Friday, July 24, 2009

How to avoid the next Gmach Shefa Chaim scandal

I’ve blogged quite a bit about the issue of irresponsibility and transparency in Jewish philanthropy and tzedakah organizations – see here and here, for example – but the newest scandal, the New Jersey/New York money laundering (and organ sales?!) scandal, demands a response.

So far, it sounds like a basic money-laundering scheme, for all of the complexity of the different pieces involved. Criminals run illicit businesses, and send checks to so-called tzedakah funds, which then spend the money for “program services” that funnel the money back to the criminals. The tzedakah funds benefit by receiving a commission or a fee.

We can’t prevent these altogether – criminals will always find ways to commit crimes – but I believe we could do a lot to stem the tide with the following four rules:

First: Give only to tzedakah organizations that file a 990 or similar financial disclosure of their funding sources, their program services, and their oversight.

I don’t care if they are exempt. Yes, preparing a 990 will cost them money. But it’s a responsible way to function. I hate to say this, but I will no longer give significant money to Ner Yisrael, to the OU, to National Council of Young Israel, to Chaim Berlin, etc. They are all legally exempt from transparency, but as the Rama wrote in Yoreh Deah 257:2, tzedakah distributors must transcend their legal obligations in order to demonstrate innocence in the eyes of ה' and the Jewish people.

I would accept an annual public meeting with an explanation of the organization's finances, though. (Many synagogues, including my own, do this.)

Second: Give only to organizations that can explain their mission and program services in a clear, coherent way.

Open-ended gemachs, as well as Rabbi’s Benevolent Funds that don’t offer a clearly defined mission, are too open to abuse.

Third: Give only to organizations that mail you an annual report.

The report should summarize and explain the information outlined in Item 1 above – funding sources, program services, and oversight, and any significant changes therein. I do this for my Benevolent Fund (this year's report is here), and it has made me much more careful about how I handle the Fund.

Fourth: Eliminate the culture of winking and nodding.

As I discussed here, communities often assume that tzedakah funds, including the Rabbi’s Benevolent Fund, can somehow operate outside the law.

I have had people try to give me honoraria by writing checks to the Benevolent Fund;
I have had people try to write checks to support individuals and claim a tax deduction by doing it through the benevolent fund (you can’t claim a tax deduction for checks written to a specific person) [Yes, a fund can collect for individuals if the collection is in-line with the mission, but this is easily bent and broken.];
A few years ago a local bank went public and offer shares to local people, and I had out-of-town people try to get me to open an account with benevolent fund money, as their partners.

This is wrong, and it creates a culture of approving illegal operations. It must stop.

Ultimately, nothing will deter a determined criminal - but that doesn't mean we shouldn't bother with security systems for our homes, and for our communities.


  1. a tough post (esp. with reference to the OU after the earlier post).

    interesting that you target rabbis' funds.

  2. It is tough; I may go back and edit out some of the harshness if/when I calm down.

    I target rabbis' funds because they are very vulnerable to abuse. They have the vaguest mission, they tend to have poor accountability and no reporting, and rabbis get leaned on to cooperate with the improprieties I described in the post.

  3. i wasn't really referring to the post itself as being tough (although it is), but rather that i thought it was tough for you to write it.

    there is a shul i sometimes daven in that right now is too expensive for me to join. so every so often i send them a couple of dollars. actually i send 2 separate checks, one for the shul and one for the rabbi's fund (as a measure of hakarat ha-tov, since the rabbi is really the main reason i daven there). if i can't trust him, i can't trust anyone. but i guess that's how we get into these messes to begin with. assuming we can blindly trust someone we respect.

  4. rereading my comment i see how sad the situation has become that you can't "trust" the rav.

  5. Lion-
    Agreed; the death of the public trust is one of the worst elements to the scandal.

  6. I do not mean to necessarily disagree or argue with what you have written, but insofar as you have become the number one google hit for "Shefa Chaim" I think it is worthwhile to note that:

    "The Gmach has not been indicted or accused of a crime" (

  7. Yirmiahu-
    Thanks for your comment, and it's an interesting article, but I think the article actually proves the point: It indicates that the Gmach was illegally used by someone with access to it. The Gmach's objection, if I understand correctly, is only that the wrong account was seized by the government?

  8. Again, I don't mean to argue against your points per se, but the fact that your system was abused by criminals doesn't make you a criminal. I think a call for higher standards is a reasonable thing to discuss but I think now that we should be very careful not to implicate the innocent of criminal activities.