An Overview of Religious Financial Fraud

The $34 Billion Scandal

The January 2011 issue of the International Bulletin of Missionary Research reported that Christian religious leaders will commit an estimated $34 billion in financial fraud in 2011 while $31 billion will be spent on global missions. Researchers from the Center for the Study of Global Christianity estimate that Christian religious leaders will commit $90 million in financial crimes daily and the fraud is growing at a rate of 5.97% each year. If the researchers are correct, religious financial fraud among Christians will almost double in 14 years to $60 billion annually by 2025. ₁

Dr. David Barrett, the first editor of the World Christian Encyclopedia and a researcher for the Center, has been studying religious financial fraud for more than 20 years. According to Dr. Todd Johnson, the Center’s director, these statistics were the result of Barrett “developing a balance sheet for global Christianity.” Barrett was “trying to understand the totality of Christian finance.” ₂

A Global Problem

Barrett and Johnson in the reference book “World Christian Trends” reported, “Probably 80% of all cases are kept private or swept under the carpet, but each year a rash of megathefts (over $1 million each) is uncovered and publicized in the secular media.” ₃ Here is a small sample of religious financial scandals from around the world:

• Brazil: Bishop Edir Macedo, head of the Universal Church of the Kingdom of God, and 9 of his associates have been charged with embezzling more than $2 billion. ₄
• Canada: Televangelists Ron and Reynold Mainse allegedly recruited investors in a Ponzi scheme. ₅
• China: A whistleblower goes to jail for speaking out after donations for earthquake victims were stolen. ₆
• Italy: Police confiscated 23 million euros in a Vatican bank account as part of an investigation into money laundering. ₇
• Ukraine: Pastor Sunday Adelaja charged with fraud in promoting a business venture to his congregation that lost $100 million. ₈
• United Kingdom: Church treasurer Derek Klein embezzled funds to pay for a stamp collection. ₉
• United States: Trent Huddleston, former senior accountant at Oral Roberts University, alleges that more than $1 billion was money laundered annually by members of the Oral Roberts University board. ₁₀

Common Funding Sources of Religious Thieves

1. The Offering Plate — In 2002 NBC Dateline aired an exposé on Benny Hinn. Mike Estrella, a former Benny Hinn Ministries employee responsible for counting the money given at Hinn’s crusades, said that he observed Gene Polino, Hinn’s CEO, embezzle thousands of dollars from the crusade collection buckets.₁₁Wikipedia describes this practice as “skimming” which “refers to taking cash ‘off the top’ of the daily receipts of a business …” ₁₂This form of fraud is hard to detect but occassionally the skimmers are caught. A member of St. Ita Catholic Church’s finance committee marked a $100 bill before placing it in the offering plate. The bill disappeared before the church could deposit it in the bank. A priest later acknowledged taking the money. ₁₃
2. The Ministry Checking Account and Credit Card — Jason Reynolds, the finance director of National City Christian Church, used the church credit card to acquire a Lexus SUV and Land Rover. He also embezzled over $200,000 by writing himself checks. ₁₄These forms of fraud can be reduced by requiring two signatures for checks and by insisting on lower credit limits for credit cards.
3. Investments — In 1999 the Baptist Foundation of Arizona filed for bankruptcy after accumulating $530 million in liabilities. Dishonest administrators engaged in a cover-up to hide bad investments. William Crotts and his associates set up more than 90 dummy corporations to hide financial losses and used a ponzi scheme to cover old investments. ₁₅New Church Ventures was the largest dummy corporation formed by the BFA and held $173 million in debts. New Church Ventures had zero employees and provided no funds for building new churches even though that was its stated objective. ₁₆The Phoenix New Times investigated Jalma Hunsinger, the president of New Church Ventures, and reported on strange insider deals and flipped property fraud. The owner of the Simms Tower offered this $1.9 million building to the BFA for $1 as a tax write-off because the building was contaminated by asbestos. When the Foundation turned down the offer, Hunsinger acquired the building and used it as collateral for a BFA $6.8 million loan. ₁₇

