The Standing Committee on Finance recently released a report “Terrorist Financing in Canada and Abroad: Needed Federal Actions”.  The report discusses different methods for financing terrorism and has two sections dealing with charities.  There is also a recommendation that “12. The federal government initiate a study to clarify the role of charitable organizations in order to protect legitimate entities in Canada’s charitable sector and to prevent charities from being used as vehicles for terrorist financing.” Personally, I don’t think we need more studying of charities – we need to enhance the financial management capacity of charities (especially with respect to planning and internal controls) and enhance their understanding of their current legal requirements especially guidance such as CRA’s checklist for charities on avoiding terrorist abuse and CRA’s and Canadian registered charities carrying out activities outside of Canada.

I have also discussed in numerous places the importance of greater transparency in both the registered charity area and the more importantly in the non-profits that are not registered charities.

Here is an excerpt from the report on page 6:

3. Charities
The Committee was informed that charities are used to raise and transfer funds for terrorist financing purposes. Haras Rafiq commented that a number of British charities belong to the Muslim Brotherhood network. In his opinion, non-governmental entities,charities and other organizations fund “strategic terrorism” through shell companies, some of which are involved in illegal activities. He suggested that examining the ideological values of the directors and trustees of organizations assists in identifying those who are involved in terrorist financing. The Foundation for Defense of Democracies proposed that a discussion is needed about greater transparency in public registers, as transparency would help to identify owners of shell companies and the beneficiaries of charities.

In the view of Edwin Black, who appeared as an individual and has studied international charitable organizations that he believed are working directly or indirectly with terrorist organizations, it is difficult to trace the funds that such organizations receive.
He provided the example of the Union of Good charity, which is affiliated with Hamas. Similarly, Matthew Levitt’s submission to the Committee contained examples of charities in other countries with links to terrorism, including the Muslim Charities Forum in the United Kingdom and Pearl of Hope in France.

According to MNP LLP, charities are commonly used to fund terrorism because it is difficult to determine the types of transactions that are normal for a charity. It also stated that, as the amount donated to charities is variable over time, it is difficult for charities regulators and financial institutions to determine suspicious transactions.

Here is an excerpt from the report starting on page 18:

C. The Canada Revenue Agency, Charities and Not-for-profit Organizations

The Committee’s witnesses mentioned the CRA’s role in combating terrorist financing, and the responsibilities of charities and not-for-profit organizations in reporting certain financial information to the CRA. The CRA commented that the risk of terrorists and terrorist organizations using the charitable sector and not-for-profit organizations to raise and transfer funds has been recognized internationally since the late 1990s. It noted that one of its three main responsibilities in relation to terrorist financing is protecting the charity registration system from abuse by terrorists; the others are sharing information with other federal departments and agencies to support the detection and suppression of domestic terrorist financing activities, and assisting Canada in meeting its international obligations related to combating terrorist financing.

The CRA explained that its Charities Directorate is responsible for ensuring that Canada’s 86,000 registered charities meet the requirements for obtaining and maintaining charitable status. According to it, the Charities Directorate has four main activities: review charitable applications; receive and analyze intelligence related to national security; audit registered charities to assess their potential risk for terrorist financing; and share relevant information related to charities with the RCMP, CSIS and FINTRAC. Regarding charitable registrations, it noted that 1% of applications are deemed to be of high risk for terrorist financing; these applications are subject to a detailed review and possible denial of registration. It also stated that the intelligence it receives and analyzes in relation to national security comes from various sources, including the media, classified intelligence, the public and annual reports submitted by charities.

Vivian Krause, who appeared as an individual, highlighted that Canada requires charities to report less information than is the case in some other countries; for example, the U.S. Internal Revenue Service requires charities to list the names of their five highest-paid employees and contractors, indicate the purpose for which funds are granted to recipients, and provide information on investments and donors. In her view, there are several ways in which charities can receive, and not disclose, funds on their income tax returns, including through accepting funds from intermediary and shell organizations. She advocated greater transparency in the charitable sector to ensure that charities are not being used to launder money in Canada.

Carters Professional Corporation indicated that federal guidance is lacking about the manner in which charities can best comply with the PCMLTFA and the Criminal Code. It requested made-in-Canada guidelines for charities regarding terrorist financing; these guidelines should include practical recommendations regarding donations and additional support given to other entities, and should be developed in collaboration with the charitable sector. The Royal United Services Institute felt that charities should be supported, given guidance and regulated to avoid being used by terrorist organizations.

Regarding the compliance burden imposed on charities and not-for-profit organizations for purposes of detecting terrorist financing, the Canadian Bar Association requested increased support from the CRA regarding compliance and direct federal funds to help defray compliance costs.

FINTRAC highlighted that it discloses information to the CRA if it is related to money laundering, terrorist financing or tax evasion; as the CRA focuses on not-for-profit organizations rather than on the entities that must send reports to FINTRAC, the CRA does not disclose information to FINTRAC.

The CRA mentioned that it has participated in a number of UN and FATF projects, and has contributed to reports that discuss terrorists’ and terrorist organizations’ use of the charitable sector and not-for-profit organizations.

In MNP LLP’s view, the CRA has made significant contributions to combating terrorist financing, but it should not have an FIU that is separate from FINTRAC.

There was an interesting supplementary opinion from the NDP on page 37:

The NDP members of the committee believe that many of the shortcomings in Canada’s fight against the financing of terrorism stem from the government’s misplaced priorities and misplaced resources.

We note that the Canada Revenue Agency’s budget for the pursuit of terrorism financing remained stagnant for years. Meanwhile, in 2012, the government chose to devote $13.4 million towards the CRA’s political pursuit of environmental charities in Canada. This ideological move has, unsurprisingly, generated few results.

Charities in Canada serve a crucial role in public debates, and advocate and provide direct support for the most vulnerable in our society. There are more than 85,000 charitable organizations in Canada yet, during testimony, the Committee heard that only one prosecution has been carried out against a Canadian charity for terrorism financing. If the government truly believes that charities are actively involved in the financing of terrorism in Canada, their approach has clearly fallen short. In fact, it appears that efforts to date have only harmed the capacity and reputation of the charitable sector in Canada.

Here are some resources that on our website that may be of interest to charities wishing to avoid involvement with terrorism:

Canadian Charities Conducting International Activities (2015)

The Threat of Terrorism – How Charities Can Protect Themselves – by Alastair Bland of the CRA

You can read the full report “Terrorist Financing in Canada and Abroad: Needed Federal Actions