Catholic Church Used Bankruptcy For Sexual-Assault Cases
USA Gymnastics, Boy Scouts of America explore chapter 11 to handle victims’ claims.
The Archdiocese of Portland was the first to do it. Three months later the Roman Catholic Diocese in Tucson, Ariz., followed suit and three months after that the diocese in Spokane, Wash., did it, too. Catholic Church Used Bankruptcy for Sexual-Assault Cases. Now Others Are Following Suit.
They all filed for bankruptcy and since then more than 15 other Catholic dioceses and religious orders have filed for bankruptcy to seek protection from lawsuits by sexual-assault victims, resulting in about 4,000 claims seeking compensation for past wrongdoing. This year, three more Catholic dioceses announced intentions to file.
Now the legal strategy is being adopted beyond religious groups. This month, USA Gymnastics filed for bankruptcy protection and the Boy Scouts of America hired bankruptcy lawyers to explore the option. Both groups are grappling with the legal and financial fallout of sexual-abuse claims.
“There is an expectation in the restructuring community that we will see more of these types of chapter 11 filings,” said Adam Paul, a lawyer with Kirkland & Ellis LLP who specializes in so-called mass tort bankruptcies.
Pioneered by the Catholic Church, the legal strategy uses the law that protects companies from creditors to help preserve its mission and shield assets from claims made by victims of sexual abuse. Filing for chapter 11 freezes lawsuits and provides breathing room to work out a plan to compensate abuse victims. Victims get a collective voice and a guaranteed seat at the negotiating table, and at the end of a bankruptcy a diocese gets a fresh start, free from liabilities tied to past abuse. A federal judge oversees the proceeding and must sign off on the final payment plan.
But the process is long. A typical commercial chapter 11 cases wraps up after about nine months, according to a 2015 study of public companies; diocesan cases on average take more than two years to resolve. Victims have also raised concerns that the process allows dioceses to shield too many assets from their claims.
Catholic dioceses and related entities have paid out nearly $4 billion in costs linked to about 19,000 sexual-abuse allegations, including bankruptcy settlements, according to reports issued by the U.S. Conference of Catholic Bishops.
More such filings are expected after a grand jury in Pennsylvania released this summer found hundreds of Catholic priests sexually abused thousands of children for decades and that church leaders covered it up. Attorneys general in New York, New Jersey, Florida and at least 10 other states have opened investigations into whether Catholic Church officials covered up allegations of abuse.
On Dec. 19, Illinois’s attorney general released a report criticizing the state’s Catholic dioceses for allegedly withholding the names of 500 priests accused of sexual abuse.
“We have to bring light; we have to bring heat,” said Jeff Anderson, a lawyer who represents many of the victims who have filed abuse claims against the Catholic Church. “The only way we know how to do that is to expose them using the legal system.”
The Boys Scouts are facing similar allegations and could be stuck with more liabilities as some states, including New York and Pennsylvania, consider lifting or lengthening the statute of limitations for abuse victims. The national organization has been named in more than 200 lawsuits that alleged child abuse, including one in Idaho that is set for a jury trial in May.
In its most recent annual report, Boys Scouts officials said they were “aware of threatened and expanding litigation.”
In a statement, Boy Scouts of America Chief Executive Michael Surbaugh said local and national programming for the Boy Scouts would continue uninterrupted no matter which path forward it chooses. He also said that at no time did the Boy Scouts knowingly allow a sexual predator to work with youth.
Leander James, a lawyer who represents victims with claims against both Catholic dioceses and the Boy Scouts, likens the Boy Scouts of America’s national organization to a very large archdiocese and local Boy Scouts councils to parishes.
“It’s a very similar structure,” he said. ”You have the larger institution with a great deal of control over the local institutions.”
Much like a Catholic diocese and its parishes, the Boy Scouts are divided into about 270 individual local councils, each of which is separately incorporated. The national organization has about $1.5 billion assets, but the local councils, and their associated trust funds have billions of dollars more. A review of tax records indicates that the combined wealth of the Boy Scouts totals more than $5 billion, according to a Wall Street Journal analysis.
