… how Canada has ‘turned a blind eye’ to cracking down on offshore tax schemes

Posted on October 5, 2021 in Governance Debates

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This man helped set up hundreds of offshore firms for rich clients. His case shows how Canada has ‘turned a blind eye’ to cracking down on offshore tax schemes

TheStar.com – News/Investigations
Oct. 5, 2021.   By Marco Chown Oved, Staff Reporter

When the 2016 Panama Papers investigation revealed how the powerful and wealthy hid fortunes through shadowy offshore companies, public uproar spurred a global crackdown.

It was the leak that launched a hundred investigations, recouping more than $1 billion for public coffers, while removing prime ministers from office and sending tax evaders to jail.

But not here.

In Canada, not one charge has been laid. And while the Canada Revenue Agency (CRA) has assessed $29 million in taxes and penalties on 40 Canadians in the Panama Papers leak, the agency could not confirm whether any of that money has actually been recovered.

“There’s been a lot of talk but not a tremendous amount of action,” said Toby Sanger, executive director of Canadians for Tax Fairness.

The proof, he said, is that the money continues to flood into offshore tax havens, as detailed in the most recent leak of confidential offshore information, the Pandora Papers, which the Star is publishing this week as part of a global investigation with the International Consortium of Investigative Journalists (ICIJ).

The secret documents expose the offshore dealings of hundreds of Canadians, in addition to former and current world leaders, including the king of Jordan, along with more than 330 politicians and public figures and more than 130 billionaires.

The CRA has calculated that as much as $15 billion in tax revenue is lost annually to offshore tax havens.

“Each time that we’ve seen some numbers, the amounts that are lost grow,” Sanger said.

Tax havens are receptacles of huge amounts of Canadian money. Last year, Canadian investment dollars in the top 12 tax havens reached a record high of nearly $400 billion, according to Statistics Canada.

Luxembourg is the third largest destination of Canadian foreign investment after the U.S. and the U.K. Unlike America and Britain, which have robust economic relationships with Canada, almost none of the Canadian money in Luxembourg actually stays there, experts say. It’s simply routed through the tax haven on its way to other global investments to capitalize on a low tax rate.

“Canada has been a facilitator and has helped create tax havens. For many decades we essentially turned a blind eye to those things,” said Sanger.

If the Canadian response to alleged offshore improprieties had a face, it would belong to Fred Sharp.

For almost 30 years, the Vancouverite ran Corporate House, an offshore incorporation clearing house for wealthy clients that routed their money through shell companies in the British Virgin Islands and Belize.

Despite being exposed as the exclusive Canadian business partner of the Panama Papers law firm Mossack Fonseca — with whom he set up more than 1,100 offshore corporations — and being under CRA audit for almost a decade, Sharp has avoided any serious repercussions in Canada.

It would take a U.S. investigation to finally lay charges.

In August, U.S. authorities unsealed a fraud and conspiracy indictment against Sharp and several co-conspirators, and issued a warrant for his arrest.

The alleged scam relied on a network of Sharp’s offshore shell companies.

According to a joint FBI-SEC investigation, for almost a decade Sharp and his colleagues allegedly ran a massive pump-and-dump scheme that manipulated investors to buy more than $1 billion in penny stocks, driving up their prices so that Sharp and his partners could sell their shares before the price crashed. The sophisticated operation allegedly involved a boiler room of salespeople who sold the stocks to unsuspecting victims and a network of offshore companies set up by Sharp to hide ownership of shares.

While a warrant for Sharp’s arrest has been issued in the U.S, officials on both sides of the border would not confirm if an extradition process has begun. None of the charges has been proven in court.

Corporate House’s phones have been disconnected and Sharp’s email bounced a message from the Star. Sharp’s lawyer, Michael Klein, declined to comment.

That Sharp was publicly identified as allegedly running a massive offshore operation in Canada for years without any repercussions isn’t surprising for former RCMP money laundering investigator Chris Mathers.

“This is Canada. Nobody goes to jail. Nobody pays a fine. Nothing happens here. There are no consequences,” he said.

