A sprawling industry of tax avoidance professionals — lawyers, financial planners, bankers and accountants — make a living advising the rich how and where to find places to lighten, or even eliminate, their tax responsibilities in Canada.
They are the enablers.
They facilitate a torrent of money out of Canada and into tax havens — a sum estimated to be $100 billion more than the $270 billion that has been officially declared to the government.
An ongoing Toronto Star/CBC investigation into tax havens, based on 11.5 million leaked records belonging to the Panamanian law firm Mossack Fonseca, reveals a sophisticated and sometimes shadowy network of wealth managers who’ve been setting up offshore corporations since the 1970s.
The Panama Papers reveal that nearly 100 Canadian offshore specialists worked with Mossack Fonseca to set up more than 2,100 companies in tax havens such as Panama, the British Virgin Islands and Niue.
Those jurisdictions are chosen because public disclosure of corporate ownerships is not required, allowing links to individuals to remain secret.
Much of this is considered legal. And there are justifiable reasons for establishing companies offshore.
But in an affidavit filed in court last week, Rachid Fizazi, an “aggressive tax planning” specialist with the Canada Revenue Agency, said:
“It is the experience of the CRA that Canadian taxpayers who hold, directly or indirectly or beneficially, property through an offshore entity or who may carry on business through an offshore entity, may not comply with their duties and obligations under the (Income Tax Act) and may not properly report.”
The Star/CBC investigation has uncovered examples of how offshore anonymity has attracted professionals whose efforts appear designed to hide money from tax agencies.
“We’ve created a monster here. In many cases, it’s become clear that the instigator in an aggressive tax avoidance structure is the law firm or the accounting firm or the bank, not the client,” said John Christensen, founder and executive director of the Tax Justice Network of financial researchers.
“I would love to see a few big law firms, accountancy firms and banks in the headlights, forced to justify their actions which are so clearly against public interest.”
Mossack’s Canadian Office:
Vancouver’s Fred Sharp is, by far, Mossack Fonseca’s most industrious Canadian middle man, according to an analysis of data obtained by the International Consortium of Investigative Journalists and shared with the Toronto Star and CBC in Canada.
The documents reveal Sharp’s company’s commitment to corporate secrecy — including the destruction of records — and its willingness to do business with one of Canada’s most notorious fraudsters.
As early as 1994, Sharp consulted with Mossack Fonseca officials about options for structuring a company offshore “so that no taxable income accrues,” according to internal MF documents.
Since then, Sharp’s Belize-based company, Bond & Company, helped create 1,167 companies and foundations in a complicated arrangement by which Mossack’s billings to Sharp were to “reflect Bond & Co-Belize” but “should be sent to their physical address in Vancouver (Corporate House).”
Corporate House, Sharp’s company, became the de facto Canadian headquarters of Mossack Fonseca.
“Referrals of Canadian (clients) must be made to Corporate House,” reads one instruction. “They run an investment banking (operation) w/ admin, acctng, legal, securities, etc … so (offshore incorporation) is a natural extension of their activities.”
Sharp refused interview requests but in a written response defended his business: “Tax planning is a global reality that results from international competition and inefficient governmental regulation. It promotes efficiency and is legal.”
The relationship Sharp’s Corporate House established with Mossack Fonseca was intimate.
A company called Mossack Fonseca (Canada) Inc. was registered in B.C., in May 1998, and dissolved 11 months later. Its sole director is listed as Frederick L. Sharp.
In 2006, Sharp’s company paid Mossack Fonseca $15,000 to set up a computer server in Panama to house Sharp’s corporate data — an arrangement that was too close for comfort for some within Mossack Fonseca, correspondence shows.
“Personally, I do not have a good feeling mixing our operation with our clients,” one Mossack official said in a 2009 memo. “This usually does not end in a good way (example Fred Sharp data hosting in our server room in Panama).”
In addition, Mossack Fonseca staff was under instructions to “not send any annual invoice nor statement of account to the client by email, neither by fax, nor airmail. Printed invoices or statement of accts should be destroyed.”
Such instructions are given all the time in the offshore world, says Bob Lindquist, a leading international forensic accountant from Toronto. “It’s a technique to provide a further layer of protection,” he said. “Out of sight and out of mind, nothing comes home.”
While Sharp and his company are routinely referred to in Mossack Fonseca correspondence as the “Vancouver lawyers,” no one listed in the company is a member of the British Columbia Law Society, including Sharp himself.
Sharp was suspended by the law society for a year in 1995 for professional misconduct and ordered to pay $12,000 in costs. He was never again licensed to practise law in B.C., according to the province’s law society.
The B.C. Law Society ruling says Sharp admitted to “knowingly taking instructions from M, who was … in fact, disqualified from acting as an officer or director of a public company because of a criminal record for fraud.”
With Sharp’s assistance, “M” was able to steal nearly $500,000 from a company he controlled illegally.
“M,” according to sources close to the case, is Michael Mitton, then a stock promoter with a long string of fraud convictions.
