How a Quebec company hid millions from Canadian tax collectors,

Peruvian lawyers behind scheme making it look like money was flowing to Canada

Nestled at the end of a row of sprawling waterfront estates in the suburbs of Montreal, a pale brick house sits empty, its mailbox overflowing with bills.

Through the front window, an unplugged stove is visible, abandoned in the middle of the living room floor. The leaves haven’t been raked. Waves crash against a crumbling concrete pier.

This house is one of the few physical traces left by a Quebec numbered company at the centre of a complex tax evasion scheme that used Canada to hide at least $3.1 million from three South American governments.

It is the address listed on public documents for the sole corporate director of 9203-9619 Quebec Inc.

But correspondence found in the Panama Papers, a leak of 11.5 million documents obtained by the International Consortium of Investigative Journalists and the German newspaper Suddeutsche Zeitung, shows that this person was simply a frontman, paid $200 per month to keep the company’s real owners off public documents.

Reporting by the Star and CBC/ Radio-Canada pieced together how 9203-9619 Quebec Inc. was a vehicle used by Peruvian lawyers to evade taxes by making it appear money was flowing to Canada.

Paper trail

The path that dead-ends at the abandoned Montreal house begins in Lima, Peru, with a man named Mauricio Munoz-Najar.

Once a top tax official under Peru’s strongman President Alberto Fujimori, Munoz-Najar was removed from office and convicted for corruption after the dictator fell in 2000.

After cutting a deal to avoid prison, Munoz-Najar reinvented himself as a tax consultant. Along with his brothers, Edgardo and Gonzalo, he ran Estudio Munoz-Najar Bustamante y Asociados, advising wealthy Peruvians and international corporations on how to minimize taxes. Munoz-Najar purchased 92039619 Quebec Inc. through Mossack Fonseca shortly after the law firm began marketing Canada as a tax haven in 2010.

The company did not conduct any business in Canada, documents show.

Instead, records show Mossack Fonseca arranged a paper trail of nearly identically worded contracts and invoices dating back to 2009 that give the appearance that money was flowing from companies in Peru, Ecuador and Chile into Canada. It wasn’t. But there was a good reason for making it look that way: tax treaties Canada has with those countries allow Canadian firms to not pay any taxes there — with the understanding the tax will be paid in Canada.

Yet 9203-9619 Quebec Inc. underdeclared here as well, according to leaked records, deceiving tax authorities on both ends and playing the tax regimes off each other.

In the end, the company paid no taxes abroad and less than $6,000 into Canadian tax coffers on more than $3.1 million in transactions between 2009 and 2012, records show.

Repeated attempts to contact the Munoz-Najar brothers were unsuccessful.

Their names appear nowhere on the corporate registration of 9203-9619 Quebec Inc. Instead, there’s a long chain of intermediaries that make it nearly impossible to trace real ownership of the company without access to the confidential communications kept in the Panama Papers.

As far as Canadian officials would be able to tell, all the company’s paperwork was filed by a lawyer named Claude Pellerin. What they didn’t know is that Pellerin acted as Mossack Fonseca’s local agent in Canada.

Pellerin registered Canadian companies for Mossack Fonseca and allowed foreign clients — like the Munoz-Najars — to use his Montreal address as a corporate head office for $600 per year.

When contacted by the Star and Radio-Canada, Pellerin, who severed his ties with Mossack Fonseca in 2014, said he could not comment on specific files, but did not know the companies were used to avoid tax.

“Each time I open a company here, I advise the client that he must file his tax return, that he must declare his worldwide revenues, that the company is established here and that it has fiscal obligations to Canada and Quebec,” Pellerin said.

“After that, who runs the company and how, I cannot be responsible for that.”

Montreal accountant Manu Kakkar prepared the tax filings for 92039619 Quebec Inc. Email correspondence shows Kakkar was hired by Mossack Fonseca in 2012 to review the contracts and invoices, sign off on the company’s financial statements and file its taxes for the years 2009 and 2010.

In an email response to questions, Kakkar confirmed his role as the company’s accountant but would not discuss the company, saying he is “bound by both my Chartered Professional Accountancy code of client confidentiality as well as lawyer-client privilege.”

