As my introductory post mentioned, my goal in this series is to provide a historical perspective on money in the church in roughly three eras: the first era will address Hubbard’s financial behavior up until the time of his final days; the second, David Miscavige’s assumption of power and the 1982 Mission Holder’s shakedown, and third, money in the church under Miscavige following the Mission Holder shakedown up to the present day.
This historical arc provides a convenient means of analyzing the church’s transition from its roots in providing Dianetics-based therapy into a pseudo-religious conglomerate with all the trappings of a cartel, or more so, demonstrating many of the characteristics reflective of a Transnational Criminal Organization (TCO) of significant proportions. Key to understanding any crime are the factors of means, motive, and opportunity. While the past certainly provides valuable context in understanding both L. Ron Hubbard’s role and Scientology’s means, motives, and opportunities for accumulating wealth, understanding the doctrine, ideology, and psychological profile of the church is also crucial. Thus the rigid adherence to Hubbard as “Source” for all of Scientology’s teachings, doctrine and operational foundation, and the resultant cult of personality that compels its malevolent zealotry, are the nexus for its criminality.
Hubbard’s Financial Motivation
Hubbard’s writings contain his motivations, justifications, and dogmatic beliefs for asserting that he, and therefore Scientology, is mankind’s last hope; central to his thesis is that the ends will always justify the means. Paradoxically, while often stating that he, and therefore Scientology was/is the most ethical belief system on the planet, his intentions, and indeed his motives, have always been essentially amoral, narcissistic, and open to criminality, certainly in regards to confronting authority as well as in the acquisition, movement and retention of money to further his legacy. Through Hubbard’s own words, framed within the language and procedures of a criminal investigation, we can then easily begin to establish the means, motive, and opportunity of how the Scientology TCO has operated over these 60 plus years. Hubbard’s early days marked him as essentially a grifter. However, he possessed a misdirected righteous self-determinism; this was fortified by an unwavering belief in his supposed superior intellect and knowledge of everything under the sun, all of which created a toxic stew of megalomaniacal purpose that would wreak havoc on himself, those closest to him, and arguably, society at large.
The following quote, taken from a letter written in August of 1938 by Hubbard to his (then) first wife, Margaret, (a.k.a. “Polly,” a.k.a. “Skipper”), is insightful in understanding Hubbard’s original motive, his determination to make his mark on the world:
“Living is a pretty grim joke, but a joke just the same. The entire function of man is to survive. Not for ‘what’ but just to survive… I turned the thing up, so it’s up to me to survive in a big way. Personal immortality is only to be gained through the printed word, barred note or painted canvas or hard granite. Foolishly perhaps, but determined nonetheless, I have high hopes of smashing my name into history so violently that it will take a legendary form even if all the books are destroyed. That goal is the real goal as far as I am concerned. Things which stand too consistently in my way make me nervous. It’s a pretty big job. In a hundred years Roosevelt will have been forgotten, which gives some idea of the magnitude of my attempt. And all this boils and froths inside my head.”
At about the same time, he went on to solidify these and other ideals crucial to his ruthless determination to succeed in Excalibur, his manifesto on survival of self, the family, and the group at the expense of all else. While never publicly published, anecdotal evidence alludes to Hubbard shopping it to publishers, with it being rejected as “too controversial” or that they were “afraid” to publish it. While this could be typical Hubbardian bluster, the book’s commercial failure in no way mitigates its significance in understanding Hubbard’s complex psychopathical self-determinism. Excalibur holds an iconic place in Hubbard’s personal creation myth, and is revered among Scientologists as a “burning bush” of sorts. Significantly, the nucleus of Hubbard’s eventual axioms, theories and policies on such core tenets as one’s survival, the fate of mankind, or a thetan’s self-deification, as well as his preternaturally dark worldview, all emanate in someway from Excalibur. And as will become abundantly clear, Scientology’s rapacious, malevolently criminal behavior is very much the result of the amoral philosophy within Excalibur.
Hubbard is not alone in his narcissistic, megalomaniacal self-justification for his transgressions, crimes, and quasi-nihilism. Numerous despots, crime bosses, corporate magnates and politicians throughout history have shared much of the same DNA as to motive in seeking power, fame or enrichment. One’s motive can be either simple or complex, resulting from fundamental emotions such as revenge, financial gain, or feelings of helplessness against authority or in fighting a perceived injustice. It may involve more complex or esoteric origins, derived for example, from one’s misperception of a greater moral, ethical, or intellectual superiority to others, or from a sense of some great personal or institutional betrayal. However, what’s clear from even a cursory reading of Excalibur, along with his letter to Polly, and Hubbard’s obsession with furthering Scientology, is that accumulating wealth through whatever means was to enable his “…high hopes of smashing my name into history so violently that it will take a legendary form even if all the books are destroyed,” rather than simply to be “wealthy.” Hubbard did enjoy the finer things in life, but as his later years in relative obscurity demonstrated, money was always more about being a means to assure his place in history than anything else. It was also about controlling the means by which his place in history would be be assured.