Despite his suspension, Sharp registered a company called Great Northwest Capital Corporation in 1996.
Documents list nominee directors for Great Northwest, including Leticia Montoya, whose name appears on 11,000 other Panamanian company registries. Mitton’s name appears nowhere on the company but the documents show the RCMP had linked Mitton and Great Northwest Capital.
In 1997, the government of Niue wrote to Mossack Fonseca: “An inquiry was received from the Royal Canadian Mounted Police concerning one Michael Mitton…Mitton allegedly used Great Northwest Capital Corporation to perpetrate a $2.1-million fraud against an Isle of Man stock brokerage firm.”
Vancouver lawyer Barry Holmes recalls a meeting with Mitton and Sharp that led to the incorporation of Great Northwest in 1996. It was obvious, Holmes recalls, that the two men knew each other well. At that meeting, it was Mitton who directed Sharp on the creation of the company, he says.
“He’s the smartest guy I’ve ever met,” Holmes says of Mitton. “If he used that brilliance properly, I believe he could own the world.”
Following the RCMP’s questions, Sharp told Mossack Fonseca he believed there was “no existence of fraud” and that while Mitton “bought some shares from a trust in Isle of Man” without paying for them, a civil court action had concluded the dispute.
That wasn’t true.
Mossack told Niue officials: “We have discussed the matter with our client and have arrived to the conclusion that there is no fraud involved, but rather a civil liability situation which we understand has been properly resolved.”
Mossack Fonseca officials have repeatedly said they do not conduct business with criminals: “If for some reason, unbeknownst to us, some company formed by us ended up in the hands of people having such relations for whatever criminal or unlawful purpose, we strongly condemned that situation and took and will continue taking any measures that are reasonably available to us.”
Mitton was criminally convicted in December 2000 and sentenced to four years in prison on six counts of fraud for what the judge called a $2.4-million “swindle” that defrauded victims in Canada, the U.S. and the Isle of Man.
Since 1977, Mitton has approximately 100 criminal convictions for fraud, forgery, false pretenses, money laundering and related conspiracies, according to an Ontario Securities Commission press release last year.
In June 2015, Quebec’s financial markets authority issued a warning that Mitton was soliciting investors using the name Mike Cypress.
Sharp declined to comment on why he continued working with Mitton.
“I cannot speak accurately to your various queries as you have provided no evidence regarding events that may or may not have occurred 20 years ago,” he wrote. He instead offered an “op-ed” piece: “Who stole the Panama Papers, and why? One apparent reason is to entice the press to engage in plumptuous innuendo about the new political incorrectness of tax avoidance.”
Canada’s Fraudster Middle Man:
Sharp had a relationship with another prominent Canadian enabler in the Panama Papers: Michael Ritter, a convicted fraudster who changed his name to Adam Michael Rohan in 2009 as he emerged from prison.
The Edmonton wealth manager registered 60 companies through Mossack Fonseca in tax havens such as Niue, the British Virgin Islands and the Bahamas.
He was registering those companies until 2005, shortly before he was charged and eventually pleaded guilty to stealing $10.5 million (U.S.) from a Wall Street energy trader and taking part in a $270-million (U.S.) pyramid scheme that victimized 6,500 investors.
He was released on day parole 18 months after his 10-year sentence was imposed and was granted full parole — and a new name — by the end of 2009.
His fraud went beyond financial crimes.
In the late 1980s, he was recognized as a high-profile lawyer, serving as the province’s chief parliamentary counsel from 1987 to 1993. It was eventually exposed that he had never, as he claimed, graduated from law at the London School of Economics.
It is “no secret that my firm created hundreds of offshore corporations through Mossack Fonseca,” Ritter wrote in written responses to the Star and the CBC. “MF was one of the biggest law firms around specializing in this work.”
The corporations he helped create with his firm — Newport Pacific Financial — represented “only a few foreign clients (mostly corporate) who had hundreds of different investments in other parts of the world,” he wrote.
His conviction had nothing to do with Mossack Fonseca or the use of offshore tax havens generally, he said.
Ritter’s connection to Sharp’s company dates to at least the 1990s, according to the Panama Papers and written responses from Ritter.
“We probably did foreign incorporations for a year before I contacted MF to become a client of theirs as our clients asked for companies formed in the Caribbean,” Ritter wrote. “MF had a number of branches in the countries our clients wanted, so they seemed like a good ‘one stop shop.’ We always dealt directly with their Panama office except for the brief couple of months we tried using Fred Sharp, as their Canadian affiliate.”
Not long after, Mossack Fonseca invited Ritter to deal with their newly minted Vancouver office led by Fred Sharp. But the relationship became quickly adversarial.
“Mr. Sharp was extremely ‘ambitious’ and realized that our office (which also employed several Canadian and foreign-trained lawyers) was well-versed in corporate law used in various countries. Mr. Sharp developed a habit of using us as a resource,” Ritter wrote.
