Liberal fundraisers held family millions in offshore trust, leaked documents reveal
A massive new leak of offshore financial records contains more than 5,000 documents that reveal how two generations of Liberal fundraisers amassed $60 million (U.S.) in a tax haven beyond the reach of tax collectors.
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It was Labour Day weekend in 2012.
Canada’s future prime minister, Justin Trudeau, was vacationing with his family in the picturesque mountain village of Mont Tremblant, Que., with a lot on his mind.
After years of speculation, he had decided he was going to make a play for the country’s top political office.
With him that weekend was long-time family friend Stephen Bronfman, 53, a third-generation descendent of one of Canada’s wealthiest families that had founded such iconic brands as Seagram, the Montreal Expos and the Eaton Centre.
“(Trudeau) came to me and said, ‘You know, I’ve made a decision. I’m going to run for the leadership,’” Bronfman recalled in a 2013 radio interview. “I’d always told him, especially since he’d gotten in politics and was first elected, ‘Justin, anything I can do to help, just let me know.’”
The well-connected Bronfman, a known philanthropist and environmentalist, took the reins of the party fundraising machine in late 2013, significantly boosting annual donations.
“The goal is raise a lot of money and to help Justin become the next prime minister,” Bronfman said at the time. “Simple, simple goal.”
Two years later, Trudeau and the Liberals swept into power, in part, on a promise to fight for the little guy, lower taxes on the middle class and raise them on the rich — a populist plank that remains a central theme for his government today.
“Our government has long known — indeed we got elected — on a promise to make sure that people were paying their fair share of taxes,” Trudeau said shortly after his election victory. “Tax avoidance, tax evasion is something we take very seriously.”
Two generations of Liberal fundraisers — Stephen Bronfman and his 88-year-old retired senator godfather Leo Kolber — are tied together in a complex offshore structure that amassed $60 million (U.S.) in a tax haven beyond the reach of tax collectors in Canada, Israel and the U.S., a newly leaked trove of documents reveal.
Buried in the Paradise Papers, a massive leak to the German newspaper Süddeutsche Zeitung and the International Consortium of Investigative Journalists, which includes the Toronto Star and CBC/Radio-Canada, are more than 5,000 pages of internal records detailing how the Bronfmans and Kolbers invested in Israel through two offshore trust funds in the Cayman Islands.
It was a two-family affair: Stephen Bronfman personally lent millions to the Cayman trust that handled his family’s investments in Israel, run by Leo Kolber’s son, Jonathan, 55.
Offshore trusts are perfectly legal. Wealthy Canadians have long used them as estate-planning tools for moving wealth that has already been taxed in Canada to offshore jurisdictions with far lower — or even zero — taxation. If that wealth was left in Canada, it would have to pay tax on its investment returns every year.
Internal email correspondence and financial records in the Kolber trusts appear to show evidence of bogus records to hide payments, false invoicing and six-figure gifts to avoid paying tax, raising red flags for experts consulted by the Star and CBC/Radio-Canada.
To remedy tax concerns over the years, the Bronfman and Kolber advisers kept two sets of books, opened shell companies in tax havens including Nevada and the British Virgin Islands and created other offshore trusts, working the laws of three different countries to circumvent taxes, the records appear to show.
“This definitely merits an audit by the Canada Revenue Agency,” says Denis Meunier, former director general of compliance at the CRA.
“What strikes me is the multi-jurisdictional location of the trusts and implications for the tax authorities that are involved, creating over time with changing legislation, a more complex arrangement. Whether in the end, all tax obligations for all jurisdictions have been met is a matter for tax authorities to decipher,” said Meunier, who also served as assistant director of financial analysis at FINTRAC, Canada’s money-laundering watchdog.
The allegations are vigorously denied by Montreal lawyer William Brock, representing the Kolber and Bronfman families.
“My clients have always acted properly and ethically, including fully complying with all applicable laws and requirements,” he wrote in a statement to the Star and the CBC. “Suggestion of false documentation, fraud, ‘disguised’ conduct, tax evasion or similar conduct is false and a distortion of the facts.”
Jonathan Kolber established the trust in 1991 because he was leaving Canada permanently for Israel and the country recommended new residents establish trusts to hold assets amid Middle East volatility, reads Brock’s written statement to the Star and CBC.
Brock’s statement says the Kolber trusts were never subject to Canadian taxation because they were always managed and controlled in the Cayman Islands — beyond the reach of Canadian tax law.
