The Lahar Foundation is not registered in Puerto Rico. A Google search for its name yields two references: a permanently closed community work foundation in India and a PayPal donation page for “Lahar Foundation SSM.”

This PayPal account shows the logo and name of an organization called ECETI, which stands for Enlightened Contact with Extraterrestrial Intelligence. The organization is a sanctuary in Washington state, from which it claims to establish contact with extraterrestrials.

Lahar Foundation Self Support Ministry is listed as one of the nonprofits that received more than $60,000 in donations from Act 22 beneficiaries in 2022. The law was created to attract millionaire investors to Puerto Rico.

According to the Department of Economic Development and Commerce (DDEC, in Spanish), more than 300 organizations received some $9.2 million in donations from resident investors in 2022. However, the list that the Center for Investigative Journalism (CPI) got a hold of includes recipient organizations that fail to meet the law’s requirements for receiving these donations.

For example, the CPI found that Lahar Foundation is one of 36 cases, or about 11% of the total entities that received Act 22 donations that year, that are not on the list of nonprofits approved by the Puerto Rico Treasury Department. Of these, a dozen are registered in the United States, not Puerto Rico.

The list that the CPI received from the DDEC of nonprofits that received donations from resident investors in 2022 includes more than $500,000 to entities identified with generic names such as “charity” and “N/A,” or “unspecified.”

Since 2017, the incentive program has required each beneficiary to make an annual contribution to Puerto Rican nonprofits of at least $5,000 — for those with decrees from 2020 onward, the amount is $10,000. Approximately 1,160 beneficiaries who got their decrees before 2017 are not required to make donations.

Although the rules differ based on the year the incentive was obtained, the money must go toward fighting child poverty, providing “direct community services,” or more recently, funding social equality initiatives. The donee organizations must be exempt under section 1101.01 of the Puerto Rico Treasury Department’s Internal Revenue Code and authorized by the Joint Special Committee on Legislative Funds for Community Impact.

The Breaches Can be “Remedied”, Says the DDEC

In response to the CPI’s questions, Carlos Fontán, director of the DDEC’s Incentives Office, acknowledged that in 2022 some organizations that were not certified by the Treasury, received donations from resident investors , but  the number represents “a very, very, very low percentage,” he said.

“Basically, we are talking about more than 90% that donated according to what the law establishes, and we’re talking about 12 organizations  out of hundreds of entities that were not certified, which is a minimal number that I don’t want to be extrapolated to say, ‘look, they’re not complying,’” Fontán said.

Although initially, Fontán said there were “about 10 or 12” entities that received illegal donations, the DDEC eventually identified only six: Save a Friend PR, Fundación CAF, The Guardians, Holberton School, Galería de Artes y Ciencias, and Sato Project.

But the number of organizations that do not comply with Act 22 requirements and still receive donations in 2022 is higher. Of the 36 entities that the CPI identified, the Treasury Department confirmed that at least 11 have never had a nonprofit exemption in Puerto Rico.

In the case of Fundación CAF, the Treasury validated that the entity has been exempt since 2009, contrary to what the DDEC stated.

Although the list the DDEC shared includes names of entities that do not exist or are not certified by the Treasury, Fontán assured that all the data shared by resident investors under oath in their annual reports are verified to identify non-compliance with program requirements.

Fontán also said that donating to a nonprofit that does not comply with the law’s parameters is “correctable,” so these resident investors can amend their reports and make a new donation to a certified nonprofit in Puerto Rico, in compliance with the law.

“As they say, the one who pays poorly pays twice. […] To give you an example: I donated in 2022. It turns out that the entity was not certified with the Treasury in 2022. That donation is ineffective. They must submit an amendment to the decree to tell us: ‘Look, in 2022 I donated, the entity was not certified. I request that in 2023 you allow me to make the 2022 donation to a registered organization.’ So, in 2023, you will have to donate twice: one to cover 2022 and another to cover 2023,” he explained.