Trinity Foundation Investigates the Televangelists

In 1987 filmmaker Harry Guetzlaff‘s production company was failing. Out of desperation he pledged money to televangelist Robert Tilton in hopes for a financial blessing. When Guetzlaff lost his home and approached Tilton’s organization for help, he was denied any assistence. Guetzlaff went to the Trinity Foundation and told his story to Ole Anthony, director of the Foundation. Anthony launched an investigation into Tilton’s direct mail operation and assisted the ABC News program PrimeTime Live on a TV exposé.₁₈

The Trinity Foundation has investigated religious financial fraud for 23 years. Trinity investigators have gone through the trash of televangelists to obtain evidence, worked undercover inside ministry offices, assisted TV news programs and newspapers in developing investigative reports, and operated a phone line for victims of fraud (1-800-229-VICTIM).

While conducting these investigations the Trinity Foundation has redefined its mission. The Trinity board adopted a 4-point agenda for opposing religious financial fraud.

1. Increase public awareness by continuing to provide information requested by various news media organizations and giving interviews when appropriate.
2. Enable the establishment of civil case law regarding religious fraud.
3. Enable the establishment of criminal case law regarding religious fraud.
4. Work with government agencies toward establishing greater accountability for religious, non-profit organizations.₁₉

 The IRS Dirty Dozen

The United States Internal Revenue Service posts an annual list of the most common forms of tax fraud they encounter called the “The Dirty Dozen.” In recent years the reports have singled out two specific forms of religious financial fraud.

• 2008: “IRS examiners are seeing an upturn in instances where taxpayers try to disguise private tuition payments as contributions to charitable or religious organizations.” ₂₀
• 2005: “Participants apply for incorporation under the pretext of being a “bishop” or “overseer” of a one-person, phony religious organization or society with the idea that this entitles the individual to exemption from federal income taxes as a nonprofit, religious organization. When used as intended, Corporation Sole statutes enable religious leaders to separate themselves legally from the control and ownership of church assets. But the rules have been twisted at seminars where taxpayers are charged fees of $1,000 or more and incorrectly told that Corporation Sole laws provide a “legal” way to escape paying federal income taxes, child support and other personal debts.” ₂₁

Common Forms Of Religious Financial Fraud

Churches Operating As Tax Shelters

The 2004 Internal Revenue Manual of the IRS noted that some churches are being used fraudulently to avoid taxes:

“While desiring to protect churches from undue interference by the IRS, Congress, in enacting IRC § 7611, recognized that an increasing number of taxpayers had used the church form primarily as a tax-avoidance device.” ₂₂

Realtor and banker George Michael of Lake Bluff, Illinois, claimed that he converted his 15,000 square foot lakefront mansion worth $3 million into a church so that his disabled wife would have a place to worship. Michael’s neighbors and local government officials claim the home was not a church and that Michael was attempting to avoid paying more than $70,000 in property taxes. After the Illinois Department of Revenue granted a religious tax exemption, local officials went to court to have the tax exemption removed and won in court on July 6, 2009. ₂₃

Conversion and Self Dealing

The Atlanta Journal-Constitution reports, “IRS rules do not bar transactions between a nonprofit group and a business that is owned or controlled by the same person, a practice known as self-dealing.” ₂₄ Self dealing is one of the key methods that fraudulent nonprofit executives use to enrich themselves. Here’s an example of how it works:

A televangelist owns a for-profit company that publishes all of his books and DVDs. Then he sells the books and DVDs at full retail price to his nonprofit rather than at a discount or wholesale price. A televangelist can use this technique to excessively profit from his nonprofit organization.

Pastors Mike and Elaine Millé of White Dove Fellowship in Harvey, Louisiana, purchased property costing $850,000 in August 2007 and sold the property to their church about 90 days later for $1,229,112 for a profit of $379,112. This transaction is not just an example of self dealing, it is also flipped property fraud. After learning of the transaction, the Trinity asked the IRS to investigate the Millés and White Dove Fellowship. ₂₅

