Front Burner - Pandora Papers reveal ‘shadow economy’ of the rich and powerful

Episode Date: October 7, 2021

Today we’re digging into the massive Pandora Papers leak: What it reveals about how the world’s wealthy and powerful are benefiting from tax havens — and whether Canada is doing enough to rein it in.

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hi, I'm Jamie Poisson. It's been all it promises to expose again. It's been called the Panama Papers on steroids. Millions of leaked documents that expose financial secrets of the wealthy and powerful in countries around the world, including 35 current and former heads of state.

More than 600 journalists, coordinated by the International Consortium of Investigative Journalists, poured through the documents known as the Pandora Papers. And their findings shed new light on how offshore tax havens create a kind of secret parallel economy available only to those with the money and connections to access it. Today, we're going to talk about some of what's in those documents and how much of what people are doing in offshore tax havens is actually legal. And then we'll speak to an expert on tax dodging about whether Canada should be doing more to fix the problem. But first, Zach Dubinsky is a senior writer with CBC's Investigations Unit. He's been a partner in the ICIJ's earlier leaks on offshore havens,

and now he's reporting on the Pandora Papers. Hey, Zach, thanks so much for coming back onto the podcast. Oh, it's a pleasure to be here. So just to refresh people's memories, in 2016, the ICIJ released its first big leak on offshore tax havens, the Panama Papers. The reaction was, I remember at the time, super explosive. Iceland's under pressure Prime Minister Sigmundur Gunnlaugsson has tendered his resignation after his family's offshore investments were revealed in the Panama Papers leak. Like among other things, the Prime Minister of Iceland ended up resigning. Swiss police raided the offices of the European Soccer League, UEFA. Then in 2017, there was a second leak, the Paradise Papers, and that one linked Justin

Trudeau's chief fundraiser, Stephen Bronfman, to a tax scheme in the Cayman Islands. We'll be whether or not we win the next election, which we will. And so that's how we gauge it. Money's a big part. And now we have this new ICIJ leak, the Pandora Papers. Broadly, what's the picture that you get from this new leak that you didn't have from the previous ones? There's a couple new and really interesting elements that we're seeing here. And I think one of them is there's just so many current and former world leaders,

twice as many as we saw in the Panama Papers. So it suggests that whether they're elites via their wealth or via their political power, there's people who have vested interests in keeping the system of offshore finance running, and they're running governments around the world. So you have to wonder, will any of this ever change if the people who have the power to make those changes are benefiting from the system? And I want to talk about some of those guys, some of those cases in a minute. But, you know, one thing I found interesting, this leak also shows how this isn't just going on in small Caribbean islands, right? Like some U.S. states are basically functioning as tax havens, right? Like some US states are basically functioning as tax

havens, right? Yeah, exactly. And we've brought that up before, too, even within Canada, you know, there's ways you can set up a company in certain US states and certain Canadian provinces that make them very opaque. So if a financial crime investigator was coming along, or if someone was suing you legitimately, because you had caused them some damage and they wanted to know, you know, where your assets were so they could get after them. There's jurisdictions like Delaware is one of the classic ones, but also places like South Dakota or Nevada that can have very, very opaque structures that kind of shield, you know, who is really behind this company? And who's really running it? Whose money is this really? Another striking thing, really striking thing, is how many of these political leaders named in these documents are people who have themselves railed against corruption and tax cheating. So to give a few examples here, the Prime Minister of the Czech Republic, Andrei Babish,

led this big crackdown on tax avoidance. Turns out he used shell companies to secretly buy a lavish estate in the French Riviera. And you've also got Pakistan's Prime Minister Imran Khan. And he came to power as kind of an anti-corruption campaigner after the previous Prime Minister was named in the Panama Papers. But now a bunch of high-level officials in Imran Khan's own government are named in this league. And then you have Tony Blair, the former prime minister of the UK. He has repeatedly railed against the wealthy and well-connected not paying their fair share of taxes. Look at the tax system.

Offshore trusts get tax relief. Millionaires with the right accountant pay nothing. But it turns out he and his wife have benefited from this offshore system too. And can you tell me about that? That's right. Cherie Blair, his wife, wanted to buy a building in London to use as an office for her consulting business. And the problem was that the seller, who was actually a government minister in Bahrain, said, you know what, I'm not going to sell you the building. I own the building through a holding company set up in the British Virgin Islands, which is a tax haven.

