Former trader who allegedly masked $5 million of his income under a tax haven scheme is raided

By Jennifer Jacobs and Drew Harwell

NEW YORK/TORONTO | Investigators from Canada’s tax agency raided the office of the founder of a Canadian-based trading firm as part of a long-running probe into his offshore companies in the British Virgin Islands, records obtained by The New York Times show.

Documents obtained by The Times as well as interviews with more than three dozen people close to the investigation and to local prosecutors in Toronto suggest that Blue Cloud Capital Inc. founder Sheldon Weiss set up five offshore companies in the British Virgin Islands to hide a controlling interest in his trading company, preventing him from meeting tax obligations.

A tax agency spokesperson in Canada said Wednesday that the agency was “acting on current issues which are linked to [Blue Cloud Capital’s] active business in the Canadian financial services sector,” without elaborating. Mr. Weiss did not respond to requests for comment.

An Australian court filed a warrant to seize a luxury car Mr. Weiss owns as part of the investigation, The Times reported. The Fairfax County, Va., prosecutor’s office filed a subpoena for his bank records.

A British Virgin Islands police affidavit describes how Blue Cloud, based in Toronto, listed its parent company as a U.K. shell company before shifting the address to the British Virgin Islands, and shuttering Blue Cloud’s offices while trying to prevent regulators and investigators from finding out what was happening.

“While Blue Cloud continues to operate, the company is passing business to the British Virgin Islands with the full knowledge and understanding of all concerned parties,” British Virgin Islands police Detective Inspector Kevin Hyland wrote in an affidavit filed with a South Australia court in 2017. “Despite the company having numerous offshore shell companies, the company does not have many or any employees or do not have an office in South Australia.”

Mr. Weiss’s own activities have long been under scrutiny. In March 2015, when staff of Canadian authorities from both Canada Revenue Agency and Her Majesty’s Revenue & Customs began looking into Blue Cloud Capital and its activities, Mr. Weiss told his staff to unblind his BlackBerry for meetings and placed a phone charger in the front of his suit.

Six months later, after the IRS wrapped up its inquiry into Blue Cloud, the Canadians determined that Mr. Weiss had failed to pay $1.6 million in taxes, according to documents obtained by The Times. The CRA didn’t say why the taxman hadn’t pursued the investigation when Mr. Weiss first came to the agency’s attention.

The case stands out among others that the Canadian prosecutors and Canadians pursued. In all, the prosecutors said in court filings, in 2005, Mr. Weiss funneled nearly $5 million of Blue Cloud’s money through offshore accounts, producing a payee list that included a coffee shop owned by Mr. Weiss and his brother in Brampton, Ontario.

“The allegations against the principal parties are at the very least, particularly troubling,” Charles Burnman, the prosecutor handling the case, wrote in a memorandum to a South Australian court. “The documents allege that the company was maintained and promoted by money laundering of large sums of Canadian funds raised by the principal parties.”

In an interview with The Times, Martin Garneau, the director of investigations for the Toronto office of the Canadian Revenue Agency, said he never questioned why Mr. Weiss’s bank records showed that cash transactions often came from Blue Cloud’s traders. “I assume that he always does it, because he doesn’t keep his money very long,” Mr. Garneau said.

The IRS didn’t pursue its own investigation because investigators couldn’t get the trove of information the Canadian government could access. According to Mr. Burnman, the Canadian prosecutors and agents were advised by their counterparts in the United States not to pursue their investigation.

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