Direct Line: (403)571-1509 Email: [email protected] Assistant - Jennifer Samaco (403)571-4319 File No: 13268-002

VIA EMAIL ([email protected])

July 22, 2020

Compliance Division, Charities Directorate Revenue Agency Ottawa ON, K1A 0L5

Dear Sir or Madam:

Re: Letter of Complaint Regarding Charitable Status of WE Charity

We act for Network Ltd. (“Rebel News”). We are writing on behalf of Rebel News to lodge a complaint about WE Charity, a charity registered (registration no. 88657 8095 RR0001) with the Canada Revenue Agency (“CRA”). We would like you to determine whether or not WE Charity is in contravention of the CRA policies, the Income Tax Act, RSC 1985, c 1 5th Supp (“ITA”) or the Common Law.

SUMMARY

There are several issues that suggest that WE Charity may be in contravention of the ITA. Specifically:

 Significant amounts of money moving from WE Charity to an associated for-profit company: ME to WE Social Enterprises Inc. (“ME to WE”);

 The level at which WE Charity’s accounting appears to be intertwined with ME to WE and a lack of board oversight related to its accounting practices;

 WE Charity’s unusual and significant acquisition of real estate assets; and

 WE Charity’s clear support of Prime Minister , his Cabinet, and the Liberal Party of Canada.

We request that, in light of these issues, the CRA undertake a review of the charitable status of WE Charity.

{02384897 v4.1} T 403 571 1520 F 403 571 1528 800, 304 - 8 Avenue SW, Calgary, Alberta T2P 1C2 www.jssbarristers.ca 2

If you find that WE Charity is in contravention of any of the above referenced policies or laws, then we request that you consider whether WE Charity should have its charitable status revoked or otherwise be sanctioned by the CRA.

WE CHARITY BACKGROUND

WE Charity is one of several organizations founded by Kielburger brothers, and Marc Kielburger. WE Charity, formerly known as Free the Children, was founded in 1995 and has grown exponentially since then.

WE Charity’s describes itself and its program as follows:

WE Charity is an international charity and educational partner. Our organization is unique in that it operates collaborative programs both domestically and internationally. In the US, Canada, and the UK, WE Day and WE Schools are initiatives of WE Charity that educate and empower young people. WE Schools is a year-long service-learning program that nurtures compassion in students and gives them the tools to create transformative social change. And WE Day is a series of inspiring events that celebrate youth making a difference in their local and global communities.

In , and , we partner with communities to implement WE Villages, a holistic, five-pillar international development model designed to achieve sustainable change. Together with local leaders and families, we transform lives with solutions that are adaptive, effective and sustained long term by the community itself.1

WE Charity is related to other ventures of the Kielburger brothers including ME to WE. ME to WE is a privately held, for-profit “” founded in 2009 by the Kielburger brothers. Its stated mission is:

to provide economic opportunity in WE Village communities and a sustainable source of funding for WE Charity.2

ME to WE describes itself as:

an innovative social enterprise that creates socially conscious products and experiences that enable people to change lives through their everyday choices. At minimum 50% of profits are donated to WE Charity to help support its international development work.3

1 WE Charity, “About WE Charity”, https://www.we.org/en-CA/about-we/we-charity/. 2 WE Charity, “About ME to WE”, https://www.we.org/en-CA/about-we/me-to-we/about-me-to-we/ 3 WE Charity, “About WE”, https://www.we.org/en-CA/about-we/about-us

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ME to WE sells a variety of products (chocolate, coffee, bracelets)4 to the public as well as travel packages5 including luxury signature vacations.6 Unlike WE Charity, ME to WE is meant to make a profit; it is privately held and does not have any disclosure requirements. The workings of ME to WE are not publicly available.7

The Kielburger brothers also control several other WE-related organizations including, but not limited to, ME to WE Asset Holdings, ME to WE Foundation and Imagine 1 Day International Organization.8

The Law

In order to be charitable at law, an organization must be established and operated for only charitable purposes and a charitable organization is required to devote all of its resources to charitable activities. The ITA states the following in section 149.1(1):

…

charitable organization, at any particular time, means an organization, whether or not incorporated,

(a) constituted and operated exclusively for charitable purposes,

(a.1) all the resources of which are devoted to charitable activities carried on by the organization itself,

(b) no part of the income of which is payable to, or is otherwise available for, the personal benefit of any proprietor, member, shareholder, trustee or settlor thereof,

…

charitable purposes includes the disbursement of funds to a qualified donee

…

qualified donee, at any time, means a person that is

…

4 ME to WE, “Shop ME to WE”, https://shop.metowe.com/en-CA/ 5 ME to WE, “Travel and Make an Impact: ME to WE Trips”, https://travel.metowe.com/en-CA/ 6 See: https://metowelodges.com/ 7 CBC: The Current, “July 13, 2020 episode transcript,” https://www.cbc.ca/radio/thecurrent/the-current-for-july- 13-2020-1.5647242/july-13-2020-episode-transcript-1.5647817 8 See: https://torontosun.com/opinion/columnists/lilley-we-charity-listed-real-estate-holdings-worth-43-7-m-in- 2018

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(b) a registered charity,

…

These definitions require a charitable organization to devote its resources either to charitable activity carried on by it or as gifts to qualified donees. WE Charity could qualify as both a “charitable organization” and a “qualified donee.” However, as outlined in more detail below, WE Charity may no longer be complying with the requirements of these definitions and, therefore, their status should be reconsidered.

Revocation of registration of charitable organization

149.1(2) The Minister may, in the manner described in section 168, revoke the registration of a charitable organization for any reason described in subsection 168(1) or where the organization

(a) carries on a business that is not a related business of that charity;

…

(c) makes a disbursement by way of a gift, other than a gift made

(i) in the course of charitable activities carried on by it, or

(ii) to a donee that is a qualified donee at the time of the gift.

