- THE PAPAL FOUNDATION & MCCARRICK’S CONFLICT OF INTERESTby Matthew B. O’Brien9 . 28 . 18
On July 28, 2018 the Vatican announced that Pope Francis had accepted Archbishop Theodore McCarrick’s resignation from the College of Cardinals. This had the immediate effect of ending his nearly thirty-year relationship with the Papal Foundation, a charitable organization he helped to found, which is based in suburban Philadelphia and has an endowment of $200 million.
As an ex officio member of the board of cardinals which controls the Foundation, McCarrick advocated and voted four times to approve an extraordinary, expedited grant of $25 million to the Vatican, in order to help it bail out a scandal-plagued dermatology hospital that it controls, the Istituto Dermopatico dell’Immacolata (IDI) in Rome: first in executive session in June 2017, then at the Foundation’s annual meeting in December 2017, again in January 2018, and finally in April 2018.
During at least the latter three votes, then-Cardinal McCarrick knew that he was under a Vatican-authorized investigation, carried out by the Archdiocese of New York, for sexually molesting a boy. According to a source with first-hand knowledge of the matter, McCarrick knew by October 2017 at the latest that he was under investigation. Because the recipient of the $25 million grant was the Vatican, which was the very entity that would determine McCarrick’s fate as a result of the investigation it authorized into his conduct, McCarrick appears to have had a manifest and gross conflict of interest in considering the grant request in the best interest of the Papal Foundation. McCarrick stood to benefit personally if, by helping to secure $25 million for the Vatican, he could win leniency in how it handled his sex abuse case.
Under Pennsylvania law, the directors of non-profits such as the Papal Foundation are under an obligation to disclose material conflicts of interest to their organization’s directors and officers, and to recuse themselves from board decisions in which their conflict of interest is implicated. McCarrick failed to make any disclosures to the Papal Foundation’s board or to recuse himself from board decisions, according to people present at the board meetings in 2017 and 2018.
If McCarrick knew that he was under investigation during any of the four board votes in which he participated, then under settled principles of corporate law, he appears to have committed a fraud upon the board of the Papal Foundation. According to Robert T. Miller, a professor of corporate law at the University of Iowa, “The legal effect of McCarrick’s apparent fraud upon the board is to taint the vote of every board member participating in the decision.” This may render the grant voidable and returnable to the Foundation at the instigation of the Attorney General of Pennsylvania or any of the clerical or lay members of the Foundation’s boards.
In June 2017 Cardinal Donald Wuerl received the grant request for $25 million from the Holy See’s Secretary of State, Cardinal Pietro Parolin, at the behest of Pope Francis. Wuerl pushed hard to meet it immediately. According to the draft of board minutes, he said the grant was an emergency measure on which the hospital’s survival depended. Wuerl moved formally to take it up later in June, outside of the Foundation’s normal grant cycle, and he convened an executive session of the cardinals’ board—including McCarrick, who also lobbied for making the grant—and drove a summary vote to approve the grant.
Meanwhile, in May 2017, just weeks before Wuerl received the grant request from Parolin, McCarrick’s alleged victim had contacted the Archdiocese of New York’s Independent Reconciliation and Compensation Program with the charges against him. Before the Archdiocese of New York could investigate the charges, it had to receive authorization from the Holy See, for as a cardinal McCarrick lay under the canonical jurisdiction of the Holy See alone.
In August of 2017 the Foundation sent $8 million to the Vatican Secretariat of State—without having received from the Vatican a formal proposal for how the money would be spent, financial projections, a statement of the hospital’s financial condition, or an agreement about how the performance of the grant would be tracked, reported back to the Foundation, or evaluated.
It was only after $8 million had been sent to the Secretariat of State that the Foundation’s entire tiered board—cardinals, bishops, and laymen—was presented with the extraordinary request, and they were then asked to approve the full $25 million (including the already-sent $8 million installment) at the Foundation’s annual meeting in Washington on December 12, 2017. After some tense discussion, and a presentation by Foundation attorneys about the board’s fiduciary duties, Wuerl made the remarkable decision to hold the vote by secret ballot. Fifteen cardinals and bishops and nine laymen comprise the Papal Foundation’s full board. According to a source who was present at the December 12th meeting, the result of the secret ballot was 15 votes in favor, eight against, and one abstention. One of eight laymen voted for the grant.
