Five registered non-profits run by super-lobbyist Rick Berman's for-profit PR firm, Berman & Co., are the target of an Internal Revenue Service (IRS) complaint filed this month by the Humane Society of the United States (HSUS).
Tax records show that those five organizations -- the Center for Consumer Freedom, Employment Policies Institute Foundation, Enterprise Freedom Action Committee, Center for Union Facts, and American Beverage Institute -- paid Berman & Co. $15 million from 2008 to 2010, according to an investigative report by Bloomberg. IRS rules prohibit executives from profiting off the tax-exempt entities they run. Marcus Owens, a former director of the exempt organizations department at the IRS, called the money Berman & Co. received from these front groups "a clear violation of the requirements for tax-exempt status."
According to Wayne Pacelle, HSUS' executive director, some of the more than 7,000 supporting documents submitted with the IRS complaint "detail ... how Berman's syndicate of phony tax-exempt front groups, all of which are registered charities under section 501(c) of the Internal Revenue Service code, operate essentially as a scheme to defraud the U.S. Treasury and taxpayers of tens of millions of dollars." Among the documents is allegedly a contract between one of the non-profits and Berman & Co., which Berman himself signed twice -- both on behalf of his front group and on behalf of his PR firm.
Long History of Front Groups
The Center for Media and Democracy (CMD) has tracked Berman and his ring of phony non-profits for years. Berman's groups are textbook examples of front groups, organizations that purport to represent one agenda while in reality serving some other party or interest whose sponsorship is hidden or rarely mentioned. The front group is perhaps the most easily recognized use of the third party technique of public relations, and Berman is a self-acknowledged master. He once said about his PR firm's techniques in addressing consumer protection advocates, "[W]e always have a knife in our teeth. ... Our offensive strategy is to shoot the messenger. Given the activists' plans to alarm beyond all reason, we've got to attack their credibility as spokepersons."
In June 2010, CMD reported on a similar complaint filed about these groups with the New York Commission on Public Integrity by HSUS and Mothers Against Drunk Driving, both of which have been targets of Berman's "shoot the messenger" style of PR using his front groups. In January 2010, Berman's Center for Consumer Freedom launched the website HumaneWatch.org to harass the HSUS, as CMD reported. The "Guest Choice Network," the former incarnation of the Center for Consumer Freedom, also attacked one of CMD's early publications, Mad Cow USA.
Has Berman Tripped on His Own Methods?
Now, as University of Miami law school professor Francis Hill told Bloomberg, "This mess of Berman and his empire of non-profits has gone on for too long. ... [It] seems like an appalling abuse of tax-exempt status." Pacelle wrote, "It's an old and familiar story, the confidence man with his bag of tricks, working his scams until the cold light of day shines and unmasks him for all to see. That's where Richard Berman finds himself today -- exposed as the black bag artist for hire, a man who has made a hefty gain attacking charities, including The HSUS, on behalf of his industry patrons."
If the complaint is successful, Berman's front groups may lose tax-exempt status and owe tens of millions in tax liability. Although this would most likely not mean the end of the use of front groups in PR, it would send a statement that manipulating tax code is an unacceptable way for corporations and their apologists to spread their viewpoints and defend their conduct.