What the rich don’t tell us
In the morally repugnant and scandalous bigmoney netherworld the International Consortium of Investigative Journalists exposed this week in its publication of the Pandora Papers, what should shock the conscience isn’t so much the circuitous lengths to which at least 336 heads of state, cabinet ministers, presidents, ambassadors and senior public officials will go to hide their wealth, evade sanctions and dodge taxes.
It’s that much of what’s going on here is perfectly legal. The looted cash that oligarchs, kleptocrats and drug bosses have stashed away in the elaborately opaque “offshore” financial system the ICIJ has been delving into over the past seven years is mixed in with staggering sums of money in shell companies and numbered bank accounts that the rich and famous would simply rather we not know about.
The Organisation for Economic Cooperation and Development reckons that roughly $11 trillion is being hidden in these ways worldwide, and criminal investigators and tax officials are rendered powerless by governments that are either stupidly uninterested, administratively unable or determinedly averse to doing anything about it. It’s just how it goes, whether it’s Canada, Russia, the Dominican Republic, Jordan, Pakistan, Monaco, the United Kingdom, the Czech Republic, or the United States.
At least 130 billionaires are taking every advantage of the system globally, the Pandora Papers reveal. They’re beyond the reach of the administration of justice or even public scrutiny, mainly because of the impunity their money so easily buys. Even when the hidden loot isn’t definitively dirty or stolen, billions of dollars in tax revenue are lost every year — in Canada alone — in a rabbit warren of offshore trusts, high-end real estate holdings and off-thebooks money transfers.
The ICIJ effort involves 91 news organizations in more than 100 countries. In Canada, the ICIJ partner Toronto Star reports that the Pandora Papers revelations outline lost Canadian tax revenue of about $3 billion, annually. The Canada Revenue Agency reckons that offshore tax havens generally cost the Canadian treasury about $15 billion every year in secret accounts and opaquely registered offshore subsidiaries.
The Pandora Papers constitute the latest tranche of documents the ICIJ has come upon over the past eight years, beginning with an investigation into Luxembourg’s role in tax avoidance rackets in 2014, followed by the organization’s breakout 2016 blockbuster revelations in the Panama Papers. This latest effort is a much bigger deal.
The Panama Papers trove revealed the secret financial dealings of 140 political leaders and senior government officials facilitated by otherwise reputable banks and law firms. Those same firms were just as happy to provide the same services to drug barons and sanctions-evading opportunists doing business with such sinister clients as the Lebanese terrorist organization Hezbollah, Syrian mass murderer Bashar Assad and North Korean dictator Kim Jong Un.
The Panama Papers, derived from a trove of documents leaked from the Panamanian offshore corporate services firm Mossack Fonseca, were followed up the following year by the Paradise Papers, based on leaked documents that included a paper trail showing how the Apple Corporation had transferred $128 billion to the British tax-haven island of Jersey, in the English Channel. The Paradise Papers also contained offshore-account records involving senior officials in the administration of U.S. president Donald Trump, Russian President Vladimir Putin’s cronies, and Republican Party fundraisers.
The Canadians who showed up in the Paradise Papers in 2017 included former prime ministers Brian Mulroney, Jean Chrétien and Paul Martin, but there was no evidence showing that their offshore investment intrigues were illegal. That’s because of the fine line of a difference between tax avoidance and tax evasion.
In the revelations from this week’s Pandora Papers, legal hairsplitting is the only recourse available to Jordan’s King Abdullah II. The king is revealed to have been busy amassing top-flight real estate holdings around the world while all along taking billions in military and humanitarian aid from the U.S., the United Kingdom and Canada. King Abdullah’s secret $100-million acquisitions include a palatial clifftop property above the beach in Malibu, Calif., and posh digs in London’s Belgravia district. Following this week’s revelations, his rationale is that he doesn’t have to tell anyone what he owns, and he doesn’t have to pay taxes either, because he’s the king.
Among the 500 Canadians listed as tax-shelter beneficiaries in the Pandora Papers this week are former Formula One driver Jacques Villeneuve, figure skater Elvis Stojko and an assortment of billionaires including Alibaba Group executive vice-chairman Joseph Tsai, Montreal entrepreneur Lawrence Stroll and pornographer David Tassillo, co-owner of the video website Pornhub. Around the world, Dominique Strausskahn, the former head of the International Monetary Fund, is shown to have routed millions of dollars in consulting fees to a tax-exempt Moroccan firm. Czech Prime Minister Andrej Babis owns an unreported $22-million French château purchased by one of the 14 offshore investment outfits exposed in this week’s leaks, and the disingenuously anticorruption Kenyan President, Uhuru Kenyatta, appears to own several offshore companies.
Most of the accounts handled by the 14 companies exposed by the Pandora Papers are registered in the British Virgin Islands. The rest were hidden in Belize, Panama, the United Arab Emirates, Singapore, Cyprus and Switzerland.
As for Canada’s diligence in capturing tax revenue — it’s not much to boast about. It was only after the ICIJ’S Panama Papers bombshell in 2016 that the CRA dropped a court fight intended to prevent the Parliamentary Budget Officer from releasing estimates on how much the treasury was being effectively bilked out of revenue by individuals and corporations resorting to secret offshore accounts. That was just one minor impact the Panama Papers had on government policies worldwide, but Canada remains a laggard in corporate transparency.
For years, Transparency International Canada has been campaigning against what it calls “snow-washing,” a kind of money-laundering that allows foreign investors to hide dubiously sourced capital in Canadian assets, notably real estate. It was only earlier this year that the federal government promised to introduce a searchable “beneficial ownership” registry in the House of Commons.
The adverse impacts of snow-washing in real estate is most noticeable in British Columbia, where a provincial expert panel reckoned in 2018 that in that year alone, money-launderers had sunk $5.3 billion into real estate investments, mostly in Metro Vancouver. It’s a racket that’s been going on for years, causing dramatic distortions in the city’s house prices, and it has spurred B.C. to introduce a beneficial ownership registry of its own.
The promise of a federal registry to identify the real owners of corporations investing in Canada was made in the Liberal budget that was introduced in the House of Commons last April. The registry is supposed to come into effect within five years. But a federal election has since come and gone. So will Ottawa finally act to clean up Canada’s reputation and start collecting taxes on the superrich with the same rigour the CRA applies to the rest of us?
We’ll see.
CANADA REMAINS A LAGGARD IN CORPORATE TRANSPARENCY.