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Leaked Clinton Foundation “Smoking Gun” Memo Reveals it Was Not “in Compliance With the Law”

Saturday, November 5, 2016 12:58
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While there are conflicting reports whether the FBI may or may not indict the Clinton Foundation, which as the WSJ reported last week is being investigated by various FBI teams, even as other parts of the Bureau – and the DOJ – seek to squash the probe, the latest dump of Podesta emails has revealed a critical, confidential memo from lawyer Kumiki Gibson to Clinton Foundation Chairman Bruce Lindsey (and former Bill Clinton attorney) which was performed as part of an inside audit of the foundation, and confirms that the charitable organization (which it found “operates more like a political operation”) was engaged in practices that broke the law.

Bruce Lindsey serves as the chairman of the Board for the Clinton Foundation

As Gibson wrote, the purpose of the confidential November 10, 2008 memo, was to “set forth the findings of my review of the Legal and Human Resources Departments of the William J. Clinton Foundation (“Foundation”) and those pertaining to other areas of the Foundation revealed during this review, and my recommendations to the Foundation based on this review.”

The summary reveals serious reservations about the viability of the foundation – which “operates more like a political operation” than a “professional, strategic, and sustainable corporation committed to advancing its overall mission” – if and when Bill Clinton were to depart and “the Foundation has to rise and/or fall on its own name and work only.”

While the Foundation has grown impressively over the past several years, it has a number of fundamental organizational challenges and deficiencies that undermine its effectiveness, expose it to significant risk, and, ultimately, threaten its long-term survivalThe Foundation (as opposed to its initiatives, which I have not reviewed) operates more like a political operation focused on immediate situations, tasks, and events, as opposed to a professional, strategic, and sustainable corporation committed to advancing its overall mission.  While that may not be a problem while the President is personally involved in the Foundation — and can garner support based on that involvement — it will be a problem when he is no longer involved, and the Foundation has to rise and/or fall on its own name and work only.

The chief risks identified in Gibson’s outside review, stem from both its Legal and Human Resource Departments, as well as Bill Clinton’s unwillingness to “allow the Board and CEO to make the changes necessary for it to become sustainable, even great.”

If the leadership (that is, the Board and the CEO) intends and wants the organization to survive beyond the President’s personal involvement, then it must take measures to move the organization onto a path of sustainability, starting with revamping both the Legal and Human Resources (“HR”) Departments; reviewing its corporate structure and governance documents; and, perhaps most importantly, having a frank discussion with the President about the current state of the organization, the future of the organization, and his appetite and willingness to allow the Board and CEO to make the changes necessary for it to become sustainable, even great.    

As the summary concludes, “the time for making these changes, if they are desired, could not be better:  The presidential campaign, which distracted some key employees and caused uncertainty among others about the future of the organization, is now over; virtually all of the employees interviewed are anxious for more structure, professionalism, and mission-focus; and funders are expecting the same.”

Next follows a detailed and highly critical analysis of the Foundation’s (1) shared values, (2) strategy, (3) structure, (4) systems, (5) staff, (6) style, and (7) skills, which the review finds “the Foundation to significant legal and reputational risks, results in inconsistencies and inefficiencies, and undermines its work and viability” and leads to the following conclusion about the CF’s operational shortcomings:

The assessment of the organization through the 7-S Framework makes clear that the organization is not operating as effectively or efficiently as it should or could.  Indeed, it has major deficiencies in each of the fundamental areas.  Each of these deficiencies, standing alone, threatens the effectiveness of the Foundation in the short and long term.  When combined, as currently the case, they threaten its very existence (absent the President’s involvement).    

The outside legal review of the Clinton Foundation is that, at least operationally, the only thing that was keeping the enterprise going was the presence of Bill Clinton, whose anchor role to match donors with “uses of funds” and subsequent distribution of favors , aka “pay for play” made the former president indispensable in an organization that would otherwise not survive:

Because it is unclear whether the President wants the Foundation to exist beyond his personal involvement, the Foundation’s leadership (that is, the Board and CEO) should address this question head-on with the President.  That will require a frank discussion with the President about his desire, willingness, and appetite to move the Foundation to the next level of development.  If the President concludes that he does, in fact, want the Foundation to survive and thrive beyond his involvement, then he should authorize and empower the CEO and Board to make the changes necessary for this survival.

