July 5, 2017
The Politics of Money
How the government helped
rob little old ladies
Dermod Travis, Integrity BC
the stories that tug at us when we read them.
Here's one from Waco, Texas: “My 86
year old mom...is losing her money to these people who promise her in order
to accept her "sweepstakes" she has to keep sending them money for
processing fees. She suffers from dementia and this company is taking
advantage of her. Someone needs to find this company and make them stop
abusing and taking money from the elderly.”
Someone did, the U.S. Treasury Department.
They found the company – PacNet Services, a payment processor – on Howe St.
in downtown Vancouver.
According to the department, it had “a nearly 20-year history of knowingly
processing payments related to fraudulent solicitation schemes.”
The company continued to process transactions for the “Maria Duval” psychic
scam for five years, despite warnings from the North Dakota Attorney General
It received subpoenas from the Iowa State Attorney General in 2014
“regarding the victimization of the elderly and other Iowans by fraudsters
they identified as PacNet clients.”
U.S. law enforcement officials shut PacNet down last year.
Mistress Deelight – another client – wasn't so delighted at the news, based
on a series of tweets between her and other online mistresses.
In an unusual plot twist, turns out the B.C. government was giving PacNet a
100 per cent corporate tax break on its international financial
transactions, through the little-known International Business Activity
program at AdvantageBC.
The tax breaks kept coming and coming for PacNet too, going back to at least
Former finance minister – and now AdvantageBC CEO – Colin Hansen told the
New York Times' Dan Levin in April that PacNet and two associated companies
were no longer members. Hansen later added – in an interview with CKNW –
that they had failed to pay their membership fees in January.
The media reports on the company's activities seemed to be disconcerting to
him as well.
The International Financial Centre BC (IFC) – as AdvantageBC was once known
– and its Quebec counterpart, Finance Montréal, trace their origins back to
1986, when the federal government established the International Banking
Centre designation “to encourage the repatriation of non-resident loans
booked in low-tax jurisdictions.”
Unlike its Quebec counterpart, which stayed true to its financial services
industry roots, AdvantageBC has morphed into the Frankenstein of tax breaks.
Over the last decade the government extended the program into new
industries, including the pharmaceutical industry, film distribution, carbon
credit trading, green energy, wastewater treatment and fuel cell technology.
And, once again, the profits earned from certain of their transactions are
fully exempt from B.C.'s corporate tax, except for international
patent-related activities in life sciences and green technologies who make
do with a 75 per cent exemption.
The added incentives kept getting sweeter and sweeter as well.
In 2004, the government repealed the interest adjustment “to limit interest
expenses in the calculation of revenue from international loans” and did so
retroactively to “the commencement of the Act.”
The program was expanded to include more employee classifications within the
provincial income tax exemption program for key employees. The break starts
out at 100 per cent for “eligible employees in the first two years of coming
to B.C., with the exemption dropping to 25 per cent over five years.”
Employees who qualify “must be paid wages of at least $100,000 annually."
Canadians need not apply. The incentive is only for foreign residents, a
temporary foreign workers program for high income earners if you will.
In the 2008 B.C. budget, then-finance minister Carole Taylor announced that
the government intended "to phase out the capital tax on financial
institutions by 2010," noting that "Some obstacles are holding us back from
becoming a more important centre for international finance."
Taylor credited Paul Fairweather, former head of the IFC, for the idea.
Fairweather was looking to model Vancouver after Dublin, as the place “to do
international financial business.”
Some also credit former New Brunswick premier Frank McKenna – deputy chair
of TD Bank Group – for playing a role.
Taylor was appointed to the board of the TD Bank Financial Group in 2009,
after stepping down as a MLA.
TD is a member of AdvantageBC. Its refund claim in 2012 was for $2.8
million. TD reported profits of $6.4 billion that year.
The size of their claim is known only because the bank was a day late in
getting its paperwork in and the claim was denied by the government,
bringing new meaning to late fees.
