BACKGROUND

The G7/G8 nations (including Canada), at the July 1996 Paris Ministerial Meeting on Terrorism, agreed to adopt domestic measures to prevent terrorist financing through front organizations having or claiming to have charitable goals. Canada has also been active on the 33-member Financial Action Task Force (FATF) which has developed and promoted national and international policies and best practices to first combat money laundering and later terrorist financing. Shortly after the September, 2001 attacks on the United States, FATF expanded its mandate beyond money laundering to also focus its expertise on preventing and disrupting terrorist financing.

Canada signed the United Nations International Convention for the Suppression of the Financing of Terrorism in February, 2000. In doing so, it committed itself to introduce legislative and other measures to prevent the financing and other forms of support for terrorist activity. The Convention placed particular emphasis on the need to cut off support provided by charities as part of the international sources of financing to some terrorist groups. The de-registration of charitable organizations measures contained in the Anti-terrorism Act are part of Canada’s response to its international obligations in this area.

Part 6 of the Anti-terrorism Act, more particularly section 113,¹ contains the Charities Registration (Security Information) Act. This Act governs the protection and use of security and criminal intelligence in determining the eligibility and continued eligibility of organizations for charitable status under the Income Tax Act. It is intended to prevent terrorist organizations or organizations engaged in direct or indirect support activities from benefiting from the tax advantages accorded to charitable organizations.

Section 4 of the Act allows the Minister of Public Safety and Emergency Preparedness and the Minister of National Revenue to sign a certificate that in their opinion, based on information, there are reasonable grounds to believe that an applicant or a registered charity has made, makes, or will make available directly or indirectly resources to a terrorist entity, whether listed or not, as defined in the Criminal Code. It is provided in section 13 that, unless it is cancelled, such a certificate is in effect for seven years.

The Ministers are required by section 5 of the Act to serve on the applicant or registered charity a copy of the certificate and a notice that it will be referred to the Federal Court. Section 6 of the Act provides that once the certificate has been referred to the Federal Court, the judge shall, among other things, examine in private the information on which the certificate was based as well as any other evidence, provide the applicant or registered charity with a summary of the information available to the judge so as to make known the circumstances giving rise to the certificate, and provide the applicant or registered charity with an opportunity to be heard. Under section 7, the judge is to determine whether the certificate is reasonable and if it is not, quash it. The decision as to the reasonableness of the certificate is not reviewable or appealable.

Section 8 of the Act provides that where a certificate has been determined by a Federal Court judge to be reasonable under section 7, it is deemed to provide conclusive proof that an applicant is ineligible to become a registered charity or that a registered charity does not comply with the requirements to have that status. The Minister of Public Safety and Emergency Preparedness is required to have any certificate determined to be reasonable published in the Canada Gazette.

An applicant or former registered charity, in relation to which a certificate has been found to be reasonable and that believes there has been a material change in circumstances, can, under section 10 of the Charities Registration (Security Information) Act, apply to the Minister of Public Safety and Emergency Preparedness for a review of the certificate by the Minister and the Minister of National Revenue. The Ministers may decide that since the certificate was found to be reasonable, there has been no material change in circumstances and the application should be denied, or that, even though there has been a material change in circumstances, there are reasonable grounds to continue the certificate in effect. Alternatively, they may cancel the certificate. If no decision is made within 120 days of receipt of the application, the certificate is deemed to be cancelled at the end of that period.

An applicant or former registered charity may apply to the Federal Court under section 11 of the Act for a review of a decision made by the Ministers under section 10. Any determination by the Federal Court of such an application is neither appealable nor subject to judicial review.

To the Subcommittee’s knowledge, no certificates have been issued under this legislation.

ISSUES OF CONCERN

A Due Diligence Defence

The consequences of an applicant or registered charity being denied charitable status or being de-registered are dramatic. The organization loses the capacity to raise and disburse funds for its chosen field of activity. It can not issue receipts under the Income Tax Act to those who wish to contribute to its activities. The applicant or registered charity may become insolvent and may have to be wound up as a consequence. There is the possible risk of civil liability for the members of its board of directors who may be perceived by some as not having fulfilled their fiduciary responsibility to adequately protect the assets of the applicant or charitable organization. There may also be some risk of criminal liability for both the applicant or charitable organization, and their directors and employees under the terrorism offence provisions of the Criminal Code.

