Day 6

Political scandal sheds light on long-standing questions about WE Charity's complex operations

WE Charity, founded by Marc and Craig Kielburger, has faced scrutiny in recent weeks over its complex organizational and financial structures as a political ethics scandal has unfolded over its involvement in the Canada Student Service Grant program.

'I'm not familiar with any other charity in Canada that has this level of complexity': philanthropy lawyer

The co-founders of WE Charity testified before a House of Commons committee on Tuesday as part of a parliamentary probe into a $912-million student-volunteer program. (Hannah Yoon/The Canadian Press)

The controversy surrounding WE Charity's organizational structure can be tricky to understand, even for people who have worked in the sector their whole careers.

"I'm not familiar with any other charity in Canada that has this level of complexity, the large number of organizations that are intertwined — and also that it's not so clear where one begins and one ends," said Mark Blumberg, a Toronto-based philanthropy lawyer.

"This is particularly important when it's a Canadian registered charity dealing with either a non-profit, a foreign charity or a for-profit entity."

The charity, founded by Marc and Craig Kielburger, has faced scrutiny in recent weeks over its organizational and financial structures as a political ethics scandal has unfolded over its involvement in the Canada Student Service Grant (CSSG) program.

Last month, Prime Minister Justin Trudeau announced that WE Charity would run a $912-million program offering students up to $5,000 in grant money for 500 hours of volunteer work.

WE was the only organization considered — a recommendation by the civil service, according to Trudeau — despite its close ties to both the prime minister and Finance Minister Bill Morneau. Facing questions from media and opposition politicians, the deal was cancelled in early July.

In testimony before the federal finance committee on Thursday, Trudeau said that he asked the civil service for greater scrutiny on the deal given his ties with the organization, but ultimately did not recuse himself from the decision to grant WE the contract.

WATCH | Prime minister testifies about WE Charity before Parliament:

In testimony before the finance committee, the prime minister says he slowed down the approval process for the grant program because he knew there would be scrutiny due to his family's ties to the organization. 1:04

Freelance journalist Justin Ling, who has reported on WE Charity's dealings, calls the charity's unique structure innovative but problematic

"They took what was a charitable organization, which was originally called Free the Children, and decided to spin off a for-profit arm [called ME to WE] that would partner with big donors, that would run trips abroad, that would host big events — and all of that was designed to run a profit," he told Day 6 host Brent Bambury.

Ninety per cent of that profit, he added, was expected to go back to the charity to fund "core programming."

"There's real problems with it, but it's a smart model that from the outset was quite effective."

Charity transparency

Blumberg says that such arrangements are not unheard of in Canada, and are allowed by tax law.

"There's very good reasons why it may make sense for a Canadian registered charity to have a for-profit, or a non-profit arm because they can do different things and there's different rules that apply to them," he told Day 6.

"What is unusual in this case is that there's a high degree of integration between the for profit and the charity, and the charity doesn't own the for profit, as best I understand."

WATCH | The Kielburger brothers testify before the finance committee:

Craig and Marc Kielburger appeared before the Commons finance committee Tuesday. 0:38

Still, the public misunderstands charities can and can't do, Blumberg says. Charities, he says, can run related businesses that make a profit. 

"A non-profit is not allowed to make a profit, but a registered charity is allowed to make a profit as long as it's part of a related business," he said.

Concerns around transparency and ethics, however, can sow distrust of certain charities. A lack of transparency is, at least in part, the reason for WE's loss of the big-ticket CSSG contract, Blumberg said.

Craig Kielburger on Tuesday told the House of Commons finance committee that he wishes the contract had not been sole-sourced.

"I wish we could have competed with others. I wish that different decisions had been made on the final decision making on all of these matters. That was not ours to decide," he said. 

The charity also announced in mid-July that it would restructure the organization in an effort to "refocus" its "mission."

WE will survive, says Blumberg

When the federal government announced WE as the charity who would administer the program, part of the government's reasoning was that it was the only organization capable of running such a large program in the short amount of time required.

WATCH | Former chair of WE Charity explains her resignation:

Michelle Douglas gives three reasons for why she resigned as chair of WE Charity's board of directors in late March after serving in the position for around a decade. 0:54

Blumberg says those comments were "deeply offensive" to many in Canada's charitable sector.

"It shows so little understanding of our charity sector and how important volunteering is in the charity sector — and how many organizations there are in the charity sector that have tremendous capacity to do a lot of things," he told Bambury.

"We have a lot of large organizations that are dealing with huge numbers of volunteers across the country from coast to coast to coast, so that they could somehow mock up something that only one organization could do is in their minds is just unbelievable to me."

Ultimately, Blumberg believes that WE will survive the controversy — particularly given its vast real estate holdings, which he estimates at $45 million.

"It's one of the unfairnesses in the charity sector that one tenth of one per cent of the charity sector has a lot of assets and other charities don't," he said. 

"I'm not worried about their survival."

Written by Jason Vermes. Produced by Samraweet Yohannes.

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