The Canada Revenue Agency will need to do better than bullying the CBC into giving it the leaked Panama Papers if it wants to successfully prosecute offshore tax cheats, write Christian Leuprecht and Arthur Cockfield.
By Christian Leuprecht and Arthur Cockfield, May 5, 2016
The Canada Revenue Agency (CRA) wants the CBC to turn over the Panama Papers, supposedly to prosecute Canadian tax cheats who are hiding their wealth abroad. This is an odd development indeed, as the CRA has never made good use of such leaked information in the past.
Three years ago, the CRA acquired another massive financial data leak from the International Consortium of Investigative Journalists, the same group that obtained the Panama Papers. That leak included the names of more than 500 Canadians, along with evidence that many taxpayers apparently hid money offshore. In the past, the CRA has obtained other leaked information about crooked Canadian taxpayers from banks in Liechtenstein, Switzerland, France and elsewhere. How many of them has the CRA prosecuted?
To the best of our knowledge, the CRA has not had a single successful prosecution of international tax evasion in the past 10 years. The agency has claimed that it has published such success on its website. As far as we can tell, that is disingenuous. These cases may have an international dimension such as assets maintained offshore, but the actual prosecution was purely for domestic offences, and not the crime of offshore tax evasion. Despite the lack of prosecutions, in 2014-15 the CRA did bring in over $1-billion more than expected from tax-evasion disclosures, suggesting that more aggressive action could reap even greater benefits.
The CRA is possibly the most effective tax-collection agency in the world – provided your money is in Canada. What happens when you cheat offshore? Thanks to KPMG’s alleged machinations to help shelter the money of some wealthy Canadians abroad, we know what happens: The CRA requires you to pay back taxes along with a modest penalty. How do we know? The deal the CRA cut with KPMG and its clients became public only because a handful of those clients refused to co-operate and instead decided to fight it out in court, as a result of which the terms of the deal – much to the chagrin of both the CRA and KPMG – became public.
The CRA deal was likely motivated at least in part by the reluctance of Crown prosecutors to go after offshore tax cheats. The outcome of such complex cases is anything but certain. Prosecutors like to win, and losing is bad for your career. As a result, Crowns have no interest in taking on time-consuming cases that can drag on for years.
But the problem goes well beyond Crowns. Even if the CRA could interest prosecutors, the CRA simply does not have the resources or experience to investigate such cases. And on cross-border white-collar crime, the RCMP is like a fish out of water. (That should not come as a surprise for an allegedly federal police force that spends 85 per cent of its attention on contract policing for provinces and municipalities.)
What are the chances that the CRA will change its ways? In the wake of the Panama Papers, the agency has touted that it will be hiring 100 additional auditors to fight abusive international tax avoidance. The impact will likely be negligible: You cannot solve these problems by hiring newly minted accountants. The line between legal international tax avoidance and offshore criminal tax evasion is blurry. The new accountants will be up against a league of experienced tax lawyers and accountants who make a mint off finding (often perfectly legal) ways of sheltering their clients’ money from Canada’s taxman.
Going after offshore tax evasion and other global financial crimes will not be easy. There is mounting evidence that Vancouver real estate is favoured among money-launderers from across the world. In addition, to catch the crooks, the CRA will have to create new channels of co-operation with Crown prosecutors, customs officials, the RCMP, trade bureaucrats and the federal financial intelligence agency that tracks cross-border financial flows.
Instead, the CRA is taking after tax agencies elsewhere by looking to coerce the CBC – despite the obvious risk to the informant who leaked the documents and the fact that the Panama Papers were stolen from a law firm and likely cannot be used in court against Canadian taxpayers due to lawyer-client confidentiality protections. It is disheartening when the CRA’s best hope to tackle the problem of offshore tax evasion is to bully the CBC to obtain tainted financial intelligence.
Arthur Cockfield is professor at Queen’s University faculty of law. Christian Leuprecht is professor at the Royal Military College of Canada and Queen’s University, and a senior fellow at the Macdonald-Laurier Institute.