Cana­dian busi­ness­man, real es­tate firm im­pli­cated in Chan­nel Is­lands tax scheme

Leaked doc­u­ments show mil­lions flowed to off­shore ac­counts. Who was the guid­ing hand?

Toronto Star - - FRONT PAGE - ROBERT CRIBB STAFF RE­PORTER CALYN SHAW

A Cana­dian mil­lion­aire linked to a com­plex web of off­shore com­pa­nies in Jersey and the Bri­tish Vir­gin Is­lands.

Fraud­u­lent loans, forged con­tracts and cre­ative ac­count­ing de­signed to hide prof­its from tax au­thor­i­ties.

And a lit­tle-known Toronto real es­tate de­vel­op­ment firm in the back­ground that played a key role in the decade-long flow of tens of mil­lions of dol­lars through off­shore tax havens.

A cache of nearly 350,000 doc­u­ments leaked to in­ter­na­tional jour­nal­ists, in­clud­ing at the Toronto Star, de­tail the cor­po­rate em­pire of Cana­dian-born busi­ness­man John W. Dick and an off­shore trust com­pany called La Hougue that pitched clients on in­vest­ments with the prom­ise of tax-free prof­its.

It moved tens of mil­lions of dol­lars over decades with im­punity us­ing what Dick, some of his col­leagues and fi­nan­cial ex­perts agree were forged fi­nan­cial records, as well as cor­po­rate “lay­er­ing,” com­monly used to com­pli­cate money flows and shield prof­its from tax­a­tion.

The leak pro­vides a rare, be­hind-thescenes look at the meth­ods of off­shore money move­ment dur­ing the 2000s that have trig­gered le­gal ac­tions that con­tinue to­day. And they re­veal the so­phis­ti­ca­tion and in­flu­ence of an off­shore in­dus­try that con­tin­ues to di­vert mil­lions of dol­lars from na­tional tax cof­fers with­out crim­i­nal charges.

As with many pre­vi­ous Star in­ves­ti­ga­tions into the world of off­shore money, many of the key play­ers here are Cana­di­ans.

“Cana­di­ans have played a fab­u­lously ma­jor, out­stand­ing role in pi­o­neer­ing shady prac­tices off­shore,” said James S. Henry, an Amer­i­can econ­o­mist and at­tor­ney who spe­cial­izes in tax is­sues in­clud­ing the im­pacts of tax havens. “Lowand no-tax, low-reg­u­la­tion havens, we can no longer af­ford this as a world. We have deep fis­cal crises all over the planet … It’s time to clean it up.”

The guid­ing hand be­hind the prof­itable money flow in the La Hougue story is a mat­ter of fierce and on­go­ing al­le­ga­tions and counter-al­le­ga­tions con­tained in le­gal, po­lice and reg­u­la­tory com­plaints span­ning Europe, Canada and the U.S. in which all the fig­ures in this story point fin­gers at each other.

The cast of char­ac­ters sur­round­ing Dick in­clude a se­nior ex­ec­u­tive whose fi­nan­cial man­age­ment tech­niques trig­gered with­er­ing reg­u­la­tory scru­tiny in Jersey and Panama and a U.S. court sanc­tion for per­jury. His Cana­dian deputy was fined $58 mil­lion (U.S.) in 2017 by the U.S. Se­cu­ri­ties and Ex­change Com­mis­sion for “per­pe­trat­ing (an un­re­lated) mul­ti­mil­lion-dol­lar, in­ter­na­tional pump-and-dump scheme.” Re­spond­ing to ques­tions about what hap­pened at La Hougue, Dick’s lawyers said he had no knowl­edge of any wrong­do­ing.

So far un­named in the var­i­ous court ac­tions is Ven­terra Re­alty Inc. — a firm with apart­ment de­vel­op­ments across the south­ern U.S. that are home to 33,000 peo­ple — and its Toronto prin­ci­pals John Foresi and Andrew Ste­wart who ap­pear through­out the leaked doc­u­ments.

Five lead­ing fi­nan­cial ex­perts re­viewed doc­u­ments from the leak as part of the Star’s in­ves­ti­ga­tion. All agree they trace the move­ment of tens of mil­lions of dol­lars through a com­plex chain of firms to fi­nance Ven­terra real es­tate de­vel­op­ments and re­turn prof­its with­out proper tax­a­tion.

In a writ­ten re­sponse to ques­tions from the Star, Ste­wart, on be­half of him­self and Foresi, de­nied any im­pro­pri­eties say­ing “we un­re­servedly re­ject the al­le­ga­tions that Ven­terra par­tic­i­pated in, or had knowl­edge of, any in­vest­ment strate­gies de­signed to avoid tax­a­tion through the use of fraud­u­lent doc­u­ments.”