It all goes back to the Archdiocese of Portland, which sought chapter 11 protection in 2004 on the eve of two abuse-related trials. One plaintiff was seeking more than $130 million in compensation and punitive damages and the other was seeking $25 million; it was more than the archdiocese said it could afford to pay.
Absent the appropriate corporate structures and legal walls under civil law, U.S. Bankruptcy Judge Elizabeth Perris ruled that victims did have a right to pursue parish assets. After more than two-and-a-half years in bankruptcy, 170 victims settled with the Archdiocese of Portland and its parishes for about $75 million.
Since then dioceses around the country have created structures to keep their assets in separate locations. Earlier this year, the Archdiocese of Detroit transferred hundreds of parishes to a separate corporation, according to incorporating documents filed by the archdiocese’s Director of Finance. In Pennsylvania, the Diocese of Erie has also begun transferring some of its assets to charitable trusts, according to the Erie County Recorder of Deeds.
Susan Boswell has represented Catholic dioceses and religious orders in bankruptcy and has worked to separately incorporate their parishes. “The bankruptcies, particularly the first ones that field such as Portland and Spokane, brought to the forefront the property issue,” she says.
According to Ms. Boswell, even dioceses that had no financial difficulties as a result of sexual-abuse claims have begun to separate parishes under civil law, even though under canon law parishes have always been separate.
Twenty-two Catholic dioceses and religious orders have filed or announced an intention to file for chapter 11 as a result of mounting sexual abuse claims. Location And Date Filed:
- Archdiocese of Portland [Oregon] (filed 07/06/04)
- Diocese of Tucson Arizona
- Diocese of Spokane Washington
- Diocese of Davenport Iowa
- Diocese of San Diego California
- Diocese of Fairbanks Alaska
- Oregon Province of the Jesuits Oregon
- Diocese of Wilmington Delaware
- Archdiocese of Milwaukee Wisconsin
- Congregation of the Christian Brothers New York
- Diocese of Gallup New Mexico
- Diocese of Stockton California
- Diocese of Helena Montana
- Archdiocese of St. Paul and Minneapolis Minnesota
- Diocese of Duluth Minnesota
- Diocese of New Ulm Minnesota
- Diocese of Great Falls-Billings Montana
- Crosier Fathers and Brothers Arizona
- Archdiocese of Santa Fe New Mexico
- Diocese of St. Cloud [Minnesota] (announced its intention to file 02/28/18)
- Archdiocese of Agana [Guam] (announced its intention to file 11/07/18)
- Diocese of Winona [Minnesota] (announced its intention to file 11/17/18)
Northeast Jesuit Order Releases Names of Priests Accused of Sex Abuse
List Includes Credible Allegations Dating Back To 1950
Leaders of the Jesuits in New York and New England released a list Tuesday of 50 clergy who had credible allegations of abuse of a minor or vulnerable adult made against them since 1950, saying they hoped publicizing these names would contribute toward healing pain and anger.
Many clergy on the list have died, and many alleged incidents were decades old. Some clergy worked at elite Catholic schools and hospitals.
“At the heart of this crisis is the painful, sinful and illegal harm done to children by those whom they should have been able to trust,” said Father John J. Cecero of USA Northeast Province, in the public statement. “We did not know any best practices to handle these violations many decades ago and regrettably made mistakes along the way.”
His statement credits investigative reporting in Boston in 2002 for bringing the problem to light. The release says the Jesuit group has since instituted practices to prevent such abuse and knows of no new abuse cases in its area in the past 15 years, though it lists an admitted child pornography incident in 2008. The Northeast Province includes the states of Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut, New York and northern New Jersey.
Mr. Cecero said the list includes any allegations where the offense was admitted by a Jesuit, or where it was established as credible after an investigation. He said any living Jesuit with a credible allegation of abuse was removed from ministry and assigned to a community that doesn’t serve minors.
Priest Cited in Pennsylvania Abuse Report Sentenced to Up to 14 Years in Prison
Grand jury found evidence of abuse by 300 priests, but only two could be prosecuted.
A Pennsylvania judge sentenced a Catholic priest on Friday to between 2½ and 14 years in prison, after the cleric had pleaded guilty to sexually abusing two boys.
