Last week I had the chance to sit down with the man who helped dozens of rich clients set up offshore companies, to discuss how he got away with it and what lessons Canada should take away from his case.
Kirill Sarafyan is a law professor at the University of British Columbia who has spent the last four years as a negotiator for this case in the Court of Appeal of Ontario. It is of great interest that Canada and the rest of the world has “turned a blind eye” to accepting offshore tax schemes, according to Sarafyan, in the first place. Sarafyan himself was a victim of such an offshore scheme. “When I helped set it up, I received a one-time tax on my assets transferred from my US account to my Canadian one.” Sarafyan went on to explain that “others have had access to such wealth protection plans and not been penalized” for doing so.
Regardless of whether a person creates his own money management business abroad, Sarafyan believes that some personal failings call for criminal prosecution. Sarafyan says that if Canadian regulators want to “justify fines and other sanctions, you have to arrest someone” and this would make such illicit tax schemes hard to set up in the future.
CNN has reported on this case before: In 2014, CNN’s Erin Burnett investigated the tax affairs of Sarafyan’s personal friend Marc Snaith, who had set up offshore companies for Sarafyan. Snaith ultimately was prosecuted in Canada for using offshore companies to avoid paying taxes.
The case that Sarafyan was fighting was of course nothing like this: a settlement reached after extensive negotiation between Sarafyan and Canada’s Revenue Canada. The explanation Canada offered to Sarafyan was simply that the existing penalties would be doubled if the court granted all of the trial’s requests. The Taxpayers’ Federation of Canada paid for Sarafyan’s appeal. Sarafyan wasn’t a strict taxpayer: he did run a business from his home and at times even traveled to speak at a tax seminar. In addition, Sarafyan had a wife and children in the US: and after negotiations, Canada granted him a settlement, “allowing him to be fined. But everything he got back was reduced.”
And this story about Sarafyan points to a larger pattern: reports by many news outlets claim Canada has stopped investigating the offshore wealth managers themselves, instead turning to criminal enforcement and tribunals. CNN’s Ed Lavandera raised this issue in September 2014, when he wrote: “Critics fear that cash-strapped Canada is shifting the buck to offshore authorities, saying that in Canada, the tax-collecting Canadian Revenue Agency has, over the past decade, abdicated responsibility for investigating these managers.”
This article was written by Charles Underwood