The state­ment says Ste­wart and Foresi were at “arm’s length” from Dick, his col­leagues and their com­pa­nies and had no knowl­edge of their “tax prac­tices, tax re­port­ing, fi­nan­cial deal­ings, or re­la­tion­ships.”

An 11-page memo penned by La Hougue se­nior ex­ec­u­tive Richard Wigley in July 2000 details the “meth­ods avail­able to en­able the move­ment of as­sets off­shore.”

“Nat­u­rally, I have a con­cern that any of these pa­pers should fall into the wrong hands, so please guard them care­fully,” the let­ter be­gins.

The doc­u­ment details 11 tech­niques in­clud­ing a prop­erty in­vest­ment in Mex­ico, de­lib­er­ate fore­clo­sure on a mort­gage and be­ing paid con­sul­tancy fees via sep­a­rate busi­nesses.

The mes­sage to prospec­tive in­vestors was re­as­sur­ing.

Those in­vest­ing in the Mex­i­can prop­erty de­vel­op­ment would be pro­tected if their na­tional tax agency in­quired about their in­vest­ments for tax pur­poses.

“Suit­able con­fir­ma­tions and as­sur­ances as to the non-prof­itabil­ity can be given to show that, to date, there had been no cap­i­tal gain and no in­come dis­tri­bu­tions had oc­curred,” the memo says.

Be­cause the trans­ac­tion would be un­der the off­shore con­trol of La Hougue where fi­nan­cial se­crecy of­fers pro­tec­tion from reg­u­la­tory scru­tiny, “no in­for­ma­tion could be ob­tained sep­a­rately by any in­ves­ti­gat­ing party.”

Within a year of the memo be­ing writ­ten, some of its tech­niques were show­ing up in money flows in­volv­ing Ven­terra.

Un­til now, noth­ing has been pub­licly known or writ­ten about the Rich­mond Hill-based Ven­terra and its con­nec­tions to the string of La Hougue-af­fil­i­ated com­pa­nies that pro­vided tens of mil­lions to its de­vel­op­ment projects in the 2000s.

La Hougue clients were promised an­nual re­turns of at least10 per cent — and up to 20 per cent — for in­vest­ments they made in Ven­terra’s multi-res­i­den­tial de­vel­op­ments in the U.S.

Here’s how the money typ­i­cally flowed to and from Ven­terra, ac­cord­ing to the leaked doc­u­ments an­a­lyzed by the Star:

It started with Jersey-based La Hougue and moved through a Bri­tish Vir­gin Is­lands firm called Miche­lin to a U.S. firm called Land Se­cu­ri­ties In­vestors (LSI) which trans­ferred the money to Ven­terra in the form of a loan. The ar­range­ment ex­ploited a U.S. tax reg­u­la­tion to re­turn in­vest­ment money to La Hougue un­taxed and with gains — a cy­cle that in­volved money mov­ing through four com­pa­nies in four ju­ris­dic­tions us­ing fab­ri­cated doc­u­ments and com­plex struc­tures to dis­guise the fraud.

One ex­am­ple of the chain is a 2004 in­vest­ment in a Ven­terra project dubbed “Walden Port­fo­lio.” A $100,000 in­vest­ment went from La Hougue to Miche­lin and a day af­ter that, the money went into the Colorado bank ac­count of LSI be­fore it flowed to Ven­terra.

Dozens more wire trans­fers from LSI to Ven­terra ap­pear in the records — $21 mil­lion be­tween 2003 and 2008.

The records also show Ste­wart and Foresi in­vested in their own projects through La Hougue where they are linked to sev­eral client ac­counts.

In the Walden project, for ex­am­ple, Foresi shows up as an in­vestor through his La Hougue client ac­count (F0088) mak­ing two loans start­ing in Jan­uary 2004 — shortly af­ter the deal was signed — to­talling $117,500. Ven­terra’s de­vel­op­ments in the U.S. were suc­cess­ful. In­ter­nal cor­po­rate doc­u­ments show re­turns of 30 per cent for in­vestors in one Ven­terra project.

But the bur­den of a 30-per-cent U.S. with­hold­ing tax levied on trans­fers to off­shore ju­ris­dic­tions such as Jersey threat­ened to eat away much of that profit.

The La Hougue so­lu­tion to the tax prob­lem em­ployed a U.S. In­ter­nal Rev­enue Ser­vice tax reg­u­la­tion called port­fo­lio debt.

