By Hassan Yussuff
Buried in the government’s 724-page federal budget is an important commitment that has yet to receive its fair share of praise: the promise to increase corporate transparency and crack down on tax evasion and money laundering.
Taken on its own, the budget’s promise to create a “public beneficial ownership registry” does not mean much to the average Canadian. That’s fair; most of us aren’t tax evasion experts. However, what we’re talking about here is an essential instrument that will not only prevent dirty money from being used to fund illicit crimes like terrorism or sex trafficking, but that can also be used to increase Canada’s tax revenues. This will have important implications for the day-to-day lives of Canadians.
Every year Canada loses an estimated $20 to $24 billion due to tax non-compliance. That represents about 1% of Canada’s total GDP, a significant sum. This is money that could otherwise be used to fund important commitments in the federal budget, like creating a national child care system or investing in green and low-carbon jobs and infrastructure.
And let’s face it, while pandemic spending is absolutely vital to helping Canadians and our economy weather this storm, we also need to take a serious look at new ways to raise public revenue to ensure our economic sustainability. Not only are our most essential jobs – from education to food safety to health care – all reliant on sufficient and stable government revenue, but all Canadians depend on well-funded governments to deliver quality public services and to provide critical infrastructure. Tax fairness is essential to raising this public revenue and is crucial to addressing Canada’s growing inequalities.
The hard truth is that Canada’s weak corporate transparency rules have earned it an international reputation as a place to launder money and evade taxes. We currently rank 11th out of 145 countries in the total amount of money lost due to shady tax practices. This is in part because Canada allows individuals to easily register shell companies with little scrutiny; not even requiring the name of the real owner. Combined with other benefits that Canada provides companies to minimize their taxes, we have now become a prime destination for tax evasion, even earning a unique nickname for the practice – “snow-washing”.
A 2015 risk assessment conducted by Canada’s own finance department noted that Canada faces significant threats of money laundering in which shell companies are used to facilitate the proceeds of crime. The RCMP has also brought to light the increasingly complex corporate and legal structures that are used to hide proceeds of crime. They have stated that collecting and publicly disclosing corporate ownership information would be a powerful tool to apprehend those who attempt to launder money, evade taxes or commit other complex financial crimes.
Canada has dragged its feet for years while some countries, like the UK, have already implemented a corporate registry. Last year, Canada finally began picking up the pace and launched a public consultation on strengthening corporate transparency in Canada. Canadian unions, alongside a range of other organizations, delivered a clear and consistent message: that there is a legitimate and pressing need to create a public registry – now.
This year’s federal budget announced $2.1 million to support the implementation of a publicly accessible corporate beneficial ownership registry by 2025. This is an important start and Finance Minister Chrystia Freeland must be commended for this.
However, there are still a number of key requirements necessary to get this right. The registry should be publicly accessible and searchable and it should be free of cost. Information must be updated on a timely basis and should be verified by a registrar. A tip-line should be created so that whistle-blowers can flag concerns. The registrar must be mandated to promote compliance, to administrate penalties, and to hold company directors liable for non-compliance. Furthermore, like other budget commitments, the federal government will need to collaborate with the provinces and territories to harmonize the rules.
The federal government has brought us into this international movement for corporate transparency and we have a real opportunity to adopt meaningful policy and draw on best practices from other jurisdictions that have already introduced a public registry.
As this year’s tax filing season comes to a close and hard-working Canadians pay their fair share, it is only reasonable that we require the nation’s companies to do the same.
Hassan Yussuff is the president of the Canadian Labour Congress. Follow him on Twitter @Hassan_Yussuff