Reasons for the Liquidation

of the Foundation “Institute for Democracy in Eastern Europe” in Poland

A decision to liquidate the Foundation “Institute for Democracy in Eastern Europe” (IDEE) in Poland was made on November 14, 2002.

The direct reason for the liquidation of the Foundation was its large debt, which seriously exceeded its assets. The debt was caused by the irresponsible actions and policies of the Management Board of the Foundation that acted until October 16, comprised of Malgorzata Naimska and Urszula Doroszewska. However, a functional audit of the Foundation carried out by the interim Director appointed by the President, Irena Lasota, the liquidator, and the lawyer’s office hired by the President revealed other reasons why the Foundation IDEE could not be allowed to continue.

Betrayal of the Foundation’s Goals

The objective of the Foundation in Warsaw, which was established in 1992 as a non-government and non-profit organization, was to support democratic transformations in Poland and former communist countries. Its founder, the Washington-based Institute for Democracy in Eastern Europe (IDEE), was established in 1985 during the martial law period and actively supported the democratic opposition in Poland and other countries of Central and Eastern Europe. During its activities, it became one of the leading institutions supporting democratic transformations in this region of the world. After Poland gained its independence, IDEE naturally continued its activity in the region and in time was extending its scope of activities to neighboring countries in the East. It seemed natural also for it establish a centre for conducting its activities in the communism-free Warsaw.

Although IDEE was the founder of the Foundation in Poland, the president, Irena Lasota, did not discourage the Foundation from establishing itself as a Polish Foundation with a more representative board. She only insisted that for it to keep the IDEE name it had to maintain the basic principles guiding IDEE’s work. One of the most important principles was that IDEE always operated as a non-government organization so that its activities would always be independent of a temporary government policy that might not always support the democratic aspirations of its society or its neighbors.

The process of “re-registering” the Foundation IDEE was a long-delayed one, but the reasons for the delay were completely unknown to IDEE or the Foundation’s president. When, finally, amendments to the statutes and a new Board were presented in late October 2001, included in the “new” Foundation’s statement of purpose was a clause stating that Foundation activities should “support Poland’s foreign policy.” Earlier, Malgorzata Naimska had become an adviser to the Foreign Affairs Minister, thus placing the activities of the Foundation in line with official government policy and imposing on the Foundation a clear conflict of interest. The threat to the Foundation’s independence became clear in the “new” Foundation’s statement of purpose.

It is due to their independence that non-government organisations all over the world are able to impose public controls on government actions. These controls are central to democracy — placing limits on state power. But there is no control when the individuals in organisations simultaneously are remunerated from government and from an NGO, in this case the Foundation, and when the organisation makes it a statutory part of its mission to support the foreign policy of the government.

Violations of the Non-Profit Principle

The audit showed that the Foundation was involved in many commercial projects not related to its statutory activities.

The Foundation, supposedly disseminating the principles of democracy in public life, was in fact a business organizing professional conferences through a group of for-profit companies set up under individual staff and board member names.

As a result of the investigation of its activities and finances, it became clear that the Foundation had become a place for employing persons and paying consultants, including the Management Board’s family members, many of whom were unrelated to the performance of its mission or tasks. Employment in the Foundation was a sinecure for acquaintances paid for from grants originally meant to assist people and organisations in poorer countries or, as part of one project, to help Poland’s under-financed libraries. The remuneration of the Foundation’s ten employees alone exceeded 50 percent of a grant received from the Ministry of Culture, whose budget was supposed to fulfill statutory goals. The Founder, IDEE, could not tolerate a situation where its own prestige and reputation were being tarnished as a result of the practices of the Foundation linked to it.

Mismanagement and Waste of Public Funding

The Management Board of the Foundation continuously spent money from grants it received on purposes either conflicting with or preventing the fulfillment of the grants’ original purposes.

An especially drastic example is the waste of tens of thousands of zlotys from a grant obtained to help out provincial libraries in Poland, but which were used instead to cover personal expenses — all before anything at all reached the libraries. In fact, the grant provided by the Ministry of Culture was later withdrawn for this reason and the project was in a major part unaccomplished. Employees and friends of the Foundation were the main beneficiaries. Malgorzata Naimska’s daughter received PLN 5,000, the exact amount of the maximum grant given to Poland’s leading library.

In order to cover the Foundation’s and their own salaries, fees, and expenses, the Management Board took out a bank loan and then repaid the loan’s high interest from funding assigned for projects and scholarships, including funding designated for Crimean Tatar students to attend university in Poland.

When liquidating the Foundation, the Management Board’s liabilities — the Foundation’s total debts — included such items as fees for a room rental for a meeting at the Warsaw University Library, airplane tickets, printing a bulletin – that is, obligations for grants provided earlier to the Foundation. The grant funds went instead used to cover debts for money that had been transferred earlier and misspent on high salaries and office maintenance. The practice of stealing from Peter to pay Paul was so extreme that $515 given in cash by IDEE’s Eric Chenoweth directly to Malgorzata Naimska to pay for a plane ticket purchased for him through a travel agency by the Foundation was never given to the travel agency. It remains one of the Foundation’s obligations.

