A bogus AIDS charity that claimed it was curing disease in Africa with more than $200 million in life-saving drugs has been shut down by the Canadian Revenue Agency.
The Orion Foundation, whose boss had a sideline business involving high class escort agencies, was operated for the “private gain” of the boss and fellow directors, a federal audit concluded.
Trips to Vegas and Cuba, home renovations, booze, hundreds of thousands of dollars in unexplained management fees, and virtually nothing for good works was uncovered by auditors.
The Star exposed the charity in April 2009 in an investigative report on the dual life of foundation founder James Arion.
By day, he was hooked up with a tax shelter that through a complicated series of transactions extracted millions of dollars from Canadian donors and then issued them tax receipts for up to five times the amount. By night, the twice-bankrupt Arion used dummy corporations with mundane names like Neodec Services to process payments from johns who did not want the wife or a company auditor spotting a credit card payment from Cachet Ladies, Cupid Escorts or other agencies.
It’s the latest in a series of charity cases delving into abuses in Canada’s charitable sector. Arion could not be reached for comment yesterday, nor could officials at the tax shelter, the Canadian Organization for International Philanthropy (COIP). The charity records auditors had to deal with were a mess. Arion ran the charity and his prostitution-related business out of two adjacent homes in Stouffville, north of Toronto.
The audit focuses on the charity and the AIDS drug/tax shelter scheme, and only makes a brief reference to other businesses run by the charity’s directors, but does not identify them. Drilling down into the charity, auditors discovered that executives of the tax shelter were behind changes to the Orion Foundation that permitted it to be involved in the scheme.
James Arion set the foundation up (he called it the Aryan Foundation) in 1986, purportedly to run an unnamed orphanage and assist “children in distress”. It did nothing of the sort. In 2005, executives from tax shelter COIP met Arion. The name was changed to the Orion Foundation and, according to the audit, COIP officials wrote the Canada Revenue Agency stating that the charity was now involved in “international humanitarian relief”. The CRA, which oversees charities, approved the change and the foundation went into high gear.
Tax shelters like COIP promote schemes to the public that, they say, will reduce the amount of income tax payable each year. They need charities to issue tax receipts. COIP used a Greek church for several years, but when CRA started probing the church, they switched to Orion.
CRA looked at two years in its audit — $91 million of tax receipts issued by Orion to taxpayers who were told their money was buying AIDS drugs for “Sub-Saharan Africa”. Based on the formula COIP used, this means that donors likely gave about $15 million dollars in real money during the 2006-2007 period, but receipts were issued for six times that amount, which helps the donor at tax time. This produced whopping tax credits for donors that meant that they earned more than $2,000 for every $1,000 they donated.
(CRA did not include the two most recent years — 2008-2009 — in its audit but charity documents indicate another $116 million in receipts were handed out in this period).
Auditors said they could not find any proof that “these pharmaceuticals were actually received, used or distributed” in Africa. They state they may have found proof that $10,750 went to charitable works of some sort but even that is unclear.
What they did find in the two years studied was a paper trail (not a very complete one) of payments to COIP for operating the scheme (most of the cash went there), about $360,000 in one year alone for “fundraising fees” to a company connected to the tax shelter, and a series of smaller payments (totalling about $320,000) to Arion, his wife and other directors of the charity for “management fees”.
Auditors also found $26,686 in travel expenses for a trip to Cuba including Arion, his wife, children and other charity directors. That trip included a stop in Las Vegas. They also turned up $66,498 in “leasehold improvements” for Arion’s home and more than $4,000 in “legal, meal and liquor expenses”. The audit did not probe 2008, the year where the charity and the tax shelter did its biggest business.
Auditors concluded that the Orion Foundation’s “charitable purposes have been side-tracked for the purpose of participating in and promoting the tax shelter.” Meanwhile, thousands of Canadians are facing battles with the taxman because their donations to the Orion Foundation have been rejected. It is unknown (CRA won’t say) if any action is being taken against COIP. The CRA’s charities directorate has jurisdiction over charities, not tax shelter promoters, which are registered by another arm of the CRA.
As for Neodec Services, Arion’s credit card processing company for prostitutes, its website is shut down. The Orion Foundation’s website was still operating Monday, encouraging donations and promising “an Official Donation receipt once we have confirmed receipt of funds.”