Excessive Compensation

Nonprofit organizations in the United States can lose their tax-exempt status and be required to pay excise taxes if employees receive excessive compensation. Yet this rarely happens. When the Charlotte Observer investigated compensation for charity executives, it reported, “Most years, fewer than 10 of the nearly two million U.S. nonprofit leaders are penalized for receiving excessive compensation.” The newspaper also noted that there is “roughly one enforcement agent for every 4,000 tax-exempt groups nationally” so very few nonprofit organizations get audited. ₂₆

The Charlotte Observer reported that televangelist David Cerullo of The Inspiration network “was paid nearly 1.7 million” in 2008. However, the newspaper left out that Cerullo received $331,881 in nontaxable benefits that year. ₂₇

Cerullo has the highest compensation of any religious broadcaster in the United States that files 990 forms with the IRS. Churches are exempt from filing so some megachurch pastors and televangelists are refusing to make their compensation public. Kenneth Copeland doesn’t disclose his income but has bragged that he is a billionaire. ₂₈

In 1921 the United States federal government established a tax exemption for ministerial housing expenses to help poor congregations provide housing to clergy. ₂₉

This exemption is now being abused to provide religious leaders with large tax-exempt housing benefits. When Crystal Cathedral filed for bankruptcy, its financial records revealed “$832,490 in tax-exempt housing allowances given to eight people …” ₃₀

WFAA reported that Ed Young of Fellowship Church in Grapevine, Texas, “was paid $240,000 a year as a parsonage allowance; that’s in addition what sources say is a $1 million yearly pastor’s salary. ₃₁

A lawsuit filed by the Freedom From Religion Foundation could result in this housing allowance being ruled unconstitutional in 2011. ₃₂

Insurance Fraud

The Coalition Against Insurance Fraud produces a Hall of Shame list each year to bring attention to insurance fraud. Pastor Gerald Rayborn was featured on the 2004 list for burning down his church for $800,000. ₃₃

Dennis Jay, the Coalition’s director, reported in Claims Journal that “Rev. Roland Gray helped stage nearly 200 car crashes plus phony slip-and-fall injuries in restaurants and hotels. He recruited parishioners and even his brother, who also was a minister.” ₃₄

After obtaining seven life insurance policies for a blind man, pastor Kevin Pushia hired a hitman for $50,000. Pushia plead guilty. ₃₅

Fraud Among Nonchristian Religious Groups

Rabbi Saul Kassin, head of America’s largest Sephardic synagogue, was arrested in 2009 with four other rabbis for money laundering almost $3 million. ₃₆

Salman Ibrahim established credibility among Chicago Muslims through his involvement in the Shariah Board of America. Ibrahim formed Sunrise Equities Inc., as an Islamic investment company, and paid dividends rather than interest which is prohibit by the Koran. Investors lost $30 million when Ibrahim disappeared from the United States. ₃₇

Religious con artists have been effective at targeting Mormons, costing their victims $1.4 billion. ₃₈

Atheists aren’t exempt from religious financial fraud. William Murray, son of America’s most famous atheist, Madalyn Murray O’Hair, claims his mother embezzled millions of dollars from American Atheists. A former employee of American Atheists supported Murray’s claims by revealing on the TV program City Confidential that he was told what foreign bank O’Hair had deposited $18 million. David Roland Waters, another employee of American Atheists, embezzled $54,000 and murdered Madalyn Murray O’Hair after she disclosed the theft of funds.39

Endnotes

1 Todd M. Johnson, David B. Barrett, and Peter F. Crossing, “Status of Global Mission, 2010, in Context of 20th and 21st Centuries”, International Bulletin of Missionary Research, Vol. 35, No.1, page 29, January 2011

2 Interview of Todd M. Johnson in June 2008

3 David B. Barrett and Todd M. Johnson, World Christian Trends, page 660, 2001

4 “Brazil evangelical leader accused of fraud: Church founder allegedly siphoned off billions to buy jewelry, businesses”, AP, August 12, 2010 link

5 Bene Diction, “Ron Mainse of 100 Huntley Street makes statement on alleged ponzi scheme”, Bene Diction Blogs On, September 15, 2009, link

6 “Government Approved Church Leaders Withhold Donated Quake Funds; Whistleblower Christian Sentenced”, China Aid / Christian Newswire, July 30, 2009, link

