The Gun Almost Smokes, Pt. II: Potentially serious conflicts of interest at the USA Expo 2010 pavilion.

For more than a year, the USA pavilion at Expo 2010 has been shrouded in inexplicable secrecy. To this day, for example, the State Department won’t reveal the process by which Shanghai Expo 2010, Inc [SE 2010] – the non-profit it authorized to design, fund, build and manage the US pavilion – was selected; who and how a Canadian architect was chosen to design the US pavilion; or, for that matter, release a detailed budget on how SE 2010 was spending its $61 million in tax-deductible contributions. Unfortunately, the first two questions are still mysteries: the State Department, SE 2010, and the US Consulate in Shanghai have been obstinate in their refusal to answer questions on these matters. However, the last question – a detailed budget – received a partial answer last week when I published a cost estimate that SE 2010 had filed with the IRS in June 2009.

Readers will recall that the IRS documents indicated that SE 2010, Inc was spending US$23 million for the three short films that are featured in the USA pavilion (a sum that exceeds the cost of 4 of the ten Academy Award nominees for Best Picture). No surprise, the producer of the three films – BRC Imagination Arts of Burbank, California – is, according to the June 2009 IRS documents, the pavilion’s top-paid contractor [click to enlarge].

In the above document, BRC is promised US$10 million for Production Design/Fabrication; according to individuals associated with two other national pavilions, that $10 million most likely folds into the $23 million for “show construction & installation” in the cost sheet. In any case, no other contractor is listed in the IRS filing; BRC is the largest.

Last week, when I published the cost sheet, several people commented (both on my blog, on other blogs, and to me personally) that the costs were excessive. For example, one commentator wrote: “There is no way that the production costs of three theatre shows could exceed the physical building costs, especially when they are not movie grade productions. I speak of this from experience of personally having worked on several expo pavilions.”

But that raises a serious question: why would a non-profit entity then having significant problems raising money to build a pavilion pay an excessive, likely above-market fee, to the company producing the pavilion program? Wouldn’t there be every incentive for the pavilion to seek out discounts? A possible answer is buried in SE 2010’s June 2009 application for tax-deductible 501(c)(3) status from the IRS. Buried within the 100-page application are resumes for Nicholas Winslow, President of the USA Pavilion, and Ellen Eliasoph, the two co-founders of SE 2010, Inc. As I’ve explained in other posts and articles, considerable suspicion exists about how, precisely, Winslow and Eliasoph obtained State Department authorization. Meanwhile, Winslow’s June 2009 resume – filed with the IRS – raises considerable suspicions about his motives for pursuing the USA pavilion at all. To simplify things, I’m just going to post the top third. Click to enlarge:

In other words, Winslow’s resume – submitted to the IRS – certifies that, at the same time that the US pavilion was doling out an eight-figure contract to BRC Imagination Arts, Winslow – President and Director of the USA pavilion – was serving as an “advisor and ‘owner’s representative’ to … BRC Imagination Arts for projects in China, Japan, Greece, Korea, Latin America, and the United States.”

The resume is an astonishing document, particularly due to the fact that it was submitted by SE 2010’s lawyer – Kevin Shortill of Covington & Burling in Washington, D.C. – with an official application, signed under penalty of perjury, certifying that, in the case of SE 2010, “None of the contractors and construction companies are expected to have any business or family relationships with the Organization’s directors or officers.” Click to enlarge the document, below:

Of course, there’s the possibility that Covington & Burling mistakenly submitted an out-dated resume to the IRS. But if so, nobody with knowledge of the Winslow-BRC relationship is willing to comment upon it. On Thursday, I personally contacted Winslow, Bob Rogers, CEO of BRC Imagination Arts, Martin Alintuck, the Spokesman for the USA Pavilion, and Scott Walker, a Public Affairs Officer at the US Consulate Shanghai. In each case, I asked for detailed information on Winslow’s business and financial relationship to BRC Imagination Arts (and, in the case of SE 2010 and the Consulate, I submitted the resume). So far, not one of the individuals or organizations queried – Winslow, Rogers, Alintuck, or Walker – has bothered to respond to me. Presumably, if the answer was that there was no current relationship between Winslow and BRC, they would’ve let me know by now. Perhaps other reporters will have more success.

