Bankruptcy: How The Catholic Church Shields Itself With Astronomic Amount Of Money

Dioceses are aggressively moving and reclassifying holdings to shrink the value of their bankruptcy estates.

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When the bishop of Davenport, Iowa, the diocese was told in the mid-1950s that one of his priests was sexually abusing boys at a local YMCA, he kept it secret. “It is consoling to know that no general notoriety has arisen, and I pray none may result,” he wrote to a priest, capturing the strategy of the era.

Cover-ups worked when victims and their families could be intimidated or shamed into silence. But in the 1980s and ’90s, victims started filing civil lawsuits against the dioceses where the alleged incidents took place. Church leaders across the country kept these suits quiet by settling out of court and demanding nondisclosure agreements in return. Church leaders paid out about $750 million from the early ’80s through 2002, according to BishopAccountability.org, a nonprofit that tracks clergy sex abuse.

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The veil of secrecy on these transactions was pierced when the Boston Globe published its investigations into church sex abuse in 2002, sparking public outrage at how clergy had protected their own. From 1950 to 2002, 4,392 priests were accused of abuse, according to a study by John Jay College of Criminal Justice.

Another benefit is secrecy. Lawsuits and trials lead to testimony and publicity. Bankruptcy ensures a quieter mass settlement that forces an end to existing lawsuits and blocks new ones. “It provides a clean slate,” says Robert Kugler, a lawyer who represented abuse victims in the St. Paul and Minneapolis archdiocese. Dioceses have gone this route more than 20 times since 2004, when the Archdiocese of Portland, Ore., declared itself insolvent.

More dioceses are filing for bankruptcy now that rules are changing about how much time a victim has to sue over abuse. Seven states and the District of Columbia passed laws in 2019 that suspend the statute of limitations on civil sex abuse suits, and at least three other states are considering them. Known as “window statutes,” they’ve become popular in the wake of the #MeToo movement and public outcry over abuse by men in power. Until recently, only a half-dozen states had them. Window statutes caused churches to declare bankruptcy in San Diego, Wilmington, Del., and cities throughout Minnesota.

After New York state’s law went into effect in August, almost 430 sex abuse victims immediately filed lawsuits, most of them against dioceses. The diocese of Rochester declared bankruptcy in September; bishops in Brooklyn and Buffalo announced that theirs may soon follow.

A statue at Our Lady of Guadalupe in Santa Fe
A statue at Our Lady of Guadalupe in Santa Fe

In many cases, churches precede bankruptcy by transferring and reclassifying assets. The effect is to shrink the pot of money available to clergy abuse victims. That and Chapter 11’s universal settle­ments and protections from further claims have been an effective one-two punch for limiting payouts. A Bloomberg Businessweek review of court filings by lawyers for churches and victims in the past 15 years shows that the U.S. Catholic Church has shielded more than $2 billion in assets from abuse victims in bankruptcies using these methods. “The survivors should have gotten that money, and they didn’t,” says Terry McKiernan, president of BishopAccountability.org. “The Catholic Church has behaved like a business. It hasn’t behaved like a religion that lives by the rules it espouses.”

Ownership of the San Jose cemetery in Albuquerque was transferred to a trust.
Ownership of the San Jose cemetery in Albuquerque was transferred to a trust.

In court papers, the archdiocese reported owning $49 million in real estate, cash, and investments. That figure included its Albuquerque headquarters, corporate and municipal bonds, a half-dozen cars and pickup trucks, and an unspecified amount of gold and silver. By contrast, the church’s 1951 incorporation papers put its estimated value at $40 million, or $396 million in today’s dollars.

To arrive at that $49 million figure, church leaders said at least $178 million in cash and property associated with the archdiocese was owned by parishes or held in a trust or foundation and thus wasn’t eligible for inclusion in the estate. Lawyers for victims, saying there’s no real separation between the archdiocese and its parishes, argue that the $178 million should be included in the available funds. That would raise the value of the estate to as much as $227 million.

