In actions that would do Putin, Orban, or Maduro proud, Vanguard and Fidelity just created a precedent to cut off funds to any nonprofits disliked by the federal government or any state government. The justification is a Trump administration indictment of the Southern Poverty Law Center (SPLC) claiming that SPLC paying hate group informants constituted fraud. SPLC has actually coordinated with Federal and state law enforcement for years, using information supplied by the informants to help secure indictments and convictions.
Vanguard and Fidelity have now prohibited people giving to SPLC through their Donor Advised Fund (DAF) accounts. Schwab hasn’t made a public statement, but SPLC no longer comes up on their list of eligible organizations. Fidelity justifies this by saying they have a policy of pausing DAF giving if an organization “is being investigated for alleged illegal activities…such as terrorism, money laundering, hate crimes or fraud,” or if “state and federal agencies” are investigating a charitable organization. That approach would let federal or state authorities cripple any nonprofit they choose, simply by launching an investigation. The organization doesn’t even have to be convicted. They just have to be investigated, which makes this a perfect way to target political opponents.
If a nonprofit is convicted of fraud or money laundering, it’s of course legitimate to remove or suspend their c3 nonprofit status. But this is a very different situation, because there isn’t a shred of due process. Given that money is the lifeblood of nonprofits, and that DAF’s hold $325 billion of it, Fidelity and Vanguard are directly undermining democracy by opening up a hugely destructive precedent for the future. That’s true whatever you think of SPLC and their work.
The Trump administration has a pattern of targeting political opponents with Dept of Justice investigations or even indictments. Judges and juries have rejected their efforts so far. But this precedent cuts off funds before a case has a chance to be prosecuted, heard, or tried, so can immensely damage nonprofits however the judicial process unfolds.
The precedent would just as easily allow a Democratic administration, federal or state, to do the same to nonprofits they disliked. They’d just have to launch an investigation, and by doing so, immediately cut off a significant part of their money flow. The defunding of potential independent institutions and organizations is exactly what Vladimir Putin did in Russia, Victor Orban did in Hungary, Recep Tayyip Erdoğan did in Turkey, and Nicolás Maduro did in Venezuela. It’s a classic way to eliminate opposition and consolidate power. The anticipatory compliance of Vanguard and Fidelity are precisely what enables dictatorships, whatever their politics.
If there’s a nonprofit that could weather this, it’s SPLC, with a $786 million endowment. But if the Trump administration and enablers like these DAF sponsors can do this to SPLC, they can do it to nonprofits that have far fewer resources and are therefore far more vulnerable. For instance, nonpartisan voter engagement groups, where the complementary actions of the Federal government and compliant brokerage houses could dry up funds right at the point when they need them most to allow citizens to participate in democracy. And it doesn’t have to be the Federal Department of Justice. Given Fidelity’s criteria, it could also be a state government, and the targets, again, could be conservative groups as well as liberal ones.
I’ve mentioned Jimmy Kimmel because that was a classic successful example of ordinary Americans pushing back and refusing to cave to a President who believes no voices have the right to challenge him. This is a similar context for individuals to act and for organizations that believe in democracy to organize such actions.
Not everyone has money in Donor Advised Funds, but 55% of Americans have retirement or other investment accounts, and most are held by major brokerages like Fidelity, Vanguard, Schwab, or Merrill Lynch (the ultra-rich have their own foundations and family offices). Given the stakes of this action, those of us who have money with Fidelity or Vanguard (not just in DAF’s) need to contact them aggressively and say they’ll move it if they don’t reverse this stand. Those invested through Schwab, National Philanthropic Trust, Merrill Lynch, or other companies that have DAF charitable arms, need to encourage them to stand firm—on threat of moving our funds as well if they cave.
We need to be able to donate to all legitimate nonprofits not just those that the Trump administration or some local government official decides that they agree with.
Paul Rogat Loeb is the author of Soul of a Citizen and The Impossible Will Take a Little While, with 300,000 copies in print between them. The Impossible will have a new edition this October. See Paulloeb.org
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