KPMG promoted hiding money from wealthy clients' ex-spouses in offshore 'sham'

Embattled accounting firm KPMG promoted its offshore Isle of Man tax avoidance scheme as a vehicle for stashing money away from ex­-spouses in divorce proceedings, documents handed over to a parliamentary probe reveal.

Those revelations are contained in several "private and confidential" emails between KPMG tax executives and an outside law firm, as well as in a talking point "script" for accounting sales reps to promote the Isle of Man tax dodge to their affluent clients.

The discovery that KPMG discussed avoiding Canadian laws in family disputes is the latest development in a growing scandal in which one of Canada's largest accounting firms ran a secret offshore scheme for more than a decade that the Canada Revenue Agency alleges "intended to deceive" authorities.

• Read the client meeting script
• Isle of Man tax dodge could break law, KPMG insiders cautioned

An all-­party House of Commons committee, which obtained the documents in May, has launched a probe of KPMG's offshore practices and its relationship with the Canada Revenue Agency. CBC News reported earlier this year that federal authorities offered a secret amnesty to the wealthy tax dodgers caught using KPMG's Isle of Man "product."

The idea of using the Isle of Man tax dodge as a vehicle for keeping money away from ex-spouses is also raised in a legal opinion to KPMG from prominent law firm Fraser Milner Casgrain, now Dentons.

Lawyer Joel Nitikman, who was asked for legal advice on KPMG's proposed offshore tax plan, wrote about the "possibility of avoiding the Divorce Act (Canada) and similar provincial legislation" if clients were to buy into the scheme.

"I didn't provide anything. I have no idea what you are talking about," Nitikman first told CBC News last year, before the letter became public. He cautioned against reporting any involvement. "If you do that I'm going to sue you because I didn't provide the legal opinion," he said.

In a more recent phone call, after the letter was made public, the Dentons lawyer refused to comment and said he could not talk about client matters. 

The KPMG documents provided to the Commons finance committee show the accounting firm used Nitikman's legal opinion to help draw up a sales pitch to potential wealthy investors.

'Initial client meeting script'

In what was called the "initial client meeting script," KPMG sales agents were advised to discuss the "primary benefits" of the scheme with wealthy Canadians.

The list of benefits included a section promoting "asset protection" which, according to KPMG, meant there would be "nothing" that an "ex­-spouse" could claim.

Steven Benmor, a Toronto­-based family law specialist, says those talking points are "potentially damaging" to KPMG, as the firm appears to be endorsing the idea of getting around Canadian divorce laws.

"They're pushing to defeat a wife or husband of their rightful interest in this asset. And that's the problematic part," says Benmor.

A copy of a 2002 KPMG letter to an unnamed client, obtained by CBC News but not submitted to the finance committee, puts the notion of avoiding spousal payments in writing. 

Under the heading of how to "achieve your asset protection" objectives, it notes that "no eligible person should be considered to have an enforceable interest that could be subject to the claims of creditors, including spouses or ex-spouses under community of property type laws."

"That's basically, in simple language, you are hiding this from your wife," Benmor told CBC News.

Avoiding payments 'crosses the line'

Wayne Easter, Liberal chair of the finance committee, says the references to avoiding Canadian divorce laws suggest KPMG was "not looking at fairness and equality under the law. It's how do you avoid the law, to stretch the law, even if it's to the detriment of an ex-spouse." 

Guy Caron, NDP finance critic, faults the Liberal government for not having already called a "full investigation" of the secret "no penalties" deal between KPMG and the CRA.  "Canadians expect more from their government."

"Here we see that KPMG was advising their clients on how to not only avoid paying taxes but also avoid paying full divorce settlements or alimony," Caron says. "That's pretty despicable."

Discussing with clients the possibility of avoiding Canadian divorce laws raises important legal and ethical issues, says Ottawa criminal lawyer Michael Spratt. While there are legitimate ways to reduce spousal obligations, he says, using the Isle of Man tax dodge is "highly problematic."

"This seems like a completely illegitimate mechanism" to avoid Canadian divorce laws, he said. 

"You avoid all your obligations and you get your money back … I think that's what crosses the line."

Send confidential tips on this story to investigations@cbc.ca or call Harvey Cashore at 416-526-4704