The CRA has recently posted more information on charities and terrorism. They also included an infographic “Protect your charity from terrorist abuse”.
While not explicitly stated this new set of pages replaces the short “Checklist for Charities on Avoiding Terrorist Abuse” which was very short and also increasingly dated. Now the Charities Directorate has numerous pages dealing with terrorism, also an infographic and a more detailed checklist.
While charities involved with terrorism are few in number, the damage they cause to the charity sector and people around the world can be very substantial.
The advice is a bit understated. For example, “An organization will not be considered charitable at law if its purposes or activities are illegal or contrary to public policy. This includes the support of terrorism, either directly or indirectly.” The Charities Directorate is not responsible for the enforcement of the criminal code in Canada and elsewhere, but they could have been a little more explicit. Perhaps they could say ‘If you are supporting terrorism, you could end up with a long jail sentence in Canada or abroad. The standards for foreign prisons may not be the same as those in Canada. In addition, your registered charity could lose its charitable status’.
The new pages state, “The Canada Revenue Agency (CRA) is responsible for making sure registered charities comply with the requirements of the Income Tax Act and common law, which prohibit providing support for terrorism. ” Of course, what is missing is that the Charities Directorate and RAD are not focussed on non-profits that are not charities. You can see more about this here.
CRA notes “… the CRA expects that a charity has controls in place to identify and manage risks of terrorist abuse, including risks that may arise through activities a partner or intermediary may conduct on a charity’s behalf. The following information can help your charity set the appropriate controls in place.” Controls include internal controls and more. These new pages have a number of points dealing with internal controls. Just read a CRA letter to a charity “The Organization stated that there is no statutory authority that gives the CRA jurisdiction to question the internal controls of the Organization. It also stated that while the lack of internal controls may suggest other problems, their existence in and of themselves, is not required by the Act. … The Organization believes that it is outside the CRA’ s jurisdiction to comment on this point and but that there is no basis for commenting on its internal controls.” Needless to say, any charity that believes that the regulator of registered charities does not have the jurisdiction to question the internal controls of a charity is probably a charity that will be revoked in short order. In this case the charity was revoked.
Practically speaking, there is very little that a charity needs to do that is specific to “terrorism” and that they should not be doing just to protect their assets, reputation, and beneficiaries from numerous problems, including mistakes, fraud, embezzlement, etc.
Be wary when reading CRA guidances such as this, as they have these little icons that you need to click to reveal additional material. If you are not careful, you will miss a lot of the guidance!
In response to this, we will probably need to create some updated educational materials, etc.
I was talking to my 16-year-old neighbour and explaining what I do on a Sunday, namely blogging about new CRA pages dealing with terrorism. She asked me a question. ‘Why does CRA even need to tell charities that they should not support terrorism? Isn’t that obvious?’ That is a very good question. Yes, it is obvious to almost all charities, but for some charities, apparently, it is not so obvious.
One other note. It is difficult to show that a charity provided material support to a terrorist organization, especially since terrorist organizations generally don’t file returns with CRA, they probably don’t issue receipts to groups funding them and they have been known to have poor transparency. CRA does not have, and I don’t think we want them to have, agents all over the world visiting operations in foreign countries. It is easier for CRA to show that a charity has some sympathies and connections with certain groups, provided millions of dollars to an area which has a lot of terrorism, and the charity did not maintain direction and control over those funds. When a registered charity does not maintain direction and control over its funds, the funds could be utilized appropriately or inappropriately and the charity may never even know. Inappropriate use of resources can include many different items, not just terrorism. So sometimes, when the CRA revokes a charity for lack of direction and control, there may be allegations or concerns that some of those funds ended up supporting terrorism, but ultimately, the charity is revoked for lack of direction and control over its resources.
Here is the text of the pages from CRA:
In Canada and abroad, terrorists have abused charities by involving them without their knowledge in supporting terrorist activities. Use the resources on these pages to help your charity and its directors:
- understand how terrorists can abuse your charity’s good work
- identify risks that relate to your charity
- reduce your charity’s risk
- understand and comply with your charity’s obligations under the Income Tax Act
The charitable sector is diverse, and the risks of vulnerability to terrorist abuse vary from charity to charity. These risks can also change over the life of a charity as its purposes or activities change.