Fontán said this process of issuing non-compliance notices to beneficiaries so they can amend their reports and make a new donation in line with the law happened “early in” 2024 for the cases identified in 2022. In total, the agency said it sent 37 notifications.

The DDEC has never revoked a decree for failing to comply with the requirement to donate to nonprofits in Puerto Rico, Fontán confirmed.

As of this publication, the Lahar Foundation has not responded to questions about the use of resident investors’ donations.

Where Did the Money Go?

According to DDEC data for 2022, educational, social welfare, and religious organizations  received more than half of the money, followed by animal protection, health, and environmental organizations. Almost 20% of the $9.2 million went to other types of nonprofits, such as a blockchain organization (the technology underlying cryptocurrencies), economic development think-tanks, and an organization promoting nuclear energy, as well as family foundations managed by beneficiaries of the same incentive.

Partnership for Modern Puerto Rico (PMPR) describes itself as an economic development think-tank. Created in 2017, the nonprofit organization says it facilitates connections between leaders and influencers in Puerto Rico, the diaspora, the private sector, and beneficiaries of tax incentives like Act 22.

The founder and director of PMPR is Alberto Bacó Bagué, former DDEC secretary under the administration of Governor Alejandro García Padilla. According to Bloomberg Línea, Bacó Bagué was one of three Puerto Ricans among the 500 most influential people in Latin America in 2023, alongside billionaire Orlando Bravo and international artist Bad Bunny. Between 2013 and 2016, Bacó Bagué approved 961 Act 22 decrees.

In 2022, PMPR received more than $200,000 in donations from resident investor program beneficiaries of the former Act 22 of 2012, now under Act 60 of 2019. The incentive exempts these individuals’ investment gains from taxes once they make Puerto Rico their residence.

PMPR’s website only shows activities, data, and quotes from Bacó Bagué but lacks information on how the money is spent.  Requests for additional information from the former official were ignored .

In written statements, PMPR said it has had “several initiatives in and outside of Puerto Rico” and assists social engagement entities, but it did not provide details on specific projects funded with the donations received.

“PMPR is not an organization directed at beneficiaries of Acts 20 and 22, now Act 60, but to a group of entrepreneurs and residents who want to contribute to the conversation and efforts to enable the island’s economic growth,” the statement added, despite promotional material on its website referring to the incentives these laws provide.

Of the organizations that received donations in 2022, about 30 are currently canceled, dissolved, or do not appear in Puerto Rico’s Corporate Registry.

The list also includes three for-profit entities: Holberton School, The Cannon Club, and St. Jude Medical LLC, now owned by pharmaceutical company Abbott, as well as the Coast Guard, a branch of the U.S. Armed Forces.

The CPI contacted these three entities with questions about the donations they received from Act 22 beneficiaries, but only one responded.

Holberton School Puerto Rico, a for-profit organization registered as Code Puerto Rico LLC, received $10,000 in donations. Its website shows it was founded in Silicon Valley, California, by Adam Beguelin, an Act 22 beneficiary since 2016.

In late 2021, Beguelin encouraged his social media followers to donate to the Holberton scholarship fund, promising to match donations up to $10,000. The school’s director, Mercedes Díaz, explained to the CPI that “we don’t receive money directly because we’re a for-profit, but there is a scholarship fund for our students managed by the Puerto Rico Community Foundation, and that goes directly to the students.”

Díaz said that between 2021 and 2023, 24 students benefited from the fund, which provides a weekly stipend. Holberton students must attend full-time for nine to 18 months and agree to pay 17% of their monthly salary for 60 months once they find a job.

No Mechanisms to Confirm if the Money Goes to Projects in Puerto Rico

According to the law, beneficiaries’ donations must go to organizations providing services in Puerto Rico. However, some organizations’ initiatives are not limited to the island.

