By Valérie Ouellet, Dave Seglins, Rachel Houlihan,
Posted: Nov 06, 2017
Montreal Canadiens and Loblaw among Canadian entities found in massive international offshore leak
A supermarket giant, an NHL hockey team, several billionaires and a yacht captain.
These are just a few of the roughly 3,300 Canadian companies, trusts, foundations and individuals whose names appear in the Paradise Papers, a leak of millions of records from offshore law firm Appleby and the corporate registries of 19 tax havens.
The leak, revealed Sunday by CBC/Radio Canada and the Toronto Star, in partnership with the International Consortium of Investigative Journalists (ICIJ), is the largest ever involving Canadians who keep money in tax havens. It contains more than five times more Canadian companies and individuals than the 625 found in last year’s Panama Papers leak.
The records also show that Canada is one of Appleby’s biggest markets for offshore financial services clients, behind the U.S., the U.K. and China.
Leaked data from the law firm shines a light on hundreds of well-known companies and wealthy Canadians who benefit from offshore trusts and corporations set up in countries where they pay little or no taxes, as a way to legally avoid — or potentially evade — paying taxes at home.
The Paradise Papers name hundreds of Canadian contacts working as accountants, attorneys or consultants for clients of Appleby. Also named are companies, individuals and 306 organizers and beneficiaries of trust funds incorporated in Bermuda or the Cayman Islands.
When news of the leak broke Sunday, John Power, a spokesperson for the minister of national revenue, said “the CRA is reviewing links to Canadian entities and will take appropriate action.”
Canadian offshore clients
The Montreal Canadiens, an Appleby client since 1980, set up two trusts in Bermuda, including an employee benefit fund that was shut down in 2010. In a statement to CBC News, the organization says its offshore business was “in full compliance with the existing Canadian tax legislation.”
Canadian supermarket giant Loblaw says it paid all appropriate taxes on the two subsidiaries it set up with Appleby’s help in Barbados and Bermuda in 2005. They were used to invest tens of millions collected from users of its President’s Choice Financial MasterCard, according to leaked documents.
In a statement, Loblaw writes: “the CRA is aware of all of our international income. Our activities […] are legal and transparent.”
The late Carl M. Dare asked for Appleby’s help to administer a trust set up in 1975. According to leaked documents, the patriarch of Canada’s Dare Foods cookie and candy empire, who died in 2014, incorporated his $5-million fund in the Cayman Islands “for members of [his] family.”
The Appleby files also name lesser-known Canadians, including several doctors, engineers, geologists, housewives, a police officer, a retired admiral of the Canadian navy, a speech pathologist, students, teachers, two writers and a scientist living in the Yukon, most of them acting as officers for corporations or benefiting from trusts.
Dennis Howlett of Canadians For Tax Fairness says the leak reveals a bigger problem that goes beyond wealthy individuals.
“It’s big corporations taking advantage of subsidiaries in tax havens to shift their profits and pay a lot lower taxes,” he said.
Howlett said the Canadian government facilitates this practice by signing tax agreements with tax havens. “This is legal, and it should not be legal. That’s the point.”
Drinks at the Ritz
Appleby repeatedly targeted Canada between 2011 and 2013 to look for new clients, especially in the mining industry. The firm’s strategy included networking trips to Vancouver, Calgary and the annual convention of the Prospectors & Developers Association of Canada in Toronto.
Records suggest all the wining and dining — at Toronto’s Ritz-Carlton, the Fairmont Royal York and top-ranked restaurant Canoe — may have paid off, as the firm secured 127 new Canadian accounts in 2012 alone.
The Paradise Papers reveal Appleby’s clients in 2014 included at least 17 Canada-based resource companies.
Appleby billed Canadian clients and law firms at least $12 million between 2009 and 2013, including $8.2 million through its Bermuda office.
In a 2013 email exchange, a pair of partners and a senior analyst discussed ramping up marketing efforts in Canada, including targeting national accounting and law firms.
“There has been significant law firm consolidation over the years especially on the national level so perhaps well worth us looking again.”
Appleby was clearly enthusiastic about signing up Canadians as offshore clients, but it was also interested in setting up its own shop here.
As last year’s Panama Papers investigation revealed, Canada is fast becoming a tax haven because of the combination of its sterling reputation and registry rules that allow the true owners of companies to hide their identities.
In 2007, Appleby launched “Project Kerry,” a plan to open a headquarters in a new jurisdiction. The firm’s short list of potential sites included the European island of Jersey; Mauritius, an island nation in the Indian Ocean; the British Isle of Man; and Halifax.
A memo to managing partners says Halifax is a logical long-term choice, with direct flights to the firm’s Bermuda and London offices, “very reasonable operating costs” and “very significant payroll tax rebates.”
While weighing pros and cons, Appleby worried that its clients who had incorporated in a tax-free jurisdiction may now have to pay taxes if they did business in Canada.
The firm also wondered if Canadian law enforcement could obtain warrants to access sensitive documents on offshore shell companies stored in Halifax.
In a memorandum prepared in August 2007, Appleby partner Michael Burns says he asked a local Halifax lawyer to evaluate whether keeping a server outside Canada “would constitute a complete and lawfully appropriate foil to the normal warrant search and seizure processes which generally apply to Canadian businesses.”
Burns says the initial informal advice from the lawyer “suggests there may be considerable cause for optimism in the outcome.”
CBC partners reached out to Burns, but he declined to comment.
In 2009, Appleby instead chose the Isle of Man for its new office, noting in an email that Halifax was a “very close second.”
The city has been trying to transform itself into a destination for offshore service providers for a few years now, according to Howlett.
“Even it is not illegal, it is definitely unethical,” he said of the strategy.
Howlett said he hopes the Paradise Papers leak acts as a wake up call for federal and provincial governments as well as average Canadians.
In a statement published online shortly after being contacted by the ICIJ, Appleby says it investigated allegations made by the consortium and was “satisfied that there is no evidence of any wrongdoing, either on the part of ourselves or our clients.”
Appleby goes on to say it doesn’t tolerate illegal behaviour and provides advice to clients on “legitimate and lawful ways to conduct their business.” The firm says it’s “not infallible,” and when mistakes have happened, it notified the relevant authorities.
CBC’s conclusions rely on a 2014 copy of Appleby’s Master Client Database, authenticated by the ICIJ. CBC/Radio Canada and the Toronto Star analyzed thousands of addresses and names contained in that data to match offshore entities with their parent company using a unique address code assigned by Appleby. CBC’s definition of a “Canadian” found in this leak relies on finding at least one of the following within the data: a mailing, residential or business address in Canada; a Canadian passport number; or Appleby’s direct reference to a Canadian birthplace or nationality. The ICIJ excluded incomplete, pending and duplicate accounts.