Montreal money launderer set up offshore company while under criminal investigation

This story is part of a CBC News collaboration with the Washington-based International Consortium of Investigative Journalists examining the Pandora Papers, a leak of 11.9 million files from 14 firms that provide offshore services, including emails, bank statements, incorporation documents and shareholder registries.

As American and Canadian authorities ramped up investigations into rogue Montreal-based money transfer mogul Firoz Patel in April 2017, he boarded a flight to the United Arab Emirates.

A stamp in Patel's passport shows he entered the UAE on April 8, 2017.

Ten days later, he became the sole shareholder in Argus Ltd., a secret offshore corporation he set up with an office in a building owned by a prominent member of the Emirates' royal family.

The trail of Patel's offshore account is revealed in leaked documents obtained by the International Consortium of Investigative Journalists (ICIJ) as part of the worldwide Pandora Papers investigation and shared exclusively with its Canadian partners, CBC and The Toronto Star

The Pandora Papers is the biggest journalistic collaboration in history. More than 600 journalists in 117 countries and territories worked together to search and analyze millions of records leaked from tax havens.

Publicly available American court records show Patel, and his younger brother Ferhan, ran Payza and several other unlicensed online money transfer services that processed more than $250 million US in illicit transactions that facilitated criminal activity, including child pornography distribution, Ponzi schemes, gambling and drugs from 2004 until their indictment in 2018.

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The American court documents show that in April 2017, investigators in the U.S. were preparing money laundering charges against the Patel brothers while revenue authorities in Quebec were investigating tax evasion.

Both men pleaded guilty in Washington, D.C., in July 2020, after accepting a negotiated plea deal in which they admitted conspiracy to launder money.

Firoz Patel was sentenced to a three-year term in a Connecticut prison that he is still serving, while his brother, Ferhan, was sentenced to 18 months.

Firoz Patel faces an $18.4-million tax bill in Quebec he has yet to pay and is disputing.

Retired FBI agent Gregory Coleman spent 25 years investigating financial crimes, a high-flying career that included his depiction in the movie The Wolf of Wall Street for his key role in the conviction of stockbroker-turned-fraudster Jordan Belfort.

"I'm sure [investigators] would like to have known during the time of their investigation about that [Argus] account and what was in it, how it was used, who set it up, why it is there and so forth," Coleman told CBC News in an interview.

The documents leaked to the ICIJ do not reveal how Patel used Argus or whether he funnelled any money through it.

The U.S. Department of Justice declined to respond to questions from the ICIJ about whether Patel had disclosed the existence of Argus Ltd. before his plea agreement or if it had subsequently requested financial information from UAE authorities about the offshore corporation.

Coleman said American investigators likely will want to determine if Patel's UAE corporation is connected to his past prosecution, whether it served a separate fraud or whether it was simply a defunct shell company.

"Every investigator wants to have as much information as possible and follow as many dollars as possible," he said.

'A wakeup call'

Coleman said the U.S. has no mutual legal assistance treaty for criminal matters with the UAE. If American authorities make a request to their UAE counterparts for assistance, "it would be entirely up to the UAE as to whether they would respond."

Coleman said the Patel case "is your stereotypical excessive money laundering case."

But he said it shows the Panama Papers, a previous project by the ICIJthat exposed billions of dollars stashed in offshore accounts, has yet to cause governments to impose regulations on the money transfer and banking industries that facilitate tax evasion and crime all over the world.

"I think it is a wakeup call for a lot of people in the world that this industry is still being used in the same way."

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Patel used a corporate service provider called SFM Corporate Services to register his shell corporation in the UAE.

Reporting by the ICIJ revealed SFM was founded in Switzerland in 2006. It now operates in more than two dozen countries, including Canada, Bahamas, Hong Kong, United States, Netherlands, Panama and the United Kingdom.

On its website in 2010, SFM said it served clients "looking to minimize taxes, protect assets and limit liabilities."

The company provides nominee shareholders and nominee directors. These are people paid to list themselves on public forms but who do not have actual responsibility with the corporation they represent only on paper.

160 corporations registered at same address

SFM guarantees that its nominee shareholders "work with the highest level of integrity and confidentiality."

The ICIJ found SFM had registered 160 corporations at the same UAE address as Patel's Argus Ltd.

Coleman said the mass registration of shell corporations is both common and legal, and companies like SFM often do little or no due diligence on clients like Patel.

"My guess would be that you're not going to find many [offshore registry service providers] who are digging very deep to find out who it is that they are setting up accounts and corporations for," he said.

The documents leaked to the ICIJ, however, include a background check that shows SFM learned on May 16, 2018, that Patel had been indicted in the U.S. Eight days later, SFM severed its relationship with Argus and Patel.

In an emailed statement to the ICIJ, a lawyer for SFM said it can't confirm any commercial relations because of contractual confidentiality. It stressed that all its activities are legal and insisted it performs proper due diligence before taking on any client.

Patel says no intent to launder money

Court documents from Quebec obtained by The Toronto Star show a judge ruled in 2017 that Patel had "systematically neglected" to declare his real income. That was the same year Patel flew to the UAE to set up his offshore corporation.

"The sums at stake are so considerable that these omissions can only be part of a planned process with a sole objective, namely to try to avoid the tax obligations imposed by the law," Court of Quebec Judge Gilles Lareau wrote.

Revenue authorities in Quebec said armoured vans transported $45 million in cash for Payza between 2012 and 2018. Millions of dollars also have been transferred from Payza to the Patels' personal bank accounts in the United States and Canada.

In response to written questions from The Star, Patel from prison said Argus was set up legitimately to do business in Asia and had nothing to do with Payza. He said it was never used and had no associated bank account.

Patel also said that the charges for which he and his brother pleaded guilty in the U.S. would not be considered money laundering in Canada.

"There needs to be intent to launder funds, and there was no intent to run a [money transfer] company without the requisite licences, therefore the foundation of the money laundering allegation is false," Patel said in an emailed statement.

Numerous warnings

But the American court documents show numerous states warned the Patels they were illegally operating without licences and a consultant they hired told them they should shut down because they were operating illegally, both facts cited by the judge at the brothers' sentencing hearing in July 2020.

During the hearing, the Patels characterized their financial enabling of criminals as mistakes, and suggested they were unwitting pawns in criminal enterprises.

U.S. District Judge Ketanji Brown Jackson outright rejected this explanation.

"When one plays with fire, one eventually gets burned and that is where we are right now," the judge said.

"This court does not think that either of you, frankly, had a reasonable defence concerning your knowledge or culpability with respect to the seriousness of these offences."

Brown Jackson told the Patels illegal businesses "can't operate unless they have the ability to collect money, and that was your role."

'You helped schemers'

She wondered if they ever thought about the drug addicts created through their money laundering or the elderly who lost their life savings and would have to forego their retirement "because you helped schemers who were intent upon defrauding them."

Revenue Quebec, meanwhile, told The Star it could neither confirm or deny it was investigating Argus. But it said it has not started any legal proceedings to seize property from a company with that name.

It has, however, filed a $2-million lien against Firoz Patel's Montreal house.

Patel has filed a lawsuit in England against cryptofirm Blockchain.com claiming the London-based company is holding $20 million US of his bitcoin, which it refuses to transfer to him.

In a statement to The Star, Patel's London lawyer, Leo Nabarro, said he "will continue to rigorously protect and pursue the recovery of our client's assets."

Blockchain.com did not respond to a query from CBC News.