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Red Cross scandals tarnish relief efforts

'Scarborough Country' looks at the way Americans' donations were handled
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Charity ripoffs are the latest scandal affecting the country and it’s a problem that doesn’t seem to be stopping.  For victims of Hurricane Katrina alone, Americans gave $1.85 billion in aid, gave over half-a-million dollars to our charity in Mississippi.  And after the tsunami struck Southeast Asia, our government pledged nearly $900 million dollars, more than any other nation, and donations from Americans reached $1.5 billion. 

Now, more people are learning of scams and the ripoffs that are preventing the money that Americans donated from going to the victims who so desperately need it.  They still need it.  This week, 49 people in California busted for stealing hundreds of thousands of dollars from a Red Cross fund designated for Hurricane Katrina victims, and tonight, more arrests expected in this growing scandal. 

McGregor Scott, U.S. attorney for the Eastern District of California, who is prosecuting this case, Richard Walden, President and CEO of Operation USA and Stephen Hayes from “The Weekly Standard,” joined Scarborough on Wednesday.  The four discussed the scandal and what should be done about it.

To read an excerpt from their conversation, continue to the text below. To watch the video, click on the "Launch" button to the right.

JOE SCARBOROUGH, HOST, ‘SCARBOROUGH COUNTRY’:  Forty-nine people indicted in this scam.  Tell us what the scam involved and what you found out. 

MCGREGOR SCOTT, U.S. ATTORNEY:  Well, what happened is, shortly after Katrina hit, the Red Cross established a national call center in Bakersfield, California, in the southern part of my district, in which they set up a call center, so that legitimate victims of Hurricane Katrina could call in, provide some identifying information to validate that they were in fact legitimate victims, and the Red Cross would then set up a process where they would issue a pin number to that victim, and then the victim would go down to the local Western Union station, where they would provide the pin number. 

And then the Red Cross would wire the money directly to the person at the Western Union.  That's how the process was supposed to work.  What happened here is that the call center was actually operated for the Red Cross by a private company.  And the employees at the call center quickly figured out that there was a way to get around this and take advantage of the situation. 

What they did is call some of their buddies, some of their relatives, and provide those pin numbers.  Persons who had no contact whatsoever with Katrina or the Gulf Coast, got those pin numbers, went down to the local Western Union, and then were able to get the money that they had no right to.  Thus, the fraud. 

SCARBOROUGH:  And, McGregor, this is growing, isn't it? 

SCOTT:  It is. 

In fact, we have, as you have mentioned, to date indicted 49 individuals, and we expect in the coming weeks that we are going to indict several more, and perhaps could even double the number of indictments that we have as we speak today. 

SCARBOROUGH:  Now, the big question tonight is, how did this happen?  Do you think it may be because the Red Cross outsourced these call centers through an organization that just didn't have the safeguards in place to protect donors' money? 

SCOTT:  Well, that's clearly an issue, and I think the Red Cross would tell you that, that in the future, they are going to have to look more closely at who they engage to operate these kinds of centers for them. 

I think the fact of the matter, though, is the Red Cross was in a very difficult position.  They were trying to allocate over $1 billion in aid to a whole lot of people who needed it desperately right now.  And so there was a lot of pressure on the Red Cross to get that money out the door as quickly and as expeditiously as they could. 

They did make good-faith efforts to establish safety protocols to ensure that fraud would not take place.  Obviously, unfortunately as we know now, those safeguards were not sufficient, and in talking with Red Cross officials, I feel very confident that as we go forward from here, in similar circumstances, they are going to be far more circumspect in the safeguards that they do establish. 

SCARBOROUGH:  [Now let me turn to Richard,] so how has the Red Cross handled the money that Americans gave them to help victims of Hurricane Katrina? 

Let me tell you what my problem is with the Red Cross, other than dealing with them unfortunately in Mississippi, and seeing that all their people on the ground are so arrogant, and they hate other charities getting involved and actually helping people when they are sitting over in the corner.  We will talk about that in a little bit. 

But it seems to me, the Red Cross never outsources raising money.  These people are thieves when it comes to raising money.  They get on TV immediately.  They scoop up hundreds of millions of dollars.  They don't outsource that part of the operation, but when it comes to actually giving the money away, helping people, that's when they start outsourcing.  Am I being too tough on the Red Cross? 

RICHARD WALDEN, PRESIDENT & CEO, OPERATION USA:  No.  You just took my opening line away from me. 

The fund-raising is completely over the top, given the fact that Red Cross policy is they don't share the money with community foundations and community nonprofits.  If you could, why would it go to Bakersfield?  Why wouldn't Red Cross money have been given to community foundations who have existing relationships with thousands of nonprofits in their communities and let those groups who know their community better than the national Red Cross does help their own neighbors? 

I just think the funds came in very quickly.  Everybody and their mother was giving money to the Red Cross.  Media were giving money to the Red Cross and raising it. 

SCARBOROUGH:  That's what I want to ask you, because all we are doing here tonight is we are trying to protect people's money, and the second a natural disaster hits, rock stars, movie stars, media types, immediately get in line and say, give money to the Red Cross.