Miller was surprised by Wuerl’s decision to use a secret ballot in these circumstances. “It’s astonishing,” he said. “Secret ballots are virtually unheard of in corporate board meetings. The members of corporate boards are meant to speak freely in order to persuade each other how to vote in the best interests of their corporation; the idea of a secret ballot, which is used in political elections where people fear retribution for their vote” is incongruous with the very idea of a deliberative fiduciary board.
A second installment of $5 million was sent to the Secretariat of State in January of 2018, again over strenuous objections from a number of lay donors to the Foundation who were involved. Since the first payment of August 2017 Wuerl was pressured into requesting some documentation from the Vatican about the use of the $25 million in order to assuage objections of lay members of the board of trustees, particularly because the IDI has been the persistent subject of fraud and embezzlement scandals. In 2016 Italian authorities indicted 40 officers and employees of the IDI on 144 counts of bankruptcy fraud, money laundering, and embezzlement, “in what prosecutors said was the 2007-2012 ‘despoiling’ of the religious entity,” according to the ANSA news agency. The Italian priest who oversaw the IDI during that time was ultimately convicted for personally embezzling millions of euros, and a recent article in Crux suggests that organized crime had also infiltrated the IDI’s operations.
To help quell the lay dissent on the Papal Foundation board, Sr. Carol Keehan, DC, the head of the Catholic Health Association, was dispatched by Wuerl to Rome to visit the IDI and report back. Keehan returned with an assortment of documents from the hospital in a binder. Still missing, however, were any financial statements or balance sheet from the hospital, or any professional due diligence addressing its recent history of fraud or the sudden resignation, after just eight months on the job, of the CEO who had recently been appointed to clean up the hospital’s administration. The cardinals and bishops on the Foundation board nevertheless voted to send the $5 million.
The controversy over the $25 million made its way into the press in February 2018. Bad publicity prompted Wuerl to ask the Vatican to halt the grant, and to announce that the remaining $12 million due in the final installment would be canceled. Yet Wuerl reversed course again during the Papal Foundation’s annual visit to Rome in April 2018, announcing to a shocked gathering of lay donors at dinner in the Vatican that the board had decided to proceed after all with completing the full $25 million grant to the Secretariat of State.
Although Wuerl, McCarrick, and other advocates for the $25 million grant justified its expedited approval by appealing to the IDI’s emergency need, several sources at the Papal Foundation told me that the $13 million already sent to the Vatican has yet to be disbursed to the hospital. More than a year since the first $8 million installment was sent, the Papal Foundation’s emergency grant apparently sits today in a Vatican bank account, undisbursed.
From 1990 to 2018 the Papal Foundation, made $120 million in grants to hundreds of Catholic charities around the world, primarily in developing countries. Each year, after approving a list of individual grants, the Foundation sent a check for the gross amount—typically between $10-15 million in recent years—to the Vatican Secretariat of State, and then relied upon the Secretary to send the appropriate amounts of money to the individual charitable beneficiaries of each grant. The adoption of this indirect procedure for disbursing grants through Vatican middlemen was a discretionary decision of the cardinals’ board and is not a requirement of Foundation’s bylaws or articles of incorporation.
What is required by the bylaws and articles of incorporation, however, is for the board to oversee and monitor whether individual grants are received by their intended beneficiaries and used for charitable purposes. Bylaw 6.2.4 states: “The Board shall require that fund grantees furnish periodic accountings to show that funds were expended for the purposes which were approved by the Board.” According to the Articles of Incorporation, “Where any contributions, gifts, grants, or other charitable transfers are made to foreign organizations [e.g., the Vatican], however, the foreign organization must be organized and operated in a manner analogous to United States tax-exempt organizations. In addition, contributions, gifts, grants, or other charitable transfers to such foreign organizations shall be made only for purposes which the Corporation has reviewed and approved and over which it maintains control and responsibility.”
According to multiple independent interviews with people involved in the Papal Foundation, over its nearly three-decade period of grant making, virtually no accounting or audits were performed to confirm that individual grants reached their intended beneficiaries after annual checks were sent to the Secretariat of State. Moreover, the Foundation allegedly failed to make any systematic attempt to confirm that funds received by the intended beneficiaries were used for charitable purposes.
