The Federal Court has ordered three Canadian banks to give the Canada Revenue Agency information on clients with alleged financial ties to Liechtenstein as part of an ongoing offshore tax-evasion probe.
Federal Court documents show UBS Bank Canada, the Canadian arm of Switzerland-based UBS AG; Financière Banque Nationale Inc. (FBN), the top investments dealer in Quebec; and BMO Nesbitt Burns Inc. (BMONB) must provide all information on account holders linked to Liechtenstein between 2000 and 2009.
The CRA demanded they provide a "detailed list of all accounts held or that have been held… that were created for account holders of Liechtenstein."
The CRA filed three separate applications to the Federal Court in April. The agency is looking for the names of clients with links to Liechtenstein, the small European principality with strict banking secrecy laws.
Clients hiding investments: tax auditor
Russell Lyon, a CRA auditor based in Victoria, wrote in the ex parte court application for UBS:
"I believe that there are other, as yet unidentified Canadian resident clients of investment dealers such as UBS Bank (Canada) who are using structures involving Liechtenstein entities and offshore accounts to hide investments and other income from the CRA."
Individuals who have set up offshore entities in Liechtenstein, called Stiftungs or Anstalts, and do banking through them can appear as non-residents and illegally shirk taxes on income or investments.
CBC News and the Globe and Mail newspaper reported last fall that the CRA probed Royal Bank of Canada Dominion Securities (RBCDS) for information on 15 Canadians, all with alleged links to Liechtenstein. The CRA said that probe ended up confirming the agency’s suspicions.
"All Canadian clients of RBCDS that we have conducted audits on were found to be using Liechtenstein entities, at least initially, to masquerade as non-residents," the CRA wrote in its three new court applications.
CRA launched Project Jade
That investigation followed the 2007 global tax-evasion scandal that erupted when a former employee of the Liechtenstein bank LGT Group stole four discs filled with secret information on clients from around the world and sold them to German authorities.
The Germans shared that information with Canada and the CRA launched Project Jade. The investigation involved 106 Canadians and is expected to bring in $20 million in back taxes and penalties.
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In the investigation into the RBCDS clients, the CRA said Liechtenstein foundations were set up with the assistance of three investment advisers.
One investment adviser is singled out in Lyon's affidavit for FBN.
"The information provided [in the RBCDS clients cases] also revealed that a previously unidentified RBCDS investment adviser assisted at least one Canadian client in establishing a Liechtenstein entity having an account at RBCDS's Lausanne branch. I have confirmed that the investment adviser now works at FBN and has done so since about 2002," Lyon wrote.
Paul DioGuardi, a tax lawyer for more than four decades who spent a few years with the CRA early in his career, said it's problematic that some investment advisers in the business don't have clients' interests at heart.
"It's the kind of guys that say, 'Psst, hey why don't you put your money offshore, they'll never catch you.' And why do they do that? They do it to make a commission. They’re making money."
Co-operating with CRA: banks
All three of the banks subject to the new Unnamed Persons applications have declined to speak at length about them, but have each said that they are co-operating with the CRA.
At the time of the CBC-Globe and Mail report on the CRA's probe of RBCDS clients, the firm wrote in a statement that they have never encouraged Canadians to set up entities in Liechtenstein or instructed their investment advisers to recommend that practice.
The CRA would not provide up-to-date figures on the RBCDS client audits, nor would it say whether the new applications had prompted investigations into clients of UBS, FBN or BMONB.
DioGuardi said he thinks the government is becoming tougher on offshore evaders.
"The Canadian government is starting to get aggressive.… This offshore stuff, I mean, there's just tons of money out there. It's unbelievable," he said.
But getting at the funds is not easy. In this case, well before preparing the applications for a judge, the CRA first searched their non-resident tax-withholding form (NR4) database to find the offshore connections.
The revenue agency searched under UBS, FBN and BMONB for Liechtenstein mailing addresses and country codes. The agency said the ad hoc searches turned up 25 Liechtenstein entities at UBS, 13 at FBN and eight at BMONB.
It may be the case, as it was with RBCDS, that there is a mix of Canadians and non-residents behind the accounts.
It's the first time the NR4 search method has been used in relation to Liechtenstein, according to CRA spokesperson Caitlin Workman, and it may not be the last.
"The CRA could use the [NR4 searches] to obtain information about income or assets in any jurisdiction linked to non-compliance with Canadian tax laws," Workman said.