If you want this building, you have to buy the shares in this BVI company from me. So the Blairs agreed to this. But by doing so, they actually saved over $500,000 in property transfer tax, because technically the property itself had never changed hands. And, you know, they said they had no choice if they wanted to buy the building. It was never their intention to dodge any tax. But it nevertheless points out that because they have access to the lawyers, the accountants, the offshore world, the funds to do all this kind of stuff, they were able to save this huge amount of money that an average ordinary person buying a house in Britain certainly couldn't have done.

I just want to be clear here. Is this considered legal, these examples that we've just been talking about? A lot of these examples are. That was a perfectly legal transaction that Sheree and Tony Blair engaged in. But I think we have to keep in mind, though, sometimes what's legal nevertheless is morally outrageous to us and it points out what needs to be changed. So what we need to think about is, you know, it's legal because people made it legal. It's legalized, really, right? We need to think about who are those people, why did they do it,

who's benefiting from it, and should we change it? Yeah, yeah, and we're going to talk about that more with Toby Sanger from the Canadians for Tax Fairness in a few minutes as well. I just want to talk about some Canadian examples here. CBC, along with ICIJ partner, the Toronto Star, have identified more than 500 Canadian citizens or residents in these documents including a couple of celebrities like figure skater Elvis Stoichro, Formula One driver Jacques Villeneuve. The mid-1990s Jacques Villeneuve was an IndyCar

champion and then he was a Formula One champion but what we see in this leak is in fact if you go back even earlier to 1992 the start of of his racing career, he set up offshore companies even right at the outset. In Villeneuve's case, I know Revenue Quebec is saying he failed to declare something like $600,000 in income. In Stoico's case, it's more of a gray area, I understand. But to be clear, you know, many people on this list are not accused of doing anything against the law, as you just talked about with the case of Tony Blair. Others were allegedly involved in money laundering or other criminal activities. But among all these hundreds of people,

what are the cases you've investigated that you find most interesting that maybe point to some of these larger issues we've been talking about? So there's three Canadians whose names we've mentioned and we've briefly reported on who I think really stand out for me. The first guy is a gentleman named Fred Sharp. He was the biggest Canadian name in the Panama Papers.

By biggest, I mean the most frequently cited. And that's because he was basically the Canadian agent for that Panamanian law firm. He was setting up over a thousand offshore corporations for Canadians. He's in this league too, more of the same, you know, setting up companies for people, transferring stock and whatnot. What's interesting about him is that he's actually been on the CRA's radar since 2013. And in 2016, they started auditing him. And the audits kind of hit a wall because he and a number of his associates launched all these lawsuits against the government and federal court.

There's not really been any appreciable consequence in Canada. And then in August, kind of out of the blue for people who have followed his case like me, the Department of Justice and the Securities and Exchange Commission in the United States charge him with stock fraud, running a pump and dump scheme. And he's, in theory, facing prison there. Those are allegations, of course, that nothing's been tested in court. Two other Quebecers who we mentioned who were in this leak, one of them was running basically the biggest internet illegal marketplace for guns and drugs and stolen credit card information. Nothing of consequence happens to him in Canada.

And the United States charged him in 2017. And he unfortunately died after he was arrested in Thailand on those charges. And a third Canadian, a guy named Froze Patel, again, operating out of Montreal. He developed a internet payment business, kind of a competitor, a much smaller scale competitor, something like PayPal. Nothing of consequence really happens to him in Canada,

but the United States all of a sudden says, you know what, actually, you know, you're doing this illegally, you didn't have the right licenses, you were helping people launder money. And so he's now actually in prison in Connecticut. For me, the takeaway there is like, the United States is doing our heavy lifting on cases of people who are alleged to have

or have actually committed financial crime through offshore tax havens. Another case, which is probably worth noting here that I found really interesting was reported on by the Toronto Star, who's also an ICIJ partner. It's the story of this guy named David Tassillo, one of the co-owners of the Canadian company Pornhub, which is one of the biggest porn sites in the world. And their reporting found that Tassillo was listed as the owner of two companies registered in tax havens, Delaware in the US and also the tropical islands of Anguilla and the British Virgin Islands. And the part I found really fascinating is that

