Posted October 17, 2017
Much to my surprise, it is time to ask some fair questions of the Charities Directorate at the Canada Revenue Agency with regards to its handling of the audits of political activity of registered charities. More than five years ago, these audits were initiated under the former, Conservative Government. The charity that was at the centre of the fuss was Tides Canada Foundation.
Tides Canada has denied wrongdoing. “We are fully compliant with The Income Tax Act, all CRA guidelines regarding both domestic and international funding,” Tides Canada’s CEO, Ross McMillan, told Evan Solomon in a CBC interview in 2012.
With a staff of 250 and an annual budget of $29 million, The CRA’s Charities Directorate oversees 86,000 registered charities that report nearly $16 billion per year in tax-receipted donations. The Directorate calls itself “a small-scale version of the CRA within the CRA,” and audits roughly 800 charities per year.
Before the political activity audits were brought about, information was provided to the CRA about two issues: 1) anti-pipeline activism, and 2) the questionable payments that are explained ahead. In the media, the political activity audits have been ridiculed as a witch hunt meanwhile there has been virtually no investigative journalism about the questionable payments.
Result of the CRA’s Political Activity Audits
Between 2010 and 2016, the Charities Directorate did 4,615 charity audits and issued 182 notices of revocation, the CRA has said by e-mail. Roughly four percent of audited charities have been shut down.
Of the 42 charities that were audited for their political activity between 2012 and 2016, 41 were non-compliant to some extent, the CRA reported in December of 2016. Most of the problems found were minor. However, with more than half of the audited charities, the CRA did Compliance Agreements, indicating that a moderate or severe level of non-compliance was common.
In keeping with the privacy provisions of the Income Tax Act, the names of the audited charities cannot be disclosed by the CRA.
In the case of five of the audited charities (roughly 12 percent), the CRA ruled that the charity should be shut down. This level of non-compliance is nearly triple what the CRA has found in the course of routine audits over the past six years. It has since been reported by the CBC that seven charities, not five were slated for revocation.
While some problems were found, the CRA reported in its annual report for 2015 that, surprisingly, it did not find serious non-compliance with regards to political activity. No wonder!
Tides Canada Not Audited Since 2009 ?!
In the 2016 financial statements for Tides Canada, it is reported that the CRA’s audit of Tides Canada covered 2008 and 2009. What this appears to indicate is that the CRA did not audit the books of Tides Canada for any year since 2010. Tides Canada’s financial statements also appear to indicate that the Initiatives Society has been under CRA audit for six years and counting - but as it appears, it is under audit only for 2008 and 2009. Tides Canada has not replied to numerous requests to provide clarification about its audit by the CRA.
Over the years, Tides Canada has grown into a hefty operation. In fact, with annual revenue of about $30 million and a staff of 225, Tides Canada is nearly the same size as the Charities Directorate at the CRA.
With $65 million in assets, Tides Canada earns $2.5 million per year from investment income alone. That could fund a lot of activism.
Tides Canada operates as two registered charities, Tides Canada Foundation and Tides Canada Initiatives Society. The foundation has equivalency status in the U.S. and files tax returns with the I.R.S.
Most of the information presented here is from the U.S. tax returns for Tides Canada Foundation. That's because the I.R.S. requires greater disclosure than the CRA. Without recourse to U.S. tax returns, most of the analysis presented here would have been impossible. For example, the US$ 471,706 paid to Gerald Butts when resigned from WWF Canada (details ahead) would not have come to light were it not for U.S. tax returns.
Given that extensive evidence of apparent non-compliance was provided to the CRA as far back as 2010 and that the federal government provided $8 million specifically for audits of politically active charities, what little is publicly known so far about the CRA’s handling of its audit of Tides Canada is baffling.
Since 2010 when concerns were first drawn to the attention of the CRA, there have been three rounds of municipal elections, two provincial elections in B.C. and a federal election. In elections at all three levels of government, Tides-funded organizations have been influential.
The Dogwood Initiative
Had the CRA audited Tides Canada Foundation it would have found that Tides Canada has been funding The Dogwood Initiative (“Dogwood”), one of the most politically active organizations in the country.
Based in Victoria, B.C., Dogwood is a non-profit that runs get-the-vote out campaigns during municipal, provincial and federal elections. Dogwood is so nakedly political that by its own admission (even as far back as 10 years ago), Dogwood does not quality as charity and yet Dogwood has been funded via at least nine (if not ten) registered charities.
According to its annual reports, Dogwood has had $10 million in revenue since 2008. At least $2.7 million of that is from U.S. foundations that support anti-pipeline The Tar Sands Campaign, tax returns show.
Tides Canada Foundation has granted at least $600,000 to two registered charities that fund Dogwood: The Institute for New Economics Public Research (INE) and the Salal Foundation, and $120,000 to a third charity, the DI Foundation.
After 12 years of operation, INE abruptly ceased all financial activity in 2013. Same for The DI Foundation, which had been created only one year prior.
The Executive Director of the DI Foundation is Don Gordon. He is also the Head of Revenue of the Dogwood Initiative.
