And the scams don’t even have to be fraudulent – they could simply be a matter of improperly misusing tax-saving strategies. Some of these strategies, such as the Bermuda-based trusts – are currently highly legal. But at the same time, they circumvent tax collectors’ ability to raise funds necessary to reimburse government programs – and if they happen, Canada and other countries “don’t seem to be doing much to shut them down,” according to Gregory Shupak, a managing partner at Norton Rose Fulbright Canada, who has been a top adviser on offshore tax evasion, in an April 15 op-ed for Fox Business Network.
It’s not just U.S. citizens and U.S. multinationals dodging tax obligations by hiding profits offshore. “The vast majority of those accounts are in Canada, as is most of the tax evasion business there,” Shupak says.
While it’s not known how much revenue those offshore accounts in Canada would raise, a 2017 study by PricewaterhouseCoopers estimates the total cost to Canadian taxpayers at $2.1 billion per year due to offshore money.
“You have some of the largest companies in the world,” Shupak says, “who have been quite persistent in utilizing these sorts of off-shore institutions.”
The offshore business has not only been used by high-profile business leaders. Former Canadian Prime Minister Pierre Trudeau in 1991 created a hedge fund inside Canada that was named in honor of his mother, and which, for years, kept several large amounts of family money offshore. “It looked, from a certain perspective, quite fishy,” Shupak says.
But Trudeau’s secret venture was technically legal, as it provided services to others outside Canada, including the United States, and remained operational until 2005, according to a CBC investigation published on April 16. “It’s not an illegitimate activity,” Shupak says. “These sorts of things have been taking place for years.”
Canadian pension funds have paid millions of dollars to wealthy Canadians who use offshore structures to squirrel away millions of dollars and have done so for many years. In 2008, Quebec’s Caisse de depot et placement du Quebec, the province’s largest pension fund, paid $15 million to settle a probe into the program, in which executives allegedly signed loan contracts under the counter with other Canadian companies in a bid to attract money managers to the Caisse.
The program is intended to help individual Canadians avoid paying income tax, but it has not always worked. As Fox Business Network reported last year, convicted felon and former professional gambler James Farrell had used both the Canadian and American branches of the BMO Financial Group to hide large sums of money abroad.
The scheme used offshore trusts to bypass capital gains taxes and dodge much of Canada’s GST and corporate income taxes. Farrell pleaded guilty to tax evasion in 2012 and was sentenced to two years in prison.
Brian Quinn, deputy commissioner of Canada Revenue Agency, said in March the agency has recently made progress in cracking down on offshore tax schemes, and vowed to bring charges in cases where taxes have been evaded by illegal means.
But for now, of the hundreds of people used by the “Itcan” scheme, only one Canadian is in prison, for taking part in the scheme, according to court documents.
John Melville, a former Toronto lawyer, admitted this September that he had assisted numerous people, many Canadian, in setting up offshore trusts in the Bahamas and Panama to shield earnings in other countries from income tax, the Toronto Star reported at the time. He “provided advice as to when and how trusts could be set up,” according to the Star.
He is facing three years in prison and is scheduled to go to trial in March.
In April, Canada’s income tax watchdog, identified the full names and addresses of more than 200 offshore schemes being used to help people avoid Canadian taxes and launched investigations into the use of the offshore accounts, according to the Star.
The “Itcan” cases are “a significant problem,” according to the Star, which reported that the Liberal government of Justin Trudeau is pursuing more reforms.
“We will continue to encourage the use of smart tax avoidance strategies,” Tom van Katwyk, chief of the tax