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5 November 2015
FALSE PHILANTHROPY
Exhibits to the First and Second Foundation Reports
Volume 2
: General Exhibits
Important Disclaimer
Information concerning the Bill, Hillary & Chelsea Clinton Foundation (the Clinton
Foundation) that is analyzed in the First Interim Report (the First Foundation
Report), the Second Interim Report (the Second Foundation Report), and these
Exhibits is derived only from publicly available primary and secondary sources. No
attempt has been made to verify the accuracy of underlying source material;
however, every reasonable effort has been made to direct readers to public filings
and other documents evaluated and mentioned in the First Foundation Report, the
Second Foundation Report, and these Exhibits. The analysis contained herein,
together with accompanying Tables, Exhibits, and Appendices, does not constitute
expert advice of any kind, whether legal, financial, accounting, policy, or otherwise.
Readers are urged to evaluate relevant publicly available facts about the Clinton
Foundation, in appropriate context, and to form their own independently derived
conclusions. For the convenience of readers, Appendix I contains Selected Caveats,
Qualifications, and Definitions that are used and apply throughout materials issued
concerning the Clinton Foundation, its constituent elements, and affiliates.
by
Charles K. Ortel
www.charlesortel.com
5 November 2015
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Introduction
Starting today, General Exhibits useful in evaluating public disclosures of the Clinton
Foundation are published at
www.charlesortel.com
. Information is voluminous, so
Exhibits will be added intermittently and in sequence, rather than all at once.
Exhibits shown in bold below are now posted--note that page numbers shown for
unposted exhibits are estimates that will change until each Exhibit is posted in final
form.
Table 1: Index of General Topics Covered in Volume II of Exhibits
to the First and Second Foundation Reports
Exhibit
1
2
Description
Pages
21
10
After the General Exhibits are posted, at least 18 Specific Exhibits will be posted.
After the Specific Exhibits are posted, at least 8 Appendices will be posted.
Thoughtful questions and constructive comments are most welcome.
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As too many cases already exposed in the public domain richly illustrate, financial
fraud perpetrated by charities supposedly engaged in disaster relief is rampant.
Here are a number of links worth following to learn additional background:
http://www.doj.state.or.us/consumer/Pages/disaster_relief.aspx
https://www.fbi.gov/sandiego/press-releases/2015/fbi-warns-public-of-disaster-scams
http://www.maine.gov/pfr/professionallicensing/professions/charitable/pub/Justice%20Department%
20Officials%20Raise%20Awareness%20of%20Disaster%20Fraud%20Hotline.pdf
http://www.fraud-magazine.com/article.aspx?id=4294978232
http://www.forbes.com/sites/causeintegration/2015/10/05/charity-scams-put-the-disaster-in-disaste
r-relief/
Before getting into details, consider why disaster relief charities are rife with
potential for fraud.
Americans, and others in rich nations, are generous--now that is much easier to
solicit and raise sums rapidly via the internet, each new disaster sparks appeals by
existing and by new entities for donations that supposedly will be used to aid needy
victims.
Fraudsters regard these appeals as wonderful opportunities to profit, tax-free from
the misery of others.
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Judging by review of frauds that have been caught, disaster relief charity frauds
incorporate the following steps.
First, create an internet-based appeal page that routes contributions to a suspense
account, typically domiciled in a country where regulatory oversight is light.
In reports that are filed, if these end up getting filed, claim that you received much
less than you actually received and skim off the missing sums, free of tax.
When it comes time to spend the sums declared as charity receipts, fraudsters
then manufacture fake invoices and fake currency translation receipts that allow
them to argue they have spent sums on program service expenditures,
management and overhead expenses, and fundraising expenses.
Typically, the fraudsters actually spend much less than invoiced amounts and steal
portions of these amounts as well.
Charities such as the Clinton Foundation that solicit donations in rich countries, but
claim that they are performing charitable work in foreign nations are especially
vulnerable to fraud, particularly if international activities are conducted in remote
portions of poor nations.
How are trustees, typically based inside the home country of the charity, supposed
to check what really happened with regard to incoming and outgoing cash flows,
particularly if these are denominated in multiple currencies during periods of time
when foreign exchange rates are fluctuating outside normal historical bands?