The apparent failure on the part of the Foundation’s controlling board of cardinals to monitor the distribution or use of grants “raises an important issue,” according to Professor Miller, “because when a corporate board knows it has a duty and apparently does nothing to carry out that duty, a court may well find that the board failed to act ‘in good faith’,” which is an important, technical requirement in corporate law. This determination would have “the result of that every board member would be personally liable,” Miller said. “Since the duty to monitor the use of the money was in the bylaws, it would be impossible for the board members to argue they were unaware of this obligation. Plus, if it is true that they did virtually nothing at all to monitor, then there’s a good argument that they all breached their duty of good faith on every donation for nearly 30 years.”
According to a source involved in the Papal Foundation with personal knowledge of the situation, worries about accounting for grant disbursement were raised by the audit committee in a Foundation board meeting in 2015 or 2016. According to this source, the matter prompted the board to ask the Foundation’s staff to look back at grants from recent years, and to compile a list of which grants had been acknowledged in correspondence to the Foundation.
“The list compiled by the staff showed that most gifts had been acknowledged by the charities or the various papal nuncios who were meant to send them on to the charities in their countries,” the source said. “But many of these thank-you notes didn’t mention any amount describing the size of the grants they had received from the Papal Foundation” via the Secretariat of State. Moreover, although in most cases these thank-you notes were from the charities that were the actual grantees, in many cases they were not. In these cases the thank-you notes were from the nuncios—who themselves are employs of the Secretariat of State. The intended charitable beneficiaries are required by the Foundation bylaws to be the subject of “periodic accountings,” and not merely the nuncios, who were supposed to be middlemen in distributing grants. There was generally no mention in the grant acknowledgements about oversight for or documentation of the ultimate charitable use of grant funds.
According to the list compiled by the staff, there were grants for which the Foundation had no records whatsoever. “They found about $3 million unaccounted for,” the source told me. This discovery prompted the Foundation to look into these grants more closely, which resulted in money being returned to the Foundation, at least in one case. In this instance, the source said, “the Foundation got about $600,000 back from the papal nuncio in Egypt,” which had previously been sent in approximately $200,000 installments over three years for the purpose of helping to fund the building of a new seminary.
After the Foundation followed up with the nuncio in Egypt and inquired about the $600,000 and the new seminary, it learned that the seminary building project had been canceled due to political instability. The nuncio had not notified the Foundation and had kept the $600,000, intending to use the money for other projects in the future. The Foundation asked the nuncio to return the money, telling him that he should apply again for grants when those projects materialized, and the nuncio complied.
The source also recalls that a solution to the absence of any systematic grant accounting was then proposed by Cardinal Wuerl, the chairman of the cardinals’ board, for future grant cycles. Wuerl suggested that the Foundation begin to spot check three to five grants from the hundred or so made each year, in order to determine that the intended beneficiaries received their grants and used them appropriately. According to the source, when the question arose of what method should be used to select the grants that would be scrutinized, “Wuerl said that he would pick those grants himself.”
First Things asked a representative of the Papal Foundation to comment on the forgoing account of its operations. Mark Corallo, a public relations consultant, replied via email: “The Papal Foundation has worked closely with the Vatican Secretary of State who in turn works with papal nuncios to ensure the administration of grants throughout the world. As the Secretary of State is in close communication with the Papal Foundation office throughout each grant cycle, every effort is made to ensure that grants that are given are acknowledged and reports are made.”
Mr. Corallo also noted that the Papal Foundation is audited annually by an independent accounting firm. “To date, these audits have confirmed that the Papal Foundation’s procedures and operations are well functioning and consistent with the foundation’s by laws and charitable mission,” he wrote.
This description of the scope of the Foundation’s annual audit does not appear to correspond with the actual attestation of CliftonLarsonAllen LLP, the independent auditor which conducted the most recently available audit (2016-2017). The auditor’s report does not seem to express any opinion upon the Foundation’s general “procedures and operations” and whether or not they comport with its bylaws or charitable mission. Rather, like conventional annual audits of non-profit organizations generally, the Papal Foundation’s audit simply expresses an accountant’s opinion on the organization’s assets, liabilities, and cash flows. A phone call to CliftonLarsonAllen seeking clarification about whether the firm was hired for additional consulting services beyond the performance of the audit was not returned.
