Editorial: Morneau’s investments spark calls for tougher laws

He’s been pilloried by the opposition for possible conflict of interest. The controversy was based on federal finance minister Bill Morneau’s ownership of more than 2 million shares in Morneau Shepell, his family’s Toronto- based human resources firm, when he took office and the profit he would have made as a result of pension changes over which he had ultimate responsibility.

The controversy is substantial, but it leads directly to the real sources of the problem: the loose vetting of conflict of interest situations by ethics commissioner Mary Dawson, the lack of clear guidelines, and the need to strengthen both. The controversy obscures the broader issue of tax fairness and the need for more effort by the Canada Revenue Agency to combat tax avoidance schemes by corporations and individuals in their use of offshore tax havens.

Though Morneau had advocated these pension changes when he was a company executive, his main problem was his initial failure to be fully transparent about what he did with his investment once he was elected in 2015. As more contours of the story have emerged, it is that failure – the attitude that it’s nobody’s business but his — that is most glaring. We urge Prime Minister Justin Trudeau to clarify and strengthen rules in the conflict-of-interest law. It requires that cabinet ministers divest assets, such as publicly-traded shares, by selling them in an arms-length transaction or putting them in a blind trust until they leave office. The ethics commissioner says, and apparently told Moreanu, that there is an exception, if these shares or similar assets are held indirectly through a holding company or similar mechanism, which is exactly what Morneau had.

It took a while, but we have learned that Morneau sold one million shares, and donated the proceeds of almost $4.5 million to the Toronto Foundation charity. He then sold another 680,000 shares, paying capital gains on the proceeds of over $10 million. As for the more than one
million shares he still owns, he has promised to donate to charity any profits and dividends
accrued since he’s been in office.

But what were his motives for the initial sale of 320,000 shares and the promise to donate profits and dividends to charity? Morneau has not clarified this and has not apologized for not putting his shares in a blind trust. His actions indicate that he was aware at some point that he was in a conflictual situation in piloting legislation that would benefit his family’s firm in which he has substantial shares. Morneau Shepell was and still is involved with administering pensions, including those held by some of the thousands of employees of bankrupt Sears.

Morneau ought to have known he was in a conflictual situation. He is, as Andrew Coyne says, no naïf. His shares were not in a blind trust. He stood to gain financially and he did.

Although he says he was never ordered to put his shares in a blind trust, a man of honour and
integrity would have made sure to do so. Now the ethics commissioner is looking into it. His
donations to charity look like pre-emptive moves, in anticipation of and in response to criticism. Is that good enough? Meanwhile, we await clarification and elimination of this glaringly unfair loophole. We agree with the NDP’s Nathan Cullen that the situation resembles “some sort of shell game going … you have to guess who might or might not be in a conflict of interest.”

In the U.S., federal legislation requires senior public office holders sell their stocks and buy treasury bonds to avoid conflicts of interest. As a sort of compensation for having to sell investments, they can defer paying capital gains tax. This is an example of how the issue could be resolved.

Although not directly related, the federal government has taken some steps in the past two federal budgets to combat use by wealthy Canadians of offshore tax havens to avoid paying income taxes. But more needs to be done when it comes to corporate tax dodging. According to the Canadians for Tax Fairness Coalition, fully two-thirds of revenue losses related to tax haven abuse is the result of corporate tax avoidance schemes via offshore subsidiaries.

We support Bill C-362, introduced in June by NDP House Leader Murray Rankin, which would require a solid and legitimate economic basis for any offshore subsidiary to be recognized as a
separate corporate entity. The coalition estimates this could raise $400 million a year.

Another step recommended by the coalition is to cap interest payments to offshore subsidiaries, which Canada had in place until it was removed by the Harper Conservatives. The coalition estimates that could raise upwards of $200 million and we urge the Liberal government restore
this restriction.

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