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For the benefit of those with limited exposure to financial fraud cases, set forth
below are selected excerpts from a publication of the American Institute of Certified
Public Accountants1 (the AICPA) that offers important and essential guidance for
certified public accountants practicing in the United States to consider as they
evaluate financial statements prepared by an enterprise they are charged with
auditing.
Interested readers are encouraged to follow the link below to the entire publication
including footnotes that are stripped out of the excerpts to make this Exhibit less
lengthy than it otherwise might be.
http://www.aicpa.org/Research/Standards/AuditAttest/DownloadableDocuments/AU-00316.pdf
While the excerpts below are written considering financial fraud at profit-seeking
companies, many concerns are relevant to informed analysis of financial statements
and independent audits of tax-exempt organizations.
Note: text that seems most relevant to evaluation of Clinton Foundation public
disclosures is presented in bold.
First Set of Excerpts from AICPA Publication
Three conditions generally are present when fraud occurs. First, management or
other employees have an incentive or are under pressure, which provides a reason to
commit fraud. Second, circumstances existfor example, the absence of controls,
ineffective controls, or the ability of management to override controlsthat provide
an opportunity for a fraud to be perpetrated. Third, those involved are able to
rationalize committing a fraudulent act. Some individuals possess an attitude,
character, or set of ethical values that allow them to knowingly and intentionally
commit a dishonest act.
However, even otherwise honest individuals can commit
fraud in an environment that imposes sufficient pressure on them. The greater the
incentive or pressure, the more likely an individual will be able to rationalize the
acceptability of committing fraud. [Emphasis added.]
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Typically, management and employees engaged in fraud will take steps to conceal
the fraud from the auditors and others within and outside the organization.
Fraud
may be concealed by withholding evidence or misrepresenting information in
response to inquiries or by falsifying documentation. [Emphasis added]
For example,
management that engages in fraudulent financial reporting might alter shipping
documents. Employees or members of management who misappropriate cash
might try to conceal their thefts by forging signatures or falsifying electronic
approvals on disbursement authorizations. An audit conducted in accordance with
GAAS rarely involves the authentication of such documentation, nor are auditors
trained as or expected to be experts in such authentication.
In addition, an auditor
may not discover the existence of a modification of documentation through a side
agreement that management or a third party has not disclosed. [Emphasis added]
Fraud also may be concealed through collusion among management, employees, or
third parties. Collusion may cause the auditor who has properly performed the audit
to conclude that evidence provided is persuasive when it is, in fact, false. For
example, through collusion, false evidence that controls have been operating
effectively may be presented to the auditor, or consistent misleading explanations
may be given to the auditor by more than one individual within the entity to explain
an unexpected result of an analytical procedure. As another example, the auditor
may receive a false confirmation from a third party that is in collusion with
management.
The Importance of Exercising Professional Skepticism
Due professional care requires the auditor to exercise professional skepticism. See
section 230, Due Professional Care in the Performance of Work, Because of the
characteristics of fraud, the auditor's exercise of professional skepticism is
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Recurring negative cash flows from operations and an inability to generate cash
flows from operations while reporting earnings and earnings growth [Emphasis
added.]
Rapid growth or unusual profitability, especially compared to that of other
companies in the same industry
New accounting, statutory, or regulatory requirements
b. Excessive pressure exists for management to meet the requirements or
expectations of third parties due to the following:
Profitability or trend level expectations of investment analysts, institutional
investors, significant creditors, or other external parties (particularly expectations
that are unduly aggressive or unrealistic), including expectations created by
management in, for example, overly optimistic press releases or annual report
messages
Need to obtain additional debt or equity financing to stay competitiveincluding
financing of major research and development or capital expenditures
Marginal ability to meet exchange listing requirements or debt repayment or
other debt covenant requirements
Perceived or real adverse effects of reporting poor financial results on significant
pending transactions, such as business combinations or contract awards
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Incentives/Pressures
a. Personal financial obligations may create pressure on management or employees
with access to cash or other assets susceptible to theft to misappropriate those
assets.
