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Blockchain Or Cryptocurrency Fraudulent Investment Schemes – Technology – Canada – Mondaq News Alerts



Blockchain or Cryptocurrency Fraud – Cryptocurrency Fraudulent
Investment Schemes

The advent of blockchain technology and cryptocurrencies has
resulted in sudden fortunes for more than a few individuals. At the
same time, the technology and economics of the cryptocurrency space
are confusing and not well understood by the general public. This
creates an opportunity for scammers to exploit the public with a
path to riches whose credibility is difficult to evaluate.

Apart from outright scams, our clients have also informed us of
companies operating in the cryptocurrency space which have
incorrectly requested funds on the basis of Canadian income tax or
anti-money laundering compliance requirements. In addition to
scams, investors in cryptocurrency need to be aware that the
companies that they deal with may not understand Canadian tax or
anti-money laundering compliance requirements.

Clients of our firm have received a request of this nature from
Continental Marketing Czech Republic s.r.o., a company holding
itself out as offering cryptocurrency investment services and
operating under the name Nittrex. The clients had an account with
Nittrex which was used for an investment strategy which involved
buying and selling cryptocurrency based on Nittrex’s advice.
The investment strategy was explained as being cryptocurrency
arbitrage transactions. According to the client’s statements
from Nittrex, this investment strategy was extremely profitable.
When the clients attempted to make their first significant
withdrawal of funds from the account, Nittrex informed them that
they needed to make a substantial payment into an escrow wallet set
up by Nittrex on account of the taxes that would be owing to the
Canada Revenue Agency for Canadian income tax. Nittrex stated that
this was required by anti-money laundering regulations and Canadian
tax law. Our clients were also told that paying CRA themselves was
not an option.

The claims made by Nittrex are false. As described below, this
is not how Canadian tax or anti-money laundering law operates.
There is almost never a requirement to make a payment on account of
Canadian income tax to a private company or individual. Demands of
this nature are a sign of fraud and you should exercise extreme
caution in dealing with the company or person making this type of
demand. We do not know whether in particular Nittrex merely does
not understand Canadian tax and anti-money laundering compliance
but information given to our clients was wrong.

Fraud in the Cryptocurrency Context – Cryptocurrency Fraudulent
Investment Schemes

One classic scam, called a Ponzi scheme, is to solicit funds
from investors, send regular false reports of outsized profits to
solicit additional funds, and then disappear with the funds
received before too many investors try to withdraw their money. In
the blockchain or cryptocurrency context, scammers can ask you to
transfer Bitcoin to you so they can use your capital for a highly
profitable cryptocurrency trading strategy. This type of approach
has many advantages for scammers.

One problem is that in most cases transfers of Bitcoin or other
cryptocurrencies are effectively irreversible. Once you have
transferred Bitcoin to scammers, there is no mechanism available to
reverse the transaction. In the ordinary financial system it is
sometimes possible to reverse fraudulent or unintended transactions
after the fact (e.g. credit card charge backs). Similarly,
Governments are not able to intervene directly to reverse
transactions on blockchain ledgers.

Another advantage is that since the general public knows that
some individuals have genuinely become wealthy almost overnight
with cryptocurrency investments. This makes it easier for a member
of the public to believe the reports of outsized profits sent to
them by the scammers are correct. Once you have provided funds to a
scammer purporting to be running a cryptocurrency investment
strategy, you will likely have no way to directly verify the
performance of the alleged investments.

Canadian Tax Payment & Withholding – Cryptocurrency
Fraudulent Investment Schemes

Our firm has been retained by clients who as investors are being
told that they need to pay Canadian income tax to their purported
cryptocurrency investment managers in order to withdraw
cryptocurrency from their accounts. This is a red flag because it
involves neither paying taxes to CRA directly nor witholding by the
investment manager. If you pay a private entity on account of your
Canadian income taxes you will not get credit for that amount from
the Canada Revenue Agency and you may not be able to retrieve the
amount from the private entity. On reciept of such a request you
should consult with an expert Canadian tax lawyer before sending any

Canadians normally pay income tax through one of two different
methods. First is by paying CRA directly. The second is through
witholding by the entity paying out the income (e.g. an employer
witholding income tax from an employee’s salary). The first
method is the default and used in essentially all cases except when
the second method applies.

The witholding method is used only in a relatively small number
of types of situations. When the witholding method applies, the
withholder will provide a statement of some kind to the recipient
of the income showing the amount withheld. The withholder will then
remit the amount withheld to the CRA. The taxpayer who had the
amount withheld will be credited with having paid a corresponding
amount. In the event that the total amount withheld from a taxpayer
exceeds the taxpayer’s amount owing, the CRA will send the
taxpayer a refund. This witholding only applies to a relatively
small number types of situations in the Canadian tax system, most

  • Employers witholding from payment of salary, wages or
    employment benefits to their employees;
  • Financial institutions witholding from RRSPs withdrawals;
  • Payors witholding from payments of rent, interest, dividends or
    certain other types of passive income to non-residents;
  • Witholding from fees or commissions charged by a non-resident
    rendering services in Canada; and
  • Witholding from proceeds of sale paid to a non-resident selling
    Canadian real estate, Canadian resource properties, or timber
    resource properties.

