The financial fallout from Russia’s invasion of Ukraine touched on a long-standing problem in Canada, according to internal government documents: Regulators lack basic information about who really owns key companies and assets.
As Canada ramped up economic sanctions against Russia’s elites last year, officials across the Western world realized it’s impossible to crack down on wealthy beneficiaries of the invasion if the actual – or economic – owners of companies are obscured by layers of of front companies or other accounting tricks. .
Transparency advocates say Canada has long ignored scrutinizing shady investors who used anonymous holding companies to buy valuable assets; their money was welcome, often without question. That is starting to change, according to internal government files obtained through the Access to Information Act.
“The Government of Canada is working with its provincial and territorial partners to improve transparency on corporate beneficial ownership,” said the Treasury Department document, which has been marked “protected” as of 2022.
“Federal, state and territorial finance ministers have committed to requiring companies to have accurate and up-to-date beneficial ownership information.”
A new federal registry mandating the disclosure of this information should be up and running by the end of the year, a Treasury Department spokesperson told Breaking:.
However, there are questions about how well it can achieve its goals if provinces and territories don’t stand by and share information across the country. It also remains unclear how many staff will work on the project to investigate whether companies are providing correct information to the Registry.
‘Everyone turned a blind eye’
From mansions owned by anonymous Vancouver trusts to numbered corporations owning valuable corporate stock registered on Toronto-area mailboxes, money laundering is estimated to be worth between $45 billion and $113 billion annually , according to government data Criminal Intelligence Service.
Such tactics, which use front companies to obscure the true owners of investments, launder the proceeds of crime, and evade taxes, were publicized in the Panama Papers and similar leaks.
But the war in Ukraine added a new urgency to tracing the beneficial owners of Canadian assets, said James Cohen, executive director of the watchdog group Transparency International Canada.
“Everyone turned a blind eye because it’s money — not realizing it was being used against us,” Cohen told Breaking:. “Pre-2023 Canada was a laggard (in ownership transparency). We were way behind many of our OECD and G7 peers.
“If Canada has our registry online, we’ve jumped from the back of the class to the front,” he said. “Russia’s invasion of Ukraine was a big final push to get this across the finish line.”
The plan to create a “public and searchable beneficial ownership register” was launched in March as part of the federal budget, Treasury Department spokesman Marie-France Faucher told Breaking:.
“This registry will cover companies covered by the Canada Business Corporations Act, and will be scalable to access the beneficial ownership data held by provinces and territories that agree to participate in a pan-Canadian registry.”
It’s unclear exactly what the database will look like when it rolls out. It could be similar to other public disclosure databases online, such as the Federal Lobby Registry, where a user can plug in a company’s name and find out who really owns it, controls voting rights, and will profit from its activities.
‘Patchwork regime’ on ownership transparency
Publicly traded companies, generally larger companies listed on exchanges, are already required to provide information about their true or beneficial owners, Cohen said.
The new rules extend those provisions to determine who ultimately controls a company — 25 percent ownership or voting rights — to federally regulated, private companies, he added.
Previously, tracking whether economic owners of a company in Canada had ties to crime, corruption or human rights violations fell to individual banks that handled their finances, Cohen said.
Most companies are provincially registered and the new federal rules do not apply there. But some provinces are tightening their own beneficial ownership requirements for businesses; Quebec launched a system of beneficial ownership transparency in March and similar legislation has been filed in BC, Faucher said.
“The federal government will continue to call on provincial and territorial governments to promote a pan-Canadian approach to beneficial ownership transparency,” she added.
Cohen hopes that new county registries will expand and communicate with the federal system, making it easy to collect information about who really owns private companies.
The lack of a single database and rules about transparency that cross county boundaries could undermine the new initiative, he said Malcolm Abouda corporate lawyer at the Toronto firm of Osler who investigates white-collar crime.
“From now on you have a patchwork of regimes with different provincial rules,” he told Breaking:. “To properly fulfill the objectives of the legislation, some agreement with the provinces is required.”
Aboud said the new rules will lead to “an increased regulatory burden on businesses”. But he added that companies are already supposed to track their beneficial owners in their internal records, so providing this information to federal regulators shouldn’t be too onerous.
Concerns about investors with criminal ties, ties to violent regimes or involved in corruption investing in Canadian assets, as economic owners are not merely academic, was revealed in another set of government documents. They play in real time.
A separate internal briefing note marked “secret” dated November 18, 2022 to the Minister of Intergovernmental Affairs, Infrastructure and Communities, details a situation involving sanctioned Russian oligarch Oleg Deripaska.
He is “a non-controlling minority shareholder in the Austrian parent company (Strabag SE).” That company is “working on major transit projects” in Ontario that will receive funding from the federal and Ontario governments, the note said.
Revelations about Deripaska’s financial interest in vital Canadian infrastructure sparked anger from politicians in Ontario and abroad who did not want a billionaire tycoon with interests in energy and metals facing sanctions across the Western world to benefit from government-funded transportation projects.
A spokesperson for Strabag SE, Marianne Jakl, told Breaking: that her company’s work on subway projects in Toronto is ongoing and that the company is “ensuring that the sanctions put in place by several countries, including Canada, are fully implemented “.
Strabag is also “undertaking all possible legal action to distance itself” from investment company Rasperia, which is partly owned by Deripaska and owns shares in the Austrian construction company, she said.
“For example, no dividend payments will be made, the board member nominated by Rasperia has been removed and a proposal for capital measures has been submitted to reduce Rasperia’s shares.”
Real estate blind spot
While the new beneficial ownership rules have been welcomed by transparency activists as a step in the right direction, they do not apply to real estate investments, a government official said in the background.
Analysts say Canadian real estate, including apartments or luxury homes, has long been popular investments for shady characters.
“The government intends to work with provincial and territorial partners to promote a national approach to a register of beneficial owners of real estate,” the government official said.
Along with acting as a convenient money laundering vehicle for oligarchs, corrupt politicians or mobsters, “dirty money is the cyanide-filled icing on the cake” of Canada’s housing price crisis, Cohen said, urging faster action on the field of ownership transparency for real estate.