The Toronto Star and CBC/Radio-Canada took the documents to three leading tax experts in Canada and the U.S. who each spent days reviewing them before offering their assessments.
Grayson McCouch, a trust expert at the University of Florida, said managers of the Kolber trusts attempted to “circumvent” tax liability and entered into “abusive transactions” that appear to have violated U.S. tax law.
“When you see a pattern of intentional recharacterizations or mischaracterizations, or intentional concealments of where funds are coming from or where they’re going to . . . there are lots of red flags and I would expect tax authorities specifically to be very interested in following up,” he said in an interview.
The documents were leaked from the internal records of Appleby, a law firm founded in Bermuda that specializes in facilitating offshore incorporation, and corporate services provider Estera, which operated as part of Appleby until last year.
In a written statement, Appleby said it “has thoroughly and vigorously investigated the allegations and we are satisfied that there is no evidence of any wrongdoing, either on the part of ourselves or our clients.”
The story of the Kolber trusts also raises a larger question about potential conflict of interest at the intersection of wealth and political power at the highest levels in Canada.
Leo Kolber chaired the Senate’s powerful banking committee in the early 2000s while it was considering legislation to crack down on the very types of offshore trusts in which he and his family were invested.
The proposed legislation languished for 14 years before a version of it finally passed in 2013.
In the meantime, the Kolber trusts were financing lifestyles beyond the imagination of most Canadians, including $1 million in “living expenses” in 2012, $6 million for “lifestyle” in 2013 and $3.3 million for a Manhattan apartment in 2007. In total, Jonathan Kolber received more than $16.5 million from the trust.
“Our (tax) system is progressive to a point,” said Geoffrey Loomer, a tax professor at Dalhousie University who spent two days reviewing documents with the Star and the CBC. But for the most wealthy people in Canada, “the effective tax rate you are paying is less than people who are making a middle income because so much of your earnings come in the form of investment income through offshore trusts.”
Prime Minister Justin Trudeau did not respond to interview requests for this story.
A written statement from a Liberal Party spokesperson says Bronfman’s role with the party consists of “fundraising support, not policy decisions.”
The Bronfman/Kolber Connection
The ties that bind the Kolbers and Bronfmans run deep.
Starting in the 1950s, Leo Kolber went from trusted friend and confidant to business partner to self-described “consigliere” to three generations of Bronfmans. Kolber was seen as a Bronfman in everything but name.
Kolber’s professional accomplishments, while considerable on their own, always remained hidden in the Bronfman shadows. Canadian author Mordecai Richler, with whom Kolber spent nights dishing about Montreal’s upper caste, worked a thinly veiled portrait of Kolber into his novel Solomon Gursky Was Here: Harvey Schwartz, a social climber and sycophant attached to a more storied and powerful business family.
“Harvey Schwartz, the guy with the argyle socks, that was me,” Kolber wrote in his autobiography, Leo: A Life.
Leo Kolber was closest to Stephen’s father, Charles Bronfman, whom he met when they were students at McGill University in the 1950s. They spent nights at the Montreal Forum, watching Maurice “Rocket” Richard lead the Canadiens, and took in Montreal’s nightlife on the weekends.
They once travelled to Cuba, a trip Kolber called a “rite of passage,” and described dancing at the Copacabana with prostitutes.
“You had dinner with them, you danced with them, you had sex with them,” Kolber wrote.
As young parents, they named each other godfathers to their firstborn sons — Stephen Bronfman and Jonathan Kolber.
As business partners, Charles and Leo became Canadian corporate giants. Together, they made hundreds of millions founding the company that became Cadillac Fairview and building the TD Centre, one of Canada’s first modern skyscrapers, the Eaton Centre and malls in Montreal and across the country.
Through it all, Kolber worked under the Bronfman name and corporate identity. Until, that is, he achieved something the Bronfmans never did: political office.
It began with a chance meeting with Pierre Elliott Trudeau at Montreal’s Grey Cup Week in 1969. Kolber and Trudeau would become close friends who eventually travelled the Silk Road and rode the Trans-Siberian Railway together.
In the late 1970s, Marc Lalonde, Trudeau’s Quebec lieutenant, asked Kolber to fundraise for the Liberals in Montreal’s Jewish community. Lalonde told Kolber the Liberals needed $50,000.
“Tell you what,” Kolber responded. “You get Trudeau to come to my house for a fundraiser, and I’ll get you a hundred.”
