Canada: A New Tax Haven-9

The political class of the Turks and Caicos Islands might look a little dubious in some lights. In 1985, the islands’ chief minister, Norman Saunders, was arrested in Miami and sentenced to eight years in jail for conspiring to bring cocaine into the United States. 1 The minister of commerce and development, Stafford Missick, was arrested along with him. 2 This unsavoury episode had no effect on Canadian Conservatives and Liberals eager to make the archipelago – currently a British overseas territory with a population of fewer than 50,000 full-time residents 3 – into the eleventh Canadian province, the fourth Canadian territory, or perhaps, simply, a Canadian dependency. Beginning in the mid-1980s, this initiative was repeatedly brought to the forefront by its Canadian advocates.

Although the flirtation between Canada and the islands began in 1917, 4 it was in 1974 that the Turks and Caicos officially expressed their willingness to become part of the Canadian confederation. At the time, even the New Democratic Party joined in the game. A bill to annex the islands, tabled by New Democrat MP Max Saltsman, was eventually rejected by the House of Commons 5 amid whispers that an agreement of this kind would lead to massive immigration from the islands to Canada. 6 In his 1980 Guide des secrets bancaires, however, pro-offshore tax consultant Édouard Chambost still presented the Turks and Caicos as pretenders to the title of “future Canada in the Caribbean.” 7 Pierre Elliott Trudeau’s second Liberal government finally turned down the offer, but had taken it seriously enough to consider it for six years. 8

Business circles tried again in 1986 with intensive lobbying. 9 Dan McKenzie, Conservative MP from Winnipeg, joined forces with Ralph Higgs of the Turks and Caicos Islands Tourist Board and Delton Jones, an economist who was to become the islands’ minister of finance in the 2000s, to address the Progressive Conservative Caucus Subcommittee on External Affairs in April of that year. They had little impact, however, 10 as the subcommittee chair, David Daubney, 11 merely recommended that Canada create closer ties with the Turks and Caicos by increasing foreign aid and encouraging private sector investment. 12

Higgs and Jones were back in 1987. This time, they worked with the Turks and Caicos Development Organization to try and stir up enthusiasm for the project in the Canadian population. At the end of his career as an MP in 1989, McKenzie went on a mission to the Turks and Caicos and produced a document entitled Report on Practical Measures Which Might Be Taken to Increase Trade, Investment, and Economic Cooperation Between Canada and the Turks. 13 His work was left unfinished when he died suddenly of a heart attack in 1989. 14

Over a decade later, the cause was taken up by Peter Goldring, Conservative MP for Edmonton East. 15 The birth of two civil associations – A Place in the Sun, founded by businessmen Brad Sigouin and Richard Pearson and of which Goldring became a member, and Canadians for a Tropical Province – was carefully staged. 16 Speaking in perfect synchronicity, these worthy analysts asked the government to create the “eleventh province” in order to provide Canadians with something truly important: a recreational bathing spot. Goldring, a former vice-president of the Canada-Caribbean Parliamentary Committee 17 who travelled regularly to the Caribbean (he has specified that he does so on a private basis and “using [his] own funds),” 18 advocated annexing the islands in a Parliamentary circular called “Turks and Caicos Update.” In November 2003, he tabled a motion in the House of Commons stipulating that “the government should commence exploratory discussions to determine whether there is a social and economic will for a union of the country of the Turks and Caicos Islands with Canada as Canada’s eleventh province.” 19 The following year, he led a fact-finding mission to the archipelago, 20 and in the fall of 2004, he became the Conservative opposition’s foreign affairs critic for the Caribbean. The same year, the three parties represented in Nova Scotia’s legislature, still enamoured with offshore relations, unanimously voted to make the Turks and Caicos Islands part of their province. 21 A Conservative member of the provincial legislature, Bill Langille, talked of a “natural union” between the province and the archipelago and lauded their “historic trade connections” while ignoring the many controversies that were the cause of the Turks and Caicos’s distasteful reputation. Goldring received reinforcements in 2005 from young federal Liberals who were in favour of making the archipelago part of Canada. 22

It is asserted that this activism, purely intended to support tourism, has absolutely nothing to do with capital transfers to islands characterized by reduced taxation. Who are the activists? Brad Sigouin has worked in the financial sector since 1996 and acts today as wealth manager for the Royal Bank of Canada, or, to be more specific, for a branch of RBC Dominion Securities Ottawa. 23 In 2004, the Royal Bank presented him to clients as “well versed in market and economic trends, and working closely with RBC Equity Analysts, Fixed Income Specialists and Tax Professionals.” 24 As for Richard Pearson, although he was interviewed by Tax-News.com, a British website dealing with tax havens, he claimed to view the Turks and Caicos integration project strictly in terms of benefits to the real economy: “The Turks and Caicos would become not only a sales centre for Canadian business people supplying products to the Caribbean, but an excellent trans-shipment point for Canadian goods sent into the area.” 25 In an equally revealing moment of humour, Goldring stated in 2004 that Prime Minister Paul Martin, who was also the sole shareholder in Canada Steamship Lines – a maritime transportation company whose international fleet was registered in Barbados – would find it advantageous to support the project: “It would give Canada Steamship Lines the opportunity to register its fleet in a part of Canada.” 26

