Canada is dragging its feet on cracking down on offshore companies that hide money

Canadian officials have declared it an important national effort to crackdown on offshore schemes used by rich clients in an effort to siphon off as much as $2 billion a year. It’s only when they turn their eyes toward one of their own that the system may work to its disadvantage.

A 44-year-old man named Guy Nantel spent nearly a decade behind bars and paid millions in penalties after he worked with a Canadian firm to help setting up hundreds of companies offshore. The Canadian courts found him guilty of failing to disclose information about where he got his money for his businesses to regulators.

“The federal government has tried to send a message to wealthy Canadians and their lawyers and accountants that because they’re benefitting from offshore accounts and similar tax schemes that we’re going to take them on,” André Bourbonnais, head of the department of compliance at the Canada Revenue Agency, said in testimony before the House of Commons finance committee in 2014.

The agency, however, still hasn’t taken any action against Nantel, despite evidence that he was “on the radar” in 2010, when he pleaded guilty to the tax evasion. That’s because he agreed to co-operate in the case, which would have been a stronger basis for an investigation than by itself, according to Jim McDowell, Nantel’s lawyer in the case.

“The CRA’s myopic and apparently contrary view of the law may cost millions in fine fines and potential criminal charges against other members of the Canadian community,” McLeod wrote in a recent blog post. “This is particularly unfair to the taxpayer, who potentially will never learn whether or not authorities considered him a serious, serious threat to the public interest.”

People behind these schemes “have had every opportunity to rectify their actions,” he added. “Rather than acknowledge their wrongdoing or face penalty, however, they conspired with Canada’s tax authorities, who have maintained a blind eye to their dealings for years.”

Since 2013, the CRA has issued more than 40 notices of potential enforcement actions against individuals and firms accused of using the offshore wealth conduit. Some firms have been fined millions for aiding tax evasion; others face no action at all.

Nantel offered to co-operate with the investigation of his own company. “But instead of seeking his assistance, the agency offered to help him reduce his personal sentence,” McLeod said. The agency agreed in an August 2010 “interpretation order” to cut Nantel’s sentence in half if he allowed them to monitor how he wired money to his wife and business associates in India, according to the document.

To meet that requirement, the CRA needed information from the offshore firm to help track the transfers and settle disputes. But after the government-owned firm refused to give it any of that information, Nantel was forced to trial on his own. The CRA then used that as a way to try to reach an agreement with him by threatening to lay out a litany of misdeeds.

It didn’t happen.

“What was happening under their names was exactly the kind of things we would have said it was him that was running the scheme,” McLeod said. “But the government wasn’t willing to admit that as long as they made it sound like Guy Nantel was responsible.”

Wealthy taxpayers can’t avoid paying the tax that is owed, but the Canadian government appears eager to do anything it can to shield rich foreign clients from paying that money, he said. “The CRA’s defense of the offshore loophole seems to be that Canadians are not responsible for money they invest overseas.”

The act of setting up an offshore front company to launder money legally sounds like an innocent act – like “getting a restraining order to keep the neighbor’s dogs from my yard,” according to Keith Hay, a CPA and Canada Research Chair in tax and organized crime at Queen’s University.

“What the CRA really seems to be saying is: If you want to get rich, you need offshore havens.”

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