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The Hon. Wilfred P. Moore, Q.C., LL.D. Appointed to the Senate by the Rt. Honourable Jean Chrétien, Senator Wilfred P. Moore represents the province of Nova Scotia and the Senatorial Division of Stanhope St./South Shore. He has served in the Senate of Canada since September 26, 1996.

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Charlottetown Senator Urges Auditor General to Investigate Canada Revenue Agency

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Posted on 02 April 2012

Charlottetown Senator Percy Downe has written the Auditor General requesting that his office investigate the Canada Revenue Agency (CRA) and its failure to pursue, punish and deter overseas tax evasion.

Sparked in part by the recent revelations of over 1800 Canadians holding secret bank accounts in known tax havens such and Liechtenstein and Switzerland, Senator Downe’s request arises from four main concerns:

No Charges: More than four years after CRA received information about Canadians with secret accounts in Liechtenstein, not one of these Canadians has been charged – much less convicted – with tax evasion. This contrasts strongly with vigorous law enforcement activity in countries from Australia to Germany, with fines and jail sentences handed down against those caught evading taxes.

VDP Rule Changes: CRA’s Voluntary Disclosures Program (VDP) allows Canadians who have cheated on their taxes to come forward of their own accord, admit to what they have done and pay what they owe in exchange for reduced penalties. It is not a form of plea bargain for people already under investigation to avoid fair punishment. And yet that appears to have happened with many of the Canadians named in the Liechtenstein affair, even after CRA declared they were ineligible for such treatment. Why the rule change?

If Andorra can do it, why not Canada? Since the revelations about Liechtenstein surfaced in 2008, no fewer than 20 countries have concluded tax information exchange agreements with Liechtenstein in an effort to keep tabs on their citizens’ tax avoidance tricks. From the United Kingdom to tiny Andorra, these countries are acting to ensure tax fairness for their citizens. Yet Canada has yet to finalize such agreement, almost two years after starting negotiations, and four years after being told about the secret bank accounts. Other countries have acted swiftly and decisively. Why not Canada?

Activity at Home, Passivity Abroad: Any ordinary resident of Canada who is found to not be declaring their income would be hounded by the Canadian Revenue Agency. Why the double standard for very rich Canadians with foreign bank accounts hidden in well-known tax havens?

It’s time: Although the Auditor General regularly examines specific areas of CRA’s organization and activities, it has been some time since the Office has taken a close look at the problem of tax evasion. For example, the study “Revenue Canada—Ensuring Fairness of the Income Tax System: Detection of Non-Filers and Special Investigations” dates back to 1994.

“The current state of affairs suggests an obvious failure on the part of the Canada Revenue Agency and its leadership to come to terms with a problem that is costing Canadians untold millions of dollars in tax revenue,” said Senator Downe. “The Government seems to think that overseas tax evasion is a problem that can be cured with tough talk. As a result, we risk an erosion of confidence in our taxation system at a time when every dollar counts. If the Government will not take this problem seriously, then it is time for the Auditor General to step in and provide the oversight and scrutiny that Canadians so desperately need.”


For further information:

Senator Percy Downe: 613-943-8107
Or toll free at 1-800-267-7362


April 2, 2012

Mr. Michael Ferguson
Auditor General of Canada
11th Floor, West Tower
240 Sparks Street
Ottawa, ON K1A 0G6

Dear Mr. Ferguson:

I am writing to bring to your attention what I regard to be a serious issue facing Canada, particularly in these economic times: the problem of wealthy Canadians evading taxes by hiding their money in secret overseas bank accounts. I am especially concerned about the ability and willingness of the Canada Revenue Agency (CRA) to address this problem, as the problem of overseas tax evasion is becoming even more acute.

The issue of overseas tax evasion is a file I have been working on for quite some time now. Stories about tax havens are plentiful, but I have found the case of the LGT Bank in Liechtenstein to be quite unique. In 2006, a former employee of the bank smuggled out documents showing how the bank assisted its clients in avoiding taxes in their home countries. This individual had a list of client names from a number of countries, among them the second richest man in Australia, the Chief Executive Officer of the German Post office, but of particular interest, the list included the names of over one hundred Canadian citizens.

All this information was given in 2007 to tax authorities the world over, including our own CRA. I’ve been doing what I can to follow this affair, and I must confess to being disappointed at what I have found. In contrast to the swift and far-reaching response in other countries – hearings on Capitol Hill, police raids in Germany and Australia, convictions and jail sentences in many other countries – the response in Canada has been, quite frankly, shocking, to the point where questions are being asked about the competence of CRA management.