As it appears to me, The DI Foundation is a shell. It has no staff, does no fundraising, and since it began in 2012, it has made only one significant transaction: The transfer of $120,000 from Tides Canada Foundation to The Salal Foundation.
Why has the CRA allowed the DI Foundation to qualify as a registered charity? How many of Canada’s 86,000 charities are shell charities like The DI Foundation?
Don Gordon, Head of Revenue at The Dogwood Initiative, has confirmed that Dogwood receives funds under a fee-for-service contract from the Salal Foundation.
The Salal Foundation
Salal has had an unusual history. Created in 2001, over its first 12 years Salal reported virtually no financial activity other than the shuffling of small amounts (most years less than $500) back and forth between Tides Canada and other Tides-related charities.
For 12 years, Salal had three directors: Joel Solomon, Martha Burton and James Morrisey. All three have a long history with Tides.
After 12 years of inactivity, Salal suddenly sprung to life in 2012 with a completely new slate of board members. Since 2012, Salal has had $2 million in revenue and 97% of expenditures have been for unspecified purposes.
Salal funds three programs. An educated guess would be that all three are projects of The Tides Foundation and Tides Canada: Canopy, OpenMedia and The Dogwood Initiative.
Considering Salal’s history and its programs, it appears to me that for practical purposes, Salal might as well be part of Tides Canada. Its clear, however, that Salal's existence as a separate, registered charity is serving a purpose: Tides Canada can say that it doesn’t fund Dogwood and strictly speaking, it doesn’t. How convenient!
The question is, why does the CRA allow Tides Canada Foundation to play this sort of shell game? Are other charities are doing the same thing?
Collette Travel, Pawtucket, Rhode Island
Had the CRA audited Tides Canada Foundation since 2010, the CRA would also have found that Collette Foundation Canada, a Mississauga-based charity, serves little purpose other than to funnel millions of dollars into Tides Canada Foundation.
Beginning in 2010, 94% of Collette’s grant funding has gone to Tides Canada, a total of $3 million. See for yourself:
- 2010: $ 450,000
- 2011: $ 260,000
- 2012: $ 575,000
- 2013: $ 825,000
- 2014: $ 450,000
- 2015: $ 600,000
And then in 2016, those big payments suddenly came to a screeching halt. What happened? Did Tides Canada and Collette Foundation Canada stop their arrangement after it was reported in testimony to a Standing Committee of the Senate?
If Tides Canada had been spent Collette's $3.1 million on charity in Canada, that would have been great! But that’s not what happened.
U.S. tax returns and other documents show that via the Tides Canada Foundation Exchange Fund and the Tides Foundation in San Francisco, about 90 percent of the $3 million was funneled to a pair of U.S. charities in Pawtucket, Rhode Island. These charities are under the control of Dan Sullivan, the same individual who directs Collette Foundation Canada in Mississauga, Ontario.
Mr. Sullivan operates Collette Travel, an international tour company based in Pawtucket, Rhode Island with call centres in Mississauga and Surrey, B.C.
For more than two years, Mr. Sullivan has been asked (via e-mail) about the finances of his charities. His staff have acknowledged receipt of e-mails to Mr. Sullivan but he has not replied.
Mr. Sullivan needs to explain why his charity in Mississauga issued tax-receipts for $3 million worth of charitable activity in Canada that never happened. Tides Canada Foundation needs to explain why it was part of this and the CRA needs to explain why it has allowed this to go on for six years running.
The $3 million shuffle involving the Pawtucket travel company was explained in testimony to a Senate Committee in November of 2016. Shortly thereafter, it was announced that Tides Canada’s “international donation matching system” (AKA its “Exchange Fund”) would be closed at the end of 2016.
In announcing its closure, Mark Blumberg, a Canadian lawyer who provides counsel to charities (including some recipients of funds via Tides Canada) reported that Tides Canada charged a 10 percent fee, ie. $100,000 on a $1 million transaction. That’s a hefty cut.
Does the CRA approve of the registered charities taking a 10 percent cut on transfers as Tides Canada Foundation has been doing? If not, why has the CRA allowed this to occur – even as Tides Canada has been under audit for six years?
More than 100 Ineligible Recipients
Had the CRA audited Tides Canada Foundation, it would also have found that the Pawtucket arrangement was only one example of more than 100 ineligible organizations that Tides Canada Foundation has “funded” via its Exchange Fund and its parent organization, The Tides Foundation.
The Tides Foundation incorporated in Victoria, B.C. in 2000. A few years later, it changed its name to Tides Canada Foundation, records show. Given that the two foundations began as one and have exchanged hundreds of payments totaling at least $20 million, it appears that while legally distinct entities, Tides Canada Foundation and The Tides Foundation are to some extent like two pockets in the same pair of pants.
The Anti-pipeline Tar Sands Campaign
Had the CRA audited Tides Canada Foundation, it would also have found that the Exchange Fund has been used to channel U.S. funds to registered charities involved in the anti-pipeline Tar Sands Campaign, thereby “canadianizing” the money in the process. As such, it stands to reason that Tides Canada Foundation is accountable to some extent for funding The Tar Sands Campaign.