according to their reporting, Tassillo was able to obscure his involvement in this by purchasing what are known as nominee directors and shareholders. And can you just explain what those are and why they're so prevalent in the offshore world? Yeah, we see this throughout these big leaks. Basically, they're like a dummy director, you could call it renting out a name, selling their signature. So any documents that have to be authorized by the company, you know, they'll get sent to Panama or they'll get sent to the Cayman Islands and the paid director will sign it. But they're not really running the show. The person really running the show is the person known as the ultimate beneficial owner or sometimes referred to as the UBO. But this is just adding

layers of secrecy so that it's much harder to find out who's really behind one of these companies. And there has been a push internationally to get countries to try and have public registries of who the actual owners are behind all the corporations within their borders. In Canada, that idea was kind of floated in the wake of the Panama Papers. There was some commitment made by provincial and federal finance ministers. And we're only now seeing in the federal budget that there may be some legislation Panama Papers. There was some commitment made by provincial and federal finance ministers. And we're only now seeing in the federal budget that there may be some legislation to bring that in at the federal level in Canada. And we're still waiting to see what might happen in some of the provinces. Right, right. And I just want to mention that in a statement to the start, Tisillo has maintained that he paid all taxes and that every facet of how his business was handled

was completely legal. And again, it's probably worth pointing out here, while we don't know all the details of his story more broadly, a lot of this stuff, Offshore Haven's nominee directors, this stuff is totally illegal in Canada. Zach, thank you so much for this. We really appreciate it. Oh, thank you so much for this. We really appreciate it. Oh, thank you for having me. Thank you. Hi, it's Ramit Sethi here. You may have seen my money show on Netflix. I've been talking about money for 20 years. I've talked to millions of people, and I have some startling numbers to share with you.

Did you know that of the people I speak to, 50% of them do not know their own household income? That's not a typo. 50%. That's because money is confusing. In my new book and podcast, Money for Couples, I help you and your partner create a financial vision together. To listen to this podcast, just search for Money for Couples. All right, so now we're going to dig a little deeper into what Canada is and isn't doing about the problems caused by offshore tax havens with Toby

Sanger. He's the director of the advocacy group Canadians for Tax Fairness. Hey, Toby, thank you so much for being here. Great to join you. So the Canada Revenue Agency has estimated that Canada loses somewhere in the ballpark of $15 billion of tax money per year to offshore havens. The parliamentary budget officers actually put that estimate even higher, $25 billion. And I wonder if you could just put that in context for me. Even at the lower end of these estimates, what kind of money are we talking about here? What kind of things could that money pay for? Yeah, it's a large amount. And every time that I've kind of come back to this issue, I've had to increase the estimates.

And as you said, these pretty authoritative sources have come up with even larger numbers. So what could $20 billion pay for? I mean, $20 billion, half of that could pay for free tuition for basically all university and college students. Half of it could pay for a childcare, an affordable childcare program, you know, $10 a day childcare program. So it's a lot of money. And it's a lot of money that's essentially been taken or saved by some of the wealthiest individuals and the largest corporations at

the expense of the rest of Canadians. So when you say at the expense of the rest of Canadians, I wonder if you could just expand on that a little bit for me. Like how detrimental do you believe this kind of offshore tax dodging is to Canadian society? Well, it's detrimental in a number of different ways. So it's detrimental because we have less money to pay for public services and the costs of the pandemic and the recovery and things like that. But it's also detrimental because it's led to increased inequality

and also increased corporate concentration. I mean, it's the largest corporations like Amazon, like other big corporations that can most benefit from tax savings. It's not the main street businesses. It's not the ordinary Canadians. In a statement, the CRA reiterates its commitment to protecting the integrity of the Canadian tax system by combating international tax evasion and aggressive tax avoidance. Since the release of the Panama Papers back in 2016, how much action has Canada specifically taken to remedy this problem, I guess, in an absolute sense and relative to other countries? I mean, to its credit, the Trudeau government has put more money into the CRA, into these areas of investigations on offshore and large corporations.

