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Bill Morneau didn’t Put assets in blind Confidence, raising conflict-of-interest risk

16 Oct 17
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Finance Minister Bill Morneau hasn’t put his substantial personal holdings into a blind trust as Justin Trudeau did for his family fortune — a move which the Prime Minister holds up as the gold standard for avoiding conflicts of interest in national politics.

When national politicians take office, they have two choices: either to put their straight controlled assets into a blind trust beyond their reach, or to sell these resources in “an arm’s-length transaction.” Ministers need to make that decision within 120 days of being appointed.

Mr. Morneau didn’t work out the first option, saying in a statement to The Globe and Mail that federal Ethics Commissioner Mary Dawson told him he did not have to set up a blind trust. The Ethics Commissioner’s office told The Globe that Mr. Morneau, a former Bay Street executive worth tens of millions of dollars, “failed to divest any regulated assets through the creation of a blind trust{}”

And the Ethics Commissioner’s office nor Mr. Morneau’s office will state if the Finance Minister sold stocks in Morneau Shepell, the pension and human-resources management firm founded by his father. “We are not providing any details of the minister’s personal and private affairs, beyond repeating that he’s worked with the Ethics Commissioner since being chosen and proper measures and displays are put in place so as to fully comply with the recommendations offered by the Ethics Commissioner,” Daniel Lauzon, spokesman for the Finance Minister, said in an email.

According to Canadian securities authorities’ disclosure system for corporate insiders, Mr. Morneau possessed 2.07 million common shares in Morneau Shepell in the time of the 2015 election.

That holding would be worth $43.3-million, according to Morneau Shepell’s closing price on the Toronto Stock Exchange Friday.

Mr. Morneau ceased to be deemed an insider of Morneau Shepell on Oct. 26, 2015, when he resigned as an officer and director. Because of this, any share sale after there wouldn’t appear in publicly disclosed trading documents.

The Ethics Commissioner’s office did notice that Mr. Morneau revealed the presence of a family trust in his filings. The Globe asked the Ethics Commissioner’s office if Mr. Morneau sold the two million shares in Morneau Shepell or whether they’re held in a family trust. The planet also asked how the Morneau family trust is a powerful method of insulation the minister from conflict-of-interest accusations when he’s making government decisions which may benefit his family’s holdings.

“We can’t supply you with any more info about minister Morneau’s compliance with the Conflict of Interest Act,” Margot Booth, who oversees media relations for the Ethics Commissioner’s office, told The world. “All the information we are authorized to make people is in the public registry{}”

Mr. Morneau’s office refused to state how the family trust was administered to protect him from controlling and managing his assets.

In a statement given to The world, the Finance Minister stated he’s worked “diligently and in terrific detail” with the Ethics Commissioner “to make sure that all of my affairs were organized appropriately and comply with the letter and spirit of the rules” governing MPs and members of cabinet. “I followed Ms. Dawson’s advice and recommendations to the letter,” Mr. Morneau said.

He explained Ms. Dawson told him he did not need to set up a blind trust. Neither Mr. Morneau nor the Ethics Commissioner’s office could clarify how the Finance Minister, among the wealthiest people in national politics now, could avoid having to set a blind trust. “As a consequence of the thorough meetings and filings which I supplied, [Ms. Dawson] concluded that there was no requirement to enter into a blind trust with regard to some of my resources,” he said.

Mr. Morneau cited a February, 2016 letter from the commissioner that stated he didn’t have any assets which would qualify as “controlled assets” under the Conflict of Interest Act and consequently have to be sold or placed in a blind trust.

Controlled assets in national ethics law are holdings whose worth might be directly or indirectly influenced by decisions taken by the authorities such as: publicly traded stocks, stock options and bonds.