In an at­tempt to com­bat off­shore tax eva­sion, the U.S. gen­er­ally im­poses a 30-per-cent with­hold­ing tax on debt and in­ter­est pay­ments made by U.S. com­pa­nies to for­eign lenders. But there is an ex­emp­tion for port­fo­lio debt that al­lows those loan re­pay­ments tax free if they meet re­quire­ments in­clud­ing the U.S. com­pany be­ing arm’s length from the for­eign lender.

Dozens of records in the leaked doc­u­ments re­veal how the La Hougue chain of com­pa­nies ex­ploited the port­fo­lio debt reg­u­la­tions to avoid tax­a­tion on in­ter­est.

An in­ter­nal 2002 memo ti­tled “Port­fo­lio Debt” ac­knowl­edges that while a with­hold­ing tax would typ­i­cally ap­ply on in­ter­est paid from the U.S. to a nonU.S. lender, “this 30 per cent with­hold­ing tax is re­duced to zero un­der Port­fo­lio Debt and that is the ben­e­fit to the client.”

The memo uses the ex­am­ple of a $600,000 loan with an an­nual in­ter­est rate of 10 per cent.

The $60,000 in an­nual in­ter­est from the in­vest­ment would gen­er­ate $18,000 in with­hold­ing tax (30 per cent). But in­stead of pay­ing tax into na­tional tax cof­fers, the port­fo­lio debt reg­u­la­tion elim­i­nates tax and in­vestors pay only $6,000 in a fee to La Hougue for its ser­vices — a sav­ings of $12,000, the memo reads. Ev­ery­one wins, it says. “The ef­fec­tive fee to La Hougue equates to 10 per cent of the an­nual in­ter­est paid.”

The memo re­as­sures in­vestors that their money will re­main “in a tax free en­vi­ron­ment,” and that the strat­egy can be “fully sup­ported.” It worked, the records show. La Hougue’s Ven­terra in­vest­ments re­turned along the same path they ar­rived.

In the Walden project, for ex­am­ple, a May14, 2004, pay­ment of more than $350,000 left Ven­terra head­ing for LSI with a note read­ing, “re­turn of Walden and Whis­per­ing Oaks ad­vances.”

Twelve days later — on May 26 — LSI trans­ferred $375,000 to BVI-based Miche­lin with no hold­ing taxes col­lected, the doc­u­ments show.

A day later, Miche­lin sent the full $375,000 back to La Hougue to com­plete the cy­cle.

Foresi’s La Hougue ac­count state­ment shows his in­vest­ment in his own com­pany through an off­shore in­ter­me­di­ary was re­turned, with in­ter­est, the same week.

In re­sponse to ques­tions about why they per­son­ally in­vested in their own projects through La Hougue ac­counts in Jersey, Foresi and Ste­wart de­clined to re­spond.

But while the strat­egy was ef­fec­tive in re­mov­ing the tax hit, there is a caveat: for the IRS port­fo­lio debt reg­u­la­tion to ap­ply, the U.S. bor­rower must not be re­lated to the for­eign lender.

U.S.-based LSI, which re­ceived the loans from BVIbased Miche­lin, are in­ti­mately con­nected through­out the leaked records to La Hougue.

Miche­lin, which was es­tab­lished by La Hougue’s di­rec­tors, in­clud­ing Wigley, is de­scribed by Wigley in one memo as a cor­po­ra­tion “un­der the con­trol of (La Hougue).”

Like­wise, Alan Fish­man, who led LSI at the time, signed a 1996 em­ploy­ment con­tract with La Hougue and re­peat­edly de­scribes him­self in court records as be­ing un­der the con­trol of Wigley and Dick.

That cor­po­rate in­ti­macy be­tween La Hougue, LSI and Miche­lin breaches the port­fo­lio debt ex­emp­tion, say fi­nan­cial ex­perts who have re­viewed the case for the Star.

“The port­fo­lio debt ex­emp­tion should not have been used by LSI,” says Toronto foren­sic ac­coun­tant Charles Smed­mor. “The LSI pay­ments to Miche­lin and La Hougue should have had 30 per cent with­hold­ing tax ap­plied and the with­held funds should have been re­mit­ted to the United States Trea­sury.”

Frank Casey, a U.S. fi­nan­cial ex­pert who blew the whis­tle on the Bernie Mad­off scan­dal and is a fre­quent ex­pert wit­ness in U.S. fraud cases, re­viewed the records for the Star’s in­ves­ti­ga­tion.

“Their ad­di­tion of Miche­lin and LSI in­ter­me­di­ary in­vest­ment trans­fer points ap­pears to be de­signed to cre­ate com­plex­ity to ef­fec­tively shield prof­its from tax­a­tion,” he said.

The port­fo­lio debt tax ex­emp­tion doesn’t ap­ply here, he says.

“These guys seem to be in con­trol of ev­ery­one in the fund­ing loop.”

