In a case that demonstrates the remarkable contrast between the American and Canadian enforcement of tax rules, the United States Court of Appeals, for the Second Circuit, recently upheld a conviction in a sentence of 180 months imprisonment for seven counts of tax fraud and evasion. The severity of the penalty assessed against Paul M. Daugerdas (“Daugerdas”), can only be matched by the huebris of the defendant himself. The case is a cautionary tale for Canadian tax planners in an age of growing tax evasion and fraud enforcement.
Daugerdas was a certified public accountant and tax attorney, first at Arthur Anderson, then at two law firms. Throughout his career, Daugerdas developed, sold, and implemented a variety of tax reduction strategies for wealthy clients. His specialty was the so-called “short sale shelter, short option shelter, swaps shelter, and the HOMER shelter”. Deugerdas’ tax planning and shelters covered a period from 1994 through to 2004. In August of 2000, the Internal Revenue Service announced that transactions like those being offered by Dougerdas no longer provide the favourable tax treatment that he offered to his clients. In response, Deugerdas and his colleagues developed similar transactions with different elements and strategies.
Deugerdas’ huebris was exposed in the appeal decisions when the evidence reveled that part of his tax planning strategy involved intentional back-dating documents to attempt to gain tax advantages for his clients. Also, had his law firms issue “more-likely-than-not” opinion letters falsely stating that the tax shelters had a reasonable possibility of producing a profit, but it was clear that they would not. The letters were held to be entirely dishonest. Continue Reading
This post was originally published on Timely Disclosure (a Fasken Martineau blog) and authored by Tracy L. Hooey.
Securities regulatory authorities in Ontario and nine other provinces and territories of Canada published CSA Multilateral Staff Notice 58-308 Staff Review of Women on Boards and in Executive Officer Positions – Compliance with NI 58-101 Disclosure of Corporate Governance Practices on September 28, 2016. The staff notice summarizes a review of the gender diversity and term limit disclosure of 677 non-venture issuers (being those listed on the Toronto Stock Exchange with year-ends between December 31, 2015 and March 31, 2016). As a result, these statistics do not include data regarding most banks.
Key findings of the gender diversity disclosure review include:
- there are more women on boards than last year. Of the 215 issuers with over $1 billion market capitalization, 18% of board seats are held by women (up from 10% last year);
- only 21% of issuers adopted a policy relating to the identification and nomination of women directors (up from 15% last year) and issuers with such a policy had higher average female board representation (18%) as compared to those with no policy (10%);
- only 9% of issuers set a target for the representation of women on boards (up from 7% last year) and those issuers with targets had a greater number of women on their boards (25%) than those without a target (10%);
- 66% of issuers disclosed that they consider the representation of women on their boards as part of their director identification and nominating process (up from 60% last year);
- board and executive officer representation by women varied significantly by industry.
Key findings of the board renewal disclosure review include:
- 20% of issuers adopted director term limits (up from 19% last year);
- of those issuers with term limits, 48% set age limits, 23% had tenure limits and 29% had both;
- the most common reason cited for not adopting board renewal mechanisms was that term limits reduce continuity or experience on the board.
This release follows Ontario Securities Commission Chair and CEO Maureen Jensen’s call for leadership on women on boards. Chair Jensen highlighted the low number of women filling board vacancies. She noted that “of the 521 board seats vacated during the year, just 15% were filled by women” and “without an improvement in the vacancy fill rate, we will never reach 30% female board representation”.
Proposed Amendments to CBCA
In addition, the Government of Canada released proposed amendments to the Canada Business Corporations Act which, among other things, would require that distributing CBCA corporations identify the gender composition of their boards and senior management and disclose their diversity policies or explain why none are in place.
Patrick McCann, a key member of Fasken Martineau’s White Collar Defence and Investigations Group, is featured on the cover of the latest issue of the Canadian Bar Association’s National Magazine. Pat comments in the magazine on the role of the media in high profile cases and its impact on the public and the justice system. Pat, who is an editor of the White Collar Post and counsel to Fasken Martineau, has himself been involved in many high profile criminal cases.
Head over to the National magazine to read the full article.
Canadian companies are under more pressure to demonstrate business integrity and to comply with increasingly complex regulatory and criminal law requirements and laws. If you are a business lawyer, civil litigator, criminal lawyer, or in-house counsel, this is your opportunity to stay on top of the latest legal developments and enforcement trends in order to advise and represent your clients properly on their business integrity.
Hear Fasken Martineau’s Norm Keith and Huy Do, as well as other prosecutors, defense lawyers and regulators of white collar crime on what you and your clients need to know in today’s legal and regulatory landscape.
While complex financial crimes can be difficult to investigate and prove, the Cinar and Livent cases serve to highlight the substantial risks of engaging in financial wrongdoing, not just for corporate executives who may be directly implicated, but also for those who assist in the wrongful activities.