When I first raised this issue, the Federal Government was full of promises 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 ‘[W]e’ll get you, we’ll find you.’” (Times – Colonist. Victoria, B.C.: Dec. 3, 2009).

Earlier in the year, he had called tax evasion “a huge problem for this country,” and vowed “[I]f somebody owes us something, we have to get it.” (Saskatoon Star Phoenix, Feb. 19, 2009).

Unfortunately, the results appear to have fallen short of the tough talk. Last year, the Canada Revenue Agency claimed to have recovered only $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 – with $12 million in one account alone - this is a very small amount. But this talk of “penalties” underscores an important point: not one penny has been assessed in actual 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 have hidden their money abroad to avoid paying taxes in Canada has stood before a judge, in Canada or overseas.

One aspect of the file I find particularly troubling involves the administration of CRA’s Voluntary Disclosures Program. The VDP functions as a kind of amnesty program: under its terms, individuals can avoid penalties and prosecution if they make a valid disclosure, and may only ever be required to pay the taxes or charges owing, plus interest, on the disclosed amount.

In the wake of the Liechtenstein revelations, the Government was asked in Parliament if any of the 106 individuals had – or were eligible to – take advantage of the Voluntary Disclosures Program. The Government’s response was unequivocal:

. . . The voluntary disclosures program, VDP, promotes compliance by encouraging taxpayers to voluntarily correct previous omissions in their dealings with the CRA. A requirement of the VDP is that taxpayers must make a full disclosure before the CRA commences any compliance action or investigation. If they do so, they may only have to pay the taxes owing, plus interest, but not face penalties or prosecution in the courts.

As compliance action has been commenced on all of the listed taxpayers, they are no longer eligible for consideration under the VDP. (Answer to written question in Parliament, April 20, 2009)

The following year, however, the Government had changed its policy, with no explanation:

As of June 10, 2010, 20 residents of Canada who have accounts in Liechtenstein had availed themselves of the CRA’s Voluntary Disclosures Program. (Answer to written question in Parliament, June 10, 2010)

CRA’s own definition of voluntary disclosures disqualifies circumstances where the taxpayer was aware of, or had knowledge of an audit, investigation, or other enforcement action set to be conducted by the CRA. The CRA has stated on the record that due to the fact that compliance action had been commenced on all of the 106 Canadians discovered to be hiding money in Liechtenstein, none of them were eligible for consideration under the VDP.

What – or who - made CRA change its mind?

Since the scandal surfaced in 2008, no fewer than 20 countries have concluded tax information exchange agreements with Liechtenstein in an effort to keep tabs on their citizens’ tax avoidance tricks. The United States, the UK, Australia, France, and Germany have all signed agreements. Even countries like Antigua, 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, and with a population of 50,000) have signed tax information exchange agreements with Liechtenstein. Yet Canada has not. If all these other countries, big and small, can conclude a deal so quickly, what’s taking Canada years to get this done? By comparison to even some of the world’s smallest countries, Canada’s response to the Liechtenstein tax scandal can be described as lackadaisical 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 Canadian Revenue Agency. Why the double standard for very rich Canadians with foreign bank accounts hidden in well-known tax havens?

The Liechtenstein affair did not stay unique for long, as a couple of years later, a similar situation arose with regard to a bank in Switzerland, and again, the Government of Canada benefitted from the work of other countries, to the tune of files concerning 1785 accounts held by Canadians. Perhaps mindful of the publicity arising from the revelations about Liechtenstein, the Canadian Government has been much more secretive about this affair. But we do know that, again, the minimum account size is half a million dollars. And we know that if the Government works as quickly as they have done with Liechtenstein, none of us will be alive when they conclude their investigation.

But regardless of the details of individual cases, the fundamental issue is the same: tax fairness, like justice, must be seen to be done. Honest, law-abiding, taxpaying 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.

It has been many years since the Office of the Auditor General has undertaken a comprehensive examination of the investigative and enforcement branches of the Canada Revenue Agency. In my opinion, such a study is long overdue because of the importance of the topic in general, and in particular, because of the very real concerns regarding the operations of CRA arising out of issues such as the Liechtenstein and Switzerland affairs.

The current Minister responsible for the Canada Revenue Agency, Gail Shea, seems to be joining her predecessors in being unable to demonstrate the leadership necessary to bring about a successful conclusion to this ongoing problem. The last thing Canadians need is more tough talk: it is time for meaningful action.

I do hope you will add a study of this matter to your list of upcoming projects.


Percy Downe

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