This article is more than 2 years old

This article is more than 2 years old

This article is more than 2 years old

The chief fundraiser and senior adviser to the Canadian prime minister, Justin Trudeau, who played a critical role in the rise to power of the charismatic politician, was involved in the movement of millions of dollars to offshore havens, the Paradise Papers reveal.



Stephen Bronfman, heir to the Seagram fortune, who was instrumental in Trudeau’s successful bid for the leadership of the Canadian Liberal party in 2013 and the premiership two years later, engaged through his family investment business in a complex web of entities in the US, Israel and the Cayman Islands. Multimillion-dollar cashflows between the three jurisdictions might legally have avoided taxes in the US, Canada and Israel.

The leaked documents unveil a close relationship between two wealthy families who collaborated to shift millions of dollars to the Cayman Islands. On one side were the Bronfman family, inheritors of the Seagram distillery fortune in Montreal.

On the other side was the Cayman Islands-based trust of Leo Kolber, a former Canadian senator and powerhouse within the Liberal party Trudeau now leads.

Accountants working for the families discussed the possibility of recasting interest owed by the Kolber trust to two US-based Bronfman funds as “services rendered”, on the basis that the loans were not “in substance (only in form)”. Tax experts say that such interest-free loans would generally be barred under US tax laws.

The disclosures are likely to generate political heat for the Canadian prime minister, who swept to power in October 2015 partly on his promise to tackle economic inequality and take on tax avoidance. Last year, Trudeau came under pressure in the fallout from the Panama Papers, the trove of leaked documents from the offshore law firm Mossack Fonseca, during which his family inheritance was scrutinised.

It is absolutely unacceptable that there be people not paying their fair share of taxes Justin Trudeau

At that point Trudeau insisted his personal assets, which he put into a blind trust after he won his party’s leadership, were “completely transparent”. But he came under renewed pressure this year following a Canadian Broadcasting Corporation (CBC) investigation into a KPMG scheme to help wealthy Canadians move money to the low-tax Isle of Man.

“It is absolutely unacceptable that there be people not paying their fair share of taxes,” the Canadian prime minister said in March, pledging to do “a better job of going out and getting tax avoiders and tax frauders”.

The Paradise Papers put the spotlight once again on Trudeau’s record on tax fairness, only this time the focus falls within his inner circle. Specifically, on Bronfman, one of his closest advisers.

The two men are childhood friends who in recent years have revived their bond to assist Trudeau’s meteoric rise. Bronfman, 53, raised $2m for Trudeau’s leadership campaign and was was rewarded by being made the Liberal party’s chief fundraiser with a seat on its national executive.

Bronfman runs Claridge, the Montreal-based investment firm set up by his father, Charles Bronfman, to manage the vast wealth of the Seagram liquor empire, which came to prominence in the 1920s supplying the illicit alcohol trade during US prohibition. The distinctive Seagram Building in Manhattan, designed by Ludwig Mies van der Rohe, still stands as a monument to the family’s status.

Facebook Twitter Pinterest The Seagram Building in New York, pictured in 1960, two years after it was completed. Photograph: Archive Photos/Getty Images

One of Claridge’s clients was the Cayman Islands-based trust of Kolber, Stephen Bronfman’s godfather and predecessor as chief fundraiser of the Liberal party who for decades was in charge of the Bronfman family’s investments. Kolber was appointed to the Canadian senate in 1983 by Pierre Trudeau, Justin’s father, towards the end of his stint as prime minister.

The tight triangle between Kolber, Bronfman and Trudeau was on display last December when a Liberal party fundraiser, at $1,500 a ticket, was held at Kolber’s Montreal home with Bronfman as co-host and Trudeau as its prize draw.

Confidential emails contained in the Paradise Papers reveal that links between the Bronfman and Kolber businesses were so close they were almost intertwined. In 1991, a Kolber family trust was set up in the Cayman Islands and Leo Kolber’s son Jonathan named as one of its beneficiaries.

The Bronfmans helped kickstart the Kolber trust with an injection of millions of dollars of funds, the leaked files show, including a $5.3m loan made by Stephen Bronfman personally in 1997. By then the trust was flush with almost $40m in assets.

From the beginning, the arrangement between the two families over the repayment of the Bronfman loans was unusual. A contract tied to a Charles Bronfman loan in 1991 of almost $10m said: “The loan shall bear interest at such rate as may be determined between the parties from time to time.”

