Canada Revenue Agency is investigating one of the country’s wealthiest families and its network of foreign trusts and companies, alleging one family member in Toronto was wired millions of dollars in unreported income around the time she was collecting unemployment insurance benefits.

The target of the tax agency’s probe is the Ghermezian family, whose Triple Five Group is behind the West Edmonton Mall, the Mall of America and the newly opened American Dream — a sprawling complex in New Jersey that will be home to a water park and indoor ski slope.

In an effort to verify whether the family and its businesses are properly reporting their income, the CRA is scrutinizing a number of trusts and corporations in China, Gibraltar and the United States that it suspects are being controlled and managed by the Ghermezians from inside Canada, which could make those entities subject to Canadian taxes.

The CRA’s allegations, filed as part of an expansive legal dispute between the family and the federal government, have not been tested in court.

In a statement, the Ghermezians said the foreign corporations caught in the CRA’s crosshairs are owned and controlled by members of the family who reside outside of Canada.

“These interests have nothing to do with the North American businesses of the family,” the statement said. “The allegations made by the CRA that various Triple Five foreign entities are resident in Canada for income tax purposes contradict the relevant facts and law, including applicable tax treaties, between Canada and the relevant foreign countries.”

“The Ghermezian family is deeply upset by the spurious nature of the allegations made by the CRA,” the statement said.

In 2013, the CRA asked for a breakdown of all companies and trusts held by the senior leaders of the Ghermezian empire, brothers Eskandar, Nader, Bahman and Raphael. The four brothers had taken the reins of the family business from their father, Jacob, who grew his carpet business in Tehran, Iran, into an international conglomerate headquartered in Edmonton.

In response to the tax agency’s questions, the brothers did not mention their holdings or directorships of multiple offshore corporations or trusts, the CRA alleges.

A little over a month after receiving the CRA’s questions, Nader Ghermezian and his son-in-law, Marc Vaturi, resigned from their positions as directors of more than 30 Hong Kong corporations, the government alleges. In their place, two of Nader’s sons who are non-residents of Canada took the role of directors, the CRA says.

“The group’s tax lawyer has attempted to prevent us from obtaining any further information about the (Hong Kong) companies, arguing that we don’t have jurisdiction over companies owned by non-residents,” states an internal 2018 CRA report outlining its audit of the Ghermezians.

The tax agency revved up its audit and began tracking money transfers from Hong Kong corporations it suspects are controlled by Nader Ghermezian and Vaturi.

Since 2014, the CRA alleges more than $10.5 million in “unreported offshore income” has been wired from the offshore entities to Canadian Dianna Vaturi —Nader’s daughter and Vaturi’s wife.

The money transfers, the CRA alleges, were “directed” from a north Toronto home owned by the Vaturis and Nader Ghermezian. Property records show they own two houses in the same neighbourhood, one of which they had purchased in 2012 from members of the Bronfman family for $4.65 million.

The CRA says Dianna Vaturi “reports minimal income and during at least one of the years was receiving EI maternity benefits.”

“We believe that these funds are proceeds from offshore business activities such as real-estate development, real-estate leasing and consulting revenue,” a CRA report states.

In a statement, the Ghermezian family said the $10.5 million was actually “a loan to Mr. Marc Vaturi that has been repaid,” and dismissed the tax agency’s allegations as “spurious.”

“The CRA’s allegations are without support in fact and in law and will be vigorously challenged by the family in the appropriate forum,” the statement said.

As part of its audit, the CRA demanded that within 30 days Nader Ghermezian and Marc Vaturi produce more than 20 years of corporate records for at least seven foreign corporations.

The government said it needs the records “to further support our position that the offshore entities are managed and controlled from Canada,” as well as “for the purposes of tracing unreported income” and to “verify if additional income is being subverted to other taxpayers or unknown bank accounts” affiliated with the Ghermezians, according to a CRA report filed in court.

The tax agency has also demanded the four Ghermezian brothers produce U.S. tax returns for a series of trusts created in their names. These U.S. trusts “hold, through a complex structure of business entities, the Mall of America,” according to the CRA.

The Ghermezians refused to co-operate, saying the demands for records are an improper fishing expedition and the decision to issue them “was made in a perverse or capricious manner.”

The CRA’s demands touched off a metastasizing spate of legal actions, in which the Ghermezians have called on the Federal Court to quash the tax agency’s order, while the government asked the same court to compel the family to produce the documents.

Depending on how the court rules, the battle over whether the offshore corporations and trusts are taxable in Canada could unfold in tax court at some point in the future.

Queen’s University tax law professor Arthur Cockfield said the CRA’s request for internal financial records is a critical tool to assess whether an offshore entity should be subject to Canadian taxes.

