The Nonprofit Loophole
One of the things that kicked off former Ward 5 Councilmember and current federal prison inmate Harry Thomas Jr.'s troubles was the public disclosure that he was running an unregistered nonprofit organization, set up to do charity work, that collected unregulated and unreported donations from city contractors. Without the fuss of a constituent service account (the charitable funds operated by D.C. officials that caps donations at $500 and requires that donations be publicly reported), Thomas was hitting up city contractors and developers like Comcast, William C. Smith, and others for amounts as high as $10,000.
The question of whether it was kosher that Thomas should be able to solicit funds from city contractors that he would personally control and have no obligation to report to the public quickly fell by the wayside with the disclosure that Thomas was steering city funds to his nonprofit so he could use the money to go golfing, eat at Hooters, and buy an Audi, a motorcycle, and leather chaps.
In large part because of Thomas' legal troubles, the D.C Council passed ethics laws aimed at increasing the the disclosure surrounding a councilmember's personal finances. But those laws ignored the question of whether elected officials should be able to solicit donations from city contractors through a nonprofit. A councilmember could start a nonprofit today and solicit as much money from city contractors as they like without having to report any of it, as long as the councilmember isn't paid personally by the nonprofit. Nonprofits have to file publicly available tax returns every year, but they don't have to disclose individual donors.
"I just looked at the Ethics Act and I don’t think that situation is covered. But thanks for raising. I may suggest that as a future legislative fix," Board of Ethics and Government Accountability Director Darrin Sobin emails LL.
That might be a good idea, because this looks like a pretty big loophole.
Consider the case of At-Large Councilmember Vincent Orange, who when previously on the Council as the Ward 5 councilmember, also ran a nonprofit that solicited money from city contractors. As noted in LL's column last week, Orange's financial disclosure form filed in 2002 shows that in the previous year Orange sold sponsorships to three entities on behalf of the nonprofit he started and ran, District of Columbia Emancipation Day Foundation Inc. One of those entities was owned by Jeff Thompson, the man at the center of a federal investigation into alleged campaign finance violations who has been a big financial backer of Orange's political campaigns.
Orange's financial disclosure forms for subsequent years indicate that he's the president of the foundation, but do not indicate who, if anyone, donated to the nonprofit. (A Washington Post article from 2002 says Orange filed the extra information about the foundations' donors that year in response to criticism he received about the nonprofit's finances, after Orange had aggressively questioned then-Mayor Anthony Williams over his aides' fundraising activities.)
But an archived version of the foundation's website appears to indicate that Thompson's company had donated to Orange's nonprofit for several years. Thompson's company, along with other companies and lobbyists who routinely donate to local political campaigns—including Douglas Development, lobbyist David Wilmot's law firm, and Comcast—are listed as "sponsors" on the nonprofit's site from 2001 to 2007. There's no indication on the website how much each sponsor gave. (LL can't find any copies of federal tax returns Orange's nonprofit might have filed, and Orange has not responded to requests for comment about the foundation's activities and funding.)
The foundation's activities centered on throwing a golf tournament, having an awards ceremony , and sponsoring an Emancipation Day gospel festival, which Orange's Council office also sponsored. Why Orange couldn't organize these events and raise money to pay for them entirely through his constituent service fund is a question that remains unanswered.
But it is clear is Orange believed he derived a political benefit by promoting Emancipation Day activities. This advocacy of Emancipation Day was a key part of Orange's platform during his failed 2006 mayoral bid. He told the Post that making Emancipation Day an official city holiday was his most prized legislative achievement. And during the mayoral campaign, he aired a now infamous/legendary radio commercial with a ditty he co-wrote that went like this (to be sung, sort of, to the tune of "Rudolph the Red-Nose Reindeer"):
Orange the Democrat
Is a candidate for mayor.
He has a great plan
For the District of Columbia.
All of the other candidates
Used to laugh and call him names.
Media never let Orange
Have any television time.
Then on Emancipation Day
Voters came to say:
"Orange with your three E's
Won't you be the fifth mayor?"
Then all the people loved him.
As they shouted out with glee:
"Orange, Democrat for mayor,
You'll go down in history."
When the D.C. Council passed its ethics law in late 2011, a committee report noted the troubles that can occur when elected officials solicit uncapped donations they aren't required to disclose to the public. It's why they put disclosure requirements on legal defense funds and transition/inauguration funds. It seems like politically oriented nonprofits might apply as well.
Here's a copy of Orange's voluntary disclosure of his 2001 fundraising activities on behalf of the Emancipation Day Foundation:
Photo by U.S. Bureau of Printing and Engraving