Kolber may not have invented the cash-for-access game in Canadian politics, but he took it to a new level. He hosted intimate dinner parties for Trudeau at his home on Summit Circle at $1,000 a couple, growing to $10,000 per couple for Jean Chrétien and Paul Martin. He founded the Laurier Club, the organization of Liberal supporters who donated considerable funds to the party, and held garden parties at 24 Sussex.
“Near the end of the Trudeau years, I got a call one day from two high-powered financiers who wanted an appointment with Marc Lalonde, then the minister of finance . . . It turned out Lalonde didn’t do what they wanted, but at least they got to make their case,” Kolber wrote in his autobiography.
“Three months later, I wrote one of them asking for a $1,000 donation, and he called me back, swearing he would ‘never give the Liberals another goddamn cent.’ ‘Did you get your appointment?’ I yelled back into the phone. ‘Did you get it fast?’ ‘We couldn’t believe how powerful you were,’ he replied. ‘Do you think I’m powerful because of my good looks or because I raise money for the party — which? — just take a guess!’ ”
“The guy couriered me a cheque the next day.”
Kolber was rewarded with a Senate appointment in 1983, just before Pierre Trudeau took his famous walk in the snow.
He would serve two decades, culminating in his chairmanship of the Senate banking and finance committee. While in that chair, he took credit for convincing then prime minister Jean Chrétien and finance minister Paul Martin to cut the amount of capital gains subject to tax to 50 per cent from 75 per cent.
“I can count on the fingers of one hand the number of speeches I’ve made in caucus over a 20-year period,” Kolber wrote. “(But when you cut capital gains) most of it gets reinvested. Canada desperately needs more working capital. And somewhat to my amazement, when I sat down I got a big ovation. After I spoke, (Chrétien) told the caucus ‘I want you guys to listen to Leo on this, because he is right.’ ”
And when a piece of legislation involving offshore trusts appeared on the Senate agenda in 2001, Kolber chaired the committee hearing. What few in Canada knew at the time is that Kolber’s name was on thousands of pages of records related to an offshore trust worth tens of millions of dollars.
The Kolber Trust
The Kolber Trust was set up in February of 1991 in the Cayman Islands, physically located at post office box 887 in Grand Cayman.
The founding contribution — $10 — was made by two Cayman residents, John Collins and John Furze.
In one leaked document unrelated to the Kolber Trust, Furze is referred to as a “dummy settlor.” Both men are listed as members of the company “Overseas Nominees Ltd.” “Nominee” and “dummy” are terms used for people who are paid to sign documents on behalf of others without having true decision-making power.
The Kolber Trust was a repository for profits from Israeli investments made by the Bronfmans and run by Leo’s son, Jonathan. The Cayman Islands address offered a “tax neutral” location to hold any profits tax free.
“Without a doubt, that’s why it’s set up this way,” said Dalhousie’s Loomer, who spent six years with one of Canada’s top law firms before obtaining a PhD in international tax policy from Oxford University. “There would be tax implications in Canada for sure and the idea of inserting this intermediary in a tax haven is precisely to avoid that.”
Jonathan Kolber moved to Israel in the early 1990s to run the Bronfman’s Israeli venture and “co-invest with them,” lawyer Brock writes in his statement. Kolber’s coup was taking over Koor Industries, the largest holding company in Israel in 1997. There, he invested in pharmaceuticals, telecoms, organic food companies and technology.
“For every dollar invested by the Bronfmans in Israel Jonathan’s reward was a 15 per cent share of this. This is how and why the trust was set up,” according to a note kept on file by trust administrators in the Cayman Islands.
That setup was legal so long as the trust met its obligations: it had to be truly managed offshore; as of 2007 it had to pay Canadian taxes on any Canadian contributions; it had to follow standard record keeping and declarations required by tax authorities in countries it touched.
While the trust was minted with the Kolber name, it was Bronfman in substance, the records show.
Over the years, the trust received tens of millions of dollars in loans from Charles and Stephen Bronfman and their Montreal-based investment firm, Claridge.
Any profits made from those loans were never subject to Canadian tax, Brock writes, because by the time new federal rules came into effect for non-resident trusts in 2007, there were no Canadian resident contributors left — Charles Bronfman and Jonathan Kolber were both living outside Canada.
But the two Canadian experts who reviewed the documents with the Star and the CBC have a different take.
