April 4, 2016 – The hidden identities of 350 Canadians with offshore tax haven investments have been revealed in the private database of one of the world’s leading shell company registration firms, according to a Toronto Star analysis of a massive leak obtained by the International Consortium of Investigative Journalists and the German newspaper Süddeutsche Zeitung.
Obscured by figurehead directors, untraceable money transfers and anonymous company ownerships, these Canadians paid for the secrecy promised by Mossack Fonseca, a Panamanian law firm renowned internationally for establishing shell companies.
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Much of this is perfectly legal. For some international business transactions, offshore company registration is a logical choice. And there are international laws and treaties facilitating the legal flow of money into tax-friendly jurisdictions.
But it comes at a tremendous cost to the public interest.
Currently, Canadians have declared $199 billion in offshore tax haven investments around the world, according to Statistics Canada. But experts say that figure is a small fraction of the Canadian offshore wealth that goes undeclared.
The precise annual cost to Canadian tax coffers is unknowable. But credible estimates peg Canada’s tax losses to offshore havens at between $6 billion and $7.8 billion each year.
Tax avoidance — the legal movement of wealth to offshore bank accounts in order to minimize tax burdens — is a grey area. But there is a much darker element.
Terrorist financing, money laundering and corruption are among the byproducts of offshore secrecy. The leaked records reveal a pattern of covert manoeuvres by banks, lawyers and companies concealing suspect transactions or manipulated records in ways that facilitated illegality.
“These findings show how deeply ingrained harmful practices and criminality are in the offshore world,” said Gabriel Zucman, an economist at the University of California Berkeley and author of The Hidden Wealth of Nations: The Scourge of Tax Havens who was briefed on the details of the leak.
In the largest media collaboration ever undertaken, more than 370 journalists working in 25 languages dug into 11.5 million documents that revealed Mossack Fonseca’s inner workings and traced the secret dealings of the firm’s customers. The more than 100 news organizations involved shared information and hunted down leads generated by the leaked files using corporate filings, property records, financial disclosures, court documents and interviews with money laundering experts and law-enforcement officials.
The Toronto Star and the CBC/Radio Canada are the only Canadian media with access to the records, which include detailed client information such as emails, legal letters, correspondence, financial spreadsheets, corporate records and passport images of clients.
On April 12, 2013, the late Jim Flaherty, then Canada’s finance minister, made an unpublicized trip to Bermuda, one of corporate Canada’s tax havens of choice, to offer his government’s support and reassurance in a time of uncertainty. G8 countries, led by the United Kingdom, France and Germany, were discussing how to co-ordinate national efforts to close tax loopholes and discourage capital flight into offshore tax shelters of the kind offered by the tiny Caribbean nation. Though Flaherty had included a tax cheat snitch line in that year’s budget, many observers questioned Canada’s commitment to the G8 project.
The University of Quebec in Montreal (UQAM) professor emphasizes how, by 2012, the banks of the British overseas territory had become a repository for Canadian financial assets totalling about $12 billion. This was more than a case of Canadian banks, which established themselves in the Caribbean in the early 20th century, exploiting a half-century-old loophole. (The tax haven phenomenon exploded after the Second World War with the flow of excess Marshall Plan–era Eurodollars from the U.K. into the banks of the British Caribbean.)
So when Bermuda signed a tax information exchange agreement with Canada in 2011, you could argue it continued a long and profitable (for some) pattern of bilateral co-operation. The treaty allows Canadians to register their money in the island’s local banks and then have it transferred back to Canada as tax-free dividends.
The United States, European Union and several other Organization for Economic Co-operation and Development nations are grappling with the contagion of tax avoidance by global companies, with its potential to hurt government finances .
More pertinent to the tax haven discussion, the government also doesn’t appear too worried about where the money is leaking out of public revenues.
Tax Fairness pursued their own investigation based on data from Statistics Canada and investment information from Canadian corporations. What they found created quite a stir last year.
According to the group’s research, as of 2015 as much as $199 billion in Canadian corporate assets is sitting in offshore jurisdictions, most of them countries with little discernable economic activity beyond a fully functional banking sector. That includes $71 billion in Barbados and $36 billion in the Cayman Islands.
“This lost money could be used to build a better medical system, to tackle environmental degradation and to make Canada a fairer country by reducing the growing inequality among Canadians,” said Murray Rankin. “It also is unfair for small businesses that must compete against large enterprises that are able to take advantage of aggressive tax planning and tax havens to arrange their affairs to pay very little tax in Canada as compared to struggling Canadian enterprises.”