Lai Hongtao “Bruce” Liu spent his days and nights long ago providing offshore advice, capital markets services and investment and insurance solutions to companies and wealthy clients who wanted to relocate offshore to avoid paying American and Canadian taxes.
Liu, who was allegedly the “right-hand man” to a prominent Chinese businessman, Wang Changtian, also lived in Dubai for several years. Liu and Wang sent money back to China, getting his clients to shift their financial lives to Dubai, a city already associated with fly-by-night activities and shady dealings.
In the United States, the two men were arrested in April 2015. The following month, the US Treasury Department conducted a series of raids in a 30-day takedown of offshore firms that are linked to the illegal activity. Several companies were closed down in New York, Nevada, California and Florida in what Treasury officials termed “Operation Fort Apache.”
The majority of these “shell” companies had been set up in British Virgin Islands and other tax havens, as well as other tax havens in Panama, the Cayman Islands and the Isle of Man.
The operations were part of a larger tax scheme set up in 1988 by Wang to help some of his rich Chinese clients avoid paying their US taxes, officials said. In one instance, Wang organized a company that has been linked to the alleged scheme to transfer $100 million to a bank account in the Cayman Islands, which was allegedly part of a scheme to pay the effective income tax rate in the United States at close to zero.
U.S. officials said that the Canadian government had “turned a blind eye” to this operation. In some cases, no records were kept by the Canadian regulators because Liu and Wang had been referred to them by a third party and not as confidential brokers by the company they worked for. In one case, a director of a major Canadian investment company was cooperating with U.S. investigators while Liu was still working for his company.
The U.S. authorities want Liu to forfeit $330 million in forfeiture. Although his court appearance in New York is over, he is living in Canada since he was allowed to request an exemption from the extradition treaty between the U.S. and Canada.
Liu and Wang were charged with conspiracy, perjury, failure to file the required forms, money laundering, mail fraud and wire fraud.
Bruce Liu was arrested in Canada in April 2015 on a U.S. indictment accusing him of helping scheme to structure investments and related transactions in order to help U.S. customers avoid paying U.S. taxes.
We previously reported that the alleged scheme to relocate tax shelters to Dubai was advanced by President Xi Jinping in Beijing and that the Chinese leader promised to “lend a helping hand” to American companies who wanted to relocate to foreign tax havens for the same reason.
If Liu were to be extradited to the United States, he could spend the rest of his life in a maximum security prison.
Ernest Luning is a global tax partner at Ravelston LLP in Toronto.