7 Nicole Winfield, “Italian police seize $30M from Vatican in probe”, AP, September 21, 2010, link

8 Adrienne S. Gaines, “Sunday Adelaja Accused of Supporting Investment Scheme”, Charisma, December 19, 2008, link

9 Aidan Mcgurran, “Church fraudster told to sell off stamp collection on web to pay back victims”, London Mirror, April 19, 2008, link

10 April Marciszewski, “More than $1 billion annually was funneled through ORU, lawsuit claims”, Tulsa World, February 7, 2008, link

11 “Benny Hinn has millions of believers and millions in donations”,NBC Dateline, December 27, 2002, link

12 “Skimming (fraud)”, Wikipedia, link

13 “Priest indicted in Edgewater church theft” , Chicago Tribune, August 9, 2008, link

14 Del Quentin Wilber, “Former church finance director charged in theft scheme”, Washington Post, December 30, 2009, link

15 “Baptist Foundation of Arizona” Wikipedia, link http://en.wikipedia.org/wiki/Baptist_Foundation_of_Arizona

16 Lawrence C. Mohrweis, “Lessons from the Baptist Foundation Fraud” The CPA Journal link

17 Terry Greene Sterling, “A Shaky Foundation: For the Baptist Foundation of Arizona–and its baffling insider real-estate deals–the devil’s in the details”, Phoenix New Times, April 23, 1998, link

18 Burkhard Bilger, “God doesn’t need Ole Anthony”, The New Yorker, December 6, 2004, link

19 Interview of Trinity Foundation member Pete Evans

20 Phishing Scams, “Frivolous Arguments Top the 2008 ‘Dirty Dozen’ Tax Scams”, IRS, March 13, 2008, link

21 “IRS Announces the 2005 Dirty Dozen”, IRS, February, 28, 2005, link

22 “Internal Revenue Manual – 4.76.7 Church Tax Inquiries and Examinations IRC § 7611″, IRS, June 1, 2004 (note: this section was re-written in 2010), link

23 Linda Blaser, “Judge Removes Religious Tax Exemption From Shore Acres Drive Home”, Pioneer Local, July 23, 2009, link

24 Ernie Suggs, “King son’s firm paid $1.3 million by center”, Atlanta Journal-Constitution, page A1, Date: May 20, 2005

25 Lee Zurkik, “Criminal investigation into West Bank televangelist?”, WVUE, November 17, 2010 link

26 Ames Alexander, “For too many nonprofits, charity starts at the top”, Charlotte Observer, December 20, 2009 link

27 The Inspirational Network Inc 2008 – 990, pages 7, 24 (available at guidestar.org)

28 “Kenneth Copeland is a billionaire”, Google Video, link (video from KCM Ministers’ Conference, January 23, 2008)

29 Robert Marus, “House approves bill to protect minister-housing allowances”, Associated Baptist Press, April, 19, 2002, link

30 Abby Sewell and Nicole Santa Cruz, “Bankruptcy filings show generous pay for relatives of Crystal Cathedral founder”, Los Angeles Times, December 3, 2010 link

31 Brett Shipp, “Prominent Grapevine pastor linked to luxury”, WFAA, February 4, 2010, link

32 Stephanie Samuel, Church Legal Expert: Minister Housing Tax Break Under Attack”, Christian Post, December 29, 2010, link

33 Merritt Melancon, “Two plead guilty in 2005 church torching”, Athens Banner-Herald, June 15, 2010, link

34 Dennis Jay, “Fraud in the Church Takes Heavy Toll on Congregation, Insurers”, Claims Journal, August 23, 2010, link

35 “Pastor admits to scam and conspiring to kill blind man”, Scripps Media, August 28, 2010, link

36 Paul Vitello, “Syrian Sephardic Communities Shaken by Charges Against a Leading Rabbi”, New York Times, ,July 23, 2009 link

37 Michael Tarm, “Prosecutors: $30M Ponzi scheme targeted Muslims”, Associated Press, November 18, 2010 link

38 John L. Smith, “How affinity fraud’ hurts LDS church members”, Mormon Times, September 14, 2010 link

39 “Madalyn Murray O’Hair”, Wikipedia, link