Created by the Rockefeller Brothers Fund, the William & Flora Hewlett Foundation, and The Tides Foundation, The Tar Sands Campaign aims to stop the construction of all pipelines that would allow the overseas export of oil from western Canada. The Tides Foundation has made at least 400 payments totalling US$30 million to support this campaign, tax returns show. Indeed, this is no small operation.
When The Tar Sands Campaign first came to light in 2010, the strategy of the funders was not entirely clear. But now it is.
In the words of Michael Marx, the individual who has been directing this campaign for nearly a decade, The Tar Sands Campaign aims to "land-lock" crude oil from western Canada so that it cannot reach overseas markets where it could fetch a higher price per barrel. As such, this campaign is an exercise in economic sabotage.
The Tar Sands Campaign has cost Canada billions of dollars in lost potential royalties, revenue and investor confidence. Charities should have no part in any such campaign and yet more than a dozen registered charities have been paid at least $4 million as part of this campaign – and that’s not including amounts paid via the New Venture Fund, based in Washington, D.C.
Why has the CRA allowed Canadian charities to be involved in this campaign that is so obviously against Canada’s national interests?
Undue Benefits
In its annual report for 2015, the CRA reported that it had found "serious non-compliance" including "undue benefits" to a person involved with a charity.”
On the topic of undue benefits, the CRA should say whether it approves of the hefty payments and other benefits that have been provided to some of the directors of Tides Canada Foundation and Tides-affiliated charities, including Joel Solomon, a former chair of The Tides Foundation, and Gerald Butts, Principal Secretary to Prime Minister Justin Trudeau.
Joel Solomon & Endswell Foundation
Like Collette Foundation Canada, the Endswell Foundation has done almost nothing over the past decade other than funnel money into Tides Canada Foundation, nearly $10 million. That’s 97 percent of Endswell’s total grantmaking (2002 – 2016). As such, Endswell appears to be another pocket in the aforementioned pair of pants.
The Endswell Foundation paid more than $1 million to Interdependent Investments Ltd., a private company owned, co-owned and/or directed by the charity’s president, Joel Solomon. These payments were over the same years that Mr. Solomon was chair of the board of The Tides Foundation, vice-chair of Tides Canada and on the boards of other Tides-affiliated charities.
The $1 million paid to Interdependent Investments Ltd. was in addition to Mr. Solomon’s generous salary (US$186,189 in 2009) as an employee of Endswell Foundation. As such, the $1 million on top of Mr. Solomon’s salary appears to be an undue benefit.
As president of a charity Mr. Solomon has a duty to spend the charity’s funds on charity, not on excessive payments to himself.
For years now, Mr. Solomon has been asked whether Endswell Foundation was in trouble with the CRA. In January, Mr. Solomon finally broke his six-year silence with a meaningless, one sentence e-mail saying, “Any assumption that my non-responses to your assertions implies agreement, is incorrect.”
$400,000 Severance Paid to Gerald Butts
Between 2008 and 2012, Gerald Butts was president and CEO of World Wildlife Fund Canada, one of the organizations with which Tides Canada works closely. After he resigned to work for Justin Trudeau’s Liberal leadership campaign, WWF Canada paid Mr. Butts more than $400,000 (US$ 361,642).
Both Mr. Butts and David Miller, WWF Canada’s president, have been asked by way of a letter about whether WWF Canada provided what is tantamount to a paid sabbatical to Mr. Butts while he ran the leadership and election campaigns for Prime Minister Justin Trudeau. Mr. Butts did not replied. Mr. Miller scoffed at the question, calling it a “baseless theory.”
Does the CRA approve of a registered charity providing nearly $400,000 severance when an executive director voluntarily resigns? Isn’t that a bit much?
Imagine if the president of The Fraser Institute had resigned to run leadership and election campaigns for Stephen Harper and was paid $400,000 in severance. What a scandal that would be.
Since 2010, more than 50 charities have had their charitable status revoked for some of the same types of transactions that are described here.
If Mr. Solomon and Mr. Gerald Butts are not the individuals to whom the CRA found that “undue benefits” were provided, who were? Were these cases of undue benefits that the CRA missed? How many similar cases have also been missed?
In May, the National Revenue Minister Diane Lebouthillier announced that the federal government has asked the Canada Revenue Agency to suspend all action in relation to the remaining audits and objections to the political activity audits of charities. Asked whether this means that the seven charities that were to lose their status are off the hook,the CRA gave a vague reply (e-mail from Sept. 12, 2017), re-stating what was in the CRA’s press release from May.
Allowing charities to run amok is at least as wrong as the anti-pipeline activism that prompted the political activity audits in the first place. Furthermore, the Charities Directorate has made a mockery not only of itself but also of the honest efforts of Canadians who have provided evidence to the CRA in good faith that due process would take its course. In fact, it hasn’t.