“I really doubt these are real loans,” says Marwah Rizqy, a tax professor at the Université de Sherbrooke, who reviewed the documents. “The basic things aren’t there (for loans) — a due date and interest . . . If it’s not a loan, it can only be a contribution. So we have Canadian money going to a foreign trust . . . It may be a foreign trust on paper but for me it’s a Canadian trust.”
Trust law is complicated. And ultimate conclusions can only be made by tax authorities.
“We’re talking millions in income and probably millions in tax plus interest,” says Dalhousie’s Loomer. “And the CRA may choose to assess penalties as well if they feel that there was negligence involved.”
“Mind and management”
All sides agree on one point: a trust is only subject to Canadian taxation if the central management and control — often called the “mind and management” — takes place in Canada.
“The central management and control of the Kolber Trust . . . was never in Canada,” Brock’s statement says, pointing to management in the Cayman Islands by two trustees there.
The tax experts who have reviewed the trust documents provided by the Star and CBC question that conclusion.
Documents indicate that Jonathan Kolber in Israel and accountant Don Chazan in Montreal were the day-to-day managers of the funds, and not the office in the Caymans.
Jonathan Kolber, in an interview, said this about Chazan’s role in the trust: “He was the adviser. He’s the guy who made the decisions.”
Asked what his own role was in the day-to-day management of the trust, Kolber replied: “Nothing.”
If that is true, the structure would be Canadian and therefore subject to taxation here.
“It looks like it was, in fact, being administered partly out of Canada and partly out of Israel. And so I could see both of those countries having a dispute about where this trust actually resides,” said Loomer. “What you don’t see is a lot of evidence that anyone in the Cayman Islands is doing anything.”
Montreal-based Chazan appears throughout the documents engaged in the trust’s investment choices. A 2006 internal memo authorizing a $1-million investment in a Goldman Sachs offshore fund uses the word “approval” eight times in confirming Chazan’s sign-off.
In a 2015 case, the documents detail a $1-million investment in which the Cayman-based trustees wouldn’t act without Chazan’s “authorization.” His “written confirmation” was needed to sell stocks in another case in 2014.
Brock’s statement says the trustees who made “all investment and other decisions” were Cayman Island residents or trust companies.
“(Chazan) reviewed the financial books and records in the Cayman Islands as an auditor to confirm that all transactions had been recorded . . . He was certainly never the directing mind of the trust,” Brock writes.
The trustees had an investment bank conduct research and recommend the purchase and sale of securities to the two trusts, Brock writes. “Chazan and Jonathan Kolber reviewed the recommendations made by the investment bank.”
The Cayman Island trustees “relied principally on the proposals and advice of the investment bank.”
Chazan’s bookkeeper, Ken Shettler, told the Star and CBC that Chazan kept a second set of books in Montreal because he didn’t trust the Cayman Islands administrators.
“He didn’t have confidence in their accounting so basically we were another set of books, basically writing everything up the same.” said Shettler, who is now retired. Keeping two sets of books “went on for years and years,” he said.
Rick Doyle, vice-president of Claridge, also recalls a second set of books in Montreal.
“That’s what my understanding why Don Chazan was there,” he said in an interview. “Just keeping a second set of books.”
Initially, Brock rejected those statements, saying: “there was no second set of books.”
In a statement three days later, responding to further questions, he wrote that Chazan was working for Jonathan Kolber, not the Kolber Trust, and that the “trustee had its own accounting department.”
Both statements assert that, despite Chazan’s Montreal address, his services were “rendered in the Cayman Islands.”
Chazan did not respond to written questions about his role with the trust.
In 2005, responding to tax law changes in Israel, Chazan took over from Kolber as the trust’s official investment adviser.
At that point, the trust had deep ties to Canada: its investment adviser was Canadian, Stephen Bronfman’s Claridge Investments in Montreal was providing financial advice and the Montreal law firm Davies Ward Phillips & Vineberg — whose senior lawyer, Michael Vineberg, was listed as a “protector” of the Kolber Trust — was Canadian.
But there was a strong economic motivation inside the Kolber Trust to downplay those Canadian links. If the trusts were proven to be managed in Canada, experts agree millions of dollars in taxes should have been paid to Canada.
“Obviously, there’s a strong argument the trust was managed in Canada,” Loomer said.
A formal decision on the trust’s actual “mind and management” can only be made by the Canada Revenue Agency. If it is found the trust was Canadian, the CRA could assess back taxes dating to the founding of the trust.
