Snow-Washing: Canada’s Role as a Haven for Offshore Wealth

Canada is being marketed as an attractive place to buy or create shell companies that can be used to hide the ownership of assets, a transparency organization is warning in a new report.

Transparency International Canada says that as countries like the United Kingdom have faced more scrutiny and made efforts to create public registries that show who is behind corporate entities, “a cottage industry of consultants” are now promoting Canada as a good place to create a secretive corporate entity.

New sanctions imposed by Canada and many other countries against Russia since that country brutally invaded Ukraine in late February has put renewed attention on dirty money.

The Russian-language website for a company called International Wealth is one example of how Canadian Limited Partnership companies are being sold as a good alternative to Limited Partnerships registered in the U.K.

“The Canadian Limited Partnership (Canadian LP) for non-residents is a structure whose investment vehicles provide unique business opportunities,” reads the International Wealth website, which The Tyee translated using Google Translate.

“The trend towards the introduction of ‘Open Registries of Corporations’ in Europe and around the world, as well as preparations for the automatic exchange of tax information, obliges businesses to be more serious about the place of registration of their company and the choice of tax residency. In order to effectively engage in international investments and conduct business today, more complex structures need to be used. So you can quite legally optimize taxes, and freely go about your business.”

While International Wealth complains that all offshore businesses are being unfairly viewed as potentially criminal, Transparency International Canada says corporate entities that shield who the true owner is have been used to facilitate money laundering or move funds gained through corruption.

Limited Partnerships are a perfect vehicle for people who want their identities to remain hidden, says Transparency International Canada, because they “have fewer reporting and disclosure requirements than most other entities in Canada, and unless they do business in Canada they need not engage with the tax authorities.”

“They can also be established cheaply without any need for their owners or administrators to set foot in Canada or be represented by a Canadian. And crucially, although LPs are not considered legal persons in Canada, they can nevertheless be used to open bank accounts and conduct business transactions. These characteristics… make Canadian LPs particularly vulnerable to exploitation for transnational financial crime.”

The issue has been under the spotlight since reporting on leaked documents in 2016 showed how one Panama-based firm, Mossack Fonseca, had created thousands of offshore companies, some of which had been used to evade taxes and international sanctions.

Transparency International Canada says Mossack Fonseca began promoting Canada as a tax haven in 2010, and says little has changed in the past 12 years. “There are still many dubious service providers that pitch Canadian entities as fronts for offshore company structures,” the organization notes in its report “Snow-Washing, Inc.: How Canada is Marketed Abroad as a Secrecy Jurisdiction.”

While the U.K. created a public registry of companies in 2016, Canada has been slower to act. The U.K.’s registry has allowed journalists and advocacy groups to research trends and identify cases where company owners appear to be breaking corporate transparency rules.

But in the 2021 budget, the federal government promised to create a public beneficial ownership registry over the next four years. British Columbia has also announced the creation of a corporate registry that will be in place by 2025, and Quebec also introduced new legislation in 2021 to improve corporate transparency.

But to prevent people from being able to hide behind layers of companies, all provinces in Canada need to create similar transparency registries for corporations, says Transparency International Canada.