Organized crime groups could exploit banks located on Canadian Native reserves to launder money and grow their profits, according to an RCMP criminal intelligence report.
“A recent Supreme Court of Canada decision created a new window of opportunity for organized crime groups,” the RCMP warned in the November 2011 report on cigarette smuggling, obtained under the Access to Information Act.
That assessment followed a July 2011 ruling by Canada’s top court that interest income earned from deposits in banks located on reserves is not taxable under the long-standing Section 87 of the Indian Act, a decision that overturned two previous judgments, one from the Tax Court of Canada, and the other from the Federal Court of Appeal.
The appellant (a legitimate businessman) had earned interest on term deposits in an aboriginal credit union on the Mashteuiatsh Reserve in Quebec, even though he was a member of the Obedjiwan Reserve, where there was no bank. The majority ruled his membership location was unimportant, and also stated there was no need to consider whether under Section 87 the property or the activity which generated it “benefited the traditional Native way of life.”
Yet two of the nine justices dissented, writing: “To grant the exemption in such circumstances would be tantamount to turning the reserve into a tax haven for Indians engaged in unspecified for-profit activities off the reserve.”
The RCMP agreed, writing that, as a result of the ruling, “organized crime groups may seek to make arrangements with individuals of Native status to benefit from this tax protection. Such arrangements could be used to conceal the origins of illicit profits, as well as grow those proceeds with the tax protection through further investments.
“This decision has the potential to create barriers for law enforcement investigating the contraband tobacco market in First Nations reserves, as it provides an opportunity to launder earnings by filtering it through on-reserve bank accounts, and diverting the funds into the mainstream investment markets. It also provides an opportunity for tax evasion, and the ability to profit extensively from those earnings.”
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