Thank you, Mr. Chairman. Thank you, members of the committee and fellow panellists.
My name is Vivian Krause and I am here as a citizen.
I would like to speak to the changes in the legislation that specifically affect registered charities.
For most of my work life, I have been involved in charity, a decade with the United Nations and more than a decade with registered charities here in Canada. I have also done extensive research on the funding of environmental charities and their campaigns. It is my personal experience in the charitable sector and my research that inform my comments today.
In the 2019 budget, several changes are introduced to the law regarding the conduct and privileges of registered charities. The main changes are the removal of restrictions on the extent to which charities are allowed to engage in political activity, and the introduction of a new category of organizations that will now have the privileges of charities—journalism organizations.
I would like to offer some context to the discussion of these changes. To sum up in a few words, the main point that I would like to make is that these changes tinker at the edges of minor issues, meanwhile major issues are not addressed. It's to those major issues that I would like to speak.
Several years ago I first testified to a House of Commons committee on the U.S. funding that environmental organizations were receiving, and continue to receive, for their participation in a well-funded, anti-pipeline initiative called the Tar Sands Campaign. In response, the federal government allocated several million dollars in the 2012 budget to enable the charities directorate to conduct audits and education to improve compliance with regard to the conduct of political activities by registered charities.
What initially concerned me wasn't the anti-pipeline activism. It was what I saw as “garden variety” corruption. In one case, the president of a charity had paid more than a million dollars into his personal company.
As part of my first testimony in 2012, I urged that changes be made to the Income Tax Act to increase the disclosure requirements with regard to the revenue and expenditures of registered charities.
Over the past seven years I have continued to keep an eye on what is going on in the charitable sector. I am now even more concerned that changes need to be made to our charitable system to make it more robust to fraud. I've come to this conclusion based on my analysis of the grant making going on in a network of charities run by a lawyer in Vancouver. This individual claims publicly at his website that he has created 650 charities and executed more than two billion dollars' worth of charitable giving.
During 2017 and 2018, I went through the Canadian tax returns on about 130 of these charities. The revenues of these charities totalled $1.1 billion. By my analysis, less than 10% of that was actually spent on charity. Of the $1.1 billion, $600 million was tax-receipted donations. As far as I can tell, the amount of charity that has actually been conducted falls short of that by about a half a billion dollars.
In the fall of 2017, I provided my research on this file to the Globe and Mail. One of their investigative journalists, Kathy Tomlinson, reviewed my work and did further research of her own. Her findings were reported in a front-page story that ran in the Globe and Mail in October 2017.
As the Globe and Mail reported, the charity that is at the centre of this monkey business is the CHIMP foundation. My analysis of CHIMP's tax returns finds that CHIMP has granted roughly $100 million to a network of charities. If that money had been spent on charity, that would have been good, but that's not what happened. Instead, those charities regranted most of the $100 million amongst themselves and back to CHIMP.
If I may, I just want to illustrate this because it's hard to understand. CHIMP gave $100 million to a bunch of charities, and that's fine, except that what then happened is that those charities regranted the money, road-tripped it around and around, and then the money went back to CHIMP.
I found another example of this. In fact, the first one I found was actually just $3 million. It was with Tides Canada, a charity in Mississauga that I would characterize as a fake charity because all it did was receive money from another charity in Pawtucket, Rhode Island, road-trip the money to Vancouver, then to Tides Foundation in San Francisco and back to Pawtucket. In the process, this charity in Mississauga issued tax returns for three million dollars' worth of charity in Canada that never happened.
Our whole charitable sector is subject to this type of abuse because of what I would call shell charities. When charities are audited just on a one-on-one basis, this goes undetected, basically. You have to look at the bigger picture to see what's really going on.
I would like to suggest that increasing the disclosure requirements and transparency would be a cost-effective way to reduce the risk and to discourage this type of abuse within the charitable sector.
Another cost-effective measure to discourage fraud would be an online searchable database accessible to the public. In fact, several of these already exist, notably one provided by Mark Blumberg and another by a company called Ajah. Blumberg's is free, while Ajah's is not. While it's very good, it's quite costly and accessible for a fee that most Canadians would find cost-prohibitive. A combination of increased disclosure requirements and a publicly available searchable online database would go a long way to preventing the type of tax fraud scam that, under our current system, is all too easy.
Last, I just want to take a few moments, if I may, to flag for the committee that there are some significant issues with regard to the ultimate outcome of the controversial audits of political activity, which were initiated in 2012 under the previous government, and how these have been handled subsequently by the current government.
In 2016, the CRA reported that 42 charities were audited as part of the so-called political activity audits. In its report the CRA reported that, out of those 42 charities, 41 were not fully compliant. I have a reproduction of the CRA's own diagram. In only one case no problem was found.
When the current government came to office, the Prime Minister characterized these audits as “political harassment” in his mandate letter to the national revenue minister, and the finalization of the political activity audits was suspended. The law regarding limits on political activity has since been changed retroactively. As I understand it, the audits have been or are being finalized under the new law.
In practice, what this means is that some of the charities that would have had their status revoked will be off the hook because the law was changed retroactively. Back in 2012, when the fuss first broke out over the foreign funding of anti-pipeline activism, the charity in the hot seat was Tides Canada, based in Vancouver. Tides Canada has repeatedly denied any wrongdoing, but according to its own financial statements, the CRA audit of the Tides Canada Initiatives Society is still unresolved seven years since it began in 2011. This suggests to me that the CRA did not give Tides Canada an all-clear, as it has suggested. Furthermore, according to Tides Canada's financial statements, it was only audited for 2008 and 2009. This raises questions in my mind about why the charity at the centre of the fuss was apparently not audited for any of the relevant years.
One of the findings the CRA reported was “serious non-compliance” unrelated to political activity, including “undue benefit”. This was what I was concerned about with regard to a payment of roughly $400,000 to the president of an environmental charity. Subsequently, the individual who received this payment, Mr. Gerald Butts, became the principal secretary to Prime Minister Justin Trudeau. Mr. Butts has confirmed via Twitter that he did receive this payment as severance after he voluntarily resigned.
If the political activity audits were carried out as a form of “political harassment,” as the Prime Minister has characterized them, then of course it would have been correct for the Prime Minister to characterize these audits as such. But as we now know from the results of these audits, as reported by the CRA, this was not the case. This raises questions about why the Prime Minister characterized these audits as something that they were not and why the audits were suspended until the law was rewritten retroactively. From the way these audits were handled, some charities and individuals may have benefited. Some of these charities and individuals have very close involvement with the Office of the Prime Minister and his former principal secretary. Therefore, I believe the handling of these audits raises serious questions that merit answers.
Thank you, Mr. Chairman.