Don’t let Canada become haven for criminals

Tax-evaders and money launderers are taking advantage of Canada’s stellar reputation as an open and honest place to do business.

The RCMP recently acknowledged that they know of multiple cases of Chinese government officials laundering the proceeds of corruption through Vancouver real estate, write James Cohen and Adam Ross.  (JONATHAN HAYWARD / THE CANADIAN PRESS)  

By JAMES COHEN
ADAM ROSS

Wed., Jan. 25, 2017

Criminals, kleptocrats, and tax evaders are taking advantage of Canada’s stellar reputation as an open and honest place to conduct business. Today, Transparency International released its annual Corruption Perception Index, giving Canada a commendable 82 out of 100 transparency score and ranking Canada as the ninth least corrupt country out of 177. Canada owes this ranking to our people’s expectations of ethical behaviour, strong public institutions, a free press, and an engrained rule of law.

However, look beyond Canada’s low corruption ranking and within its institutions, real threats hide in plain sight. Our system is being used as a getaway vehicle for corrupt politicians, drug traffickers, tax evaders, and every kind of thief to launder the money from their criminal enterprises. There are few places on Earth where it is easier to set up an anonymous company. That makes Canada an attractive place for people looking to avoid the scrutiny of law enforcement or tax authorities. A corrupt foreign politician can come to Canada and have a nominee set up a company or trust for their benefit, and make it nearly impossible for anyone to determine its true ownership.

On the surface, the Canadian government appears to be aware of the problem. It has made pledges at the G8 and G20 to close off the loophole of anonymous ownership. But while other G20 partners – including EU member states and Australia – take steps towards making companies and trusts transparent, Canada, with its clean reputation, becomes an increasingly attractive place to park illicit money.

The threats posed by anonymous ownership of companies and trusts are being flagged by law enforcement and civil society. A study of RCMP proceeds of crime cases found that nominees – individuals who front for anonymous owners – are used in more than 60 per cent of cases where real estate is bought with criminal proceeds.

Another study based on RCMP data found that corporate structures are used in more than 70 per cent of money laundering cases in Canada. The Charbonneau Commission into corruption in Quebec’s public works sector identified multiple instances where anonymous companies were used to defraud the government.

The RCMP recently acknowledged that they know of multiple cases of Chinese government officials laundering the proceeds of corruption through Vancouver real estate. The Chinese government has also flagged Canada as a major destination for corrupt funds it plans to recover. A recent Transparency International Canada report profiling Vancouver real estate dug into the issue and identified several cases that show how individuals who embezzled millions of dollars from banks and other businesses overseas have brought the money into Canada and invested it in real estate. An influx of proceeds of crime could be a factor in driving up property values in Vancouver and other Canadian cities.

In the absence of beneficial ownership disclosure on property titles, Canada is seeing widespread use of nominees on titles in order to take advantage of principle residency tax exemptions and to avoid foreign ownership taxes. This problem could be addressed by requiring beneficial owners to be listed on title.

Trusts are also being widely used to avoid tax obligations. There are around 210,000 trusts registered with the Canada Revenue Agency, but the government estimates there to be millions of trusts with assets in the country. The exact number of trusts is unknown, as registration is not required by law and only carried through self-reporting for tax purposes. Potentially millions of trusts could be used for tax evasion. The Canadian and provincial governments are losing millions in revenue to support public coffers due to their own legal gaps.

A low-cost, high-impact solution to the anonymous ownership problem would be to introduce a public registry of companies, trusts and their beneficial owners. This step has support from Canadian law enforcement, business, and civil society. It will cut down on red tape in police investigations, save the government money, reduce business risk and make it more difficult for criminals to launder money and remain anonymous.

Canada does not yet have a reputation abroad for being a haven for money laundering and tax evasion, but the conditions are there for it to become one. We have acknowledged through our international commitments what needs to be done. Now we need to make the necessary reforms.

James Cohen is Interim Executive Director of Transparency International Canada.

Adam Ross is a corporate investigator and the author of TI Canada’s recently published report, “No Reason to Hide: Unmasking the Anonymous Owners of Canadian Companies and Trusts.”