David Lee Poulson, 65 years old, was one of two priests to face criminal charges following a scathing statewide grand-jury report released in August. The report found that church officials covered up abuse by 300 priests of more than 1,000 victims in six dioceses over seven decades.
“Poulson weaponized his faith and used the tools of his priesthood to abuse children,” Pennsylvania Attorney General Josh Shapiro said Friday at a news conference.
The Pennsylvania report has helped spur similar investigations in 14 other states, as well as a nationwide Justice Department probe of sexual abuse by clergymen. Mr. Shapiro said he believed Friday’s sentencing would send a broader message. “There is a reckoning going on in this country,” he said.
Prosecutors said Rev. Poulson assaulted one boy more than 20 times over a period of eight years ending in 2010, including at a hunting cabin and in a church rectory. They said the boy, who was 8 when the abuse began, was then made to confess the abuse to Rev. Poulson. Prosecutors also said the priest attempted to abuse a second boy starting in 2003, when the child was 15.
Mr. Shapiro said church officials knew in 2010 that Rev. Poulson was inappropriately attracted to boys but that he wasn’t suspended from his ministry until 2018.
Rev. Poulson, formerly of the Catholic Diocese of Erie, had pleaded guilty in October to corruption of minors and child endangerment. An attorney for Rev. Poulson couldn’t be reached to comment.
A second priest from western Pennsylvania pleaded guilty to abusing a 10-year-old boy in the early 1990s and in December was sentenced to between 11½ and 5 years in prison.
The other allegations of abuse in the grand-jury report were too old to prosecute, Mr. Shapiro said. On Friday, he reiterated his call for Pennsylvania legislators to pass several bills, including one that would eliminate the statute of limitations for child sexual abuse in the state.
Clergy Abuse Victims Take New Route To Challenge Church In Court
Lawsuits in Pennsylvania accuse dioceses of conspiracy to cover up abuse as plaintiffs search for way around statute of limitations.
Pennsylvania’s legislature hasn’t decided if it will join the growing number of states to lift the statute of limitations on victims of childhood sexual abuse, but John Patchcoski decided he wouldn’t wait any longer for his day in court.
On Wednesday, the 57-year-old and three others sued the Roman Catholic Diocese of Scranton and two of its bishops. The four men say the same priest abused them all as children.
Because Pennsylvania law requires victims of childhood sexual abuse to file lawsuits before they turn 30, the men are instead suing over an alleged coverup. They accuse the diocese of conspiracy and fraud in hiding systemic abuse that church officials were aware of for decades.
The plaintiffs—Mr. Patchcoski, Jimmy Pliska, Michael Heil and one whose name was not disclosed—join a growing number of victims of alleged clergy abuse taking this alternate route to challenge the Catholic Church in court.
At least eight such lawsuits have been filed in Pennsylvania since a state appeals court ruled in June that one accusing the Altoona-Johnstown diocese of a conspiracy to cover up abuse could go forward.
“Given the situation in Pennsylvania with the statute of limitations, this is a major development,” said attorney Richard Serbin, who is representing the plaintiff, Renee Rice, in the Altoona case. Mr. Serbin said he has heard from lawyers all over the state interested in filing similar cases.
However, the Altoona-Johnstown case is expected to be appealed to the state supreme court, which could stop the new strategy in its tracks.
“I don’t expect the Rice case to stand up to further appeal,” said Matthew Haverstick, a lawyer who represents the diocese of Harrisburg in one of the cases claiming conspiracy. “The idea that all these actors conspired and talked to each other strains credulity.”
The Diocese of Altoona-Johnstown declined to comment on the litigation.
Since the Pennsylvania attorney general released a grand-jury report last year, detailing the sexual abuse of more than 1,000 children by Catholic clergy in the state, lawmakers across the country have been searching for ways to hold church officials accountable.
So far this year, at least five states, plus Washington, D.C., have lifted the statute of limitations on child sexual abuse, opening up the church to a flood of lawsuits from people who say they were abused decades ago. In New York, where the statute of limitations on older cases of abuse was lifted in August, more than 400 lawsuits were filed on the first day.
In Pennsylvania, the state legislature is still debating whether—and how—to change the statute of limitations.
