Charitable crowdfunding is wonderful. It allows ordinary individuals to raise funds for themselves, others in need or for charities quickly and at a minimal cost. It provides donors who are looking to help others or respond to a disaster with an easy way to do so. It encourages altruism, generosity and community.

Charitable crowdfunding is terrible. It allows anyone to ask for money for themselves, others who may not even want the assistance, and for purported charities that may not even know about the appeal, based on mostly unverifiable, sob stories. It provides a way for supporters of problematic causes to fund their problematic efforts. And most campaigns that seek to address a legitimate need fall far short of the amount required, leaving the organizers and beneficiaries worse off than before. It provides a new avenue for waste, fraud and division.

“The spectacular tale of a crowdfunder gone wrong: Lessons for Canada from Australia,” by Myles McGregor-Lowdnes, shows how wonderful-terrible these crowdfunders can be — and what we should do about it. Photo is courtesy of Jo-Anne McArthur and Unsplash.

Competing narratives, limited information

Which of these narratives is true, and to what extent? Government regulators watching the explosive growth of charitable crowdfunding would like to know, but so far there are very little data available. indicate that charitable crowdfunding – using an Internet platform to raise funds for needy individuals or organizations without any tangible return to donors – has grown to billions of dollars annually through thousands of websites reaching citizens in dozens of countries. While still relatively small compared to the hundreds of billions of dollars that charities raise annually, the current growth strongly indicates that this way of fundraising is now well established and will likely become a significant method for raising funds. Already, some campaigns have raised tens of millions of dollars, including the Australian wildfires campaign discussed by Myles McGregor-Lowdnes on this website, the Canadian campaign in the wake of the Humboldt hockey team tragedy, and most recently in the United States.

With limited data about the scale of charitable crowdfunding have come numerous stories of negative consequences. These include the fact that many, perhaps most, campaigns fall short of their goals, leaving organizers and beneficiaries frustrated and disappointed, . As the same story details, even for campaigns that are wildly successful, there may be questions about whether the funds raised effectively address the needs that the organizers sought to remedy.

And there is a darker side to charitable crowdfunding. There are numerous stories of fraudulent campaigns where the funds raised were not used for the asserted need or where the need itself was manufactured, with perhaps the largest being . And it came to light that participants in the January 6, 2021, attack on the U.S. Capital Building .

“Will Provinces & Territories Increase Trust in Crowdfunding?” by Peter Broder, looks at a new Canadian regulation that could solve crowdfunding problems.

How should governments respond?

Given the controversies and shortage of data, government regulators have struggled with how to respond to this new fundraising technique, especially given that existing laws governing charitable solicitation may not apply. and , uniform law bodies have completed or are drafting model laws to address some aspects of charitable crowdfunding. However, to date only one Canadian province has adopted such a law. And in the US, the California legislature has repeatedly considered specifically addressing regulation of charitable crowdfunding, but failed to enact any.

In d in the Indiana Law Journal, I address these issues in detail. My conclusion is that we need requirements that increase the flow of information to beneficiaries and, to a limited extent, to regulators. Platforms should be required to notify purported beneficiaries of campaigns launched in their name, both to help ensure the funds raised reach them and to allow them the opportunity to opt out. Platforms should also be required to notify regulators of campaigns that exceed a certain threshold, both to aid regulators in responding to any reports of possible fraud and to give regulators better data on which to base future decisions regarding regulation. These limited requirements would help address the information deficit for this new fundraising method, while at the same time not unduly burdening efforts to encourage generosity and address legitimate needs. This, in turn, will help to ensure that crowdfunding is a wonderful innovation, not a terrible one.

is a Professor at Notre Dame Law School, in the US. He’s on and . Photo is courtesy of Elyssa Fahndrich and Unsplash.

We’ve heard a lot about resilience during the COVID-19 pandemic. We know what resilience means for the human body, mental health and for community well-being, but what does it mean for a nonprofit and charitable sector now straining to keep doors open and lights on?

