On March 26, 2015, Rick Stewart, Assistant Commissioner, Legislative Policy and Regulatory Affairs Branch, of the Canada Revenue Agency, made a presentation to the Finance Committee on terrorism.  

Here are some excerpts of the presentation.

We're here to discuss the CRA's role in combatting terrorist financing as part of the government's anti-money laundering and anti-terrorist financing regime. As a member of the regime the CRA's responsibilities in this area are threefold.

First, as the federal regulator of charities, the CRA protects the charity registration system from terrorist abuse. Second, it participates in the sharing of information with regime partners, as authorized by legislation, in support of the detection and suppression of terrorist financing activities at the domestic level. And third, it assists Canada in meeting its international commitments related to countering terrorist financing.

I will address each role in more detail.

The Charities Directorate is responsible for ensuring that over 86,000 registered charities meet the legislative requirements for obtaining and maintaining charitable registration. This ensures that the benefits of charitable registration are made available only to organizations that operate exclusively for charitable purposes and that charitable funds and services reach intended, legitimate beneficiaries. The Charities Directorate does this through a balanced program of education, service, and responsible enforcement.

The risk of terrorist exploitation of the non-profit and charitable sector has been recognized by the international community since the late 1990s. Since that time, the CRA has taken steps to protect the charity registration system in Canada from being abused by individuals or groups with links to terrorists. With the passage of the Anti-terrorism Act in 2001, the CRA became a partner in the regime.

The charities directorate formally established the review and analysis division in 2003 to deliver CRA's mandate and responsibilities under the Anti-terrorism Act. Unlike the charities directorate's general functions, which are aimed at protecting the Canadian tax base, the review and analysis division focuses specifically on protecting the integrity of the charity registration system against the threat of terrorism. This is an administrative role that does not involve criminal investigations.

The review and analysis division's operational activities can be divided into four areas: applications, leads, audits and monitoring, and information sharing.

    First, the division reviews all applications for registration as a charity to determine the presence and level of terrorist financing risk. Approximately one percent of applications are deemed to be of high risk and undergo a detailed review by the division. Depending on the findings of the detailed review, the CRA may deny registration.

    Second, the division also receives and processes leads related to the national security of Canada. These come from a variety of external sources, including the media, classified intelligence, and the public. In addition, leads are developed internally through our review of interrelated files and annual reporting by charities.

    Third, the division audits registered charities based on the potential risk of terrorist financing abuse that is posed to the charitable sector and Canadian society as a whole. This is done through the implementation of a risk-based approach.
    In conducting this work, the division must work to ensure that its assessment of risk does not disrupt or discourage legitimate charitable activities. The complexity involved in maintaining this balance requires a team of subject matter experts with a range of experience in national security issues, terrorist financing, geopolitics, and charity law.

    And fourth, information sharing is vital to the division's operations and occurs across all of its functions. The CRA, through the Review and Analysis Division, has the authority, under current legislation, to share certain information related to charities, with the RCMP, CSIS and FINTRAC when it is relevant to their respective national security mandates. In turn, information from national security partners is used in assessing the level of risk posed by applicant or registered charities.

Due to the global nature of terrorist financing, the CRA's efforts at home can have significant impacts internationally. The division's knowledge and expertise on protecting the charity registration system from terrorist abuse have allowed Canada to emerge as a leader in this particular area within the international community.

As a regime member, the CRA plays a role in fulfilling Canada's international commitments to fight terrorist financing. This is done, among other things, through compliance with international standards set by the Financial Action Task Force, FATF. While Finance Canada coordinates Canada's relationship with the FATF, it relies on other government departments and agencies as subject matter experts to participate in FATF meetings and projects. Most notably, the CRA co-led a FATF typologies project, which involved analyzing case studies from a number of countries to identify vulnerability and risk within the non-profit and charitable sector. The resulting report, entitled “Risk of Terrorist Abuse in Non-Profit Organizations”, was published in June 2014. The CRA is currently co-leading a review of the FATF best practices paper on combatting the abuse of non-profit organizations, which will aid countries in responding more effectively to terrorist financing abuse in the charitable sector. In Canada's case, the CRA will use the best practices paper to enhance the measures already taken to educate charities about the risks associated with terrorist financing.

In addition, since January 2011, the CRA has participated as a subject matter expert in an international capacity-building initiative under the auspices of the United Nations Counter-Terrorism Committee Executive Directorate. The initiative, the first segment of which was sponsored by the Department of Foreign Affairs, Trade and Development, is aimed at raising awareness around the world of the risks of terrorist abuse to the non-profit and charitable sector, and strengthening compliance with the FATF's recommendations in this area.