b. Adverse relationships between the entity and employees with access to cash or
other assets susceptible to theft may motivate those employees to misappropriate
those assets. For example, adverse relationships may be created by the following:
Known or anticipated future employee layoffs
Recent or anticipated changes to employee compensation or benefit plans
Promotions, compensation, or other rewards inconsistent with expectations
Opportunities
a. Certain characteristics or circumstances may increase the susceptibility of assets
to misappropriation. For example, opportunities to misappropriate assets increase
when there are the following:
Large amounts of cash on hand or processed
Inventory items that are small in size, of high value, or in high demand
Easily convertible assets, such as bearer bonds, diamonds, or computer chips
[Emphasis added.]
Fixed assets that are small in size, marketable, or lacking observable identification
of ownership
b. Inadequate internal control over assets may increase the susceptibility of
misappropriation of those assets. For example, misappropriation of assets may
occur because there is the following:
Inadequate segregation of duties or independent checks
Inadequate management oversight of employees responsible for assets, for
example, inadequate supervision or monitoring of remote locations
Inadequate job applicant screening of employees with access to assets
Inadequate recordkeeping with respect to assets
Inadequate system of authorization and approval of transactions (for example, in
purchasing)
Inadequate physical safeguards over cash, investments, inventory, or fixed assets
Lack of complete and timely reconciliations of assets
Lack of timely and appropriate documentation of transactions, for example,
credits for merchandise returns
Lack of mandatory vacations for employees performing key control functions
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Role of PwC
Unlike other accounting firms that may have audited the Clinton Foundation
financial statements and assisted with filing public disclosure forms inside and
outside the United States concerning calendar years 2001 through 2012, PwC had
and still has robust global auditing resources and should, itself, have been able to
spot numerous red flags arising in historical disclosures and through work done,
from the inside, auditing books and records.
But, concerning 2013 financial statements, the Little Rock office of PwC evidently
did
not
exercise required professional skepticism. Instead, a false and materially
misleading PwC audit was issued past the final IRS deadline in December 2014.
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In May and in June 2015, specific concerns and questions were addressed directly to
PwC, in communications reproduced below
To date, no answers from PwC resulted.
If PwC is still auditing the consolidated books and financial records of the Clinton
Foundation for 2014, PwC will have to complete its audit so that the audit can be
attached to the Clinton Foundation Annual Report owed to the IRS and in key U.S.
states, that is due by midnight on 16 November 2015.
Moreover, PwC will have to reconcile whatever approach it takes concerning 2014
with the approach PwC took concerning 2013.
If a replacement auditor is now performing work, this firm will also wish to get
answers to these and related questions.
Unanswered Questions Addressed to PwC
In May 2015, telephone and email communication started with an authorized
representative of PwC to register specific concerns and pose detailed questions
about that firms work product issued in connection with 2013, and other work
product issued in connection with prior calendar years.
The text of these emails [with minor corrections of typographical errors] follows:
Following publication of an article in World Net Daily, PWC requested insertion of
this language:
Clarification: PwC has audited the consolidated financial statements of the Bill,
Hillary & Chelsea Clinton Foundation for the year ended December 31, 2013, not
2012, as originally reported in this article. PWC prepared the Forms 990 for 2013 for
the Bill, Hillary & Chelsea Clinton Foundation and the Clinton Global Initiative. They
were filed on or before November 15, 2014 and are publicly available on
www.guidestar.org
.
This was promptly done.
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Three weeks have passed with no follow up of any kind and I am reaching a point
where my patience is close to being exhausted. If I do not hear back soon, I shall be
forced to go directly to the Public Company Accounting Oversight Board with my
unanswered questions and concerns, and to take additional steps to try to protect
the general public.
http://pcaobus.org/Enforcement/Tips/Pages/default.aspx
On 14 May 2015, I tendered the following list of questions to PWC--please note,
corrected words from original emails are bracketed]:
1. Please explain the basis for accepting BKD's "consolidated" results for 2012 as a
reasonable starting place for your 2013 audit of the Clinton Foundation, in view of
the following:
(a) BKD, was replaced as auditor for CHAI (the largest single constituent element of
the Clinton Foundation) in connection with the 2012 audit for CHAI.
