Debates of the Senate (Hansard)
1st Session, 41st Parliament,
Tuesday, February 28, 2012

Notice of Inquiry
Overseas Tax Evasion

Hon. Percy E. Downe rose pursuant to notice of February 7, 2012:

That he will call the attention of the Senate to:

(a) the problem of Canadians evading taxes by hiding assets in overseas tax havens;

(b) the harm this does to Canada, both in terms of lost revenue and its effect on those Canadians who obey the law and pay their fair share of taxes;

(c) the pathetic efforts of the Canada Revenue Agency to discover, halt and deter overseas tax evasion, and how, in comparison to those similar agencies in other countries, CRA falls short;

(d) the fact that this, plus recent scandals involving the CRA could lead one to conclude that there are serious problems at the Agency; and

(e) concerns that this situation amounts to a lack of leadership on the part of the Government of Canada.

He said: Honourable senators, I too want to talk about the Canada Revenue Agency, but unlike Senator Eaton, I want to talk about money going outside the country; I want to talk about overseas tax evasion.

As you know, honourable senators, I have been following this issue for a number of years. The last time I spoke about it, a reporter asked me, "Are you aware if any of your colleagues in the Senate have overseas accounts?" I said, "No, but you may want to check; maybe there are some rich journalists who have overseas accounts," as they are never disclosed because the names are not public.

In this case, I am talking about a bank in Liechtenstein where there was an inquiry as to how information was received. A bank employee stole information from the bank, went to his home country and then offered that information for sale. Strangely enough, the Government of Germany purchased that information from him, and then they sent that information out to other countries that had citizens on the list. In the case of this bank in Liechtenstein, there were 106 Canadians on that list who had secret, undisclosed accounts.

The problem is with the Canada Revenue Agency. According to their website, their mandate is "to administer tax, benefits, and related programs, and to ensure compliance on behalf of governments across Canada, thereby contributing to the ongoing economic and social well-being of Canadians."

Unfortunately, the weak efforts to hunt down overseas tax evaders are troubling indicators that the CRA has had difficulty in fulfilling its mandate, and on many occasions has failed.

Tax evasion within the boundaries of Canada is also a problem. Recently, the media has reported that there is an RCMP probe into alleged corruption among some CRA officials, and that probe has been widened to include officials at many CRA offices. Investigations have been ongoing since 2008 in response to allegations that federal auditors that help firms evade taxes in Canada have turned a blind eye to unreported income.

Three CRA auditors have been fired under suspicion of sharing a bank account worth nearly $2 million with a business owner who has pled guilty to tax evasion. These investigations raise serious questions about the state and competence of the current management of the CRA and leads directly to my ongoing concern about the massive problems of overseas tax evasion.

As I indicated, in 2007 the Government of Canada received information from the Government of Germany. It was because of this lucky break that CRA had the list of these 106 tax cheats handed to them on a silver platter.

I have been doing what I can to follow this affair through access to information requests, written questions in the Senate and correspondence with various ministers over the years, and I must confess to being disappointed at what I have found. In contrast to what other countries have done — in the U.S.A. there were hearings on Capitol Hill, police raids in Germany, people charged all over the world — the response in Canada has been shocking, quite frankly, to the point where questions are being asked about the competence of CRA management.

In response to inquiries I made, the government admitted that the information they were handed showed the amounts in Canadian-held Liechtenstein bank accounts totalled over $100 million, ranging from one account, which had the lowest amount of money, at $500,000, to one account with over $12 million. These are very rich Canadians.

When I first raised this issue, the federal government was full of promise and tough talk. In 2009, then revenue minister Jean-Pierre Blackburn said:

People realized that it's a question of time before we get them . . . . I tell them 'We'll get you, we'll find you.'

Earlier in the year, he called tax evasion "a huge problem for this country" and vowed "if somebody owes us something, we have to get it."

Since 2007, however, the results have fallen short of the talk. Last year, the Canada Revenue Agency claimed to have only recovered $6 million in back taxes, interest and penalties on the money hidden by Canadians in Liechtenstein. Given that the total amount of money hidden away was over $100 million, and as I said, $12 million in one account alone, this is a very small amount.

Amid the talk of interest and penalties, another fact becomes clear: not one penny has been assessed in fines. That is because not one charge has been laid. In the four years since this information has come to light, not one of these Canadians who hid their money abroad to avoid paying taxes in Canada has stood before a judge in Canada or overseas.

In stark contrast to Canada's response, several hundred citizens of the United Kingdom were facing prosecution in July of 2008, mere months after the existence of their hidden assets in Liechtenstein was made public. In the same short period, German tax authorities forced evaders with assets in Liechtenstein to pay over $150 million.