Such consequences could arise in a situation where an organization has taken the best steps it can to ensure that those benefiting from charitable donations as donees are legitimate and are not connected to a terrorist entity. The steps to make such assurances may be inadequate because of the pressure on the charitable organization to help those in need in distant places around the world where calamitous occurrences have to be dealt with rapidly to temper misery and destruction. The organization may have done the best it can to determine who is benefiting from its activity, but that may not suffice.

This concern was brought dramatically to the Subcommittee’s attention by the submissions contained in the briefs from Imagine Canada and World Vision Canada. More specifically, Imagine Canada said in its brief that there is no due diligence defence available in the Charities Registration (Security Information) Act to an organization that has taken reasonable steps to ensure that it has not been or will not be used as a vehicle to support or provide resources to terrorist activity. It recommended that the Act be amended to require the Federal Court judge to whom a certificate is referred to not find the certificate to be reasonable where an applicant or registered charity has established that it has exercised due diligence to avoid the improper use of its resources under section 4(1)(a),(b),and(c).

In considering this recommendation, the Subcommittee reviewed the requirements under section 4(1) of the Act. On a close reading of this provision, it appears to the Subcommittee that, for a certificate to be issued, the applicant or registered charity must have consciously and intentionally undertaken activities that directly or indirectly support terrorist activity. If such an organization undertakes the due diligence measures that are within its resource capacity to ensure that it is not being used for terrorist purposes, it is unlikely the de-registration process will be initiated against it.

The Subcommittee is conscious, however, of the concern the whole de-registration process causes to charitable organizations, especially those active outside of Canada, in areas of conflict and other forms of danger. The de-registration process is perceived by some as casting a shadow over the activities of charitable organizations. Therefore, the Subcommittee agrees that, for greater certainty and to provide reassurance to charitable organizations and those who support them, the Charities Registration (Security Information) Act should be amended as recommended by Imagine Canada.

RECOMMENDATION 27

The Subcommittee recommends that the Charities Registration (Security Information) Act be amended so that the Federal Court judge, to whom a certificate is referred, shall not find the certificate to be reasonable where an applicant or registered charity has established that it has exercised due diligence to avoid the improper use of its resources under section 4(1).

Best Practice Guidelines for Charities

As mentioned earlier in this chapter, the FATF has published special recommendations and guidelines on international best practices intended to provide charitable organizations with guidance on what to do to avoid their status being used in financial support of terrorist activity. Both the United States Department of the Treasury and the Charity Commission for England and Wales have issued guidance documents in this area. As well, the Canada Revenue Agency has issued guidance to charities active internationally.

A review of these documents shows them to be general in nature and with little practical guidance of a kind that would assist an applicant or registered charity wanting to take steps within its resource capacity to exercise due diligence in assessing its donees.

The Canadian Bar Association identified this as an issue that needs to be addressed. It recommended in its brief that the government develop made-in-Canada “best practice” guidelines in consultation with the charitable sector. The Subcommittee agrees with this recommendation. Such best practice guidelines would be based on the experience of Canadian applicants and registered charities in carrying out due diligence assessments in the Canadian context, especially when such organizations have limited resources and expertise to carry out such examinations. These best practice guidelines should suggest both general policies and checklists that could be administered by applicants and registered charities in carrying out their due diligence assessments.

RECOMMENDATION 28

The Subcommittee recommends that, in consultation with the charitable sector, the Canada Revenue Agency develop and put into effect best practice guidelines to provide assistance to applicants for charitable status and registered charities in their due diligence assessment of donees.

