Whistleblower Alleges $100B Hoarding Scandal by LDS Church; But There’s An Easy Fix

Image of Washington DC Temple: Joe Ravi/Wikimedia Commons.

The Mormon church’s recently unearthed $100 billion stash should tell Congress it’s time to close the absurd loophole that allows churches to misuse and abuse their tax exemption. American taxpayers should demand as much and Congress should find the political courage to act.

With some apparently shady maneuvering, the Church of Jesus Christ of Latter-Day Saints created a $100 billion company, one of the wealthiest in the country, according to a blockbuster report in the Washington Post. Most remarkably, in a post-recession era of heightened regulation and scrutiny, the church did this without anyone knowing. 

The Post story focuses on the unlawful hoarding of this wealth because charitable donations are supposed to go to charitable work, not sit around earning interest. If true, the fraud is shocking. But the abuse was fostered by a foolish and unnecessary loophole in the rules governing charitable organizations. The government and taxpayers knew little about this absurdly wealthy company because churches and religious charities, unlike every other charity in America, file no financial disclosures with the IRS.

Here’s how it works according to the Post story: Mormons tithe about $7 billion to the LDS church each year. The church spends most of that money (about $6 billion). What’s left, about $1 billion, goes into the church’s investment firm, called Ensign Peak Advisors. In just over 20 years, Ensign amassed $100 billion. That’s because the company only distributed funds twice, both times to for-profit entities, while continuing to invest the funds and acquire tithes from Mormons who donate 10% of their income in order “to gain access to the sacred spaces and saving rituals of a Mormon temple.” 

But mostly, this meteoric growth is because the IRS views Ensign as an arm of the LDS church, ostensibly run for religious purposes and, therefore, as tax-exempt. Not just tax-exempt, but exempt from all financial disclosure requirements as well. In short, we knew nothing about this shady arrangement because Congress has refused to ask.

Churches are financial and informational black holes. They file no financial information with the government. Nothing. The same is true for many church auxiliary organizations, like Ensign. Other charities, those that are not church-affiliated, file annual disclosures (a Form 990 or the like) with the IRS that track every penny in and out of the organization. 

Congress insists on financial disclosures for charities because tax exemption is a significant public trust and public trust requires transparency. Transparency both ensures and proves the charities are honoring that trust, not abusing or exploiting it. There is no reason to treat churches and church-related entities differently than other charities; no reason to allow the abuse of this public trust to continue. 

Congress could and should insist that all tax-exempt organizations, religious or not, file financial information with the IRS every year.

There have been calls for such legislation in the past, including from churches themselves. Seeking to be better citizens, some churches already voluntarily file or publish a Form 990. The financial obscurity in which American churches operate leads to copious fraud and abuse. Experts believe that the lack of transparency makes religious charities “among the most vulnerable entities.” This void victimizes the faithful—those who willingly give up a portion of their income—more than anyone else. 

There is no legal or constitutional roadblock to demanding transparency from all the nation’s churches and no viable claim that it violates religious freedom. Tax exemption is a privilege, not a right. Congress can attach strings to that privilege, including financial transparency. Nothing in the Constitution requires that we even exempt churches from taxes, let alone exempt them from basic transparency requirements.

Even the most extreme understanding of religious freedom could not stop Congress from legislating transparency because accountability to the taxpayers does not “prohibit” or even hinder the free exercise of religion. For instance, Ensign claims that “the amassed funds would be used in the event of the second coming of Christ.” But filing financial information with the IRS would not prohibit the church from hoarding this wealth (though other provisions of the tax code do). Transparency would simply require the church to disclose the details of their cache. 

Sunlight does not burden religious liberty, it cures fraud and abuse.

Asking for transparency from every nonprofit is perfectly legal, but Congress has not acted. In an era of congressional gridlock and where civil rights laws demanding equality are maligned as anti-religious liberty, this inaction is unsurprising. But it’s also true that this loophole hurts everyone, the devout most of all. If Congress actually cared about protecting religious people and churches, rather than fearing being called anti-religious by Fox News, it would get to work. 

Ensuring equal transparency across all nonprofits, religious or not, would have protected American taxpayers from the Mormon Church’s alleged abuse of the tax exemption privilege without a whistleblower. We would have seen the LDS church transfer a billion dollars every year to Ensign and seen Ensign spend nothing on charitable endeavours.  It’s time for Congress to step in and protect the American taxpayer. It’s time for Congress to demand that all nonprofits, religious or not, disclose their financials to the IRS.