Charitable purposes

149.1(6.2) For the purposes of the definition charitable organization in subsection (1), an organization that devotes any part of its resources to the direct or indirect support of, or opposition to, any political party or candidate for public office shall not be considered to be constituted and operated exclusively for charitable purposes.

Notice of intention to revoke registration

168 (1) The Minister may, by registered mail, give notice to a person described in any of paragraphs (a) to (c) of the definition qualified donee in subsection 149.1(1) that the Minister proposes to revoke its registration if the person

…

(b) ceases to comply with the requirements of this Act for its registration;

…

(e) fails to comply with or contravenes any of sections 230 to 231.5;

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…

The registration requirement that is relevant in our case steps from the definition of the term “charitable organization in subsection 149(1) of the ITA (and replicated in part above).

Records and books

230(2) Every qualified donee referred to in paragraphs (a) to (c) of the definition qualified donee in subsection 149.1(1) shall keep records and books of account — in the case of a qualified donee referred to in any of subparagraphs (a)(i) and (iii) and paragraphs (b), (b.1) and (c) of that definition, at an address in Canada recorded with the Minister or designated by the Minister — containing

(a) information in such form as will enable the Minister to determine whether there are any grounds for the revocation of its registration under this Act;

…

WE Charity, as a qualified donee, is required to comply with section 230(2).

CONCERNS RELATED TO WE CHARITY

1. MONEY MOVING FROM WE CHARITY TO A NON-QUALIFIED DONEE

Charity Intelligence Canada (CI), is an independent charity watchdog group that helps donors “Be informed. Give intelligently. Have impact.”9 CI reviews charities’ management and operations, analyzes financial data and assesses a charity's social results from the information posted on its website and in annual reports, newsletters, impact reports, etc. 10

CI has identified issues with “donor confusion” and “blurred lines” between WE Charity and ME to WE.11 WE Charity and ME to WE are so closely connected that Kate Bahen, the Managing Director of CI, stated that they were “joined at the hip.”12

CI highlights the flow of funds between WE Charity and ME to WE on its website:

WE Charity buys promotional goods and travel services from ME to WE. In F2019 WE Charity paid ME to WE $3.6m for travel, leadership training services, and promotional goods. In F2019, ME to WE contributed $4.4m to WE Charity in

9 Charity Intelligence Canada, “Giving with Impact”, https://www.charityintelligence.ca/giving-with-impact. 10 Ibid. 11 Charity Intelligence Canada, “WE Charity”, https://www.charityintelligence.ca/charity-details/82-we-charity 12 CBC: The Current, “July 13, 2020 episode transcript,” https://www.cbc.ca/radio/thecurrent/the-current-for-july- 13-2020-1.5647242/july-13-2020-episode-transcript-1.5647817

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donated time and services and cash. ME to WE is also a corporate partner of WE Days. 13

Speaking to CBC’s “The Current,” Bahen stated:

So, what we know about ME to WE is that it does an awful lot of business with WE Charity. And ME to WE’s business says that since it was founded, it has given $20 million in support to WE Charity. Now, what is less well known is how much money WE charity gives to ME to WE. Over the last 10 years, WE Charity has given and paid ME to WE, $11 million. And in the last two years, 2018 and 2019, seven per cent and eight per cent of WE Charity's total revenues have flowed to ME to WE, the private business of the Kielburgers.

The arrangement, which sees the transfer of funds from the charity to the for-profit organization is something Bahen states is rare and unique to WE.

Many companies, big companies, public companies have philanthropic arms. So, you will see a corporation have a foundation, but we've never seen the backwash before. Normally it's the corporation, you know, giving its profits back in, to a charity, whether it be a Canadian Tire with its Jumpstart initiative, banks maybe having foundations. That's where you're seeing the company, give money to the charity. It's very, I think it's very unique, this complex structure between WE and ME to WE. And I'm not aware of situations where we see the charity giving money to the for-profit business.14

Bahen fleshed out the concerns that CI has with WE Charity in a recent interview with :

WE Charity Moved Millions to Private Kielburger Company

Jesse Brown - July 18, 2020

“Massive red flag,” says charity watchdog

The idea that WE Charity was uniquely capable of executing the government’s $912m student volunteer program is challenged by an analysis of their audited financial statements by Charity Intelligence (CI), an independent charity watchdog group that helps donors “give intelligently and have impact with their generosity.”

CI’s legitimacy as a neutral authority on the charitable sector was recognized by none other than WE Charity itself, who previously used its CI rating to challenge Canadaland’s investigation.

13 Ibid. 14 Ibid

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“The information shared by Canadaland in its questioning about budgeting, data and numbers is incorrect….Charity Intelligence Canada awarded WE Charity a perfect four-star rating.”

-Victor Li, CPA, CGA, CFO, WE (May 17,2019)

When the pandemic began, WE Charity promptly laid off the majority of its workforce. Media reports assumed that this was a direct result of COVID-19, with its obvious impacts on donations and live events.

But in an interview with Canadaland, CI’s Managing Director Kate Bahen shares information from WE’s own audited financial statements that tells a different story – one of an organization that appeared to already be in crisis and making strange financial transactions when COVID hit, to anyone who bothered to look.

***

Jesse Brown: Kate, what was the first inkling you had that all was not perfect with WE Charity?

Kate Behan: I’m glad that people wave those star ratings around. But when you scratch beneath the veneer, there were lots of red flags. I hope that donors would read what was actually written in the text.

J: Your practice is based on numbers. It’s based on going through their audited financials line by line. What is it in their audited financial statements that raised concerns for you?

