Three of Canada’s big banks have registered nearly 2,000 offshore companies and private foundations in the Caribbean tax haven of the Bahamas, according to newly leaked corporate records obtained exclusively in Canada by the Star and CBC/Radio-Canada.

RBC, CIBC and Scotiabank appear conspicuously throughout the database of 175,500 corporate registrations on the island nation, which has earned an international reputation as one of the most secretive financial jurisdictions in the world.

According to the data, RBC registered 847 companies, CIBC registered 632 and Scotiabank registered 481 in the Bahamas between 1990 and this past May.

The leaked records provide never-before-seen details behind the intimate relationship Canada’s banks have forged with island tax havens over the past five decades. Some experts even credit Canada’s banking industry with helping pioneer offshore wealth movement to no-tax and low-tax jurisdictions in the Caribbean.

There are legitimate reasons for setting up corporations offshore in traditional tax havens. And there is no evidence of any illegal activity in the corporate registration records, which were obtained through a leak to the International Consortium of Investigative Journalists (ICIJ) and German newspaper Süddeutsche Zeitung and shared with the Star and the CBC.

“It just doesn’t make sense,” said Richard Leblanc, a leading corporate governance expert and professor at Harvard and York universities. “Why are there so many companies registered and such a high volume in a jurisdiction that doesn’t have the population base or the economy to support it? That’s a legitimate question.”

All three banks defended their Bahamian business by saying they employ strict controls and monitor accounts to detect any sign of illegal activity.

An RBC spokeswoman, Catherine Hudon, wrote in a statement: “RBC works within the legal and regulatory framework of every country in which we operate. Tax evasion, fraud and money laundering are illegal, and we have established policies and controls in place to detect and prevent them from occurring throughout RBC.”

Venni Iozzo of CIBC wrote: “We apply stringent anti-money laundering and anti-terrorist financing standards in every jurisdiction in which we operate. . . . If we identify any suspicious activity we report it to all relevant regulators, and where suspicious activity is validated we divest the relationship.”

Scotiabank said offshore companies and trusts are a small part of their business in the Bahamas.

“Our focus in the marketplace is banking in the real economy there and providing services to our client base,” said Brendan King, Scotiabank’s senior vice-president of international banking.

Peter Slan, senior vice-president of global wealth management, said Scotiabank has “very robust” policies to ensure clients have a transparent source of wealth.

“We regularly have to decline a prospective client. We don’t just take all comers,” Slan said. “We will decline clients; we will close accounts if we are at all uncomfortable with the source of their wealth.”

Detecting potential illegality in tax havens such as the Bahamas is difficult because of lax regulatory oversight and a “complete lack of transparency,” Leblanc said.

“Canadian financial institutions are among the best governed in the world, but this is a shady area that is fraught with opaqueness,” said Leblanc, who has extensive experience with the Caribbean financial environment having co-authored the corporate governance guidelines for Barbados.

“These countries have reputations for lack of regulatory standards, lack of enforcement, lack of internal controls. So why are so many companies and transactions in a jurisdiction that may not have the same risk framework that Canada has?”

The leaked Bahamian registry was published online Wednesday in a searchable database to shed light on hidden offshore financial activity. The 1.3 million files include the names of international politicians and business leaders – including former European Union competition commissioner Neelie Kroes and a former prime minister of Qatar, Hamad bin Jassim bin Jaber al-Thani — linked to 175,480 Bahamian companies registered between 1990 and 2016.

Experts agree that even legal offshore financial transactions have deprived national treasuries of billions of dollars. Illegal tax evasion pushes that number into the trillions.

And the Bahamas has been of particular concern for international watchdogs.

“The Bahamas is the worst of the worst,” said Mark Morris, an independent tax consultant based in Zurich who specializes in international tax agreements. “They’re a big offshore centre, they haven’t made any commitments for information exchange (with other countries) and they are one of maybe two countries in the world were tax evasion is not a predicate offence for money laundering.”

Unlike 103 other countries, including well-known tax havens, the Bahamas has, to date, refused to sign a global treaty that the OECD calls the “most powerful instrument against offshore tax evasion and avoidance.”

“I just think it’s strange for financial institutions to have such a presence in countries that are behind in the automatic exchange of information (with other governments),” Morris said in response to questions about Canadian banking operations in the Bahamas.

Bahamian authorities told the ICIJ that the country honours its international obligations and co-operates with international authorities. The Bahamas “does not tolerate dirty money,” authorities said, noting it “has in many areas been rated as ‘largely compliant’ with international standards.”

Bahamian officials argue that the cost and administrative burden of automatically exchanging tax details is too high and that client privacy could be jeopardized. They claim the country will instead uphold international rules through bilateral, or one-to-one, agreements such as the Tax Information Exchange agreement signed with Canada in 2010.

The country reassures potential investors it will share tax information later than most other countries. Even then, only with selected governments that meet stringent technical and confidentiality requirements.

The Bahamas is “on a par with Panama in terms of its thirst for and tolerance of dirty money,” said Nicholas Shaxson, author of Treasure Islands: Tax Havens and the Men Who Stole the World.

Many successful tax havens — such as the Cayman Islands and British Virgin Islands — are dependencies of rich countries. The Bahamas falls into a small category of “free agents” that aren’t dependent on any one western powers, Shaxson said.

“Dependencies of rich countries tend to feel they are under more pressure from their sponsoring countries to meet international standards,” he said. “The Bahamas doesn’t have that . . . First World bedrock. It has more of a developing-country flavour about it. It has to look for a niche elsewhere. Its niche has been being more secretive, being more willing to turn a blind eye.”

