In 2019, as waves of lawsuits accused Purdue Pharma of knowingly contributing to the opioid crisis, numerous not-for-profit organizations announced that they would no longer accept gifts from the Sackler family, several members of which owned the company. That same year, the Massachusetts Institute of Technology came under fire for accepting multiple donations from convicted sex offender Jeffrey Epstein.

Situations like these put not-for-profit organizations in a tough position. They may desperately need funds, but accepting such gifts may result in negative attention. So, what should you do if a donation turns out to be “tainted”?

The debate

Some say that in a time when socially conscious investors are trying to align their investments with their values, not-for-profit organizations should do the same. In other words, you should reject or return tainted contributions.

The risk of reputational damage — especially in a social media world where accusations quickly go viral and cause loud backlash — provides another solid rationale for turning down controversial contributions. You might find that some of your most loyal supporters are among the most vociferously opposed to such donations. Moreover, the uproar can divert attention from your positive accomplishments and alienate future donors.

However, arguments can be made to hold on to controversial donations. After all, not every donor is an angel or operating from purely altruistic motives. Insisting otherwise could drastically reduce revenues. Even Mother Teresa allegedly accepted donations from dictators and crooks, arguing that the money’s source did not outweigh the good it could do.

She is not alone in believing that tainted money is better spent on charitable purposes than, say, another yacht or mansion for the donor. Money that is given to a not-for-profit organization, goes the argument, generally benefits society as a whole, particularly when the recipient does social welfare work. And, if you turn away funds, you could have to cut programs, dip into your endowment or sell other assets.

Formal guidelines

These decisions are more easily rendered when you are working from a formalized framework. Rather than making decisions on the fly while in the glare of the public spotlight, follow a protocol that you can point to when pressed on your reasons. Begin by establishing a “Know Your Donor” process for prospective donations above a certain amount. Some preliminary due diligence (See “Sidebar: Donor Due Diligence Is Not Just for the Big Guys”) can help ensure that your donor’s past or current actions do not conflict with your mission.

Also, develop a written gift acceptance policy with clear limitations. Take some time to think through potential scenarios. Most organizations refuse donations of stolen funds or funds generated by illegal means — but what about donations that are “clean,” but obviously given as a means of furthering the donor’s public relations? What about anonymous gifts? Some not-for-profit organizations find them too risky by nature.

Next, identify a process for handling gifts that turn out to be controversial after receipt. Do not base your decision solely on gift size. Instead, evaluate gifts through an ethical prism that takes into account your values and the perspectives of your various stakeholders.

Looking at an example

Different organizations might make different decisions about the same donor. Consider a case where the donor’s business actions directly harm a not-for-profit organization’s clients’ interests. After so-called “Pharma Bro” Martin Shkreli made the news for purchasing a pharmaceutical company and dramatically hiking the cost of critical medications, some of his charitable contributions came to light. One recipient, an organization that assists homeless people, some of whom depend on such drugs, returned his donation. But the donor’s alma mater did not. The latter apparently decided that his history in the pharmaceutical world did not undermine its educational mission.

If you accept a donation from a controversial donor, you will likely need to explain your decision. So, develop communications guidelines, as well. Determine who will speak for your organization, which communication channels will be used and how much information will be shared, with a preference for transparency.

Be prepared to stop

There is no way to completely eliminate risk when raising and accepting funds — you cannot run full background checks on every donor. However, you can take some steps to mitigate the risk and save your organization a public relations nightmare down the road.

Sidebar: Donor due diligence is not just for the big guys

Most not-for-profit organizations cannot afford to have full-time staff dedicated to performing due diligence on those offering substantial donations. But it makes sense for even small not-for-profit organizations to at least have a volunteer do some basic research before accepting a gift.

Often, simple online searches can uncover vital information on potentially troublesome areas, including:

• The source of a donor’s wealth;
• The historical business practices of their companies or ancestors;
• Known investments;
• Other not-for-profit organizations and causes they support;
• Public statements (including social media posts);
• Pending or concluded litigation (both criminal and civil);
• Media reports; and
• Family members, friends and associates.

The larger the donation, the more intensive your due diligence should be. In some cases, it may prove worthwhile to make the upfront investment in a full professional background check. At the very least, search the donor’s name with the following terms: Allegation, bankruptcy, bribe, controversy, court, fraud, human rights, investigation, prosecution, unethical and scandal.

Related Read: A Year of COVID Philanthropy: What It Tells Us Going Forward

For more information, contact Sarah Widlock at [email protected] or 312.670.7444. Visit ORBA.com to learn more about our Not-For-Profit Group.