In the Scranton case, plaintiffs’ attorney Kevin Quinn said the statute of limitations doesn’t apply because there is no way his clients could have known about the diocese’s efforts to hide the abuse until the grand-jury report last year detailed how abuse was covered up, including by moving pedophile priests from one diocese to another.
That is what was done with Father Michael J. Pulicare, the man who all four plaintiffs say abused them, according to the complaint. Father Pulicare was assigned to at least nine different parishes within the diocese before his death in 1999, the complaint says.
The suit also accuses James Timlin, the former bishop of Scranton, of allowing one of the plaintiffs to sleep in Father Pulicare’s bed in the cathedral.
Joseph Bambera, the current bishop of Scranton, restricted Bishop Timlin, who was implicated in covering up abuse in the grand-jury report, from representing the diocese in public after the report was released last year.
“Up until the release of the grand-jury report last August, our clients thought they had only been victimized by Father Pulicare,” Mr. Quinn said. “They were unaware of the…active role the diocese and its leaders played in covering up cases of clergy abuse and endangering them and others.”
In response to news of the lawsuit on Wednesday, the Diocese of Scranton released a statement, saying that it never received any allegations against Father Pulicare until last year and questioning the legal claims the plaintiffs are making.
“The lawsuits rely on a novel legal theory in an attempt to circumvent the long-established statute of limitations in Pennsylvania,” the statement said. “That theory relies entirely on a recent case that remains on appeal.”
Seven of the eight Catholic dioceses in Pennsylvania, including Scranton, have set up programs to financially compensate victims of sexual abuse. In exchange for the money, the victims must agree not to sue the church. Church officials say the programs are trying to make amends. Critics say the church is merely trying to limit its legal liability, offering far less money than plaintiffs have won in court.
Mr. Quinn said the compensation program “is not the answer for our clients because it doesn’t hold the diocese and its leaders truly accountable.”
US Authorities Analyze Bitcoin Transactions To Shut Down Child Porn Ring
United States law enforcement agencies analyzed Bitcoin (BTC) transactions to locate and subsequently shut down a global child pornography site.
Per an Oct. 16 press release, the U.S. Department of Justice announced the shutdown of the largest-to-date child sexual exploitation market called Welcome to Video which was operated by South Korean national, Jong Woo Son. The site offered child pornography videos for sale using Bitcoin.
Crypto Brings Authorities Closer To Catching Criminals
To trace Bitcoin blockchain transactions and identify users, IRS-Criminal Investigations (IRS-CI), Homeland Security Investigations and other agencies applied software provided by blockchain analysis company Chainalysis. IRS-CI Chief Don Fort commented:
“Through the sophisticated tracing of bitcoin transactions, IRS-CI special agents were able to determine the location of the Darknet server, identify the administrator of the website and ultimately track down the website server’s physical location in South Korea.”
An analysis of the server indicated that each user had received a unique Bitcoin address upon registration on the website, which eventually amounted to over one million Bitcoin addresses and thus not least than one million users. The release further reads:
“The virtual currency accounts identified in the complaint were allegedly used by 24 individuals in five countries to fund the website and promote the exploitation of children. The forfeiture complaint seeks to recover these funds and, ultimately through the restoration process, return the illicit funds to victims of the crime.”
As a result of the investigation, authorities seized nearly eight terabytes of child pornography videos, which makes it one of the largest such confiscations. 337 people were arrested in connection with the ring. 23 of the site’s victims were rescued in the United States, Spain and the United Kingdom.
Better Building Trust-Based Relations With Crypto Businesses
As of July, Chainalysis suggested that the amount of Bitcoin spent on illegal transactions this year could hit a record high of $1 billion, even as the ratio of illegal to legal transactions was shrinking.
Oftentimes, marketplaces were involved in the distribution of drugs and/or illegal pornography.
Earlier in October, the European Union Agency for Law Enforcement Cooperation (Europol) released its 2019 Internet Organized Crime Threat Assessment report, in which it stated:
“Law enforcement must continue to build trust-based relationships with cryptocurrency-related businesses, academia, and other relevant private sector entities, to more effectively tackle issues posed by cryptocurrencies during investigations.”
