A whistleblower lawsuit filed against Brand USA by its former vice president of operations alleges that the travel promotion entity engaged in “kickback schemes” with Visit California and Visit Florida, among others, and fraudulently inflated partners’ contributions to meet budgetary goals and qualify for greater federal matching funds.

Mary Ellen Curto, who served as vice president of operations for a year until she was fired in October 2013, alleges that Brand USA signed marketing agreements with partners that hinged on Brand USA reimbursing their donations to Brand USA at a minimum of 130 percent in the form of advertising and services that supported partners’ existing ad campaigns and at times through the partners’ own advertising agencies.

“Despite Ms. Curto’s best efforts to engender a culture of compliance and accountability at BUSA, BUSA Chief Executive Officer Chris Thompson and some members of the Board of Directors remained determined to circumvent government oversight and run the corporation for their own personal gain,” alleges the lawsuit, filed in October 2014 in federal court in Washington, D.C. The existence of the lawsuit first came to light last week.

Brand USA’s Answer

Brand USA responded with a complaint supporting a still-pending motion to dismiss the Curto lawsuit, stating that the tourism marketer denies the allegations and, as a private, non-profit entity established by Congress in 2009 to promote foreign travel to the U.S., it has broad discretion on how to use its funding.

“For example, because of Brand USA’s unique status, the Government Accountability Office ‘found that Brand USA was not required to … adopt federal policies and procedures designed to facilitate program accountability and evaluation,’ including federal procurement regulations,” states Brand USA’s answer to Curto’s complaint.

The “kickback schemes” that Curto alleges took place are actually permissible cooperative advertising programs, Brand USA states in support of its motion to dismiss.

“Importantly, Ms. Curto never alleges that, at the time Brand USA entered into these purported agreements, it did not intend to use federal matching funds to promote travel to the United States,” Brand USA’s answer states. “Nor does she identify any provision in the Travel Promotion Act that prohibits the use of funding in the manner she labels as ‘kickbacks.'”

“What is more,” the Brand USA complaint adds, “the Department of Commerce was — and remains — fully aware that Brand USA engages in cooperative-advertising campaigns.”

How It Works With Visit Philly and Pure Michigan

Contacted by Skift December 15, officials from Visit Philly explained that it contributed $100,000 to Brand USA, and Brand USA in turn purchased $130,000 in media to support a Visit Philly advertising campaign in eastern Canada.

“The campaign ending on September 30 of this year gave us a 30 percent return on our $100,000 investment and with that, we (Brand USA, us and our media buying agency) came up with the media plan specific to us,” says Jim Werner, Visit Philly’s representative to Brand USA. “We chose to advertise solely in eastern Canada … and used mostly our own creative, with a little bit of Brand USA creative. We also rely on Brand USA’s market research in Canada to help design the buy, saving us the cost of paying for that research.”

Cara Schneider, a Visit Philly spokesperson, pointed out that companies, including airlines and credit card companies, may contribute to Brand USA in a more “universal way” where the money or in-kind contributions go for broader marketing campaigns.

“We’re buying a service from them,” Schneider says, adding that agreements with Brand USA may vary from one destination marketing organization to another. “We are not paying membership fees so that all boats rise with the tide. We are literally doing an ad buy.”

The Michigan Economic Development Corp. detailed a similar arrangement.

“Our relationship with Brand USA in terms of dollars we spend operates similar to a co-op,” says Michelle Grinnell, a spokesperson for the Michigan EDC. “We are able to further leverage our funding by partnering with Brand USA and also get the benefit of tying Michigan into an internationally recognized brand. We have worked with Brand USA on advertising efforts in Canada and as well on a series of native language videos for destinations across the state — something that we would have had difficulty producing on our own.”

“Our expenditures all go to specifically promote Michigan to an international audience,” Grinnell says. “Each dollar that we spend through these Brand USA partnerships helps Brand USA to unlock the federal funding that they use to operate. That, in addition to the content produced, benefits their overall mission as well as ours.”

One of the questions at the heart of the Curto lawsuit is whether these types of ad-buying arrangements with Brand USA are totally routine and lawful, or whether they aren’t.

Natalie Koss, the Potomac Legal Group attorney representing Curto, tells Skift that Brand USA’s marketing efforts are misplaced.

“Brand USA is not engaging in cooperative advertising,” Koss says. “Congress mandated Brand USA to solicit donations from the travel industry, which would be matched dollar-for-dollar by the federal government. Every dollar is supposed to be spent on marketing efforts that benefit the entire travel industry.

“Instead, CEO Chris Thompson, in order to save his job, developed a quid-pro-quo scheme that inflates the value of donations and uses them, along with the federally matched funds, in the specific manner that the donor dictates. In every case, each donor directs the funds to be used for its benefit. Some of the biggest names in the hospitality industry participated in the scheme.”

This was not the intent behind the Travel Promotion Act, which created Brand USA, Koss says. “This is not what Congress mandated, and it’s unlawful. Brand USA retaliated against Ms. Curto after she blew the whistle and reported the wrongdoing.”

Audit Committee Probe

The Brand USA audit committee, headed by Sabre CEO Tom Klein, conducted an investigation into Curto’s whistleblower concerns, according to an August 7, 2013 letter from Klein to Curto that is an exhibit [embedded below] in the court documents.