And I am telling you, Richard, I have been on the ground.  I have been in Mississippi for over a month, handing out aid.  People on the ground felt abandoned by the Red Cross.  Why is it that the Red Cross is placed on this pedestal, and we are all told, blindly give your money to the Red Cross; they are going to take care of people who are hurting? 

WALDEN:  Well, that's what your colleagues in Congress on the Homeland Security Committee are in the process of learning about, because they issued a scathing report on December 14 asking to take another look at the congressional charter of the Red Cross, and to see if maybe the functions that we expect of them are way beyond anyone's realistic means of doing, and that there are huge charities like Catholic Relief, World Vision, CARE, that deal with mass disasters as well. 

I thought in the smaller disaster, in terms of money of the tsunami, where they collected $568 million, the American Red Cross.  They've still got $401 million of that sitting in a bank in Washington a year later. 


WALDEN:  They were supposed to have given that to the Red Cross chapters in 11 countries, as well as the International Red Cross. 

SCARBOROUGH:  Richard, that all goes back to the fact that these people are great at raising money. 

WALDEN:  Yes. 

SCARBOROUGH:  In fact, they raise money better than anybody in the world. 

WALDEN:  Right. 

SCARBOROUGH:  The question is, do they deliver it even moderately well?

Final question, Richard.  I want to ask you again, you know about charities.  You have been through so many of these disasters. 

WALDEN:  Yes. 

SCARBOROUGH:  If anybody at the Red Cross is angry at what I am saying right now, please, take this as constructive criticism. 

WALDEN:  They are angry at me, too. 

SCARBOROUGH:  My question is, Richard, this.

WALDEN:  Yes. 

SCARBOROUGH:  Why are they so arrogant?  Why are the people on the ground so offended when Christian ministries, when other relief organizations come in and just want to help people who are hurting? 

WALDEN:  Because they are a quasi-governmental organization, not a charity in the classic sense. 

And we have to start redefining how we deal with them, and handle them.  Because they are not the Salvation Army.  And they are not CARE, and they are not Operation USA.  They are a different animal, and they have a first-responder responsibility that none of us have, but, at the same time, their fund-raising side hasn't been informed about that.  And the money comes pouring in. 

SCARBOROUGH:  Now, today, the Red Cross responded to the fraud allegations and said this “The American Red Cross doesn't tolerate fraud.  Instances of fraud represent a small percentage of the overall contributions that have been made to the American Red Cross.  And we are confident in our ability, working with law enforcement officers at the local and state and federal levels, to identify, investigate, prosecute any and all fraud and fraudulent acts.”

And we certainly salute them for that and we believe they will do it. 

Now let's turn to the serious questions that are being raised tonight about how the United Nations is spending the money donated to victims of tsunami that killed 220,000 people last year.  You are not going to believe this.  The world pledged more than $13 billion to help those survive, but “The Financial Times” newspaper says that up to a third of the $590 million so far spent under the United Nations $1.1 billion disaster bill have gone to administrative costs. 

Friends, that's a little confusing.  Let me break it down to you, $1.1 billion given by countries to the U.N. for immediate relief.  The U.N.  actually spent $590 million one year later, and up to a third of the money, up to a third of the money blown, blown on overhead costs.  Some are saying, almost 50 percent didn't go to help any victims. 

I can't help but think back in the days following the tsunami, this horrible tsunami, the United Nations, the world community, bashing George Bush and the United States government for not giving quickly to this flash fund, this fund that we find out later may have ended up going—at least 50 percent of it going to the United Nations in overhead.  What is going on here?

Stephen, why isn't this money going to the poor people who need it most? 

STEPHEN HAYES, “THE WEEKLY STANDARD”:  Well, Joe, those numbers are pretty staggering.  Any time you are talking about a third, up to either staff salaries or other administrative costs, you have got to ask yourself, what kind of an organization would permit that kind of misspending?

But I think there's also a second scandal here, sort of wrapped in the first.  And it's the U.N. at the time of the tsunami and in the months following the tsunami pledged to be totally transparent about how exactly it was going to be spending this vast amount of money.  And up to this point, it appears, certainly from “The Financial Times” reporting, that they haven't been transparent at all. 

In fact, they are doing everything they can to prevent disclosure of how this money is being spent.  I think we could learn a lot more if we could see exactly what these dollars were going to. 

SCARBOROUGH:  So should there be a congressional investigation? 

HAYES:  Well, look, a lot of this money is American money.  It comes from the American taxpayers.  Certainly, we have contributed on our own.  We have contributed through the U.N.  I think Congress would actually be negligent if they didn't look into this. 

Maybe it doesn't require a full-blown investigation.  Part of the problem, frankly, is that we don't know exactly what the scandal is, or the extent of the scandal, because we haven't seen any kind of serious transparency from the United Nations. 

SCARBOROUGH:  No transparency now, no transparency in the past, and certainly probably none in the future, unless we do something about it.