Bishop Investigating Abuse in Buffalo Is Accused of Sexual Misconduct
An attorney for the accuser said his client was abused by Bishop Nicholas DiMarzio starting in 1974.
The bishop tasked with investigating the handling of clergy abuse allegations in Buffalo, N.Y., has himself been accused of abusing a young boy.
Mitchell Garabedian, an attorney for the accuser, said his client was abused by Bishop Nicholas DiMarzio starting in 1974, when the client was 11 years old growing up in New Jersey, where Bishop DiMarzio served as a young priest. Mr. Garabedian sent a letter to New Jersey church officials this week notifying them of the accusation.
Bishop DiMarzio, who serves as bishop of the Roman Catholic Diocese of Brooklyn, N.Y., is in Rome along with the other bishops from New York. He said in a letter released by the diocese that the allegation is false. “I have never engaged in unlawful or inappropriate behavior,” he said. “I am confident I will be fully exonerated.”
Buffalo Bishop Resigns After Accusations of Covering Up Abuse
Departure of Bishop Richard Malone continues upheaval in New York Catholic dioceses over allegations.
The Catholic bishop of Buffalo, N.Y., has resigned following accusations he covered up clergy sex abuse of children.
In keeping with its standard practice, the Vatican didn’t give a reason when it announced on Wednesday that Pope Francis had accepted Bishop Richard Malone’s resignation. But the office of the Vatican’s envoy to the U.S., Archbishop Christophe Pierre, said in a statement that the bishop had asked the pope last month “to grant him an early retirement” following a church investigation of the charges against him.
In his own statement, Bishop Malone said that the results of that investigation, which haven’t been made public, were a factor in his decision to step down. But he said he had made his decision freely and voluntarily because of “divisions and wounds that I am unable to heal” in Buffalo.
Pressure to remove the bishop has been building for months, since a second member of his staff leaked files to the media that showed how allegations of sexual abuse and harassment were handled in the diocese.
All eight Catholic dioceses in New York state have spent the last four months mired in problems related to the church’s sexual-abuse scandal.
Collectively, the dioceses have been hit with more than 500 lawsuits since August, when a new state law, which opens a one-year window for alleged victims of childhood sexual abuse to sue, no matter how long ago they say the abuse took place, took effect.
Faced with a flood of legal claims, the Diocese of Rochester filed for bankruptcy in September. Bankruptcy lawyers have said they expect more dioceses, including Buffalo, will follow. The Archdiocese of New York sued more than 30 insurance companies in June, anticipating that the firms would deny coverage for old sexual-abuse claims.
The Brooklyn bishop has himself been accused of sexually abusing a child, which he denies.
But the turmoil in other dioceses pales compared to the situation in Buffalo, where both lay Catholics and priests have taken part in a campaign to oust Bishop Malone.
The trouble began last year when his administrative assistant, Siobhan O’Connor, went on television and accused him of covering up accusations of abuse against priests in the diocese.
That March, the diocese released a list of 48 priests who had been credibly accused of sexually abusing children in the diocese. The list, Ms. O’Connor said, originally included over 100 priests, including some who remained in active ministry, but was pared down before it was publicly released.
In one document, which Ms. O’Connor sent to a local TV station, a lawyer wrote to Bishop Malone, “We did not remove him from ministry despite full knowledge of the case, and so including him on list might require explanation.” The priest was put on administrative leave after his omission from the accused list was publicized.
Then in September, the bishop’s priest secretary released a tape to a Buffalo radio station. On the tape, Bishop Malone can be heard discussing with advisers in August how to avoid the story of a priest who was accused of sexually harassing a seminarian getting to the media.
“It could force me to resign if in fact they make a story,” Bishop Malone is heard saying on the tape.
In September, one group of influential Catholics in the diocese called on Bishop Malone to resign and another group asked parishioners to put pennies in the collection plate as a symbol of their frustration. The same month, the Rev. Robert Zilliox, a priest in Buffalo, began circulating a letter of no-confidence in the bishop.
“A lot of people were asking, where are the good priests standing up and leading?” Rev. Zilliox said in an interview after he began circulating the letter. “I finally determined it was about time.”