While terrorism may affect only a small number of charities, the risk is real. Terrorism can damage a charity’s reputation and affect its registered status. This is especially true for charities that work in high-risk areas such as conflict zones.
Charities are trusted by the public and have credibility in their communities. They also have a unique ability to reach and help people in high-risk areas and conflict zones where vulnerabilities to terrorist exploitation may exist.
The Canada Revenue Agency (CRA) is responsible for making sure registered charities comply with the requirements of the Income Tax Act and common law, which prohibit providing support for terrorism. As such, the CRA expects that a charity has controls in place to identify and manage risks of terrorist abuse, including risks that may arise through activities a partner or intermediary may conduct on a charity’s behalf. The following information can help your charity set the appropriate controls in place.
Responsibilities of your charity
Like all organizations and individuals in Canada, charities and their officials are responsible for making sure they do not operate in association with individuals or groups that are engaged in or support terrorist activities.
The courts have established that an organization will not be considered charitable at law if its purposes or activities are illegal or contrary to public policy. This includes the support of terrorism, either directly or indirectly. If the CRA identifies possible concerns, it uses a risk-based approach to promote and enforce compliance. For more information, see The CRA’s approach to compliance.
Charities that ignore suspicious behaviour or careless practices risk damaging their reputations. Charity officials should investigate incidents that suggest a charity may have been exploited, and they should take action to address and correct these issues.
What is terrorism?
Terrorism refers to individuals or organizations supporting or engaging in violence to promote political, ideological or religious objectives. It is a serious threat to civil society, the wider international community and the charitable sector.
Assessing the risks to your charity
The risk of terrorist abuse varies from charity to charity and depends on a variety of factors, such as whether a charity:
- operates in an area of conflict where there is an active terrorist threat
- fundraises in an area that may be vulnerable to targeting by terrorists or terrorist sympathizers
- works with people who are targeted by a terrorist movement for support, protection or legitimacy
Terrorist exploitation of charities can occur in a wide variety of ways without a charity’s knowledge. Below, you will find examples of common ways that terrorist groups have abused charities.
Using a charity’s finances or other assets
Terrorist groups may use a charity’s funds or assets to support their activities. For example:
- A charity transfers funds to an organization that it didn’t know was connected to a terrorist group
- A charity’s vehicle is loaned to an aid organization linked to a terrorist group and is used to transport weapons into an area of conflict
- A charity’s office or premises are rented by a third party with links to terrorism to hold a political rally or to train terrorist recruits
- A charity’s online forums or social media accounts are used to promote or support terrorism. For example, its members or the public post articles in the comment sections that glorify a terrorist group and its cause, and include terrorist recruitment material
- A charity’s medical supplies are sold to a fake foreign relief organization that is controlled by a terrorist group
Using charity officials, staff, or volunteers
Terrorist groups may take advantage of limited screening, training, and controls in charities; a high turnover of volunteers and employees; and a culture of trust. For example:
- A volunteer joins a charity to travel to an area of conflict with the unstated intention of joining a terrorist group
- An official or volunteer posts on the charity’s website terrorist recruitment material or information that promotes violence, hatred and intolerance of others
- An official raises funds without the charity’s knowledge or supervision and uses them to support terrorism
- A volunteer uses a charity’s computers and printers to produce material that glorifies or supports terrorism
- An official independently approves the transfer of funds to an area where there are risks of terrorism or selects intermediaries that may expose the organization to increased risks of terrorist abuse
- An official moves funds through several organizations to hide the goal of financing terrorism
- A speaker is invited to the charity’s event where the speaker expresses extremist views that promote violence
Using an intermediary to divert resources
A charity’s risks and vulnerabilities increase when it works with or through an intermediary to carry on activities. For example:
- A charity provides funding to an intermediary that is found to be associated with a listed terrorist entity
- An intermediary collects funds for a charity and diverts these funds to groups connected to terrorism
- An intermediary diverts humanitarian relief to individuals or groups connected to terrorism
- An intermediary uses fraudulent identification to access a charity’s funds and diverts them to groups connected to terrorism
- An intermediary has limited experience in managing terrorism risks and unknowingly makes a charity’s resources available to terrorist groups
Using a charity’s name and reputation
Terrorists may use a charity’s name, reputation and networks to gain access to certain communities or to take part in or support terrorist activities. For example:
- An individual who is not connected to the charity starts a crowd-funding campaign with the charity’s name and diverts the collected funds to support terrorist activities
- An intermediary raises funds to support terrorist activities by using a charity’s logo without permission, suggesting that charity endorses the project
Reducing the risks to your charity
To help your charity identify practices to reduce its risk of abuse, review the Checklist: How to protect your charity.
