By Mark Stevenson
The Kahnawake Mohawk Nation in Quebec says it will establish its reserve as a “sovereign financial territory” and transform it into a major “offshore” tax haven, with out federal or provincial government approval.
Kahnawake leaders say a bank, a securities exchange and a regulatory authority that will oversee them are all under development and will make their reserve, located 30 kilometres south of Montreal, a financial centre similiar to Antigua, the Caribbean nation where low taxes and privacy legislation encourage international investors to shelter money.
“We have every intention of becoming a power in offshore banking,” said Chief Davis Rice, who heads Mohawk Internet Technologies (MIT), a high-tech park with 44 employees at the reserve.
“We’re talking about offshore banking on the shores of the St. Lawrence River.”
To help the effort, MIT has hired Michael Tobin, the former head of business development at the New York Stock Exchange.
In September, MIT announced it would use the legal protection of its sovereign nation to become the first territory in North America to license online gambling firms. Most Internet gaming businesses conduct transactions through computer servers based offshore to avoid an uncertain legal climate in Canada and the United States.
The plan now is to lure investors with a range of financial services and accounts “hidden … for obvious tax reasons,” according to Chief Rice.
“Why can’t we take business from Antigua and put it on the St. Lawrence?” he said.
“Of course Canada and others will say that it’s impossible, that what we’re doing is illegal … [That] will be our battle.”
Kahnawake Mohawks, as with all native Canadians, pay no income taxes provided they live on reserve and are not subject to sales tax on products or services purchased on their territory.
Chief Rice maintains that their “sovereign status” as natives means they do not need approval from Ottawa to establish their own bank or securities exchange.
Federal officials say they do not know if the Mohawk efforts are legal.
Margaret Pearc, a spokeswoman for the Office of the Superintendent of Financial Institutions (OSFI), the federal regulator, said there are strict requirements, including capital and deposit insurance standards, which banks must meet to operate legally in Canada.
She said reserve status may pose regulatory jurisdiction questions.
Nevertheless, she said a Mohawk bank would not be recognized unless it met OSFI’s requirements.
“We wouldn’t consider them a bank unless they became a bank,” said Ms. Pearcy Jean-Michael Catta, a spokesman for the Finance Department, would not comment on whether the Mohawk move would be legal.
“If you want to set up a bank in Canada, there are rules that need to be followed,” said Mr. Catta.
“But in the [Mohawk] case … we would have to get a legal opinion.”
No one at the Mohawk Nation would offer details about the tax regime that would be set up to create an “offshore” banking centre are typically low-tax countries with such secretive banking regulations that an individual’s or company’s home country cannot prove where the money in a given bank account came from.
Michael Tobin, the former New York Stock Exchange official advising MIT, is also a former director of economic development for New York State in the province of Quebec.
In a telephone interview with the National Post from Long Beach, California, he said he expects the bank to be operating within six months and the securities exchange in a year.
“The Mohawks have a certain special tax status … which will be part of the formula,” Mr. Tobin said.
“There is no reason for this not to evolve into something based on the Caribbean [model].”
Mr. Tobin was reluctant to release further details, but said the group would offer bank accounts, electronic cash and a securities exchange through the Internet. Businesses and financial firms are also being encouraged to locate at the park.
He said MIT has already been approached by a number of interested banks, including “heavy hitters from the US and Europe.”
Both online businesses and firms located at the reserve would be under a Mohawk financial authority that is being developed to protect investors and ensure such practices as money laundering do not occur, said Mr. Tobin.
Tax experts say a sovereign financial entity on North America soil would have certain benefits.
Alex Doulis, an expert on tax shelters who is based in the Caribbean said a Mohawk bank, for example would be unique difficulties for Canadian tax collectors.
At present, Revenue Canada tracks money leaving the country through records provided by banks, which are required to record transfers greater than $10,000.
But with a tax haven on Canadian soil, investors could avoid detection by physically moving the money, said Mr. Doulis.
“If we have a tax haven in Canada, someone would drive from Montreal with $20,000 in their jeans [deposit the money at the Mohawk bank] and say, thank you, very much.”