In August, the diocese released a statement that said, “Bishop Malone has never allowed any priest with a credible allegation of abusing a minor to remain in ministry.”
In October, Pope Francis appointed Bishop Nicholas DiMarzio of Brooklyn to investigate charges against Bishop Malone.
The next month, Bishop DiMarzio was himself accused of having abused a young boy in the 1970s.
Bishop DiMarzio said: “I have never engaged in unlawful or inappropriate behavior and I categorically deny this allegation. I am confident I will be fully vindicated.”
John Hurley, president of a Catholic college in Buffalo and leader of one of the lay groups that called on the bishop to step down, said the first thing the diocese likely needed to do was file for chapter 11 bankruptcy protections to begin addressing the more than 150 claims that have been filed against it under the Child Victims Act. “There’s just way too many lawsuits to fight them one at a time,” Mr. Hurley, a former corporate bankruptcy lawyer, said.
Collections are down in most parishes, Mr. Hurley and a diocese employee both said, and some pastors were considering not paying the usual percentage to the central diocese office as a result.
“This allows us to turn the page,” Mr. Hurley said of the resignation.
Bishop Edward Scharfenberger of Albany, N.Y., has been appointed apostolic administrator, or acting bishop, of Buffalo until a permanent replacement is named.
How Investigators Busted A Huge Online Child-Porn Site
IRS agents followed the bitcoin, got a few breaks, and helped bust more than 300 users world-wide.
The call came in while two criminal investigators for the Internal Revenue Service sat at a Bangkok airport gate in July 2017, waiting for a flight.
A confidential source they knew from past investigations was offering a tip that a new website was selling child pornography in exchange for bitcoin. The website, the source said, appeared to have popped up in the wake of shutdowns of other dark-web marketplaces for illicit goods.
Investigator Chris Janczewski and his colleague, Tigran Gambaryan, who had been involved in previous probes involving bitcoin transactions, decided to dig in to the possible financial ramifications of the matter despite the fact that child pornography was outside the IRS’s usual bailiwick. But they quickly hit a logistical roadblock: Their office, like many others, blocked access to pornographic websites.
“This is uncharted territory for the IRS,” Mr. Janczewski said in an interview. “What do I do? Is there a special room that I am supposed to go into if I want to look at the website?” They turned for help to Department of Homeland Security investigators, since the agency had a history of dealing with child exploitation.
Within eight months the duo, along with the DHS agents and counterparts in the U.K. and South Korea, had traced the financial trail of the largest online marketplace for child pornography they had ever encountered, comprising some 250,000 different videos.
The story behind the takedown of the website Welcome to Video involved getting a lucky break with the right-click of a mouse, stumbling upon a selfie of someone holding a passport, and following electronic breadcrumbs left by bitcoin transactions.
The probe required “a new and different model than typical child-pornography cases,” said Washington-based Assistant U.S. Attorney Zia Faruqui, a prosecutor on the case. Instead of starting off with a tip about one person or a forensic exam of a single device, Mr. Faruqui said, the investigators were able to target the website, which led them to hundreds of clients and allowed them to identify even those who had downloaded videos and later deleted them from their computers.
As digital-currency movements have become a larger feature in international investigations involving everything from the purchase of illicit drugs to terrorism, IRS criminal investigators have broadened their financial expertise to tracing such transactions. The agency was involved, for example, in the 2017 takedown of the dark-net market AlphaBay, which involved the cooperation of law-enforcement agencies in more than seven countries.
This account of the probe was provided by Messrs. Janczewski and Gambaryan and the prosecutors involved in the case. Officials from the Justice Department, the IRS and Homeland Security jointly announced an indictment in the case last month, citing the involvement of Britain’s National Crime Agency and the Korean National Police in the investigation.
While the location of the website’s server was hidden via the open-source Tor anonymization service, which allows users to conceal their identities online, Messrs. Janczewski and Gambaryan discovered a possible defect in the encryption.
When they right-clicked on the images of videos on the site, they found they could examine the source code and see that the thumbnail images appeared to be coming from an internet address in South Korea. That, Mr. Janczewski said, “is not supposed to happen using Tor.”’
Meanwhile, the IRS investigators learned from their initial tipster that the U.K.’s National Crime Agency was also investigating the Welcome to Video site.