For more information on the Government of Canada’s efforts to protect charities from terrorism, go to Framework to safeguard the charitable sector.
The CRA’s approach to compliance
As the majority of charities are largely compliant and generally only need guidance, the CRA uses a risk-based approach to promote and enforce compliance within the charitable sector. It has a number of tools at its disposal:
- Education letters and telephone calls to charities
- Audit program
- Other tools
In regards to the audit program, the CRA may select a charity for audit for various reasons. The CRA works closely with charities and accepts additional information throughout the audit process. When the CRA has finished its audit, it will send the charity a letter outlining the results. If the CRA identifies non-compliance under the Income Tax Act, the letter identifies the CRA’s concerns and preliminary views.
An integral part of the audit process is the administrative fairness process that allows the charity, where it disagrees with the CRA’s findings, to make representations on the findings before the CRA comes to a determination on the appropriate compliance outcome. Depending on the information provided by the charity on the findings, the CRA would provide additional education to the charity where appropriate to address more minor or moderate non-compliance. This means the CRA generally gives the charity the chance to take corrective measures through an education letter or a compliance agreement, later following up with the charity to verify if it has implemented the necessary changes. For cases of serious or repeat non-compliance, the CRA may instead look at imposing a sanction or advise that it plans to annul or revoke the charity’s registration.
If a charity believes the CRA has not interpreted the facts or applied the law correctly, it can make use of its recourse rights. If a registered charity disagrees with a sanction or with a proposed revocation, it can file an objection. If a registered charity disagrees with a decision resulting from the objection process, it can appeal to the Federal Court of Appeal or the Tax Court of Canada, depending on the type of appeal.
For more information, go to The audit process for charities.
Related links
The risk of terrorist abuse within the charitable sector is an international concern. To address this, the Government of Canada has put a number of measures in place and has created a framework that enables Canada’s national security partners to protect charities from terrorism.
Protecting the integrity of the Canadian charitable sector from the threat of terrorism
The Canada Revenue Agency (CRA) has a regulatory responsibility to protect and maintain public confidence in the charitable sector, which contributes to a whole-of-government approach to combatting terrorism and terrorist financing. In deciding whether organizations should be registered as charities, the CRA seeks to ensure that only organizations operating exclusively for charitable purposes are registered as charities.
The CRA reviews all applications for charitable registration, monitors charities that are registered and conducts compliance-related activities to make sure registered charities follow the Income Tax Act and the Charities Registration (Security Information) Act.
The Charities Registration (Security Information) Act allows the CRA to deny registration or revoke the registration of a charity involved in supporting terrorism through a certificate process, signed by the Minister of National Revenue and Minister of Public Safety. This special administrative process protects the use of very sensitive information that may reveal an organization’s ties to terrorist groups and allows the use of this information in assessing an organization’s eligibility for obtaining or maintaining charitable registration.
The CRA exchanges information with Canadian intelligence and law enforcement partners to assist their investigations, in accordance with the Income Tax Act, the Charities Registration (Security Information) Act, and the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. You can find more information on the CRA’s responsibilities and the related privacy considerations at Charities – Public Safety and Anti-Terrorism Privacy Impact Assessment.
For more information on Canada’s approach to dealing with national security threats, see Building Resilience Against Terrorism on the Public Safety Canada website. This includes the role of the CRA in detecting and addressing risks to the charitable sector.
For more information on Canada’s national security initiatives, visit the Public Safety Canada website.
International standards and best practices
The Financial Action Task Force (FATF), an inter-governmental body, introduced international standards in The FATF Recommendations to address vulnerabilities and threats related to money laundering and terrorist financing. Recommendation 8 deals with non-profit organizations (NPO), which in Canada include registered charities.
