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  • Writer's pictureThe San Juan Daily Star

Report says Act 20/22 charities are not what they appear to be

Natalie Anaya Luna on May Day at the University of Puerto Rico in San Juan, May 1, 2023. Anaya Luna said she had seen several friends and neighbors evicted or pushed out of their homes by rising rents, prompted by a surge in foreign investors buying property in Puerto Rico to flip for profit or to use for short-term rentals. (Erika P. Rodríguez/The New York Times)

By The Star Staff

Several charities founded by Act 20/22 (now Act 60) tax beneficiaries appear to have been created to maintain their tax status instead of truly helping the needy, a probe by the Center for Popular Democracy (CPD) has concluded.

The CPD, which opposes the tax exemptions the government of Puerto Rico is providing to wealthy investors, noted that since the 2012 laws were enacted, cryptocurrency billionaires, Wall Street executives and wealthy developers have flocked to Puerto Rico and have hoarded properties and speculated in the real-estate market, leading to soaring housing costs.

Act 20, the Export Services Act, and Act 22, the Individual Investors Act, are now part of Act 60. The laws grant tax incentives for making investments in Puerto Rico. The tax benefits include a tax rate of 4% for eligible export services, a 100% tax exemption on dividends from earnings and profits, and a 60% tax exemption on local municipal taxes, all with a 20-year decree guaranteeing those rates.

The organization explored how some law beneficiaries have adopted “questionable charitable giving practices to maintain their Puerto Rico tax breaks.”

Act 22 beneficiaries must donate $10,000 to local charities yearly to retain their tax exemption. The investigation revealed that people taking advantage of these tax breaks appear to be creating loopholes and founding their own tax-exempt charities to meet the charitable giving requirement on paper.

For instance, the Rain & Rose Fund, which was founded by Act 22 beneficiary Michael Basile, who is a managing partner at Summit Investment Group, hosts lavish parties, including an annual golf event at the Ritz Carlton Dorado Beach, for wealthy investors to attend.

The group’s “Ambassadors” list includes at least 10 confirmed Act 22 beneficiaries. According to the Rain & Rose Fund, “the goal is that 100 percent of donations go directly to fighting poverty,” the report notes. Instead, the organization donated a small portion of the money to charities.

According to the report, “a deep dive into the group’s financial statements and tax filings shows a different picture. In 2021, the group’s annual Ritz Carlton golf tournament cost $289,536. While the organization received $795,907 in contributions in 2021, it only donated $47,154 to Puerto Rican charities per financial statements. That means only 6% of its revenues went to local charities that year.”

As of press time the organization had not answered a STAR request for comment.

Wall Street asset manager Fahad Ghaffar has been an Act 22 beneficiary since 2014. He started the Fahad & Glenda Ghaffar Foundation in 2017, “which allows him to support causes that he believes will have the most significant impact.”

The foundation claims it has donated over $10 million to date. However, recent allegations of misconduct have come to light. In 2023, Ghaffar was sued by his former boss, billionaire John Paulson, for allegedly fraudulently charging Paulson for private jets, luxury shopping and nightclubs. The two men had worked together to acquire Puerto Rican hotels such as the St. Regis Bahia Beach and the Condado Vanderbilt Hotel.

According to Paulson’s lawsuit, “Ghaffar’s charity, the F&G Family Foundation, was also a scam,” the report says.

“The foundation was never legally established and instead served as a funnel for Ghaffar’s personal expenses, including a $360,732 down payment on a friend’s apartment and $100,000 to his father-in-law for purchasing homes,” according to the report. “The foundation does not appear on Hacienda’s [the island Treasury Department’s} website of registered charities in Puerto Rico, or on the IRS list of 501c3 organizations registered in Puerto Rico.”

The report also discusses the Karma Honey Project, a nonprofit actively seeking Act 22 beneficiary donations. In 2022, a volunteer for the Karma Honey Project, Conor Vincent D’Monte, who lived under the alias Johnny Williams after relocating to Puerto Rico, was arrested by U.S. marshals just one week after visiting Gov. Pedro Pierluisi Urrutia’s residence on behalf of the nonprofit. He faced extradition from Puerto Rico on murder charges in Canada. The Karma Honey Project’s founder, Candice Galek, a former model and founder of Bikini Luxe, said Williams was no longer associated with the group.

The Miami Herald reported that the Karma Honey Project, whose stated mission was to protect bees on the island, “encouraged people on its website to take advantage of Act 22 and donate, either with lump sums or monthly installment payments of $500.” The Karma Honey Project faced scrutiny by the island Treasury Department but ultimately maintained its tax-exempt status.

The investigation also profiled the Act 20/22 Society, another group started by an Act 22 beneficiary that qualifies for the $10,000 charitable giving requirement. The group’s mission is helping Act 22 beneficiaries understand “the requirements and clarifying misinformation [to] help prevent undue and unwelcome scrutiny.”

“They claim to provide a unified voice to Act 22 beneficiaries as an effort to preserve the benefits granted. In practice, the Act 20/22 Society functions more like a powerful trade association or lobbying group than a non-profit,” the report said. “The group uses advocacy, litigation, and media appearances to pressure local elected officials to maintain their tax status and advance their financial interests. With the Act 20/22 Society, tax-exempt beneficiaries are effectively allowed to donate to a group designed to bring together fellow wealthy individuals and still satisfy their requirement to donate to a local charity.”

The Act 20/22 Society had not answered requests for comment as of press time.

The report also notes that in the wake of Hurricane Fiona in 2022, a crypto-fundraising Twitter account called Puerto Rico DAO was created, claiming to raise money for Puerto Rican charities. Wealthy crypto investors were sharing information on the group widely. Puerto Rico DAO “claimed that it would send money to three local organizations, including the Foundation for Puerto Rico and the Puerto Rico Community Foundation,” but those organizations reported receiving no funds, sparking public outcry. Libni Sanjurjo at the Puerto Rico Community Foundation said: “We don’t know who they are or about this initiative they have.” Alexandra Lúgaro, the former executive director of the Center for Strategic Innovation of the Foundation for Puerto Rico, said the group had not received a “single cent or cryptocurrency from said organization,” the report said.

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