Yesterday’s federal budget included new measures to curb the link between terrorists, organized crime and Canadian charities.
My first reaction was to wonder whether this is a solution in search of a problem.
In a pre-budget interview, Finance Minister Jim Flaherty said this is happening, but I couldn’t find a shred of evidence of Canadian charities being involved with terrorism. I was amazed, however, to find out how much crime is associated with charities.
The vast majority of it is just straight up tax fraud.
A 2008 report by the Organization for Economic Cooperation and Development OECD identified dozens of schemes, the most common of which are:
An organization poses as a registered charitable organization to perpetrate a tax fraud.
A registered charity wilfully participates in a tax evasion scheme for the personal benefit of its organizers or directors.
A registered charity is involved wilfully in a tax evasion scheme to benefit the organization and the donors, without the assistance of an intermediary.
A registered charity is involved wilfully in a tax evasion scheme to benefit the organization and donors with the assistance of an intermediary.
A charity is abused unknowingly by a taxpayer or a third party, such as an unscrupulous tax return preparer who prepared and presented false charitable receipts.
Tax sheltered donations as part of a tax evasion scheme.
Salaried employees concealed as volunteer workers.
An organization registered as exempted from VAT (value added taxes) that is performing taxed activities.
The issuance of receipts for payments that are not true donations.
The issuance of receipts to individuals working for the beneficiary organization.
Criminals use names of legitimate organizations to collect money.
Terrorism financing scheme using charities to raise or transfer funds to support terrorist organizations.
Misuse of charity funds by charities.
Manipulation of the values of donated assets.
The Canadian government has not reported how much revenue it may be losing to these schemes, but it must be billions. Just the cases under criminal investigation at the time of the OECD report accounted for more than $200 million in potential losses. One case study alone implicated an unscrupulous tax preparer and 1,190 of his clients in defrauding Canada of $1.06 million.
It seems a lot of people don’t appreciate that tax evasion is actually a crime that can carry some pretty stiff penalties including prison time.
The other problem for charitably-minded Canadians is being taken in by fraudsters. The Canada Revenue Agency has a neat feature on its website where people can verify if a charity is legitimate.
That doesn’t help if the criminals are posing as representatives of a legitimate charity. Watch out for red flags such as a high pressure pitch. Real charities don’t do this even in times of immediate need.