Canadian launches court action over 'stolen' offshore data

A wealthy Canadian is seeking a court injunction to stop the government from using stolen data to audit him and thus secretly conducting a criminal investigation against him.

Case suggests government is using an audit to conduct a secret investigation

A wealthy Canadian is in court fighting the Canada Revenue Agency to block its probe into undeclared income in offshore bank accounts. 

Lawyers for Tarek Sabra of Montreal filed an action in Federal Court in March. 

The application seeks an injunction to prevent the government from continuing to use "stolen data" to find out more about Canadians with Swiss bank accounts.

 It also suggests that because the Canada Revenue Agency may be conducting a clandestine criminal investigation, Canadians with offshore bank accounts should not have to give the CRA information that might lead to criminal charges.

 Nicholas Simard, a lawyer who represents people whose names have appeared on the "stolen" list, says there is some confusion over whether the government wants its tax dollars or also wants the holders of the bank accounts to go to prison.
The HSBC Private Bank in Geneva, Switzerland. More than 1,700 private offshore bank accounts belonging to Canadians turned up on a list of secret accounts in 2010. (Alex Shprintsen/CBC)

"Canadians who have held those bank accounts are at risk of potentially going to prison, unless [Prime Minister] Stephen Harper comes forward and clears out the old issue as to whether or not the intention of the government is to do a civil tax audit or to go on the criminal side and prosecute those Canadians," Simard says.

The people on the HSBC list have been sent a detailed audit form that asks about all their bank accounts, investments and business assets.

Two years ago, a joint CBC News/Globe and Mail investigation revealed that more than 1,700 private offshore bank accounts belonging to Canadians turned up on a list of secret accounts in Switzerland. 

A Vancouver home of a member of the Kadkhoda family. (Alex Shprintsen/CBC)

Vancouver action

A year ago, seven members of the Kadkhoda family of Vancouver also launched legal action against the Canadian government for using data they said was stolen. 

Their application claimed that using stolen data for administering or enforcing the Income Tax Act "constitutes an abuse of process" and "was and is unlawful." 

The Kadkhodas withdrew their action last fall without stating a reason.

The Canadians on the list were part of a larger group that included about 80,000 accounts belonging to HSBC Private Bank clients held in Geneva, according to whistleblower Herve Falciani.

Just to open an account, "you need at least $500,000," Falciani said at the time. 

As the former head of computer security at HSBC, Falciani copied the files onto his personal computer. He was fired by HSBC after being accused of trying to sell the data to foreign governments. 

Full extent of the law

When Ottawa found out about the existence of the list, the prime minister insisted tax evaders would be prosecuted to the full extent of the law.

"If some citizens use Swiss bank accounts to avoid paying lawful taxes, the government will prosecute them to the full extent of the law," he said in the House of Commons on Sept. 30, 2010.

Still, the legal actions against the government claim that because Harper told the House there could be criminal prosecutions, they don't have to say anything so they don't incriminate themselves.

Simard points out that the government in France has already lost a similar case.

"We have a judgment from both the appeal court of France and the equivalent of our Supreme Court of Canada which is called in France the Cour de cassation – which says basically that their revenue agency in a criminal tax evasion case was not able to use the stolen list of HSBC clients to prosecute their own clients, or to use it to do criminal tax audits of tax evasion."

The CRA wouldn't comment directly on the Sabra court challenge or say if anyone has been charged, but in a statement insists the list was legally obtained through an international tax treaty and that the "CRA continues its audit efforts related to information obtained regarding HSBC and all other offshore accounts."

If the case is successful, it could lead to a landslide of claims from people who say Ottawa can't ask them about their foreign bank accounts.

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No one charged

Liberal Senator Percy Downe argues the government has not been tough enough on offshore account holders and accuses the CRA of focusing on low hanging fruit – people who don't hide their money offshore.

He points to a 2010 auditor general's report that suggests the CRA goes after "quick hits" and "smaller cases of a lower dollar value."

Downe says that not one Canadian has been charged in the CRA's offshore probe, "not one Canadian has paid a fine."

The Charlottetown senator has written to the auditor general asking for an investigation into what he says is CRA's  failure to punish big dollar tax evaders.

"Those that have accounts overseas, that have accountants and lawyers to defend them and millions of dollars in the bank, are getting a tax holiday from this government," he says.

A spokesperson for Minister of National Revenue Gail Shea says that since 2006, the CRA has "audited thousands of cases and identified more than $4 billion in unpaid taxes."

A number of people who knew their names were likely on the HSBC's list did pay taxes; 84 people have voluntarily paid over $18 million.

In the meantime, the federal government has also signed 19 treaties with other countries to exchange banking information.  Eight of these countries are known or suspected tax havens.

With files from the CBC's Angela Gilbert and Joseph Loiero