Gaudium et Spes (GES), for example, is a nonprofit that funds projects aimed at “the poor and abused in Puerto Rico and worldwide,” as well as “historical and cultural heritage preservation.”

“The foundation supports several projects and initiatives in and outside of Puerto Rico,” said Rafael Rovira Arbona, a corporate lawyer who, along with Mikel Eguía Moreda, an investment advisor, founded the entity in 2020. Its board also includes lawyer Raúl Vidal y Sepúlveda and Christian Sobrino Vega, former director of the Puerto Rico Fiscal Agency and Financial Advisory Authority (AAFAF, in Spanish).

In 2022, Gaudium received $228,856 in donations from resident investors.

According to the federal Form 990 they submitted, the organization donated more than $240,000 to projects outside Puerto Rico, such as building a hospital in Egypt and reconstructing Catholic churches worldwide. About 40% of its donations went to nonprofits in Puerto Rico.

“In the case of the donations we received from ‘resident investors’ to fulfill the different requirements under Act 22-2012 and Act 60-2019, these donations have been used, allocated, and/or reserved for projects in Puerto Rico. Additionally, some ‘resident investors’ have donated more than what is required under Act 22-2012 or Act 60-2019 for projects outside the island,” Rovira Arbona added.

In PMPR’s case, the entity did not say which specific projects got money from the donations it received.

Although the law sets requirements for the use of donated money, the DDEC ignores if the activities carried out with this money meet the law’s requirements or even if they take place in Puerto Rico.

According to Fontán, this matter falls under the Treasury Department, which certifies nonprofits.

More Than $2 Million to the Education Sector

Private educational entities, such as colleges and universities, Montessori schools, and a charter school, as well as libraries and long-established organizations providing services to children and youth, received more than $2 million in donations from resident investors in 2022. In total, 42 educational organizations, including a dozen private schools, received donations from Act 22/60 beneficiaries.

The five institutions with the highest donations in 2022 are Boys & Girls Club, TASIS School in Dorado, Baldwin School in San Juan, Sor Isolina Ferré Centers, and Palmas Academy in Humacao.

The five are in areas with a high concentration of resident investors, such as San Juan, Dorado, and Humacao, although some also have operations in other towns on the island.

There are about a dozen Boys & Girls Clubs around Puerto Rico, a nonprofit organization with more than 50 years of experience providing educational, sports, and social services. Similarly, the Sor Isolina Ferré Centers have offered alternative, vocational, and independent living education for Special Education students in schools and Head Start centers across the island for 55 years.

According to DDEC data provided to the CPI, the Centers received $106,167 in donations from these foreign investors in 2022. “These donations went to the general fund that we use to support operations and continue programs and services, such as our crime victim assistance program, our Special Education services, and preschool education,” said the organization’s Communications Officer, Gabriela Báez.

Meanwhile, Boys & Girls Club Communications Officer Osvaldo Mártir confirmed the received donations, “which are invested in operations to support positions in the educational pillar not covered by grants, as well as operational expenses for the 11 clubs, such as materials, snacks, and activities in and out of these spaces.”

Organizations Founded by Act 22 Beneficiaries Receive Donations

From the list of organizations receiving donations from resident investors, 30 were incorporated or are managed by people who also benefit from the Act 22 decree.

The CPI found that more than $1 million of the reported donations in 2022 went to entities created by incentive beneficiaries.

Although the law prohibits a resident investor, spouse, or family member from donating to an organization founded or managed by the same Act 22 beneficiary, nothing prevents them from donating to entities of other resident investors.

Illuminated Life School Inc., or Financial Titans, received nearly $30,000 in donations and was incorporated by Heidi Shroff in 2020 to provide financial education to high school students. She and her husband, Farukh Shroff, have benefited from the tax decree for foreign investors since 2018.