K: You could see the real estate holdings right there on the balance sheet. You could see the properties. This wasn’t a charity that had a lot of cash…It was investing heavily in real estate. The concern was also the leverage.

When you build a hospice, when you build a homeless shelter, you will go into debt very often and you will have a long term mortgage with regularly scheduled payments. But all of WE Charity’s debt was short-term, revolving, demand loans, at the beck and call of the banks. But it was the amount of debt on these properties. And it was always changing. So we always looked at the debt levels.

And then in 2018, the auditor flagged for the first time that WE Charity was in breach of its bank covenants. That is a massive, massive red flag. I have never seen that on any other charity in its audited financial statements.

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source: WE Charity 2018 audited financials

source: WE Charity 2019 audited financials

J: For those of us who are less financially literate, when you say they’re in breach of their bank covenants — they’re racking up big debt to the bank while they’re buying major pieces of property. Am I getting that right?

K: It’s leveraged, they’re not using cash.

Some people live a certain lifestyle and you only ever see one side of the balance sheet. You don’t see how much debt that person has. WE Charity had the big offices, had the Global Learning Center, had all the assets, properties on Queen Street, but these were all backed — its lending practices were getting close to the max. Kind of like your credit card. You know, if you’ve got a credit card limit of ten thousand dollars, these guys were always at nine thousand five hundred. It was always pushing, pushing the limits.

So it was you know, [they] have to go to the bank every year and renegotiate this loan. God forbid the bank says ‘no’ this year. It’s kind of like a high wire act. It just isn’t seen in charities. So WE is different on so many fronts.

J: Your analogy to a soup kitchen or a hospice — those are facilities that directly do charitable work. The SUN’s Brian Lilley reported that WE quickly acquired $38.7m in Toronto real estate. How much money were they spending each year on their actual charitable works instead of on their headquarters and things like that?

K: That’s not disclosed. So I don’t see that. Let’s say that they bought a building on Queen Street for three million dollars to help children in Ethiopia, and they

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declare that the property is for that overseas work. Well, we are analysts, not auditors.

J: Any other [concerns]?

K: Related party transactions. So (the for-profit company) ME to WE is related to WE Charity by the two founders, Craig and Marc Kielburger. What ME to WE was giving to WE Charity and what WE Charity was paying ME to WE is a related [party] transaction and it needs to be reported. There’s a professional obligation by the auditors to report those.

It wasn’t just ME to WE, it’s very convoluted between holding companies and subsidiaries. It just didn’t make any sense.

In 2016, there was the WE 365 app and teachers were told that if you get kids to download this app, for every download a child will get vaccinations.

But the app didn’t work and it was glitchy. And, now if you go to the App Store and try and download it, there is no such thing as WE 365 to download.

But, you know, it was sold to WE Charity [by WE 365] for one dollar and all the debts incurred in creating this app that doesn’t exist anymore [now belonged to WE Charity], which is just bizarre.

J: That’s significant.

K: No, it’s not! We’re just talking about a $265,000 transaction at a $60m charity. Let’s focus on the $4.9m of debt that WE Charity had to pay the banks in May 2020. And it’s got another $4.3m due at the end of October. So let’s focus on the big numbers.

J: Ok, let’s focus on them. Were those dates determined before the pandemic? Were they in that kind of financial trouble before COVID?

K: Yes! And that’s what I’ve been sort of jumping up and down on the government’s due diligence. Before you give them an agreement to distribute $912m dollars, look at the board of directors.

Did WE Charity inform the government that its board had resigned or was replaced just weeks before, and that there was a gap in governance and oversight at the charity?

And if you read the audited financial statements, there it is in black and white, WE Charity is in breach of its bank covenants. Oh and by the way — it has no board.

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J: Everything you’ve said so far might describe an organization that had a folly with an app that didn’t work out, that maybe got overambitious with its spending on properties. But that doesn’t really explain the other side of this, which is that money was flowing from charity to private company, in the opposite direction that it was supposed to.

K: The backwash. ME to WE backwash.

J: You have been public that in 2019, the same year that found them in breach [with the bank], that same year when they needed money, seven percent of all WE Charity’s revenue flowed to their privately held company.

K: That had grown. Before, it was one percent, two percent. What you see is them ramp up in fiscal 2018 when eight percent of WE Charity’s total revenues are going into the private business and in 2019, seven percent. And you’re dealing with a 60 million dollar charity here, so we’re not talking chump change.

source: WE Charity 2019 audited financials

J: Kate, people have said to me there’s nothing to see here. Sometimes a charity has to buy a few things from its related business. That’s true, isn’t it?

K: Yes.

J: So what’s wrong with this?

K: It’s the magnitude. Some private corporations play a little hard with their charities and say, you know, ‘we want you to pay the going rate’ and all the rest of it. But it’s [typically] a few hundred thousand dollars on a six million dollar charity. It’s not like this.

J: Have you ever seen this level of backwash?

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K: No.

J: You would think that in the year when all their debts are due, that would be the year when they need to keep that money in the charity. But instead, they’re flowing it into their private company.

K: Yes

WE Charity’s response:

In the most extreme and, frankly, inaccurate, calculations, if someone dismisses (i) removed all value from the purchase of ME to WE services; (ii) removes all in-kind contributions from ME to WE, then WE Charity has still received $1.3-million more from ME to WE over the last five years.

J: Their argument has been: If you look at this the right way, overall, the charity comes out on top. Overall, the charity is benefiting from this relationship. Is that true?

K: The level of disclosure in their audited financial statements does not allow me to verify that claim.

J: You don’t have the information you would need to say, ‘yeah, that looks right.’

K: What it does say in the audited financial statement is not that ME to WE “donates” to WE Charity but that ME to WE “contributes” to WE Charity.

J: What’s the difference?

K: A donation is money. A contribution can be time, money or goods.

