What do the Paradise Papers and Human Trafficking have in common? – The Canadian Centre To End Human Trafficking

By now, you have probably heard about the leak of the Panama Papers and the Paradise Papers, which exposed the secretive yet legal loopholes of beneficial ownership that powerful corporations and wealthy individuals are using in both Canada and abroad to seemingly avoid taxation. The issue of asset hiding was raised again today as the federal government of Canada faces criticism over the lack convictions by the Canada Revenue Agency of Canadians who engage in offshore tax evasion.

In Canada, there are no legal requirements for anonymous companies (also called shell companies) to provide ownership details. Ultimately, it’s the unnamed owner who benefits from the proceeds and control of these ‘companies’. That’s where the term beneficial ownership comes in. These anonymous entities allow individuals to move cash in and out of countries, often for the purpose of evading federal and/or provincial taxation authorities. Beneficial ownership also allows criminals who engage in illicit activity and utilize legal shell companies to launder the proceeds of crime.

Criminals use the anonymity of these corporate entities to:

Hide their own identity
Obscure the true purpose of the account/business
Conceal the real source of the revenue (eg. prostitution or other illegal activity)
Hide how the revenue and funds associated with the business are spent

There is growing evidence that these anonymous companies also facilitate terrorist financing, money laundering and human trafficking. In the U.S., for example, there are organized networks of human traffickers that own and operate multiple illicit massage businesses through which women and girls are forced into prostitution. These traffickers use the anonymity of beneficial ownership to evade criminal prosecution and launder their money. There are even examples of one anonymous shell company listing another anonymous shell company as the ‘owner’, creating a confusing tangle for investigators.

Like the U.S., beneficial ownership poses enforcement challenges for Canadian police and municipal by-law enforcement officers who are unable to identify and penalize those profiting from the operation of front businesses that engage in human trafficking. Moreover, victims and even those operating these illicit massage businesses have no idea who really owns the “company” due to the lack of ownership transparency of numbered shell companies. This makes it very difficult for the authorities to hold accountable those who are profiting off the exploitation and forced prostitution of vulnerable Canadians and foreign nationals.

In the wake of the Panama Papers/Paradise Papers, there have been calls for the government of Canada to create a federal public registry of beneficial ownership of companies, trusts and other legal entities. Additionally, provincial governments should also to legislate transparency around ownership of provincially-registered shell companies. Transparent ownership registries would mean increased investigatory and enforcement access to the ownership structure of organizations. A registry would increase transparency in the market for investors, enhance public trust, assist with the enforcement of tax legislation and identification of criminal activity. In the United Kingdom, Norway and the Netherlands, the development of public registries which list and identify beneficial ownership information are in place or underway.

Other industry insiders are pushing for a Global Beneficial Ownership Registry which, “will help remove a major impediment to the efficient conduct of business, and empower us to fight a multitude of illicit activities, from money laundering, bribery, sanction avoidance and tax evasion, to financing terrorism or support for harmful regimes.” – Bteam