Canada's weak laws hobble identification of tax dodgers: document

Correspondence between Finance Minister Bill Morneau and his British equivalent is highlighting Canada's poor international record in flushing out the real owners of suspected tax-haven corporations.

Philip Hammond, Britain's Chancellor of the Exchequer, wrote to Morneau on Dec. 22, seeking Canada's support for exchanges of so-called "beneficial ownership" information that is, information about who really owns and controls mystery corporations.

Last year, Britain pioneered a publicly accessible online registry that contains such ownership data, part of an initiative to help expose tax evaders, terrorist financers and money launderers.

Hammond's letter was part of his call for reciprocal measures from other countries, including Canada, given that such shady transactions are often conducted offshore.

But a Morneau briefing note about the British request acknowledges Canada has little to offer in response, largely because federal and provincial laws governing corporations are ineffective.

The statutes "do not require collection of beneficial ownership information," says the Feb. 1 document, obtained by CBC News under the Access to Information Act.

"Federal and provincial corporate registry obligations are self-enforcing and limited mechanisms are in place to ensure information collected is accurate and up-to-date."

Hobbled efforts

Even under the federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act, "certain limited information on legal entities is collected for domestic tax purposes, but this does not generally extend to beneficial ownership. Means of verifying the accuracy of beneficial ownership information are also limited."

In the end, Morneau's Feb. 8 letter in response to Hammond expressed support for Britain's efforts, but acknowledged that jurisdictional problems continue to hobble Canada's ability to participate.

"As you are aware, jurisdiction over corporate law is shared between federal, provincial and territorial governments in Canada, and trusts fall under provincial and territorial law," he wrote.

"We are working with provincial and territorial counterparts to overcome some of these challenges in addressing beneficial ownership transparency."

The letter, like the briefing note, has key sections blacked out under provisions in the Act that allow the withholding of advice.

We're being a laggard within the international system.- James Cohen of Transparency International Canada

The exchange underlines Canada's poor performance since at least 2014, when Ottawa committed with other G20 countries in Brisbane, Australia, to strengthen transparency to ensure that the real owners of corporations no longer hide behind a maze of legal entities.

Beneficial owner is the term for whoever is the actual owner or controller of a company. They reap the benefits of ownership, even though assets are registered in another's name.

Although the 2014 international commitment was made by the Harper Conservatives, the Liberal government has also signed on, repeating in the March budget this year that it would "collaborate with provinces and territories to put in place a national strategy to strengthen the transparency of legal arrangements and improve the availability of beneficial ownership information."

We are working with provincial and territorial counterparts to overcome some of these challenges in addressing beneficial ownership transparency.- Finance Minister Bill Morneau

The letter from Hammond, who remains Chancellor of the Exchequer for now,even after the recent British election, was removed from the access-to-information release package.

But a spokeswoman for Finance Canada, Valrie Forgues, confirmed that Hammond was writing to Morneau about Britain's efforts to implement an automatic exchange of beneficial ownership information, first announced in April last year with other European Union countries.

Forgues says other legal and tax agreements that Canada has signed with Britain allow for limited exchanges of ownership data. And another tax information-sharing agreement, established through the OECD, begins July 1, 2017, covering many countries, including Canada. Under that arrangement, some ownership information could be exchanged in certain circumstances.

Weak chain

Canada's weak performance on the "beneficial ownership" file comes even as the Canada Revenue Agency steps up efforts to catch offshore tax cheats. The 2016 federal budget gave the agency $444.4 million over five years to tighten the net.

"We're being a laggard within the international system," says James Cohen, interim-executive director of Transparency International Canada, which has pressed for an open and public registry like Britain's.

• 'Tax haven' Canada being used by offshore cheats, Panama Papers show

"We're starting to look like the weak chain in the system. We need to be working harder and faster on this," he said. "We've barely moved forward on this file."

The Panama Papers leak of confidential tax-haven documents exposed how many corporations are able to hide the identities of their true owners, through legal sleight of hand.

Cohen says Canada's weak laws and regulations may even be attractive to the international owners of dodgy corporations seeking anonymity.

"Of course, they're going to go where the systems are less stringent," he said.

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