In 2014, the most recent review of the Bahamas’ anti-money laundering systems by the OECD faulted the country on half of the core measures used to judge countries’ compliance with international standards.

This included no requirement for banks or financial institutions to know the real identity of a company or trust owner. Although the OECD now considers the Bahamas compliant, in June 2015, the European Union listed the Bahamas and 30 other countries as uncooperative tax havens.

Tax avoidance and evasion are the most obvious concern when secrecy prevails. But there are other more nefarious activities that can easily go undetected, say experts.

“If you want to bribe someone, it’s a whole lot easier to do it offshore through an account that doesn’t have high regulatory oversight,” Leblanc said.

For more than a century, Canadian bank executives have played an instrumental role in shaping the banking laws in tax havens, said Alain Deneault, a professor at the Université de Montréal and author of Offshore: Tax Havens and the Rule of Global Crime.

Starting in the early 19th century and right through to the establishment of the modern offshore system in the 1960s, Deneault said, “Canadian banks customized the legislation in Caribbean tax havens for their purposes: They are states made to allow large companies and wealthy individuals to avoid paying tax.”

Banks “purchase the sovereignty” of these countries to have the laws they wish, he said. “It’s a banker’s fantasy. Ask a banker what their ideal country would look like and that’s exactly what you find in the Bahamas.”

Federal finance minister William Morneau and mining giant Sherritt International are among the prominent Canadian names that appear in the leaked Bahamian corporate registry.

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Both say their choice to operate in the Bahamas was for legitimate business reasons.

MORNEAU

Morneau, who was elected to Parliament last October, appears as the director of a Bahamian subsidiary of the human resources firm he headed before being elected. Cabinet ministers, like all MPs, are forbidden from sitting on corporate boards by the Conflict of Interest Act.

Morneau’s office provided documentation showing he resigned as director of Morneau Shepell (Bahamas) Ltd. on Oct. 26, 2015, one week after the election and nine days before he was appointed minister of Finance. Almost a year later, Morneau’s resignation has still not been recorded in the Bahamian corporate registry because of clerical delays.

“Prior to being sworn-in as Minister of Finance, he officially resigned from all boards and has worked with the Ethics Commissioner to ensure all conflict of interest rules are followed,” says a written statement from Morneau’s spokesperson. “He has been open about all activities related to his former role at Morneau Shepell and all its subsidiaries.”

The statements adds: “Minister Morneau is committed to ensuring that all Canadians pay their fair share of taxes, as he has always done.”

Catherine Ronberg, a spokeswoman for Toronto-based Morneau Shepell, said the Bahamian subsidiary was not established to avoid taxes. The company set up an office in Nassau to extend their pension consulting business to governments across the Caribbean. There are two employees in the Bahamas, one of whom was previously a senior actuary with the country’s public pension agency.

Ronberg added that the Bahamian office’s annual revenues of approximately $300,000 are not “material” to the hundreds of millions pulled in from the Morneau Shepell’s overall activities.

“We comply with applicable tax laws, internationally and within Canada. We do not channel revenue or profits from our Canadian-based business through our Bahamas office,” Ronberg wrote in an email. “We are not repatriating profits tax free from the Bahamas to Canada.”

SHERRITT

The fact that Sherritt International can be found in the Bahamian corporate registry is no surprise. The Toronto-based mining and energy company has made no secret of its reliance on tax havens, including the Bahamas, the British Virgin Islands and Barbados, all of which are listed in its annual report.

Any change in the laws and agreements that allow this money to flow from the tax havens to Canada tax-free would have “a material adverse effect on the Corporation’s financial performance,” it states.

In a 2002 filing with the U.S. Securities and Exchange Commission, Sherritt described a business model that uses one subsidiary in Cuba to mine cobalt, and another to refine it in Canada. But it’s a third subsidiary based in the Bahamas — International Cobalt Company Inc. (ICCI) — that owns the ore and sells it, allowing all profits from the sale to be booked in a tax-free jurisdiction.

Thanks to the Tax Information Exchange Agreement (TIEA) between the Bahamas and Canada, profits from ICCI can be repatriated to Canada tax free. As a result, those profits are never taxed.

In a written statement, the company said the Bahamas proved attractive because of its infrastructure and “favourable geography” for proximity to operations in Cuba and Canada. It says the company did not re-structure any businesses to take advantage of the TIEA with the Bahamas.

“Decision-making on the structure . . . was determined in 1995, before the TIEA was brought into effect.”

Sherritt’s latest annual report says the difference between Canadian and foreign tax rates saved the company $16.5 million in 2015.

That tax discount, “does not relate to savings from the ICCI jurisdiction in the Bahamas,” the company said in its statement to the Star and the CBC.

THE RECORDS

Bahamanian company documents can be consulted in person in the Bahamanian capital of Nassau and through an online registry maintained by the government. But it is often incomplete and accessing the records costs at least $10 per search, in conflict with the recommendation of the international association of company registries, which discourages search fees.

The data includes company names, date of creation, mailing address in the Bahamas and, in some cases, the company’s directors.

Bahamian law requires the names of directors, who have complete power over offshore companies, to be filed with the national registrar. Yet the names are not always available online and directors’ names cannot be searched individually or without preexisting knowledge of the Bahamian company’s name. That makes it difficult to check whether a public official or a corporate executive is linked to companies chartered in the Bahamas.

With files from Will Fitzgibbon and Emilia Diaz-Struck of the International Consortium of Investigative Journalists.

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