“It was extremely time consuming, and I came to the conclusion that Mr. Sharp was simply picking our brains in hopes to surpass us as an offshore provider…I learned that he then started directing his calls to other members of my staff, and even started making sounds that he wanted to poach them from my firm to work for him in Vancouver.”
In 1998, according to an internal client record, Ritter told Mossack Fonseca he did not want to deal with Sharp “now or at any time in the future since he is arrogant, snotty…and manipulative person.”
Ritter is now pursuing a PhD at Simon Fraser University focusing on the movement of wealth offshore.
“I have an advantage no other academic or journalistic researcher has ever had,” he wrote. “I have obtained access to exceptionally secretive corridors of power in the offshore industry because I am seen as something much more than an outside academic researcher — I was once one of them.”
He declined an interview request, saying he has moved on with his life and is “doing everything possible to contribute to my students, academia, and to society in a meaningful way.”
Selling secrecy in bulk
From two small offices in a commercial complex on Steeles Ave. W, Unitrust Capital Corp and Unitrust Corporate Services operate a discount outlet mall for the offshore incorporation business.
Konstantin Nikitouchkin, 57, and his son Roman, who run the companies, aren’t living the lavish lifestyles of the global ultra elite. They don’t drive luxury cars or live in multimillion dollar mansions, but they could be Canada’s biggest offshore incorporators.
The Panama Papers show they have registered 684 anonymous corporations through Mossack Fonseca — and it’s clear that the Panamanian law firm isn’t their only offshore partner.
Commonwealth Trust Limited, a British Virgin Islands-based corporate agent that was at the centre of a 2013 leak of offshore data, registered 5,699 offshore companies for Unitrust, bringing their total to well over 6,000 companies, and that only includes those that have been publicly exposed.
Unitrust claims to have a presence on three continents but their website also carries an odd disclaimer: they won’t do business with Canadian residents.
Both companies declined the Star’s request for an interview and did not respond to a list of detailed questions for this story.
When approached at their offices in Vaughan, Roman Nikitouchkin said: “Unfortunately, I can’t say anything. No comment.”
Unitrust Managing Director Pavel (Paul) Rostorotsky, 58, said only: “We are a private business and we make decisions and arrange our affairs as we see fit.”
One thing Unitrust makes no effort to hide is that they are selling secrecy and tax avoidance.
“Beneficiaries’, directors’, and members’ names are NOT listed in public documents or registered with local authorities,” says their website. “No annual return and/or audit required, and all financial data is kept confidentially in the company’s office; The company may have corporate directors, enhancing its confidential characteristics even further.”
“THE MOST IMPORTANT THING: an (offshore company) may have millions of dollars in profit and still pay virtually NO taxes in the country or territory where it was incorporated,” the website states.
With prices that range from $490 (U.S.) to $7,879 (U.S.), Unitrust will also provide an address and a “virtual office” so that a paper company appears to have real operations.
“Deep discounts apply where a multiple order is placed with us,” their website states.
This sales pitch has attracted at least one Canadian accused of fraud. According to the Panama Papers files, Montrealer Eric Van Nguyen, 32, used Unitrust to register Exporta Commercial Ltd. in the British Virgin Islands in January 2010. Nguyen was charged in September 2014 with 85 counts of fraud and grand larceny in New York state after prosecutors alleged he was involved in a pump-and-dump penny stock scheme that bilked investors out of $290 million (U.S.).
Nguyen has not responded to the Star’s phone calls, emails and a letter left at his Montreal address.
Rostorotsky did email Mossack Fonseca to resign as Nguyen’s agent, but it took him two months after the charges were made public to do so.
Minutes of meetings contained in the documents database describe how Konstantin Nikitouchkin and Rostorotsky used their Russian connections.
Both the elder Nikitouchkin and Rostorotsky were born in Russia, according to scans of their Canadian passports kept in Mossack Fonseca’s database, and more than 250 of the companies they registered offshore have Russian shareholders.
“Their firm is active in offshr Russian mkt since ’93 (sic),” states an internal Mossack Fonseca memo. They form companies in the BVI, Bahamas, Delaware, Colorado and Cyprus and provide shelf companies to European banks, the memo said. “They have 6 staff at Moscow office, with offices in four other Russian cities & associates in BAH/BVI/USA/CYPRUS.”
Public registries show Unitrust also had offices in London, UK, and a now-defunct corporate presence in Oregon.
And they used this global presence to demand bulk discounts in their dealings with Mossack Fonseca, according to emails and meeting records.
“The Client contended that he is of the view that he falls in the ‘big’ Client category and hence requested whether the Company would afford him a discount on his annual fees,” stated an internal Mossack Fonseca memo after a meeting with Konstantin Nikitouchkin.
Playing different offshore agents against each other, Unitrust regularly demanded price reductions. “They currently incorporate approximately 1000 BVI (companies) from (another) provider, but Mr. Rostorotsky said he would not drop them just like that,” according to notes from another meeting.
Unitrust’s website states they “operate with the highest ethical standards and strictly adhere to all known laws and regulations.”
Author: Toronto Star & Partners