Friends In High Places Are Good (For Some)

Having friends in high places is certainly something the wealthy must savour as they continue to hide money in offshore tax havens. Yes, the very same havens the Trudeau government promised to crack down on. And the very same tax havens that, as I recently posted, seem to inspire timidity in our Canada Revenue Agency.

A new report by the CBC/Fifth Estate suggests that timidity is deepening:

The Canada Revenue Agency has once again made a secret out-of-court settlement with wealthy KPMG clients caught using what the CRA itself had alleged was a "grossly negligent" offshore "sham" set up to avoid detection by tax authorities, CBC's The Fifth Estate and Radio-Canada's Enquête have learned.

This, despite the Liberal government's vow to crack down on high net-worth taxpayers who used the now-infamous Isle of Man scheme. The scheme orchestrated by accounting giant KPMG enabled clients to dodge tens of millions of dollars in taxes in Canada by making it look as if multimillionaires had given away their fortunes to anonymous overseas shell companies and get their investment income back as tax-free gifts.

Apparently, who you are and what you are worth entitles you to special privileges, including a totally sealed record of your settlement with the CRA:

... tax court documents obtained by CBC News/Radio-Canada show two members of the Cooper family in Victoria, as well as the estate of the late patriarch Peter Cooper, reached an out-of-court settlement on May 24 over their involvement in the scheme.

Details of the settlement and even minutes of the meetings discussing it are under wraps. A CBC News/Radio-Canada reporter who showed up to one such meeting this spring left after realizing it was closed to the public.

Quite understandably, many are outraged by this:

Toby Sanger, executive director of the advocacy group Canadians for Tax Fairness, says the CRA should never have agreed to settle the case.

"I think it's outrageous," he said. "We've had a lot of tough talk and promises from this minister [National Revenue Minister Diane Lebouthillier] about how they will crack down on tax evasion by the wealthy and corporations, but unfortunately we've seen no evidence of this so far."

The Trudeau government's previous tough talk on the so-called KPMG sham had come after a document leaked to The Fifth Estate/Enquête showed the CRA itself had offered a secret "no penalties" amnesty in May 2015 to many of the other KPMG clients involved in the scheme.

The CRA offered to have them simply pay the back taxes owed — but with the condition they not tell the public about the offer.

Apologists for the Trudeau government will insist that the CRA was acting independently of the government, but that clearly flies in the face of reality, given Trudeau's promises in 2017 to do a "better job of getting tax avoiders and tax frauders."

Like their attempts to influence the course of justice in the SNC-Lavalin affair, this latest report is yet one more arrow indicating where the sympathies and loyalties of our federal government really lie.

Our Timid Canadian Revenue Agency

Over a year ago I posted about the sad record of the CRA in pursuing offshore tax cheats as revealed by the Panama Papers. It seems that little has changed since then.

In a Policy Options article, Senator Percy Down asks, Why can’t the Canada Revenue Agency catch tax cheats?

Recently, on the third anniversary of the release of the Panama Papers, we learned that other countries have recovered more than $1.2 billion in fines and back taxes:

Australia has recouped $92 million.
-Spain is counting $164 million in its coffers.
-The United Kingdom has recovered $252 million.
-Even Iceland, with a population of roughly 350,000 people, was able to recover $25.5 million.

Of the 894 Canadians (individuals, corporations and trusts) revealed by the Panama Papers to have accounts, the Canada Revenue Agency hasn’t recovered a dollar.

While the CRA talks a good game, its results tell a different story:

The agency talks tough every time there is a public leak of information from some bank or law firm operating in a tax haven. Nevertheless, not one person has been charged with overseas tax evasion, much less convicted, fined or sentenced since the 2006 information leak we know the most about, from a bank in Liechtenstein, where 106 Canadian-held accounts were found to contain more than $100 million.

In fact, as reported by the Auditor General, the CRA “waived referrals for potential criminal investigation to gather information.” In other words, the agency promised not to charge the people involved in that tax scheme in exchange for them explaining to the CRA how it actually worked and agreeing to pay what they owed.

This strange acquiescence to tax evasion is contrasted by other jurisdictions that have worked hard to discourage such criminality:

Compare this to Australia, for example, where not only are back taxes and penalties paid, but individuals are charged with committing a crime and in many cases convicted, fined and jailed, and the country uses those convictions to warn citizens that it is serious about tax evasion.

“As a result of Project Wickenby’s focus on preventing the abusive use of secrecy havens,” a 2012 audit of an Aussie anti-tax evasion task force noted, “Australia is presently less attractive for international tax fraud and evasion than it otherwise would have been. After a slow start, the project has achieved substantial results from its activities, which contribute to protecting Australia’s revenue base.”