Prime Minister Martin and Stephen Harper, the opposition leader who was to succeed him less than two years later, declared themselves willing to meet the chief minister of the Turks and Caicos, Michael Misick, to discuss the project. 27 Stephen Harper had told French weekly L’Express international the previous year that “discussions” between the Turks and Caicos government and the Canadian government, in view of “negotiations,” had already taken place. 28

Meanwhile, the greatest scandal in the history of the Turks and Caicos was brewing. In March 2009, Chief Minister Misick fled to Brazil, accused of having gained undue profit from the sale of public property. The London Telegraph commented in 2013: “The corruption scandal – the biggest in Turks and Caicos history – is believed to have left the islands, which have a population of just 31,000, on the verge of bankruptcy, with the British government forced to provide $260 million in loan guarantees.” 29 At the time, however, instead of causing concern among Canadian politicians and business circles, the revelation of a state of chronic corruption in the islands appears, on the contrary, to have revitalized the charm offensive. In June 2009, Liberal MP Massimo Pacetti tabled a new bill in the House, seconded by the Conservative Goldring, stating that “the government should immediately mandate two Members of Parliament, one from the governing party and one from the official opposition party, to begin discussions with representatives of the Turks and Caicos Islands in establishing a framework in order to determine areas of enhanced partnership in trade, social and economic development.” 30 The following month, Stephen Harper, by this time elected as prime minister of Canada, asked Goldring to organize a meeting between him and the islands’ new premier, Galmo Williams. 31 The archipelago’s entire political class was so obviously corrupt, however, that four months later, in August 2009, the British government suspended self-government and imposed direct rule, making the governor responsible for managing the territory for the next two years 32 – just like in colonial times – and putting an end to vague Canadian desires. There were to be no further elections in the Turks and Caicos until November 2012.

Meanwhile, Brant Hasanen of the Kamloops Chamber of Commerce in British Columbia estimated that Canada’s annexation of the Turks and Caicos would automatically provide Canada with benefits amounting to $9 billion. What methods were employed in producing this estimate? Nobody knows. According to Goldring, ever fascinated with what he believes to be the March of history, “this encouraging conclusion is certainly worthy of follow-up.” 33

Although the annexation project may have been indefinitely postponed, Canada nonetheless came to colonize the islands economically. Canadian firm FortisTCI is the electricity provider, 34 while InterHealth Canada, a private health care firm, manages the hospital. 35 The RCMP seconded two high-ranking officers to the jurisdiction’s affairs. 36 Canadian business people own many hotels, restaurants, and recreational venues in the islands and play a key role in the real estate sector. 37 In addition, many Canadians settle in the islands not only to escape their own tax obligations in Canada, but also to establish law firms or accounting offices that enable others to do the same. 38

■ULTERIOR MOTIVES

The tourist project is perhaps more than just an alibi. Turks and Caicos casinos are thought to profit from the massive Canadian presence, and accountants, who are often required to make the round trip, benefit from cheaper flights thanks to tourist demand. And, certainly, large numbers of travellers would help break the monotony. Nonetheless, Canadians need to know that the Turks and Caicos are not just a sun and sand destination for the middle class. A March 1989 edition of the magazine for Paris newspaper Le Figaro presented the archipelago as a group of “desert islands for billionaires” where companies also carry out criminal activities. This is where, between 2003 and 2005, Canadian hedge fund Portus Alternative Asset Management diverted some $35 million of the $800 million it had received from 26,000 investors in Canada. 39 It was later understood that the company had created a gigantic pyramid fraud scheme. This hedge fund appeared to offer “the fastest growth in Canada” until the Ontario Securities Commission began to look into its capital transfers, amounting to millions of dollars, abroad. 40

It is also possible, in the Turks and Caicos, to create “exempted companies” with “minimal” restrictions and administrative requirements, 41 and there are over 10,000 companies of this kind in the archipelago. 42 Asset holders do not have to reveal their identity. Hybrid combinations of criminal funds and corporate assets are set up without scruple. As tax expert Grégoire Duhamel notes, “North American and Canadian tax lawyers provide visitors with a warm welcome. The question of the origin of the funds would generally appear to be ignored.” 43 In addition, Édouard Chambost observes that there has been no attempt to supervise corporations since 1994. “It is no longer necessary to draft a document indicating a social purpose: companies can do anything!” 44 The Turks and Caicos are also a haven for life insurance investors, with between 1,000 and 2,000 companies registered in this sector. 45 These companies carry out their business through subsidiaries in the Turks and Caicos, ignoring the constraints operating in a sane economy: they have no hesitation in reducing “the provisions (reserves) and capitalization rates that are required in regulated countries.” 46

Thus, the Turks and Caicos attract highly suspicious assets, operations, and transactions. Even Grégoire Duhamel, author of a guide to tax havens, warns his readers against the “dubious money” transiting through the Turks and Caicos and gives the islands a low rating of twelve out of twenty, because the jurisdiction is an important relay point for smuggling drugs from Colombia. Patrice Meyzonnier, member of the French judicial police force, gives the following example: “On February 24, 1999, a three-party United States-Great-Britain-Bahamas operation led to the inspection of Nicole, a freighter registered in Honduras, that was supposed to deliver cement loaded in the port of Barranquilla, Colombia, to the United States. Two tonnes of cocaine, worth between $200 and $300 million, were discovered. In the Turks and Caicos, 1,500 companies benefited from offshore status at French Cay, Grand Turk, and Providenciales.” 47 The jurisdiction provides owners of ships of 150 tons or less with a flag of convenience that makes it easier to incorporate drug trafficking into maritime transportation.