“If the government doesn’t get this information, then it really doesn’t have a chance. The taxpayer knows everything, the government pretty much knows nothing — only what the taxpayer has filed,” said Cockfield, who is also member of a committee advising the federal government on ways to combat offshore tax evasion and aggressive tax planning.

“It’s reasonable for the government to request this foreign information so at least then there will be a level playing field,” he said.

The determination that an offshore trust or corporation is being managed and controlled from Canada could have significant financial consequences.

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“It is a huge deal to the taxpayer,” Cockfield said. “They could lose all or virtually all of their tax benefits if a court finds it’s in fact controlled and managed in Canada.”

Norman Krone was senior executive with Triple Five’s operations in China from 2008 to 2010. He told the Star that the corporate structure was opaque — there were multiple different companies under the Triple Five banner and it was not clear to him who sat as each company’s directors. But one thing was always clear, he said.

“The marching orders came from Canada,” said Krone. “That’s the way it is with Triple Five. Nader makes the decisions. It all comes out of him and his brothers.”

In its statement, the Ghermezians said, “The family’s understanding is that the Hong Kong corporations were incorporated and managed in Hong Kong.”

Media coverage over the years described a family that was as close-knit as it was secretive. A 1986 article in the Washington Post detailed how the brothers, each with their own business area of expertise, “work from a suite of interconnecting offices and share the same telephone lines. They frequently tap into one another’s calls and drop in on each other’s meetings.” Canadian journalist and historian Peter C. Newman described the family in 1998 as living on an expanding compound in Edmonton, where they had built “the first of a planned series of connecting tunnels.”

Over the years, the Ghermezians have become mired in controversy.

In 1998, the government-owned Alberta Treasury Branches launched a legal action against the Ghermezians’ West Edmonton Mall, alleging bribes were paid to secure a favourable refinancing package for the mega-mall. The Ghermezians vehemently denied the allegations.

The two sides settled in 2002 and no criminal charges were ever pursued against the Ghermezians or their businesses. “These allegations were exhaustively publicized over 25 years ago and found to be without merit,” the Ghermezian family said in a statement to the Star.

The Ghermezian name soon got tangled in another scandal, this time in Las Vegas where Triple Five had been trying to build its ill-fated Spring Valley Casino.

In the early 2000s, agents with the Federal Bureau of Investigation were wiretapping calls in what became known as Operation G-String, a corruption investigation that led to four former county officials serving prison time for taking or facilitating bribes from a strip club kingpin.

In FBI transcripts former Clark County Commissioner Lance Malone discussed “bribes that Eskandar Ghermezian of Triple Five Corporation paid or intended to pay,” according to court submissions made by U.S. prosecutors in its case against Malone for delivering bribes to politicians on behalf of a strip club owner.

As county commissioner, Malone had publicly said he would oppose the casino project but then shocked his constituents by voting in favour of the Triple Five development, according to the prosecutors’ court material. The casino project was ultimately rejected by a state review panel.

Malone denied in court submissions that he ever received bribes from Ghermezian.

Eskandar Ghermezian was not part of Malone’s legal proceedings and had no opportunity to challenge the allegations in court.

“Mr. Ghermezian was never interviewed by any prosecutorial authority in this matter; let alone accused of any wrongdoing. To suggest any wrongdoing is false and extremely misleading,” the family said in a statement, emphasizing that Malone’s conviction “had absolutely nothing to do with the Ghermezian family nor Triple Five activities in Las Vegas.”

This fall, Triple Five opened the first phase of its new entertainment complex, the American Dream Meadowlands in New Jersey. Over the next several months, visitors will be able to splash in a water park, carve down an indoor ski slope and shop at hundreds of different stores.

Building a mega-mall at a time when e-commerce is tolling a death knell for brick-and-mortar stores is a testament, the family says, to what the Ghermezians do best: creating a destination for family entertainment that cannot be replicated online.

“We do it successfully in Edmonton, we do it successfully at Mall of America. We’re not worried about people not coming,” Don Ghermezian, CEO of Triple Five and a grandson of the company’s patriarch Jacob, said at the mall’s October opening.

The development of the complex, years in the making, included up to roughly $390 million (USD) in tax dollar incentives from the New Jersey economic development authority.

The Ghermezians said in a statement that no public funds were provided to the American Dream development “that were not generated by the project itself.”

Calling the incentive “a rebate of collected sales tax generated by the project,” the Ghermezians said the complex used roughly $200 million, “which constitutes approximately 6% of the capital required to build the project which we consider very modest considering the significant economic benefits in tax revenues and employment which will be generated by the project.”

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