“What we do have is clearly a group of people who are closely related, who are quite sophisticated, or at least are getting quite sophisticated advice, but who nevertheless have done some things that seem quite careless, and have been caught trying to remedy what they perceive as undesirable consequences,” says U.S. tax expert McCouch.
Concerns that the trust had pushed the rules too far triggered anxiety among the trust’s managers, the leaked records show. Financial statements were closely scrutinized to obscure evidence of payments to Canada.
Erasing Canadian links by hiding payments
In 2005, Chazan racked up a much larger bill than usual for his work on the trust.
According to an early draft of the trust’s 2005 financial statements, Chazan was paid $81,750 in fees in the first three quarters of the year — higher than previous accounting fees which are listed at less than $10,000 a year.
The 2005 fee would never appear in the final version of the trust’s financial statement.
The three experts who reviewed the documents agree Chazan’s income — which is taxable in Canada and draws a straight line to management in Canada — was “recharacterized” as something entirely different.
In October 2006, Chazan called the Cayman-based trust administrators and asked that they change the numbers to show the $81,750 going to Jonathan Kolber instead.
“This . . . should be treated as either a loan repayment (preferred) or a distribution in the period in which it was paid,” says an internal memo describing a voicemail left by Chazan.
The intention was clear: “This results in one less formal link between the trusts and entities outside Cayman,” the memo cites Chazan as saying.
“If the trust makes a payment directly to a Canadian financial adviser for services rendered that clearly establishes a link to Canada, and that creates a potential Canadian tax problem,” said McCouch.
A month later, the financial statements were finalized and the exact amount of the payment previously assigned to Chazan had been added to Jonathan Kolber’s $1.6 million in loan repayments. The revised figure states Kolber received $1,681,750.
The transformation from Montreal accounting fees to a loan repayment in Israel appeared to erase a direct tie to Canada, the experts say.
McCouch called the transaction “deceptive on its face.”
“There’s a good reason why they would want to conceal or misrepresent it, and what they did had exactly that effect. I would imagine that revenue officials would take that as a sign of bad faith,” he said.
When asked by the Star and CBC, Brock did not specifically address the $81,750 payment recharacterization.
“There is nothing inappropriate” in Chazan’s note about creating “one less formal link” between Canada and the Kolber Trust, Brock writes, because even if Chazan did offer accounting services to the trust in Canada — which Brock denies — “the central management and control of the trust would still not have been in Canada.”
Managing offshore trusts that span three countries with different tax laws has its challenges.
When two U.S.-based Bronfman trusts made a $4-million loan to the Kolber Trust in 2002, the intention was to make the loan interest free.
But the U.S. taxes interest on loans whether it’s charged or not. So the Bronfman Trusts started charging interest to cover the taxes it owed.
“The question to ask is,” wrote Chazan in a May 5, 2004, email, “why should the (Kolber Trust) have to pay interest on approximately $4 million loaned from the two Bronfman trusts when this amount was non-interest bearing when it was loaned?”
A week later, in a May 10 email, Chazan reports back to Jonathan Kolber. Senior Claridge executives were devising a way to solve the problem by reimbursing the trust for the interest, to “ ‘make you whole’ somehow.”
The proposed solution was for the trust to file a bogus invoice for “services rendered, equal to the interest.”
“Rather than recording these interest payments as interest expense, we will show them as receivable from Claridge,” Chazan wrote.
By the end of that year, the Kolber Trust had paid more than $40,000 in interest.
In October 2005, Jonathan Kolber sent an 18-page fax to a senior Claridge executive with a handwritten “CONFIDENTIAL!!” on the cover page seeking to reclaim the interest payments.
The fax included an Oct. 8, 2005, email from Chazan that read: “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.”
Below the email are the handwritten words: “Let’s discuss tomorrow. JK.”
Scrawled in the margins of the document, next to the proposal of falsified billings, is a handwritten notation: “Done.”
Experts who reviewed the documents say the records point to a potential “sham.”
“If it is done solely to disguise or to reverse the purported interest payments . . . it could look like an evidence of fraudulent intent,” said McCouch. “It creates huge potential problems for both parties in terms of their tax reporting.”
Loomer calls the tactic, “manipulating legal form to the point where it could be considered fraudulent.”
When presented with the documents, Brock stated: “no invoices were sent and nothing was paid.”
