Tuesday, October 4, 2016

New York AG issues Notice of Violation to Trump Foundation for Failing to Register before Soliciting Donations

Late last week (and widely reported yesterday), New York Attorney General Eric Schneiderman issued an order (with a press release) to the Trump Foundation directing it to cease soliciting donations until it complies with state registration requirements.  Attorny_General_Eric_T_SchneidermanNew York is one of all but a handful of states require that charities planning to ask for donations in their state (under various circumstances) register with the state.  Under these laws, charities are typically required to disclose some basic information about the charity, such as the percentage of raised funds that go to fundraising expenses, and the expenses charged by any professional fundraisers hired.  For charities that raise funds from multiple states, registration can be an onerous burden, and there has long been a push to streamline multi-state registration to make compliance easier for nonprofits. Yet this is an unusual case, as I'll explain below the break.

Registration requirements are frequently violated and unenforced, at least in the absence of willfulness or actual fraud.  When a charity fails to file the right registration paperwork, a common remedy is to simply ask the charity to file it (if the oversight is ever detected at all).  There are simply too many other priorities for an understaffed office to prioritize harsh enforcement for minor offenses.  Moreover, as detailed in the recent Urban Institute report "State Regulation and Enforcement in the Charitable Sector" (coauthored, incidentally, by a representative from the New York Attorney General's office):

If an attorney general takes action against a noncomplying charity, the publicity may diminish the public’s trust in that charity and reduce contributions. The dual role of protecting charitable assets and enforcing the law, as well as the resources available to state charity offices, may explain why “minor” statutory violations are frequently resolved informally.

Which makes AG Schneiderman’s actions here somewhat unusual in a couple of different ways.

First, in the years and years of New York Attorney General statements about investigations and enforcement actions, I have yet to find any other mention of a formal investigation of--or enforcement against--an organization for failure to register.  Of course, it’s possible that the AG’s office has engaged in enforcement actions against other organizations, and I trust an enterprising reporter has already made a public record request to the AG’s office for records of other enforcement actions (PS: Please share them with me!).  Yet only this non-registration case led to issuing a press release.

Second, the AG’s order states that failure to register makes the charity “a continuing fraud upon the people of the state of New York.”  This mirrors language used in New York statute.  This “continuing fraud” is an unfortunate phrasing for a relatively mundane, technical violation. Yet, and not surprisingly, it is the concept of fraud that resonated with much of the news media and social media commentary. 

This suggests that there is a serious danger that the New York Attorney General’s highly-publicized and surprisingly-swift enforcement action is motivated, at least in part, by the fact that the Trump Foundation is affiliated with a presidential candidate.  Politicizing AG oversight over nonprofit organizations poses a major threat to the vitality of civil society.  And we should be wary of the incentives that Attorneys General have to bring enforcement actions that further political, rather than public, goals.  For more on this topic, be sure to check out Professor Evelyn Brody’s excellent piece, Whose Public?: Parochialism and Paternalism in State Charity Law Enforcement.

In future posts, I’ll talk about city-level registration requirements that pose an even greater burden on charities, as well as some recent, successful First Amendment challenges to registration requirements. (And I’ll have still more to say about charitable solicitation requirements at next month's ARNOVA conference.)

Dear readers, fellow bloggers, what do you think?  Am I understating the severity of the offense?  Should we make an example of the Trump Foundation to inspire other recalcitrant charities to register?

UPDATE:  A tweak to the original post was made to fix an error regarding the text of New York law.



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