(b) MHM determined that accounting for the largest single known cumulative donor
towards the Clinton Foundation (UNITAID) had been incorrect during 2012, and by
May of 2013 had restated UNITAID's inflows as agency transactions for 2012 and for
2011.
(c) the consolidated net worth of CHAI at the start of 2012 through the end of 2013
was significantly lower than for the Foundation, so that this decision re: agency
treatment of the purported UNITAID transactions with CHAI was [at] all times
material to the MHM audits in 2012 and 2013, to the BKD audit in 2012 and to the
PWC audit in 2013.
(d)BKD seems to have reversed MHM's May 2013 treatment in its "consolidated"
statements for 2012, used as the starting point for your 2013 audit.
2. Why are "consolidating" schedules in 2013 apparently issued by PWC but
obscured in the Clinton Foundation Financial Report section on their website and
also not part of the package available in the NY State Charity Bureau files?
3. How closely did you investigate the starting point for the Foundation's opening
balance sheet in 2013?
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(f) Please reconcile foreign grants and contributions disclosed in the First 990 for
CHAI for 2010 (filed in 2011) with the second one (filed in 2013)--why were there
not more changes and how do you explain the changes shown?
(g) How closely has PWC investigated the year by year statements repeatedly made
in UNITAID's annual financial reports (available online) concerning monies sent
towards the Clinton Foundation with Clinton Foundation disclosures concerning
UNITAID grants (year by year and within each year), particularly in Schedule B for
each year?
Clinton
Potential
Potential
UNITAID
Foundation
Annual
Cumulative
Disbursements
Receipts
Diversion
Diversion
2006
9,100,000
9,289,897
(189,897)
(189,897)
2007
62,700,000
34,743,141
27,956,859
27,766,962
2008
140,352,889
82,740,318
57,612,571
85,379,533
2009
84,973,897
115,397,489
(30,603,592)
54,775,941
2010
129,348,206
108,868,409
20,479,797
75,255,738
2011
56,432,000
105,665,622
(49,233,622)
26,022,116
2012
61,569,200
67,861,583
(6,292,383)
19,729,733
2013
21,609,400
28,647,779
(7,038,379)
12,691,354
(f) How many of the large donors were contacted to verify, independently, the
amount, timing, and intended purposes of each donation in 2013? Were donors
asked about previous years?
(g) Did PWC cross-check by country, currency, time period, and donor the amounts
said to be spent on pharmaceuticals with intended purposes stated for each major
donation?
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7. How closely has PWC reviewed the activities of the Foundation internationally in
numerous countries since July 2002---[see] the book Giving by Bill Clinton for
several pages starting on page 179?
8. How closely did PWC consider related party disclosures and then cross-check
them for example, concerning:
(a) Doug Band (director of CGI through March 2013) and Teneo?
(b) Mustapha Bakali (COO CHAI) and Leapfrog (a Mauritius investment pool)
(c) Huma Abedin, an employee of the Foundation and of Teneo during 2013.
9. Why did PWC fail to bring down its "[subsequent] events" [disclosures] to the
issuance date of the audit letter?
10. Who signed the management representation letter? And, did you review the
certification that management should have made to New York State when the
Clinton Foundation's Annual Report/Filings were made there?
11. On what dates did PWC meet with the audit [committee] of the Clinton
Foundation Board and [whole] Board, with and without management and any
conflicted directors having been present?
12. Is PWC auditing the Clinton Foundation results for 2014?
For now, I am restricting my questions, primarily to the largest piece of the
Foundation (Old and New CHAI)--I have many others.
On 19 May 2015, I tendered the following additional questions:
Please confirm that you received my email of last week and please give me a sense
of when I can expect to receive your responses.
(By BHC I mean the parent company of New CHAI and CGI, and its various
predecessors.)
In considering our telephone conversation of last week, I decided to take another
look comparing the BKD work product for 2012 for the Foundation with PWC entries
for 2012 in the income statement, cash flow statement and balance sheet, which
PWC explains in its letter constitute BKD audited statements.
