahrenthold, and after the New York attorney general’s office launched a lawsuit this past spring, the foundation reached a deal with the attorney general’s office to dissolve itself. While the lawsuit alleging misconduct will continue, state Attorney General Barbara Underwood called the agreement an “important victory for the rule of law, making clear that there is one set of rules for everyone.”

This outcome, to be clear, is a very good thing. As Fahrenthold discovered, the Trump Foundation often operated as a slush fund for the Trump family and Trump’s businesses. It bought Trump an autographed Tim Tebow helmet, a portrait of himself, and money for various lawsuit settlements.

But I am skeptical that Underwood is right that there is one set of rules for everyone. The truth of the matter is that the investigation into the Trump Foundation was unusual. There are some 86,000 foundations in the United States, with total assets of around $890 billion. And the vast majority of them never face this kind of scrutiny.

To be sure, this isn’t the first time the New York attorney general’s office has investigated a charitable group in recent years. But normally it appears to investigate sham charities (like two fraudulent Vietnam veterans charities, the Thoroughbred Retirement Foundation, and a fake leukemia charity), the kind of groups to which foundations donate, rather than grant-making foundations themselves. It did crack down on the foundation affiliate of the UK-based Pearson education company for intermingling charitable and business funds, and got Broadway producer David Richenthal to pay back the $500,000 he bilked from his family foundation.

But in those two cases, the punishments were pretty mild. Note that when poor people — as opposed to Richenthal — steal lots of money, just giving the money back isn’t usually enough to avoid prison. The attorney general got $7.7 million from Pearson, in a year when the company booked upward of $1 billion in profits (using exchange rates at the time). That’s less a punishment than it is a rounding error.

The Trump case is egregious, but it didn’t merely happen because Trump is seemingly prone to playing fast and loose with tax law. It happened because there are tens of thousands of foundations in the US, and they operate with little or no regulatory oversight — from state attorneys general, from the IRS, from anyone.

The fact that this one was founded and overseen by a presidential candidate who went on to win the presidency led to huge amounts of scrutiny from the press and the AG’s office. How likely was that to happen, absent Trump’s transition into politics? If there are dozens or hundreds of other foundations doing exactly the same thing, how would any of us know?

The problem of foundations in a democracy

As the political theorist Rob Reich explains in his new book Just Giving, we really don’t expect much from foundations as a matter of public policy.

They don’t have to have a website or some other way for interested charities to contact them about funding. They don’t have to make their giving strategy publicly available or accessible in any way. They do have to fill out 990-F tax forms, which are public and provide some information on their assets, spending, and grant recipients. But those take the form of long, difficult-to-parse tax documents, and crafty philanthropists can get around these requirements by starting up offshore foundations. And there are basically no requirements to speak of beyond filing a 990-F and spending at least 5 percent of assets every year.

“Foundations are often black boxes, stewarding and distributing private assets for public purposes, as identified and defined by the donor, about which the public knows very little and can find out very little,” Reich writes.

This isn’t to say foundations are by definition nefarious. Most of them are probably fine. The point is we don’t really have institutions in place to tell us that.

Sometimes the foundations themselves give us useful signals that they’re on the level. A number of foundations are admirably forthcoming about their strategy and giving, and post comprehensive grant databases for anyone to inspect. But our extremely light regulatory framework governing foundations makes it quite easy for a duplicitous actor to make a different choice from the transparent foundations, to exploit the wide latitude given to foundations to engage in double dealing and fraud and evade scrutiny. It’s a symptom of a broader cultural and legal failing, wherein white-collar crimes by wealthy elites are systematically under-investigated, underexposed, and under-punished. If Trump has exploited that failing, then others probably have as well.

I don’t have a solution to this general problem. More funding for investigators devoted to dissecting foundations the way Fahrenthold and the AG’s office have would be a good start, and help deter more wrongdoing as more duplicitous foundations learn that they might get caught.

But it would be a real shame if our lesson from the Trump Foundation is just “Trump is bad.” The lesson ought to be, “Foundations can be bad, and we don’t have a system in place to hold them accountable.”

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