In most legitimate cryptocurrency investment scenarios, none of
the above witholding mechanisms will be involved. There are some
exceptions however, such as investing in securities designed to
give investors cryptocurrency exposure through an RRSP. If you are
in doubt regarding your situation, consult an expert Toronto tax

Canadian Anti-Money Laundering Law – Cryptocurrency Fraudulent
Investment Schemes

Our firm has been retained by clients who have received requests
for funds incorrectly justified on the basis of anti-money
laundering law and regulations. Demands for additional money on the
grounds of Canadian anti-money laundering law are a fraud red flag
as these demands are not contrary to how Canadian anti-money
laundering law operates. If you have received such a demand, you
should seek out legal advice from an experienced Canadian tax
lawyer. You may not be able to recover funds transferred in
response to such a demand.

The primary statute implementing Canadian anti-money laundering
law is the Proceeds of Crime (Money Laundering) and Terrorist
Financing Act
(PCMLTFA). This statute is administered by the
Financial Transactions and Reports Analysis Centre of Canada

The primary approach taken by Proceeds of Crime (Money
Laundering) and Terrorist Financing Act
to combat money
laundering is to impose record keeping and reporting requirements
on financial service providers and other persons or entities that
engage in businesses, professions or activities that are
susceptible to being used for money laundering. Regulated entities
are required to run a compliance program, implement “know your
client” protocols, keep records, and report certain types of

FINTRAC monitors entities regulated by the Proceeds of Crime
(Money Laundering) and Terrorist Financing Act
to ensure
compliance. It also receives and analyses the reports sent by those
entities. When appropriate the Financial Transactions and Reports
Analysis Centre of Canada interfaces with law enforcement and other
government agencies which may then take further action in
suspicious circumstances.

None of these activities would require additional payment on
behalf of a cryptocurrency investor to someone purportedly running
a cryptocurrency investment service.

Entities which operate money services businesses are also
required to register with FINTRAC, and this registry is searchable
by the public on the Financial Transactions and Reports Analysis
Centre of Canada’s website. A money services business is a
business that offers at least one of the following services to the
Canadian public:

  • foreign exchange dealing,
  • remitting or transferring funds,
  • issuing or redeeming money order or similar negotiable
    instruments, or
  • dealing in virtual currency.

This means if you are a Canadian using some form of intermediary
to purchase cryptocurrency, that intermediary should be registered.
If that intermediary is not registered, it is cause for extreme
caution. Nittrex is not registered with FINTRAC as of the
publication of this article despite allegedly operating a platform
which allows for Canadians to buy and sell virtual currencies.

Pro Tax Tips – Cryptocurrency Fraudulent Investment

Beware of investment opportunities with the following red flags
of fraud:

  • promises of high returns with low risk,
  • the investment is only available for purchase for a short
    period of time,
  • the investment promoter uses high pressure sales tactics,
  • the investment is described as normally only being offered to
    an exclusive group (e.g. normally only to the very wealthy),
  • the investment promoter is not registered to sell

The website of the Canadian Securities Administrators offers a
national registration search that is helpful for verifying whether
a promoter is registered.

If you are ever requested to make a payment to someone other
than the Canada Revenue Agency on account of Canadian income taxes,
you should consult an experienced Canadian tax lawyer to verify
that the request is genuine. It is almost certainly not a valid

If you suffer losses due to a cryptocurrency related fraudulent
investment scheme, you may be able to claim a loss for Canadian
income tax purposes that will help offset your other Canadian
income tax liability. Canadians who have been defrauded should also
report the fraud to the government through the Canadian Anti-Fraud
Centre and through the RCMP.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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World's Biggest Wealth Fund Makes $1.6 Billion Wind Investment – BNN



(Bloomberg) — Norway’s $1.3 trillion wealth fund has made its first investment in unlisted renewable-energy infrastructure since being given the go-ahead to move into the asset class.

The world’s biggest sovereign investment vehicle said on Wednesday it will buy 50% of the 752 megawatt Borssele 1 & 2 Offshore Wind Farm from Orsted A/S of Denmark. The deal is worth 1.375 billion euros, or about $1.6 billion, it said.

Norway’s wealth fund has been looking for such assets to purchase since getting a mandate to start buying in 2019. But as recently as January, Chief Executive Officer Nicolai Tangen said it was proving hard to find reasonably priced targets.

