In 2016 it was Panama. In 2017 it was Paradise, This year it’s Pandora. It’s appropriately named as, in Greek mythology, curiosity led Pandora to open a container left in care of her husband, which released physical and emotional curses upon humanity. In modern times an idiom has grown from the story meaning any source of great and unexpected troubles.
Pandora’s box has truly been opened. The physical and emotional curses that came from the original opening of the box will hurt the ultra rich. The drip, drip of revelations since the Panama papers of 2016 has done nothing more, at least in Canada, than to embarrass some of the tax evaders. But the pressure to go after them will mount. Running a Covid-induced government deficit of $260bn is unsustainable in the long run – they need to boost their tax revenue and workers will not tolerate increases in personal income tax or HST when they know there is so much uncollected tax in the Cayman Islands and elsewhere. There is already enormous anger at the “legal” dealings, which have generated the fantastic accumulation of wealth, much of it tax free, for the owners of Amazon, Tesla, Apple, Facebook and Google. The ruling class is afraid that these revelations will have the potential to galvanize a working class already angry at the growing inequalities in Canadian society.
The Panama Papers included 11.5 million documents that detailed financial and attorney-client information for more than 214,488 offshore entities.The documents, some dating back to the 1970s, were created by, and taken from, former Panamanian offshore law firm and corporate service provider Mossack Fonseca. So, what does Pandora reveal in 2021? The first four edited Q and As that follow come courtesy of the Guardian newspaper and CBC.
What are the Pandora Papers?
The Pandora Papers are the largest ever trove of leaked data exposing tax haven secrecy. They give an insight into the hidden world of offshore finance, revealing some of the financial secrets of some of the world’s richest people. The files were leaked to the International Consortium of Investigative Journalists (ICIJ), which shared access with media outlets around the world including, in Canada, the CBC and Toronto Star. In total, the trove consists of 11.9m files leaked from a total of 14 offshore service providers, totalling 2.94 terabytes of information. That makes it larger in volume than both the Panama Papers and Paradise Papers.
What is an offshore service provider?
The 14 offshore service providers in the leak provide corporate services to individuals or companies seeking to do business offshore. The clients are aiming to hide their wealth and benefit from low taxes in places with few rules such as the British Virgin Islands (BVI), Panama, and the US state of South Dakota. Offshore companies can hold assets such as property, aircraft, yachts and investments in stocks and shares. Holding assets in an offshore company also hides the identity of the person who owns them.
Why do people move money offshore?
Usually for reasons of tax, secrecy or regulation. Offshore jurisdictions tend to have no income or corporation taxes, which makes them attractive to wealthy individuals and companies who don’t want to pay taxes in their home countries. Although morally questionable, this kind of tax avoidance can be legal. Offshore jurisdictions also tend to be highly secretive and publish little or no information about the companies or trusts incorporated there. This can make them useful to criminals, tax evaders or money launderers, who need to hide money from tax or law enforcement authorities.
Has everyone named in the Pandora Papers done something wrong?
No. Moving money offshore is not in or of itself illegal. Some individuals and businesses operate openly and pay whatever tax that they owe, albeit a minimal amount. So, while not everyone named in the Pandora Papers is suspected of wrongdoing, the files expose how some of the most powerful people in the world, including more than 330 politicians from 90 countries (eight sitting presidents and three current prime ministers) use secret offshore companies to hide their wealth.
And Canadians?
The King of Jordan and former British Prime Minister Tony Blair were two of the international celebrities. More than 500 Canadians were featured. Among them was the figure skater Elvis Stojko, who transferred Canadian assets worth up to $6.5 million into an offshore trust in the Caribbean in 2007, while he was living in Mexico. Jacques Villeneuve, the only Canadian to win a Formula 1 championship, lead a life of luxury in Monaco and Switzerland for most of his racing career. The Pandora Papers show he’d set up offshore companies in zero-tax jurisdictions since 1992, at the start of his career. His income from racing and endorsements was paid into these companies.
Alexandre Cazes, from Trois-Rivières, Québec, the alleged criminal mastermind behind the dark web marketplace AlphaBay, a place to buy and sell guns, drugs and stolen credit card data, is among those in the Papers. US authorities estimated that he a fortune of $29 million. Pandora reveals the network of shell companies he used to hide his ownership of luxury homes and other assets. One week after he was arrested in 2017, he was dead, probably committing suicide.
