and otherwise comply with the law of one or more states until they receive a formal request from each state to do so. Consequently, the lawyer is often asked this question: Which states should the organization register in and which state's law can the organization “safely ignore” until or unless contacted by the regulatory authorities? The problem for the lawyer is that they ought not to counsel flouting or breaking the law. Thus, the lawyer should advise the charitable organization client that it must adhere to the law of every state in which it is soliciting contributions and not wait for some informal notice or otherwise wait “until caught.” The lawyer ought not to advise the charitable organization client to comply with the law in the “rigorous regulatory” states and “wait to see what happens” in the others.
There is one subject about which the law is nearly nonexistent: the extent to which a charitable organization must register and otherwise comply with state (and local) law when it is soliciting contributions by means of its website.57 Lawyers and others must await future developments for definitive answers on this point.
Occasionally, the argument will arise—either from charitable organizations or professional fundraisers, or both—that the states' charitable solicitation laws are inapplicable, either because the enforcement of them obstructs interstate commerce and/or that the law concerning use of the mails overrides state regulatory law. These contentions have been tried in the courts, have failed, and are not likely to have any currency in the future.
The lawyer's role in relation to fundraising regulation should not be performed in isolation but should be carefully coordinated, not only with the charitable organization's staff, officers, and governing board, but with other consultants, principally the accountant and the professional fundraiser.
§ 2.6 VIEWPOINT OF REGULATORS
As is attested to throughout the book, the methods and extent of government regulation of fundraising are controversial. This section provides the viewpoints of a seasoned regulator of charitable fundraising.58
Although the charitable sector makes significant contributions to society and has been experiencing astonishing growth, it is no different from any other sector of the economy in that it has its share of unscrupulous individuals who seek to profit by defrauding innocent donors out of their hard-earned income and, in some cases, their lifetime savings. These fraudulent schemes harm not only contributors, who respond in the mistaken belief they are helping charitable causes, but also the charitable community, in that each new scandal hurts legitimate charitable organizations by increasing skepticism in the giving public.
The states have the difficult, but essential, tasks of protecting their citizens from charlatans who prey on their charitable natures while challenging them to recognize that all are benefited when worthy charitable organizations are generously supported. The role of the states becomes even more critical when major governmental cutbacks shift the responsibility for relieving many of society's burdens to the charitable sector. The purpose of the states' charitable solicitation acts is to protect the states' residents and legitimate charitable organizations.
The state charitable solicitation acts generally serve two important purposes: (1) they allow the public to get basic information about organizations asking for contributions so donors can make better, more informed charitable giving decisions; and (2) they help protect state residents from charitable solicitation fraud and misrepresentation.
§ 2.7 VIEWPOINT OF A REGULATED PROFESSIONAL
Most fundraising professionals do not believe that their practices in assisting charities to acquire charitable gifts are in any way abusive to potential donors or other citizens. It is no surprise, then, that they find government regulation of philanthropy to be unduly restricting and a misdirection of resources. What follows is the view of one of these regulated professionals.59
The nonprofit organizations that collectively constitute the “third sector” of the U.S. economy are a loose and unorganized delivery system for services that are generally not profitable, are too cumbersome, or are too partisan for business or government to support. Our societal response is to fund these endeavors through private financial support of philanthropy. The impetus to modern philanthropy is the still rather vague and developing discipline of fundraising (also called development and/or financial resource development).
For the most part, the third sector is populated by well-intentioned, hardworking individuals whose dedication to a particular cause or goal takes precedence over personal gains and rewards. This description also includes the majority of fundraisers, particularly those whose careers are encompassed by employment solely as staff of nonprofit organizations.
The thinking of most practitioners is that the regulation of fundraising practices is similar to “preaching to the choir.” Although no precise sources of data are available concerning the verifiable amount of fraud or other abuse in fundraising, it can safely be said that the actual level is far lower than the general perception holds, and quite laudable when compared with other forms of activity in our society. By and large, the fundraising activities engaged in to benefit nonprofit organizations are conducted with an exceptionally high degree of honesty and professionalism.
Regardless of their intent or reason for being enacted, regulations are perceived by practitioners of fundraising as a breach of the public's trust in the operation of nonprofit organizations or, at the very least, regulations are a nuisance. The members of the third sector generally believe that well-run, well-intentioned nonprofit organizations do not abuse the public's trust. Existing accounting and audit procedures, along with other routine guards against fraud and the like, are seen as adequate to protect fundraising activities, by and large. To be regulated is to be insulted by the “public,” which the nonprofit organization and the fundraiser are working to assist. The real abuses are performed by “those other guys,” the unprofessionals who will do anything for a buck.
That perception of selfless service does not exempt fundraisers from scrutiny, nor should it; however, such a perception, coupled with the decentralized and diverse nature of the third sector, creates a perfect environment for miscommunication, misunderstanding, and distrust with regard to fundraising regulation.
Although the regulated and the regulators have the same goal—the protection of the public from fraud and deception—the reality is that practitioners are generally unsupportive of regulation, and regulators are generally unaware of the third sector's nature and operations (concerning resource development) and of the impact that regulation has on delivery of services. In general, there is considerable confusion and too little action based on consistent dialogue and the understanding built by mutual respect.
Both extremes of regulation—too much and too little—are regrettable; however, to engage in any level of regulation with so little dialogue between concerned and affected parties is like running in the dark. Rather than spend precious resources and valuable time highlighting specific shortcomings and failures of regulation from either perspective, those who perceive a need for regulation and those who are to be regulated should develop simple and consistent communication. This communication could take several forms, such as annual or biannual meetings of representatives from fundraising professional associations and legislators and/or enforcement entities; testimony or position papers delivered during the regulatory development process; meetings, conferences, and symposia sponsored by philanthropic foundations interested in the health and well-being of the third sector; and the like.
The specific means of communications are not important if they are effective in stimulating and maintaining the much-needed dialogue. The real value lies in their ability to produce outcomes that
