Madonna's Malawi Disaster

The star's much-lauded effort to help girls in the African nation of Malawi blew up. Is Kabbalah to blame?

Newsweek/April 3, 2011

One year ago, Madonna squatted in the rust-colored dirt of a sprawling empty lot outside Lilongwe, the capital of Malawi, one of the poorest countries in the world. With curious villagers and invited photographers crowding around, she laid the ceremonial first brick for a planned $15 million girls' academy, a noble mission in a nation where only 27 percent of girls attend secondary school. In a blog post on the website of her Raising Malawi foundation, she wrote that the brick, inscribed with the words "Dare to Dream," was "not just the bedrock to a school-it is a foundation for our shared future."

Last week it was announced that the future would not be built. Despite the fundraising success of Raising Malawi, which collected a reported $18 million in donations and spent $3.8 million on the planned academy, the girls' school has been abandoned and the Raising Malawi foundation has imploded.

From its inception in 2006, the pop superstar has been the face of Raising Malawi, generating headlines around the world by adopting two Malawian children, writing and producing a documentary about Malawian orphans, and hosting high-profile fundraisers, including a star-studded event in 2008 co-hosted by Gucci in a 42,000-square-foot transparent tent on the north lawn of United Nations headquarters. "I want credibility as a philanthropic organization," Madonna told the $2,500-a-plate crowd.

To understand what went wrong, one has to look at Madonna's partner in the foundation, a mysterious and controversial organization called the Kabbalah Centre International, which is now a focus of federal investigators. The center is a Jewish mystical organization that follows a set of esoteric teachings called Kabbalah, which adherents believe explains the relationship between humans and their creator and our true purpose in the universe. Madonna has said that she turned to Kabbalah in 1996 when she was pregnant, exhausted from Evita, and looking for an anchor. Since then she has reportedly donated at least $18 million of her personal fortune to the Kabbalah Centre.

The center was founded by Philip Berg, a Brooklyn-born New York Life insurance agent whose first wife happened to be the niece of a famous Kabbalist, Rabbi Yehuda Brandwein. Berg sired eight children with her, but soon after the rabbi's death in 1969 he left his wife for his former secretary, Karen. Two years later they launched their own idiosyncratic brand of Kabbalism, popularizing what had until then been teachings reserved for advanced Talmudic scholars. The Bergs eventually expanded to 77 centers and study groups around the world.

The Kabbalah Centre's impressive growth has been paralleled by the volume of its detractors, some of whom have labeled it "Jewish Scientology." Disaffected followers have accused Berg and his family of treating congregants like personal servants, housing them four to a bedroom, paying them a $35-a-month stipend, and advising them to apply for food stamps. One prominent critic, Rabbi Immanuel Schochet, has said, "They are distorting Kabbalah .?.?. taking some of our sacred books and reducing it to mumbo-jumbo, all kinds of hocus-pocus."

Berg, who is now 81 and referred to by insiders as "the Rav" (an honorific meaning teacher), is still very much the patriarch of the Kabbalah Centre, despite a stroke in 2004. But day-to-day operations are controlled by his wife, Karen, 68, and their two sons, Michael, 37, and Yehuda, 38, all of whom share the title of codirector.

It's unclear when Madonna, a famously savvy businesswoman, learned about the internal problems in her foundation or the degree to which she is aware of what appear to be a litany of questionable practices at the center. (Madonna declined to speak directly to NEWSWEEK for this article.)

Kabbalah means "receive" in Hebrew, and that's certainly what it has meant to the Bergs. Four of the five Berg families live in Beverly Hills mansions owned and remodeled by the center. Building permits alone on three of the Berg homes total $1.4 million. Karen and Philip's house, the third the center has provided for them in the past decade, boasts a $30,000 swimming pool. The center routinely pays the expenses accumulated on Karen's credit cards, which include a personal AmEx card with a $31,000 limit and, in the past few years, three Bank of America cards with a combined $81,000 limit. The center covers the Berg families' food, furniture, clothing, gas, nannies, tutors, gardeners, housekeepers, personal assistants, and more exotic indulgences such as luxury cars, first-class flights, and spas. The Bergs' lavish lifestyle, one executive says, is "100 percent subsidized."