While the company paid $5,811.60 to the Canada Revenue Agency for contracts dated in 2010, it never filed again according to the Panama Papers files.

The company remains active on the Quebec corporate registry. Toronto forensic accountant Charles Smedmor reviewed the company files and called them “amateurish.”

“The poor quality of the fabricated documents, especially when looking for the usual details contained in invoices, points to a scheme where no real effort was made to properly paper the file,” he said.

Operación Canadá

One of the largest transactions illustrating how 9203-9616 Quebec Inc. was used as a tax evasion vehicle was called “Operacion Canada” in internal Mossack Fonseca correspondence.

The scheme involved a series of phoney transactions that allowed a drilling firm to move money from its Peruvian subsidiary to its parent company tax-free.

Making that happen involved a circuitous international paper trail that made it look like the money went first to Chile before ending up in Quebec.

In December 2012, Mossack Fonseca was contacted by Steve Petrovich, the Australian CEO of a Peruvian drilling company, AK Drilling International. Petrovich wanted help “legalizing” a payment from Peru to his parent company’s Swiss bank account.

Mossack Fonseca incorporated a company in Chile, called Servicios Andinos de Consultoria SPA, and drew up a contract and invoice for $700,000 (U.S.) expressly for this purpose.

Mossack Fonseca went so far as to design a website for the company and construct a fake email chain to make it appear there was a legitimate business relationship, the emails show.

“We confirm that the messages can be directed to the following email: contact@serviciosandinos.com” wrote Jacqueline Alexander, a secretary at Mossack Fonseca’s Panama office to AK Drilling International in Peru.

“Kindly direct the messages to ‘Dear Sirs.’ ”

In response, Liz Villanes Vergara, a corporate financial analyst at AK Drilling, sent Mossack Fonseca — posing as the Chilean company — an inquiry email and appended a note to Alexander, instructing her on how to respond.

“Jacqueline, please generate a reply to Mr. Petrovich, attaching the following information (Word file) as an integral part of the service … In response to this we will send you a contract with all that included for your signature. They print it, sign it and send it, along with the invoice and the bank statement,” Vergara wrote.

After the paperwork was complet- ed for the first transaction, a second false invoice made it appear that Servicios Andinos de Consultoria SPA paid $670,000 to 9203-9619 Quebec Inc.

While the paper trail leads to Canada, bank records show no money came anywhere near its borders.

Instead, $700,000 was transferred from AK Drilling International, Peru, into an account controlled by Mossack Fonseca. The Panamanian firm then wired $637,000 back to AK Drilling by depositing the money in the company’s Swiss bank account.

Petrovich did not respond to repeated emails detailing the transactions.

Mossack Fonseca’s fee to transfer the money and create the paper trail was $63,000.

AK Drilling paid $7,000 to the Munoz-Najars for the use of their Quebec company and $2,000 to a man named Ivan Ramirez as a commission for referring the business.

The Panama Papers files show that no taxes were filed by 9203-9619 Quebec Inc. for the year 2012, when the transaction occurred.

‘Office politics’

In early 2013, shortly after Operacion Canada, the federal government announced a $30-million (Canadian) investment in the CRA to create the Offshore Compliance Division. That’s when Pellerin told Mossack Fonseca he could no longer work on the 9203-9619 Quebec Inc file.

In a leaked email, he explains that it’s “nothing personal or against Mossfon, (it’s) office politics, with what happened recently with the offshores accounts, (CRA) and (Revenu Québec) are flipping all the stones (sic).”

According to correspondence in the database, Pellerin started having suspicions about the company nearly two years earlier.

“The way they are presently behave make fear that they will not pay tax in Ecuador and at the moment the financial statements will be filed, they will want to try to evade the payment of any income tax in Canada (sic),” he wrote to Mossack Fonseca in 2011.

Contacted in Montreal, Pellerin denied that he would have ever agreed to open a shell company in Canada with the sole purpose of gaming the tax system.

“Without a doubt, if I had been told that it was simply a paper company, I never would have opened it,” Pellerin said.

“I do diligent verification. I ask them what they’re going to do, what they will operate. What they tell me, I take it at face value — it comes from a law firm.”

“If these people called me back today to establish a company, it would be no, because I now believe what they told me was totally false.”