Due Diligence and Major Donors

Published by Chris Carnie on

The Colonel and the College

On 23rd June 2009 the governing Council of the London School of Economics (LSE)  agreed to accept a gift from a group of companies in Libya channelled via the Gaddafi International Charity and Development Foundation, controlled by Saif Gaddafi, son of Colonel Gaddafi the country’s ruler. In July 2009 LSE awarded Saif a PhD in philosophy. This story emerged in the media only after the uprising against the Gaddafi regime began in February 2011.

LSE was attacked in the UK press for having accepted the gift and the controversy grew so severe that by March 2011 the Director of the LSE resigned. The LSE Council later funded an independent enquiry led by Lord Woolf.

As Lord Woolf’s report makes clear, when the gift was being considered Libya was being seen as a potential friend by the West. The UN Arms Embargo had been lifted in 2003 and Libya was dropped from the list of “countries that sponsor terrorism” in 2007. The Colonel had met Tony Blair in 2007. By 2009, Libya was seen as progressing steadily in the right direction.

But just two years later the Colonel had become a reputational risk. The School’s reputation had been damaged, and the Director’s neck was on the block.

This story illustrates many of the issues in due diligence and major donors:


It shows how fast reputations can change. Your celebrity donor today can tomorrow be vilified because he has been caught, literally, with his pants down. Due diligence today is useful, but it is only of any value if it is a continuous process.


It is hard to measure reputational risk where there is complexity. This gift was supposed to come from a consortium of companies, in a country in which little or no corporate transparency exists, channelled via a foundation led by the son of a dictator. Complexity makes due diligence difficult. But major donors lead complex lives and may make gifts via complex structures.


What was LSE supposed to be measuring? The Colonel’s reputation with the politicians? His son’s reputation? The ways in which his wealth had been accumulated? Clarity in understanding what we are attempting to measure is a key part of due diligence work.


Due diligence means “doing a thorough job of checking someone or something.” In fundraising, the someone or something is normally a potential donor – a “prospect.” The due diligence is the thorough check of the prospect’s background and situation.


1. Is he who he says he is?

At Factary we were asked this recently. A man who said he was a Vicomte had been in contact with the nonprofit about a large gift, possibly into the millions. The nonprofit’s in-house researcher was suspicious and asked us to carry out a due diligence check.

We demonstrated that he was definitely not a Vicomte, not French, and that lived in a very small house in Peckham, one of the less-wealthy parts of London. There were hints that he had done this kind of thing before, although no public reports of convictions. We told the non-profit, who stepped away from the relationship.

Proving that a person is the person that they claim to be is an essential part of due diligence.

2. Is there money, really?

If you were a business and about to take on a new customer, you would want to be sure she could pay. “Does she have the money?” is a key question in due diligence.

3. The Source of the Money

The origins of the funds are researchable… in some cases. There are geographic limitations (try to identify the source of wealth of Russian oligarchs) and historic limitations (how far back do you want to go? One respectable UK philanthropic trust has an endowment that, more than three centuries ago, was partly built on the Triangular Trade of goods, slaves and sugar.)

4. Criminal convictions

Due diligence research can reveal criminal convictions where these are recorded in the public domain. But some of this is of limited value. In Spain, for example, a common search will list the overdue parking fines of Spanish citizens – hardly the basis for “reputational risk.”

5. Reputation

This is the slippery, difficult-to-define word of the due diligence researcher. We can research reputation in the press and media, we can research the circle of contacts that a prospect moves amongst, and we can ask people-who-know-people for their opinions.

The focus of reputation should be trustworthiness – the perception in the public mind that your organisation can be trusted. Your objective is to maintain and enhance your organisation’s trustworthiness. So reputational risk means; “If we link up with this donor, could this damage the public perception that we can be trusted?”


We can’t check on money held in banks. We mostly can’t check wealth held through private trusts, or wealth held in certain jurisdictions (try the Netherlands Antilles, for example…) We can’t tell whether someone’s secret sexual activities will, tomorrow, be the subject of long-lens photo-“journalism” in the yellow press.


Data protection

  • You are not allowed to store defamatory material on people. So how are you going to record the reputational risk-related rumour that he was a diamond smuggler in his youth?
  • Nor can you store information on sexuality, health or religion. Any of these could, in some organisations, imply a reputational risk

Researcher ethics

  • Ethical guidelines for prospect research mean that I am not willing to use private detectives or false “survey calls” to source information on philanthropic prospects. The first is too intrusive and the second is, simply, lying.


  • We don’t do due diligence on our normal consumer donors, so why do it with strategic or “major” donors?
  • If the Secretary General says we should accept the money, what do we do? Do we stick to our agreed due-diligence procedure? Or does the SG’s political power mean that we take the money despite our concerns?
  • In many organisations the rule is that due diligence is only carried out on donations from companies. Not on donations from individuals. Why?

Let’s talk more, when we meet at IFC 2012!


This year 101fundraising is the official blog partner of the International Fundraising Congress (IFC), the world’s leading conference on fundraising. This blog post is part of a special IFC Blog Series, where we give IFC speakers a chance to share their wisdom before the conference. Attending crowdbloggers will get a chance to share their views after the conference!

Participating IFC speakers are Bernard Ross, Derek Humphries, Chris Carnie, David Cravinho, Maia Kahlke-Mikkelsen and Lucy Gower!

Chris Carnie

Chris Carnie

Chris Carnie is founder of Factary, www.factary.com. He is a researcher and consultant in high-value philanthropy – major donors and foundations. Chris lives in Catalonia and works across Europe with NGOs, universities, cultural organisations, foundations and philanthropists. He teaches the Postgraduate Certificate in Fundraising at the University of Barcelona and is the author of various books.

1 Comment

Gerbren Deves · October 4, 2012 at 17:58

Hey Chris, great post, thanks! You are so right. And your last issue, about why many organizations only carry out due dilligence on companies, leaves me with the idea to write a blog about this. So thanks also for the inspiration. And good to see that you have joined the ‘blogger team’!
Will see you at the IFC, take care, Gerbren

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