Right to Appeal a Finding of Reasonableness

Section 8(2) of the Charities Registration (Security Information) Act provides that the Federal Court judge’s determination that a certificate is reasonable is not subject to appeal or review. A similar provision can be found in the Immigration and Refugee Protection Act dealing with the security certificate process applicable to the removal of foreign nationals and permanent residents from Canada. This latter issue is dealt with elsewhere in our report. One of the consequences of the parallel provision in the Immigration and Refugee Protection Act context is that, in the absence of a possible review or appeal of the decision that a security certificate is reasonable, there have been numerous collateral court challenges dealing with other legal issues because the merits of the initial reasonableness decision cannot be challenged. One of the effects of numerous court proceedings in security certificate cases has been to cause the process to be a long and arduous one. This has not happened in the de-registration of charities process because no certificates have yet been referred to the Federal Court. But it could happen.

The Subcommittee agrees with the recommendation made in its brief by Imagine Canada that there should be a legislated right of appeal or review of a determination by a Federal Court judge that a referred certificate is reasonable. Because a Federal Court judge sitting alone, likely hearing much of the evidence in the absence of the applicant or registered charity, would be making a decision that is fatal to the organization, further recourse should be made available to ensure the decision is a fair one. This can only be done by allowing for an appeal to the Federal Court of Appeal on the merits of the decision on the reasonableness of the certificate.

RECOMMENDATION 29

The Subcommittee recommends that section 8(2) of the Charities Registration (Security Information) Act be amended to allow for an appeal to the Federal Court of Appeal of a decision by a Federal Court judge that a referred certificate is reasonable.

Section 6 of the Charities Registration (Security Information) Act allows the designated Federal Court judge to whom the certificate is referred to examine the relevant information in private, hear some or all of the evidence presented by the Minister of Public Safety and Emergency Preparedness and the Minister of National Revenue in an ex parte, in camera proceeding, and provide the applicant or registered charity with a summary of the sensitive evidence adduced in its absence. A similar procedure is in place within the context of the terrorist entity listing process in the Criminal Code, proceedings under the Canada Evidence Act, and security certificates under the Immigration and Refugee Protection Act. Each of these processes is discussed separately elsewhere in our report.

A number of briefs considered by the Subcommittee have proposed that a special advocate or amicus curiae scheme be put in place in relation to each of these processes. Rather than addressing this issue within each of these contexts, the Subcommittee deals comprehensively with this subject in a separate chapter later in the report.

OTHER RECOMMENDED AMENDMENTS

A Knowledge Requirement

Section 4 of the Charities Registration (Security Information) Act allows a certificate to be issued, which has the effect of denying or revoking charitable status, in one of three situations: (a) where an applicant for charitable status or a registered charity has made, makes or will make resources available to an entity that is listed under the Criminal Code; (b) where it has made resources available to an entity that is not listed but which was engaged, and continues to be engaged, in terrorist activities; and (c) where it makes or will make resources available to a non-listed entity that engages or will engage in terrorist activities.

The Subcommittee believes that it is unfair to penalize an organization when it had no reason to believe that its resources were assisting an entity engaged in terrorism. In conjunction with the due diligence defence recommended by the Subcommittee earlier in this chapter, the Subcommittee believes that paragraphs (4)(1)(b) and (c) should expressly require that the applicant for charitable status or registered charity knew or ought to have known that the entity was, is or will be engaged in terrorism. Accordingly, an applicant or registered charity would more clearly be in a position to raise a defence of due diligence, if it took all reasonable steps to ensure that it was not assisting a terrorist entity. The Subcommittee does not believe that a knowledge requirement should be included in paragraph (a), as the names of entities listed under the Criminal Code are made available to the public, which is deemed to know that they are terrorist entities.

RECOMMENDATION 30

The Subcommittee recommends that the words “the applicant or registered charity knew or ought to have known that” be added after the words “Criminal Code and” in paragraphs 4(1)(b) and (c) of the Charities Registration (Security Information) Act.

References to Terrorist Activities

Section 4(1)(b) and (c) of the Charities Registration (Security Information) Act refer to entities engaged in “terrorist activities.” The Subcommittee believes that “activities” should be placed in the singular, so that an applicant for charitable status or registered charity does not believe or argue that a certificate is possible only where it assists an entity engaged in more than one terrorist activity. Although section 33 of the Interpretation Act states that words in the plural include the singular, it is preferable for the Charities Registration (Security Information) Act to be clear to those reading it. It should be understood that one terrorist activity alone may justify a certificate. We also note that “terrorist activity,” which is a defined term in the Criminal Code, appears most commonly in that statute in the singular.