The Means, or: Hubbard as Tax Evader
Means represents the nexus of organized crime (TCOs), Scientology and control. The organizational and philosophical parallels between organized crime or cartel-like behavior and Scientology are no accident. Indeed, Hubbard and Charles “Lucky” Luciano, considered the father of modern organized crime, shared much in the way of focus and personal philosophy, as the following quotes from Luciano eerily demonstrate:
“Anything I ever did in my life, I felt justified in doing”
“Behind every great fortune, there is a great crime.”
Hubbard’s obsession with his legacy is well-known; less so is the deliberate way in which he structured the policies, procedures, and crucially, the organizational ethos of Scientology to justify any activity, regardless of the legal, moral, or ethical ramifications — in short, the “great crime.” Further to this point, the only thing that seperates a grifter like Hubbard from a Luciano, Columbo, or Genovese, is scale. And absent Federal intervention, with organized crime, as is the case in business, scale is always a function of the desirability of the product (the racket or ongoing criminal enterprise), market reach, and increasing levels of organizational competence. For the mob, control is all about turf, rackets, and power; for Hubbard, it was about ensuring the enduring viability and propagation of his legacy.
Organized crime and Scientology have always been heavily cash-centric enterprises, primarily to avoid legal scrutiny and taxation. In the beginning, Hubbard ran cash-only businesses whenever possible, stashing cash in shoeboxes in the closet and later, in suitcases or in a safe on the Apollo; even when Scientology was “mainstream,” he still maintained that the church should pay no taxes, and persisted in skimming large sums of cash up until his death. The mob used a network of caches, safes, strongboxes, and other distributed, non-traditional means to hide their wealth; that is, until Luciano hired Meyer Lansky, a brilliant Jewish accountant. Lansky was the first non-Italian brought in at the “Commission” level of La Cosa Nostra (LCN); he revolutionized the way organized crime operated, helping to legitimize many of its income streams, and with Luciano, helped unify the 5 major LCN families in New York. While both groups sought to avoid taxes, Hubbard’s hatred of taxation was pathological; with Lansky & Co., it was ”just business,” and it was Lansky’s business-centric thinking that led to the concept of “money laundering” as a means of avoiding taxation and forfeiture.
Like many of Lansky’s innovations, the idea behind money laundering was simplicity itself, as he stated: “the Feds can’t tax what they don’t know about…” Money laundering is defined as follows, and consists of three distinct phases as described here by the U.S. Dept. of the Treasury:
Money laundering is the process of making illegally-gained proceeds (i.e., “dirty money”) appear legal (i.e., “clean”). Typically, it involves three steps: placement, layering, and integration. First, the illegitimate funds are furtively introduced into the legitimate financial system. Then, the money is moved around to create confusion, sometimes by wiring or transferring through numerous accounts. Finally, it is integrated into the financial system through additional transactions until the “dirty money” appears “clean.”
There’s a common misperception about the Church of Scientology being a “money launderer;” while much of Hubbard’s early secretive financial behavior, especially during his time on the Apollo may have included money laundering of commingled church and personal funds, Scientology’s income today is legitimately derived from donations and other sources as a 503(c) corporation. While one could argue that there’s nothing “legitimate” about income derived from “crush regging” at Flag, the provenance of the funds are known. Where Scientology’s behaviour becomes suspect is in the means by which it obtains and accounts for donations and the subsequent use of those donations, which I will address in future posts.
It’s also important to note the evolution of the law as to what constitutes money laundering, as well as all the nuances in how the law is enforced domestically and internationally. Crucially, money laundering is predominantly an element of a predicate crime, i.e., drug dealing, fraud, extortion, tax evasion, etc., which is essential in establishing a motive for the laundering itself. In the post-9/11 world, anti-money laundering law and regulations to counter the financing of terrorism have assumed a new urgency, an urgency lacking in the days of Hubbard’s many international and domestic legal troubles, especially during his time on the Apollo. It wasn’t until the Bank Secrecy Act of 1970 that money laundering was formalized in any fashion as a Federal crime, thus the somewhat benign interest in Hubbard’s activities.
Contemporary to the laws in place at the time, most, if not all of Hubbard’s financial behavior consisted of efforts at tax evasion, inurement, or fraud. For example, the means in those cases where he received cash from the church, in the form of “repayments” for loans to the church or otherwise, his moving that money offshore would be tax evasion; were it the proceeds from fraud, such as shady real estate dealings or the like, the means would be money laundering commensurate with tax evasion. Inurement, the using of church funds for his personal benefit, is itself illegal, which would also entail charges of money laundering and tax evasion. Hubbard was well aware of what his tax obligations entailed as well as the consequences of his illegality, yet he persisted in evading taxes up until his death. While Hubbard was shameless in appropriating funds, the church tried to maintain a facade of prudent financial practices and accountability. The organizational structure in place at the time in each Scientology “org,” mission, or other entity, had individuals known as “Flag Banking Officers” who were tasked with routine financial matters at the operational level. Despite the existence of very rigid policies and procedures, the opportunity for impropriety existed at all levels within the finances of Scientology. Money in Scientology still flows “uplines” and it’s clear that at the time, Hubbard’s cut was dispersed from those at a very senior level, and continued when he went into hiding, though the disbursement process became quite secretive and convoluted.