J: So when the WE Charity pays the Kielburgers’ private company, they pay in cash. But when their private company pays the charity, it’s a mixture of money, time and other benefits — and we don’t know the mix. Is that correct?

K: That’s correct.

J: If WE’s auditor were to dig down on that, you might find that everything’s fine. That in fact, it is cash going back to the charity. Or you might find that there’s no money or very little.

K: KRP have audited the books of WE Charity since these teenagers from Thornhill began over 25 years ago. It specializes in tax and small businesses. I believe WE Charity is the only charity it audits.

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J: Well, that is weird.

K: It’s unsettling.

J: Back to the board of directors. WE has said the former board members were almost done their 5-year terms, and WE wanted a refresh. Is that not a credible explanation?

K: If a charity was to take the strategic decision to radically replace its entire governance structure, that needs to be signaled to donors and corporate sponsors well ahead. That needs to be posted on a web site. Everybody needs to know what’s going on, so that it isn’t a surprise that you find out on Twitter that the chairman of the board resigned in March…and since the chair of their board resigned, that doesn’t jibe with their story.

So you have an unprecedented turnover in governance that was not signalled.

When you have a scandal or a crisis at an organization, it’s the chairman that steps up and testifies in front of Congress. It’s the board chair who steps up and takes the mike.

And now we go into a crisis with a rookie slate of directors.

J: The new board of directors, as I understand them, have long relationships with the Kielburgers. The new chair of the board, Greg Rogers, was Marc Kielburger’s high school teacher.

K: It’s a mismatch.

J: Did something happen for this sudden turnover in the board? When I look at all of these things together — not only do they have all this debt that’s coming due. At the same time, they’re flowing money out of the charity, into their private company. And then the board leaves. Do those all seem to you like discrete and unrelated events?

K: I guess it’s a compilation. Jesse, it’s just too many things.15

ME to WE is not a qualified donee under the ITA. We submit, in light of the above information regarding the unusual event of significant amounts of money passing from a charity to an associated for-profit company, the CRA should investigate whether WE Charity used some of its resources to pay ME to WE for purposes that were not charitable.

15 Canadaland, “WE Chariy Moved Millions To Private Kielburger Company”, https://www.canadalandshow.com/we-charity-was-in-financial-trouble-before-covid-says-charity-watchdog/

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All of this is particularly concerning as it has emerged just today, in reporting by Global News16, that the Government had misrepresented, at the time of their announcement and since, who they had awarded the contract to administer the sole-source $912-million student volunteer program to, reporting:

Both a government and charity official confirmed the controversial Canada Student Service Grant contract was not with WE Charity, as Trudeau announced.

Rather, the government gave the contract to the WE Charity Foundation, which is a distinct charity with no track record.

As such, it appears the “donor confusion” and “blurred lines” identified by CI as existing between WE Charity and ME to WE extends to other WE entities; this suggests this may be a broader, more systemic problem within the WE organization.

In the event that any of the money from WE Charity to ME to WE was not charitable, WE Charity could, (and, we submit, should) be found to not be in compliance with subsection 149.1(1)(a)-(b) of the ITA and, as such, pursuant to section 149.1(2) and 168(1) of the ITA, revoke WE Charity’s registration.

2. ACCOUNTING OF ME CHARITY AND ME TO WE INTERTWINED

According to CI, the same individual is overseeing the money going back and forth between WE Charity and ME to WE.17

Victor Li, the CFO of WE Charity, simultaneously serves as the CFO of ME to WE, the CFO of WE Charity in the United States, and the treasurer of the U.S. ME to WE Foundation.18

The following article from Canadaland suggests the accounting departments of both the charity and the for-profit company are tightly intertwined.

What’s The Deal With WE Charity’s Accounting Department?

Jesse Brown - July 15, 2020

Charity watchdog issued "donor advisory" about WE

Charity Intelligence (CI) is an independent charity watchdog that has previously given top marks to WE Charity.

16 , “Trudeau gov. contract for $912M student program was with WE Charity’s real estate holding foundation”, https://globalnews.ca/news/7203337/trudeau-we-charity-foundation-real-estate-holding-company/ 17 Charity Intelligence Canada, “WE Charity”, https://www.charityintelligence.ca/charity-details/82-we-charity 18 Canadaland, “What’s The Deal With WE Charity’s Accounting Department?” https://www.canadalandshow.com/whats-the-deal-with-we-charitys-accounting-department/

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Last spring, in a statement to Canadaland defending the organization, WE’s CFO, Victor Li, hailed its CI score.

“Charity Intelligence Canada awarded WE Charity a perfect four-star rating,” he wrote, “measured on donor accountability, quality of reports and social results, financial transparency, and audited financial statements.”

Since then, CI has downgraded WE to three stars, given the organization a “fair” rating on demonstrated impact (the second lowest level on a scale of five), and issued a “donor advisory” concerning the rapid turnover of the charity’s board of directors. The full assessment can be accessed here.

CI’s managing director, Kate Bahen, has also expressed alarm at the charity’s unusual financial activity.

“We’ve never seen the backwash before,” she said this week on CBC’s The Current, expressing surprise about the movement of funds from the charity to its for-profit sister company, ME to WE Social Enterprises.

The publicized model of the WE organization is that ME to WE exists to support and fund WE Charity, with at least half of its profits put toward it (and the rest back into itself). But the audited financial statements analyzed by CI show that the money was also flowing in the opposite direction, from the charity to the private company.

“It’s the magnitude of the funds that is the issue,” Bahen tells Canadaland.

Bahen also raised concerns that the CFO of WE Charity simultaneously serves as the CFO of ME to WE Social Enterprises, the CFO of WE Charity in the United States, and the treasurer of the U.S. ME to WE Foundation.

