Cause Related Marketing - Know The Rule

by C. Yvonne Chenier

A recent article about a United States Attorney General investigation into "pink ribbon" campaigns has made me wonder if and when such an investigation will be launched in Canada. (http://www.venable.com/cause-related-marketing-in-the-crosshairs-what-the-new-york-attorney-generals-breast-cancer-investigation-means-for-nonprofits-and-their-corporate-supporters-11-22-2011/)

The article makes reference to a focus on fraudulent charitable activities, something we have heard much about in recent years in Canada, certainly in the area of tax shelter donation schemes.   To be prepared for any Canadian investigation in the cause related marketing area, organizations that are engaging in this kind of promotional activity need to be aware of the regulations surrounding this activity in Canada.  The Canada Revenue Agency, as a regulator of Canadian charities, offers guidance and in the document entitled "Additional information on Guidance CPS-028, Fundraising by Registered Charities" (http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cps/cps-028-ddn-eng.html#d25 ) gives some specific guidance about cause-related marketing as follows:. 

First a helpful definition:

"Cause-related marketing (sometimes called social marketing) is a venture with a non-charitable partner to promote the sale of items or services on the basis that a portion of the revenues will be directed to a charity or charities."

Secondly, guidance on what needs to be disclosed:

"Cause-related ventures are not subject to this guidance provided that more than 90% of the costs of the initiative are borne by a non-charitable partner and all costs and revenues of the charity are adequately disclosed.

In calculating the contribution of the charity to such an arrangement, the CRA takes the position that use of the charity's intellectual property does not need to be included if the charity or the partner discloses to the public the terms of the arrangement, including:

Before or during the initiative:

·         any requirement for costs to be paid by the charity; and

·         the terms for the payment of any revenues to the charity;

During or after the initiative:

·         the amount of any costs paid by the charity; and

·         the amount of any revenues received by the charity, provided either as a total amount or as an amount or percentage from the sale of a good or service."

Organizations also have to look to the laws and regulations in the province or territory where they operate for further do's and don'ts about their cause marketing efforts.  In Alberta, for example, there is a whole part of the Charitable Fund-raising Act, RSA 2000 C-9, devoted to this kind of fund-raising.  The business promoting the cause is called a donor fund-raiser and is defined in as "a business that makes a direct or indirect request to buy a good or service normally produced or provided by the business in which it is stated or implied that all or a portion of the purchase price will be donated to a charitable organization or be used for a charitable purpose" (s. 33). Under this Act, the charitable organization must have given written consent to allow this kind of fund-raiser (s. 37) and "a donor fund-raiser must provide on the request of any person the information required by the regulations relating to its donations to the charitable organization or the money it used for a charitable purpose." (s.36 (1)).

In the United States, according to the article, the first step in the investigation occurred when the Attorney General sent questionnaires to certain charities and companies involved in the targeted cause related marketing asking for detailed information "specific to activities in which the sale of a product or service is advertised to benefit breast cancer causes". It will be interesting to see if any further action is taken in the US.

Since reading that article I have been alert to cause related marketing going on around me and in one case have even made a request for information under the Charitable Fund-raising Act.  I suspect the organization I have written to did not even know that these laws existed as they initially rebuffed my request for information.  I have persevered and hope to receive the information received in due course.  If not I may have to make a call to our own AG.