Responsibility for Corporate Misbehavior Shifts Under President Trump

Strategies for Gifting Interest in a Closely Held Business to Charity

A Primer on General Board Governance in a Nonprofit Organization


This past September at the 5th Annual Global Investigations Review Conference (“GIR”), Deputy Assistant Attorney General Matthew S. Miner discussed recent changes in the Department of Justice (“DOJ”) policy regarding the prosecution of business organizations. The new policies generally expand upon existing policies encouraging self-reporting, cooperation and remediation while underscoring the importance of robust compliance programs to detect and prevent wrongdoing. However, in a marked departure from existing policy, such corrective steps by the offending corporation now create a “presumption” that the DOJ will decline prosecution in the absence of “aggravating circumstances.” This new policy is the result of not-so-subtle pro-business pivot in direction by the Trump Administration since coming to office in January of 2017.

Long before he became President, Mr. Trump was a harsh critic of the Foreign Corrupt Practices Act (“FCPA”) that became law in 1977. The FCPA bars US companies from bribing foreign officials with anything of value. Mr. Trump has long claimed that the law put the US at a competitive disadvantage because US companies can’t compete effectively in places where it is a common practice to pay bribes.

In November of 2017, the DOJ under Trump announced the final adoption of an existing “Pilot Program” regarding FCPA violations, which increased the resources devoted to FCPA enforcement but also made it much easier for companies to avoid criminal prosecution by “self-reporting” violations and taking necessary steps to remediate the problem. In March of 2018, the DOJ further expanded this policy when it told its prosecutors that this new policy should be considered as “non-binding guidance” in all Criminal Division corporate criminal investigations, not just those involving violations of the FCPA. In his remarks at the GIR Conference, Mr. Miner cited several cases where, even though “aggravating circumstances” existed, e.g. the participation of senior executives in the misconduct, those companies were still granted a DOJ declination because the company had responded properly. Mr. Miner emphasized that the goal is to foster a “culture of compliance.”

As recently reported in the New York Times, a comparison of the first 20 months of the Trump Administration to the last 20 months of the Obama Administration reveals that there has been a substantial 72% decline in corporate monetary penalties collected by the Criminal Division of the DOJ. Likewise, the Times reports a 62% decline in civil penalties and restitution collected by the Securities & Exchange Commission (“SEC”) over the same period. Indeed, SEC Chairman Jay Clayton has made it clear that the SEC is more interested in pursuing the small fraudsters rather than larger institutions. These statistics are very similar to earlier reports in the New York Times and other media that enforcement actions brought by the Environmental Protection Agency (“EPA”) had declined precipitously and that penalties sought by the EPA had declined 39% during the first nine months of the Trump administration.

The Trump Administration has responded to its critics that it’s simply too early to draw any conclusions and that the President does not want to punish individual investors, innocent employees or the other stakeholders of wayward companies by forcing them to pay for the misconduct of senior officials. From now on the focus of the Trump Administration will be on holding individuals accountable for transactional corruption.

In his September comments, Mr. Miner stated that “Businesses thrive in a stable environment. A stable environment exists when laws are enforced consistently and fairly. When business thrives, it benefits all of us.” If you have questions about the new policies, please contact PLDO Partner and criminal defense attorney James W. Ryan at 401-824-5100 or email

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Gifting interests in a closely held business can result in a significant planning opportunity for the right donor as well as a substantial benefit to a favorite charity. Consider the following three planning strategies for charitable gifts utilizing private and closely held business interests:

1. Give and Sell Strategy.The goal is to gift the business interests before entering into a binding agreement to sell to secure “double” tax benefits of (a) obtaining a charitable income tax deduction to help offset gain realized by the donor, while (b) avoiding, or at least significantly reducing, tax on the proceeds to the charity. This strategy is beneficial if the individual donor holds business interests with low basis that would result in a significant long-term capital gain if the business was sold. If the interest is gifted prior to sale, the donor would obtain a charitable income tax deduction equal to the fair market value of the gifted interest, which first offsets higher taxed income, and the donor avoids tax on the interests gifted. In many cases, the charity will not pay unrelated business income taxes (known as UBIT) upon the subsequent sale of the business interest. For taxpayers who are potentially subject to the “net investment income tax” on passive income (under Internal Revenue Code Section 1411), the tax of 3.8% is not imposed on gain realized by the charity.