These recommendations, which are periodically updated, guide the development of Canada’s framework for addressing the risk of terrorist abuse in the charitable sector. Charities can also find governance information in various FATF publications, including Best Practices on Combating the Abuse of Non-Profit Organisations.
Additional research and resources
The 2014 FATF report, Risk of terrorist abuse in non-profit organisations, concludes that the NPO sector has several types of vulnerability, which are interconnected. In the Canadian context, the term “NPO,” as used by the FATF, can include both registered charities and non-profit organizations as recognized under the Income Tax Act. The report analyzes the risk of terrorist abuse in various operational areas, including program delivery and how resources are collected, transferred and spent.
The FATF report noted a higher risk for organizations that engage in service activities such as housing, social services, education and health care. It also noted a higher risk for organizations that operate near an active terrorist threat. For organizations that operate domestically, there is a higher risk for those working with people who are actively targeted by a terrorist movement for support and cover.
The Government of Canada has also performed the following research on how charities have been used to finance terrorism:
- Department of Finance’s Updated Assessment of Inherent Risks of Money Laundering and Terrorist Financing in Canada
- Financial Transactions and Reports Analysis Centre of Canada’s (FINTRAC) Terrorist Financing Assessment: 2018
Links to other international publications of interest
You may find it helpful to read about efforts in other countries to reduce terrorist abuse of the NPO sector:
- Anti-Terrorist Financing Guidelines: Voluntary Best Practices for U.S.-Based Charities (archived), published by the U.S. Department of the Treasury
- Protecting charities from harm: compliance toolkit, published by the Charity Commission for England and Wales
- Protecting your charity against the risk of terrorism financing, published by the Australian Charities and Not-for-Profits Commission
- Charities operating overseas: protect your charity against terrorist financing and other risks, published by New Zealand Charities Services
If you have information that a registered charity is not meeting its regulatory requirements, go to Report suspected non-compliance by registered charities to submit a lead to the Canada Revenue Agency. You can also contact the Charities Directorate at 1-800-267-2384 if you have questions.
Terrorism refers to individuals or organizations supporting or engaging in violence to promote political, ideological or religious objectives. If you have information about:
- an immediate threat of violence, call 911 or your local police department
- a non-immediate threat, including suspicions that a charity is associated with terrorism or violent extremism, report it to the Royal Canadian Mounted Police‘s National Security Information Network
Your charity must be created for charitable purposes and must devote its resources to charitable activities that further those purposes. The controls your charity puts in place to manage this requirement may also help reduce your charity’s risk of terrorist abuse.
The Canada Revenue Agency (CRA) expects your charity to understand the nature and extent of the risks of being associated with or enabling the support of a terrorist entity. Your charity must implement measures to reduce the risks that could affect its charitable registration.
Charities can be exploited without their knowledge by terrorist entities in many ways. For more information and examples, go to Assessing and reducing terrorist risks to charities.
Your charity can protect itself against terrorist abuse or allegations of misconduct by establishing strong procedures for:
- governance and accountability
- financial control and management
- risk, fraud, and aid diversion mitigation
- transparent reporting and record keeping
Use this checklist to help your charity:
- Identify and document your risks
- Apply measures to manage your charity’s identified risks
A. Identify and document your risks
A1. Identify your charity’s activities or practices that are susceptible to abuse, such as:
- fundraising practices that are largely cash based and susceptible to skimming
- cash-based transactions with partners or suppliers that are not easily traceable
- providing support to beneficiaries with items that can be used for non-charitable purposes, such as cash or capital property
- unrestricted or unsupervised use of assets such as computers, vehicles, meeting spaces and event facilities, or social media accounts
- the operation of divisions, branches, or projects that are not directly supervised or overseen by your charity
- conducting or funding activities in countries or regions with potential geographic, legal, or political concerns
A2. Review potential geographic, legal, and political concerns, in order to assess the country or region where your charity will operate in, send resources to, or receive funding from. Countries or regions that increase the risks to your charity include those:
- identified by credible sources, such as the Financial Action Task Force or the World Bank, as lacking appropriate anti-money laundering or counter-terrorism laws and regulations
- known to have terrorist entities operating within their borders
- identified as having significant levels of corruption, criminal activity or poor regulatory frameworks and enforcement regimes, due to armed conflict, political instability, or military action
A3. Screen individuals and organizations employed by or representing your charity to identify potential concerns, such as known support for terrorism. This includes your charity’s officials, employees, contractors, fundraisers, partners, and volunteers. Screening mechanisms are expected to be reasonable, based on the individual’s role within your charity. They can include:
- conducting online research
- conducting reference checks
- reviewing the following to ensure individuals and organizations are not associating with, or recognized as terrorists or terrorist entities:
- Public Safety Canada’s Listed Terrorist Entities
- Department of Justice Canada’s Order Establishing a List of Foreign State Supporters of Terrorism
- If your charity operates multiple jurisdictions, you should also consult the following:
- individuals or groups listed in the United Nations Act
- United States State Department’s Foreign Terrorist Organizations
- European Union terrorist list
- United Kingdom Treasury’s List of designated persons: Terrorism and terrorist financing
- Australian National Security’s Listed Terrorist Organisations
- New Zealand Police’s Designated Terrorist Entities
If an organization or individual you’re working with is linked to supporting terrorism, consider the risks involved to your charity and whether it is appropriate to continue working with them.
