Fraud clawbacks occur when there is an attempt to retrieve, or “clawback” money that was attained through fraud. The intent of the clawback is to provide financial relief to victims of the fraud.
For nonprofit organizations, money that was donated to an organization can be “clawed back” if the donor is found to have raised the money fraudulently. In this case the nonprofit organization accepted a donation in good faith, without knowledge that the money was raised through fraud. Previously, organizations could be asked to give the money back for up to six years from the time of the gift. Asking them to return the money years later is impractical and unrealistic for many, despite the good intentions of providing redress to the victim investors.
To reduce the impacts of fraud clawbacks on nonprofits, the Minnesota Council of Nonprofits sought a remedy that would cap the period in which an organization may be asked to return the donations at two years, instead of six. In 2012, the legislature passed and the Governor signed House File 1384 which is now law in Minnesota. Final language can be found here.