The founder of Financial Titans told the CPI via email that in 2022, her organization received about $46,000 in donations from resident investors. She detailed that both the afterschool and summer programs are free of charge. With the funds, they pay mentors, a coordinator, and a psychologist, materials, transportation, and snacks for students. Students who meet specific goals are rewarded with gift certificates. They also help students open their first savings or checking account, depositing $150 as a gift.

The foundation and preschool education institution Lovely Little Einsteins received $12,500 in donations. The president and secretary of this organization are both beneficiaries of Act 22. Cara Knapp, secretary of Lovely Little Einsteins, has benefited from the decree since 2019, while Yezenia Manke and her husband, Isaac A. Manke, have enjoyed the benefit since 2018. A spokesperson for the preschool in Miramar, who preferred not to be identified, confirmed the amount of donations received in 2022 and assured that they contributed to expanding services at a second location that opened early that year in Vega Alta.

The 20/22 Act Foundation and The Rain & Rose Charitable Fund are two entities created by resident investors that appear at the top of the donation recipients list in 2022. Last April, a report by the Center for Popular Democracy revealed that, in 2021, The Rain & Rose Fund allocated only 6% of its annual collections to Puerto Rican organizations. According to data obtained by CPI, the entity received at least $233,000 in donations in 2022.

Meanwhile, the report questioned how The 20/22 Act Society, an organization representing Act 22 beneficiaries — even in court — and advocating for the continuation of the tax benefit, also receives donations from its represented individuals through its foundation, The 20/22 Act Foundation.

According to its federal tax return, this foundation received more than $330,000 in donations from resident investors in 2022 and distributed nearly $1.5 million among several Puerto Rican nonprofits.

The Search for Donations

Although the Act 22 incentive was approved in 2012, the requirement of a $5,000 donation to nonprofits was not introduced until 2017.

At that time, only organizations providing community services, created and administered “exclusively” for charitable, scientific, literary, or educational purposes, prevention of domestic violence, hate crimes, child abuse, elderly or disabled persons, or animals, as well as museums and schools in Puerto Rico, could receive the donation.

However, in 2019, with the approval of the new Incentives Code, the list of organizations eligible to receive the required donations from resident investors was expanded. It now includes churches, chambers of commerce, resident associations, and any organization exempt under Sec. 1101 of the Puerto Rico Internal Revenue Code.

An ecosystem of nonprofits actively seeking donations from Act 22/60 beneficiaries has developed around these contributions. The CPI identified at least a dozen organizations that directly promote their certification to receive donations from resident investors under Act 22/60.

According to its website, there are also entities like DonatePR, a “community donations” platform for Act 22/60 beneficiaries. “We offer a free solution for any 1101.01(a)2 nonprofit organization in Puerto Rico to receive funds directly into their bank account.”

DonatePR’s page includes about 80 “causes,” projects, or organizations that receive money through the platform. The organization that has received the highest amount, with more than $300,000 in donations since 2021, is PR I Love You, a nonprofit whose mission is to “spread love and compassion” in Puerto Rico and film a movie showcasing the island’s nature, communities, and people to the rest of the world.

When donating, a resident investor can also use an intermediary — another nonprofit that receives the money and redirects it to organizations and social assistance projects.

This is the case of organizations like The 20/22 Act Foundation and Integro Foundation — a nonprofit presided over by resident investor Brock Pierce — which appear as donation recipients but redirect part of this money to Puerto Rican entities and projects, according to their federal tax returns.

The Act 22 incentive has been linked to fostering gentrification, economic inequality, property hoarding, lack of affordable housing, and development in areas vulnerable to climate change, among other issues.

The program does not require a minimum investment or job creation in exchange for the incentive. Besides donating to nonprofits, it only requires purchasing a home, being in Puerto Rico for at least 185 days a year, and submitting an annual report. Economists like José Villamil and José Caraballo Cueto say the macroeconomic impact of Act 22 has been minimal. Although the government acknowledged more than three years ago that a minimum economic investment should be required, nothing has been done to include that requirement in the legislation.