Ontario Launches 2021 Budget Consultation
January 2021 Charity & NFP Law Update
The Ontario 2021 Budget Consultation is currently underway until February 12, 2021. The public is invited to take part in the provincial government’s online survey to provide feedback. According to the published announcement, the survey is meant to canvass Ontarians’ “ideas on how the government can continue to support people and employers during COVID-19, while continuing to position Ontario for a strong economic recovery”. Charities and not-for-profits wanting to voice their opinions are therefore encouraged to participate in the survey before the deadline. Participation in the consultation is also available by written submission, 500 words or less, sent by email or post.
AML/ATF Update
January 2021 Charity & NFP Law Update
FATF’s “Update: COVID-19-Related Money Laundering and Terrorist Financing”
On December 16, 2020, the Financial Action Task Force (“FATF”), an inter-governmental body established to set standards and measures for combating money laundering, terrorist financing, and other related threats to the integrity of the international financial system, released its Update: COVID-19-Related Money Laundering and Terrorist Financing (the “COVID-19 Report”). The COVID-19 Report was first published in May 2020, highlighting an increase in COVID-19-related crimes, including fraud, cybercrime, misdirection or exploitation of government funds or international financial assistance, as well as online fundraising scams for fake charities.
The COVID-19 Report provides a selection of case studies showing how the money laundering and terrorist financing risks have changed throughout the pandemic and the measures taken by authorities in response. The sources of concern resulting from the pandemic, as expressed by the FATF, include significant increases in online purchases due to widespread lockdowns with bank services transitioning online, as well as the losses of millions of jobs and closures of thousands of businesses.
In this regard, the updated COVID-19 Report states that fundraising for fake charities has continued throughout the pandemic, with victims being asked to provide credit card information or transfer funds to the bad actors’ secure digital wallets. In some cases the bad actors pretend to raise funds on behalf of well-known global charities. The fundraising scams often rely on social media platforms and other technologies, such as QR codes to fraudulently appeal for funds.
The COVID-19 Report recommends that authorities and the private sector take a risk-based approach to respond to the crisis, as required by the FATF Standards. The COVID-19 Report states that that the aim of the FATF Standards is to ensure that financial transactions with jurisdictions where there may be high risks of money laundering and terrorist financing are not driven towards unregulated service providers but are instead completed through legitimate and transparent channels so that the funds reach the legitimate intended recipients. The COVID-19 Report further states that the FATF Standards do not require that all charities and non-profit organizations (“NPOs”) be considered high-risk. Most NPOs play a vital role in the public health emergency response to the pandemic and carry little or no terrorist financing risk. As such, a risk-based approach must be applied to ensure that legitimate NPO activity is not unnecessarily delayed, disrupted or discouraged.
FINTRAC Guidance on Suspicious Virtual Currency Transactions
The Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”), published its guidance on suspicious transactions, “Money laundering and terrorist financing indicators – Virtual currency transactions” (the “FINTRAC Guidance”) on December 2, 2020. The FINTRAC Guidance is applicable to all reporting entities that are subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (“PCMLTFA”) and associated Regulations. Charities and not-for-profits would not generally fall within the definition of a reporting entity under the PCMLTFA. However, the FINTRAC Guidance is a useful tool for charities and not-for-profits to stay alert regarding virtual currency transactions and avoid becoming unknowing participants in a money laundering or terrorist financing scheme.
The FINTRAC Guidance provides a number of potential red flag indicators for money laundering and terrorist financing in the context of virtual currency transactions. These red flag indicators are intended to, depending on the specific circumstances of each case, initiate suspicion or indicate that something may be unusual in the absence of a reasonable explanation.
As such, the red flag indicators in the FINTRAC Guidance include, for example: i) transactions involving “privacy coins” such as Monero, Dash and Zcash; ii) transactions involving a virtual currency wallet or address that is linked to fraudulent activity in media reports and/or cyber security bulletins; iii) publicized initial coin offerings (ICOs) by way of advertisements, celebrity endorsements, social media ads that could potentially be a “pump and dump” scheme; iv) transactions involving a smart contract to which there is no access to the code or to relevant technical information; or v) transactions involving a series of complicated transfers of funds to multiple addresses or wallets seemingly attempting to hide the source and intended use of the funds.
The FINTRAC Guidance follows the FATF’s Virtual Assets Red Flag Indicators of Money Laundering and Terrorist Financing, released on September 14, 2020.