COVID has shone a spotlight on many systemic weaknesses. Vulnerable populations – the elderly, those living in poverty, precarious workers, racialized communities, and people with disabilities – have all been disproportionately affected. This is as true in Canada as elsewhere. Governments have demonstrated their value through this difficult time. So too has our nonprofit and charitable sector. Food banks, shelters, community health services, employment services, housing, eldercare, and childcare are just a few examples of assistance to Canadians through this crisis. But the sector isn’t immune to systemic weakness. At a moment of great need, it’s in the precarious position of lacking the resources required to serve communities in trouble.

The sector’s reliance on government transfers and individual donations makes it vulnerable when those resources are scarce – as COVID has demonstrated. But this dilemma isn’t new. I and others have long argued that social finance offers a way out, a way that enables organizations to diversify revenues. And the capacity to diversify strengthens resilience – witness sewing co-ops shifting to make personal protective equipment, or food-based social enterprises providing meals to isolated seniors, or courier companies pivoting to deliver groceries.

Social finance doesn’t replace traditional sources of funding for nonprofits and charities. It’s only one of many sources. As noted by the : “Social financeĚýžą˛ő a tool that seeks to mobilize private capital for the public good. It creates opportunities for investors to finance projects that benefit society and for community organizations to access new sources of funds.” This intentionality for both a financial return and a positive social or environmental impact distinguishes social finance.

Social finance allows a charity or nonprofit to recognize its assets, articulate its value and to ask ‘Who else values these assets?’ and ‘Who’s willing to invest in what we do?’. This mindset is entirely different from one that asks ‘Who will fund my good works?’. Such a shift can unlock significant creative energy and innovation within an organization.

Yet despite its benefits, social finance has been slow to advance in Canada. For many years, I and others saw the lack of investment capital as the major barrier to a well-coordinated social finance marketplace. But it turns out that while access to capital is necessary, it’s not sufficient. Challenges also exist around the demand for capital. A report just released by details the obstacles that Canadian charities face in using social finance to diversify revenues. Drawing on a survey of more than a thousand charities in Canada, the report finds that risk aversion (particularly from boards of directors), small size, and lack of knowledge remain major barriers to the demand for social finance capital today.

One of the lessons of the Covid-19 pandemic is that resilience in our sector requires a broad suite of resources to ensure that services can be delivered when most needed. Let’s not overlook a tool in our toolbox when our communities need us more than ever.

Tessa Hebb is an Adjunct Professor at the School of Public Policy and Administration. She’s also a Distinguished Research Fellow and past Director of the ĐÓ°ÉÔ­´´ Centre for Community Innovation. Her research focuses on Responsible Investment, Impact Investment, Social Finance and Impact Measurement. Hebb is on and . Photo of shelves is courtesy of Konstantin Rotkevich and Pixabay.

Australia suffered several months of catastrophic bushfires that finally ended in March 2020, but not before 19 million hectares and 3,500 homes were burned out, 35 people (including 14 firefighters) were killed and nearly three billion animals died. The philanthropic response to the carnage was extraordinary: , joined by philanthropists, corporations and celebrities from around the world, raised an estimated AUD$500 million (roughly CAN$480 million). Dozens of superstars, in particular, stepped up: Leonardo DiCaprio (US$3 million via Earth Alliance), Ellen DeGeneres, (US$1.1 million) and, most noteworthy, Australian comedian, Celeste Barber, who ended up catalysing the most successful Facebook fundraiser in history, followed by mass confusion and legal consequences.

The Celeste Barber effect

Barber, an Instagram star, created a on Jan. 3, 2020, after her family was evacuated from their home near the fires in New South Wales (NSW). The fundraiser target was AUD$30,000, but within a day, she raised nearly $2 million – and by the time she closed the page, on Jan. 17, she’d raised $51 million from 1.3 million people, making it the largest fundraiser ever held on Facebook. Early in the appeal, a small group calling itself warned Barber that the designated charity wouldn’t be able to meet the expectations of donors, but she dismissed the group, saying, “Why raise this money if it’s not going to go to the people who absolutely need it?” And that’s when the problems began.