“Too many people wearing multiple hats,” says Bahen.

CFO Victor Li runs WE’s accounting department from the top floor of their Global Learning Centre (GLC) in downtown Toronto.

Former employees tell Canadaland that it’s unlike any other part of the organization.

“It was an oddly separate entity from everything else,” recalls a former manager at WE who worked in a different department.

WE’s GLC is a modern building that became the organization’s headquarters in 2017, filled with free-flowing, open-concept workspaces. For a period, the accounting department was run out of its own discrete building a few doors over, former employees tell Canadaland.

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The department later moved to the third floor of the GLC but is walled off from the rest of the operations, for “security and privacy reasons,” according to a former senior employee.

The office of WE co-founder Marc Kielburger is also located within this area, Canadaland is told.

Li’s profile on WE Charity’s website takes the form of a Q&A.

The first question is, “What qualifications do you have to manage the finances of a global organization?”

“I am professionally certified in accounting in four different countries — Canada, the U.S., UK, and China,” he is quoted as saying.

Li is a certified general accountant in Canada, but Canadaland has been unable to verify Li’s certification in the U.S., the U.K., or China.

Neither the names Victor Li, nor Qingtao Li, as he is identified on his sparse LinkedIn page, appear in official directories of certified public accountants in the U.S. or of the Certified Public Accountants Association in the UK.

When reached by Canadaland over the phone, Li declined to answer questions about his credentials. “It is not convenient for me to talk to you personally,” he said, directing our questions to WE.

Canadaland asked WE Charity to explain why Victor Li is not listed as a CPA in the U.S. or the U.K., and to provide documentation that Li is certified as an accountant in China. They did not directly answer.

Instead, they told Canadaland that “WE Charity operates with proper controls and oversight,” and quoted former Court of Appeal justice Stephen Goudge, who WE had retained to conduct various independent reviews on their behalf. “Mr. Li is qualified to act as WE Charity’s CFO,” he wrote.

Li has been with the WE organization for more than 20 years. A relative of his, WE tells Canadaland, is WE Charity’s country director in China.

According to multiple former employees, including a former director and a former manager with very recent experience within WE, the accounting department that Li runs handles the books for both WE Charity and ME to WE, and individual employees within the department routinely work for both entities. When asked if individual staffers in the accounting department work for more than one WE entity, WE Charity told Canadaland that “there are seven people in [the] WE Charity accounting team who work on WE Charity

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and related charitable entities. There are three people in the ME to WE Social Enterprise accounting team who work on ME to WE Social Enterprise.”

Last week, Canadaland revealed that WE mistakenly paid a portion of ’s speaking fees with funds from the charity instead of the for-profit. WE blamed an “error in billing/payment” that they say has since been addressed.

Lawyer Mark Blumberg, who specializes in Canadian charity law at Blumberg Segal LLP, tells Canadaland in an email that it’s not uncommon for organizations to have a multiple-entity structure.

“However,” he cautions, “if an organization plans to have multiple corporate entities, and especially if one of them is a registered charity, it is vital that the organization ensures that there is sufficient separation between the registered charity and other entities.”

WE has asserted that the distinction between WE Charity and ME to WE is clearly set out on their websites and that each donor or customer is advised which entity it is dealing with prior to any transaction.

“While some may think it is a good idea to have a seamless ‘one organization’ approach with branding, governance, and operations, it will be a huge problem from a legal perspective in Canada, because the benefits of being a ‘registered charity’ do not apply to that ‘one organization,’ the resources of the registered charity can only be used for the purposes and activities of the registered charity, and there needs to be a clear separation/distinction between the registered charity and the other, non-qualified donees.”

Blumberg explains that because of the many rules and restrictions governing the operation of charities, especially when it comes to money and other assets, an organization needs to ensure compliance so that they do not lose their registered charity status.

Blumberg cited a number of cases in recent years in which, he said, the CRA has revoked an organization’s charitable status “for improper relationships with a non-charity.”

Charity Intelligence’s Kate Bahen told the CBC that while ME to WE boasts of having given WE Charity $20 million in contributions since its 2009 founding, over the last decade, WE Charity has paid $11 million to ME to WE.

WE responded to this in a statement to Canadaland:

In the most extreme and, frankly, inaccurate, calculations, if someone dismisses (i) removed all value from the purchase of ME

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to WE services; (ii) removes all in-kind contributions from ME to WE, then WE Charity has still received $1.3-million more from ME to WE over the last five years.

Bahen said, “I think it’s very unique, this complex structure between WE and ME to WE, and I’m not aware of situations where we see the charity giving money to the for-profit business.”

The two organizations are “fully separate and legally distinct entities,” WE states.19

[Emphasis added]

This article suggests that, not only might the accounting departments be entangled, there is confusion among the accounting departments for the two entities (if they are, in fact, separate departments) leading to, on at least one occasion, speaking fees that were supposed to be paid by the for-profit company were paid by the charity.

Subsection 230(2) of the ITA includes a requirement that a charity maintain sufficient information to enable the Minister to determine whether there are any grounds to revoke the charity's registration.

