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Inquiry calling the attention of the Senate to beneficial ownership transparency

Inquiry calling the attention of the Senate to beneficial ownership transparency

Inquiry calling the attention of the Senate to beneficial ownership transparency

Hon. Percy E. Downe: 

Colleagues, I too want to support Senator Wetston in his work in this area. Prior to a few remarks I have prepared I want to explain to colleagues by highlighting an article that was in the Toronto Star on May 6, 2018. It talks about and highlights how far behind other countries Canada has fallen in recent years. We used to be a leader in tax policy. We used to be a leader in the fight against corruption, organized crime and money laundering. Other countries have jumped ahead of us. The article states:

Britain has passed a law that will require company owners in Bermuda, the Cayman Islands and British Virgin Islands — notorious offshore tax havens where shell companies shield billions of dollars in illicit money — will soon have more open corporate records than in Canada. In a stunning move last week —

This was in May this year.

— Britain’s House of Commons passed legislation that will lift generations of corporate secrecy in its offshore territories by compelling company owners registered on the islands to reveal themselves in public databases.

That kind of transparency is not available in Canada where corporate owners can mask their identity behind lawyers and figurehead directors. There is no requirement for real company owners — or “beneficial” owners — to list their names in provincial or federal registries.

The U.K. is becoming the global leader for beneficial ownership, transparency and holding tax havens to account, said Richard Leblanc, a professor of corporate governance at York and Harvard universities. Canada is rapidly being left behind in a race to the bottom and now has an unenviable international reputation as the go-to country for lax beneficial ownership transparency laws.

This is an indication of the importance of what Senator Wetston is talking about, and I’m so glad he introduced the inquiry given his personal background and career experience in this area.

This beneficial ownership is a subject I stumbled upon when I was studying overseas tax havens, and part of the problem with the Canada Revenue Agency is finding out who actually owns assets. The issue of beneficial ownership and tax evasion are closely linked. Over the course of my work I began to appreciate the importance of information and the knowledge and the understanding and the connection between assets and owners. Put simply, if you can hide who owns a given asset, you are well on the way to hiding the asset itself. It is also not surprising to know that a policy favouring secrecy is one of the defining traits of tax havens.

By way of illustration, let me once again talk about the Liechtenstein case, when details of those 102 Canadians who had secret accounts in one bank in Liechtenstein were released by a former employee it was a mystery who they were. But in an article in October 2012, about the affair for iPolitics, journalist Elizabeth Thompson noted that almost half the named account holders — 51 of them — “were not the real beneficial owners of the account.” This demonstrates the added layer of difficulty inherent in discovering who really owns a given asset, never mind what can ensue when those owners set out to make such discovery as difficult as possible.

Earlier this year I was invited to speak on a panel sponsored by Transparency International Canada in Toronto, where the theme was “Spotlight on Corruption.” Senator Wetston was there that day as well. The day brought together a host of experts, government, the media, the police, and other organizations dedicated to exposing and combatting financial crime and corruption. They spoke about the effect of hidden money, whether it is through the laundering of the proceeds of crime, tax evasion, the funding of terrorism or other activities, or the basic corruption that threatens the rule of law and economic development around the world.

To stem this tide, nations need to be able to tie money to the person who owns it. So it is with more complicated assets like companies. As honourable senators have heard, this is a field where Canada has fallen behind. We have heard how easily one can form a business in this country. When Jon Allen, a former senior public servant, appeared before the Senate Banking Committee, he told the committee that in many cases you have to disclose more information to get a library card in Toronto than you do to set up a corporation. In that context the word “register” starts to lose all meaning.

How do you ensure the word does have meaning? Information, or the requirement to disclose more information, is the way to go. One way to achieve this is a national public beneficial ownership registry. Described in a recent article in Policy Options as “a database of individuals who own, derive benefit from, or exercise control over a legal entity, whether or not they are the same as the formal legal owners,” such a registry would provide an invaluable resource for those chasing hidden assets. In an age when money can be moved around at a keystroke, a database with accurate up-to-date information is the only way to ensure that Canadian laws are being enforced and to demonstrate our commitment to financial transparency to the international community.

Now, obviously a Canadian registry of beneficial owners would not solve the problem of assets hidden in other countries — that’s a fight for another day. If Canada is serious about combatting overseas tax evasion, we must ensure we are not ourselves a haven for those trying to evade other countries’ legitimate taxes or to hide the proceeds of corruption or other crimes.

