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Coming clean on dirty money after the Epstein scandal

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Via Financial Times

The $7.5m in charitable contributions Jeffrey Epstein reportedly had a hand in bringing to Massachusetts Institute of Technology over a 20-year period do not rank as particularly big sums for a university whose patrons sometimes make nine-figure gifts. Yet they have come at extraordinary cost.

The association with Epstein has brought shame to MIT since the late financier’s arrest in June dragged his lurid behaviour with underage girls into the open. The school’s renowned Media Lab — a focus of Epstein philanthropy — is now in turmoil. Its director, Joi Ito, stepped down in September amid disclosures he had concealed financial ties to Epstein that continued after he had pleaded guilty in 2008 to procuring prostitution from a minor. Other professors vowed to leave in disgust.

In a solemn public letter, Rafael Reif, MIT’s president, was forced to acknowledge he had unwittingly sent a thank-you note to the registered sex offender. “To my great regret, despite following the processes that have served MIT well for so many years, in this instance we made a mistake of judgment,” Reif wrote.

The Epstein case may be egregious, having also damaged the reputation of Britain’s Prince Andrew, who has stepped back from public life following the disclosure of his ties to the American businessman.

Yet MIT is hardly the only august institution discovering, to its great cost, the new pressures bearing down on the old bargain of philanthropy. From Paris to Los Angeles, museums, cultural organisations, universities and charities are being reminded of the dangers of their associations, and the need in an increasingly polarised and digitised world to mind them more closely than ever.

As the Epstein saga unspooled, dozens of institutions that had benefited from the largesse of the Sacklers, including the UK’s Tate art galleries and New York’s Guggenheim Museum, were grappling with the connection of certain members of that family to the opioid epidemic, via ownership of the maker of OxyContin. Benefactors that once seemed unimpeachable are no longer. Millionaire financier Warren Kanders resigned in July from the board of New York’s Whitney Museum following pressure by activists after it emerged that one of his companies had sold the tear gas used to scatter migrants on the US southern border. Kanders argued that his company also sold body armour used by the police — but to no avail.

Activists’ voices are getting louder. Ahead of “Troy: Myth and Reality”, an exhibition that opened last month at London’s British Museum, protesters attacked its sponsor, oil major BP. They derided the show as a public-relations Trojan horse for a company whose business contributes to climate change.

Then there are the new revelations in the #MeToo era, which erupt frequently, bringing once-respected men into disrepute and tarnishing the recipients of their philanthropy. In 2017, the University of Southern California was forced to turn down a $5m gift from disgraced media mogul Harvey Weinstein.

“Many organisations are now living and operating in a climate of fear,” says David Allyn, a vice-president at Graham-Pelton, a non-profit consultancy in the US. “We live in a time when people are very quick to judge and condemn. Most non-profit organisations were designed to be slower in their decision-making.”

Martin Nilsen, who oversees policy at the US Association of Fundraising Professionals, argues there is a greater need than ever for institutions to be vigilant. “When you get a gift from a well-known person these days, there is almost always some baggage about what they did in the past,” he says.

Charities have been grappling with the ethical dilemmas of accepting money from tainted sources since the beginning of philanthropy. A century ago, institutions across the US were deciding whether or not to accept gifts from the Rockefellers and the robber barons of the Gilded Age. This has always involved balancing financial need with upholding the virtues that make institutions appealing to donors in the first place. Theodore Roosevelt, US president from 1901 to 1909, took a hard line, declaring: “No amount of charity in spending such fortunes can compensate in any way for the misconduct in acquiring them.”

But there are others who worry that, Epstein notwithstanding, the current scrutiny has gone too far, and that the public good is being sacrificed. “As a New Yorker who goes to Lincoln Center and the New York Public Library, I am really glad that people I don’t agree with politically donated the hundreds of millions of dollars that they did to endow needed capital projects at those institutions,” one resident says, adding: “The city can’t house the homeless — they are not going to be funding orchestras and museums.”

