Canadian At Centre Of Alleged Tax Scheme

written on behalf of Feigenbaum Law

At Feigenbaum Law, we help clients establish personal and corporate tax strategies that are compliant with applicable laws and that take advantage of current and future opportunities to reduce tax burdens. This can be a nuanced practice, particularly when clients have businesses or personal interests in both the United States and Canada. It’s important for people looking to reduce their tax obligations to work with experienced and knowledgeable professionals to ensure everything is done properly and ethically. It can be tempting to turn to gray areas of the law or outright illegal means to reduce taxes, but as the CBC reported in a recent article, doing so can land everyone involved in tax court. Today we look at a Canadian company that is accused of helping Canadian and American clients defraud their respective tax authorities while hiding millions of dollars offshore. The methods people take to shield themselves from tax liabilities can be complicated, and efforts to slow investigations can lead to difficulties in collecting tax money owed.

CRA Reports Vancouver-based “Shadow Bank” Company Helped Clients Hide Millions of Dollars from Authorities

The CBC reported this week that “scores” of wealthy Canadians have used the services of a shadow bank to hide income which was later used to buy homes and other luxury items. The company, which operated under the name Corporate House was reported to have opened dozens of shell companies in countries that are tax havens such as Switzerland and in the Caribbean. The report states that Corporate House’s clients would provide it with money that was deposited offshore and then accessed by the clients through lines of credit and loans, making it appear as though the clients were not making as much money as they really were. This allowed Corporate House’s clients to avoid paying income tax they would otherwise be responsible for.

Shell Companies Registered in the Caribbean Used to Disguise Income

A confidential draft report by the CRA was described by the CBC, which detailed how Corporate House’s clients were able to avoid taxes. The CEO of a mining company was alleged to have used Corporate House to disguise his income, with his pay routed through a shell corporation registered in the Caribbean. The shell company billed the CEO $20,000 per month for “consulting services,” and the CEO received $807,500 from a line of credit through a series of Corporate House companies. In other situations, clients opened lines of credit with traditional Canadian banks which were paid down by Corporate House shell companies. The CRA alleges the money used to pay down the lines of credit came from Corporate House clients.

In order to facilitate the movement of money, Corporate House was reported to have hired “nominees” to act as directors of companies, paying them thousands of dollars every month to sign cheques. One nominee told the CRA that he was required to sign cheques in exchange for $3,000-$4,000 per month.

More than 80 Court Challenges Filed Against the CRA to Block Investigations

The CBC stated that the CRA has hit roadblocks in its attempts to audit individuals it is pursuing, with more than 80 court challenges filed against the CRA’s attempts to get bank, credit card, and other financial documents from those alleged to be involved. The CRA told the CBC, “We at the audit stage are encountering significant litigation from taxpayers who are refusing to collaborate and provide information once the audit has started.”

Investigations and audits are continuing in Canada, but Canadian authorities aren’t the only ones pursuing taxes owed from individuals associated with Corporate House.

The Owner and Lawyers for Corporate House Face Criminal Charges in the United States

In addition to investigations and audits from the CRA, four individuals associated with Corporate House are facing criminal charges from the United States Department of Justice. The charges, which come from the District of Massachusetts, state that three Canadians and a California attorney have been charged with what it described as a “long-running international securities fraud scheme” where they sold millions of shares in “penny” stock companies for “pump and dump” schemes in which large amounts of money are invested by fraudsters in companies in order to generate investments from others, driving up the price of the stock before the fraudsters take their money back out of the stock, resulting in a decline of value, leaving people that followed the initial investments facing losses.

One of the individuals charged is the same man alleged to be the founder of Corporate House. The Department of Justice said he and his co-conspirators “allegedly bilked unsuspecting investors out of tens of millions of dollars.” In addition to criminal charges, the CEO is also facing civil litigation from the United States Securities and Exchange Commission along with five other people with ties to Corporate House. This has led to assets being frozen around the world.

Tactics to hide money offshore are being made public

While this story is likely to raise eyebrows, it’s part of a much larger narrative being fueled by documents such as the Pandora Papers and the Panama Papers. The former is a recent leak of close to 12 million documents published by the International Consortium of Investigative Journalists. The documents include details of over 100 billionaires and public figures, including politicians and celebrities.

Contact Feigenbaum Law for Knowledgeable Advice with Cross-Border Tax Planning and Compliance

Whether you are an individual or a corporation, tax planning is a crucial aspect of any business or financial plan. Our team of tax and legal professionals works with clients to reduce tax liabilities at present and in the future while ensuring compliance with the law. We have extensive experience handling US and Canadian tax matters including corporate tax compliance and tax controversy & litigation. Firm founder, Mark Feigenbaum, holds US and Canadian degrees in both accounting and law, making him uniquely skilled in assisting clients with interests on both sides of the Canadian/American border. Contact us online or by phone at 877-695-1269 today to see how we can help you, your family, or your company with your cross-border tax planning needs.