The charity named on Facebook

The Facebook fundraiser page named a registered charity as the recipient of the money: The Trustee for the NSW Rural Fire Service & Brigades Donations Fund. If donors followed the Facebook links to the on the website of the Australian Charities and Not-for-profits Commission (the charity regulator), they would read that this charity helps “people in rural/regional/remote communities; victims of disaster; general community in Australia,” and that it operates in New South Wales.

If donors poked deeper, they’d find a pdf of the Fund’s governing document, which sets out its much narrower, legal mandate: “to meet the costs of purchasing and maintaining fire-fighting equipment and facilities, providing training and resources and/or to otherwise meet the administrative expenses of the Brigades which are associated with their volunteer-based fire and emergency services activities.” Again, in New South Wales. The Fund solely supports the , a state agency and the world’s largest volunteer fire service, with more than 71,000 volunteers, 900 full-time staff and nearly half a billion dollars in annual revenue. As a NSW government agency, the Fire Service doesn’t qualify as a tax-deductible body for charitable gifts. However, it established the Fund, which does qualify – and the Fund was the only charity named in the Facebook fundraiser.

Mass confusion in Australia

The first questions about who would benefit from the donations emerged on the second day of the appeal, in Facebook comments responding to an update Barber had posted. The next day, on her Instagram account, Barber wrote that she’d “make sure that funds get spread around the country to help people and wildlife affected by the fires.” (Aside from the state of NSW, the neighbouring state of Victoria, as well as South Australia and other parts of the country were severely affected.)

However, a few weeks later, the Fund issued a media statement: “We know that people want to know how the money will be spent. We take the responsibility of community donations very seriously and we want to make sure the money is put to good use. The NSW RFS Brigades and Donations Trust has a specific purpose and people have donated for this intent – to support volunteer brigades with equipment, training and resources relating to their emergency service role. Funds must and will be used for this purpose.”

In spite of this statement, several focussed on the need for donors to check before donating to online fundraisers fronted by celebrities, creating more confusion. Australian charity and consumer regulators didn’t intervene when public concerns were raised. Soon, articles suggested that court intervention might be necessary, and there were reports that both Barber and the Fund were planning to seek direction from the NSW Supreme Court. Barber was reported as saying: “I’m going to make sure that Victoria gets some, that South Australia gets some, also families of people who have died in these fires, the wildlife.” This was in spite of the fact that the Fund works only in NSW, not other states. In response, the Fund filed an application seeking judicial advice.

Things get funky with Facebook and PayPal

In Facebook fundraisers, the PayPal Giving Fund (itself a charity) collects donations, under extremely detailed terms and conditions, and then disperses the funds to the recipient charities named by the organizers. Do donors actually read these terms and conditions? In the Barber appeal, they were not always easy to locate, and how to ‘learn more’ versus a desktop computer.

PayPal quickly dispatched the donations to the Fund. Some might say this was to prevent it from being embroiled in litigation, given that it had just reached a in several states about inadequate disclosure to donors. In any event, the Fund then immediately allocated $20 million of the $51 million to volunteer firefighter matters — and it planned to distribute the rest, pending the court decision.

The court steps in

A judge was asked to decide: could the money from the fundraiser be directed to other charities? If not, could the Fund be used for broader purposes than those stated in its legal mandate? In May, 2020, the NSW Supreme Court was decisive: the money could go to only the Fund, and only for the purposes in its legal mandate, mainly involving training volunteer firefighters in rural areas and supporting volunteer firefighters who are injured on the job.

In short, Facebook comments by donors stating they wanted to support fire victims and communities didn’t mean much, and PayPal’s “terms and conditions” won out. When donors had made their payments to PayPal, via Barber’s Facebook fundraising page, they’d agreed to PayPal Giving’s terms and conditions, which named the Fund as the recipient charity, “despite what donors later may have hoped or intended might be done with the money.”

Barber later told her supporters: “Turns out that studying acting at university does not make me a lawmaker.”

What else could be done?

The court had to address narrow questions relying on trust law. Clearly, creating flexibility to direct some of the Barber fundraiser funds to victims and affected communities wouldn’t happen through the courts. One alternative was legislation that would amend the Rural Fires Act 1997 (NSW), the legal authority behind the Fire Service and the Fund, to allow greater flexibility in how the donations could be directed. The other option – noted explicitly by the court – is for individual donors to sue PayPal Giving on the basis that they had stated on Facebook they wanted their donations to go to a different cause or charity. Given the high costs of litigation and the fact that PayPal Giving had quickly passed on the funds, no donor has taken up this option.