The Federal Court of Appeal has determined in several cases that “if a charity's books and records are insufficient for the CRA to assess whether the charity is in compliance with its obligations under the Act, this may be sufficient ground upon which to revoke the charity's charitable status.”20

The Court in Ark Angel Foundation v Canada (National Revenue), 2019 FCA 21 found that even where there is no issue with respect to the recording of revenue or expenditure in the books of account, if the records did not demonstrate sufficient board oversight or internal controls, this could be an issue under subsection 230(2)(a).21

There has certainly been a lack of board oversight in the past several months. The chairs of both the Canadian and U.S. boards of directors for the WE Charity resigned in the spring. The vast majority of the other board members in the two countries have been replaced as well, and staff have been laid off in response to the COVID-19 pandemic.22

19 Canadaland, “What’s The Deal With WE Charity’s Accounting Department?” https://www.canadalandshow.com/whats-the-deal-with-we-charitys-accounting-department/ 20 Ark Angel Foundation v Canada (National Revenue), 2019 FCA 21 at para 43 [Ark Angel]. See also Humane Society of Canada for the Protection of Animals and the Environment v Minister of National Revenue, 2015 FCA 178 at paras 76-79, leave to appeal to SCC refused, 36688 (March 10, 2016) [2016 CarswellNat 601 (SCC); and Opportunities for the Disabled Foundation v. Minister of National Revenue, 2016 FCA 94 at paras 37-39. 21 Ark Angel, at para 10 22 CBC, “We Charity saw resignations, departures from senior ranks before landing government contract”, https://www.cbc.ca/news/politics/we-charity-pandemic-covid-coronavirus-trudeau-1.5635379

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This is something that Behan and CI flagged as a “gap in governance and oversight at the charity.”23

We request that the CRA consider whether WE Charity’s books and records comply with subsection 230(2) of the ITA and ensure there is sufficient board oversight or internal controls related to WE Charity’s accounting.

3. NON-CHARITABLE ACTIVITIES OF WE CHARITY

WE Charity and, in fact, the entire WE organization has seen tremendous growth over the last 10 years and one of its most significant areas of grown has been in the real estate market.

The following article outlines the real estate that WE Charity and other WE organizations hold and raises questions regarding the extent of the land and buildings held by the charity and whether accumulating assets to the extent done so by WE Charity is properly a “charitable activity”.

Property brothers: Kielburgers facing scrutiny over WE organization's $50M real estate empire

July 20,2020

The WE organization at the centre of a major federal government controversy was founded 25 years ago by the Kielburger brothers, Marc and Craig. On the surface, it appears that the charity — one of the largest international development organizations in the country — successfully built a global initiative that quickly began attracting millions in donations and support from top celebrities and politicians, including Prime Minister Justin Trudeau and Finance Minister .

But both Trudeau and Morneau are now facing questions about awarding a $900-million student volunteer contract to WE’s charity arm, despite being linked through family to WE. While the contract was cancelled when uncomfortable questions were raised about political conflicts of interest among senior Liberals, it has provoked interest not just in the government’s decision, but in the WE organization as well, given Trudeau’s claims that WE was the only organization capable of fulfilling what he intended for the contract to achieve.

The non-profit entity of WE — WE Charity — has grown exponentially over the last 10 years with its annual revenue more than doubling over that period of time. But one of its most significant areas of growth of the entire WE organization has been in the real estate market.

23 Canadaland, “WE Charity Move Millions To Private Kielburger Company”, https://www.canadalandshow.com/we-charity-was-in-financial-trouble-before-covid-says-charity-watchdog/

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Over the last five years, the WE international development empire has cumulatively amassed over $50 million in real estate spread across more than 10 different commercial properties in Toronto’s east end, purchase prices from property records indicate.

Most of that value comes from the WE Global Learning Centre, the flagship headquarters of WE Charity, a sprawling 40,000 square foot restored heritage building at the intersection of Queen Street and Parliament Street that the organization’s latest financial statements state is worth more than $30 million.

But for the charity’s founding family the real estate holdings extend beyond WE Charity. ME to WE Social Enterprises Inc. — the for-profit entity under the WE umbrella, founded in part to fund the operations of WE Charity — and ME to WE Foundation has itself accumulated roughly $12 million worth of commercial property in the same Toronto neighbourhood of Cabbagetown, according to property records and answers to the Post’s queries provided by WE.

The entities effectively own an entire block of row houses on Queen Street East, adjacent to and opposite the WE Global Learning Centre.

The transactions associated with WE entities acquiring various pieces of property are sometimes complex. In one instance, a numbered company registered to Fred and Theresa Kielburger, the parents of Marc and Craig, sold a building directly to the ME to WE Foundation for $2.6 million.

As of August 31, 2019, WE Charity had real estate holdings in the form of land and buildings worth $43 million, audited financial statements show. A decade ago, by contrast, the organization owned just $6 million worth of land and buildings.

Part of a lengthy statement provided to the National Post by WE Charity confirmed that all of its real estate is currently located “within a single block near Regent Park/Moss Park” in Toronto. The charity also owns a building adjacent to the WE Global Learning Centre which it says is used for storage, and a three-storey townhouse-style space for “mixed use”, and two other “smaller properties” that are all part of a “redevelopment project” to create free co-working space to other non-profits in the city.

The statement said the money to buy property came from donors who made “targeted donations” .

“One hundred percent of WE Charity property purchases are fully funded by targeted donations from long-standing supporters of the charity,” said the statement. “No restricted program funds, no monies from youth fundraising, nor funds that would have otherwise been used for youth-service programs have

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ever been used to purchase property for WE Charity or any other WE related entity,” the statement added.

In the Regent Park/Moss Park area, WE are high profile.

“The WE folks run this area. There are always young girls and boys wearing WE t- shirts going in and out, stopping for coffee, getting off the streetcar,” said a shop owner in the area, who declined to be named. “They are gentrifying the neighbourhood. I’m not sure if that’s a good thing or a bad thing,” she added.

Questions around the operations of WE Charity and ME to WE began to swirl two weeks ago, as it emerged that the Liberal government handed out a no-bid contract worth up to $43.5 million to WE Charity to manage a $912 million student grant program. This while family members of the prime minister had received speaking fees for participating in WE events and a daughter of the finance minister works for WE.

Last week, WE abruptly released a statement announcing it would be cancelling one of its biggest claims to fame, the celebrity-infused WE Day, in addition to undertaking “governance and structural changes” to “return to its roots”.