Kabbalah Centre tax attorney Shane Hamilton contends that the Bergs include ordained rabbis who are "treated as ministers of the Gospel" and are thus entitled to "a parsonage as part of their compensation." Hamilton says some household services are provided by chevre, center members who take a vow of service and are supplied with basic necessities in exchange for 12-hour days of labor. Hamilton will not "confirm or deny the taxability of any of the specific services" and also declines to say whether the chevre, or the Bergs, pay any income taxes.

The Bergs' lifestyle seems extraordinary, especially in light of the application the center filed with the IRS in 1998 seeking tax exemption as a church. To the question of whether "any funds or property of the organization" were to be used by any minister or officer "for his or her own personal needs and convenience," the center answered that members of the religious order (including the Bergs) "have taken a vow of poverty" and look to the center "for their meals, lodging and other subsistence." Paradoxically, while the center takes full advantage of tax laws benefiting religious organizations, its website states that "Kabbalah is not a religion."

Nelson Boord, the center's CFO until 2009, has written that its six nonprofit and three for-profit entities collectively earn annual revenues of $60 million, own a $200 million real-estate portfolio, and manage a $60 million investment fund. Where does all this money come from? Boord says the center warehouses a $10 million inventory of Berg-blessed items, including $72 candles, $63 astrology sets, and $12.99 Divine Sex CDs. For $24.95 you can also buy the Rav's book Immortality, which explores "the origins of death and the spiritual tools necessary for its final disappearance from the world."

A recently filed bankruptcy lawsuit has alleged that the Kabbalah Centre was a beneficiary of a $70 million Ponzi scheme perpetrated by Goldan, LLC, that ended with the criminal prosecution and conviction of Mark Goldman, a Goldan principal. Goldman was often seen at the Manhattan temple, introduced as an attorney by millionaire garment businessmen. His scheme defrauded and looted investors in a string of Long Island real-estate deals, leaving names off mortgage documents and funneling sales profits to others, such as the Kabbalah Centre, which came out $2.9 million ahead. Goldman pleaded guilty to the scheme and made recent proffers to cooperate with the government. A bankruptcy trustee has sued the Centre to recover the $2.9 million in funds that his complaint says were "wrongfully conveyed" to the Centre. The Centre's answer to the lawsuit is not yet due.

There have also been several civil suits filed recently alleging that the Kabbalah Centre had exploited the trust of wealthy followers in order to pillage their bank accounts. Two of these revolve around Don Nay, a two-time convicted felon. According to one complaint, filed in California superior court, Nay ran a study group affiliated with the Kabbalah Centre and also owned a local real-estate firm that granted the center a 10 percent equity position at no cost. A higher-up at the center allegedly advised a wealthy Kabbalist, Courtenay Geddes, to liquidate an $815,692 trust portfolio and invest it in Nay's company. The real-estate firm then failed to file a tax return, indicating it was a dissolved corporation and wiping out Geddes's investment.

Geddes filed a separate lawsuit in the same court alleging that after she came up with the idea of a Kabbalah home-schooling program, which Yehuda Berg expressed "excitement" about, she donated $495,075 to get it started, but no such program ever materialized. "The Kabbalah Centre and the Berg defendants have engaged in a historical practice of defrauding people and business out of great sums of monies." (The center didn't respond to NEWSWEEK's inquiries about these matters and has yet to file a response in these cases.)

Only one Kabbalah Centre entity, Spirituality for Kids, files disclosure forms with the IRS. Spirituality for Kids was Madonna's pet project before Raising Malawi, and she served as its chairman of the board. According to its filings, it had an offshore account in the Cayman Islands, a tax haven that seems an odd place for an entity that runs children's programs in L.A. to be banking. Spirituality for Kids has also raised at least $5 million for Malawi.