The only chance for survival of the Management Board was hiding the Foundation’s indebtedness and paying back old high-interest debts with new grants, thus making its debt even bigger. But it is obvious that no new grants could rescue the Foundation from this financial situation, since grant providers award money only for new projects, not for repayment of old debts. The house of mirrors would some day crash.

For quite some time, the Management Board was in fact preparing to withdraw from the Foundation and to join, or start, another foundation. This switch was going to be facilitated by a hidden donation of computer equipment and office furnishings to another related association. The Warsaw-based Foundation IDEE was to remain like an egg being sucked out from the inside. It would be left with bank and other debts as well as serious liabilities from uncompleted grants, ranging from the tuition to Crimean Tatar students, money which was taken from a RITA/Polish American Freedom Foundation grant, or the $2,000 in postage needed for the unsent-out Russian-language Centers for Pluralism Newsletters, money simply taken from the Mott Foundation grant.

The liabilities from unaccomplished grants amount to a serious debt exceeding $50,000.

Illegal and Unauthorized Activities

While auditing the Management Board, some actions were found to be either in violation of the law or very close to it, namely:

            •  Generation of false statements and submission of false financial statements to hide the real reasons for cash shortages.

            • Paying royalties to non-employed persons in order to escape taxation.

            • Providing false reports to grant providers claiming that money was being spent according to the original grant purposes (RITA, UKIE).

            • Transferring assets to other organisations without authorisation;

            • Establishing a system of “incentives”, that is, providing additional benefits to representatives of the Foundation based on fundraising. This system was employed by the Foundation to provide significant additional remuneration for the members of the Management Board for their “consulting” work.

As well, PLN 11,000 worth of remuneration was provided to the President of the Foundation of Education for Democracy - a grant giving organisation. He, in turn, provided the Foundation increased funds for a grant and paid all funds in advance so that Foundation IDEE could use them to finance debts and pay for unbudgeted operating expenses — all without any justification or report as to the progress of the project’s activities.

            • A refusal to submit financial and substantial statements to the president or the statutory auditing bodies of the Foundation,

            • Presenting false statements to the president and statutory auditing bodies of the Foundation.

            • Paying the Board president a full salary for grant activity, while in reality she was not even working most of the time for the Foundation.

Violation of Loyalty and Confidence

The Founder and President of the Foundation, Irena Lasota, let the Management Board carry out activities mostly on its own for many years. The conflict started in the autumn of 2001 when Irena Lasota refused to agree to a mission statement for the Foundation subordinating it to Poland’s foreign policy. At the same time, she was provided a clearly incomplete financial report and demanded, in fulfillment of her responsibilities as president of the organisation under its articles of association, that full financial and narrative reports on activities performed by the Foundation should be presented to her. In response to her demand and after repeated requests over a substantial period of time, she received only incomplete statements. Following continued resistance to providing full information and because there was no willingness to improve the situation, she then recalled the existing Management Board.

In addition to withholding basic information from the President in violation of all the association’s by-laws and statutes, the Management Board in the meantime also had been applying to international foundations and non-government organisations for grants without informing the President or IDEE, and in fact was requesting funds for activities being performed by its parent organisation.

Ms. Lasota, upon recalling the Management Board of Malgorzata Naimska and Urszula Doroszewska, appointed the well-respected civic and human rights activist, Irena Zofia Romaszewska, as interim Director of the Managing Board to oversee a thorough investigation into the Foundation’s activities and finances. Offices and records were secured and a detailed internal audit carried out that revealed the situation that was described above.

The Founder for a long time sought some consensus with the previous Management Board of the Warsaw-based Foundation with the aim of making some arrangements to pay back the Foundation’s liabilities and covering its debts. This proved impossible, however, because the previous Management Board demanded the transfer of all of the Foundation’s assets to its newly established foundation (Democracy Association East) as well as a pledge of silence in exchange for only a partial transfer of the Foundation’s assets. The pledge of silence which was requested meant that the facts and circumstances relating to the present standing of the Foundation not be revealed to the public. This was unacceptable to the President.

A campaign of false accusations was organized against IDEE aimed at foreign foundations and non-government organisations, having a negative impact on IDEE projects it has been implementing both with and without the participation of the Warsaw-based Foundation. Prominent in this campaign of vilification have been persons who benefitted from activities of the Foundation in a clear conflict of interest as well as in conflict with the Foundation’s mission.  Among others, these include the President of the Foundation of Education for Democracy and the Chief Executive Officer of the Association for Local Press, who was offered computer equipment for free.

In a situation of such mismanagement, deceit, disloyalty, and malfeasance against the mission and statutes of the Foundation, the President and the Founder had no other choice than to liquidate the Foundation, hoping that quickly cutting through the ulcer and revealing the true picture of the situation would have the least negative impact on those issues for which the Foundation had been established – the promotion of democracy in Eastern European societies.

Irena Lasota