Re­tired FBI agent Gregory Cole­man, who was de­picted in the film “The Wolf of Wall Street” for his role in the ar­rest and con­vic­tion of Jor­dan Belfort, also re­viewed port­fo­lio debt doc­u­ments from the leak on be­half of the Star.

“It seems to be a clear vi­o­la­tion of IRS reg­u­la­tions. It’s pretty black-and-white to me,” he said. “The Ven­terra el­e­ment has all the signs it was set up to make money and pay no taxes on it. The trans­ac­tions were not arm’s length. They were be­tween cor­po­ra­tions set up to dis­guise own­er­ship and con­trol.”

A for­mer Colorado judge also ex­pressed deep con­cerns about the port­fo­lio debt ar­range­ment last year af­ter or­der­ing Wigley to pro­duce cor­po­rate records to sup­port it and re­ceiv­ing vir­tu­ally no doc­u­men­ta­tion.

In a 2019 Colorado ar­bi­tra­tion case, ar­biter Wil­liam Meyer called it “in­con­ceiv­able” and an act of “as­ton­ish­ing neg­li­gence,” not­ing that the IRS’s port­fo­lio debt reg­u­la­tion re­quires reg­u­lar re­port­ing of in­ter­est pay­ments.

“To the best of the ar­biter’s knowl­edge, none of the re­quired re­port­ing IRS doc­u­ments have been pro­vided.”

“John Dick had no over­sight or in­volve­ment in the day-to-day busi­ness of La Hougue.” STATE­MENT FROM DICK’S LAWYERS

Iden­ti­fy­ing who or­ches­trated the port­fo­lio debt scheme gets com­pli­cated.

Court records and thou­sands of pages of in­ter­nal La Hougue doc­u­ments pro­vided to the Ger­man-based Euro­pean In­ves­tiga­tive Col­lab­o­ra­tions (EIC) by Dick’s daugh­ter and shared with nine me­dia out­lets around the world (in­clud­ing the Star) paint two very dif­fer­ent por­traits of the prime mover be­hind the cor­po­rate veil.

And they re­veal a cloak-anddag­ger world of cor­po­rate be­trayal, se­cre­tive tech­niques and al­leged crim­i­nal­ity.

The nar­ra­tive piv­ots around the 82-year-old Dick, whose Men­non­ite roots trace back to the Kitch­ener area.

Af­ter earn­ing his for­tune in U.S. real es­tate, Dick moved in the 1980s to Jersey, a Chan­nel Is­land Bri­tish Crown de­pen­dency lo­cated be­tween Eng­land and France, where La Hougue was es­tab­lished and, for a time, run out of Dick’s lav­ish mansion called St. John’s Manor.

By the 1990s, Dick, Wigley and Fish­man were linked through La Hougue, ac­cord­ing to the leaked doc­u­ments and pub­lic records.

Wigley and his col­league, Fish­man, have told a U.S. court that Dick was the mas­ter­mind of La Hougue’s in­vest­ment strate­gies which they say were driven by a de­sire to dodge U.S. taxes through so­phis­ti­cated tech­niques they du­ti­fully ex­e­cuted at his in­struc­tion.

Nei­ther Wigley nor Fish­man agreed to in­ter­views or pro­vided de­tailed writ­ten re­sponses to ques­tions posed by the Star.

Wigley pro­vided a state­ment through his lawyers say­ing he would not ad­dress spe­cific al­le­ga­tions due to on­go­ing le­gal pro­ceed­ings.

The brief writ­ten re­sponse

“I fol­lowed (Dick’s) di­rec­tion. I was a good em­ployee and I did ex­actly what he wanted me to do.” ALAN FISH­MAN IN 2017 DE­PO­SI­TION

EURO­PEAN IN­VES­TIGA­TIVE COL­LAB­O­RA­TIONS

Af­ter earn­ing his for­tune in U.S. real es­tate, John W. Dick, whose Men­non­ite roots trace back to the Kitch­ener area, moved in the 1980s to Jersey, a Bri­tish Crown de­pen­dency in the Chan­nel Is­lands, where La Hougue was es­tab­lished. In a state­ment from his lawyers, Dick said he was the un­wit­ting vic­tim of his long­time se­nior man­ager Richard Wigley, whose “re­peated fraud” cost mil­lions of dol­lars. .

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Alan Fish­man and his col­league Wigley, below, told a U.S. court Dick was the mas­ter­mind of La Hougue’s in­vest­ment strate­gies, which they say were driven by a de­sire to dodge U.S. taxes through so­phis­ti­cated tech­niques they du­ti­fully ex­e­cuted at his in­struc­tion.

La Hougue se­nior ex­ec­u­tive Richard Wigley

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