In addition, the confidential source gave them multiple bitcoin addresses and said they were associated with the website. To confirm that connection, DHS agents created Welcome to Video accounts and transferred bitcoin to those addresses. They analyzed the blockchain ledgers of those bitcoin transactions and found the funds had in fact gone to addresses grouped with the ones they had been provided.
Around that time, investigators divided their probe, with one strand focused on the website’s operators and the other on its users.
Investigators subpoenaed the bitcoin exchanges that had facilitated transactions sending funds to the addresses and secured records about who opened those digital-currency accounts.
Law-enforcement officials copied the contents of one alleged Welcome to Video user’s laptop and cellphone confiscated at the Detroit airport when he returned to the U.S. from the Philippines in October 2017, after determining he owned a bitcoin wallet that had made payments to the site, according to affidavits unsealed in Washington this month.
The website’s operator appeared to be sending funds to multiple Korean bitcoin exchanges and one U.S. exchange, according to the IRS agents and a prosecutor. Records filed by the operator upon opening his account at the U.S. exchange included a selfie of a person holding a Korean passport, the agents said.
In late February 2018, the various law-enforcement authorities working on the international probe of Welcome to Video gathered in South Korea.
Their leads, including the passport image, took them to an apartment complex outside Seoul. There they found a 22-year-old man named Jong Woo Son who lived with his parents and ran what they described as a mammoth online child pornography site, with its 250,000 videos accessible to users through what they likely thought was the anonymity of digital currency.
Mr. Son kept the server in his bedroom, the agents said. The person holding the passport in the selfie turned out to be his father, who hasn’t been accused of any wrongdoing.
Authorities took down the website in March 2018 but didn’t want to alert any of its clients still under investigation, so they created a dummy page showing a message in deliberately broken English: “We are improving the download speed through this update. You can fast download videos, and safe.”
In South Korea, Mr. Son was convicted last year and sentenced to 18 months in prison for possessing, distributing, and uploading pornographic content featuring children. His sentence is set to end in several months.
In October, the U.S. unsealed an indictment charging Mr. Son with money laundering, conspiracy and child pornography offenses, and U.S. prosecutors are seeking his extradition. Neither he nor his attorney could be reached for comment.
Having seized the server, investigators had the full roster of the website’s customers and could parcel out leads to other countries. Last month authorities in roughly a dozen countries announced arrests of more than 300 users of the Welcome to Video site, including people who held positions of authority and worked with children.
Clients arrested and charged in the U.S. included an assistant high-school principal in Georgia, a Texas-based DHS agent, and the husband of an in-home day-care operator in Kansas. All have pleaded guilty. Another DHS agent is still awaiting trial.
Authorities in the U.S. and Europe said they had rescued 23 minors being abused by users of the website, including a young girl living with one of the DHS employees. Recognizing a red fleece the girl had worn in one of the videos on the Welcome to Video site, Mr. Janczewski identified her on a GoFundMe page the employee had set up to raise the funds he said he needed to adopt her.
One other apparent consequence of the probe: the death of the alleged customer whose devices were inspected by investigators. Two days after being stopped at the airport, he emailed his sister at around 5 a.m. saying he was going to kill himself, according to an affidavit in the case, and jumped from the balcony of his Washington apartment building.
Mr. Janczewski now gives presentations to other law-enforcement agencies about the investigation, titling it with the question he said he still gets asked the most: “Why the IRS?”
Vatican Uses Donations For The Poor To Plug Its Budget Deficit
Only 10% of donations to the Peter’s Pence collection go to charitable works.
Every year, Catholics around the world donate tens of millions of dollars to the pope. Bishops exhort the faithful to support the weak and suffering through the pope’s main charitable appeal, called Peter’s Pence.
What the church doesn’t advertise is that most of that collection, worth more than €50 million ($55 million) annually, goes toward plugging the hole in the Vatican’s own administrative budget, while as little as 10% is spent on charitable works, according to people familiar with the funds.
The little-publicized breakdown of how the Holy See spends Peter’s Pence, known only among senior Vatican officials, is raising concern among some Catholic Church leaders that the faithful are being misled about the use of their donations, which could further hurt the credibility of the Vatican’s financial management under Pope Francis.