In 2005 the center was hit with a torrent of bad press about marketing such items as Kabbalah miracle water and a $35 set of Kabbalah shot glasses. Soon afterward, Michael Berg and Madonna cofounded Raising Malawi. Early the next year, Michael Berg flew to Malawi aboard a private jet provided by the Kabbalist wife of an L.A. billionaire. Joining them were Madonna's then-husband, Guy Ritchie, and actors James Van Der Beek and Heather McComb. Berg also imported a camera crew to Malawi, which shot the faces of malnourished children under a banner that read "Welcome Kabbalah."

The center told NEWSWEEK that its Malawi fundraising efforts had brought in $12.5 million in donations and it had spent $10.6 million to "fund Malawi activities" since 2006. These numbers cannot be verified, and the center's attorney declined to provide any specifics about how these millions were spent.

The Berg family and Madonna have recently hired top-level spin doctors to help them manage the Raising Malawi blowback. The Bergs brought in Mark Fabiani, a key player on the Clinton White House counsel's damage-control team during the Monica Lewinsky scandal who has since represented such celebrities in crisis as Lance Armstrong and Kobe Bryant. Simultaneously, Madonna hired Trevor Neilson, another Clinton White House veteran whose Global Philanthropy Group specializes in star donors who need a public-relations face-lift; he has represented Angelina Jolie, Ashton Kutcher, and Demi Moore. (Disclosure: NEWSWEEK's website, THE DAILY BEAST, briefly worked with the Global Philanthropy Group on a philanthropy-oriented website.)

Soon after NEWSWEEK raised questions about ties between Raising Malawi and the Kabbalah Centre in February, Neilson moved to separate the two, replacing the Raising Malawi board of directors with a new board consisting of Madonna, her manager Guy Oseary, and her accountant Richard Feldstein. But Neilson acknowledges that the center actually appointed this new board, as it had appointed the old one, and that Raising Malawi will remain a center subsidiary until "a final IRS determination letter" approving the new structure is issued. Raising Malawi, which had been headquartered in the Kabbalah Centre offices since its inception, finally moved out in mid-March; its two remaining staffers stayed to work for the center.

More recently, Fabiani and Neilson have successfully diverted attention from Madonna and the center by announcing that Neilson's group has completed a report pinning much of the blame on Raising Malawi academy director Anjimile Oponyo, the sister of Malawi's first female vice president. The report accused her of "outlandish expenditures," including a high salary, a car, housing, and a golf-club membership. Putting aside the fact that these items were included in her contract by Madonna aides, the actual expenditures seem trivial in the face of the $3.8 million lost on the school project. The golf membership cost a mere $461.27 a year and was offered as an aid to networking with government officials and potential donors. The car that was bought for her was a reconditioned 1996 Toyota. Her salary, $96,000, was actually a pay cut from previous positions she had held at the World Bank and the United Nations. Oponyo, who was interviewed by Madonna herself, agreed to move to the impoverished country with four of her six children. (If she had been posted in Malawi by the U.S. State Department, she would have received cost-of-living and hardship allowances, and educational and living-quarters benefits that would have added $150,000 to her salary.)

The second target of Neilson's report is Philippe Van Den Bossche, the executive director of Raising Malawi, who was forced out in October. Van Den Bossche is often depicted in news reports merely as the boyfriend of Madonna's ex-trainer. In fact, he started dating the trainer only after he assumed his Malawi position. He got the job through the center, where he was the development director before Madonna hired him to run her charitable activities. Most significantly, according to multiple sources, every dollar he spent was approved by the center. (Oponyo and Van Den Bossche are bound by strict confidentiality agreements that prevent them from defending themselves publicly.)

Amid the charges of malfeasance in the report, no one has pointed out that Madonna staged two elaborate ceremonies within six months of each other, a groundbreaking and the bricklaying event, that reportedly cost $106,250-$10,000 more than Oponyo's entire annual salary. Also unmentioned is the 2008 IRS filing that lists $1,042,623 in "unspecified operating and construction costs"-a sizable chunk of Raising Malawi's total expenditures that remains unexplained (and all made before Oponyo was hired). When asked about these costs, Neilson offered no response.