In conclusion, the CRA contributes to the government's efforts to combat terrorist financing by protecting the charity registration system in Canada from the abuse of terrorist financing. It prevents organizations with links to terrorism from being registered, and it revokes the registration of those that are, preventing them from abusing and taking advantage of Canada's generous tax incentives.

The CRA's ability to undertake these activities has been facilitated by its partnership in Canada's anti-terrorism financing regime.

Subsequently there was an in-camera session.  The witnesses were “Royal Canadian Mounted Police: Stéphane Bonin, Director, Financial Crime. Canadian Security Intelligence Service: Michael Peirce, Assistant Director Intelligence. Canada Revenue Agency: Cathy Hawara, Director General, Charities Directorate, Legislative Policy and Regulatory Affairs Branch; Rick Stewart, Assistant Commissioner, Legislative Policy and Regulatory Affairs Branch.” 

A number of papers were also filed with the committee.  Here is an excerpt from a submission by Dr. Matthew Levitt of The Washington Institute for Near East Policy:

CHARITY ABUSE

Much attention has so far been devoted to the massive amounts of revenue that ISIS brought in through oil sales. But with the catastrophic humanitarian crisis in Syria and Iraq, another significant potential source of funds is emerging in the renewed abuse of charities. This is not a new vulnerability. …

Now, a February report from the Financial Action Task Force warns that “the possibility of abusing charities by ISIL or its affiliates directly or indirectly for fundraising or funding activities needs to be recognized.” In the past half year, Western European countries have taken action against several outfits. The UK stripped the Muslim Charities Forum of state funding in January, following an investigation into “links to a group alleged to fund Hamas and the Muslim Brotherhood.”  French authorities shut down Pearl of Hope, a charity that claimed to “promote the health and education of sick Syrian and Palestinian toddlers,” in November 2014. Two senior leaders were also arrested on charges of financing terrorism. According to investigators, while Pearl of Hope did deliver food and medical supplies, “the group was also using such deliveries as a front to funnel covert funds to jihadist groups and had links to the Nusra Front.” About a dozen other charities were under surveillance at the same time. 

Even more concerning, innovations in social media and other communication technologies have made it easier than ever for individuals to donate money to their cause of choice. As the recent FATF report noted, “ISIL has manipulated social media, physical and virtual social networks, encouraged donations, and conducted a marketing campaign in a manner that is consistent with industry standards established by major crowdfunding companies.” A case study from Saudi Arabia highlights a group of individuals associated with ISIL who solicited donations via Twitter, asking donors to contact them via Skype. Once contact was made, the donors were asked to purchase an international prepaid card and to send the number to the financiers via Skype. The card number would then be sold for cash at a lower price by ISIL members in close proximity to Syria so that the cash could be given to ISIL.  The extent of complicity in terror financing by any given non-profit organization varies. In some cases, the organization may simply not realize that the recipient of their aid is in fact linked to or involved in terrorism. For others, a few bad apples within the outfit may be redirecting funds, while in the most extreme examples, the group itself is set up as a front for extremists’ fundraising efforts.

“In some cases, public appeals for donations have not correlated with the organisations’ stated purpose,” the FATF authors write. They cite one charity set up in Italy, which received donations from individuals in Europe. While most donations went to legitimate uses, mainly adoptions, investigations turned up a donor who was a member of an extremist group located in Italy. “Financial analysis eventually showed that this individual, who subsequently died fighting in Syria, used the organization as [an] unwitting conduit for fund transfers possibly connected to his terrorist activity.”  

Another case study described an individual who “established a charitable foundation under the pretext of collecting donations for Syrian refugees, people in need of medical and financial aid, and construction of mosques, schools and kindergartens.” However, the entire scheme had been set up to raise funds that “were sent as an aid for terrorists and their families and meant to be used as a financial support for terrorist activities.” Despite the clear and desperate need, the challenge of monitoring charity abuse has been intensified by United Nations Security Council resolutions calling for immediate humanitarian aid in Syria and Iraq. Many organizations engaged in charitable work in the Middle East are genuine, but the proliferation of groups makes it easier for illegitimate “charities” to operate. Illustrating the difficulties in this matter, intense criticism was directed at several international banks in March, after they froze the accounts of numerous UK-based charities and international NGOs operating in Syria, Gaza, and Iraq.  Still, it is early going as yet for ISIS and illicit fundraising through charities. The FATF report assessed that “the overall quantitative value of external donations to ISIL is minimal relative to its other revenue sources.” But as those other revenue sources are increasingly squeezed, ISIS will begin looking to alternatives. Charities are a tried and tested method of terror finance, and governments will need to be alert to the possibility of a rising level of abuse.