How Canada became an offshore destination for ‘snow washing’

Photograph: Education Images/UIG via Getty Images

 

Canada is one the world’s most opaque jurisdictions when it comes to identifying the owners of private companies and trusts, according to anti-corruption campaigners who say that more rigorous checks are required to obtain a library card than to set up a company in the country.

“Anyone can start a company in Canada. It costs about C$200 and the owner of the company can remain completely anonymous,” said lawyer Mora Johnson, who recently authored a report detailing the country’s lax rules around corporate registration.

While publicly traded firms in Canada are required to disclose major shareholders, private companies need only note their directors, allowing those who own, control or benefit from the firm to remain in the shadows.

Most provinces allow nominee directors and shareholders and do not require them to disclose that they are acting on behalf of another person. “Privately held companies can easily be abused for tax evasion, for money laundering purposes and to stash the proceeds of crime,” said Johnson.

How Canada stacks up against other countries – including known tax havens – was suggested in a 2013 study by American researchers. After sending out thousands of queries about setting up anonymous shell companies, researchers ranked Canada among the easiest of 60 countries to set up an untraceable company, along with Kenya and a few US states.

This opacity – described in a recent Transparency International report as the “getaway car of financial crime” – has become the perfect vehicle for “snow washing”: the use of Canada’s positive image to tout the country as an offshore destination where suspect transactions can be legitimised.

In 2014, G20 members – including Canada – vowed to improve transparency around the ownership of legal entities.

Britain was among the first to act, setting up a public database of owners and those who control companies. Member countries of the European Union soon began to follow suit, as did Australia and South Africa.

In the US – believed to be home to more shell companies than any other country in the world – a bipartisan group of lawmakers has repeatedly presented legislation aimed at addressing the issue.

In contrast, little has been done in Canada.

Banks and life insurance firms are expected to take reasonable measures to obtain the identities of the owners of firms with which they have dealings.

But these institutions have limited ability to verify information provided to them, said Johnson.

The lack of transparency handicaps law enforcement and tax authorities’ ability to investigate proceeds of crime.

Other impacts are more subtle. A 2016 report found that nearly half of the 100 most expensive homes in Vancouver – which ranks among the world’s least affordable housing markets – were bought using shell companies, trusts or nominees.

“Is it a wealthy person who earned that money? Or is it the Hells Angels?” Johnson asked. “An Iranian or North Korean under US sanctions? We have no idea.”

Files from Mossack Fonseca, leaked in 2016 as part of the Panama Papers, revealed another consequence, said Transparency International Canada’s James Cohen. “Canada is being sold through snow washing by foreign intermediaries, who are telling their clients that you can bring your illicit finances into Canada and they’ll be cleaned like the pure white snow.”

Canada’s strong rule of law means that corporations registered in the country are less likely to attract scrutiny from foreign governments, tax authorities or law enforcement officials. “That’s exactly what foreign intermediaries are selling – the clean image of Canada,” said Cohen.

An investigation last year by the Toronto Star and the Canadian Broadcasting Corporation found more than two dozen firms around the world touting the benefits of Canada as an offshore destination.

“Canada is a new player in the world of offshore companies,” noted the website of one corporate service firm in Switzerland. “It is by far one of the best neutral jurisdictions, providing offshore benefits without any of the traditional offshore drawbacks.”

Cohen’s organisation is calling on Canada to require private companies to disclose ownership information and for the federal government to compile all of the information in a public registry.

In 2009, the Royal Canadian Mounted Police estimated that as much as C$15bn was being laundered each year in Canada, mostly through companies where ownership is unclear.

In December, federal and provincial finance ministers in Canada took tepid first steps towards addressing the issue, hashing out an agreement to establish measures that would force firms to keep up-to-date information on ownership that could be handed over to authorities if need be.

Canada’s lax penalties for financial crimes burst into public view in 2005, during the trial of a Toronto lawyer.

The court heard that Simon Rosenfeld – who was jailed for money laundering in 2009 – had bragged to an undercover officer that Canada was a “la la land” where white-collar crime goes unpunished.

He said he knew of five lawyers in Vancouver who were laundering as much as $200,000 a month through trust accounts, adding that it was “20 times safer” for a lawyer to launder money in Canada than the US.

Cohen contrasted this view with Canada’s efforts to be a leading voice in the global community. “From Canada’s international standing, the idea that we want to be doing better in the world also means we can’t be a financial pariah in the world,” he said.

Source :

The Guardian

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