What has happened in Canada since the Panama Papers?
When the 2016 Panama Papers’ investigation revealed how the powerful and wealthy hid fortunes through shadowy offshore companies, public uproar spurred a limited global crackdown. It was the leak that launched a hundred investigations, recouping more than $1.2 billion for public coffers, while removing prime ministers from office and sending tax evaders to jail. But in Canada, things are different – not one charge has been laid. And while the Canada Revenue Agency (CRA) has assessed $29 million in taxes and penalties on 40 Canadians in the Panama Papers, the agency could not confirm whether any of that money has actually been recovered.
There’s been a lot of talk but little action. The proof is that the money continues to flood into offshore tax havens, as detailed in the Pandora Papers. The CRA has calculated that as much as $15 billion in tax revenue is lost annually to offshore tax havens. That’s $15 billion that could cover the cost of a national pharmacare program. Last year, Canadian money in the top 12 tax havens reached a record high of nearly $400 billion, according to Statistics Canada. “Canada has been a facilitator and has helped create tax havens. For many decades we essentially turned a blind eye to those things,” said Toby Sanger, executive director of Canadians for Tax Fairness.
After resisting for years, it was only after the Panama Papers that the CRA began calculating the “tax gap” – the difference between the tax that should be paid on paper and what the government actually receives. To recoup some of this lost tax, in 2016, Justin Trudeau announced nearly $1 billion in additional funding for the CRA, beefing up audits of large corporations and wealthy individuals. The Panama Papers even spawned a new branch of the CRA, known as International, Large Business and Criminal Investigations, which has 100 specialized auditors who take on the most complex, big-ticket cases that often have an offshore component and involve sophisticated tax professionals.
The results: fewer prosecutions but bigger cases, with larger tax assessments and potentially greater penalties. Of the five criminal investigations launched into Canadians in the Panama leak, three have been dropped and two are ongoing.
From tax havens to shell companies
While the CRA has identified 900 Canadians in the Panama leak and completed 200 audits, as of October 2021, 40 audits have found unpaid taxes. These have resulted in $29 million in assessed taxes and penalties, but the agency would not disclose who cheated on their taxes or whether any of the money was recovered.
“Wealthy taxpayers often have complex tax arrangements resulting in lengthy and time-consuming information gathering processes during the course of the audits,” wrote CRA spokesperson Chantal Beaudry, quoted in the Toronto Star, in an email. “It is important to emphasize that typically, less complex audits are among the first to be concluded and as such, additional federal taxes and penalties are anticipated in the future as the more complex and challenging audits are completed.”
Meanwhile, the use of anonymous shell companies is a growing problem in Canada. Canada has been widely criticized as a tax haven because provincial governments don’t require residency or even basic identification to register a company. Among Trudeau’s campaign promises during this fall’s election was to establish a beneficial ownership registry for all federal corporations, which would create a legal registry of the real owners of corporations.
The problem with Canada’s lack of transparency around corporate ownership goes beyond tax evasion, according to Garry Nichols, the former head of the RCMP’s Toronto integrated proceeds of crime unit. This anonymity is an excellent cover for crime. Billions in illicit cash is stashed in rapidly rising real estate markets from Toronto to Vancouver and few are held accountable. A 2019 Toronto Star investigation found that almost 90 per cent of money-laundering charges in Canada are withdrawn or stayed.
Tax the rich?
Socialist Alternative is in favour of whatever measures capitalist governments can be pushed into doing to make them squeeze the rich into paying more taxes. But the record of the CRA, even with an extra band of specialized auditors, is abysmal in terms of recovering lost taxes and prosecuting the bad guys. The government will talk about “regulation” and cutting through red tape, but the crooked lawyers and accountants will always be one step ahead of the game.
Socialist Alternative’s policy is to expropriate the wealth in tax havens, close them down for good and make sure the money comes back to governments for investment in socially useful programs. And the corporation tax rate should return to the 1981 rate of 51 percent compared to the current rate of 30 percent.
No matter how many auditors that CRA decides to employ, it is the movement of a mobilized working class that stands the most chance of putting an end to the tax havens.
Revised October 18, 2021