“We are excited to have made our first unlisted investment in renewable energy infrastructure, and we look forward to working alongside Orsted on delivering green energy to Dutch households,” Mie Holstad, chief real assets officer at the wealth fund, said in a statement.

Strategy Update

The announcement coincided with a strategy update by the fund, in which it signaled it will apply a more active approach to its investment strategy. That includes a goal of becoming a global leader in sustainable investing.

Tangen, a former hedge-fund boss who’s been running the giant sovereign investment vehicle since September, has stepped up the Oslo-based fund’s reliance on external asset managers and made environmental, social and governance goals a cornerstone of his focus. He wants to rely more on technology, including artificial intelligence, and plans to expose his portfolio managers to the same kind of training regimens that help shape top athletes.

In Wednesday’s strategy update, the fund said it will “emphasize specific, delegated active strategies and have less emphasis on allocation or top-down positioning.”

As the world’s biggest stock investor, the Norwegian wealth fund’s “knowledge of our largest company investments helps us achieve the highest possible return after costs,” it said. “It improves risk management and enables us to fulfill our ownership role. We believe our active management improves our ability to be a responsible investor.”

The fund, which generated $123 billion in returns last year, used a previous strategy update to shift its equity exposure toward U.S. stocks and away from Europe. Much of last year’s performance was driven by the fund’s holdings of U.S. technology stocks.

The fund follows a benchmark that allocates about 70% to stocks and the rest to fixed income. It also invests in real estate and was recently given a mandate to start buying renewable infrastructure.

The sovereign wealth fund, managed by a unit of the central bank, was created in the 1990s to invest Norway’s oil and gas revenues abroad, initially to prevent the domestic economy from overheating. It owns about 1.5% of global stocks.

The fund said the goal is to become a global leader in responsible investment, partly by further integrating ESG data into its investment process.

©2021 Bloomberg L.P.

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Digital investments correlate to financial success – The 21st Century Supply Chain – Perspectives on Innovative



Executives live daily with a daunting dual challenge. One part is the need to manage the business through steady-state operations and times of disruption. The other is to create value for shareholders through financial excellence and growth.

At the intersection of these two parts lies the digitalization of supply chain. Through digital transformation, supply chain leaders can begin to develop the capabilities that are already needed to manage disruption, as well as those that will help overcome known obstacles, such as data availability and quality. Layering on top of data is information and insight, which are critical to ensuring that those in supply chain are making the decisions that matter most to the business.

The operational opportunities are evident, so the rationale behind the investment is clear. However, that only solves one part of the executive’s dual challenge. Quantifying the value created through financial excellence has been more difficult, but recent research from Professor Morgan Swink of Texas Christian University now shows the correlation between investing in digital transformation and delivering financial success.

Kinaxis customers outperformed during the pandemic

Using quarterly financial statements for 48 publicly held, North American companies that use Kinaxis for their supply chain planning, Professor Swink conducted what is known as a difference in differences analysis for all of 2019 and the first three quarters of 2020. In that analysis, the 48 companies represented those who have already begun their digital transformation against industry averages for each respective vertical over the corresponding period. Furthermore, the analysis was performed as a pre/post event comparison based upon the declaration of COVID-19 as a global pandemic in Q1 2020.

While industry averages showed declines after the pandemic declaration in return on assets (ROA), return on sales (ROS) and return on invested capital (ROIC), the Kinaxis users all delivered improvements when compared to the pre-pandemic performance.

“These data are very strong. I was quite surprised at the level of positivity in these findings,” Professor Swink said upon sharing his findings. The results were so impressive that among the initial six financial metrics compared, the group of 48 Kinaxis customers, representing the digitally transformed, outperformed their industry averages across the board.

The academically rigorous, statistically significant data shows that while industry averages showed declines after the pandemic declaration in return on assets (ROA), return on sales (ROS) and return on invested capital (ROIC), the Kinaxis users all delivered improvements when compared to the pre-pandemic performance. The largest gap occurred for return on sales, which acts as a measure of operational efficiency, where the Kinaxis group improved by more than 1.5%, while the industry declined by more than 0.5%, leading to an overall performance gap of more than 2%. Costs, as a percentage of revenue, also were an advantage for the group of 48 Kinaxis users as both costs of goods sold and sales, general and administrative costs decreased while industry averages either declined slightly or grew.

Translate supply chain success into the CFO’s main metrics

With an impressive array of data, like the research findings, it becomes critical that supply chain leaders be able to convey the right information to the right people. In the case of what matters most to CFO’s, Professor Swink says, “The two things that every CFO cares about are profit and growth. And from the CFOs perspective, they’re looking at ways to invest money to drive profit and growth.”  

Therein lies a significant opportunity for supply chains because they have historically struggled with translating operational capabilities into financial success. This carries over to digital transformation, as well. In both cases, the benefits are typically stated in the terms of those desiring the investment, as opposed to the metrics of whomever is making the decision. As Professor Swink stated, “You need to learn what those metrics are and be able to position your proposal in that language just like the other people who are competing for those funds.”