“While we do not believe any of the alleged conduct is actionable, it does not reflect the practices we expect at Brand USA,” the Klein letter states.

Klein wrote that the Brand USA board adopted unspecified recommendations based on information that Curto provided and the audit committee’s investigation.

“In connection with the information that the audit committee received, I had private discussions with senior officers about the importance of compliance with corporate policies relating to procurement and hiring, the consequences of failure to comply, and the importance of personal conduct that others may observe,” Klein wrote to Curto two months before she was fired.

Curto alleged that Thompson hired friends and posted job openings after already making hiring decisions.

Klein added that Brand USA was adopting “best practice compliance and procedure policies.”

Inopportune Timing 

The existence of the lawsuit came to light just before the U.S. Senate considered and adopted a government spending program, passed by the House, that reauthorized Brand USA, which solicits monetary and in-kind contributions from destinations, attractions, airlines, hotels and online travel players in exchange for matching funds derived from fees paid by certain foreign visitors.

Brand USA’s politically conservative critics, including the Heritage Foundation, have seized on the lawsuit to further their budgetary agendas.

Visit California and Visit Florida

Among her claims, Curto alleges that Brand USA had a “quid pro quo” marketing agreement with Visit California, which in 2012 contributed some $5 million, the largest donation, to Brand USA. The marketing agreement required Brand USA to spend the $5 million, plus another 30 percent, or $1.5 million, on Visit California’s existing advertising campaign through Mering Carson, its primary ad agency, Curto alleges.

Curto takes issue with the fact that allegedly there was no contract between Brand USA and Mering Carson governing their respective duties.

A former executive director of the American High Speed Rail Alliance, Curto also alleges that Brand USA had a similar arrangement with Visit Florida, agreeing to disperse 30% of the federal matching funds it received to supplement Visit Florida’s contributions.

Brand USA alleges that such practices are standard and proper in cooperative advertising, and that the organization has wide discretion on how to spend its funds since it is not a government entity.

“One of Brand USA’s partnership programs coordinates media buying and overseas marketing by Brand USA and [destination marketing organizations (DMOs) and other travel partners,” Brand USA cites the GAO as stating. “Through this program, the partners provide a cash contribution to Brand USA, which it used for media purchases and other advertising efforts to promote the United States along with a specific U.S. destination or brand.

“Brand USA might provide an additional investment to help promote a specific destination supported by the partner, allowing greater exposure for the destination than if the partner had independently funded its own media purchases ….”

NYC & Company

NYC and Company “donated” $10 million in the form of New York City digital imagery to Brand USA in a “quid pro quo transaction” where Brand USA agreed to shell out $240,000 to NYC and Company’s trade show booths at international exhibitions, Curto alleges.

This sort of arrangement violates the Travel Promotion Act, which spawned Brand USA, and was not disclosed, as it should be, to the federal government, the Curto suit claims.

A Controversial IMAX Contribution

An integral part of the Curto lawsuit is that Brand USA routinely inflates the worth of partners’ in-kind donations to score larger federal matching funds and meet budgetary goals.

The lawsuit goes into detail about IMAX contributing digital images that came to be valued at $30 million and the arrangement required Brand USA to buy two IMAX movies for $12 million each.

The out-sized appraisal of the IMAX donation and the consequent federal matching funds that it triggered was so critical, Curto alleges, that in the summer of 2013 board members discussed Brand USA CEO Christopher Thompson’s “imminent termination” but he kept his position because the IMAX largesse was mainly responsible for meeting fiscal year 2013 goals.

Curto alleges that Brand USA developed the $30 million appraisal of the IMAX images in-house and that the Commerce Department initially rejected the estimate for matching-fund purposes. “When the images were first appraised by an outside source, J. Walter Thompson, an internationally respected marketing firm, the appraiser stated that they were only worth $1 million at most,” the suit alleges.

Brand USA’s in-house counsel then shopped around for an appraiser to come up with a higher valuation and settled on “a used bookseller in California,” who came up with the $30 million estimate, the Curto lawsuit alleges.

In its motion to dismiss the lawsuit, Brand USA states that it adhered to the Commerce Department’s “approved process” for valuing in-kind contributions, and consulted with J. Walter Thompson at the behest of the department, which sought an independent third-party estimate. The agency, J. Walter Thompson, ultimately pegged the worth of the digital images at $35 million or more, Brand USA stated.

Whistleblower?

Curto alleges she was unlawfully terminated for cause from her job in October 2013, but actually she was fired for trying to remedy and refusing to adhere to Brand USA’s allegedly unlawful procurement, certification and reporting procedures, which are the foundation for Brand USA generating federal matching funds. Curto is seeking damages and and injunctive relief to counter what she contends are Brand USA’s unlawful practices regarding whistleblowers.

Brand USA counters that Curto is a disgruntled former employee.

“We follow all laws and procedures established by the Department of Commerce,” said Anne Madison, Brand USA spokesperson. “The employee filing the lawsuit was dismissed for compelling reasons over a year ago, and we’re confident that we’ll prevail.”

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Photo Credit: Still from the trailer for an IMAX film about National Parks that's being funded in part by Brand USA. Brand USA