In response to the many news stories and blog posts reporting that Madonna's charity work was the focus of a federal investigation, the singer's spokeswoman, Liz Rosenberg, issued a carefully worded denial: Raising Malawi, Madonna's program to build a school for girls in the impoverished nation, was not "being investigated by the FBI or the IRS," Rosenberg said. But she did not address whether the feds are probing the Kabbalah Centre, whose finances are so commingled with Raising Malawi that it is impossible to separate one from the other. The center was Madonna's partner in her Malawi efforts from the outset in 2005 and has been her spiritual home for a decade and a half.
No one from the Kabbalah Centre has disputed the fact, reported in Newsweek last week, that the center itself is "a focus of federal investigators." All Mathew Rosengart, a lawyer for the center, says is that it hasn't "received any official notification of an investigation." It is certainly not unusual for federal prosecutors to conduct an investigation without informing a subject from the outset. But it's worth noting that Rosengart, a member of the legal team headed by a former special counsel to the Clinton White House, Mark Fabiani, is a former federal prosecutor expert in grand jury probes. He has co-authored an article under the headline " What to Do When the Government Comes Calling?" Federal authorities would not comment to Newsweek.
While reports elsewhere have suggested that Madonna's Raising Malawi, or another group she chairs—Spirituality For Kids, which was recently renamed Success For Kids—is the subject of a probe, the Newsweek report focused on questionable tax-related practices at the center. Among the multiple sources that apprised Newsweek of an investigation emanating from the Southern District of New York was one person who said he had been served with a grand jury subpoena. That subpoena reportedly listed Raising Malawi as one of many center-tied organizations, though this potential witness knows very little about the Malawi group and is, instead, familiar with other aspects of the center's finances. The information from these sources was inadvertently confirmed by Fabiani when, in late February, he asked whether Newsweek planned to report there was a federal investigation of the center. Until then, Newsweek had never mentioned such a probe to Fabiani or anyone else associated with the center. Yet a representative of the center recently told a reporter that he was not aware of any federal investigation.
The Kabbalah Centre's tax issues start with its exemption: By claiming to be a church it avoids most corporate, property, sales, and other taxes, and escapes many disclosure requirements. Yet it boldly asserts on its on website that it is not a religion but rather "practical wisdom." Asked about this oddity, Shane Hamilton, the center's tax attorney, explained that "the flip answer" was that "being a religion isn't one of the 14 factors" that the IRS uses "to determine if the center is a church." In fact, the 14 factors use the word "religious" three times. The most critical tax question would seem to be whether guru founders of Kabbalah, Philip and Karen Berg, along with their two sons and at least one of Karen's daughters, are improperly using the resources of a tax exempt church to fund a lavish personal lifestyle.
If Kabbalah Centre raised so much money for Raising Malawi, why didn't it just turn over that money, rather than let the group fall into debt?
But it is difficult to scrutinize the center's finances without also looking at Raising Malawi because of the extensive bookkeeping and legal web that connects the two. That may be one reason Madonna's new philanthropy adviser, Trevor Neilson, began the process of formally separating the two organizations on March 14. Neilson told Newsweek that "the separation is a healthy thing for Raising Malawi and the Kabbalah Centre."
Until the IRS approves this change, however, Raising Malawi remains a Type 1 Public Charity "operated, supervised and controlled" by the Kabbalah Centre. That creates a situation in which one entity, the "church," exempt from IRS disclosure rules, has its funds commingled with a charity that must file detailed and public tax returns. And the flow of funds between the two organizations raises many questions. The center began soliciting donations for Malawi in 2006 and said, in an email to Newsweek, that over the years it brought in a total of $12.5 million. Yet Raising Malawi showed a $3.7 million liability on its IRS forms for 2008 and 2009, and was forced to borrow money from the center to cover those debts. According to Neilson, the Malawi project had to borrow even more in 2010, though he will not say how much. The question is: if the Kabbalah Centre raised so much money for Raising Malawi, why didn't it just turn over that money, rather than let the group fall into debt, then extend it loans from some other account? According to its statements to Newsweek, the funds the center collected on behalf of Raising Malawi exceeded the amount of the project's debts, so that the center has now given Raising Malawi another $1.8 million.
The Kabbalah Centre wouldn't answer questions about the charge that it ran an aggressive telemarketing campaign on behalf of the Malawi school. But it's apparent that some of the money was held back by the center, sometimes for years. "After Raising Malawi Inc. was formed," says Hamilton, "the Kabbalah Centre continued to receive directed donations from its donors to provide support either for RMI or more generally to support charitable activities in Malawi. Since the donations were made to KC and not RMI directly, it was both legal and appropriate for KC to maintain its own accounting fund with respect to Raising Malawi Inc." Neilson told Newsweek that even he doesn't know what was raised "other than what funds appeared" in the Raising Malawi-related accounts.
What sparked much of the recent press attention was Madonna's decision to abandon the school project just eight months after she laid the first brick at an elaborate ceremony. That caused a stir in the U.S., where the school was a publicity and fundraising goldmine, and sparked outrage in Malawi. "We'd like to know why," the education minister, Peter Mutharika, told reporters when he got the news in January. Mutharika, who is also the president's brother, had just met Neilson for the first time in December during Neilson's sole trip to Malawi, and Neilson had not said a word about killing the school.
John Samuel, the ex CEO of Oprah Winfrey Leadership Academy in South Africa, who was brought in as a consultant by Raising Malawi in 2009, says: "So much good will was displayed by the people of Malawi that I would put this down as a betrayal of trust."
Samuel, the former head of the Nelson Mandela Foundation, said he attended meetings with Madonna during which presentations were made by the architect and educational advisers, and that he had "no doubt that they were fully committed to the project," adding that he was "absolutely shattered" when he heard it was dead. "One of my concerns was the manner in which the raising of the money was being conducted," says Samuel. "There was very little evidence of just what Raising Malawi was committing to. There was very little evidence of a sustainable financial strategy. I would say they were getting a lot more publicity for minimal investment."
The financial records, he said, "were somewhat secretive," partly because "of the kind of group they were working with," namely the Kabbalah Centre.
Valerie Bogard, Bryan Finlayson, and Barry Shifrin contributed reporting to this article.
Wayne Barrett is a Newsweek contributor and a fellow at the Nation Institute.