In late 2017 Cardinal Wuerl tasked the Foundation’s legal counsel to review its operations and bylaws for legal compliance. In a letter dated December 29, 2017, a copy of which was provided to me by a person involved with the Papal Foundation, its own attorneys identify five problem areas in the Foundation’s operations and procedures. Two of these were particularly important: first, an apparent general failure to confirm that the ultimate recipients of its grants were operated in a fashion analogous to US public charities; second, an apparent general failure to obtain meaningful audits or accountings of how grant beneficiaries spent the money they received. The Foundation’s attorneys concluded this assessment with an injunction, “There must be some accountability for the Board to satisfy itself that funds are indeed expended for charity.”
The cardinals’ board of the Papal Foundation apparently distributed its charitable grants in a manner that made them remarkably vulnerable to fraud and embezzlement, and in so doing, the board appears to have contravened its own bylaws, and thus violated Pennsylvania civil law as well. The Foundation’s chosen partner in distributing grants, the Vatican’s Secretariat of State, has a longstanding reputation of financial mismanagement. In recent years the Secretary of State himself, Cardinal Parolin’s predecessor Cardinal Tarcisio Bertone, was personally involved in misappropriating $500,000 in charitable assets to double pay a contractor friend to renovate his Vatican apartment, and also in directing millions of dollars from the Holy See into now-failed Italian television venture owned by his friends.
No prelate has been more consistently and intimately involved in the Papal Foundation than McCarrick, who helped to found the non-profit in 1988 alongside the late Cardinal Krol of Philadelphia and Cardinal O’Connor of New York. The current chairman of the controlling board of cardinals is Cardinal Wuerl, McCarrick’s successor as Archbishop of Washington. Before he was elevated to the cardinalate and moved to Rome, then-Bishop Kevin Farrell, McCarrick’s protégé and former housemate in Washington, was a member of the Papal Foundation’s board of trustees. The current president of the board of trustees is another McCarrick protégé, Bishop Michael Bransfield.
McCarrick was a principal co-consecrator of Bransfield as a bishop. Before Bransfield became a bishop, he served as rector of the National Shrine of the Immaculate Conception in Washington, DC during McCarrick’s tenure there as Archbishop. From the Papal Foundation’s inception until McCarrick’s creation as a cardinal in 2001, McCarrick himself served in the position now occupied by Bransfield.
Like McCarrick, Bransfield stands accused of sex abuse. His recent resignation from the Diocese of Wheeling-Charleston was announced on September 13, 2018, at the same time that the Holy See announced a special investigation into Bransfield for the alleged sexual abuse of adults. Before the announcement of the investigation, Bransfield had been dogged for years with allegations of sex abuse and alleged complicity in rape and molestation carried out by priest friends of his in his native city of Philadelphia.
The first executive director of the Papal Foundation, who served from 1988 until 2001, was a priest named Monsignor Thomas Benestad. Benestad, who retired early from his home Diocese of Allentown and now lives in Boca Raton, Florida, is accused in the Pennsylvania Grant Jury Report of sexually abusing boy over a period of years in the early 1980s, beginning when he was nine years old.
Law enforcement officials in Pennsylvania determined that the allegations against Benestad were credible, according to the Report, but they declined to press charges because the state statute of limitations on the alleged crimes had expired by the time they were made in 2011. At the time the Diocese of Allentown forwarded Benestad’s case to the Vatican, and the Vatican restored his priestly faculties in 2014, although the Diocese of Palm Beach where he now lives has still apparently refused to authorize him to celebrate the sacraments there.
Benestad, Bransfield, and McCarrick have been three of the most important clerical leaders of the Papal Foundation, and all face serious allegations of sex abuse. Some of these allegations were widely known for decades, but did not prevent the men from rising from one ecclesiastical preferment to the next. Did these men use the grant-making power of the Papal Foundation to curry favor and buy protection from Vatican officials? Did they enable the misappropriation of the Foundation’s charitable grants? The only way to answer these questions is with an independent investigation of the Papal Foundation, along with a forensic accounting of its past grants.
Such an investigation would not face canonical impediments or infringe upon the proper authority of bishops over their dioceses. The Papal Foundation is not an ecclesiastical entity, but an ordinary 501(c)(3) religious non-profit. No permission from Rome is necessary. The Foundation’s board could commission an investigation with a simple vote. If the Foundation does not authorize its own independent investigation, it may nonetheless find itself facing one from state or federal authorities.
Matthew B. O’Brien is a writer in Philadelphia. He holds a PhD in philosophy from the University of Texas +++++++++++++++++++++++++++++++++=++++++++++++++++++++++++++