* * *

However, while all of that is troubling, and suggests that the CF was – from day one – just a corporate extension of Bill Clinton’s persona, it was in no way illegal. Where the alarm bells go off, however, is taking a look at page 9 of the memo, where Gibson does a review of the Foundation’s “Legal and HR Departments”, something troubling emerges, which perhaps the FBI may want to take a particularly close look at. The following:

No matter what the leadership decides about the larger, over-arching question, it must act immediately to bring the Foundation into compliance with the law and standards that govern not-for-profits, and must create strong legal and HR offices so to prevent any lapses in the future

Simply stated, what this means is that, as of the day the memo was written, the Foundation was not in compliance with the law and with standards that govern “not-for-profits.”

* * *

Among the policies and procedures that Gibson found missing or inadequate at the Foundation were the following, some of which – such as the procedures the CF was utilizing in Harlem –  may be in violation of the law:

  • The Foundation lacks important policies and procedures and a real process to ensure compliance, resulting in increased risks, confusion, conflicting (and perhaps arbitrary) decisions, and inefficiencies.  
  • The Foundation does not have a record retention policy, and the procedures currently utilized in Harlem may violate the law.
  • The Foundation does not have a discernable risk management policy or a business continuity plan, although I understand that Donovan submitted to Laura a draft policy for IT protection.
  • The Foundation’s current Sexual Harassment and Whistleblower Policies should be stronger, and it may want to strengthen its Conflict of Interest Policy.
  • The Finance Department in Little Rock has minimal, if any, control over the policies and procedures used by the various initiatives and offices regarding financial and budget matters.  For example, virtually all expenditures made by staff in Harlem have to be approved by Laura Graham, despite the fact that they had been pre-approved as part of the budget process and are approved, on an expenditure-by-expenditure basis, by each of the department heads before submission for payment.  This triple-approval process is not only inefficient, but it also is unnecessary in terms of financial controls and undermines the annual budget process and the authority of your department heads. 
  • Employment decisions are ad hoc and are not always guided by what is in the best interest of the Foundation — especially in the Boston office.
  • There is no policy or procedure regarding compliance, and the Foundation is out of compliance in several important respects.  Several staff complained about the ant-compliance sentiment that permeates the Harlem and Boston offices.
  • Important responsibilities regarding corporate filings are delegated to the CFO, who appears to delegate them to an outside organization, with very little oversight by the legal department.  As a result, the Foundation is not in compliance with the filings rules, including in New York, which requires the Foundation to be certified to do business in the State.
  • No established policy or procedure for contract reviews, and some department heads do not submit contracts or MoUs for review.  Associate General Counsel suggests that each “unit” have a contract administrator that reports to Legal.
  • HR has paid very little attention to the organization’s employees, failing to institute job/position descriptions, a real evaluation process, any professional development, or any process for complaints. 
  • It is unclear whether lower level employees actually meet the definition of exempt under the Fair Labor Standards Act.
  • The Foundation needs to review its policies and procedures regarding interns and volunteers, including how individuals are classified and are trained with respect to overseas travel and work.
  • Processes and employment decisions are made on an ad hoc basis. 
  • Staff complained about the lack of comprehensive and/or written policies and procedures.
  • Staff complained about the lack of a real complaint and/or whistleblower policy.

And many more.

While the conclusion avoids repeating the explicit accusation of operating outside of the law – we assume Gibson did not want to scare the Clinton Foundation too much, and thus avoid repeat work – it is a stark condemnation of the underlying practices and principles of operation:

The challenges and deficiencies plaguing the Foundation cannot be over-stated:  They are real and undermine the organization’s effectiveness, immediately and more long term.  To address the issues that present immediate threats, the Foundation should revamp its Legal and HR operations, should review its governance structure and documents; and should have an open and honest discussion with the President about the future of the Foundation

It is unclear if any of these recommendations were implemented, or if the CF is now in “compliance with the law and standards that govern not-for-profits.” It is clear, however, that at least at one point it was not. It remains to be seen if such illegal activity will be grounds for the DOJ to permit the FBI to do its job and indict a foundation that, as lawyer determined, was operating in a fraudulent fashion.

Full leaked memo below (link):


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