The recent conviction and sentence imposed following the two year long criminal jury trial of Ronald Weinberg (“Weinberg”), co-founder of Cinar Corp. (“Cinar”), highlights the severe consequences facing those who carry out or assist in financial fraud and other white collar crimes. The Globe & Mail called Weinberg’s guilty verdict a “vindication for a Canadian justice system that has often been criticized for weak enforcement and a poor record for criminal convictions in the area of white collar crime”.
The slow rot of the private and public sector
Since the early 2000s, there have been numerous news reports in South Africa indicating that white collar crime is on the rise. From 2014, despite police statistic reports indicating an 11% decrease in economic crimes, independent studies conducted by PwC indicate a burgeoning increase in fraud, money laundering, corruption, collusion and bribery by senior management in companies and by politicians in high ranking government positions.
South Africa has the potential to increase the number of its successful prosecutions if a greater emphasis is placed on the importance of prosecuting white collar crimes.
Economic crime is constantly evolving and becoming a more complex issue for organisations and economies. In South Africa, more than two thirds of South African organisations have experienced economic crime. The overwhelming cause of the increase in white collar crimes is that detection methods are not keeping pace, local law enforcement agencies place little to no emphasis on white collar crime, bundling together a broad range of illicit activity, including insider trading and credit card fraud together with public procurement fraud and private sector corruption, and there is a general failure to prosecute and punish these crimes effectively. Further, many individuals facing charges of fraud, corruption, money-laundering or insider-trading have the ability to delay prosecution by launching numerous appeals and other actions. This accompanied by South Africa’s back-logged High Court system, the inability of the National Prosecuting Authority (The NPA) to prosecute economic crimes and the poor levels of investigation by police services, in no way serves to deter individuals from committing such crimes.
The Ontario Securities Commission (OSC) has launched the Office of the Whistleblower and published OSC Policy 15-601 Whistleblower Program effective July 15, 2016. Together, these initiatives establish a new whistleblowing program that offers financial awards of up to $5 million for tips on possible violations of Ontario securities law that lead to enforcement action.
The OSC program allows whistleblowers to make anonymous reports to the OSC, and new protections have been enacted for whistleblowers that access the program. In particular, the Securities Act has been amended to add anti-reprisal provisions protecting employees who have sought advice about, expressed an intention to or actually provided information about a possible securities violation to the OSC. In addition, the Act invalidates gag or confidentiality provisions or agreements that would otherwise silence or prevent whistleblowers from participating in an investigation.
The international landscape on the law with respect to whistleblowing is changing dramatically and quickly. The Supreme Court of Canada is the first national high court in the world to recognize and protect the role of whistleblowers, their identity, and immunity, from disclosure and criminal prosecution. In its decision involving the World Bank Group, it addressed the subject of whistleblower immunity in an international case.
The opening paragraph of the Supreme Court Judgment, delivered by Justices Moldaver and Cote, reads as follows:
“Corruption is a significant obstacle to international development. It undermines confidence in public institutions, diverts funds from those who are in great need of financial support, and violates business integrity. Corruption often transcends borders. In order to tackle this global problem, worldwide cooperation is needed. When international financial organizations, such as the appellant World Bank Group, share information gathered from informants across the world with the law enforcement agencies of member states, they help achieve what neither could do on their own”.
This week, White Collar Post features a guest post from internationally known compliance and anti-corruption expert Marc Y. Tassé.
While the leaks continue from the “Panama Papers”, continuing to make headlines around the world, and as the related scandals intensify, there have been numerous articles written on the whole topic. My following comments and remarks take under consideration and outline some of those and my own comments.
The International Consortium of Investigative Journalists obtained millions of documents showing heads of state, criminals and celebrities using secret hideaways in tax havens.
- Files reveal the offshore holdings of 140 politicians and public officials from around the world
- Current and former world leaders in the data include the prime minister of Iceland, the president of Ukraine, and the king of Saudi Arabia
- More than 214,000 offshore entities appear in the leak, connected to people in more than 200 countries and territories
- Major banks have driven the creation of hard-to-trace companies in offshore havens
Offshore banking is not in itself illegal, and those named in the “Panama Papers” should not automatically be presumed to have done anything wrong, but history has shown that secrecy attracts those with something to hide. The offshore banking system is being abused for illicit purposes such as tax evasion and money laundering resulting from corruption.
On April 1, 2016, the Competition Bureau and the Public Prosecution Service of Canada (PPSC), formerly the Federal Department of Justice, secured their ninth guilty plea in the Bureau’s years-long investigation of the Japanese auto parts industry. .The Showa Corporation—a Japanese manufacturer and supplier of auto parts—pleaded guilty in Court to one count of bid-rigging under section 47 of the Competition Act. The Showa Corporation was sentenced to pay a fine of $13 million—the second largest fine ever ordered by a Canadian court for a bid-rigging offence.