While the Canadian government touts its tough sanctions to punish Russia for its illegal invasion of Ukraine, Canada remains a welcome home for Russian oligarchs’ money.
A new report from Canadians for Tax Fairness (CTF) shows how international consultants are using lax and non-transparent Canadian corporate regulations to shelter billions in offshore money.
Unlike small countries such as the Cayman Islands, the Seychelles, and Saint Kitts and Nevis, Canada has not deliberately become an offshore tax haven. Canada is wealthy in natural resources and industry and does not need the revenue from tax evaders looking to hide their money.
But because Canada is one of the “most opaque jurisdictions when it comes to the ownership of companies and partnerships,” according to the report, this country has unintentionally attracted shady operators from around the world – and that includes Russian oligarchs.
Canada: paradise for shell companies
Canada’s particular niche in the unsavoury business of what consultants euphemistically call “tax optimization” is as a home for shell companies. These are corporations with no assets, through which money launderers can channel assets of the global oligarchy.
That money flows through unsupervised and barely regulated Canadian shell companies on its way to other so-called safe havens.
Canadians for Tax Fairness explains it this way:
“Bad actors have identified Canada as one country where they can exploit a wide gap between perception and reality. Canada enjoys a reputation as an affluent and stable country with good governance, robust democracy and rule of law. Yet it is also among the most opaque jurisdictions globally, where it is possible to set up and operate companies from abroad with little risk of being held accountable for wrongdoing due to vast shortcomings in Canada’s financial crime detection and enforcement mechanisms.”
CTF says “a cottage industry of consultants – many with no apparent links to Canada — has emerged promoting Canadian entities as fronts for opaque offshore company structures.”
The report quotes some of the glowing reviews of Canada these consultants have given their oligarch clients. It is not the kind of reputation any country should cherish:
“Canada is a new player in the world of offshore companies … it has no negative
offshore reputation and no association with tax avoidance or evasion. It is by far
one of the best neutral jurisdictions, providing offshore benefits without any of
the traditional offshore drawbacks.”
“A Canadian company can be used to act on the behalf of offshore companies or
can be used to receive and remit money to offshore companies to avoid with-
holding taxes…”
Labyrinthine financial relationships with no oversight
Why is Canada attracting this unwanted attention from global financial criminals?
One reason is that, in Canada, private companies can be owned anonymously. In most Canadian jurisdictions, “there are no requirements to disclose the identities of shareholders or partners,” says CTF.
As well, Canada does not require disclosure of what is called “beneficial ownership” of assets. This occurs when there is a public, legal owner of a company or trust – most often a stock brokerage firm or investment banker — who is what is known as the “nominee” acting on behalf of the anonymous real owner.
International organizations such as the Financial Action Task Force on Money Laundering contend that failing to compel the disclosure of beneficial ownership is a major barrier to fighting the financing of terrorism and other global financial crimes.
Moreover, in Canada, corporations can be set up and run from abroad.
As the CTF report notes: “Many Canadian jurisdictions do not require a resident director or partner. Entities can be formed and administered from abroad with no concrete ties to Canada.”
Finally, Canadian corporate law does not require adequate oversight. Many corporations registered in Canada do not have to file financial reports or annual returns or tax declarations. Canadian authorities have no way of knowing what those corporate entities are up to.
Canadians for Tax Fairness is concerned in particular with one type of corporate entity, the limited partnership. The degree to which this type of operation can function virtually free of anything resembling transparency or government oversight is shocking.
If a limited partnership does not actually do business in Canada, it need not engage with Canadian tax authorities.
Limited partnerships can also be established cheaply. It is not necessary for their owners or administrators to ever set foot in Canada or even to be represented by a Canadian.
Most important for the international money launderers and oligarchs, they can use limited partnerships to open bank accounts and conduct business transactions here.
The CTF report outlines the labyrinthine structures and relationships international financial consultants set up in order to evade taxes and hide vast sums of money.
The report provides details, originally unearthed by media outlets, of what it calls a “transnational laundromat.” It was used a few years back to move “billions in dark money out of Russia and the former Soviet Union.”
This “Russian laundromat” has Canadian connections, according to analysis of corporate records. It includes six Alberta-based limited partnerships which form part of a “system of interlinked companies.”
What Canada can do
The antidote to this breed of corporate shenanigans is openness and transparency.
As the CTF report puts it: “Financial crime depends upon opacity. Its mechanisms need to stay hidden from public view in order for it to thrive.”
CTF applauds the Canadian federal government’s proposal, in its last budget, to set up a beneficial ownership registry by 2025. As to how effective that will be, the devil will be in the details, and we don’t know those yet.
Canadians for Tax Fairness urges the government to make sure limited partnerships are included in the registry and that the information in the registry goes right back to the true owners of the assets, not merely to the immediate parent company of Canadian entities.
CTF points out, as well, that the federal government cannot act alone to deter this sort of financial crime, since many shell companies are provincially registered. It urges governments to work together to make the entire country unfriendly territory for money launderers and tax evaders.
In addition to the proposed registry the CTF report suggests some major changes to company law in Canada to win the war against this well-organized and well-resourced global network of fraud and deception.
First, the firms acting on behalf of beneficiaries in the background “should be required to disclose they are acting on another’s behalf, and should identify” who that is.
Second, all companies registered in Canada should have at least one resident director to ensure that there is someone accountable in this country.
Third, all partnerships in Canada should fully disclose their partners and file annual returns. They should also be required to file declarations with the Canada Revenue Agency even if they have no taxable activities.
Fourth, we will need serious and consequential penalties to deter false declarations and other non-compliance.
And finally, the proposed federal registry and any registries the provinces set up should be empowered to independently verify information about all Canadian corporate entities – and they should have the power to aggressively pursue cases of non-compliance.
None of these actions are radical or costly. All are long overdue.
As Canada seeks to sanction Russian billionaires, it must not continue to be an unwitting and unwilling haven where any oligarchs – be they Russian or otherwise – can hide their wealth.
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