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Trudeau's chief fundraiser linked to Cayman Islands tax scheme

Trudeau's chief fundraiser linked to Cayman Islands tax scheme
From CBC - November 5, 2017

In the early summer of 2015, Justin Trudeau was the star attraction at a private fundraiser in Montreal hosted by philanthropist and financierStephen Bronfman.

Bronfman, an heir to the Seagram family fortune and a close Trudeau family friend, was revenue chairof the Liberal Party. That day, according to news reports,the two men raised $250,000 in under two hours.

Within weeks, the Liberals would launch their federal election campaign, sweeping to power on a "Real Change" platform that focused on the middle class and a promise to tax the rich.

"Our government has long knownindeed, we got electedon a promise to make sure that people were paying their fair share of taxes," Trudeau said shortly after his election victory. "Tax avoidance, tax evasion is something we take very seriously."

But an investigation by the CBC, Radio-Canada and the Toronto Star has found that Bronfman and his Montreal-based investment company, Claridge Inc., were key players linked to a $60-million US offshore trust in the Cayman Islands that may have cost Canadians millions in unpaid taxes.

It's a 24-year paper trail of confidential memos and private records involving two prominent families with Liberal Party ties that experts say appear to show exploitation of legal tax loopholes, disguised payments and possible "sham" transactions.

Among the key questions raised:

"I would say there are lots of red flags, and I would expect tax authorities specifically to be very interested in following up," said University of Florida trustlaw professor Grayson McCouchafter spending two days examining the files.

Denis Meunier, a former senior enforcement official at the agency who also reviewed key documents in the leak, said "this definitely merits an audit by the [Canada Revenue Agency]."

Part of massive financial data leak

The documents are part of a massive offshore leak released today dubbed the "Paradise Papers," which was obtained by the German newspaper Sueddeutsche Zeitung and shared with the International Consortium of Investigative Journalists (ICIJ). It's a cacheof nearly 13.4 million files from two offshore services firms and 19 different tax havens.

Sevenmillion of the leaked files come from the corporate law firm Appleby, which has operations in Bermuda, the Cayman Islands and other offshore jurisdictions.

The CBC/Toronto Star investigation also reveals how Bronfman's longtime law firmwhich also representedother offshore clientshelped mount a lobbying campaign in Ottawa that for several years fought legislation designed to crack down onoffshore trusts.

At the centre of the revelations is an offshore entity in the Cayman Islands called the Kolber Trust. It was set up in 1991 by Leo Kolber, who at the time was Claridge chairman and also a Liberal senator. Kolber had been a major Liberal Party fundraiser and once jokingly referred to himself as the Bronfman family's "consigliere."

The Paradise Papers show that Leo Kolber's children, Jonathan and Lynne, were the beneficiaries of the trust. Internal financial records show they received millions of dollars in "disbursements."

In 2007, for example, $3 million US was wired to Jonathan Kolber for "living expenses" and to help purchase a Manhattan apartment. In total, hereceived $16.5 million US tax-free from the trust. The documents also show his sister Lynne received $1.2 million US.

The Kolber Trust had another purpose, too. The Bronfman empire was expanding into Israel and, after working for Claridge in Montreal alongside his father and Stephen Bronfman, Jonathan Kolber then moved to Israel in 1991 to head up the Bronfmanefforts.

According to one memo, "for every dollar the Bronfmans invested in Israel Jonathan's reward was a 15 per cent share" paid through the trust. "This is how and why the trust was set up."

The Paradise Papers show that senior executives of Stephen Bronfman's company, Claridge, were routinely offering advice and arranging business transactions between the Bronfman family and the Kolber Trust.

The leaked documents reveal that while Claridge had no official role in the Kolber Trust, most of the initial funding came from the Bronfman family in various forms. Stephen Bronfman personally gave a $5 million US interest-free loan to the Trust in 1997, which was repaid in five months.

Over the lifetime of the trust, the Bronfman family and their U.S.-based trusts loaned the Kolber Trust more than $34 million US. And all of it ended up in the no-taxCayman Islands.

Stephen Bronfman and Leo Kolber declined requests for an interview. William Brock, a lawyer representing Stephen Bronfman and Jonathan Kolber, denied any impropriety. "My clients have always acted properly and ethically, including fully complying with all applicable laws and requirements."

He stated that any "suggestion of false documentation, fraud, 'disguised' conduct, tax evasion or similar conduct is false."

Managed in Canada?

Offshore trusts can be perfectly legal. They are not subject to Canadian law so long as they meet certain conditions.

And for the Canada Revenue Agency, the most important rule for offshore trusts is that they really did have to be offshorethat's where the decisions, the so-called "mind and management," had to be made.

Yet the Paradise Paperswhich contain more than 5,000 documents from the Kolber Trust file alonereveal numerous examples where decisions were made and approvednot in the Caymans, but in Canada.

There are memos seeking the "approval," "authorization" and "written confirmation" for business decisions from Montreal-based investment manager and accountant Don Chazan. The Paradise Papers also show there are phone calls and meetings in Montreal between Chazan and Jonathan Kolber.

Chazan alsokept a set of Kolber Trust books in Montreal, two former colleagues told the CBC.

"He was the adviser. He's the guy who made the decisions," Jonathan Kolber told the CBCin a phone interview.

Tax experts consulted by the CBC and the Toronto Star say that admission could spell tax trouble for the Kolber Trust.

"If that's true, then obviously there's a strong argument the trust was managed in Canada and potentially resident in Canada," said Dalhousie tax law professor Geoffrey Loomer.

William Brock, the lawyer for Stephen Bronfman and Jonathan Kolber, said that "all investment and other decisions" in the Kolber Trust were made by Cayman Islands trustees.

He also denied suggestions that Montreal accountant Don Chazankept a set of Kolber Trust books in Montreal.

"Contrary to your unfounded assertion there was no second set of books," Brock said.

However, Rick Doyle, a former vice-president of Claridgetold CBCthat Chazan was keeping a second set of books. "That's what my understanding [was of] why Don Chazan was there."

Ken Shettler, an accountant who worked with Chazan, also said that Chazan did bookkeeping in Montreal, at the request of Jonathan Kolber, who was skeptical of records kept in the Cayman Islands. "He [Jonathan Kolber] did not have confidence in their accounting so basically we were another set of books."

All that activity in Montreal could spark the interest of the Canada Revenue Agency, said Sherbrooke University professor Marwah Rizqy.

"If at the end of the day the major decisions are taking place here, the mind in management is in Canada," Rizqy said. If so, said Rizqy, that could have tax implications for the Kolber Trust in Canada.

In a second letter to CBCNews, Kolber'slawyer, William Brock, said Chazan was engaged by Jonathan Kolberdirectly, and not through the Kolber Trust, to "confirm that all financial transactions of the Kolber Trust had been properly recorded."

Disguised payments?

Avoiding U.S. taxes?

False invoices?

Taxes owed in Canada?

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