Finally, since the scandal surfaced in 2008, no less than 20 countries have concluded tax information exchange agreements with Liechtenstein in an effort to keep tabs on their citizens' tax avoidance. The United States, the U.K., Australia, France and Germany have all signed agreements. Even countries such as St. Vincent and the Grenadines, Andorra and the Faroe Islands — a self-governing territory of Denmark consisting of 18 islands in the North Atlantic Sea, with a population of 50,000 — have signed tax information exchange agreements with Liechtenstein.

Guess who has yet to conclude any agreement? Canada. If all these other countries, big and small, can conclude a deal so quickly, what is taking Canada years to get this done? By comparison to even some of the world's smallest countries, Canada's response to the tax scandal can be described as slack at best. The question is why? Any ordinary resident of Canada who is found to not be declaring their income would be hounded by the Canada Revenue Agency.

(1740)

Why the double standards for very rich Canadians with foreign bank accounts hidden in well-known tax havens? In fact, these tax cheats appear to have received special treatment from the CRA once it was uncovered they were stashing money in Liechtenstein. In response to one of my written questions, the CRA revealed that, as of June 2010, 20 of the 106 residents of Canada who had the accounts in Liechtenstein had availed themselves of the CRA Voluntary Disclosure Program, the VDP. The VDP allows taxpayers to come forward and correct information or to disclose information they had not reported during previous dealings with the CRA, without penalty for prosecution.

Among other criteria for disclosure under the VDP to be valid, it must be voluntary. CRA's own definition of "voluntary" disqualifies disclosures where "the taxpayer was aware of, or had knowledge of an audit, investigation or other enforcement action set to be conducted by the CRA . . ."

Since the CRA also revealed that all 106 Canadians with accounts in Liechtenstein were subject to some level of compliance action, none of them should have been eligible for the voluntary disclosure program. In fact, the CRA had previously stated in response to a written question that "As compliance action has been commenced on all of the listed taxpayers" — that is, all 106 — "they are no longer eligible for consideration under the VDP." That was on April 20, 2009.

The CRA then changed its policy position.

Quite simply, at least 20 rich Canadians have avoided penalty or prosecution because they have been given special treatment. Why? It is unacceptable that, after receiving a tax holiday, this "tough on crime" government gives these wealthy tax dodgers a vacation from prosecution.

Canadians using banks in our country pay all their taxes. Why are Canadians with foreign bank accounts, some containing millions of dollars, getting a tax holiday under this government? Who is being protected? Why is this government not being tough on tax-cheating criminals?

The LGT bank affair in Liechtenstein did not stay unique for long, for a couple of years later a similar situation arose with regard to a bank in Switzerland. Again, the Government of Canada benefited from the work of other countries to the tune of being given the files of 1,785 accounts held by Canadians in this one bank in Switzerland. I do not have as much to say on this issue because the government is much more secretive about this affair, but we do know you could not open an account in this particular bank for less than half a million dollars; and we do know that if the CRA works as quickly on this file as they have on the Liechtenstein file, none of us will be alive when they conclude their investigation.

Whether the accounts are in Canada or overseas, the fundamental issue is the same. Tax fairness, like justice, must be seen to be done. Honest, law-abiding, tax-paying Canadians should not have to feel let down by a federal government unable or unwilling to make a serious effort to recoup monies from Canadians who try to avoid paying their fair share.

Honourable senators, the federal government must do the right thing and make the names of Canadians with accounts in Liechtenstein and Switzerland public. These wealthy tax cheats benefit from taxpayer-funded services, such as Canada's health care system when they get sick or when a family member gets sick, but they refuse to fund their fair share of the system. These people must be judged by Canadians in the court of public opinion.

As the lawyer for Heinrich Kieber, the man who stole the list from the bank in Liechtenstein, said:

Settlements in these situations must be made public. And they must be made public for two reasons, first to ensure that there isn't a cozy deal between the government and some very rich politically influential people, on one side.

And on the other side as a deterrent to anyone else who might be thinking of doing this. Because as you can imagine if someone is out there cheating on taxes and he's been publicly exposed he won't become a knight. He won't exactly be an honoured citizen who's given awards. He won't be appointed to State business and State Commissions. And that's very important. . . .

And that is how it should be, because paying taxes is an essential civil responsibility. And the rest of us are the ones who pay for what these people don't pay.

The government recently announced that 60,000 Canadians will receive the Queen's Jubilee Medal. I am sure that no senator would want that medal to be awarded to an overseas tax cheat, but if the names are not made public, how will we know?