Harper government cut severely in that way. But at the same time, I get the sense that they haven't had the backbone to actually act on some of the wealthier white-collar criminals. In terms of the Panama Papers, I mean, the CRA cannot definitively point to specific amounts that it has recovered. It says that it's assessed a certain amount. There's been nobody charged with it. So that's really frustrating. I mean, we've seen elsewhere and from Auditor General reports that CRA is often being more, you know, conveniently tougher on ordinary Canadians and not on the wealthier ones. In terms of the Panama Papers itself, other countries have recovered

considerable amounts. There's a list from the ICIJ of 24 countries that have recovered over one billion in total. Canada doesn't even make that list. I mean, Lithuania is at the bottom, Uruguay, Slovenia, even Luxembourg has recovered some money on that. But Canada isn't even on that list. So it's very frustrating. I mean, these cases do take some time, but it's been five years now. And we've really got to see some action on this. What about on the issue of transparency?

What have other countries done that Canada hasn't? And that's a really big issue. I mean, this has been a big tax leak, but a lot of this information should be public. Canada has been real laggard on the issue of transparency over corporations. And so, in fact, quite a lot of money came to Canada to be laundered. They call it snow washing because Canada's got this kind of Boy Scout image. We've been pushing for quite a few years for Canada to establish a public registry of the real owners of corporations. And as Zach mentioned, we're finally getting some progress on that, which is great. But we also need to have more transparency in other areas too.

People are always surprised. We don't know how much tax companies like Amazon pay in Canada. That's not public information. Australia has required for quite a few years has published the amounts of income and profit and tax that any company with revenues of more than 100 million make. And that's been a real game changer. The former finance minister in Australia said that that's been a real game changer. Okay. And, you know, I think it's worth sort of underlining here, too, that so much of this is legal, just to say again, so this isn't just a problem of enforcement. And so, you know, in addition to more being done around transparency and more being done around enforcement, transparency and more being done around enforcement. What else would you like to see the Canadian government do now to make sure those billions of dollars serve people here?

Sure. Well, another thing that we've seen that we saw over the past 10 years was the federal government, both under the Liberals and Conservatives, sign a whole lot of tax agreements with a whole lot of countries. And part of those agreements, it didn't say it in the press release that came out, allowed Canadians with assets and income coming from those countries to not have to pay a tax in Canada if it met certain conditions. But basically, they're double non-taxation agreements in some cases. So our tax system makes it just a bit too easy to pay very little tax

when you're holding assets abroad and investing abroad. And so that's something that we think should be stopped. Finance Canada estimates that there's about $7 billion could be gained by actually charging withholding taxes on the money that is held elsewhere in tax havens. We think that there should be a substantial minimum corporate tax rate as well as a tax rate charged on income coming from abroad. We also need to have stronger whistleblowing rules so those on the inside who have uncovered some of these things are

protected as well. Right, right. You know, Joe, Toby, given everything that we have talked about today, considering how much these leaks have implicated these really high level politicians around the world, how much faith do you actually have that there will ever be the political will do you actually have that there will ever be the political will to actually do the majority or all of what you just laid out? Well, you know what, I mean, I've been heartened by some of the progress that has been being made in recent years. There has been certainly progress towards increasing transparency. And these leaks are an indication of that, right? I mean, it's been fantastic that the ICIJ and reporters from around the world have exposed this. And the fact that they've exposed some of these leaks has, I think, attracted others to provide them with more

information. So while the digital economy has kind of put tax havens on steroids in a way, it's also opened up these opportunities for exposing these things. world in which inequalities in some ways have increased. Governments have got pretty significant debts to pay for the cost of the pandemic and the recovery. And there's strong public support for a fair tax system, where the wealthy and larger corporations also pay their fair share. So we can come out of this pandemic, hopefully stronger and with a more equitable economy and society. Okay. Toby, thank you so much for this. Thank you very much, Jamie.

all right so an update on this story in light of the pandora papers yesterday the european commission said that by the end of this year it will present new rules to tackle tax avoidance and tax evasion and guys very very sorry about the squid game ending spoiler in yesterday's show we thought the heads up in the intro would cut it but we heard from a lot of you and uh we're really really sorry and and hope that you can forgive us uh that is all for today though i'm jamie poisson thanks so much for listening and we'll talk to you tomorrow tomorrow.