Revealed: Justin Trudeau’s close adviser helped move huge sums offshore

Stephen Bronfman, who played key role in Canadian PMs rise, was involved in complex offshore web, leaked newspapers show

The chief fundraiser and senior adviser to the Canadian prime minister, Justin Trudeau, who played a crucial 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, engagedthrough 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 households who collaborated to transformation millions of dollars to the Cayman Islands. On one side were the Bronfman family, inheritors of the Seagram distillery fortune in Montreal.

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What are the Paradise Papers?

The Paradise Papers is a special investigation by the Guardian and 95 media partners worldwide into a leak of 13.4 m files from two offshore service providers and 19 tax havens’ company registries. The files uncover the offshore financial affairs of some of the world’s biggest multinational companies and richest someones, and set about the myriad routes in which tax can be avoided utilizing artificial structures

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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( merely in kind )”. 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 taxation 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.

At that phase 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 here 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-taxIsle 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 chore of going out and get taxation avoiders and tax frauders “.

The Paradise Papers put the spotlight once again on Trudeau’s record on tax fairness, merely 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 resurrected their bond to assist Trudeau’s meteoric rise. Bronfman, 53, created$ 2m for Trudeau’s leadership campaign and was was rewarded by being built 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 1920 s rendering the illicit alcohol trade during US proscription. The distinctive Seagram Building in Manhattan, designed by Ludwig Mies van der Rohe, still stands as a monument to the family’s status.

The Seagram Building in New York, pictured in 1960, two years after it was completed. Photo: 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 industries 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 monies, the leaked files depict, including a $5.3 m loan make use of Stephen Bronfman personally in 1997. By then the trust was flush with virtually $40 m in assets.

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What are the Paradise Papers?- video

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

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 shut ties between the two households, 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 indebtednes 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 the best interest accruing, which would be treated as income.

Charles and Stephen Bronfman in 1999. Photo: 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 records in the fax was an email that was sent to him from a fiscal consultant. 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( merely in kind ), 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 consultant contained in the fax gives details of the “manner” by which the best interest issue might be resolved. It records that senior Bronfman officials told Kolber that they would “‘ build 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 taxation authorities viewed no-interest loans as red flag for potential taxation avoidance strategies. 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, especially a revenue service, like evidence of fraudulent intent ,” he said.

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 are required to 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 altered in Israeli tax law.” The trust proclaimed 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 parent and son denied any improper activity on their proportion. He said:” None of the transactions or entities at issue were effected or established to evade or even avoid taxation. My clients “ve always been” 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 taxation in Canada under existing law bearing in mind the fact that he no longer lived there; nor was there any tax owing in his adoptive Israel.

Quick Guide

Ten key revelations from the Paradise Papers

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1) Millions of pounds from the Queen’s private estate has been invested in a Cayman Islands money– and some of her fund went to a retailer accused of exploiting poor families and vulnerable people.

2) Extensive offshore dealings by Donald Trump’s cabinet members, advisers and donors, including substantial pays from a firm co-owned by Vladimir Putin’s son-in-law to the shipping group of the US commerce secretary, Wilbur Ross.

3) How Twitter and Facebook received hundreds of millions of dollars in investments that can be traced back to Russian nation financial institutions.

4) The tax-avoiding Cayman Islands trust managed by the Canadian prime minister Justin Trudeau’s chief moneyman.

5) A previously unknown $450 m offshore trust that has sheltered the wealth of Lord Ashcroft.

6) Aggressive taxation avoidance by multinational corporations, including Nike and Apple.

7) How some of the biggest names in the film and Tv industries protect their wealth with an array of offshore schemes.

8) The billions in tax rebates by the Isle of Man and Malta to the owners of private airplanes and luxury yachts.

9) The secret loan and alliance used by the London-listed multinational Glencore in its efforts to secure lucrative mining rights in the Democratic Republic of the Congo.

10) The complex offshore webs used by two Russian billionaires to buy stakes in Arsenal and Everton football clubs.

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The lawyer confirmed that Stephen Bronfman did make a $5.3 m 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 mansion, 24 Sussex Drive, but chose not to respond.

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

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