They’ve been called the “puppet masters” by the World Bank. Indeed, the Panama Papers shed light on how beneficial owners, or the real people who own/control companies, sometimes go to great lengths to keep their identities hidden. And according to Transparency International, Canada’s opaque laws on beneficial ownership make it an ideal breeding ground for tax evaders and money launderers.
Canadian law permits the use of nominees—essentially custodians—for directors and shareholders, thereby masking the beneficial owners of a company. For in-house counsel, navigating this environment can be complex, especially within a company’s due diligence program.
Why it matters
According to the World Bank, anonymous companies are the most common way US$1-$2 trillion are lost to money laundering each year. They are also used to finance terrorist activities and line the pockets of drug traffickers and corrupt politicians. While no company means to aid those with illicit intentions, the absence of any sort of national registry of beneficial ownership can make it very difficult to determine who you are actually doing business with.
On July 3, the government of Canada announced a new integrity regime for procurement and real property transactions. The new regime replaces the Department of Public Works and Government Services Canada’s previous integrity framework, which had been the subject of much debate. The CBA-Anti-Corruption Team wrote to Public Works Minister Diane Finley in April expressing reservations with parts of the old policy and making recommendations for improving it.
The cornerstone of the old regime was an automatic 10-year debarment from transacting with PWGSC for any company found guilty of a listed offence, including bribing a foreign public official.
CBA-ACT’s primary concern with the 10-year disbarment was that it applied the same treatment to potentially very different circumstances. It also didn’t take into account leniency and immunity programs of other government departments, such as the Competition Bureau. Without considering the factors of each individual case, and lacking any form of a review or reinstatement process, the automatic debarment regime did not encourage entities to self-report or take into account whether they'd taken any remedial measures.
CBA-ACT recommended that the integrity regime provide for more flexibility and include a method for the term of debarment to be lifted or shortened if an entity could demonstrate rehabilitation and a strong record of compliance.