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Missing the Mark: Over- and Under-Regulation "Freedom Convoy" Activities
Financing protest and public disturbance
Over the last few months, Ottawa and the rest of Canada has seen continued activity from the “Freedom Convoy” folks. They’ve continued to mount protests, “slow roll” through our towns and cities, and generally be a public nuisance. When they’ve come to Ottawa, law enforcement has responded accordingly, often resulting in tickets, charges and towing of their vehicles. It’s no longer clear what they’re protesting, other than the cause of the day, often an excuse to congregate en-masse and cause public disturbances. But they’re up to much more than this behind the scenes: they continue to establish fundraising mechanisms and use crowdfunding websites (GiveSendGo remains a popular option) to raise funds for their activities and their legal defences. This post examines the structures they’re establishing, what regulations exist in Canada to enforce compliance with our laws (hint: not many), and what new regulations around crowdfunding are achieving in this space.
As I’ve reported before, there are a number of corporate structures that have sprung up by and around convoy folks. I’ve identified a number of not-for-profit (NFP) entities, including Freedom 2022 Human Rights and Freedoms (Directors include Chris Barber, Chris Garrah, Benjamin Dichter, and Tamara Lich), Canada Marches (the sole director is James Topp of “march across Canada” fame), Veterans for Freedom (Directors include Thomas Marazzo, Sami Mandalawi, and Andrew MacGillivray, among others), as well as Canada Citizens Coalition (not registered, as far as I can tell).
In addition to these, another NFP corporate entity, The United People of Canada, has also been established by individuals who claim to be unaffiliated with the convoy, although CBC reporting casts serious doubts on those claims. This entity has three directors: William Komer, Diane Nolan, and Kimberley Ward. According to CAHN, these three individuals are also directors of another not-for-profit entity established on the same day and at the same address as the United People of Canada. This organization is called the Magna Carta Fund. The United People of Canada are in the process of purchasing a former church in Ottawa establishing an “embassy”. The price tag on that church is the better part of $6 million. The organization was established in March of this year; their only known fundraising activities so far have been two lacklustre crowdfunding campaigns and merchandise sales on their website (with payment services provided by Stripe and PayPal). It’s unclear where the organization would have gotten enough money for a downpayment on a property of this size. They say the purchase was “community funded”. (That’s a lot of keychain sales.)
The only evidence to date of the involvement of registered charities in convoy-related activity is the case of the Justice Centre for Constitutional Freedoms (JCCF), which has provided legal advice to the convoy itself, and also gave Tamara Lich an award.
Understanding Canada’s Charities / Not-For-Profit Regulation
The problem with this activity, which on the surface appears lawful, is that there is little enforcement and regulation of NFPs in Canada, meaning that they are easily abused. In Canada, we have relatively strict regulations surrounding the establishment and operation of charities, and we have a program that audits organizations’ compliance with these laws and regulations. There is even a mechanism for the public to report suspected non-compliance by charities for things such as conducting improper fundraising, undertaking non-charitable activities, and providing private benefits to directors of the charity or third parties.
However, when it comes to not-for-profit entities, there is little in the way of regulation / enforcement. These entities are not able to provide receipts for donations like charities are, but otherwise, are exempt from paying taxes on their earnings as long as the organization is operating solely for social welfare, civic improvement, pleasure or recreation, and any other purpose except profit. The income of the organization also can’t be payable for the benefit of any of the members or shareholders.
This means that, as long as the donations that these organizations receive meet this criteria, they will not have to pay income tax on those funds.
The question then becomes this: what happens when one of these organizations gives their money to, for example, their sole shareholder walking across Canada? Does this meet the criteria outlined above, or is that for the benefit the member / director? To a certain extent, it doesn’t really matter, since Canada has little in the way of a regulatory body monitoring these organizations. Instead, the only real prospect of these organizations having to pay taxes on these earnings is if they are subject to an audit and can’t satisfy the criteria for exemption. It’s unclear how many audits of these corporations happen in Canada each year, but given that it’s about 1% of all charities that are audited in Canada each year (with a dedicated program), I’d expect that it’s far less for NFPs.
Canada’s New Crowdfunding Regulations
If you’ve been paying attention over the last few months, you’ll have noticed that the government isn’t opposed to bringing in new legislation to address some of the gaps in our system. In fact, the government’s response to the convoy’s crowdfunding campaigns was to bring in legislation to make them reporting entities under the PCMLTFA, the legislation governing FINTRAC (Canada’s financial intelligence unit) that seeks to address money laundering and terrorist financing in Canada. This was initially done as part of the emergency measures, but was later made permanent in a budget bill.
These regulations mean that crowdfunding companies must register with FINTRAC as money services businesses, or foreign MSBs. They have reporting requirements to FINTRAC (transfer of funds into or out of Canada of $10,000 or more, suspicious transaction reports, etc.)
However, I’ve long maintained that this regulation was largely just for show, since actual use-cases of money laundering and terrorist financing through crowdfunding companies like GiveSendGo and GoFundMe are very rare.
New Crowdfunding Campaigns
These regulations certainly haven’t done anything to deter convoy-related people from setting up fundraising campaigns. For instance, one crowdfunding campaign was set up to support Tamara Lich, and was apparently approved by her lawyer, Keith Wilson. The campaign raised over CA$44,500, although no longer appears active.
Another campaign (identified by Twitter researchers and flagged to me by Stephanie Carvin) is being run by William Komer (of the United People of Canada, outlined above), to the benefit of that organization.
The thing about these campaigns and Canada’s new regulations is that very little of this activity is likely to be report by GiveSendGo to FINTRAC, if any. To meet a threshold for reporting, funds transferred would have to exceed $10,000 (so this could happen during the disbursement of the campaign, or perhaps individual donations of $10,000 or more could qualify), or be suspicious. Based on our previous experience with GiveSendGo, I have a hard time believing that many of these donations would be reported.
How Canada has missed the mark on regulation
As you can see, Canada has both managed to over-and under-regulate its financial and charitable sectors. The focus on regulating crowdfunding platforms remains, in my view, a duplication of efforts, and one unlikely to yield significant results in terms of countering money laundering and terrorist financing, or in terms of shedding light on protest financing. It certainly hasn’t done anything to temper convoy-related crowdfunding efforts. At the same time, this protest movement is taking advantage of our poorly regulated not-for-profit sector, likely to avoid paying taxes on the donations they receive and use for disruptive events.
As part of its efforts to get serious about financial crime and financial misconduct, Canada needs to establish a robust regulatory and compliance regime for its not-for-profit entities, comparable the investment that has been made in the charities program (and while we’re at it, strengthening that program is probably worthwhile). In fact, this is something that our international partners and the Financial Action Task Force have been calling on Canada to do for some time. Not only are we letting ourselves down, but we are also falling short on our international commitments.
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Which is fine, if annoying, I guess.