MPs urged to demand the names of Canadians behind offshore tax shelters

Five years ago, tax law expert André Lareau was blocked from giving testimony before the House of Commons finance committee by a last-minute gag order preventing witnesses from talking about a prominent accounting firm's tax avoidance scheme.

Now, he has a message for the members of Parliament who are today rebooting their probe into offshore companies registered in the Isle of Man: if they're serious this time, they should subpoena the Canadian accountants who helped to set up the offshore tax dodge — and demand that they give up the names of the wealthy Canadians whose identities they've been protecting.

"If the committee is willing to open that, well, maybe, just maybe, that means that they are pretty serious about it," Lareau, an associate professor at Laval University, told CBC News.

MPs are re-launching the probe Parliamentarians halted in June 2016 after the accounting firm KPMG said witness testimony in Ottawa could prejudice ongoing court cases.

CBC's the Fifth Estate and Radio-Canada's Enquete reported earlier this year that shell companies set up in the Isle of Man are suspected of involvement in a massive fraud that cost investors their life savings. Some experts believe KPMG may have had a hand in creating those companies.

Documents obtained from the Isle of Man's public registry, as well as emails from an offshore leak of financial data, show links between KPMG and four shell companies set up in December 2001 that were named after ancient swords.

KPMG acknowledges it set up a tax avoidance and asset protection "structure" in the Isle of Man for wealthy Canadians beginning in the late 1990s.

But the accounting firm — also known for providing advisory and auditing services to federal and provincial governments — denies having anything to do with helping to set up the four shell companies later suspected of being involved in a financial fraud that cost investors their life savings, and where more than $500 million disappeared offshore.

CBC/Radio-Canada's revelation of a suspected connection between those shell companies and the missing millions prompted fraud victims and opposition parties to call for a reboot of the finance committee's long-dormant investigation of the Isle of Man and offshore shell companies.

"People have been cheated, they have lost their savings. The federal government should do more than pay lip service in the fight against tax evasion and international tax evaders," said NDP MP Peter Julian.

"Canadian offshore bank accounts … are hiding money from the government. Why would any party not want that revealed?" said Green Party MP Elizabeth May.

Call in the accountants, says Lareau

MPs from all parties voted last week to resume committee hearings this afternoon into offshore tax shelters, including those in the Isle of Man. 

Today's witness list includes Lucy Iacovelli — KPMG Canada's managing partner for tax — and Janet Watson, who lost her savings in a Montreal-based fraud known as the Cinar/Norshield/Mount Real scheme.

Lareau said that, for the revived committee probe to be effective, MPs must call the individual accountants and bankers who were involved in setting up various Isle of Man shell companies — and who know the names of the wealthy Canadians or "beneficial owners" behind them.

"Obviously, they will talk only to the committee if they are obliged to do so," Lareau said, pointing out that Commons committees have the power to issue subpoenas.

In the past, KPMG has opposed releasing the names of the wealthy Canadians behind multiple shell companies it helped to set up in the Isle of Man, citing client confidentiality.

Lareau said he believes that MPs were under pressure from the accounting industry to limit their probe when they launched it five years ago.

In 2016, the Liberal-dominated finance committee defeated an opposition motion to compel KPMG to provide the names of the "beneficial owners" of those shell companies. Dennis Howlett, the former head of Canadians for Tax Fairness, said it's high time the veil was lifted.

"It would be a good idea to force KPMG to disclose beneficial owners," said Howlett. "It's not right that people can hide behind shell companies."

The Trudeau government said in its recent budget that, as part of a plan to crack down on tax avoidance, it would introduce a registry to identify the beneficial owners of Canadian companies.

While that measure wouldn't affect the Canadians behind offshore companies, it does indicate the Liberal government is concerned about corporations set up to protect the identities of their true owners, said Howlett.

Committee cut short

Howlett is one of the tax experts who was also prevented from testifying at the House of Commons finance committee five years ago.

Both Howlett and Lareau were asked to testify about the KPMG Isle of Man scheme — but were barred from even mentioning the name of the accounting firm when they got to the witness stand.

Lareau and Howlett were told that a lawyer for KPMG had written a letter to the committee warning that a continued probe of the accounting firm could improperly affect ongoing tax court cases.

Liberal MP Wayne Easter, chair of the finance committee, then told Lareau and Howlett they could not give any testimony related to the accounting firm's Isle of Man tax scheme.

"Why am I here?" Lareau said at the time. "They asked me to come here to speak about KPMG and I'm prevented from speaking about KPMG."

"The particular case that we're not supposed to refer to is only the tip of the iceberg," Howlett told MPs on the committee in 2016.

The three tax court cases KPMG said it was concerned about were settled out of court two years ago — but the finance committee never resumed its probe until news reports earlier this year revealed new information regarding KPMG's potential connection to companies later suspected of involvement in the fraud.

Financial asset tracers have said that identifying the true owners behind the so-called "sword companies" — Katar, Sceax, Spatha and Shashqua — could go a long way in helping governments understand how they may have been involved in the fraud, and where the money ended up.

"If I had got this information … while we were still on the scene, we would have tried to get to the bottom of this," said lawyer and asset tracer Wes Voorheis, who was hired to find some of the missing money in 2004.

KPMG insisted it conducted an in-depth review of its files before concluding it had no connection to the sword companies.

"KPMG Canada has thoroughly considered and refuted any connection between KPMG Canada and the sword companies," Mark Gelowitz, KPMG's lawyer, said in a recent letter to CBC.

"Unless CBC has additional evidence of KPMG Canada's involvement with the sword companies that it has not shared with KPMG Canada, the proposed allegations are demonstrably unsubstantiated, false and defamatory."

Gelowitz pointed to the fact that KPMG had hired Ian Binnie, "a retired Justice of the Supreme Court of Canada," to conduct an independent review of its files.

Binnie's review, based on documents and information provided to him by KPMG, concluded that the sword companies — along with more than a dozen other Isle of Man shell companies identified by journalists — were not connected to the accounting firm's offshore tax structure.

Binnie has declined to speak directly to journalists about his report, opting instead to communicate via email.

KPMG has said the leaked emails that state the accounting firm set up the sword companies are unreliable. The emails were obtained by the International Consortium of Investigative Journalists and emerged after Binnie had written his report. KPMG says their author did not have knowledge of its operations at the time and that she was "mistaken."

Binnie turned down CBC's request to discuss the leaked emails and whether they might affect the conclusions in his report.

After stating he would speak with KPMG's legal counsel, Binnie sent CBC/Radio-Canada an email: "I have no reason to doubt the due diligence undertaken by KPMG."

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