The more important fact seems to be that only $850,000 of the $3.8 million spent on the academy was paid out in Malawi. The lion's share, almost $3 million, was spent by the Kabbalah Centre's office in L.A. under the watch of the center's Michael Berg. "We have not seen anything that leads us to be concerned about how money was spent [by the center]," Neilson says flatly. (He refused to provide his Global Philanthropy Group report to NEWSWEEK.)

In fact, Raising Malawi and the Kabbalah Centre have always been inextricably intertwined-despite efforts by others to separate them. Two months before the U.N. extravaganza, Gucci, concerned that it would be contributing to a religious organization, executed an agreement barring Madonna's group from using proceeds to pay any entities "with the word Kabbalah in their names." The day before the gala, Kabbalah officials filed an application with the IRS to gain approval for Raising Malawi to operate as a public charity in its own name. However, the submission, which was approved three months later, made Madonna's group a subsidiary "operated, supervised, and controlled" by the Kabbalah Centre. Nonetheless, Madonna assured New York magazine several months later that Raising Malawi was "a separate entity" from Kabbalah. Gucci wound up transferring nearly $3 million to the foundation.

Neilson concedes that the center kept its Malawi account open, receiving and spending money after Raising Malawi registered separately with the IRS. A Neilson aide says the center "took in more revenue than was spent" on Malawi projects in 2006 and 2007 and that "those ‘profits' remained" on its books, designated for Malawi use. Neilson won't say how much in profit the center kept for the past five years but says it is being used to settle the debt Raising Malawi owes the center.

The explanation prompts more questions than it answers. If the center was holding millions in Raising Malawi funding since 2006, why didn't it transfer the funds when Raising Malawi ran deficits in 2009 and 2010? And what about 2008, when the foundation had its best fundraising year, finishing with a half-million-dollar surplus, yet the center listed a $1.8 million liability from Raising Malawi on its IRS filings? How could there be a liability if it was the center that in fact owed Raising Malawi the millions it had collected over the prior two years?

When NEWSWEEK asked the center's tax attorney Shane Hamilton how the Kabbalah Centre and Raising Malawi divided the money that was raised for Malawi, he replied: "I don't know if they have a structure." This fluid "intercompany debt," as one Neilson aide described it, reinforces the charges made by critics that the center used Malawi as a fundraising tool, and that there is no way to independently determine what was really done in the name of its orphans. Neilson will now say only that it was unfortunate that Raising Malawi was "linked to any religious organization" from the beginning because it limited the foundation's "ability to generate broad public support."

Neilson has offered at least two other explanations for why the Raising Malawi school was not built: that there weren't enough girls living near the school to attend it (despite the fact that the academy was planned as an elite boarding school for girls from every district in the country) and that the Malawian government never executed a title transfer for the site. However, NEWSWEEK has obtained a Jan. 4 lease signed by the land registrar in Malawi stating that the Raising Malawi academy "is now registered as the proprietor of the leasehold interest" in that property. Morgan Tembo, a member of the local advisory board for the school, met Neilson during his visit to Malawi and says, "If Trevor is saying that the lease or title is one of the reasons construction stopped, it's not true."

What is true is that there are indications the center had made the decision to pull the plug on the school long before it was announced: the last check was sent to Malawi in July of last year, just three months after the bricklaying ceremony, and it was for a mere $8,659. There was no apparent plan to cover the costs of operating the school.

"My original vision is now on a much bigger scale," Madonna said in a statement after the school's collapse. "I want to reach thousands, not hundreds, of girls. I want to do more and I want to do it better."

Neilson says Raising Malawi will now focus on financing "proven interventions." If Madonna is willing to throw her money and prodigious fundraising talents behind the effective programs that already exist, that would be the best news possible for Malawi. UNICEF's Schools for Africa program, for example, has renovated or built 1,000 schools and trained 100,000 teachers since 2004.

Valerie Bogard, Bryan Finlayson, Christine Pelisek, and Barry Shifrin contributed reporting to this article.

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