Flow chart connecting digital capabilities to financial outcomes
Translate digital transformation outcomes into meaningful impacts for decision makers, for example, aligning supply chain capabilities to financial outcomes.

Once the metrics are identified, begin to understand how operational capabilities work as input drivers for them. For example, increased visibility is highly desirable so that supply chains can sense disruptions as it is happening and respond immediately. That alone is a tremendous benefit and it can be tied to financial outcomes such as reduced inventory and cash buffers, improved capacity utilization and lower cost resolution of demand-supply mismatches.

Taking it a step further, the improvements in return on invested capital, and even return on assets, can then be tracked as digitally enabled capabilities are now linked to these financial performance measures. By doing so, the “why an investment is needed” aligns with what it means to the decision maker.

This creates a pivot point for supply chains as Professor Swink suggests that practitioners must be able “to relate structural choices, policies, technology investments, and training and labor investments to the kinds of KPIs that show up on income statements and balance sheets.” This is crucial because “if we really want to speak the language of the CFO we must think beyond those kind of specific operational metrics to think about how our choices affect these larger outcomes.”

To hear more about Professor Swink’s research, watch his on-demand webinar, Speak your CFO’s language – Managing risk and opportunity in supply chains.

Watch the on-demand webinar, "Speak your CFO's language - Managing risk and opportunity in supply chains"

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CI Financial and industry veterans co-launch real estate investment firm – The Globe and Mail



CI Financial CEO Kurt MacAlpine in downtown Toronto on Dec. 20, 2019. Over the past 18 months, Mr. MacAlpine has been rapidly expanding CI through acquisitions in its wealth management business.

Tijana Martin/The Globe and Mail

CI Financial Inc. is making its first foray into the private real estate sector with a joint venture interest in Axia Real Assets LP, a newly formed alternative investment manager focusing on global real estate and infrastructure.

CI announced the new venture on Tuesday along with industry veterans and Axia co-founders Kelsey Boland, Darrell Shipp, Greg Stevenson and Joshua Varghese, a former CI portfolio manager.

No financial details were released by either company, but Axia will be independently operated and managed by its four partners. Prior to the deal, CI had only stepped into real assets by offering larger institutional investors access to private real estate funds and private equity and credit.

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The new venture will now allow retail investors access to private real estate opportunities that are typically hard to access, said Mr. Varghese, who managed a multibillion-dollar portfolio of global real estate equities at CI Global Asset Management for more than a decade.

Over the past 18 months, CI chief executive officer Kurt MacAlpine has been rapidly expanding CI through acquisitions in its wealth management business, as well as boosting its alternative investment arm to include alternative exchange-traded funds, cryptocurrencies and private-fixed income.

“The products people are buying today are very different from what they bought 10 years ago and they will be different five years from now,” Mr. MacAlpine said in an interview. “We are trying to be relevant to wherever Canadians want to invest – and today that includes real assets.”

With more than $3.7-billion in liquid alternative funds, CI offers retail investors access to publicly listed real estate investments through mutual funds and ETFs – as well as a private real estate fund for accredited investors.

Mr. MacAlpine said along with the growth of CI’s wealth management business, which has doubled its assets under management compared with a year ago, “the demand for both liquid – and illiquid – real estate has also increased from both institutional and retail investors.”

Rather than expand through acquisition, Mr. MacAlpine spent several months last year discussing the new joint venture with Mr. Varghese, who left his role at CI last November to start building Axia.

Mr. Varghese was joined by several former Slate Asset Management executives, including Mr. Stevenson who was the former CEO of the Slate Retail real estate investment trust, which invested in U.S. retail properties anchored by grocery stores.

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“Right now what we are seeing is a lot of the interesting opportunities in real estate that are based on the emergence of the new economy – whether it’s e-commerce warehouses, grocery stores, or data centres – and are hard to access for a lot of investors, both retail and institutional,” Mr. Stevenson said in an interview.

“As investors continue to diversify their portfolios to accumulate long-term wealth, we believe the opportunities for global real assets are significant.”

In addition to grocery-anchored real estate, which includes big-box grocery stores, other areas of interest to the firm, said Mr. Varghese, include life-science facilities, cold-storage facilities and single-family rental homes.

Mr. Varghese declined to comment on the company’s initial investment capital, but said he expects to launch the first set of investment products this summer.

“We think because of digitization and because of what that is going to do to enable societal change, we are going to see bigger changes in the next two decades than we saw in the last two decades,” Mr. Varghese said.

“When you are investing in real estate – which is a long-term asset class – you have to have a laser focus view on what those changes will look like and [the areas we are looking] will provide our investors access to the types of real estate that are going to benefit from the new economy.”

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