The long anticipated report by Commissioner John C Major entitled “Air India Flight 182: A Canadian Tragedy” was released today.
The report is located at:
Furthermore, Volume 5 deals with terrorist financing at http://www.majorcomm.ca/en/reports/finalreport/volume5/ and specifically there is a large discussion of the regulation of charities and terrorist financing at http://www.majorcomm.ca/en/reports/finalreport/volume5/vol5-chapt6.pdf
Volume 5 is divided into chapters and deals with:
•Chapter I Terrorist Financing - an Overview
•Chapter II Canadian Legislation Governing Terrorist Financing
•Chapter III The Roles of Federal Departments and Agencies in Efforts to Suppress Terrorist Financing
•Chapter IV External Reviews of Canada’s Anti Terrorist Financing Program
•Chapter V Canada’s Response to Reviews of its Anti Terrorist Financing Program
•Chapter VI The Links Between the Charitable Sector and Terrorist Financing
•Chapter VII Resolving the Challenges of Terrorist Financing
Some of the conclusions with respect to terrorist financing include:
• Canada’s current anti?terrorist financing model, which was created on the basis of its existing anti?money laundering model, is not well?suited to capture terrorist financing transactions.
• Canada must comply with a series of international obligations and requirements in terms of its anti?terrorist financing programs and activities. For the most part, Canada is in compliance with those requirements but as is often the case in such matters, this is a continuing effort and there is still room for improvement.
• Up until at least very recently, the level of resources dedicated to anti?terrorist financing measures was inadequate. Resource levels in all concerned agencies or departments should be monitored and modified as needed on a regular basis.
• The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and the Canada Revenue Agency (CRA) are not adequately integrated into the intelligence cycle to effectively detect terrorist financing or to provide the best financial intelligence to CSIS and the RCMP.
• As of the Commission hearings, the CRA had not revoked or deregistered any charitable registrations on grounds of terrorism financing.
• It is not clear that all relevant federal, provincial and municipal authorities have the same appreciation of the risks posed by terrorism financing. There is definite room for improvement in terms of intergovernmental cooperation and efforts to combat that phenomenon.”
Some of the summary comments for Chapter VI on Terrorist Financing include:
“6.9 Charities and Terrorist Financing
The Canada Revenue Agency (CRA) has reported that a significant number of charities associated with terrorism have been denied registered status. Significantly, these denials were not based on the new powers in anti-terrorism legislation but on traditional grounds, not related to terrorism. The National Security Advisor could also work on problems of integrating the CRA into the intelligence cycle and could also address concerns about the CRA’s effectiveness in terrorist financing matters. The CRA’s counter-terrorism work can be assisted by the proposed Director of Terrorism Prosecutions. The traditional privacy concerns that have surrounded income tax information need to be reconsidered. Bill C-25 started this process. Largely because of provisions introduced by this Bill in 2006, the CRA can now share more information (including “publicly accessible charity information” and “designated taxpayer information”) with other agencies. Despite the expanded disclosure now allowed, the Income Tax Act still prevents the CRA from disclosing some information that may be relevant to terrorist financing.
6.10 Intermediate Sanctions
“Intermediate sanctions,” which are penalties that fall short of revocation of charitable status (for instance, monetary penalties or the suspension of a charity’s power to issue tax receipts for donations), can be a valuable tool to alert donors, directors and trustees of government concerned with the operation of a charity. Like targeted prosecutions, they have proven their worth in other jurisdictions as an effective and creative approach to combatting the misuse of charitable status. It is helpful for the CRA to make full use of those intermediate sanctions to encourage charities to “clean house.”“
At Volume 5, page 259 it discusses charities and non-profits and terrorist financing:
“7.8 Charities and Not-for-profit Organizations
As explained in detail in Chapter VI, charities and not-for-profit organizations (NPOs) can be among the many vehicles used for raising and moving funds for terrorism. Although much concern has been expressed about the use of these organizations – particularly registered charities – it is important to remember that charitable status is not necessarily important to those committed to raising and moving funds. Many terrorist acts cost so little to carry out that setting up a charity to raise funds is not necessary. Those committed to fi nancing terrorism are not likely to be deterred from providing funds simply because the recipient cannot issue tax receipts to them. Furthermore, the process of obtaining and maintaining charitable status involves being monitored by the Charities
Directorate – additional attention that those interested in financing terrorism certainly do not want.
