January 23, 2012

Dangerous Liaisons

Canada's shift towards becoming a tax haven

by Alain Deneault

The Dominion - http://www.dominionpaper.ca

The Toronto Stock Exchange may still be on King Street, but it's parent group, TMX, is reaching much further, buying a significant stake in the Bermuda Stock Exchange. cc Photo: josemarques

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MONTREAL—While it did garner some national attention, it would appear no Canadian dailies have grasped the full measure of the news. It therefore went virtually unnoticed when the TMX Group Inc., which manages the Toronto/Montreal stock exchange and is at the heart of the process turning Canadian legislation into a regulatory and financial haven for the global extraction industry, became one of the principal shareholders of the Bermuda Stock Exchange (BSX), a well-known, and highly controversial, tax shelter.

The announcement revealed the contemporary tendency towards integration between so-called democratic political regimes and “states of convenience,” nations whose banking and fiscal regulations are linked to the process of global money laundering.

By acquiring 16 per cent of shares in the Bermuda exchange on December 21, 2011, “TMX Group is now one of the largest shareholders of the BSX, and Tom Kloet, CEO, TMX Group, will be joining the BSX board of directors,” according to a news release on the TMX website. This highly problematic alliance between Canada, which still prides itself as being governed by the rule of law, and one of the most criminally-appealing states of convenience in the world, is rooted in, according to TMX's own news release, agreement between the two states to share tax information. “The BSX gained recognition as a Designated Stock Exchange under Canada’s Income Tax Act, effective October 31, 2011,” adds the TMX release.

Double-edged Agreements

There are several elements of this agreement that should be unravelled. The Harper government, in 2011, announced several “tax information exchange agreements” (TIEA) with tax haven states. These agreements, signed in the maelstrom of steps taken towards international “cooperation” supported by the OECD (Organization for Economic Co-operation and Development), purport to tame the secret banking practices of these states of convenience, who welcome fraudulent types of every ilk.

But, all pretensions aside, these agreements actually blindly favour the function and development of offshore tax havens. They do so by allowing, among other things, for wealthy Canadians or Canadian corporations to register their assets and activities in any of these offshore signatory countries, and then return their assets to Canada without needing to pay taxes. Funds from Canadian business can now be rerouted to Bermuda, where they can stop-over and tie themselves into tax-evasion and avoidance strategies, like transfer pricing and mis-pricing.

It is now easier, and “legal,” for billions of dollars generated by the Canadian economy to hide behind these laws. The use of tax havens allows the financial class to avoid taxation, taxes which finance the very public institutions and services from which they benefit.

Skirting the Public Regulations

The TMX states that it is the Canadian Income Tax Act itself that recognizes the Bermuda Stock Exchange. Gregoire Duhamel, author and financial consultant, notes in his guide Les paradis fiscaux, “Bermuda's very advantageous fiscal policy allows non-resident investors to trade shares and form investment funds, without needing to pay any tax.” To some this does not appear to be a problem.

In addition, the Bermuda Stock Exchange is not responsible to any public institution, except perhaps the ludicrous Bermuda Monetary Authority (BMA) which, on its Internet site, appears more preoccupied with vaunting the merits of the different business entities that can be created within its tax haven than it is with explaining how it prevents possible misuse of its laws.

It is worth noting that it is the kind of liberal creation of investment funds and hedge funds which is allowed by the Bermuda exchange that helped provoke the economic crisis of 2008. So with these new agreements, the Canadian government recognizes an institution that is in fact dedicated to circumventing the very rules that the Canadian government itself put in place.

From Halifax to Bermuda

By considering both aspects from which the Toronto Stock Exchange stands to benefit from this context, we come to understand that the officers of the TSX, read:TMX,the principal centre of Canadian trade, will have every latitude to facilitate Canadian financial activity in the Bermudan tax haven.

There will be no financial framework to hamper investments or stock speculations, only the knowledge that those Canadians financially able to participate in this merry-go-round of investment and speculation will be able to repatriate their funds back to Canada at any time, tax free.

Perhaps the most glaring example of doing business in Canada while benefiting from the lax regulations of Bermuda comes from the government of Nova Scotia.

By handing over management responsibilities of its own agency, Nova Scotia Business Inc., exclusively to the private sector, the government of Nova Scotia has actually allowed for the creation of a satellite accounting agency with a direct link to Bermuda. Hedge funds and insurance companies are managed in Halifax, but are created and based out of Bermuda, and thus are able to circumvent Canadian laws and institutions.

Whitewashed Money

The pseudo “Tax Information Exchange Agreements” (TIEA) were signed in principle to allow Canadian political authorities to collect data from so-called "secret Bermudan banks" in the case where a Canadian is suspected of fraud. In reality, they do not risk upsetting to any degree the massive money laundering operations made possible by the existing opaque financial liaisons.

According to a report submitted to the Dutch Minister of Finance by Brigitte Unger from the Utrecht School of Economics, in 2006 Bermuda was the second most popular money laundering destination for funds coming from illicit or criminal activities. In the fight against money laundering, the Canadian government demonstrated in 2010 that its politics were nothing more than complicit, when it signed, on the sly, a free-trade agreement with Panama. Panama is the most important money laundering destination for drug money in the world.

By radically integrating its own politics and financial institutions with those of tax shelter states, Canada has transformed itself, without ambiguity, into a tax haven. France-Offshore.fr, a website for financial consultants who specialize in “creating offshore corporations,” ranks Canada among its “offshore jurisdictions.” The site also notes that “Canada is not an offshore country, but we know how to turn a corporation created in Canada into an offshore one.”

This is how.

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Alain Deneault is the author of Offshore, Tax Havens and the Rule of Global Crime (New York : The New Press, 2011) and Faire l'économie de la haine (Écosociété, 2011) and a member of “Québec d'Attac” and the “Réseau international pour la justice fiscale”. Translation from the French by Miles Howe.

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