The Opportunity: Scientology as Cash Cow
Once Hubbard met Mary Sue and left financial management to others, Scientology thrived. However, Hubbard’s tax problems remained, and were one of the great motivators for leaving the United States for East Grinstead, and shortly thereafter, in going to sea. Thus the opportunity to amass capital away from prying eyes was this physical distance. Much of his movement of money into numbered bank accounts in Liberia, Liechtenstein, and Switzerland occurs during his time on the Apollo, utilizing the crew as money mules and exploiting this transitory existence to facilitate his deposits in numerous locales. First-hand accounts abound from this period as to the amounts in question, as well as the great lengths Hubbard went to in order to hide his income. Numerous shell corporations, trusts and other vehicles were created depending on need and location to hide and transition funds, including the “Hubbard Research Foundation.” Hana Eltringham Whitfield, in speaking with the author, recalled numerous “missions” that were undertaken to move Hubbard’s millions from the Apollo to shore as well as from institution to institution. She further states in Brent Croydon’s “Messiah or Madman” that:
“There was lots of money aboard. We had to courier $7 or $8 million dollars in cash to Switzerland. And on a later trip, much more than that was couriered. It was couriered from the Dutch Antilles island of Curacao, near Venezuela. …. gold bullion too.”
In addition to his offshore accounts and numbered bank accounts, in 1968 Hubbard, his wife Mary Sue and Leon Steinberg created a corporation called Operation Transport Corp., Ltd. (OTC), a for-profit front for what would now be considered money laundering, located in Panama. Later court testimony details the use of OTC to fund a variety of church fronts, as well as Hubbard’s access to these funds:
“Shortly after the corporation’s formation, Hubbard, Mary Sue Hubbard and Steinberg resigned and were replaced by three Flag employees. During the years in question, the new directors performed only one function. In the summer of 1972, they approved L. Ron Hubbard’s decision to transfer approximately two million dollars from an OTC bank account in Switzerland to the Apollo. The money was stored in a locked file cabinet to which Mary Sue Hubbard had the only set of keys.
Between 1971 and 1972, the Church made payments in excess of three and a half million dollars to OTC. During these years, the Church also made payments totaling nearly $175,000 to the Central Defense and Dissemination Fund. According to the Church, these payments were placed in the United States Church of Scientology Trust of which L. Ron Hubbard was the sole trustee. The trust funds were deposited in several Swiss bank accounts. L. Ron Hubbard and Mary Sue Hubbard were signatories of the accounts and L. Ron Hubbard kept the trust checkbooks.”
Key to much of the church’s profitability was its non-profit status; however, Hubbard was always wanting more, be it income streams or followers, and nowhere was this more evident than in his “mother church” located in California. Founded in 1966, the non-profit Church of Scientology of California (CSC) was Hubbard’s main corporate holding company for all intents and purposes; he had other entities to manage the licensing and copyrights of his works as a science fiction writer, and still others to manage the many copyrights he and the church held for “the tech.” Despite the apparent separation among these various entities, they were structured in such a way as to ensure consistent cash flow to Hubbard directly, as well as shamefully abusing their non-profit status. On July 18, 1967, Hubbard’s financial largesse finally caught up with him. After a thorough audit, the Internal Revenue Service revoked CSC’s tax-exempt status, for the following three reasons:
- Scientology practitioners are profiting from the “non-profit” Church;
- The Church’s activities are commercial;
- The Church is serving the private interests of L. Ron Hubbard (a practice known as inurement).
True to form, Scientology went on to denounce the IRS’s revocation and declared that it will “ignore the action” and in a further act of spite, defiantly refused to pay its tax obligation for the following 26 years. As well as thumbing his nose at the IRS, Hubbard would oversee the expansion of similar schemes like that of the founding of OTC in parallel with Scientology’s growth up until his death in 1986, all the while maintaining the fiction that he was no longer involved in the day-to-day operations of the church. His inner circle, including rising star David Miscavige, would continue to facilitate his skimming of church funds, delivering suitcases of cash to to the reclusive Hubbard in motel rooms, apartments and later, his motorhome in Hemet, CA.
Over its 60+ year history, the Church of Scientology and its founder, L. Ron Hubbard, have had a unique and at times questionable relationship with the acquisition, accumulation, and dispersal of large volumes of cash. To date, it’s estimated the church’s net worth is in the vicinity of some $1.5 Billion in liquid cash reserves. It’s clear that the church still maintains a disdain for financial regulations, as well as consistently and blatantly violating the 1993 agreement that restored the tax exemption lost in 1967. In next week’s installment, I’ll look at the era that marked the transition from L. Ron Hubbard’s leadership of the church to that of David Miscavige. I’ll also look at the Mission shakeout as a precursor to David Miscavige’s combative management style, as well as how this event exemplified a sea change in how Scientology’s finances would be managed going forward, and lastly, the meaning of the iconic 1993 agreement with the IRS.