One big question mark in understanding the overall operations of the WE organization is deciphering exactly how much revenue its for-profit entity ME to WE generates, and what assets and liabilities, including real estate, the entity has to its name. Because ME to WE is a private company it is not obligated to make its financials public. The Kielburger brothers, according to WE, have a “controlling interest” in the company and are paid roughly $125,000 each annually in salary.

The relationship between ME to WE and WE Charity is simply that the former entity gives a minimum of 50 per cent and up to 90 per cent of its “annual profits” to WE Charity.

“We have no idea whether ME to WE makes $2 million or $20 million. Whether it owns $12 million in real estate or $100 million in real estate through companies or entities associated with it. Whether the Kielburger brothers have a 51 per cent controlling interest or a 90 per cent controlling interest,” said one charity lawyer at a large Bay Street firm the Post spoke to on condition of anonymity, because he was not authorized to publicly comment on WE.

WE confirmed the Kielburgers’ salary, but did not provide additional information on what their controlling stake was.

WE did not respond to a query on how much in annual revenue ME to WE makes. Instead, the organization provided the Post with a document from

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December 2018 showing the amount in donations made to WE Charity between 2014 and 2018. Each year, ME to WE gave WE Charity 90 per cent of its after tax net income. For example, in 2018, that amount was $2.1 million.

After tax net income is essentially profit made by a company after all taxes have been paid, and earnings deducted from revenue.

“Profits tell you very little about how a company is doing when you don’t know their revenue or expenses,” said the Bay Street charity lawyer.

WE’s non-profit entity — WE Charity — operates like a traditional non-profit organization, generating revenue through domestic and international donations, in-kind contributions, and government grants. But what is particularly unique about its balance sheet, according to two lawyers specializing in charity law, is the extent to which its investments and asset holdings are dominated by real estate.

“I will say that it is not very normal for a charity to have most of your net worth tied up in real estate. Again, there’s nothing wrong with a charity owning its own property, as long as they are using it for charitable activities or related business activities, but your investments have to be prudent. It is not overly common for a charity to put most of its money in one kind of investment,” said Mark Blumberg, charity lawyer and partner at Blumberg Segal LLP.

As of Aug. 31, 2019, WE Charity had $62.5 million in assets — $43 million of that was in the form of land and buildings, and approximately $9 million was in marketable securities which are investments that can be easily liquidated. WE Charity’s revenue for the 2019 fiscal year was $65.9 million.

Some of the biggest names in international development own either no real estate, or significantly less than WE Charity, Canada Revenue Agency filings show.

World Vision Canada, for example, which spent $362 million in charitable work outside Canada, owns roughly $18 million in land and buildings. Plan International Canada Inc., owns no real estate. WE Charity, by contrast, spent $19 million in charitable work outside Canada in 2018, and owns more than double that amount in real estate.

WE’s statement noted that other Canadian non-profits and social purpose mission organizations own substantially more real estate than WE Charity and ME to WE combined citing, for example, The Salvation Army of Canada ($98,983,222 of real estate).

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“If you’re a $3 billion charity, you might have some flexibility in what you can do with investing. But if you only make say $1 million in a year, you have to be careful to not put most of that one million in one kind of asset,” Blumberg said.

But the decision to centre most of the charity’s investments around real estate is a deliberate one, according to information provided to the Post by WE. The organization says that it has avoided substantial office leasing or rental costs by purchasing real estate, and estimates that the net overall savings of owning its office space versus leasing it comes to $1.2 million annually.

“The smart use of real estate for social impact is central to WE Charity’s model and is essential to the delivery of high quality and accessible programming while allowing the charity to operate efficiently and effectively,” the statement said.

Charities are required by Canadian law to have a substantial reserve fund of assets, to ensure the sustainability of their operations in any kind of unforeseen circumstance. WE Charity has opted for its reserve fund to be in the form of real estate which it says provides approximately “eight to nine months of financial security”.

The lawyers the Post spoke to are of the opinion that this kind of set-up is more typical for religious institutions like the Catholic Church, or large hospitals that require massive premises, rather than an international development organization.

The Kielberger brothers have long had an indirect relationship to the real estate sector, through their parents, both of whom, in addition to being school teachers, were in the business of buying, renovating and selling homes, according to publicly available information on WE’s website.

Property records show that ME to WE Asset Holdings Inc. — which WE Charity and ME to WE chief financial officer Victor Li says is a “non-operating entity which holds ME to WE’s assets, including its office in Toronto”— owns three pieces of property on Queen Street East, while ME to WE Foundation, owns another three pieces of property on the same street, one of which is used as a storage unit.

In most cases, the property was purchased at an average value of between $2 million and $3 million, and then a mortgage for a lesser amount was taken out against the property. ME to WE officially has an office at 145 Berkeley Street (also addressed at 319 Queen Street East), and WE says that some of the other properties are also used as office space.

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The total value of all of these holdings in terms of purchase price — an amount confirmed by WE — is $11.9 million, but it is still unclear, despite direct questions to WE, if they represent all of the real estate holdings of ME to WE.

One transaction in particular stands out.

On January 25, 2019, a numbered corporation registered to Fred and Theresa Kielburger sold a property at 329 Queen Street East to ME to WE Foundation for $2.6 million.

Months after the transaction was completed, ME to WE Foundation took out a mortgage on the property for $800,000, property records show.

WE confirmed to the Post that the initial purchase of 329 Queen Street East was done by Fred and Theresa Kielburger at the request of the ME to WE Foundation, since the “organization did not have sufficient funds at the time”. Months later, Fred and Theresa Kielburger sold the property to the Foundation at the same price at which it was purchased ($2.6 million), and covered the closing costs on behalf of the Foundation.