In fact, there’s further and even better evidence to suggest that Winslow was using the USA pavilion as a means to advance the interests of his consulting clients even before he and Eliasoph received authorization from the State Department. On March 19, 2008, the State Department sent Winslow and Eliasoph a “Letter of Intent” authorizing them to proceed with the USA pavilion. Attached to that letter was a memorandum entitled “The Issues to be Addressed Prior to Signing a Memorandum of Agreement.” I posted the memo and discussed it at length here; however, in that prior post I didn’t discuss the very last “issue” that State wanted resolved by Winslow and Eliasoph. As written in the memo:

A second look at Winslow’s June 2009 resume suggests that he could offer a very firm assurance – he was (at least at one point) an advisor/owner’s representative to the National Health Museum, too. Click to enlarge:

So why should any of this matter? Does it matter?

The short answer is: yes, it matters a lot. SE 2010, Inc, the non-profit corporation that was authorized to design, build, fund, and manage the US pavilion, was awarded 501(c)(3) status by the Internal Revenue Service. Among other privileges, 501(c)(3) status allows SE 2010, Inc to raise tax-deductible contributions from individuals and corporations. Without the ability to offer tax-deductible contributions, SE 2010 Inc would have found it near impossible to raise the $61 million it claimed was necessary to build a US pavilion, a fact acknolwedged in Kevin Shortill’s cover letter requesting an expedited approval of SE 2010’s 501(c)(3) application (click here to see the cover letter).

Tax-deductible status costs the federal government tax dollars, and as such, the bar for obtaining tax-deductible status from the IRS is quite high, requiring an extensive application and supporting documentation. The purpose of the complex application is many-fold, but among the most important reasons is to prevent non-profits and their directors from using 501(c)(3) corporations for private benefit. In principle, 501(c)(3) tax-exempt organizations – like the USA pavilion – are supposed to be operated for public purposes, not private enrichment. Or, as the IRS puts it: “No part of the net earnings of a section 501(c)(3) organization may inure to the benefit of any private shareholder or individual. A private shareholder or individual is a person having a personal and private interest in the activities of the organization.” Click below for the full explanation from the IRS website:

Bluntly put: the IRS would be very interested in any arrangement whereby Winslow is raising tax-deductible contributions for a contract that benefits his client, BRC, and – by extension – him personally. Can it be said definitively that Winslow founded and then operated SE 2010, Inc for his personal interests? No, it can’t. But does that mean that Winslow and SE 2010 are out of the woods? Over the weekend I spoke to a former IRS lawyer now in private practice who agreed to comment anonymously for this post. This person writes:

“Obviously quiet a bit depends upon the dates that Winslow was working for BRC. If he was working for them at the same time that he was doing the pavilion, that’s pretty clear-cut trouble for him and BRC and maybe the pavilion organization … [I]f there’s no contemporaneous relationship that doesn’t mean he’s off the hook. The resume alone should be grounds for an audit of the 501c3 … and probably Winslow and maybe BRC … [T]he whole thing just really reeks of something not right and I think the IRS would be very open to a complaint IF it were filed correctly.”

And I think I’ll leave the editorializing on what should or should not be done in regard to this matter to others. My sincere hope is that, in addition to the IRS, the State Department, the US Consulate Shanghai, and Jose Villarreal, Commissioner General of the USA Pavilion, will take the questions raised here seriously.

[Note on comments. I’m going to continue my practice of disallowing comments to my recent USA pavilion posts, largely based upon my unwillingness to provide a forum for FSOs and others connected to the USA pavilion to defend themselves and attack me anonymously. If and when the State Department, the Shanghai Consulate General, and Shanghai Expo 2010, Inc (the non-profit managing the USA pavilion) get around to answering my legitimate questions about the pavilion, I’ll get around to re-opening the comment threads.]