Canada

CRA battling attempt to halt its probe of offshore 'mastermind' and his clients

Ottawa asked the Federal Court of Appeal on Wednesday for the green light to continue auditing a B.C. man, as well as a dozen of his associates and clients, linked to an organization that helped wealthy Canadians move tens of millions of dollars through tax havens.

Case has far-reaching implications for what agency can share with law enforcement

Fred Sharp, seen in a still image from a short film he acted in, has been battling the Canada Revenue Agency for five years over its efforts to audit him after he was revealed as a major player in the Panama Papers. (Sharp Art Pictures/YouTube)

Ottawa asked the Federal Court of Appeal on Wednesday for the green light to continue auditing a British Columbia man behind an organization that helped wealthy Canadians move tens of millions of dollars through tax havens.

It's a case with far-reaching implications for how the Canada Revenue Agency (CRA) goes after people it suspects of tax dodging — and for who it can share information with.

The tax agency began its audit of Fred Sharp, an ex-lawyer from West Vancouver, weeks after he was revealed to be the most prolific Canadian in the 2016 Panama Papers leak. Records in the leak showed he helped set up more than 1,100 offshore companies and accounts for clients.

Sharp's lawyers told the Appeal Court on Wednesday that there is evidence the CRA had also been criminally probing him at that point, which should have activated constitutional protections requiring the agency's criminal investigators and tax auditors to keep their work separate.

But lawyer Allan Doolittle said the CRA tax agents who summoned Sharp's bank and credit card records from financial institutions "did so not for an audit purpose but to aid the [criminal investigations division] in their ongoing criminal investigation."

Sharp is also wanted in the United States on stock-fraud charges related to a colossal alleged pump-and-dump scheme. Doolittle presented the U.S. criminal complaint to the panel of judges to consider as evidence that the CRA not only used records obtained by its auditors to investigate him criminally, but shared confidential information about him with U.S. authorities.

"Mr. Sharp alleges his taxpayer information, unlawfully gathered on June 1, 2016, was shared with law enforcement and specifically the FBI," Doolittle told the hearing in Vancouver.

The judges quickly decided to reject the bid to introduce the FBI complaint, saying they would give reasons later.

Associates being audited, too

Within months of starting to audit Sharp, the CRA also began scrutinizing many of his associates at his Vancouver-based financial services business, Corporate House, as well as a number of clients.

But as agents took steps to gather financial records, Sharp and the others fought back in court, filing 90 separate challenges alleging misuse of the CRA's audit powers. The Supreme Court of Canada has held that because the agency's auditors have the power to compel documents and information from taxpayers, they cannot use those powers in the context of a criminal investigation without violating the constitutional right against self-incrimination.

The federal government's lawyers did not dispute in court on Wednesday that Sharp is also under criminal investigation by the CRA, but they said Sharp has to show more than simply that there are parallel audits and criminal investigations happening at the same time — that there has to be some evidence of actual information sharing.

Richard Hethey, who is associated with Corporate House and is seen in the same short film, is also under audit and has challenged the CRA in court. (YouTube)

"What he's alleging ... is that 'I was under criminal investigation before this; the fact that these requirements [to provide documents] were issued must be because I'm under criminal investigation.' He's saying because the two coexist in time ... they must have been issued for that purpose," government lawyer Carl Januszczak told the court.

"That's certainly not a logical conclusion to make."

Data-sharing attacked

Sharp and the others are also attacking the agency's data-sharing powers, which have ballooned in recent decades. Normally, taxpayer information must be kept in strict confidence by the CRA.

But the federal government has passed dozens of amendments to allow the agency to send sensitive information to the RCMP and the Canadian Security Intelligence Service, as well as foreign countries' tax agencies and — in some cases — foreign law enforcement.

"The ... amendments would allow, once that information is received by the CRA, for that information to be subsequently shared in further breach of the plaintiff's charter rights, and ... the focus of this breach is the fact that the amendments lack necessary protections," Doolittle, Sharp's lawyer, said.

Montreal tax lawyer Louis-Frédérick Côté, who is not involved in the case but is hoping to argue an appeal on similar issues at the Supreme Court of Canada, said in an interview that it boils down to having clear rules for what the government can do with information that taxpayers are forced to cough up as part of the CRA's audit process.

"Taxpayers would be less reluctant to answer the CRA's queries if you could say to them, 'Here's the Supreme Court's ruling. Everything you say, as long as it's true, you'll be protected and won't be prosecuted.' I think people would answer more readily." 

Forged documents submitted

Ultimately, through its audits of Sharp, the CRA obtained enough information to determine that Sharp was the "mastermind" of an organization that operated like a "shadow bank," allowing wealthy people to access money stashed offshore, out of sight of authorities, the agency outlined in a confidential draft report.

The Sharp litigation has had a few strange twists.

At one point, Sharp submitted fabricated documents to the court. The forgeries were purported letters from a CRA investigator who in fact doesn't exist, as well as purported reply letters from a Vancouver lawyer who does exist but never wrote them.

Sharp said he had no idea the documents were forged, noting that he'd been given them by an acquaintance and relied on them in good faith. "I did not fabricate or collude in the fabrication of the correspondence," he said in a sworn statement.

Through his lawyers, Sharp did not reply to questions from CBC News about his ongoing dispute with the CRA.

The CRA refused to comment on the case.

ABOUT THE AUTHOR

Zach Dubinsky

Senior Writer, CBC Investigations Unit

Zach Dubinsky is an investigative journalist. His reporting on offshore tax havens (including the Paradise Papers and Panama Papers), political corruption and organized crime has won multiple national and international awards. Phone: 416-205-7553. Twitter: @DubinskyZach Email zach.dubinsky@cbc.ca

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