In respect to the NPCT/Thomson Kernaghan lawsuit this is a little info on whats happening at the legislative level in canada.
Offshore accounts revealed
Survey uncovers 13,000 brokerage accounts in 23 blacklisted countries
Theresa Tedesco, Chief Business Correspondent
Financial Post
A national survey by the country's major provincial
securities regulators has uncovered about 13,000
offshore accounts in 23 blacklisted countries held
at Canadian brokerage firms.
The surprisingly high number of accounts has
reinforced the regulators' campaign to crack down
on the use of offshore accounts in secretive
jurisdictions.
The survey, which is expected to be released as
early as today, suggests that 11,500 of the
13,000 accounts held by the 194 investment
companies registered with the Investment Dealers
Association are concentrated in Ontario, the
country's largest capital market.
These offshore accounts held in the 23 havens
blacklisted by the Organization for Economic
Co-operation and Development represent fewer
than 1% of all brokerage accounts held at
investment firms in Canada.
"It may appear a small percentage of the total but
what is troubling is that these accounts are all in
non-co-operating jurisdictions," said an industry
official who asked not to be named.
"Let's face it, people are setting up these
accounts for the purposes of avoiding some
aspects of Canadian law and every one of these
accounts has the potential to be a problem."
Almost all of the Canadian firms responded to the
securities' regulators' request for information with
lists of accounts in havens on the OECD blacklist,
but the data indicates they are particularly prevalent in mid-to small-sized firms, accounting for
between 4% to 6% of their overall business.
As well, the offshore accounts are spread across a number of countries ostracized by the
OECD, most notably Switzerland, the Bahamas, Turks & Caicos. There are a surprisingly large
number in Egypt.
The average value of the transactions in these accounts is said to be anywhere between
hundreds of thousand and millions of dollars, significantly higher than in most other brokerage
accounts.
Canada's four major securities regulators have been pushing the country's brokerage houses
to stem the abuse of offshore accounts in the world's tax havens, saying they are widely used
for insider trading, stock-market manipulation and other breaches of securities laws.
Offshore accounts -- with the high degree of confidentiality they promise clients -- have long
been an obstacle to Canadian securities regulators in investigating irregularities and illegal
activity.
"In virtually every major securities transaction that appears to violate our laws, we find a part
of it is conducted through offshore accounts," said Brian Butler, manager of investigations at
the Ontario Securities Commission in a recent speech. "The heart of the problem of offshore
activity lies in the ability of people to use the laws of foreign jurisdictions to circumvent our
own laws." Added Jean Lorrain, director of compliance and enforcement at the Quebec
Securities Commission: "We've had investigations held up because we can't get behind these
accounts."
Last October, securities commissions in British Columbia, Alberta, Ontario and Quebec
compelled brokerage firms operating in those provinces to provide a list of all accounts they
operate in the secretive jurisdictions blacklisted by the OECD. While the identities of the
beneficial owners of the offshore accounts -- those who have a financial interest in them --
were not sought as part of the survey, regulators are convinced that many of the accounts
are being used by members of the financial-services industry to break the law or bend the
rules.
"We have a real concern that a huge percentage of those offshore accounts in fact belong to
people who work a few feet away from this office," said Michael Watson, director of
enforcement at the Ontario Securities Commission when the campaign began.
"We are concerned that this is pervasive," added Sasha Angus, the director of enforcement in
British Columbia. "So rather than base this assumption on anecdotal evidence, we want data
to see if this is true. All we're doing is collecting information. You can't set meaningful policy on
anecdotal evidence."
A senior source formerly employed at a major Canadian investment firm concurred. "Normally
in Canada, brokers are supposed to report all their trades to their employer. However, they
get around it by opening up offshore accounts with secrecy rules, and they simply trade
through that account. Lots of brokers do it."
Documents obtained by the Financial Post appear to support this allegation. The confidential
documents reveal that as many as 250 investment analysts licensed in Ontario and Quebec
are registered as the beneficial owners of offshore accounts held at a large Canadian financial
institution that has operations in the Bahamas.
The brokers, who are employed at 37 Canadian investment firms, have hundreds of offshore
accounts for their own trading purposes. For example, two brokers each had 93 accounts
registered in their own names.
"There's a lot of undisclosed trading that's going on by people who are either directly or
indirectly involved in the industry and who are able to direct what's going on," says a
regulatory official who asked not to be named. And according to a source familiar with the
survey results, "nothing that came out in the data suggested that brokers are not the owners
[of the accounts]."
For now, the four securities commissions intend to use the survey results as a deterrence
mechanism by helping to bolster their regular risk-based compliance reviews at individual
firms. These routine audits help staff at the securities commissions monitor and assess
registrants and their operations.
Ultimately, the securities commissions want to use the data as an enforcement stick to force
brokerage firm to lift the veil of secrecy and provide the name of the beneficial owners of the
accounts when called upon during an investigation.
To that end, they have secured a legal opinion from Gowling Lafleur Henderson LLP, a Toronto
law firm, outlining how far the securities commissions can push the industry to toughen its
know-your-client rules. "We can't set the rules in these offshore havens because they're
aren't in our jurisdiction, but we can structure the laws here so that foreign laws can't
circumvent ours," says Mr. Watson. "Canada has to accept some responsibility for the
reputation it has of being a haven for dubious activity within its marketplace."
ttedesco@nationalpost.com
regards,
danny
AI
