In June, the Toronto-based Mastercard Foundation made a headline-grabbing announcement: it would give US$1.3 billion for COVID-19 vaccines and other relief in Africa.

While the domestic vaccine rollout was picking up speed, less than two per cent of Africa’s nearly 1.4 billion people had received at least a single dose. “Addressing this inequity is a moral imperative,” said Reeta Roy, Mastercard Foundation president and chief executive, at an online event announcing the donation.

It was an extraordinarily large pledge by the standards of Canadian philanthropy—standards by which the Mastercard Foundation is an outlier. As an accompanying media release pointed out, the foundation is “one of the largest in the world,” with more than US$39 billion in assets.

As The Logic reported Monday, the Mastercard Foundation is one of nearly 2,100 charities that spent less than the minimum required on charitable works in 2019. However, it alone was responsible for about 60 per cent of a $414-million shortfall The Logic identified, money that would have been donated to frontline charities or spent directly on programs to help those in need.

The foundation is not breaking the law. There are an assortment of loopholes in how the Canada Revenue Agency calculates the minimum giving threshold. Dec. 31 will mark the end of a 15-year agreement the foundation struck with the CRA that has allowed it to spend less than the disbursement quota—the legal minimum rate of 3.5 per cent of the two-year average value of its investable assets—in some fiscal periods, as long as it spends in excess of the rate in other years to make up for those shortfalls.

But the Mastercard Foundation’s size, and the size of its contribution to the shortfall The Logic has identified, puts it at the heart of the ongoing debate over whether the rules governing the charitable foundations’ spending should be tightened.

The foundation declined a request for an interview, but in an emailed statement, spokesperson Toni Tiemens said the arrangement with the CRA was made to address the fact that “unanticipated and exponential capital appreciation also presents unique challenges,” saying the organization will meet its full disbursement-quota obligations by the end of the year.

The CRA and the minister responsible for it, Diane Lebouthillier, wouldn’t say why the tax authority agreed to the deal with the Mastercard Foundation, or even confirm it exists. 

To Kate Bahen, managing director of Charity Intelligence, the deal is baffling. “I have no idea how you go to the CRA and say, ‘I don’t want to live up to my obligations this year. Can I defer it for 15 years?’ And they say, ‘Oh, that’s fine, sure,’” Bahen said. “That’s taking a loan out on the charitable sector. It’s a credit card, not a gift card. I don’t know what the CRA was thinking.”

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The Mastercard Foundation was formed as part of Mastercard’s initial public offering in 2006, with the company announcing plans to give the newly formed charity 10 per cent of its equity and up to 18 per cent of its general voting power, thanks to a triple-class share structure. A filing with the U.S. Securities and Exchange Commission says the stock and cash put toward the formation of the foundation would be large enough to cause the company to record a “significant net loss” in the first quarter of 2006, but outlines some benefits to the arrangement.

Those benefits were twofold, according to the filing. The first was the goodwill that comes with corporate philanthropy: “We believe the establishment of The MasterCard Foundation and this donation will underscore our commitment to the societies in which we operate.”

The second was more self-serving: the formation of the foundation would “create a sizeable stockholder with a vested interest in our stability and long-term success.” The company placed strict restrictions on the foundation’s ability to sell its stock, only allowing it to do so “to the extent necessary to comply with charitable giving requirements” for the period starting in its fourth year and ending in its 21st year of existence.

The filing also discloses that the foundation’s voting block might make it more difficult for shareholders to gather enough votes to approve an acquisition proposal. “The ownership of Class A common stock by The MasterCard Foundation, together with the restrictions on transfer, could discourage or make more difficult acquisition proposals favored by the other holders,” it reads.

The arrangement got some bad press. A 2005 Reuters column quoted skeptical analysts and called the foundation “an effort by the 1,400 banks that own MasterCard to protect a clubby governance structure.” A 2007 paper by corporate-law scholar Victor Fleischer called it “a bulletproof takeover shield.”

“One does not have to be overly cynical to see a disconnect between the MasterCard Foundation’s purported philanthropic goals and its low levels of anticipated charitable giving,” Fleischer’s paper says. He argued Canada’s low disbursement-quota rate compared to the U.S., where it is five per cent, might help explain the decision to incorporate here.

In an emailed statement, Mastercard spokesperson Seth Eisen did not directly respond to a request for comment on suggestions the foundation was created in part as an anti-takeover measure, saying it was established “to make a significant contribution to the societies in which we operate.” Tiemens, the Mastercard Foundation spokesperson, said in a statement that the charity, its board and management are independent of the company, and that Mastercard chose to incorporate the foundation in Canada “for its neutrality to all stakeholders and global outlook.”

The Mastercard Foundation funds programs for Indigenous education in Canada, including a $13.5-million commitment to Vancouver Island University and a $4.6-million commitment to Yukon College to support Indigenous students. In 2018, the foundation decided to focus on seven countries in Africa in addition to its Indigenous youth-education work in Canada, with its African programs focusing on areas like edtech, microfinance and scholarships.