2. Give and Hold Strategy. This involves gifting an income producing asset to be held by the charity without contemplation of a pending sale. The donor’s charitable deductions would be the same as in the Give and Sell Strategy. The charity will now be a partner or shareholder in business, effectively receiving interest in income that the donor would have previously received and paid tax on. The income the charity receives may be subject to UBIT depending on the underlying nature of the business entity now held by the charity (i.e., C Corp, S Corp or partnership) and they type of income generated. Dividends, interest, annuities, royalties, rental income from real property and capital gains on sales of appreciated assets are exempt from UBIT (except for S Corps).

3. Gift by Business Entity of Underlying Asset. This strategy involves the closely held business entity making a gift of its underlying asset(s). This strategy is mostly used by pass through entities. Charitable gifts of non-liquid assets made by a partnership is reported as a separate item proportionately to each partner, and partners only reduce their basis in their partnership interests by the proportionate amount of the adjusted basis in the asset gifted.

The gift of a closely held business interest poses special challenges for both a transferring donor and recipient charity. Great care must be exercised to avoid inadvertent consequences and attain the desired charitable benefits. For assistance, please contact Attorney Jason S. Palmisano at 561-362-2034 or email, or you can contact the firm’s Managing Principal and business attorney Gary R. Pannone at 401-824-5100 or email

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As a general proposition, a nonprofit organization created by its members requires more diligence as it relates to board governance in order to avoid improprieties in the operation. Similar to for-profit corporations, a nonprofit corporation that is established by its members requires the appointment of board members who will be responsible for taking proper steps to conform to applicable governance rules and responsibilities.

A duly appointed board is required to adopt bylaws that will govern the regulation and management of the affairs of the nonprofit corporation that are consistent with the articles of incorporation. It is also critical that the Board members fully understand the mission statement for the organization and adopt a prudent structure of review on a periodic basis so that future actions of board members and officers are consistent with the reasons that the organization was created in the first place.

The bylaws of a nonprofit corporation is the blue print for how the organization will be operated, which should include, among other things; (i) the number of board meetings required to be convened; (ii) how the members should be notified of a meeting; (iii) what constitutes a quorum for a valid meeting to proceed; (iv) monthly financial reports by the treasurer; (v); process of hiring an executive director and establishing the duties and responsibilities, and (vi) reasons for and procedure to remove a director for cause.

One of the initial challenges for the members creating a nonprofit corporation is deciding on how many directors will be appointed to govern the organization and whether to stagger terms in order to avoid vacancies. The minimum number is three; however, the overall size of a board is often times determined by the type of mission and complexity of the operation and making certain that deadlocks are avoided in the decision-making process requires an odd number to be appointed.

Board members are required to appoint officers of the corporation who will be primarily responsible for operating the enterprise. The minimum number of officers will be three; i.e., President, Secretary and Treasurer and each role should be filled by separate individuals. Officers of a nonprofit corporation are required to act in good faith and in a manner consistent with an ordinarily prudent person in a similar situation. Most importantly, officers and directors must take all reasonable steps necessary to avoid conflict of interests and if the officer or director perceives a conflict to exist, he or she must immediately disclose the nature and scope of the perceived conflict in order to preserve the integrity of the organization.

To learn more about nonprofit organizations board governance or other related nonprofit or business issues, please contact PLDO Managing Principal Gary R. Pannone or Partner Benjamin L. Rackliffe at 401-824-5100 or email and

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