Lynne Kolber Halliday, Leo’s daughter and Jonathan’s sister, presented another problem.
Living in New York City, Lynne, an actress, had been a beneficiary of the Kolber Trust for years, receiving $1.36 million between 1998 and 2007. She appears to have never paid tax on that.
“Some of the beneficiaries are U.S. citizens and the effects of U.S. taxation on them, it appears, were not fully understood by them (despite the fact they have had a taxation adviser. Depends on what you tell the adviser though!),” says one Appleby document.
In late October 2007, a meeting was convened in New York, with Jonathan, Lynne, Chazan and their U.S. tax lawyers. They decided to remove her name from the trust, pay her back taxes and have future distributions routed through Jonathan.
“The nub of the advice from all taxation advisers was that removing the U.S. beneficiaries from the trust was the best way,” wrote Cayman Islands lawyer Stephen O’Dwyer, who filed paperwork for the trust, in a September 2007 note explaining the transaction. “These people would be taken care of in other ways.”
“As Lynne is the only one really affected by this . . . Jonathan will arrange to make gifts to her instead of the trust making the present distributions to her,” wrote O’Dwyer.
In the United States, gifts are generally tax free, said U.S. tax professor McCouch. But these “gifts” aren’t really gifts if they’re really just rerouted payments from the trust, he said.
Disguising distributions by routing them through a third party isn’t a grey area of U.S. tax law, says McCouch.
“This is precisely the sort of abusive transaction that the U.S. Congress spotted way back in 1996, and there’s a specific provision in the U.S. tax code that deals with this,” he told the investigation. “The tax code itself says the ultimate recipient will be treated as receiving the amounts directly from the trust.”
In other words, Lynne should have been paying tax on the gifts from Jonathan.
Lynne Kolber Halliday did not respond to repeated requests for comment.
In his statement, lawyer Brock first described the gifts as a “customary mode of financial assistance” which is non-taxable in the United States.
“Making a gift to your sister is not tax evasion and any pretension to the contrary would clearly be improper,” he wrote.
In a follow-up several days later, Brock wrote that “no gifts were made by Jonathan Kolber to Lynne Kolber Halliday.”
Trust expert McCouch wonders what the trust’s advisers were thinking.
Either “they don’t know what they’re doing, in which case they’re grossly negligent, or they do know what they’re doing and they’re simply hoping that they won’t be detected,” said McCouch.
“I would think the IRS would be very interested in this.”
New law and a new trust
In 1999, the Department of Finance issued a note making it clear that the law on offshore trusts was going to change.
Existing rules are easy to “circumvent” and “are not fully effective,” officials wrote. Several “tax-haven” jurisdictions had designed legal structures to help wealthy families “disguise” payments from trusts to Canadian family members.
But proposed Liberal government reforms to close those loopholes were abandoned in November of that year.
“I think the government was very clever at being able to show concern about the issue but all the while do nothing,” recalled Judy Wasylycia-Leis, a former NDP Member of Parliament who sat on the House of Commons finance committee. “I think every step of the way the big financiers in this country, the wealthy families, the corporations that benefited from these tax havens just kept the pressure on the government and many times they were the government.”
It would take 14 years before the rules would be finally changed.
On June 15, 2007, legislation cracking down on offshore trusts was passed by the House of Commons. All that was needed to make it law was a Senate rubber stamp.
Reverberations reached inside the Kolber Trust where concerns were mounting over the potential tax consequences.
Under the old rules, an offshore trust would be deemed Canadian if both the source of funds and the beneficiaries who receive those funds are Canadian.
“The new rules are different and it’s more of an either/or test,” said Loomer. “If (there’s) either a Canadian contributor, the person putting the money in, or a Canadian beneficiary, then it’s potentially subject to tax.”
With Lynne in New York and Jonathan in Israel, the Kolber Trust had no beneficiaries in Canada and appeared to be exempt from Canadian tax under the old rules. But once it became clear that any Canadian contribution would make the trust taxable in Canada, the advisers knew they had a problem.
The trust had received Kolber/Bronfman contributions: a $2.4-million loan from Jonathan Kolber when he was still living in Montreal in 1991; a $9-million loan in 1991 from Charles Bronfman, who lived in Canada until 1996; and a $5.3-million loan from Stephen Bronfman, who has always been a Canadian resident, in 1997.
Suddenly, Canadian taxation was a looming threat for the first time.
