On December 21, 2011 the Department of Finance announced a consultation on “updating Canada’s regime for combating money laundering and terrorist financing.”  They also put out a consultation paper, “Strengthening Canada’s Anti-Money Laundering and Anti?Terrorist Financing Regime,” which contains a number of proposals, a couple of which relate to charities.  The deadline for submitting comments is March 1, 2012.  The two proposals relating to charities are pretty minor – first for the Canada Border Services Agency (CBSA) to share information with CRA Charities Directorate on seizure reports when they seize forfeited currency.  Second, the Financial Transactions Reports Analysis Centre of Canada (“Fintrac”) already provides disclosure to CRA but such disclosure may be more proactive.  These recommendations will facilitate the Charities Directorate having greater awareness of potential money laundering or terrorist activities that could potentially involve charities.

I have done extensive work with Canadian charities on the subject of avoiding involvement with terrorism.  There are a number of serious structural issues facing charities, including challenges in the area of financial management.  If some charities don’t have good systems and internal controls it is more likely that resources will be used inappropriately.  While we have rules on Canadian rules on dealing with non-qualified donees (for example foreign charities) many charities conducting foreign activities are often not aware of their Canadian compliance obligations and also those of the area of operation.  There are a number of resources on preventing charity resources from being used to support terrorism but awareness is not as high as it should be. 

As well we have too many dormant charities that could be taken over by various people with questionable intentions.  We have a small number of people creating “shelf charities” that evade a lot of the protections provided by the CRA charity application process.  We also have too much “confidentiality” when it comes to a small number of people using charities to directly or indirectly support terrorism.  If there is information that a charity is supporting terrorism the public should not have to wait for a long process (sometimes as long as 7-10 years) of revocation to be concluded and then only can the CRA publicly disclose the allegations and release the last letters that they sent to the charity.  During that extended process the public may not even be aware of allegations of impropriety and they may be in good faith donating to a charity that they find out later was involved in terrorist activity.   

Here is the press release and consultation paper:  http://www.fin.gc.ca/activty/consult/pcmltfa-lrpcfat-eng.asp

Here are the portions relating to registered charities:

“Information Sharing to Detect and Deter the Funding of Terrorism Through Registered Charities

The CRA Charities Directorate administers the scheme for the registration of charities under the Income Tax Act. The Charities Directorate contributes to the Government’s efforts to combat terrorist financing by undertaking activities aimed at preventing organizations with ties to terrorism from obtaining registration and detecting and revoking the registration of already registered charities with ties to terrorism.

The Charities Directorate receives information from various government institutions, where appropriate, to assist it with its responsibilities for preventing the exploitation of registered Canadian charities to finance terrorist activities, including from CSIS, the RCMP and FINTRAC. 

The PCMLTFA specifies the specific circumstances that would require FINTRAC to disclose to the CRA information suspected to be relevant to money laundering or terrorist financing offences. It is intended that, in general, disclosures would be permitted where they would be of assistance to the CRA’s decision-making process regarding whether to grant or revoke a charitable registration.

The CRA Charities Directorate has cited the importance of these tactical disclosures by FINTRAC in identifying previously unknown or suspect targets.  However, the CRA has also identified limitations in the existing PCMLTFA disclosure provisions which, if amended, would better assist the Directorate with its responsibilities of administering and enforcing the charities registration system. The Report of the 10-Year Evaluation of Canada’s AML/ATF Regime echoed this concern.

The Report of the 10-Year Evaluation of Canada’s AML/ATF Regime

Improved information sharing, as noted by the Auditor General in 2004 and still cited by the Regime partners in 2010 as needing further effort, has the potential to improve the efficiency and effectiveness of Regime operations. Some Regime partners have highlighted a number of areas where information sharing among the partners could be more open, in their view, without jeopardizing privacy or national security. Those areas follow: …

•The PCMLTFA does not contain provisions that permit CBSA to share information with CRA-Charities.
Proposal 4.3
Disclosures of Charities Information by the CBSA
The Government is giving consideration to amending Part 2 of the PCMLTFA to allow the CBSA to disclose to the CRA Charities Directorate cross-border seizure reports related to forfeited currency or monetary instruments suspected to be linked to the activities of a charity.The proposed amendment would allow the CBSA to proactively disclose directly to the CRA information obtained at the border that could assist with the determination of a charity’s registration status.

Proposal 4.4
Disclosure of Information on Charities by FINTRAC
The Government proposes to review the provision that enables FINTRAC to disclose to the CRA information related to registered charities in order to facilitate its ability to provide proactive disclosures. The PCMLTFA requires FINTRAC to disclose information to the CRA to assist with its responsibilities to administer and enforce both the tax system and the registration system for charities under the Income Tax Act. With respect to the latter, the PCMLTFA generally requires FINTRAC to disclose designated information to the CRA where, in addition to suspicions of money laundering and terrorist financing, there are reasonable grounds to suspect that the information is relevant to determining whether a registered charity has ceased to comply with its registration requirements or whether a person or entity, which FINTRAC has reasonable grounds to suspect has applied to be a registered charity, is eligible to be registered as such.

The proposed amendment would seek to clarify the conditions under which FINTRAC would disclose to the CRA related to the activities of a charity in order to facilitate its ability to provide proactive disclosures.