Alain Deneault on Panama – and Canada

The Panama Papers, a trove of more than 11.5 million documents from law firm Mossack Fonseca, detail the offshore holdings of 12 current and former world leaders, billionaires, and celebrities. The documents show how wealthy public officials use legal loopholes – as well as illegal means – to hide their money. They were leaked by a protected source to a German newspaper, which then called in the assistance of the International Consortium of Investigative Journalists to review the documents, and various news outlets broke the story in April 2015, with more information to come.

(Fun fact: Lawyer and firm founder Mossack Fonseca is, apparently, also a novelist. Among his books is Mister Politicus, a political thriller that, his literary website says, “articulates the tangled processes that unscrupulous officials use to gain power and achieve their detestable ambitions.” So it seems seems that fiction is ‘truthier’ than news, sometimes.)

Canada is not above blame. Not only does Canada offer one of the lowest corporate tax rates in the world, but a number of loopholes encourage companies to relocate to Canada as if it were Barbados or Bermuda. Canada, A New Tax Haven, the latest book by tax policy analyst Alain Deneault, is an attempt to analyze the situation and address its implications for Canadians.

In Canada, A New Tax Haven, Deneault traces Canada’s relationship with Commonwealth Caribbean nations back through the last half of the twentieth century, arguing that the involvement of Canadian financiers in establishing and maintaining Caribbean tax havens has predisposed Canada to become a tax haven itself – a metamorphosis well under way.

Read the book’s introduction on our blog, Meta-Talon.

Diagram of Panama from Canada, A New Tax Haven (page 230)

The thirteenth chapter of Canada, A New Tax Haven is titled “Panama” (pages 230–233), and Deneault begins thus:

The best illustration of Canada’s accommodating attitude to tax havens is the free-trade agreement that Ottawa negotiated and signed with Panama in 2010.1 Panama is to tax havens what a department store is to a specialized boutique. Panama is a huge laissez-faire jurisdiction willing to compromise itself in every area of activity. …

The country allows powerful industrial and financial magnates to open anonymous accounts from a distance, to create offshore companies, and to establish trusts and holding companies operating in complete anonymity, since Panama will not lift bank secrecy unless legal proceedings are already under way. As in other jurisdictions, to get Panama’s co-operation, investigators must already have the information they want to confirm; and so, in fact, Panama guarantees impunity to all those that it welcomes with open arms. …

A Panamanian company is not required to have its head office in Panama; all it needs is one resident agent, usually a lawyer.2 There are no requirements as to the nationality of economic actors, and the initial outlay needed to start up a business is laughably small. In addition, “if the company has no activities within the Republic of Panama, it does not have to produce any kind of tax return or financial statement.”3 For non-resident corporations, income from sources in other countries is, of course, not taxed in any way. …

At the end of the twentieth century, Panama did not yet owe its reputation throughout the world to the fact that it provided such a wide range of services. It was known, rather, for its unofficial title as the foremost country for laundering the proceeds of drug trafficking. Its free zone and free port were notorious hubs: capital circulated freely in the former and drugs in the latter. …

The chapter on Panama describes the natures of both Panama’s free port and free zone, “the centre of Panamanian economic activity.” It then outlines the history of Panama’s development as a tax haven and Canada’s financial relationship with Panama:

In signing a free-trade agreement with Panama, Canada is voluntarily opening its territory to the forces that use the Panamanian state to launder criminal funds.4 … Through this free-trade agreement, Canada facilitates everything it claims elsewhere to be fighting: corruption of the political class, economic criminality, drug trafficking. …

While the Canada-Panama free-trade agreement will support tax flight from Canada by making it look like legitimate investment, it will not provide similar benefits to the Panamanian population, for Panama itself experiences tax evasion. (p. 237–8)

It’s all looking pretty bleak.

In an article in the National Observer, Bruce Livesay bemoans his guess that the offshore tax haven crisis won’t get fixed, despite the leak of the Panama Papers. After enumerating the many ways in which Canada has become a tax haven, Livesay tells us that Alain Deneault, a tax policy specialist based in Quebec, has been trying to warn us for a while.

In Canada, Stats Canada documents how much corporate money flows to notorious offshore tax havens. In 1990, only $11-billion was being “invested” in offshore tax havens by Canadian corporations: today this sum is almost $200-billion a year and growing. Moreover, an estimated $8-billion is also lost annually through tax evasion, although this sum could be more than $20-billion.

Alain Deneault, who teaches political science at the Université de Montréal and authored a recent book called Canada, A New Tax Haven, has documented how Canada’s big banks were critical players in creating offshore tax havens in the Caribbean going back to at least the 1920s. He explains how Canadian banks got into this racket by helping out American and European banks trying to move their assets around the world. “Canadians actually transformed these jurisdictions into tax havens in order to satisfy the financial industry that needed to funnel these euro dollars outside any kind of traditional jurisdiction to manage them out of law without any kind of constraint,” he told me last year when we spoke about this issue.

The Toronto Star piece by Robert Cribb, “How offshore banking is costing Canada billions of dollars a year,” also mentions Alain Deneault’s work briefly – but it’s pointed:

Many say it’s time to drop the hammer on tiny offshore nations that lure wealth from the countries where it is earned.

“I believe that we need to confront this as a political issue, not a technical one,” said Alain Deneault, a sociologist at the University of Montreal who has written extensively on Canada’s history with tax havens. “We must take this by the horns and legislate against the tax havens, treating them as adversaries, not allies.”

Livesay concludes that “the offshore tax issue exposes who governments are beholden to. And they’re clearly beholden less and less to average citizens (if at all) and more to corporate interests and the billionaire class.”

This is precisely why we need fearless writing from voices like Alain Deneault’s. But Deneault is more optimistic (if guardedly so); he believes the fight against tax havens is rooted in the public conscience, and the public can inform that conscience and speak up.

In Canada, as elsewhere, groups have been formed as part of an international movement, initiated by the London-based Tax Justice Network, to oppose tax havens. This is only a first step. We hope that soon there will be no need for organizations specifically dedicated to tax havens, because the issue will have been appropriated by all groups within society. Nurses, physicians, advocates of the social security state, students, professors, artists, and advocates of co-operative and local economic development will be thinking about the fact that citizens’ public institutions are destroyed by tax havens. Here, as elsewhere, the people will learn to re-establish institutions in their own likeness. (p. 274)


1 The Canada-Panama Free Trade Agreement and parallel agreements on labour co-operation and the environment were signed on May 14, 2010, and came into force April 1, 2013, “further locking in and expanding access for Canadian investors and their investments,” according to Foreign Affairs, Trade, and Development Canada, “Canada-Panama Free Trade Agreement,” news release, April 1, 2013.

2 Édouard Chambost, Guide Chambost des paradis fiscaux, 8th ed. (Lausanne: Favre, 2005 [1980]), 359.

3 Ibid. [our translation].

4 A case of money laundering in the real estate sector in Panama, involving the city of Laval, Quebec, was covered in the media (Andrew McIntosh and Annie-Laure Favereaux, “Une revente très payante. Une société enregistrée au Panama fait 190 000 $ en une journée sur des lots de la ville,” Le Journal de Montréal, January 15, 2013).

Order your copy of Canada, A New Tax Haven today for 29.95. Also find the ebook version at major ebook vendor websites, including Kobo and Amazon.