Jean-Marc Mangin, president and CEO of Philanthropic Foundations Canada, which counts the Mastercard Foundation as a member, said there are benefits to having the charity incorporated here. It is Canada’s only U.S.-style “mega-foundation,” he said, and that brings advantages for the country’s charitable sector.

“Because it’s so large, they bring other assets to the table that are also very useful,” Mangin said. “Their network and programming capacities are very significant.”

Mangin also pointed out the Mastercard Foundation focuses on grants and programs to help two groups whose needs are chronically underfunded by Canadian foundations: Indigenous people and Black people.

To Mangin’s point, just 0.13 per cent of grants made by the top 10 public and private foundations in fiscal 2017 and 2018 went to Black-serving organizations, according to a research report prepared by the Network for the Advancement of Black Communities and Carleton University. Another report found that Indigenous groups receive about $1 for every $178 granted to non-Indigenous groups by Canadian charities.

Liban Abokor, executive director of the Toronto-based non-profit Youth Leaps and an author of the report on Canadian foundations’ low levels of grantmaking to Black causes, was less impressed. He noted that the majority of the Mastercard Foundation’s spending is targeted overseas, which means even a drastic increase in the disbursement quota—and insistence from the CRA that the charity meet it—would not be of significant benefit to Black and Indigenous causes in Canada.

“They’re a beached whale on the balance sheet of Canadian philanthropic assets,” Abokor said. “I think there’s a question for them around, would [a disbursement quota] increase have any impact in a Canadian sense?”

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Mastercard itself has benefited from the world’s embrace of electronic payments over cash—a trend accelerated by the COVID-19 pandemic—with a current market capitalization of over US$356 billion—a more than 67-fold increase from its US$5.3-billion value when it went public. If the Mastercard Foundation were a company, its current 10.9 per cent stake in Mastercard alone would make it similar in size to Fortune 500 giants like Motorola, Allstate and General Mills.

The foundation doesn’t report the full market value of its shares to the CRA, applying a discount rate—19.5 per cent in 2020—because of the restrictions placed on selling them in the IPO. The foundation uses that rate, not the market value, to calculate its disbursement obligations.

In 2020, the foundation employed a staff of 267 full-time and two part-time employees at a total compensation cost of over $34.7 million. At least 10 of its full-time staff made $350,000 or more that year, according to its 2020 tax filings.

In May 2027, the 21-year restriction on selling Mastercard shares placed on the foundation at its inception will come to an end, theoretically placing it at liberty to spend more freely. At that time, its capital was to be divided into two funds: one to be held indefinitely with only the income generated by investments funding charitable spending, and the other to be spent entirely within 10 years.

In 2019, however, the foundation’s board voted to remove the second requirement, planning instead to “disburse the funds at the discretion of the Board of Directors.” The foundation did not address The Logic’s question asking why the board made this decision.

As Canada’s lone “mega-foundation,” the Mastercard Foundation deals in headline-grabbing dollar amounts.

According to an analysis by Charity Intelligence, the Mastercard Foundation appears to have more than $200 million in charitable-spending shortfalls to make up by the end of the year, in addition to its 2021 disbursement-quota minimum payout—assuming there are no undisclosed details to its arrangement with the CRA that would affect it. According to the June release announcing the US$1.3-billion gift for COVID-19 vaccines and other relief in Africa, the money will be spent “over the next three years;” the foundation did not address The Logic’s request for clarification as to whether that gift will be used to meet the 2021 deadline for satisfying the 15-year averaging arrangement with the CRA.

The foundation’s size also means the results of the Finance Canada consultations on increasing the disbursement quota stand to affect it more than any other charity, at least in terms of dollars.

Tiemens said the foundation “welcomes recent proposals in Budget 2021” that launched the disbursement-quota consultations and is “keen to advance robust strategies that enable greater investment.”

Certainly the consultations are taking place at a moment of great global need—much of it aligned with the Mastercard Foundation’s causes of choice. It speaks to the organization’s size that vaccinating 70 per cent of the sub-Saharan African population against COVID-19 would cost just over a third of its war chest, according to an estimate from the World Bank.

Jenna Patterson, a South Africa-based epidemiologist and health economist, is among those looking to the charitable sector to play a role in making the vaccine rollout more equitable and preventing the emergence of new, dangerous variants.

One argument against raising the disbursement quota is that it makes it more difficult for foundations to make long-term commitments to tackle long-term problems. With COVID-19, Patterson said it’s more important to focus on the problems that exist today and preventing new ones from cropping up.

“We’re putting ourselves at risk, because globalization has really shown us that we’re not going to keep the virus in one place,” she said. “Why are we waiting? Why are we not giving the help that’s needed to those that we can help?”

Correction: Kate Bahen is managing director of Charity Intelligence. This story has been updated.