Foreign Grants: The Darkest of “Dark Money”

New tax filings reveal tens of millions of dollars in “dark money” flowing from the massive nonprofit network managed by the consulting firm Arabella Advisors. But it’s not of the sort one might expect, nor is it unique to Arabella. A quirk in nonprofit reporting requirements allows American tax-exempt entities to send vast sums of money to foreign recipients with near-total anonymity.

Arabella’s network of nonprofits constitutes one of the largest and most important left-of-center political and public policy funding apparatuses in the United States. According to recently released Form 990 tax filings, these groups disbursed around $1 billion worth of combined grants in 2023.

Most of this money is traceable, at least to some degree. All 501(c)(3) public charities and 501(c)(4) social welfare organizations—such as those managed by Arabella—are required to list every domestic organization to which they give more than $5,000. These grants are itemized by recipient on an attachment to the group’s IRS filing known as Schedule I. The New Venture Fund, which is by far the largest grantmaker in the Arabella network, listed 823 different domestic grant recipients on its 2023 Schedule I, along with amounts to each one.

Grants to Foreign Recipients

Such disclosures are a major component of the public transparency required of nonprofits in exchange for their tax-exempt status. Crucially, however, this transparency is required only for domestic grants. Form 990 does not require nonprofits to disclose the identities of their foreign grant recipients. Grants made to organizations based in other countries are listed on a separate attachment known as Schedule F, but are only identified by the broad geographic region in which they were made (such as “Europe”), the general purpose of the grant (such as “capacity building”), and the amount.

In practice, that makes it impossible to know exactly how this money is being used. The three principal 501(c)(3) public charities within the Arabella network—the New Venture Fund, the Windward Fund, and the Hopewell Fund—together made over $97.4 million worth of grants to foreign recipients in 2023. More than a quarter of the Windward Fund’s total grantmaking went to undisclosed foreign recipients for “environmental programs.” We cannot determine where any of this money actually ended up.

This is a major transparency issue for the nonprofit sector, one that is made all the more striking by the fact that Form 990-PF (a substantively different filing used by 501(c)(3) private foundations such as the Ford Foundation or the Foundation to Promote Open Society) requires foreign grants to be fully disclosed alongside domestic ones.

One Possible Fix

Congress is aware of the issue. Last year, Rep. Lloyd Smucker (R-PA) introduced the Foreign Grant Reporting Act (H.R. 8290), which would require nonprofits that file Form 990 to disclose their foreign grant recipients as they do their domestic ones. That bill received unanimous bipartisan support in committee, though it has yet to be taken up by the full House.

Such transparency does have its opponents. Concerns have been raised that requiring foreign grant disclosure could jeopardize the safety of grantees or others associated with the nonprofit’s work in dangerous or otherwise unwelcoming foreign countries. One objection involves religious charities that fund activities in places where faith-based persecution is a serious risk. But churches and certain church-affiliated entities are already exempt from filing Form 990 and thus would not be affected by any new disclosure requirements.

Legitimate Concerns

Nevertheless, there are circumstances under which legitimate security concerns seem plausible. It’s not difficult to imagine locations where a grantee’s mere association with an American nonprofit could subject it to harassment, or worse. An ideal foreign grants reporting framework might find a way to mitigate those risks, while still defaulting to full transparency in the majority of cases. This could, for example, involve a security affidavit appended to Schedule F, a list of presumably unsafe foreign countries, or some other method of allaying such fears.

Whatever the solution, the bottom line is that the status quo simply doesn’t work. For all the debate around the supposed influence of “dark money” in the nonprofit sector, foreign grantmaking is one area in which that term appears entirely applicable.