M C Frank Aquila, former head of CI Financial Corporation, claimed he set up offshore trusts in the name of a number of wealthy clients, all of whom had never communicated with him, as well as the transfer of some of their wealth to him, even though his law firm advised him he was not allowed to do so.
Canada’s Revenue Agency was busy trying to keep tabs on a still largely unregulated tax haven known as the Bermuda Triangle.
Up to that point, Canada had not in fact been dealing with the formal challenges of offshore tax avoidance. The system actually had been developing at warp speed under the recent Liberal government led by former finance minister Bill Morneau.
While the national tax agency was on the case, Americans had asked its Financial Crimes Enforcement Network (FinCEN) to investigate the case, with particular interest in the United States federal government’s income tax laws.
Several months earlier the US Internal Revenue Service had sued the head of a fund company in Panama after seizing money that had been deposited in his company by clients who had promised not to pay tax.
Then, there were new regulations in the United States for firms providing offshore “SDRs”, automatic depository receipts that allow US entities to invest in companies owned by corporations located overseas.
In Canada, bureaucrats and politicians took comfort in the fact that big banks, as well as CI Financial, were not affected by these rules, even though clients of Scotia Capital Corporation, which owned CI Financial at the time, had incorporated SDRs for them.
“At that time there was no mention of offshore trusts when we did the paperwork on tax filings,” one of the investigators, Martin Bourgeois, told the Sunday Telegraph.
After hearing of the probe, Aquila approached the Canadian department of foreign affairs, which passed the case on to the Department of Finance, according to the Sunday Telegraph.
Once the FinCEN’s legal action had run its course, Canada’s former finance minister Morneau appeared convinced the best course was to settle.
After one meeting with the FinCEN, Morneau described the threats to Canadian sovereignty as a “moral issue” and said it was time for the country’s financial system to align itself more closely with US regulations.
This new reality was not to be lost on Mr Aquila, who offered to pay $3m and pay an estimated $74m in damage claims to be settled.
But as the Canadian legal battles continued, Ottawa had also decided to break up the combined operations of CI Financial into two separate companies.
The new executive chairman, Mr Bora Lenny, was replaced by the respected Canadian lawyer George Cope, the current chief executive of Bell Canada and soon after new ‘yes’ men appeared.
Minister Morneau and his finance minister over the next years would move away from the strict zero tolerance approach towards offshore tax dodging and would start to separate settlements as a way of cutting the scourge of offshore tax avoidance.
Mr Aquila, who no longer owned CI Financial but remained as its chairman, and its lawyers declined to comment on this story.
Mr Morneau has denied knowing anything about the case and said: “I’m confident that we did everything correctly.”