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Not for-profit groups are re-evaluating donated money

It is a delicate situation that not-for-profit groups sometimes find themselves in: What do you do with money that has been donated to you, once it becomes apparent that your benefactor is a criminal? There are no hard and fast rules when it comes to this sort of thing, but several high-profile cases have prompted charities to re-evaluate their guidelines for giving.

The problem is far from unusual, or even new. In the 1938 film classic, Angels With Dirty Faces, Jimmy Cagney plays a gangster named Rocky Sullivan, whose childhood friend has grown up to become a priest. Father Connelly, who is played by Pat O'Brien, receives an anonymous donation one day. It is ten thousand dollars -- an absolute fortune in 1938 -- and the note that comes with the money says he should use it to expand a neighborhood recreation center he has been running. But Father Connelly is no dummy. He knows where the money came from -- and he informs his friend Rocky that he cannot accept the money, since the money was never his friend's to give.

It is a situation very similar to the one officials at the University of Oregon found themselves in back in 2001. The school had accepted $850,000 of a 1.5 million dollar pledge made by financier Jeffrey Grayson. The university used the money to renovate its law school, borrowing the $650,000 dollars that had not yet been paid on the pledge.

Not long after Jeff Grayson's name was bestowed on the law school's main building, though, the Securities and Exchange Commission launched an investigation. Jeffrey Grayson was charged with having defrauded investors -- and this put school officials in a bind, according the university's Vice President for Advancement, Allan Price. "As our foundation looked at it, and as we looked at it, we felt like ethically, the right path was to return the money," he says. "Because it wasn't apparent that the money had been theirs to give us in the first place, given the circumstances we discovered."

The University of Oregon made the decision to return the money before Jeff Grayson had even entered a plea to the charges against him. The University of Missouri, however, has taken a different stand. Officials there say they will wait to see if former Enron C-E-O Ken Lay is convicted before deciding what to do with the 1.1 million dollars Mr. Lay gave to his alma mater in 1999.

As of now, the Economics chair that Ken Lay endowed still bears his name -- although no one has yet filled it. And once the businessman's trial is concluded, that is something else the university will have to look at, according to Steven Leder, a rabbi who has written extensively about the quandaries faced by fund-raisers. "Charities face all kinds of ethical dilemmas, especially because of donors wanting to be recognized in certain ways," Mr. Leder says. "Often, people try to rehabilitate their public image, from celebrities down to ordinary business people. [They] try to use charitable giving as a way not only to do the right thing, but also to create a certain kind of public persona for themselves."

Steven Leder says when a donor tries to use money to engage in what he calls "character laundering," charities have an ethical obligation to renegotiate the terms of the donation. But he says that does not necessarily mean they have to give the money back.

He points to the situation the Jewish Theological Seminary found itself in in the late 1980s as an example. Investment banker Ivan Boesky, who was convicted of insider trading, had endowed the school's library, which was named after him. Following his conviction, school officials asked Boesky for permission to rename the library, and he agreed. "I think that that was a reasonable accommodation," Rabbi Leder says. "Now if he had said 'No, it's me or no one,' then if I were head of JTS, I would have given the money back and said, 'Look, we are a public institution. We stand for certain values that are not commensurate with this behavior, and, you know, I hope you'll understand.'"

Other Jewish groups are now facing a similar dilemma because they received millions of dollars from Jack Abramoff, the now notorious lobbyist who is being investigated by the Senate and the Justice Department for having defrauded his Indian casino-owning clients.

Steven Leder says the Jewish causes that accepted money from Mr. Abramoff could take their cue from a Catholic nun. Mother Teresa once said that "even the wicked have the right to do a good deed"… leading one to wonder if she would have agreed with the fictional Father Connelly's decision to return the donation from gangster Rocky Sullivan.