Colleagues, I wish to impress upon this chamber just how serious a problem we are facing. LGT Bank in Liechtenstein and UBS Bank in Switzerland are just two banks in Europe. Over 1,800 Canadians were found to be stashing money in accounts with these institutions. This is just the tip of the iceberg.

In fiscal year 2009-10 alone, the CRA has estimated that there is approximately $1 billion in overseas tax havens. One billion dollars is a very alarming amount to find, and how many billions of dollars remain undiscovered by the CRA in tax havens around the world?

Again, honourable senators, there has not been a single tax evasion charge laid in any of the cases of Canadians hiding their money in Liechtenstein or Switzerland. Not a single one of those Canadians has checked into prison because of their tax dodging. Billions in unpaid taxes have been identified, but a woefully small amount has been recouped. Put simply, there has been no meaningful action from the CRA on this extremely serious issue.

In October 2010, a report from the CRA acknowledges the problem. The report notes that many cases that could potentially represent a significant criminal non-compliance are rejected by agency enforcement groups because of limited resources or other workload pressures. This report, which is again from the CRA, goes on to say that offices are closing smaller cases of a lower dollar value — can I have five more minutes?

The Hon. the Speaker: Agreed?

Hon. Senators: Agreed.

Senator Downe: The report goes on to say that offices are choosing smaller cases of a lower dollar value that do not necessarily represent the greatest risk. In other words, CRA officials are taking the easy way out, rejecting risky cases of large-scale tax evasion in favour of more certain, smaller victories.

The report goes further in pointing out that the tax avoidance audit area refers only 0.2 per cent of its cases to the Criminal Investigation Program, the branch of the CRA mandated to investigate suspected cases of tax evasion, despite the fact that there is a high likelihood of evasion in this population versus the general audit population.

As I mentioned earlier, the amounts in Canadian-held Liechtenstein bank accounts totalled over $100 million, ranging from a minimum of $500,000 to the one account with over $12 million. None of these cases would be considered quick hits by any measure, but certainly every effort should be made by the CRA to recoup lost revenue from 100 per cent of these tax avoiders. A mere 0.2 per cent is a failure of leadership by Minister Shea and the senior management of the CRA.

In conclusion, honourable senators, ordinary Canadians who obey the law and pay their taxes want to know why there is a double standard. Why are a few wealthy Canadians getting a tax holiday from this government? Canadians want to know where is the minister responsible for the Canada Revenue Agency, the Honourable Gail Shea? Why is she allowing this to happen? Why is she allowing tax cheats with hidden accounts in tax havens to escape Canadian courts and prison?

Hon. Carolyn Stewart Olsen: Would the honourable senator take a question?

Senator Downe: Yes.

Senator Stewart Olsen: This may be my ignorance about what the honourable senator has laid out before us, but I do not know how we would go about finding out how much money and who puts it into these tax havens. Are they not protected by the governments there with a lot of secrecy?

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From what I understand, we know about the Liechtenstein ones because someone leaked the document. I am wondering what the honourable senator's advice would be as to how to go about those first steps of finding these people.

Senator Downe: Certainly I am no expert, but it appears from the literature I have read and referenced in the speech, there are tax avoidance agreements that other countries have signed. For example, once the cat was out of the bag in Liechtenstein, over 20 countries had already signed tax avoidance agreements. If you open an account there and you are a citizen of the United States, the United States government is aware of it. Canada has not done that.

The other area is we are signing all these international agreements. For example, we will soon have a treaty on Panama before this chamber. Panama is one of the most abusive tax havens in the world, and there are serious allegations about illegal drug money from South America pouring into Panama. We are going to sign a free trade agreement. We can put some pressure on them to have a tax agreement affecting Canadians with accounts in their country.

There is simply too much money hidden overseas that we can be using in this country for a host of projects. Every time we raise something in this country, the question is: How much will it cost and how will we fund it? One big pool of money is these unpaid taxes, penalty and fines that are not being collected.

Hon. Catherine S. Callbeck: Will the honourable senator take a question?

Senator Downe: Yes, of course.

Senator Callbeck: The honourable senator spoke of the 106 Canadians. I think he referred to roughly $100 million, the lowest being $500,000 and the top $12 million. He mentioned that CRA has allowed 20 of them to pay back money, with no penalty. What about the other 86? Will the CRA still allow them to pay their money back and that is it, no penalty, nothing?

Senator Downe: With respect to the documents the CRA sent me, and I cannot remember if it was an access request or a written question, they originally responded to me that no one would be eligible for this voluntary disclosure because it is now public and they are all under investigation. Then they said, as I indicated in my speech, that 20 of them will not be charged because they voluntarily declared.

It makes no sense why some can do it and others cannot and why they changed their policy. I do not know if they are escaping or what they are doing with the other 86 people. I do not have that information.