-Caveat Lector-
Senate Panel Intensifies Its Conservancy Probe
By Joe Stephens and David B. Ottaway A six-month inquiry into the Arlington-based Nature Conservancy by the Senate
Finance Committee has raised "new questions in a wide range of areas," leading
investigators to intensify their pursuit of internal audits and property records
they have been seeking since last summer, according to committee Chairman
Charles E. Grassley (R-Iowa). Committee investigators, who have been looking into the charity's management
and real estate sales, are now particularly interested in the "valuation of land
donations and the conservation-buyer program," Grassley said. The charity uses
that program to sell property to private individuals, including Conservancy
members. In a statement, Grassley said he is reserving judgment until the
investigation is concluded, but added: "I expect it will become even more clear
that reforms to existing law should accompany any new incentives for taxpayers
to donate land for conservation." Grassley is sponsor of a bill backed by the
Conservancy that passed the Senate earlier this year and which would provide
hundreds of millions of dollars in new conservation tax breaks. "The Conservancy always anticipated there would be additional questions," the
charity said in a statement Friday. "Should the Committee identify reforms it
feels are needed, the Conservancy stands ready to work with the Committee to
design and implement them." Grassley's comments came as committee staffers and Conservancy officials met
last week to resolve issues that have delayed the release of key Conservancy
documents, which detail some of the charity's largest and most controversial
real estate deals. "There are some areas where the Finance Committee has yet to receive a
complete response or will require additional information," Grassley and ranking
Democrat Max Baucus (Mont.) wrote to the Conservancy last week. The Conservancy
had said it could not hand over some of the records because it was bound by
confidentiality agreements or did not want to release proprietary information.
In its letter, the committee offered to subpoena the documents. Baucus said in a statement last week, "The Nature Conservancy has been
cooperative with the information requested to this point, and I expect this
willingness to continue." The senators also asked the Conservancy for a written
promise not to retaliate against whistleblowers who "have been chilled by
confidentiality agreements." Conservancy officials said in Friday's statement that they expected "in a
matter of days" to resolve all issues holding up release of the documents,
including concerns about individual privacy. "The Conservancy has cooperated voluntarily and fully with the Committee and
its staff throughout the inquiry and it will continue to do so," the group's
statement said. "The Conservancy is eager to produce the remaining documents as
soon as possible." The Conservancy said it has obtained confidentiality waivers and is awaiting
"confirmation from the committee of the Conservancy's understanding of how
Senate disclosure rules will be applied." With $3 billion in assets, the Conservancy is the world's largest
environmental group and has preserved millions of acres worldwide. The areas where the committee is seeking additional information include:
internal Conservancy audits, Conservancy land sales to government agencies, a
$64 million land deal on Martha's Vineyard that involved talk show host David
Letterman and "details of sales, donations or purchases of land with certain
private individuals and companies," the senators' letter says. The Conservancy
said that 11 of its land transactions were covered by confidentiality
agreements. The Washington Post independently obtained one Conservancy audit, of a
project on Virginia's Eastern Shore. The audit found widespread accounting
problems and violations of Internal Revenue Service regulations. The audit also
states that managers helped a contractor "hide personal income." The Senate inquiry began after a Post series in May reported on a wide range
of Conservancy practices. Articles detailed how the charity had sold scenic
properties to its state trustees, who reaped large tax breaks. Other stories
disclosed that the charity engaged in multimillion-dollar business deals with
companies and their executives while they sat on the charity's governing board
and advisory council. The Conservancy responded by banning a range of
practices. The senators wrote the Conservancy in July seeking internal records covering
18 broad categories and set an Aug. 18 deadline. The Conservancy pledged to
cooperate and has provided about eight boxes of documents. But it has withheld a
number of other records. They include: • Private records from a $64 million deal in which the Conservancy acquired
215 acres in Martha's Vineyard, Mass., and immediately resold half. In a
complicated chain of transactions, Letterman's holding company acquired several
of the ocean-side tracts for use as luxury home sites. The deal generated $32 million in potential tax breaks for the families and
businesses of Boston developers Neil and Monte Wallace, two major Conservancy
donors. The Conservancy defended the deal, which was outlined in the Post series
in May, as a bold initiative to restore ecologically valuable grasslands. • Details of a gift to the Conservancy of certain development rights on
11,000 acres of rugged canyon lands near Los Angeles from the Irvine Co., one of
the nation's largest development companies. The gift allows the Conservancy to
preserve the land, while Irvine can seek to write off the value of the rights as
a tax-exempt donation. Interviews and internal records show that the Conservancy valued those rights
at $120 million and listed that amount as revenue on its books. An internal memo
obtained by The Post shows that last December a Conservancy official said during
a teleconference that he was concerned that the media could view such valuations
"as subjective and a tool we used to inflate our income." A Conservancy spokesman declined to comment on the gift Friday, and the
Irvine Co. did not respond to requests for comment. The Conservancy said at the
time of the gift that it allowed the group to preserve "relatively pristine
tracts of land" and rare species in a rapidly developing area of California.
• The audit of the Virginia project, obtained by The Post after its May
series, examined the Conservancy's purchase and management of millions of
dollars in land through a project known as the Virginia Coast Reserve, or VCR.
Stamped "Confidential," the March 2002 report said that auditors originally
uncovered widespread problems two years earlier. "Its runaway debt and deficits were essentially overlooked by corporate
management," auditors wrote. The program had an operating deficit of $2.3
million, $3.3 million in external debt and $18 million in internal debt owed to
the Conservancy's Land Preservation Fund. "VCR owns numerous real properties and capital assets that were never
properly recorded in the general ledger," the report states. "Several million
dollars worth of land costs . . . could not be identified either in the files or
from the county tax records." The report noted that VCR hired an employee's family member to handle
deposits and receipts and said that many transactions were improperly recorded.
For years, the report said, the IRS was not told that the charity provided
some employees with free housing and free use of a car, a lapse described as an
IRS violation. The audit said a Virginia farmer, who oversaw property leases for the
Conservancy, negotiated and managed six farm leases with his own father. The
report said Conservancy officials paid the farmer's wife, instead of the
farmer. The report does not name the employees involved. Auditors sent their findings
to Conservancy President Steven J. McCormick on May 24, 2002. It is unclear
whether McCormick alerted the IRS. Asked about the audit, the Conservancy said in its statement, "The
Conservancy declines to comment about the specific details of the internal
audit, except to say the matters highlighted in the audit have been addressed to
ensure activities at the Virginia Coast Reserve are in compliance with the
Conservancy's policies and procedures." The statement also said the audit's
findings "played a significant role" in reforms of the VCR program. According to the senators' letter, the charity earlier offered to release
additional records sought by investigators in exchange for confidentiality
protections "modeled after the agreement entered into between the Finance
Committee and Enron Corp." But the senators said that agreement was narrowly
tailored to allow the committee access to Enron data protected under IRS
regulations. The senators' letter said that "a number of whistleblowers" had approached
the committee. "We would ask that TNC make a public written statement that it
will take no action against any former or current TNC employees or contractors
who cooperate with the Finance Committee's investigation," they wrote. The
Conservancy statement said the group would issue such a public, written promise.
.
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