B. Apply measures to manage your charity’s identified risks
B1. Ensure your resources are being used correctly:
- Develop clear, complete, and detailed descriptions of the activities and responsibilities of staff, volunteers, partners, and others.
- Train officials, employees and volunteers on the risk of terrorist abuse, and the types of activities that may support terrorism and would be unacceptable to your charity. For example, distributing or posting material that supports terrorism.
- Implement policies and procedures to ensure your premises, assets, and other resources are not being used for non-charitable purposes.
- Set clear guidelines and expectations for guest speakers at your charity’s events about what speech content is unacceptable to your charity, and conduct reference checks to identify potential concerns, such as known support for terrorism, the promotion of violence, or the incitement of hatred on the grounds of race, religion, or sexual orientation.
- Monitor your charity’s website, online presence and publications to make sure the content is appropriate.
B2. Manage unique risks that arise when working with partners:
- Clearly define the nature of the activities to be conducted with a detailed budget.
- Enter into a written agreement with partners, and implement its terms.
- Ensure partners have relevant experience in the country where activities will be undertaken and the capacity to undertake the desired activities.
- Have partners track separately how your charity’s resources are being used.
- Make periodic transfers of resources, based on demonstrated performance, and withhold future transfers if necessary and appropriate.
- Monitor the activities to ensure partners are using the charity’s resources as intended, including obtaining written reports and other appropriate proof of program delivery, such as photographs, expense receipts, and audit reports.
Note
For more information on working with other organizations, see the following guidance products:
B3. Keep adequate books and records:
- Implement strong record-keeping practices to show how your charity’s resources are being used and ensure books and records are appropriate to the identified risks of terrorist abuse. Higher-risk activities call for more detailed books and records.
- Keep transaction records, including those for third-party payment processing services.
- Document decision-making about managing the risk of terrorist abuse.
- Keep all books and records at the Canadian address that the charity has on file with us. This includes all books and records related to any activity carried on outside Canada.
B4. Implement internal financial controls:
- Use reputable banking methods and established banks for deposits and payments, when possible.
- Limit access to receipt booklets.
- Establish and follow safe cash-handling procedures, including for handling and depositing cash and issuing receipts.
- Track the flow of funds and record how they are used.
- Limit the number of people who have access to, and signing authority for, financial accounts and credit cards.
- Consider requiring signed receipts for cash transactions.
- Consider conducting internal audits.
B5. Implement administrative, operational, and financial oversight measures:
- Ensure that the board of directors is knowledgeable about the workings of the charity, its purposes, and activities, and is fully accountable for the charity’s use of property and funds.
- Consider when the charity’s decision-makers on day-to-day activities should consult with other officials or board members.
- Regularly review the charity’s governance structure, bylaws, financial controls, internal procedures and policies.
- Implement policies and procedures about when and how to report incidents or complaints of possible wrongdoing, and actions to be taken to address concerns.
- Consider site visits of activities and programs to ensure they are carried on as intended.
If your charity is looking for more information, go to Charities and giving or contact the Charities Directorate.