Some wealthy Canadians come clean with assets after tax-haven lists emerge

OTTAWA - Wealthy Canadians with money stashed overseas have come forward in droves to confess their misdeeds after secret lists began circulating with the names of people apparently evading taxes in foreign banking havens.

The Canada Revenue Agency has seen the number of voluntary disclosures of foreign, unreported income rise dramatically since 2007, when it received the first such list from Liechtenstein naming 106 Canadians with accounts in secretive banks there.

The agency in 2010 received another list from the French government with information about more than 1,000 Swiss accounts at HSBC Private Bank (Swiss) SA, all linked to Canadian taxpayers.

And Revenue Minister Gail Shea is pursuing yet another massive list, acquired recently by the CBC, that the public broadcaster says contains the names of 450 Canadians with money in foreign tax havens.

The agency's voluntary disclosures program encourages taxpayers who have deliberately or inadvertently failed to pay their taxes to come forward. If the disclosure is accepted, penalties are waived and no legal action taken, as long as back taxes are paid.

The program has seen a spike in disclosures of offshore accounts since 2007, to a record 4,064 in 2011-2012 — more than double the level three years earlier.

Offshore disclosures represented just one sixth of the program caseload in 2008-2009, but since then are approaching one third.

Documents detailing the surge were obtained by The Canadian Press under the Access to Information Act.

The voluntary disclosure program, or VDP, is available only if the agency has not already launched a probe into an individual's unreported income.

None of the 106 Canadians on the Liechtenstein list, for example, can take advantage of the VDP because tax auditors here were already tipped. Members of this group, with about $100 million in Liechtenstein assets, were pursued separately.

But negative publicity around the Liechtenstein, Swiss and other lists — and tough-talking government officials — appear to have driven many nervous account-holders into the arms of the taxman.

In the three years to March 31, 2012, almost 11,300 disclosures about offshore income arrived at the offices of the Canada Revenue Agency, acknowledging more than $1 billion in unreported income. Federal tax and interest owing was assessed at about a quarter of that amount.

A CRA spokesman said a series of measures to ensnare offshore tax-evaders do appear to be increasing the number of voluntary disclosures.

"These efforts have resulted in successful compliance actions that have received widespread media attention, such as the CRA's efforts to address the Liechtenstein accounts," Philippe Brideau said in an email.

"Canadians who may be engaging in these types of activity are seeing the results of our efforts, and realizing they are better off to come forward voluntarily and possibly avoid being penalized or face prosecution or jail time."

The released documents reveal that fewer than 1,000 disclosures of offshore assets that had arrived by Dec. 30, 2012, involved the banking hotspots of Liechtenstein (59), HSBC (204) and Swiss-based UBS (675).

But the individual disclosures for these three locales are larger, on average about $300,000 each, or together worth a quarter of the unreported $1 billion.

Depositing funds in a foreign tax haven is not against the law in Canada, but failing to report any income related to such accounts is.

Last Friday, the commissioner of the Canada Revenue Agency wrote to the president of the CBC, asking the public broadcaster to turn over its leaked list of potential tax evaders.

The CRA "has not asked for the source of the information and will treat any information you provide with strict confidentiality in the same manner it treats all taxpayer information it receives," said the letter from Andrew Treusch.

The CBC has already said it will not release the list, to protect journalistic integrity.

Any prospect of the Canada Revenue Agency coming into possession of the CBC list, however remote, may prompt even more wealthy investors to come forward with their tax-haven account information.

As an added incentive, the March 21 federal budget announced a new program to pay snitches for ratting out overseas tax evaders, among other measures to raise the profile of the issue.

The government defends the voluntary disclosure program as a low-cost way to flush out tax evaders and others, but some critics say it favours the rich.

Former prime minister Brian Mulroney took advantage of a more-generous version program when he disclosed $225,000 in unusual cash payments from Karlheinz Schreiber in the 1990s.

The Canada Revenue Agency in 2000 allowed Mulroney to pay taxes on only half the undeclared amount he had received from Schreiber. The one-half rule, which was for Quebec-based claims only, has since been rescinded.

Taxpayers who disclose unreported income under the program not only avoid penalties and legal action, but the Canada Revenue Agency routinely waives partial interest on the overdue amounts as well, under little-known rules.

In 2010-2011, for example, the agency waived $45 million in interest due on about $600 million of back taxes owed under the VDP.

A CRA-commissioned poll of 1,002 Canadians, conducted in late 2011 by Ipsos Reid, found that 54 per cent agreed with the statement that the disclosure program "allows cheaters to avoid penalties they should be paying."

Liberal Sen. Percy Downe, who has closely followed tax-haven issues, said he was not surprised about the stampede of wealthy Canadians disclosing their overseas accounts.

Downe said a task force in Australia, known as Project Wickenby, launched a high-profile campaign in 2006 to chase and prosecute tax dodgers hiding funds abroad, and found the move had a chilling effect on other taxpayers contemplating similar evasion.

But the Australians obtained at least 26 criminal convictions, unlike the Canada Revenue Agency, which recently concluded Project Jade — the pursuit of 106 people holding Liechtenstein accounts — with no charges laid. Rather, $22.4 million in back taxes, interest and penalties was assessed.

Downe says stronger legal action by Canada would grab the attention of more tax evaders. "We could drive those (disclosure) numbers up in Canada substantially if there were suddenly some charges," he said in an interview.

The CRA says it has uncovered $4.5 billion in unpaid taxes since 2006 through its efforts to thwart so-called aggressive international tax planning, and has convicted 44 people.

Some experts estimate that about a trillion U.S. dollars is hidden away each year in hundreds of tax havens by wealthy investors around the globe.