Ottawa is falling short in efforts to fix Canada’s corporate secrecy

Posted on March 5, 2017 in Governance Policy Context – Opinion/Editorials – With Bill C-25 the government is missing an opportunity to take meaningful steps against foreigners who engage in so-called “snow washing” — using Canadian corporations to move money around anonymously.
March 5, 2017.   By STAR EDITORIAL BOARD

Let’s have one thumbs up for Canada’s innovation minister, Navdeep Bains.

Bains is the man behind Bill C-25, the first overhaul of Canadian corporate law in more than a decade. It contains one good measure, but falls badly short in making the country’s laws less vulnerable to tax cheating.

The good measure involves prodding corporations toward greater diversity on their boards and in senior management teams.

In particular, it aims to increase the number of women in senior corporate ranks by requiring publicly traded corporations to disclose to shareholders the number of women on their boards and management teams. They will also have to disclose their policies on diversity — or explain why they don’t have any.

The percentage of women on Canadian corporate boards is stuck at low levels, despite years of exhorting companies to do better. Women occupy only about 12 per cent of board seats, and Bains has said if his disclosure measure doesn’t move the needle significantly within a few years then the government will consider imposing specific targets.

That deserves a thumbs-up. But give Bains a thumbs-down for other parts of his bill.

In particular, knowledgeable critics say the government is missing an opportunity to take meaningful steps against criminals and tax cheats who engage in so-called “snow washing” — using Canadian corporations to move money around anonymously.

The problem is that the way companies are registered in Canada involves a degree of secrecy more often associated with sunny tax havens, such as Panama and the Bahamas. The true owners of companies registered here don’t have to be identified in corporate registries, which allows them to move assets under a cloak of anonymity.

They can pay a lawyer or other third party to have their name appear in public filings, concealing the identity of the person or persons who are actually the “beneficial owners” of the assets.

Unfortunately, Bill C-25 doesn’t address this issue. It fails to require that the real beneficial owners of a company be identified. “It’s a missed opportunity,” Brian Masse, an NDP MP who sits on the committee that studied the bill, told the Star. “The message to the financial community is: we’re taking a pass.”

Critics also note the bill fails to ban so-called bearer shares, financial instruments that can be traded like cash but carry no identification. They are known to play a big role in money laundering and have been banned in most tax havens.

But Bains’ bill would only ban the issuance of new bearer shares, rather than do away with them altogether.

The government should go further to rein in Canada’s reputation as a go-to destination for those who want to move money around unchecked, or even evade paying their fair share of taxes.

Bill C-25 is scheduled for its final reading in the House of Commons next month. If the government fixes the bill before it becomes law, it will deserve an enthusiastic two thumbs up.

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