That said, there are other reasons for groups that want to finance terrorism to seek charitable or not-for-profit status. Many of these reasons were identified
in Chapter VI. They include the frequently cash-intensive nature of transactions involving such organizations, making it more difficult for the authorities to
identify TF, and the ability of such organizations to transfer funds to other countries with relative ease. Federal and provincial governments must recognize their shared responsibility for the regulation of charities. Constitutional obstacles preclude a regulated system similar to that of the England and Wales Charity Commission. The ideal would be federal-provincial agreements on the monitoring and regulation of charities. If there is no agreement, federal and provincial governments must individually assume their responsibilities to deal with the possible use of charities for TF. For example, the federal government could examine which parts of the UK Charities Commission model could be implemented without provincial involvement.
The following several sections provide specific suggestions and recommendations to reduce the likelihood that charities and NPOs will be used to finance terrorism.
7.8.1 Sharing Intelligence
The denial of charitable status should be one stage in a whole-of-government effort that could, in appropriate cases, see further investigation of a charity by
CSIS or the RCMP. The CRA should continue to work closely with other agencies to identify charities that may be involved in TF. The CRA should be included in the overall network of agencies that are concerned with TF, and it should have access to appropriate information from domestic and foreign agencies. It would be almost impossible for any regulator to find the indicia of TF by sifting through information about all charities. Intelligence must be shared to help identify targets. This will require the RCMP, and especially CSIS, to work closely with the CRA and to provide it with the best possible intelligence. Greater effort should be made to share general information about TF that is of common interest to all these agencies. For example, CRA is not a member of ITAC, while FINTRAC is. CRA could benefit from such membership. The CRA has limited resources to devote to audits of charities. It is essential that the CRA receive the best intelligence possible from all sources about charities that may be involved in financing terrorism to make optimal use of its audit resources. Largely because of changes introduced by Bill C-25 to the PCMLTFA late in 2006, the CRA can now share more extensive information with other agencies. However, it took considerable time for the changes allowing this increased sharing to come into effect. The impetus for change occurred on September 11, 2001. Bill C-25 was enacted only in 2006 and came into effect in stages. Its provisions were fully in force only in December 2008. Such delays are unacceptable.
As well, the CRA, RCMP, CSIS and FINTRAC would all benefi t if reporting on the value of the exchanged information were made mandatory, or at least encouraged. Such follow-up would also help the National Security Advisor to review the effectiveness of Canada’s efforts to combat TF, including how well the CRA, FINTRAC, CSIS and the RCMP are working together.
A charitable organization whose registration is revoked for terrorism or TF reasons should be reported to the appropriate agencies for further investigation. Revocation of charitable status should be only part of a response that includes continued intelligence operations and, possibly, law enforcement investigations.
7.8.2 Intermediate Sanctions
It is particularly helpful for the CRA to make full use of the “intermediate sanctions” now available to it (for example, monetary penalties or the suspension of a charity’s power to issue tax receipts for donations) to encourage charities to “clean house” by removing directors and trustees who may be involved in terrorist activities. Creative and robust use of intermediate sanctions can indirectly achieve some of the goals that are obtained in the United Kingdom through a charity commission.
It would be helpful to have statistics indicating the role that terrorism or TF issues play in decisions to revoke charitable registrations or to use intermediate sanctions. Such statistics would help determine the extent to which the Charities Directorate contributes to government-wide efforts to stop TF. Such information could also assist other agencies such as CSIS, RCMP, FINTRAC and the NSA. It would also be of value to have statistics, to the extent that these can be assembled, on the extent of TF through charities.