The Turks and Caicos have naturally made bank secrecy impenetrable. This secrecy “is jealously protected by a law intended to compete with the Cayman Islands in terms of penalties. The law of 1979, known as the ‘Confidential Relations Ordinance’, establishes, for violations of bank secrecy committed by individuals, a fine of up to US$10,000 and a jail term of up to three years (this is unusual for criminal offences under banking laws), and a fine of up to US$50,000 for corporate bodies.” 48

And this is not even the worst. The Turks and Caicos have a vocation: they specialize in reinsurance, rivalling Bermuda for pre-eminence in this sector. “The Turks and Caicos Islands has more than 70 percent of the world’s reinsurance companies in the country’s financial services industry, which is second in investment only to the tourism industry.” 49 Reinsurance companies do not converge by the hundreds on the Turks and Caicos in order to insure the islanders’ fishing boats. They come to carry out large-scale operations that may not be authorized elsewhere – for regulation is minimal in the Turks and Caicos. A company will create a captive corporation whose purpose is to “create customized insurance policies,” “cover risks that are difficult or impossible to insure in the market,” and “reduce the overhead associated with contracts,” as French firm Aon, specializing in this business sector, explains. 50 In plain words, a captive insurance company is one that is managed directly by the company that it insures. By insuring itself, this company is infringing the spirit of the law in its own country. Captive companies “cover the risks of the group to which they belong and that this group cannot or will not have covered by a traditional insurer. The constitution of a captive company makes it possible to reduce the corporation’s overall insurance costs and to benefit from the tax and regulatory flexibility of the country in which the captive is established. If no loss occurs, the company can recoup its investment.” 51 Under this system, the insured party is able, of course, to charge itself highly advantageous premiums. And in the Turks and Caicos, the law allows an offshore insurer to cover an insuree in sectors not included, or actually prohibited, by the laws of the state in which the insuree operates.

A company may also go into the reinsurance business in order to cover other insurance companies registered in conventional jurisdictions. 52 Reinsurance enables insurance companies to shift part of their responsibilities to the reinsurer; this gives them the leeway to sign more contracts than their capital would in fact authorize. In other words, reinsurance companies are to insurance companies as hedge funds are to banks: they provide a leverage effect, enabling the insurance companies to act on ever larger and riskier scales. Establishing this practice in tax havens makes it easy to bypass regulations established in conventional states. And in tax havens, accounting methods make it easy to launder money. The Financial Stability Forum (FSF) and the European Central Bank (ECB) have formally stated their concern with the resulting financial instability. 53 Fortunately, this need not concern us, given that the Turks and Caicos Islands claim to rigorously supervise these controversial practices. 54

■MILITARY BASE AND FREE ZONE?

Why on earth have Canadians gotten involved in the annexation project? As Goldring sets out his arguments, it becomes obvious that he has many unspoken thoughts. For example, he notes with approval that “the Turks and Caicos Islands currently have one of the most successful economies in the entire Caribbean region.” 55 To quote Grégoire Duhamel, however, “sole responsibility for this rests with offshore investment activity,” 56 and this in fact is what Goldring is praising. Goldring also sees the Turks and Caicos as potential sites for military bases that would facilitate Canadian military interventions in countries such as Cuba or Haiti. 57 The past augurs well for the future as, according to him: “In March 2004, the Turks and Caicos Islands gave permission to Canada to stage its troops before landing in Haiti,” 58 just like in the good old days when Canada invaded British dependencies to protect its commercial and industrial monopolies. Goldring also extols the islands’ potential in terms of port facilities: he notes that their deep waters could harbour maritime container transportation 59 – by which he means, implicitly, that the islands could become a free zone. And finally, he insists that the Turks and Caicos, in this projected union, must become a province and not only a territory. 60 This would give them maximum legislative leverage and enable them to wield power as a tax haven within Canada itself, just as Delaware does within the United States. 61 It is also apparent that Goldring, who is absolutely determined to bring the two jurisdictions together, would be willing to carry out his project in a roundabout way – through a free-trade agreement, for example. 62

Canadians are still behaving like monarchs in these islands. In a money-laundering affair related to narcotics smuggling in Canada, RCMP officers carried out a raid on Grand Turk in 1999 against Ontario businessman Richard Hape, presumed to be a guilty party. The affair was greeted with outrage in the local business community. 63 That day, Canadians showed that they could interfere as much as they wanted in the internal affairs of the Turks and Caicos Islands, and they also demonstrated that only under exceptional circumstances would they take action against potential criminals, whether tax swindlers or others.