TD Bank sued and, in April, the B.C. Court of Appeal ruled in its favour
ordering B.C.'s commissioner of income tax “to reconsider the bank's request
for an extension to file its 2012 return.”
Along with the program's morphing, came a rapidly escalating cost.
In the nine years from 1999 to 2007, the province forewent $26 million in
potential corporate tax revenue through the program.
In the nine years since, $176.3 million.
AdvantageBC boasts an interesting assortment of members.
In 2008, its website listed 61, but they were not all unique companies. Four
were part of HSBC Bank.
Today, 66 members are listed.
There may be more, as there's no obligation on the part of AdvantageBC to
identify companies that are in the program. Hansen told the New York Times
that “Some companies are a little more sensitive about being included.”
Despite Hansen's claims that “the program focuses mostly on companies in
China,” only four of the 66 are based in that country and three are
state-owned enterprises of the Chinese government.
Four of Canada's five big banks are members.
Phillips, Hager & North Investment Management (before it was acquired by RBC
in 2008) was a member. RBC is a member today.
Westminster Management Corporation (WMC) – part of Lord Robert Iliffe's
UK-based Yattendon Group – joined AdvantageBC in 2016.
Founded in 1925, WMC is a private real estate development and investment
In 2014, it sold “surplus undeveloped land” in Richmond, B.C. to the Pacific
Autism Family Centre.
Lord Iliffe – an active member of the Rolls-Royce Enthusiasts' Club – does
well for himself through tax breaks. In 2014, The Daily Mirror reported he
was paid £195,000 “in benefits to meet housing costs for rented
accommodation for tenants on low incomes.”
At the time Lord Iliffe ranked 333rd on The Sunday Times rich list with
wealth of £245 million.
Footloose might aptly describe a few of the members. It's a business term
for “an operation that can be placed and located at any location without
effect from factors such as resources or transport”
One moved from Bermuda to Burnaby to take advantage of the tax breaks, not
Another, a U.S. hedge fund, used a shared office in Vancouver as its
business address and a California business telephone number in a Securities
and Exchange Commission filing.
Two class-action lawsuits have been filed in the United States against
collection agency First Resolution Management, another member, alleging
questionable business practices.
Sister companies of some members have run afoul of regulators and litigators
both in Canada and the United States.
Not including PacNet and its two associated companies, four other members
were among the Top 25 banks implicated in what became known as the Global
Laundromat, a four-year scheme to launder $US20.8 billion in organized crime
proceeds from Russia.
The four reportedly laundered more than $US1.5 billion.
And for three it wasn't the first time they'd been caught up in a global
money laundering scheme.
Unlike Finance Montréal, not a single member of the board of directors of
AdvantageBC represents the government, even though AdvantageBC is a
compulsory conduit to be eligible for the tax breaks.
The organization takes a 0.45 per cent cut of the “income earned by the
international business in the preceding year” to help finance its
In 2016, the cut accounted for $1,027,582 of the organization's funding.
Membership fees brought in $78,845. Hansen is paid $189,000.
Information that only came to light after the New York Times sued
AdvantageBC to get the numbers.
In the case of PacNet and its two associated companies, it does put the
organization in a rather odd position in regards to the source of at least
part of its funding.
Forty-six members have donated a total of $8.7 million to the B.C. Liberal
party (2005 to 2016), not including donations from the organization itself.
At its 20th Annual Golf Tournament in 2015, the group raised $1,000 for the
Canadian Red Cross.
Some of the companies in the roster of members does make one wonder what the
extent of the government's due diligence was before the tax breaks were
At the very least PacNet should have set off some red flags for someone
years before failing to pay their dues this past January. It would have only
taken a Google search to find the flags.
After reading the New York Times article and learning more about AdvantageBC,
one person posted online: “perhaps the group should be renamed Take
Advantage of B.C.”
He might have a point there.
Dermod Travis is the executive director of IntegrityBC. www.integritybc.ca