When laws and regulations allow individuals and companies to avoid paying their fair share of taxes or the proceeds of crime to be hidden under a pile of paper or for corrupt practices, such as to buy businesses, lands or houses, particularly in our major cities, driving up rents and making it unaffordable for the average citizen of Canada, then all Canadians bear the burden.

Senator Wetston has spoken of the 2014 statement by the G20 nations regarding the need for greater transparency regarding beneficial ownership and a similar measure in June 2013. The countries of what was then the G8 endorsed what they described as a series of “core principles that are fundamental to the transparency of ownership and control of companies and legal arrangements.”

Among those with the proposal of beneficial ownership are companies that should be accessible onshore to law enforcement, tax administrators and other authorities, including, as appropriate, financial intelligence units. This could be achieved through central registries of companies with beneficial ownership and basic information at national or state levels.

Countries should consider measures to facilitate access to companies’ beneficial ownership information by financial institutions and other regulated businesses. Some basic company information should be publicly accessible. Fine sentiments indeed, but they need to be followed up with concrete action.

As Transparency International and others have reported, other countries are making progress on this file but Canada is not. In fact, in 2018, the report this year on beneficial ownership entitled G20 Leaders or Laggards, Transparency International stated:

Canada remains one of only two assessed countries still to have a weak legal framework, with average, weak or very weak scores across 8 of the 10 G20 Principles.

Surely, honourable senators, we can agree that “average, weak or very weak” efforts would not solve what is a very real concern in this country. Without coordinated efforts at the federal and provincial levels to ensure transparency in the area of beneficial ownership, the problem of shell companies and hidden assets will not go away, but its efforts will continue to be felt throughout the Canadian economy and society.

Senator Wetston’s inquiry is an ideal opportunity to bring this issue out in the open so that in the future, the true beneficial owners of Canadian businesses will be there for all to see. Thank you, colleagues.

Hon. Serge Joyal: Would the honourable senator entertain a question?

Senator Downe: Yes, of course.

Senator Joyal: Honourable senators, yesterday we had the opportunity to read the economic statement by the Minister of Finance. Were you surprised in that statement there was nothing at all that really addressed tax evasion and the principles that essentially trigger the way for Canadian companies to cover their assets through various trusts, numbered companies and all kinds of other legal screens?

While the government is insisting Canadian taxpayers are overburdened by charges, I don’t understand why the Minister of Finance didn’t devote more initiatives to fight tax evasion. Were you surprised there was nothing in the economic statement in relation to that?

Senator Downe: The government did take a couple of initiatives. In two separate budgets after their election, they dedicated up to $1 billion over five years in the first budget and an additional year in the second budget. As colleagues would know, when I asked for information on the expenditures of those funds — it was a written question here in the Senate that Senator Harder was kind enough to get the answer very quickly — we find out as of the last two fiscal years, they have only spent about 11 per cent of that on fighting overseas tax evasion.

There was nothing in the economic statement, as you indicated. There was a very disturbing report earlier this week by the Auditor General that highlighted what we have been saying here for years — and it’s in his report; I urge colleagues to read it — that the Canada Revenue Agency treats very differently those who are hiding their money offshore from average Canadians. This has been a long-time problem in the government, which hasn’t been addressed, much to my surprise. We have outstanding public servants and people who spoke earlier today about the public service in various departments. We have all worked with them. They are a credit to the country.

As I’ve said in the past, there is something seriously wrong at the Canada Revenue Agency when their conduct is allowed to continue year after year, misleading Canadians on everything from simple things like the percentage of calls put through to more serious offences and how there is a double standard, as the Auditor General confirmed in his report this week, in terms of how Canadians are treated. For the average Canadian who lives with a T4 slip, the Canada Revenue Agency does an outstanding job. If you are trying to cheat on your taxes, they’ll catch you. If you go to their website, you will see all kinds of people posted, charged and convicted, in some cases sent to jail. There is a list of them. There is no corresponding list for those convicted of overseas tax evasion. When the department tells you a number, they won’t tell you where they were convicted and in what court. Numerous journalists have tried to track this down. The Auditor General confirmed the complete double standard.

The fact the senior public service, the Clerk of the Privy Council who is responsible for agencies in the public service, nobody takes any action, is it incompetence or collusion? I don’t know. It undermines the tax system when Canadians believe that other Canadians are being treated differently than they are. They have the money to lawyer up and move a minimum of half a million dollars to an overseas tax account, your chances of being charged, convicted and fined are nil to none and you are likely to get away with it.