RECOMMENDATION 31

The Subcommittee recommends that the words “terrorist activities” be replaced by the words “a terrorist activity,” and that the words “activities in support of them” be replaced by the words “an activity in support of a terrorist activity”, in paragraphs 4(1)(b) and (c) of the Charities Registration (Security Information) Act.

In order for a certificate to be issued under section 4(1)(b) of the Act, an applicant for charitable status or registered charity must have made resources available to an entity that “was at that time, and continues to be,” engaged in a terrorist activity. The Subcommittee has concerns that an organization may avoid consequences under the Act if the entity that it has assisted ceases its terrorist activity before the Ministers have become aware of the assistance or are able to sign a certificate. A certificate should be possible once a charitable organization or applicant for charitable status has made resources available to an entity engaged in terrorism, regardless of whether that entity continues to be so engaged.

RECOMMENDATION 32

The Subcommittee recommends that the words “at that time, and continues to be,” be removed from section 4(1)(b) of the Charities Registration (Security Information) Act.

Protecting Identity and Court Documents

After an applicant for charitable status or registered charity has been served with a certificate and given notice that a court hearing will be scheduled to consider it, it may apply to a Federal Court judge, under subsection 5(3) of the Act, for an order directing that its identity not be published or broadcast, and that any documents filed with the court be treated as confidential. Under subsection 5(4), an order is not subject to appeal or review. Given the detrimental effect that a certificate has on the reputation of an organization, the Subcommittee believes that the identity of an applicant or registered charity should be protected, and all matters relating to the certificate and proceedings should remain confidential, unless and until the certificate is found to be reasonable by the Federal Court and is published in the Canada Gazette under section 8. In other words, the identity of the affected organization and the content of the court documents should automatically be confidential, without the need for the organization to make an application, until it is confirmed that the organization did something wrong. Further, this protection should be available not only from the time the certificate is signed, but throughout the investigation leading up to the certificate.

RECOMMENDATION 33

The Subcommittee recommends that subsections 5(3) and (4) of the Charities Registration (Security Information) Act be repealed and that the Act be amended so that, beginning from the time that an applicant or registered charity is being investigated for allegedly making resources available to a terrorist entity, its identity shall not be published or broadcast, and all documents filed with the Federal Court in connection with the reference of the certificate shall be treated as confidential, unless and until the certificate is found to be reasonable and published under section 8.

Ministerial Review and Appeals

As mentioned in the background portion of this chapter, an organization that has been denied charitable status, or has had its status revoked, may apply to the Ministers, under section 10 of the Charities Registration (Security Information) Act, for a review of the certificate on the basis that there has been a material change in circumstances. If the Ministers agree that there has been a material change and that there are no longer reasonable grounds for the certificate, they may cancel it. Alternatively, the Ministers may decide that there has not been a material change, and therefore deny the application under paragraph 10(5)(a), or decide that there has been a material change but that there remain reasonable grounds for the certificate, and therefore continue the certificate under paragraph 10(5)(b)(i). Either of these negative decisions may be appealed by the organization under section 11.

If the decision being appealed is one under paragraph 10(5)(a) that there has not been a material change in circumstances, the court may overrule that determination and send the matter back to the Ministers to decide whether there are nonetheless reasonable grounds to continue the certificate under paragraph 10(5)(b)(i). However, it is unclear whether an organization is entitled to appeal both a decision by the Ministers that there has not been a material change in circumstances and a subsequent decision by the Ministers that the certificate remains warranted despite a court finding that there has been a material change and a reference of the matter back to the Ministers. In other words, section 11 may be interpreted as allowing only one appeal in respect of each application for review under section 10. The Subcommittee accordingly believes that section 11 should be amended for clarity.

RECOMMENDATION 34

The Subcommittee recommends that section 11 of the Charities Registration (Security Information) Act be amended to make it clear that an applicant or registered charity may apply for review of a decision made under paragraph 10(5)(b)(i), even if it has already applied for review of a decision made under paragraph 10(5)(a).