After the federal government enacted the law last year that would allow agents to plead guilty and face jail time, and after both Ontario and British Columbia passed similar criminalization laws, international tax advisers tried to use their expertise to help offshore tax schemes that their clients were using.
In her latest column for the New York Times, Carol E. Lee argues that, despite Canadian institutions frequently being called out in the media and by tax-compliance advocates for their lax practices and weak policies on the enforcement of tax laws, Canadian authorities have allowed this to continue unchecked. Lee, a former Reuters reporter who moved to Canada in 2016 and now works at Bloomberg New Economy, takes a look at the case of Arthur Porter, a Canadian citizen and one of the world’s leading tax advisers, who was found guilty of financial fraud, money laundering and not fulfilling his duties as CEO of Canada’s public inquiry into police violence.
Porter received 30 years in prison, twice what the U.S. had recently approved in prison sentences for other tax-refund scheme offenders. Many members of Canada’s tax bureaucracy have since had their offices shut down after being found to be taking part in offshore tax schemes. But other Canadian tax advisers have continued their work.
Here is some of what Lee has to say about Porter’s case.
Between 2013 and 2015, Porter, whose Canadian wife was listed as a director of several offshore companies, helped more than 500 international clients funnel as much as $2 billion out of Canada, in tax schemes that were hidden in dozens of private companies created in countries such as the Bahamas and Panama, authorities have said. Many international clients of his firm kept their funds in offshore accounts.
The trial, which took place at a British Columbia courthouse, exposed lax Canadian tax-compliance policies.
In one case, a client allegedly took advantage of a blind trust setup. But Porter knew the client’s real identity and had kept the money in a secret Swiss bank account until his death. When asked by prosecutors what Porter’s purpose was with the blind trust, he said “I believe it was a blind trust as he had moved his money into offshore accounts — those were his words.” He then answered the next question by pointing to his watch and saying, “I don’t pay attention to anything.”
Even though Canada’s banking regulator has reported paying little attention to this type of tax planning and the offshore schemes that we now know originated in foreign jurisdictions, in the United States, where tax investigations are often driven by financial institutions, Porter’s tax offenses triggered a prison sentence as well as massive fines to Canada’s government. Porter’s clients also had to disclose their full tax details and pay their taxes on the new profits, penalties and interest for decades.
This left Porter’s firm and Porter himself open to punishments by Canadian tax authorities, including fines of up to $1 million. (The Canadian government raised Porter’s prison sentence from 14 to 30 years and said it would deport him once he had served his time.)
The Canadian government rarely worked in coordination with tax authorities in the United States or elsewhere to snuff out tax evasion schemes involving the use of offshore accounts. Porter had only a small business operation and it was that much simpler to hide money and the authorities knew little about it.
Once the scandal broke, the Canadian government agreed to collaborate with Australian authorities and prosecute Porter.
When asked by the British Columbia Criminal Justice Department why Canadian tax authorities did not prosecute Porter, the Canadian Department of Justice said, “In this case, the Government of Canada was satisfied that the nature of the actions and alleged criminal activity fell outside the purview of the Income Tax Act’s broader duties.”
What this leaves many people wondering is whether Canada has been turning a blind eye to offshore tax schemes and if Porter was a bellwether in the dismantling of these schemes that had been utilized for decades in Canada.
It is safe to say that the Canadian tax authorities have acted on the massive scale of Porter’s practices but their methods — like Porter’s use of blind trusts — made it much easier for companies to hide their money.
Read the full column here.