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How closely did PWC investigate disclosures made and authorizations received from
the IRS that BHC was actually a duly constituted tax exempt organization in each
year it operated?
Why did BHC file to create New CHAI in December 2009 but wait to file to create
New CGI until August 2010?
How closely did PWC compare answers made in IRS 1023 applications with state
filings for BHC entities, particularly those made in NY, in MA, in FL, and in CA?
How closely did PWC investigate the "audit" history of BHC, back to its original
founding in 1997? I cannot find any audits for the years through 2003 and I have
serious questions about all BKD work product dealing with 2004 forward.
How closely did PWC examine each entity that may have worked in league with BHC,
including the various named joint ventures as well as special purpose efforts
purportedly led by BHC, perhaps as agent, for foreign governments and other
donors beginning as early as in July 2002.
Please let me know when I may [respect] your answers to the previous and to these
questions.
As of now, I have received no answers to any of my questions, nor even confirmation
that you have received my questions.
From 31 December 2013 onwards, the Clinton Foundation has actively solicited
contributions for its annual operations and for an endowment fund, continuously
holding out PWCs audit as independent certification of the Clinton Foundations
financial results for 2013.
What specific steps has PWC taken in 2015 to revisit its audit of the 2013 Financial
Statements for the Clinton Foundation.
If PWC stands by its original work, without modification, please confirm this to be
the case.
If PWC intends to adjust its work product and its conclusions, please explain why
and please tender a thorough and fully vetted amended set of consolidated financial
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statements for 2013, together with complete and explicit footnotes, as well as all
relevant consolidating financial statements.
I appreciate that the Clinton Foundation is not required to file its audited financial
statements with the U.S. Securities and Exchange Commission (SEC). That said, so
far in my interactions with PWC on this matter, definitions of improper conduct
before the SEC seem relevant:
201.102 Appearance and practice before the Commission.
*****
(e) Suspension and disbarment. (1) Generally. ***
(iv) With respect to persons licensed to practice as accountants, "improper
professional conduct" under 201.102(e)(1)(ii) means:
(A) Intentional or knowing conduct, including reckless conduct, that results in a
violation of applicable professional standards; or
(B) Either of the following two types of negligent conduct:
(1) A single instance of highly unreasonable conduct that results in a violation of
applicable professional standards in circumstances in which an accountant knows,
or should know, that heightened scrutiny is warranted.
(2) Repeated instances of unreasonable conduct, each resulting in a violation of
applicable professional standards, that indicate a lack of competence to practice
before the Commission.
https://www.sec.gov/rules/final/33-7593.htm
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Sincerely,
Charles K. Ortel
Continuously during the term of PwCs auditing and other work, the Clinton
Foundation has been soliciting donations across state and national boundaries using
the mails, telephones, and digital media, while false and materially misleading public
disclosures and accounting work product remained in the public domain.
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Ongoing review suggests that the Clinton Foundation and its constituent elements
have been in breach for years, and continue now to be in uncured breach of
numerous New York state laws and regulations.
Requirement to File an Annual Financial Report
Every charitable organization registered or required to be registered pursuant to
section one hundred seventy-two of this article which shall receive in any fiscal year
gross revenue and support in excess of five hundred thousand dollars shall file with
the attorney general an annual written financial report on forms prescribed by the
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attorney general, on or before the fifteenth day of the fifth calendar month after
the close of the fiscal year.
Review of Annual Reports available through the New York State Charity Bureau
website portal reveals numerous inaccurate, misleading, and false entries for
Clinton Foundation entities. In addition, reports for numerous Clinton Foundation
entities that solicited in coordinated operation with New York-based personnel are
either missing or inaccurate.
http://www.charitiesnys.com/RegistrySearch/search_charities.jsp
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public accountant that the financial statement and balance sheet present fairly the
financial operations and position of the organization.
The Clinton Foundation and its constituent elements have not produced evidence
they were allowed to submit combined reports, nor are combined reports, compliant
with New York law, in evidence through links at the New York State Charity Bureau
website.
