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Massive U.K.-based scheme aimed to swindle $52M in tax refunds from Canadian government

The Canada Revenue Agency has carried out raids on several Ontario locations as part of an investigation into an international sales tax refund scheme.

The website for telecommunications service provider, 5G Global Inc., showed an address in the heart of downtown Ottawa.

In reality, it was just a “virtual” office.

Investigators with the Canada Revenue Agency knew something was really fishy when they looked at the pictured staff members. One smiling woman holding glasses up to her chin was listed as “Natalie Roberts, General Director,” while a silver-haired man was identified as “Allen Bailey, Manager.”

However, the same people were pictured on the website of a different company under the names “Jessica Cox, Lawyer” and “Dominic Simmonnet, Director.”

Fake websites were just one part of a massive international scheme to try to dupe the Canadian government into paying $52 million in sales tax refunds or rebates through fraudulent claims, court records obtained by the National Post show.

5G Global Inc. website

In the end, 11 foreign nationals based in Britain managed to squeeze $4.7 million out of federal coffers over five years before auditors and investigators caught on, the records state. The proceeds were put into Canadian banks, then transferred to offshore accounts or used in real estate transactions.

Earlier this week, the Canada Revenue Agency announced investigators had carried out raids at three homes or businesses in Ontario (Richmond Hill, Victoria Harbour and Ajax), as part of their probe into the “tax fraud and money laundering scheme.” Their counterparts in Britain’s tax authority, Her Majesty’s Revenue and Customs department, did simultaneous searches at six locations in that country.

“By increasing our collaboration with our domestic and international partners, the CRA is taking an active role in ensuring a fairer tax system, where those who abuse the laws face consequences for their actions,” the agency said in a statement at the time.

The agency has been flexing its muscle as the federal government beefs up its criminal investigations division. Over the last two budgets, the government has invested close to $1 billion to help the CRA and its 500 investigators target schemes, such as this one, and crack down on tax evasion and avoidance, the agency says.

The CRA reports that from 2011 through 2016, 508 individuals were convicted for tax evasion, resulting in $40 million in court fines and 244 years of jail time for the offenders.

According to an application for search warrants — known as an Information to Obtain (ITO) — filed in B.C. Provincial Court by CRA investigator Denise Hartman, the alleged “carousel scheme” now under investigation stretched from 2011 through 2015.

Eleven individuals in Britain set up 84 corporations in Canada and overseas. Most of the Canadian companies were either virtual offices or UPS Store mailboxes.

Lengthy paper trails — including falsified bank statements and sales invoices — were created to make it appear that these companies had engaged in a series of transactions, such as the buying and selling of long-distance minutes or electronic equipment. The repeated movement of these goods from one party to the next was said to resemble a carousel.

A typical scenario might look like this: Canadian Company A buys goods from Foreign Company A, then sells those goods to Canadian Company B. Canadian Company B then sells the goods to Foreign Company B.

Investigators with the Canada Revenue Agency knew something was really fishy when they looked at the pictured staff members.

Canadian Company B then files a return to the Canada Revenue Agency seeking a refund for the GST/HST it allegedly paid to Canadian Company A, even though Canadian Company A never remitted any tax to the federal government.

“The Canadian government is being asked to refund money that it never received to begin with,” Brian Heller, a Toronto lawyer who specializes in white-collar crime, said after the Post briefed him on the allegations in the ITO. “They’re basically sucking money out of the government.”

According to the ITO, Noman Shaikh, 43, is believed to be the “catalyst in initiating and perpetuating the alleged carousel schemes. He will be shown to be an authorized signing officer for banking transactions and has written personal cheques on behalf of several of the Canadian corporations allegedly involved.”

Shaikh is said to have received assistance from a bunch of individuals, described in the ITO as “enablers.” Over April and May 2013, Shaikh and eight of those individuals flew to Toronto’s Pearson International Airport, after which they set up bank accounts for several of the companies.

As of Friday no charges had been laid in the matter, and the allegations have not been proven in court. The Post attempted to reach Shaikh through an email address mentioned in the ITO but did not get a response.

The scheme began to unravel when auditors with CRA’s Refund Integrity Program noticed patterns in many of the GST/HST returns they were reviewing: the companies were typically involved in telecommunications but showed little or no evidence of any business activity; high refunds — some exceeding $1 million — were claimed; shareholders were not Canadian residents; and addresses were virtual offices.

“When viewed in its totality, the sequence and even some of the transactions do not make financial sense,” the CRA investigator wrote in the ITO.

Only 20 of the Canadian companies had filed T2 corporate tax returns and did so only for the 2013 tax year, according to the ITO. All reported “nil net income.”

The Ontario accounting companies that helped prepare those tax returns were the subjects of search warrants earlier this week.

A woman who answered the phone at one of the companies said Friday the raid had been “hugely upsetting.”

“I have nothing to do with what they’re after. All we did was file T2s based on information provided to us at the time. We did our best to verify things,” she said.

“I think the reality is we were all conned.”