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Kanders donated more than $10m to the Whitney and joined the board in 2006. The museum will now have to find someone to take up the slack. His departure also risked the support of another deep-pocketed director, hedge fund goliath Kenneth Griffin, who stepped down in solidarity before reversing his decision. Emboldened by the departure of Kanders, similar activists are now pursuing Larry Fink, chairman of fund manager BlackRock and board member of New York’s Museum of Modern Art, for investing in two private prison companies.

There may be no foolproof way institutions can prepare for all eventualities, say philanthropy consultants. But the current controversies emphasise the need to establish rigorous gift acceptance policies — before embarking on a fundraising campaign.

A policy should reflect the organisation’s values, spelling out as much as possible who and what is off limits, consultants recommend. It is a good idea, Allyn and others suggest, to involve directors. The policy, they note, should also ensure the greatest flexibility for the organisation should things go awry.

“The real issue tends to be around naming rights,” says Allyn. While some organisations have the freedom to remove a donor’s name under certain conditions — as the Louvre museum in Paris recently did with the Sacklers — others, such as the Smithsonian Institution in Washington DC, may be contractually stuck with it.

There was a policy in place at MIT, even including Epstein on a “disqualified” list. But its application appears to have been foiled — something that Reif has pledged to review. He has also sought to make amends by contributing an equivalent amount of money to charities for victims of sexual abuse.

© Alex Williamson

In addition to a policy, organisations need intelligence on potential donors. This was once done informally. Now there are professionals such as Bond Lammey. She is an executive at Bentz Whaley Flessner, a consultancy in Washington DC. She is also president of the US Association for Professional Researchers for Advancement, the industry group for investigators who vet potential donors.

The job of these professionals is to find wealthy individuals who might be suited to a particular cause, and to point out any negative attributes they may have. They use various databases to assemble a portrait based on public information. “It used to be a matter of just checking off boxes — do we see anything that’s unseemly here?” Lammey says. “Now it is much more about optics.”

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Even after taking such precautions, institutions may still be left with practical and ethical dilemmas. One question is what to do with tainted money. Several recipients of Sackler philanthropy are now wrestling with this as more details emerge about how the family business, Purdue Pharma, helped fan America’s opioid epidemic. Many organisations, including the Metropolitan Museum of Art in New York, have announced they will no longer accept Sackler funding. Others, such as the University of Connecticut, are trying to redirect Sackler money to drug research and drug treatment charities.

In March, New York attorney-general Letitia James filed a lawsuit that suggested philanthropy was not a byproduct of the family’s alleged crimes but a way to advance them. Certain Sacklers, it said, “used their ill-gotten wealth to cover up their misconduct with a philanthropic campaign intending to whitewash their decades-long success in profiting at New Yorkers’ expense”.

The problem for recipient organisations is that the reality is often more nuanced. Many Sackler donations, for example, were made before OxyContin went on the market, or they came from a branch of the family not tied to Purdue Pharma. Sometimes the money has been spent by the time the controversy has arisen. That was the case with Harvard University, which received more money from Epstein than MIT — nearly $9m, according to its tabulation — but has no plans to return it. Crucially, none of the gifts came after Epstein’s 2008 guilty plea.

“Each non-profit has to address this with their own values,” says Bill Stanczykiewicz, director of The Fund Raising School at Indiana University’s Lilly School of Philanthropy. He has encountered administrators who would return gifts at the first whiff of impropriety and others, like the director of an Aids charity, who determined that the good that money could do far outweighed its provenance. “He said, ‘When I return to my non-profit, there will be babies and mothers dying.’ They don’t have the luxury to turn it down,” Stanczykiewicz says. “Others might, though.”

The larger point he tries to emphasise in his teaching is that just as donors have options, so do charities, which should approach potential donations guided by values. “When you are a fundraiser,” he says, “you are not a beggar.”

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