Definition of Affiliate
4(b) As used in this subdivision the term affiliate shall include any chapter,
branch, auxiliary, or other subordinate unit of any registered charitable
organization, howsoever designated, whose policies, fundraising activities, and
expenditures are supervised or controlled by such parent organization.
The Clinton Foundation has not made property identification of its affiliates.
Requirement to Describe Activities of Affiliates
4(c) There shall be appended to each combined annual financial report a schedule,
containing such information as may be prescribed by the attorney general,
reflecting the activities of each affiliate, which shall contain a statement signed
under penalties of perjury, by the president or other authorized officer certifying
that the information contained therein is true.
The Clinton Foundation has not described activities of all of its affiliates.
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Cancellation of Registration
5 The attorney general shall cancel the registration of any organization which fails
to comply with subdivision one, two, two-a or three of this section within the time
prescribed, or fails to furnish such additional information as is requested by the
attorney general within the required time; except that the time may be extended by
the attorney general for a period not to exceed one hundred eighty days. Notice of
such cancellation shall be mailed to the registrant at least twenty days before the
effective date thereof.
It is not clear with the Attorney General of the state of New York has allowed the
Clinton Foundation and its affiliates to operate from bases inside New York in
apparent violation of the above laws, for years.
Section 172 d 1
Prohibited Activity-Misleading Statements
1. Make any material statement which is untrue in an application for registration,
registration statement, a claim of exemption, financial report or any other forms or
documents required to be filed or filed pursuant to this article; or fail to disclose a
material fact in an application for registration, registration statement, claim of
exemption, financial report or any other forms or documents required to be filed or
filed pursuant to this article.
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chapter.
To establish fraud neither intent to defraud nor injury need to be shown
[emphasis added].
Since inception of its operation within New York state, the Clinton Foundation and
constituent elements have diverted contributions from authorized to unauthorized
tax-exempt and other purposes.
An Enumerated General Duty of the New York State Attorney General--Prosecuting
Fraud or Illegal Acts
Pursuant to N.Y. EXC. LAW Section 63: NY Code-Section 63: General Duties:
12. Whenever any person shall engage in repeated fraudulent or illegal acts or
otherwise demonstrate persistent fraud or illegality in the carrying on, conducting
or transaction of business, the attorney general may apply, in the name of the
people of the state of New York, on notice of five days, for an order enjoining the
continuance of such business activity or of any fraudulent or illegal acts, directing
restitution and damages and, in an appropriate case, canceling any certificate filed
under and by virtue of the provisions of section four hundred forty of the former
penal law or section one hundred thirty of the general business law, and the court
may award the relief applied for or so much thereof as it may deem proper.
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It is possible that the Attorney General of the state of New York, until now, has not
been aware of alleged illegal actions by the Clinton Foundation and its constituent
elements that likely began by January 2001 and have only escalated in scale and
scope to the present.
Key Definitions
[12 continuation] The word fraud or fraudulent as used herein shall include any
device, scheme or artifice to defraud and any deception, misrepresentation,
concealment, suppression, false pretence, false promise or unconscionable
contractual provisions. The term persistent fraud or illegality as used herein shall
include continuance or carrying on of any fraudulent or illegal act or conduct. The
term repeated as used herein shall include repetition of any separate and distinct
fraudulent or illegal act, or conduct which affects more than one person. In
connection with any such application, the attorney general is authorized to take
proof and make a determination of the relevant facts and to issue subpoenas in
accordance with the civil practice law and rules. Such authorization shall not abate
or terminate by reason of any action or proceeding brought by the attorney general
under this section.
Within the meaning of New York law, the Clinton Foundation would appear to have
engaged in persistent, repeated, illegal, fraudulent activity.
Many other U.S. states have registration and reporting requirements--some of
these are even tougher than New Yorks requirements. In certain of these U.S. states,
the Clinton Foundation and its constituent elements are required to make
disclosures and sworn representations to government authorities concerning the
status of their filings throughout the United States.
Many foreign nations require U.S. domiciled charities such as the Clinton Foundation
and its constituent elements to make detailed disclosures and sworn
representations concerning their authorities to act and organization within the
United States and to ensure that these are updated and corrected as and if
circumstances change.
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