The Vatican is currently embroiled in a scandal over opaque real-estate investments in London, which has triggered a power struggle within the Vatican’s bureaucracy and led to the dismissal of its chief financial regulator. Last month, the Vatican was suspended from an international network of anti-money-laundering watchdogs.
Meanwhile, the Holy See is struggling with a growing budget deficit, with the pope warning cardinals of the “grave impact” on the body’s economic future. The Vatican’s continuing financial problems reflect a lack of progress on improving its management and finances, which Pope Francis was elected in 2013 with a mandate to overhaul, following allegations of corruption, waste and incompetence there.
Under church law, Peter’s Pence is available to the pope to use at his discretion in any way that serves his ministry, including the support of his administration. The collection’s website says that, to support the pope’s charitable works, “Peter’s Pence also contributes to the support of the Apostolic See and the activities of the Holy See,” emphasizing activities that help “populations, individuals and families in precarious conditions.”
The assets of Peter’s Pence now total about €600 million, down from about €700 million early in the current pontificate, largely on account of unsuccessful investments, said the people familiar with the funds’ use.
The use of Peter’s Pence donations mostly to plug the budget deficit is particularly sensitive for Pope Francis, who began his pontificate by calling for a “poor church for the poor,” and has continually emphasized the church’s mission to care for and advocate on behalf of the most vulnerable.
The head of the Vatican’s press office didn’t respond to requests for comment on the use of the funds.
Peter’s Pence, a special collection from Catholics around the world every June, is billed as a fundraising effort for the needy. The Vatican’s website for the collection, www.peterspence.va, describes it as a “gesture of charity, a way of supporting the activity of the Pope and the universal Church in favoring especially the poorest and Churches in difficulty. It is also an invitation to pay attention and be near to new forms of poverty and fragility.”
A section of the website dedicated to “works realized” describes individual grants, such as €100,000 in relief aid to survivors of last month’s earthquake in Albania or €150,000 for those affected by cyclone Idai in southeastern Africa in March.
Local church leaders echo the Vatican’s line when soliciting contributions. According to the website of the U.S. Conference of Catholic Bishops: “The purpose of the Peter’s Pence Collection is to provide the Holy Father with the financial means to respond to those who are suffering as a result of war, oppression, natural disaster and disease.”
But for at least the past five years, only about 10% of the money collected—more than €50 million was raised in 2018—has gone to the sort of charitable causes featured in advertising for the collection, according to people familiar with the matter.
Meanwhile, about two-thirds of the money has been used to help cover the budget deficit at the Holy See, these people said. The Holy See consists of the central administration of the Catholic Church and the papal diplomatic network around the world. In 2018, the budget deficit reached roughly €70 million on total spending of about €300 million, reflecting chronic inefficiencies, rising wage costs and hits to investment income.
Donations to Peter’s Pence have dropped notably in recent years, to over €50 million in 2018 from over €60 million in 2017, these people said. Concern among ordinary Catholics over the church’s clerical sex-abuse crisis, as well as about the Vatican’s financial transparency, have weighed on donations, these people said. Another decline is expected for 2019.
The Peter’s Pence fund, which is managed by the Secretariat of State, the Holy See’s executive, has been under increased scrutiny since October, when Vatican police raided the Secretariat’s offices and those of the Vatican’s financial watchdog as part of an investigation into a large investment in a building in London’s upmarket Chelsea district. Vatican officials familiar with the secretariat’s operations believe at least some of the money for the controversial investment came from Peter’s Pence.
In November, Pope Francis said that he had authorized the raids because of apparent corruption, but he defended the practice of investing Peter’s Pence donations in real estate and other assets, rather than using it for charity immediately.
“When the money from Peter’s Pence arrives, what do I do? I put it in a drawer? No. This is bad administration. I try to make an investment and when I need to give, when there is a need, throughout the year, the money is taken and that capital does not devalue, it stays the same or it increases a bit,” the pope said last month.
But no more than a quarter of the annual Peter’s Pence contributions is available for investments, after the bulk is spent on the Vatican’s operating costs, according to the people familiar with the fund.
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