Archive for September, 2013

The ISNA: A Cautionary Tale for Canadian Charities Operating Abroad

Monday, September 30th, 2013

It’s been all over the news lately. The Canada Revenue Agency has stripped the registered charitable status of the Missisauga-based Islamic Society of North America (ISNA) partly due to suspicion that it was funding terrorists.

For its part, the ISNA denies any intention to fund terrorist activities. It apparently entered into a funding arrangement with a charitable organization in Pakistan with the stated intention of providing relief to orphans. That charitable organization turned out to be one arm of a larger organization that also includes a military arm that has been listed as a terrorist entity by the Council of the European Union.

Whether the ISNA knew about the terror tie or not, its situation should be a warning to every Canadian charity that is operating overseas. The ISNA’s fundamental mistake was to enter into an agreement to funnel money to an organization that was not a¬†qualified donee¬†without taking the proper precautions.

Canadian charities can only transfer money to qualified donees, unless the charity and the recipient enter into a written agreement that gives the charity the necessary direction and control over what is done with the money it transfers over. Charities cannot simply start funnelling money to individuals or organizations outside of Canada without such an arrangement in place.

Taking the ISNA at its word that it did not intend to fund terrorism, it should have been careful to maintain carefully-recorded oversight as to what was being done with its money. Its failure to do so attracted the unwelcome attention of the CRA and allowed the charity’s funds to go to something distinctly different than orphan relief.

Many innocent charities make the same mistakes as ISNA and put themselves at risk for the same nightmare situation. If your charity is operating overseas or plans to start, Drache Aptowitzer LLP can help you ensure that the necessary controls are in place so that your hard-raised funds, and your charitable registration, are protected.