Advisory Committee on the Charitable Sector Reviews Challenges Faced by Charities
January 2021 Charity & NFP Law Update
The CRA’s Advisory Committee on the Charitable Sector (“ACCS”) met again in December, 2020 to discuss a number of matters of concern to the charitable sector, including charities that have been hit harder than others during the COVID-19 pandemic. The ACCS met by videoconference on December 1, 2020, and a readout of that meeting was published on the CRA website earlier this month on January 6, 2021.
The readout reported that Tony Manconi, Director General of the CRA’s Charities Directorate, provided the ACCS with an update on the charitable sector, noting that the Directorate’s client services phone line had received over 50,000 calls in the past eight months, similar to prior years. Manconi recommended that charities call the CRA if they are unsure about eligibility criteria for the Canada Emergency Rent Subsidy (“CERS”) or the Canada Emergency Wage Subsidy (“CEWS”). According to the readout, the CRA has processed over 76,000 applications for CEWS with over $2 billion paid out to charities.
ACCS members noted the difficulty for some organizations to adapt to the pandemic, and how some charities that were not eligible for CERS because they own their own buildings and had to close some facilities. Many organizations “are spending their time and resources dealing with immediate challenges” and fatigue among volunteers and directors is “a real concern.”
The ACCS also discussed the draft of its first report on “important issues facing registered charities” (set out below), which received detailed feedback from its five working groups during the meeting:
- Modernizing the regulatory framework in Government as it relates to the charitable sector;
- Supporting the work of charities serving vulnerable populations;
- Exploring charity-related regulatory and legislative issues faced by Indigenous Peoples and organizations;
- Examining the regulatory approach to charitable purposes and activities, including its impact on charities working with non-qualified donees, and charities engaging in revenue-earning activities; and
- Improving data collection and analysis related to the charitable sector.
As part of this report, the ACCS has drafted recommendations for the Minister of National Revenue and the Commissioner of the CRA to address these important issues. The ACCS also discussed during the meeting “common themes, potential gaps and a work plan for 2021”, which will include the five working groups consulting with a wide range of stakeholders and using those findings to inform future recommendations. The report is expected to be available “in the coming months.”
The next ACCS meeting is scheduled for January 29, 2021.
Unconscionability of a Standard Form Services Agreement
January 2021 Charity & NFP Law Update
One of the most important legal developments in 2020 was the Supreme Court of Canada decision in Uber Technologies Inc. v. Heller, 2020 SCC 16 (“Heller”), released on June 26, 2020. Uber Technologies Inc., Uber Canada, Inc., Uber B.V. and Rasier Operations B.V. (collectively, “Uber”) are part of an international corporate group that provides software applications for drivers and customers to arrange personal transportation and food delivery using their smartphones in what is referred to as the “sharing economy”. In Heller, the Court considered the validity of the arbitration clause in Uber’s standard form services agreement, which required that any dispute between a driver and Uber be submitted to mediation and arbitration in the Netherlands. In the result, the majority of the Supreme Court of Canada dismissed the appeal against the decision of the Court of Appeal for Ontario and found that the arbitration clause was unconscionable based on the inequality of bargaining power between the parties and the improvident bargain involving the substantial cost of arbitration proceedings in the Netherlands for a driver in Canada.
Online platform agreements are typically in standard form contracts of adhesion where the user is presented with the take it or leave it option “I Agree”, with no room for bargaining or negotiation. Online platform agreements are drafted to manage the potential risks to which the provider is exposed in dealing with large numbers of users in different jurisdictions and circumstances. However, as in Heller, when the terms of an online platform agreement are unfair or unreasonably one-sided, particularly in situations where users are not freely accepting the terms, or there is a “cognitive asymmetry”, and the agreement unduly advantages the stronger party or disadvantages the more vulnerable, such as where the weaker party did not understand or appreciate the meaning of important terms leading to an “unfair surprise”, then those terms may be not enforceable.
Generally speaking, the doctrine of unconscionability is intended to protect vulnerable persons in transactions where there is an inequality of bargaining power resulting in an improvident bargain. A similar approach was considered by the Court in Douez v. Facebook Inc., 2017 SCC 33 (“Douez”), regarding the forum selection clause and choice of law in Facebook’s standard terms of use, which required that disputes be resolved in California according to California law. In Douez, the majority of the Court found that the forum selection clause was unenforceable as a matter of public policy.
In Heller, the majority of the Court said that unconscionability has a meaningful role to play in examining the conditions behind consent in contracts of adhesion and in encouraging drafters of such contracts to make them more accessible to the other party or to ensure that such contracts are not so lop-sided as to be improvident, or both.
As a general rule, charities and not-for-profits should carefully review all their online agreements before entering them, either as customer or provider, and ensure that the terms, particularly any choice of law, forum selection, and arbitration clauses, are not potentially unconscionable.