“The funding of the trust . . . may cause some difficulties with regard to Canadian, Israeli and U.S. taxation,” states a note in the trust’s file.
The solution: take money out of the Kolber Trust and transfer it into a new one — called the Lacombe Trust — providing a layer of distance from Canada.
Since the new trust received money from another Cayman Islands-based trust, rather than directly from Canada, the move effectively severed ties to the real origin of the funds.
“The tax questions that arise or may arise in Kolber should not surface in Lacombe,” reads an Appleby memo.
The Lacombe Trust received $32 million (U.S.) from the Kolber Trust.
U.S. tax expert McCouch says this is known as “decanting,” where funds are transferred from a troublesome trust into a clean one.
Whether the strategy effectively insulated the trust from taxation is a matter of debate, says Loomer.
“Each move is to tweak the structure to avoid U.S., Canadian and Israeli tax, to stay just outside the new rules. That’s what they’re attempting to do,” he says. “By transferring it from Trust One to Trust Two . . . has the substance really changed? Well, no. But that’s how this game works.”
As Canada’s offshore trust legislation was winding its way through the Senate, it was receiving significant push back from the tax industry. Among those leading the resistance was Bronfman’s Montreal law firm Davies Ward Phillips & Vineberg.
In 2008, a senior partner of the firm, Stephen Ruby, told Kolber’s former senate committee that the legislation was “seriously flawed” and that “no amount of tinkering can fix these rules.” Other law firms joined Davies Ward, one of them writing a memo praising the firm for carrying “the torch.”
“This level of review from a body that has traditionally rubber-stamped legislation is likely unprecedented,” a Canadian tax attorney wrote at the time.
It worked. The legislation died on the order paper and would not be enacted for five more years.
“What we’re really dealing with is almost like a legalized tax evasion, in other words a system that is so embedded and so entrenched that every step of the way a vested interest connected to these wealthy families and corporations rule the day,” says Wasylycia-Leis.
There was one more problem. Israel was also tightening up its rules on offshore trusts.
In 2013, Israel passed a law that would tax distributions from offshore trusts to residents of Israel, where Jonathan Kolber lived.
There was no way around the Israeli rules. So Jonathan Kolber’s advisers prepared documents for Israeli tax authorities offering details on the trusts’ holdings.
In the declarations, Kolber states the amassed wealth in the trusts — which at that time topped $60 million (U.S.) — came from one source: Senator Leo Kolber.
“The source of the Trust’s assets is the father of the Beneficiary, who is a resident of Canada and has never been a resident of Israel.”
Just before the declarations were submitted, Kolber’s Israeli tax advisers asked if he had consulted with his Canadian advisers “regarding the distribution of the trust assets to you.”
Kolber waves off any concerns:
“I reported . . . to the Canadians last week. Everyone is 100 per cent on board,” wrote Jonathan Kolber in a May 21, 2015, email.
“It is sophisticated, creative compliance, especially as the law in Canada was in a state of flux and we knew it was changing,” said Dalhousie’s Loomer. “Just accepting that the legislation applies to you and that you’ll have to pay the tax is not an option. You must find a creative way to get around the tax.”
The Kolber trusts were finally dissolved in 2016, their assets moved into Israeli trusts.
Much of what is reported here is likely common in the shadowy world of offshore wealth management. Tax authorities don’t know what they don’t know. And the continuing movement of billions of dollars offshore is a public policy issue that continues to confound governments worldwide.
In the past two years, media stories such as the Panama Papers have inspired growing political pressure and some meaningful reforms.
The Canada Revenue Agency has received almost $1 billion to pursue aggressive offshore tax avoidance. Still, Canada lags behind closely allied countries like the U.S., U.K. and Australia investigating offshore wealth movement and recouping taxes.
As for the Liberal fundraisers at the centre of this story, a lot has changed since Leo Kolber’s “bagman” days of private fundraising dinners, corporate jets and hitting up business associates.
After taking a beating in the headlines over cash-for-access events, the Liberal Party has reformed its fundraising rules.
But only months before announcing the party’s new rules, Leo Kolber held one last intimate dinner at his Montreal mansion for a Prime Minister named Trudeau. At $1,500 each, the ticket price was $50 less than the maximum individual political donation allowed by law.
“It’s going to be a great night as well as a wonderful networking opportunity for everyone,” wrote an organizer in an invitation email. “Keep in mind you get half your donation back when you file your taxes.”
Kolber’s co-host that night: Stephen Bronfman.