7.8.4 The Charities Registration (Security Information) Act Process
The question arises whether the Charities Registration (Security Information) Act (CRSIA) process is necessary if it is not being used. Canada has a legitimate interest in protecting information that could endanger national security or endanger persons if it were disclosed. The CRSIA allows secret intelligence to be presented to a judge while only a summary containing non-sensitive information is disclosed to the charity or person challenging the CRA. The CRSIA has a potential value in deterring TF and also underlines Canada’s commitment to stopping the subversion of charitable status through TF. For these reasons, it should be retained. Still, the CRA appears to have managed without invoking the CRSIA process.
Although the CRSIA was created to allow the CRA to revoke or deny registration on the basis of classified information, organizations that support terrorism will likely also fail to meet other requirements for charitable registration and not obtain or lose charitable status for those reasons. It is difficult to fault the government for not using the untested procedures of the CRSIA if it is possible to deny or remove charitable status on other grounds. Nevertheless, to demonstrate its ability to refuse to register charities without making use of the CRSIA, the CRA should be more transparent and keep better statistics about when concerns about TF have led to denial of charitable status.
Chapter VI described the debate about whether the CRSIA should contain a due diligence defence. The need for such a defence is difficult to assess at this time because no CRSIA certificate proceedings have yet occurred. However, the loss or denial of charitable status is not a consequence of the same magnitude as the prospect, for example, of detention or punishment for an individual. This may make the lack of a due diligence requirement in the CRSIA more defensible.
The lack of experience with the CRSIA also makes it difficult to assess other possible deficiencies, such as enabling the government to rely on secret evidence and the fact that the CRSIA does not on its face contemplate allowing security-cleared special advocates to see and challenge secret evidence. It would be helpful to have a track record of CRSIA certificate proceedings. Claims about deficiencies in the CRSIA could then be examined as real, rather than speculative, issues.
7.8.5 Not-for-profit Organizations
A serious obstacle hinders the fight against TF in Canada. Each province can control and regulate NPOs under section 92 of the Constitution Act, 1867. Rules vary among the provinces. In fact, there are few reporting rules in any of the provinces. As the organizations are non-profit, the CRA is normally not involved. The problem lies in the ability of NPOs to operate in a clandestine manner and to ignore what rules there are, making it almost impossible to identify TF within them. There is obviously much to be gained by federal and provincial governments harmonizing their treatment of NPOs. The federal government should take the lead in bringing together provincial authorities to coordinate responses to the abuse of charitable or not-for-profit organizations. It is especially important that regulators be provided with the information and assistance they need to identify the abuse of charities and not-for-profit organizations for TF. Organizations should also be prohibited from using the description “charity,” “non-profit organization,” “not-for-profit organization,” or similar descriptions, unless registered as such with the CRA or the appropriate provincial agency.
The CRA should, when practicable, publish reasons for denying or revoking the registration of charities or NPOs and for applying intermediate sanctions to charities. Indeed, publicity will be an important factor if these sanctions are to infl uence charities and NPOs to reform themselves and to alert potential donors that a given organization supports terrorism. The Commission acknowledges the tradition of keeping income tax information confi dential. These concerns are laudable, but the traditional protection of tax information from disclosure needs to be reconsidered in light of concerns about terrorism.
7.8.7 Avoiding Harm to Legitimate Charities and NPOs
It is essential that measures to defeat the use of charities or NPOs for TF not unnecessarily impede the valuable activities of legitimate organizations. Any new guidelines or best practices that the CRA may contemplate to help it address TF in the charitable sector should be developed in close cooperation with the charitable sector. The work of honest charities should not be hindered because of unrealistic guidelines or best practices.”
There is also an article by David G. Duff entitled Charities and Terrorist Financing: A Review of Canada’s Legal Framework
For those who are interested in practical steps that a Canadian charity can take to prevent misuse of its assets for terrorism or otherwise you might find my article entitled “Canadian Charities and Terrorism: Preventing Abuse of Your Favourite Canadian Charity” useful. http://www.globalphilanthropy.ca/index.php/articles/canadian_charities_and_terrorism_preventing_abuse_of_your_favourite_canadia/
Do you require legal advice with respect to Canadian or Ontario non-profits or charities?
Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.