However, by a Greens party member to amend the Rural Fires Act 1997 (NSW). In her , Barber noted: ”Understandably, I started the fundraiser to help my family, with a goal of 30K, then when it surpassed tens of millions of dollars, and the fires kept raging and the devastation was unfathomable I absolutely thought it would be possible for this huge amount of money to be shared.”

She also explained the challenge of changing course once crowdfunding goes viral: “It was suggested to me that I open up a number of additional fundraising pages so the money could go to other charities. I didn’t know what to do as I feared that if I closed this particular fundraiser down and started another one the momentum might have been lost.”

Barber also reflected how her own reputation and trust of her supporters – more than 10 million people online – had been damaged. “It is my name being used in the courts and throughout international media channels,” she said. “I have lost count of how many times I have heard and read the word ‘unprecedented’ used when referring to the money raised. Maybe something that we have never seen before deserves the consideration of a change of rules in this unprecedented instance.” And she issued a caution about taking such generosity for granted: “My concern is that if it is not possible to help these people have their money allocated to where they want it to go in this unprecedented instance that this may be the last we see of such generosity on such an international scale.”

The Committee’s recommended further debate by Parliament to address legal concerns of some witnesses. That has yet to happen. Meanwhile, the $51 million is being distributed by the trustees of the Fund on new equipment, training, and assistance for injured volunteers. Some might argue this has relieved the NSW government of the burden of this expense.

During the bushfires, over 500 fraudulent scams were reported to the Australian Competition and Consumer Commission. The vast majority of fundraising activities during the 2019-2020 bushfires had been through online and digital mechanisms. Government should consider whether additional regulatory responses are required to address online-fundraising fraud risk.

— , Australia (Oct. 2020)

Lessons for crowdfunding in Canada

This is a case of good intentions, generosity and emotions colliding against legal constraints in the absence of regulation of online crowdfunding. Among the lessons:

• Organizers need to think carefully about which charities they designate as recipients of their crowdfunding campaigns, and understand what these charities are legally allowed to do. No matter what organizers claim, these legal requirements restrict what’s possible. Donors, too, need to understand these limitations and educate themselves about the recipient charities. In Canada, information is available from the , Canada Revenue Agency or , as well as on most charities’ own websites.
• Charities should be required to authorize fundraising on their behalf and be responsible for dealing positively with false or misleading conduct by their fundraisers.
• Consumer and charity regulators, particularly the Attorney General who has the historical role of Crown protector of charities, should act to protect charities and donors – particularly during times of disaster, when emotions may override rational decision making.
• Paypal Giving, Facebook and other online donation platforms should make their terms and conditions clear. Currently, this fine print is onerous and is far in excess of what’s necessary to protect Paypal – and it advantages PayPal over donors. In addition, the fine print needs to be more consistent across jurisdictions. In an international appeal, such as Barber’s, the terms and conditions differ, depending on the jurisdiction of the donor, causing legal and practical difficulties.
• An agreed industry code of conduct for online fundraising platforms, a code that spans jurisdictions and is fair to all parties, would be a significant advance.
• Canadian regulation needs to adapt to the world of crowdfunding. Saskatchewan is the only province with legislation that provides special guidance to online fundraisers and allows for judicial intervention in disputes. In August 2020, a , was adopted by the Uniform Law Conference of Canada that will modernize oversight and extend to other provinces. This is an important step forward.

Ěýžą˛ő Founding Director and Emeritus Professor, Australian Centre for Philanthropy and Nonprofit Studies, Queensland University of Technology, Brisbane. He’s co-editor (with Bob Wyatt) of “Regulating Charities: The Inside Story” (2017), and writes extensively on nonprofit law, and regulation and taxation, including . Photos are courtesy of Pixabay (firefighters), Jo-Anne McArthur (kangeroo) and Terri Sharp (forest fire).