A June 22 hearing of the Senate Indian Affairs Committee revealed details of a scam by lobbyists Jack Abramoff and Michael Scanlon to pocket millions of dollars in donations to nonprofit groups they controlled or on whose board they sat. They used these groups as intermediaries, with subgrants going to other nonprofits and consulting firms they controlled, and ultimately into their pockets. This abuse, and other recently reported cases of professional lobbyists using nonprofits to avoid ethics and disclosure rules, has raised questions about the need for greater transparency and oversight of the identity of donors and of financial transactions between groups. Sen. John McCain (R-AZ), chair of the Indian Affairs Committee, called the emerging scandal "simply and sadly a tale of betrayal." Abramoff, a former Republican lobbyist, and Scanlon, a former spokesman for House Majority Leader Tom DeLay (R-TX), appear to have pocketed $6.5 million of $7.7 million in fees charged to the Mississippi tribe of Choctaw Indians. The fees were supposed to pay for lobbying and public education efforts on behalf of the tribe's casino gaming operations. The Justice Department is now investigating these transactions. On Abramoff's advice, the tribe made two donations to the National Center for Public Policy Research, (NCPPR) a conservative think tank where Abramoff served on the board of directors. The president of NCPPR, Amy Ridenour, said she believed the funds were for an education campaign on the benefits the tribe received from its casino operations. The first donation of $1 million, made in October 2002, was re-granted on Abramoff's instructions to:

• $450,000 to the Capital Athletic Foundation (CAP), which is controlled by Abramoff, which re-granted funds to a school in Maryland that Abramoff founded, as well as a sniper school in Israel
• $500,000 to Capital Campaign Strategies, which was controlled by Scanlon
• $50,000 to Nuremberger and Associates, purportedly for project coordination, but apparently used to pay off a personal loan of Abramoff's.

In 2003 NCPPR received $1.5 million from the tribe for the project, and, again on Abramoff's instructions, re-granted $250,000 to CAP and paid $1.25 million to Kaygold, an operation Ridenour that believed Scanlon operated but was, in fact, owned by Abramoff. Ridenour told the committee she had expected to be involved in the educational campaign, but was not. Abramoff did not respond to her requests for documentation of project expenses. When she learned he controlled Kaygold, Ridenour determined Abramoff had violated NCPPR's conflict of interest policy, and he resigned from the board. Another witness, David Grosh, testifying on the American International Center, a research organization founded by Scanlon, stated its only function was to divert money from Abramoff's clients to personal use. Abramoff and Scanlon did not testify before the committee as requested, invoking their Fifth Amendment protection against self-incrimination. Around the time NCPPR first received a grant from the Choctaw tribe, it was funding a much publicized trip to Scotland by DeLay. Congressional ethics rules make it illegal for registered lobbyists to pay for member travel, and the funding from NCPPR, with registered lobbyist Abramoff on its board, has come under scrutiny. USA Today, in a story entitled “Lobbyists showing Congress the world” recently reported on a number of groups with ties to lobbying firms that have funded expensive congressional travel. The story said, "The nonprofit groups don't have to disclose their donors; lobbyists, by forming these groups, can evade rules designed to limit their influence…" These abuses may cause serious problems for legitimate nonprofits engaged in public policy work. At the Indian Affairs Committee hearing, Ranking Member Byron Dorgan (D-ND) said these nonprofit issues are not within the committee's jurisdiction, and asked McCain to seek joint action with the Senate Finance Committee. The Finance Committee has written to Abramoff seeking information on CAF and NCPPR, among other groups, but there has been no announcement of further committee action. The Finance Committee letter asked Abramoff for an explanation on why donations should not be viewed as attempts to influence legislation and public policy. This is a troubling question, since it is perfectly legal for nonprofits to influence policy and lobby. The First Amendment ensure this nonprofit right to participate in the democratic process. Although individuals seeking to avoid disclosure and taxes could donate to a nonprofit, the intent of the donor should be irrelevant if the group spends the funds on legitimate program activities. If a group is a sham, the donor has illegally abused the nonprofit form. Dorgan also expressed concern about funds transferred from one group to another with little documentation or accountability. The example cited was the Choctaw donation to Americans for Tax Reform (ATR), a 501(c)(4) organization run by conservative Grover Norquist, that passed funds on to conservative activist Ralph Reed for anti-gambling campaigns. The donation to ATR was made at Abramoff's suggestion. The question in this case is whether the funds were spent for a legitimate purpose or used for personal benefit.