Why Canadian tax policy, not foreign policy, may be shaping outcomes in the West Bank
By J. Andre Faust (Dec 16, 2025)
Abstract
This article examines recent findings by CBC’s The Fifth Estate concerning Canadian charities that issue tax receipts for donations ultimately supporting Israeli settlement activity and military-affiliated organisations in the occupied West Bank. Rather than presenting original investigative reporting, the article treats the Fifth Estate investigation as a catalyst for structural analysis. It situates the Canadian case within a broader international context, comparing how similar charitable and tax-advantaged systems operate in the United States, the United Kingdom, the European Union, Australia, and selected European states. The analysis argues that the issue is not unique to Canada, nor reducible to ideology, but reflects a recurring governance failure in which charitable law, foreign policy, and enforcement mechanisms drift out of alignment. Written under The Connected Mind banner, this first article focuses on identifying the problem. Subsequent pieces will apply a Unified Theory of Probabilistic Connections and game-theory analysis to explain why such outcomes persist.
The Catalyst: What The Fifth Estate Documented
In October 2025, CBC’s The Fifth Estate aired an investigation into Canadian registered charities that issue tax receipts for donations directed toward Israeli organisations operating in or supporting settlements in the occupied West Bank. Drawing on Canada Revenue Agency filings, access-to-information documents, sanctions lists, and controlled test donations, the investigation identified millions of dollars in tax-deductible Canadian donations flowing through charitable intermediaries to settlement-linked and military-affiliated entities.
The reporting highlighted a structural contradiction. Canada’s official foreign policy recognises Israeli settlements in the West Bank as illegal under international law and has imposed sanctions on individuals and entities associated with extremist settler violence. At the same time, Canadian tax law prohibits registered charities from acting as conduits for foreign entities, funding foreign armed forces, or operating in ways contrary to public policy. Yet the investigation documented cases in which Canadian charities appeared to facilitate precisely such outcomes.
Importantly, The Fifth Estate did not allege criminal guilt. Instead, it demonstrated how existing regulatory frameworks are applied unevenly, often reactively, and frequently only after public or media scrutiny. The investigation therefore serves not as an endpoint, but as a starting point for a broader structural question: is this a uniquely Canadian failure, or part of a wider international pattern?
Charitable Status and Structural Risk
Charitable tax receipts are not neutral instruments. They convert private donations into public subsidies by reducing government revenue. In effect, the state becomes an indirect participant in whatever activity the donation supports. For this reason, Canadian charity law places strict requirements on direction and control over foreign expenditures and explicitly prohibits support for foreign militaries or activities that undermine Canadian public policy.
When a charity issues a tax receipt for funds that ultimately support settlement expansion or military-affiliated organisations, the legal issue is not donor intent. It is functional outcome. Even absent malicious intent, the charity acts as an intermediary that enables financial flows Canadians could not lawfully make directly. From a regulatory perspective, this intermediary role is precisely what the conduit prohibition is designed to prevent.
This is where the concept of proxy behaviour becomes analytically relevant. A proxy, in this context, does not imply coordination or conspiracy. It describes a structural role in which an organisation enables, legitimises, or shields activities that would otherwise face legal or policy barriers.
Is Canada Unique? A Comparative Perspective
United States
The United States represents the most permissive model. Under the 501(c)(3) framework, US charities may legally fund Israeli military support organisations and settlement-linked activities, often framed as welfare or educational assistance. This permissiveness reflects US foreign policy, which does not formally classify settlements as illegal in the same way as Canada or the European Union. The contradiction in the US system is political rather than regulatory.
United Kingdom
The United Kingdom’s Charity Commission operates under a framework closer to Canada’s. UK foreign policy recognises settlements as illegal, and charities are required to demonstrate public benefit and compliance with international law. Several UK charities have faced investigations, warnings, or trustee suspensions for activities linked to occupied territories. Enforcement, however, remains largely complaint-driven and reactive.
European Union
At the European Union level, settlements are unequivocally considered illegal under international law, and EU public funding is barred from supporting settlement activity. Private charitable enforcement varies by member state. While some national regulators apply strict oversight, others rely on disclosures and post-hoc investigations, allowing similar structural gaps to persist.
Australia
Australia closely mirrors Canada. Official policy opposes settlement expansion, and charities are prohibited from funding foreign military activity. Nonetheless, enforcement by the Australian Charities and Not-for-profits Commission has been limited, with scrutiny typically arising only after public controversy.
France and Germany
France and Germany apply comparatively strict preventative controls. Charity registration, banking oversight, and foreign-transfer scrutiny are tightly integrated, reducing the likelihood that settlement-linked funding flows persist unnoticed. As a result, fewer cases reach the stage of public scandal, not because demand is absent, but because enforcement occurs earlier.