Without the resources to go after organized crime on its own, Canada both attracts law breakers and leaves victims without recourse, Mathers said.

“They don’t help victims. There’s no help to get money back.”

The new Pandora Papers leak corroborates much of the Panama Papers revelations on Sharp’s offshore operation. The files show Sharp’s Bond & Co. set up dozens of shell companies on behalf of clients using nominee directors to conceal their identities.

Court records in British Columbia indicate that Sharp has been under CRA scrutiny for at least eight years. In an unconventional move, lawyers for Sharp, his wife and associates did not wait for the results of the audit and filed dozens of applications for judicial review while the process was ongoing. This had the effect of stopping multiple CRA audits in their tracks while the court process dragged out for years. And Sharp’s offshore business continued, unabated.

It took the intervention of U.S. authorities to shut down Sharp’s offshore empire.

According to the FBI indictment, Sharp described his business to a potential client in an encrypted message sent via a dedicated network of modified BlackBerry phones, dubbed “xphones”:

“The service provided is comprehensive; it is not limited to trading. It includes payments, loans, private placements and keeping clients out of jail.”

Sharp remains wanted by U.S. authorities.

After resisting for years, it was only after the Panama Papers that the CRA began calculating the “tax gap” — the difference between the tax that should be paid on paper and what the government actually receives.

In 2018, it found that as much as $3 billion in tax revenue is lost annually to wealthy Canadians’ use of offshore accounts. Add to that as much as $11.4 billion in lost tax from corporations with offshore subsidiaries, and tax havens cost the Canadian public almost $15 billion each year.

To recoup some of this lost tax, in 2016, Prime Minister Justin Trudeau announced nearly $1 billion in additional funding for the Canada Revenue Agency, beefing up audits of large corporations and wealthy individuals. The Panama Papers even spawned a new branch of the CRA, known as International, Large Business and Criminal Investigations, which has 100 specialized auditors who take on the most complex, big-ticket cases that often have an offshore component and involve sophisticated tax professionals.

The results: fewer prosecutions but bigger cases, with larger tax assessments and greater penalties. Yet, more than five years after the Panama Papers, not a single charge has been laid. Of the five criminal investigations launched into Canadians in the leak, three have been dropped and two are ongoing.

While the CRA has identified 900 Canadians in the leak and completed 200 audits, as of this week only 40 audits have found anything wrong. These have resulted in $29 million in assessed taxes and penalties, but the agency could not confirm who was found to have been cheating on their taxes and whether any of that money has actually been recovered.

“Wealthy taxpayers often have complex tax arrangements resulting in lengthy and time-consuming information gathering processes during the course of the audits,” wrote CRA spokesperson Chantal Beaudry in an email. “It is important to emphasize that typically, less complex audits are among the first to be concluded and as such, additional federal taxes and penalties are anticipated in the future as the more complex and challenging audits are completed.”

Meanwhile, the use of anonymous shell companies has also become a problem at home.

Canada has been widely criticized as a tax haven because our provincial governments don’t require residency or even basic identification to register a company.

Among Trudeau’s campaign promises during this fall’s election was to establish a beneficial ownership registry for all federal corporations, which would create a legal registry of the real owners of corporations.

The problem with Canada’s lack of transparency around corporate ownership goes beyond tax evasion, said Garry Nichols, the former head of the RCMP’s Toronto integrated proceeds of crime unit. This kind of anonymity also provides cover for crime.

Billions in illicit cash is stashed in rapidly rising real estate marketsfrom Toronto to Vancouver and few are held accountable. A 2019 Star investigation found that almost 90 per cent of money-laundering charges in Canada are withdrawn or stayed.

Nichols lamented that dirty money isn’t a priority for law enforcement anymore.

“They don’t look for the money. They don’t seize houses and they certainly don’t go offshore,” said Nichols.

“It’s probably the greatest time in history to be a criminal in this country.”

With files from Robert Cribb and Sheila Wang, Torstar, and Zach Dubinsky, CBC

Marco Chown Oved is a Toronto-based investigative reporter for the Star.


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