Play Video 2:07 What are the Paradise Papers? – video

In 2002, the Kolber trust took on an $8m debt to the Israeli offshoot of the Bronfman empire, Claridge Israel – an enterprise that, in a further sign of the close ties between the two families, Jonathan Kolber had helped set up and run after he relocated from Canada to Israel in 1991.

For reasons that are unclear but do not suggest anything unlawful, the Kolber trust debt was transferred from Claridge Israel to two other Bronfman entities. The entities, Charles Bronfman Trust and Charles R Bronfman Trust, were US-based and thus liable to pay US taxes on any interest accruing, which would be treated as income.

Facebook Twitter Pinterest Charles and Stephen Bronfman in 1999. Photograph: Shaun Best/Reuters

In October 2005, Jonathan Kolber fired off an 18-page fax from his business offices in Israel about the Cayman Islands trust of which he was beneficiary. He hand-wrote on the cover sheet: “CONFIDENTIAL!!”

One of the documents in the fax was an email that was sent to him from a financial adviser. It noted that as a result of the switch of the debt from Claridge Israel, the Kolber trust had paid the US-based Bronfman trusts about $40,000 in interest charges.

The email went on to say: “As there was never supposed to be interest paid on this debt in substance (only in form), the [Kolber trust] needs to be compensated by the Bronfman trusts for these cash outlays, in some manner to be agreed upon by both parties.”

A second email from the financial adviser contained in the fax gives details of the “manner” by which the interest issue might be resolved. It records that senior Bronfman officials told Kolber that they would “‘make you whole’ somehow”.

One idea floated in the email was to get Kolber to “invoice Claridge a fee for services rendered, equal to the interest which Claridge has charged to the [Kolber trust] on these loans”. The Kolber trust would then mark on its books the sums as receivable fees instead of describing them as they really were – reimbursement of the interest payments.

Experts consulted by news organizations investigating the Paradise Papers said both the US and Canadian tax authorities viewed no-interest loans as red flags for potential tax avoidance schemes. Grayson McCouch, a tax professor at the University of Florida, told CBC that in his view the US Internal Revenue Service (IRS) would probably want to interrogate the transactions.

“If it’s done to disguise or to reverse the purported interest payments, then it could look to an observer, particularly a revenue service, like evidence of fraudulent intent,” he said.

You can’t have interest-free loans between related parties Reuven Avi-Yonah, University of Michigan

Steven Rosenthal, a senior fellow at the Tax Policy Center, told the Guardian that under US tax law any loan greater than $10,000 that charged no or below-market interest rates would be assumed by the authorities to bear imputed interest that would bring it up to applicable federal levels. “The lender must report it as taxable income and pay taxes on it,” he said.

The head of the international tax program at the University of Michigan, Reuven Avi-Yonah, told the International Consortium of Investigative Journalists that tax laws generally barred transactions that failed to report interest. “You can’t have interest-free loans between related parties,” he said.

Jonathan Kolber stressed to CBC that he had relocated his family’s trust from the Cayman Islands to Israel a few years ago following a change in Israeli tax law. “The trust declared Israeli status and we paid back taxes and whatever they asked for,” he said.



Kolber went on to deny any wrongdoing: “I’ve never broken any laws and this was all reported and so transparent, and is now an Israeli entity. This has all been declared and above board and properly handled with full transparency.”

Stephen Bronfman and Leo Kolber declined to comment.

A lawyer representing Jonathan Kolber and Bronfman father and son denied any improper activity on their part. He said: “None of the transactions or entities at issue were effected or established to evade or even avoid taxation. My clients have always acted properly and ethically, including fully complying with all applicable laws and requirements.”

The lawyer said that the Cayman Islands trust was set up because of volatility in Israel at the time. Kolber was not liable for tax in Canada under existing law given that he no longer lived there; nor was there any tax owing in his adoptive Israel.

The lawyer confirmed that Stephen Bronfman did make a $5.3m loan to the Kolber trust in 1997, but said it was repaid within five months.

Of the proposed reimbursement of interest from the two Bronfman trusts based in the US to the Kolber trust and the suggestion that it be portrayed as “services rendered”, the lawyer said: “No invoices were sent and nothing was paid.” He added that “non-interest-bearing loans by a US person do not violate US law”.

Trudeau was contacted at his official prime ministerial residence, 24 Sussex Drive, but chose not to respond.

• This article was amended on 6 November 2017. An earlier version said Justin Trudeau was premier. This has been corrected to prime minister.