He explained Ms. Dawson had advocated a “display” and other measures that “have been set in place so as to fully comply with ethics rules and guidelines” and that he explained remain in force. “I’ve had a past career of building a successful business and I am grateful to have the chance to put that expertise to work for the people of the nation,” the ministry stated. “I have great respect and confidence in the professional and confidential information that the ethics commissioner provides those people who choose public life{}”

There are significant differences between blind trusts and family trusts. In a blind trust, a trustee manages the assets without direction from the politician still in office, insulating public office holders out of accusations they’re making decisions in government that may benefit their private wealth. While the trustee of a blind trust has complete discretion over the assets, a family trust is a valid means to maintain and protect assets which are usually managed by a member of their household, or their accountant or attorney.

Mr. Trudeau put his personal assets in a blind trust to avoid accusations of conflict of interest when government funds are directed into the personal sector. Soon after being appointed Finance Minister, Mr. Morneau told the CBC that he hoped he would have to put his assets in a blind trust; finally, he’s not done so.

If Mr. Morneau didn’t sell his shares in Morneau Shepell, he could face accusations of a conflict of interest because of his controversial reforms to small-business taxes.

Opposition MPs and tax specialists have stated that Morneau Shepell would be among the principal beneficiaries of this move by the Finance Minister to raise taxes on passive investment in private businesses. The tax measure could prompt physicians and other small-business owners to buy private pension plans.

Mr. Morneau has told The Globe that he found it “absolutely ridiculous” to suggest that the changes could benefit Morneau Shepell because its sale of pension plans represented “less than 1 percent of earnings.”

According to the Office of the Ethics Commissioner’s public registry, Mr. Morneau’s chief of staff, Richard Maksymetz, was appointed to serve as a screen to avoid any conflict of interests. He’s charged with preventing Mr. Morneau from accessing government information which may place him at a potential or actual conflict of interest.

University of Toronto Professor Andrew Stark, who’s an authority on ethics and conflict of interest, said the display setup within the Finance Department is insufficient unless Mr. Morneau’s holdings are in a blind trust where a trustee makes all of the investment decisions with no knowledge.

In america, treasury secretaries — that are the equal of finance ministers — are expected to place all resources into a blind trust to avoid any conflict of interest.

“This is the superior solution because you don’t have any clue whatsoever about your holdings. They might be in particular industries or broadly held funds, but you do not understand. That’s the gold standard in managing conflicts of interests,” Prof Stark said.

Mr. Morneau, who had a successful career on Bay Street as an executive in Morneau Shepell, married into much larger money through his partner, Nancy McCain, an heir to the multibillion-dollar McCain Foods empire.

Disclosure documents the Finance Minister filed with the federal Ethics Commissioner’s office say he’s a possible beneficiary of the Nancy McCain 2013 Family Trust. He also seems to be a beneficiary of another trust, known as the Morneau McCain Family Trust.

Those records show that Mr. Morneau is sole owner of 2070689 Ontario Ltd., a Toronto-based holding company, which also owns a lot of an Alberta-based investment holding company in Calgary, 1193536 Alberta Ltd.. Ms. McCain, his partner, is president of the Toronto company and a director of the Alberta firm.

Mr. Morneau’s Alberta-based investment firm generates income for his partner, based on his disclosure statement.

It is not clear why Mr. Morneau found his investment holding company in Alberta when he lived in Ontario. However, finding in Alberta has in recent years conferred a tax benefit on corporations and investors, although this has changed in the last few years.

According to filings in Ottawa, Mr. Morneau also jointly owns four numbered Ontario property holding companies with his siblings. Florida land records suggest these firms, 2254165 Ontario Inc., 1446977 Ontario Inc., and 2135042 Ontario Inc. and 2135041 Ontario Inc. own a string of condominium properties, some of these valued at greater than half-a-million bucks each, on Florida’s west coast.

Ms. McCain is also only owner of NCM Holdings Inc., an investment firm that holds a “nominal interest” in White Marsh Holding Company Inc..

Courtesy: The Globe And Mail

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