Eight years after the Canadian Association of Gift Planners placed the Banyan Tree Foundation on its list of "buy low, sell high tax shelter donation arrangements" (Canadian Fundraiser, December 15, 2003), the longest-running Canada Revenue Agency-labelled "sham donation" arrangement in Canada launched what could be its final chapter.

Settlement doesn't address liability

Along with the foundation, Rochester Financial Limited, Promittere Capital Group Inc., Promittere Asset Management Inc. and Fraser Milner Casgrain LLP agreed to contribute $11,000,000 to settle a class action brought by Banyan donors. On January 17 of this year, the Ontario Supreme Court of Justice approved the settlement, which includes no admission of liability or wrongful conduct.

The related loan agreements and promissory notes that donors had signed with Rochester Financial were declared unenforceable.

False receipts, miraculous fundraising claims

The case was launched early in 2008. Months later in September, the CRA revoked Banyan's charitable registration after sending letters to donors disallowing $208 million in tax receipts and describing the foundation's donation arrangements as "a sham."

According to the foundation's T-3010 filings as analyzed by CharityCan, it appears to have raised over $220 million between 2002 and 2006 and spent roughly $16 million on administration and fundraising - an almost unheard-of expense ratio to die for, thanks to no paid staff members and a board composed only of its executive director and one to two other members.

Promittere operated "in the shadows"

The Promittere companies appear to show little activity in the financial sector beyond facilitating the Banyan-leveraged donation program. Despite their outlier status, a mainstream financial institution was reluctant to discuss the Banyan settlement on record with CF&P. An anonymous source within that institution commented that though he was uncertain that all of the investors qualified as "victims", he was glad to see this kind of sham-donation tax shelter arrangement shut down.

"When the investors rebel, there may be hope that the market is turning against the promoters, which will protect charities and the tax system," he noted. He described the promoters as operating in "the shadows of the financial world."

More information on the settlement is available from the donors' law firm, Scarfone Hawkins LLP at http://www.classactionlaw.ca/content/claims/Rochester/Rochester.htm