What the Comparisons Reveal
Across jurisdictions, a consistent pattern emerges. Where foreign policy positions, charitable law, and enforcement mechanisms diverge, charitable systems become low-visibility transmission channels for geopolitical finance. Tax incentives amplify these effects, while fragmented oversight diffuses accountability.
Canada’s case is notable not because it is unique, but because the contradiction is unusually stark. Settlements are deemed illegal, specific entities are sanctioned, and charitable law explicitly forbids conduit behaviour. Yet enforcement remains slow, reactive, and politically cautious. The result is a system in which outcomes persist that no single institution openly endorses.
Policy Silence, Reactive Enforcement, and the Structural Gap
Despite the seriousness of the issues raised by The Fifth Estate investigation, there has been no broad public policy statement indicating that Canada intends to reform its charitable tax framework in response. Federal authorities have not announced legislative amendments, revised CRA guidance, or articulated a coherent enforcement strategy that explicitly addresses charitable funding linked to settlement activity or foreign military-affiliated organisations.
Official responses have instead emphasised that Canada already has “stringent laws” governing charities. While this is formally true, it sidesteps the central problem identified by the investigation: the issue is not the absence of rules, but the absence of systematic alignment between charitable law, foreign policy, and enforcement practice.
To date, enforcement appears case-by-case and reactive, rather than preventive or risk-based. Charitable status revocations and compliance actions have largely followed media investigations, public complaints, or legal challenges. There is little evidence of proactive audits focused on foreign-policy risk, geographic exposure, or sanctions overlap. Nor has there been any indication that charities operating in high-risk geopolitical contexts are subject to enhanced scrutiny before violations occur.
This complaint-driven model effectively outsources detection to journalists and civil society organisations. It allows questionable practices to persist until they become publicly visible, rather than preventing them through regulatory design. The result is not regulatory failure in a narrow sense, but regulatory lag: institutions applying rules designed for an earlier era to a far more complex and politicised financial environment.
Why Proxy Behaviour Emerges Without Intent
This enforcement gap helps explain why certain charities can come to function as de facto financial proxies, even in the absence of explicit coordination or malicious intent.
Charitable tax receipts transform private donations into public subsidies by reducing government revenue. When such receipts are issued for funds that ultimately support settlement expansion or military-affiliated entities, the state becomes an indirect financial participant in activities that contradict its stated foreign policy. From a structural standpoint, this outcome does not require bad faith. It requires only three conditions:
- Tax incentives that amplify private donations
- Weak or delayed enforcement of direction-and-control rules
- A lack of policy integration between tax administration and foreign affairs
Where these conditions coexist, charities can unintentionally assume a proxy role, enabling financial flows that individuals could not lawfully make on their own.
This is precisely what The Fifth Estate investigation documented. The issue is not that charities openly defy Canadian law, but that no mechanism exists to prevent misalignment before it occurs.
A Connected Mind Framing
The Connected Mind is the branding and intellectual framework under which this analysis is presented. It begins from the philosophical assumption that complex social, legal, and institutional systems are interconnected, and that outcomes should be examined structurally rather than in isolation.
From this perspective, the issue raised by The Fifth Estate is not best understood as a collection of individual compliance failures. It is better understood as an emergent property of an interconnected system in which tax policy, charitable law, regulatory caution, and geopolitical sensitivity interact in unintended ways.
This article’s purpose is identification. It establishes how a system designed to encourage charitable giving can, under certain conditions, produce outcomes that contradict stated national commitments.
Looking Ahead: UTPC and Game-Theory Analysis
Subsequent articles under The Connected Mind banner will move beyond identification. One will apply a Unified Theory of Probabilistic Connections to explain mechanistically how such institutional entanglements arise and persist. Another will apply game-theory analysis to examine how rational actors respond to incentives within this system, even when the collective outcome is undesirable.
For now, the essential point is this: outcomes that appear intentional can emerge from systems that are merely misaligned. Recognising that misalignment is the first step toward addressing it.
References
ACNC. (2023). Australian charity compliance and foreign activities. Australian Charities and Not-for-profits Commission.
Bundesministerium der Finanzen. (2023). Non-profit law and international financial oversight. Federal Ministry of Finance, Germany.
Canada Revenue Agency. (2024). Guidance on charities and foreign activities. Government of Canada.
CBC News. (2025a). Canadian charities complicit in helping fund Israeli settlement movement in West Bank, critics say. The Fifth Estate.
CBC News. (2025b). Investigating charities getting tax breaks for funding Palestinian displacement. The Fifth Estate.
Charity Commission for England and Wales. (2023). Charities and overseas activities: Compliance guidance.
European Commission. (2022). EU policy on settlements and funding eligibility.
Internal Revenue Service. (2023). Exempt organizations and international activities. United States Department of the Treasury.
About the author
J. André Faust writes under The Connected Mind, focusing on the structural entanglements of politics, economics, and society. His work uses a layered-systems approach to trace feedback, map incentives, and revise beliefs as new information emerges.