A Santa Fe church property housing a yoga studio and other businesses

Incorporating parishes separately allowed the archdiocese to take about $91 million off its books. The first $34 million came from moving 120 properties in Santa Fe, Taos, and other areas into a trust it says it holds on behalf of its parishes. The properties include churches, cemeteries, and a building with a cafe and a yoga studio. (The real value of the properties is likely much higher: The archdiocese assigned a value of zero for many of them, and for others, it used the assessed value the local authorities assign for tax purposes instead of the appraised value, or what the property could be expected to command in a sale.) Another $57 million worth of property owned by the parishes, including cemeteries in Santa Fe and a mobile home in Taos where a priest lives, is held in a separate trust.

A roadside cross in Española
A roadside cross in Española

James Stang, the lead lawyer for the alleged clergy abuse victims in the bankruptcy, wrote in a June court filing that the incorporations and transfers were made with the intent to “hinder, delay, or defraud” the claimants. J. Ford Elsaesser, an archdiocese lawyer, disputes accusations that the archdiocese shuffled assets to keep money from claimants. The relationship between the church and its parishes is like that between an adult child and an elderly parent who can no longer handle his affairs, he says: “The property is yours in name, but it’s not your money.” He says that bankruptcy is the best venue for settling large numbers of abuse claims in part because it makes for a fairer distribution of finite church assets, with all victims sharing the money in an orderly way instead of it being quickly scooped up by victims who file claims first.

Church officials also put close to $37 million in cash and investments into a Wells Fargo account that it says it controls but doesn’t own. Yet another pot of funds sits in the Catholic Foundation, which accepts donations to the archdiocese. The foundation has almost $50 million and dispersed about $1.8 million in 2019 to Catholic causes, including the training of new priests and the retirement of older ones. Church lawyers say the foundation is not part of the bankruptcy estate.

Parishes continue to pay 12.5% of their Sunday collection plates to the archdiocese, according to a 2018 deposition.
Parishes continue to pay 12.5% of their Sunday collection plates to the archdiocese, according to a 2018 deposition.

But victims’ lawyers say the foundation is listed as a “subordinate organization” of the archdiocese with the Internal Revenue Service, a designation it needs to be exempt from federal taxes, and its holdings should be included in the estate. “Let’s be very clear what this foundation is,” Stang said at an August hearing. “It’s the fundraising arm of the archdiocese.”

Parishes continue to pay 12.5% of their Sunday collection plates to the archdiocese, according to a 2018 deposition from Father John Daniel, who at the time worked in archdiocese administration. Parish payments provided the vast majority of the archdiocese’s $6 million annual income, with the payments checked by auditors who report to Salgado, according to the deposition, which was taken as part of a sex abuse suit prior to the bankruptcy.

A display of crosses in Chimayo outside Española.
A display of crosses in Chimayo outside Española.

Multiple victims’ lawyers say the Vatican guides the dioceses in both their financial reorganization and their positions regarding settlements. “All financial decisions, all strategic decisions, all decisions are made by the Vatican,” says Anderson, who’s represented clergy sex abuse victims for 37 years. “I’m in constant communication with lawyers who represent churches, and I know they are in touch with the Vatican.” John Manly, a lawyer who’s represented victims in 15 church bankruptcies, says he’s been in settlement negotiations in which bishops have told him they’re in touch with the Holy See.

“I’ve had bishops say, ‘I can’t do this without Vatican permission,”

MANLY SAYS.

In late December, in a nod toward greater transparency, Pope Francis abolished the “pontifical secrecy” rule, which church officials had used to withhold information about sexual abuse from civil authorities. The Vatican didn’t respond to a request for comment for this story. A spokeswoman for the U.S. Conference of Catholic Bishops wrote in response to questions, “A decision on whether to seek Chapter 11 protection in a given case is the diocese’s alone.”

However the fight in New Mexico concludes, nobody can bring new cases against the archdiocese for clergy abuse that happened before the bankruptcy. Many victims didn’t come forward in time to make the June deadline, say victims’ lawyers. “That will leave out a significant portion of people who are still too ashamed, too wounded, too fearful to come forward,” says Robert Weisz, a Santa Fe psychologist who’s treated clergy abuse victims for 15 years.

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