“Fred and Theresa Kielburger lost $130,000 on the transaction, as they kindly elected to cover all related costs, including land transfer taxes,” WE said.

This is not the first time the Kielburger parents have had a relationship with some part of the WE organization. For 14 years, they let Free the Children, as it was then known, use two buildings they owned in the Cabbagetown neighbourhood, rent-free, before signing a 10-year lease with the City of Toronto recently to turn one of the two buildings into a women’s shelter.

In addition, back in 2009, they offered the use of 212 Carlton Street — another building they owned — rent-free to ME to WE Social Enterprises Inc. In 2011, a building nearby, 227 Carlton Street became available to purchase and the Kielburger parents bought that building and again, provided it rent-free to ME to WE. It is unclear whether ME to WE still owns these buildings in some way.

An independent assessment commissioned by WE and conducted last May by former judge Stephen Goudge concluded that there was nothing improper about Fred and Theresa forming a business relationship with WE Charity by giving them use of their premises for free. WE’s statement said the parents effectively made an estimated in-kind donation of $5.3 million by providing the premises rent free for ten years.

Yet another statement by Goudge in November 2019 commented on the 329 Queen Street East transaction, and again concluded that there was nothing improper about the transaction.

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The Bay Street lawyer who declined to be named said that there is nothing wrong with a numbered corporation registered to the Kielburger parents selling property to the ME to WE Foundation, but transactions with related parties can raise questions. “The problem with entering into a transaction like that is it could result in people wondering about the appropriateness of it. Foundations and charities are often subject to scrutiny. This kind of transaction is not something I would recommend.”

In its response to the Post, WE emphasized numerous times that all of WE Charity’s investments in real estate come from targeted donations — the Global Learning Centre, for instance was funded by Hartley Richardson, president and CEO of James Richardson and Sons, a family-owned corporation from Winnipeg involved primarily in agriculture, the Richardson Foundation and David Aisenstat, president and CEO of the Keg Steakhouse and Bar.

The organization also got Goudge, the former judge, to assess its real estate policy and concluded that “WE Charity’s policy of owning real estate has provided a financial and organisational benefit and supports the work of the charity.”

However, the policy was questioned by one of the lawyers the Post spoke to.

“Ultimately, when you think about any charity raising money, you always have to ask: how are they using that money? Do they need that much money?” he said.

“If a charity keeps fundraising to accumulate assets, whether it is in real estate, or other investments, either they need to spend more on charitable activities or just stop fundraising.”24

[Emphasis added]

We request that the CRA investigate WE Charity’s real estate acquisitions to determine whether such acquisitions violate the ITA. The forgoing suggests that all of WE Charity’s resources are not being devoted to “charitable activities carried on by the organization itself” as acquisitions of real estate appear excessive. Therefore, WE Charity may not be in compliance with section 149(1) of the ITA. This would mean it is not in compliance with the requirements for its registration and may allow the Minister to revoke its registration pursuant to sections 149.1(2) and 168(1).

24 National Post, “Property brothers: Kielburgers facing scrutiny over WE organization's $50M real estate empire,” July 20, 2020, https://nationalpost.com/news/property-brothers-kielburgers-facing-scrutiny-over-we- organizations-50m-real-estate-empire

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4. POLITICAL ACTIVITIES OF WE CHARITY

Lastly, WE Charity has, on several occasions, demonstrated its support for Prime Minister Justin Trudeau and the Liberal government including specific Liberal Cabinet Ministers.

Section 149.1(6.2) provides that an organization that devotes any part of its resources to the direct or indirect support of, or opposition to, any political party or candidate for public office shall not be considered to be constituted and operated exclusively for charitable purposes.

In 2017, WE Charity released a video that appears to promote Prime Minister Trudeau and his Liberal government.

The 30-second advertisement, entitled “WE are Canada,” and devoted exclusively to Trudeau, appears to be linked to the Canada 150 celebrations and shows stylized silhouettes of Trudeau across backdrops of mountains and farmer’s fields, while Trudeau speaks about young people and his intentions to work hard.

The video can be seen here: https://vimeo.com/223164192

The video is a campaign-style advertisement that clearly is meant to (and does) display Trudeau in a positive, inspirational and accessible manner and, as a result, directly supports both him and his government.

Furthermore, several tweets from the verified WE account (@WEMovement) demonstrate the charity’s support for Trudeau, his government and members of the Liberal Cabinet including the following:

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In 2017, ahead of Canada day and the country’s 150th anniversary of Confederation, the charity allowed Trudeau to “take over” its Twitter account and address its hundreds of thousands of followers.

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It is submitted, that individually, and in the aggregate, the above tweets constitute support by WE Charity (both directly and indirectly) of the Liberal Party of Canada, the Liberal Cabinet, and the Prime Minister, himself.

Therefore, as a result of the aforementioned video and tweets, and pursuant to section 149.1(6.2) of the ITA, WE Charity cannot be considered to be constituted and operated exclusively for charitable purposes.

CONCLUSION

We ask that a review of the charitable status of WE Charity be undertaken. There are reasons to believe that WE Charity may be improperly funneling money to ME to WE, which is not a qualified donee under the ITA. Furthermore, WE Charity’s accounting may be inappropriately intertwined with the for-profit organization and may be lacking adequate board oversight. Moreover, its “unusual” and, arguably, extreme acquisition of significant real estate assets suggests that it is carrying on a business that is not a related business of that charity. Lastly, there is evidence that WE Charity has supported Trudeau, his Cabinet and the Liberal Party of Canada. All of these issues suggest that WE Charity is in contravention of the ITA and should, therefore, have its registration as a charitable organization revoked.

Yours truly,

Jensen Shawa Solomon Duguid Hawkes LLP

ANDREA MACLEAN

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