And make no mistake. We are all paying for the Canada Revenue Agency's laxity:

Because Canada has not recovered any money, three things have happened. One, we don’t have that money to fund our priorities without incurring a deficit; two, the rest of us have to make up the shortfall by paying more taxes; and three, Canadians are wondering why we have a two-tier justice system for tax evasion. Try to cheat on your domestic taxes, and the CRA will likely find you, charge you, convict you and force your repayment. Hide your money overseas, and you likely will never be charged or convicted. The odds are good you will get away with it, and your federal government allows this double standard to continue.

Like the Harper government before it, the Trudeau administration seems to be using the CRA for its own purposes. Is it too much of a leap to conclude that one of those purposes is to protect its friends in high places?

Less Than Meets The Eye?

Given its recent rather dubious pursuits of lost tax revenue, I readily admit that I don't know what to make of the latest report that the CRA has actually begun to pursue monies lost to offshore tax havens.

Zach Dubinsky reports the following:

Canada Revenue Agency officers, backed up by police, raided locations in three provinces Wednesday as part of a criminal tax-evasion probe stemming from the Panama Papers, the agency said.

About 30 criminal investigators from the CRA executed three search warrants in the Toronto area, Calgary and West Vancouver, with assistance from the RCMP and the West Vancouver police, the CRA said in a statement online.

My first reaction, upon reading this, was that it was bloody-well about time. However, then I started wondering whether or not this was a move intended more for public consumption than fiscal rectitude in advance of the upcoming federal budget, full of sound and fury and perhaps signifying little.

Consider the evidence.

Last year, CRA assistant commissioner Ted Gallivan told the Star his priority was going after lawyers and accountants who orchestrated offshore tax evasion schemes for “dozens” of clients.

Last month, the Star reported that tax authorities around the world had recovered more than half a billion dollars in tax through their investigations into the Panama Papers.

By contrast, Canada has recovered nothing.

Additionally, in recent months, the CRA has had domestic targets in its sights, targets that in some cases seem like easy, even dishonorable, pickings.

The Guardian from Prince Edward Island reports that citizens, some among our most vulnerable, are feeling the tax man's wrath:

A 25-year-old Stratford woman struggling to pay off her student debt has been hit with a $15,000 tax bill by the Canada Revenue Agency over her tips.

Anita Casey is one of dozens of servers with the Murphy Hospitality Group who received letters three weeks ago saying they were being audited over their tips, retroactive two years.

“It’s pretty crazy that they’re coming after the poor young population who are in school and just trying to support themselves,’’ Casey told The Guardian.

Then there is the CRA operation targeting people's postal codes:

The Canada Revenue Agency's Postal Code Project is targeting the wealthiest neighbourhoods in all regions of the country, those with gold-plated postal codes, where auditors will pore through the tax filings of every well-heeled resident, address by address.

They're looking for undeclared wealth, signs that a taxpayer is actually richer than their income tax filings suggest.

"Comparing someone's lifestyle — cars, boats, houses — to their reported income helps us identify people who are non-compliant," said CRA spokesperson Zoltan Csepregi.

A well-publicized initiative, it has the whiff of class-warfare about it, one that will inevitably prompt some to look upon the wealthy with suspicion and disdain. And perhaps yet another effort at misdirection, given their singular absence of progress on bringing the offshore havens to account?

Our country is renowned for its "snow washing," a testiment to the ease with which money can be hidden and laundered thanks to Canada's laws facilitating shell companies. It will therefore take more than a well-publicized raid to convince me that the Trudeau government and the Canada Revenue Agency are serious about making corporate evaders pay their fair share.

As Fox Mulder would say, "I want to believe." However, I shall wait to see the money before I am convinced that serious changes are underway.

Remembrances Of Things Past (And Present)

I suspect it is only the very young and the profoundly naive who believe that justice is blind, that all are treated equaly under the law. While a pleasing fiction that governments like to perpetuate, nothing could be further from the truth.

Consider the latest revelations about the Canadian Revenue Agency's shoddy hypocrisy, begun under the Harper regime but showing no signs of abatement under the Trudeau government.

The Canada Revenue Agency offered amnesty to multi-millionaire clients caught using what's been called an offshore tax "sham" on the Isle of Man — a reprieve that was supposed to remain secret and out of the public eye until it was uncovered by a CBC News/Radio-Canada investigation.

Canada Revenue officials demanded, and offered, secrecy in a no-penalty, no-prosecution deal to high net worth clients of accounting giant KPMG involved in a dodgy offshore tax scheme.

The amnesty allows for "high net worth" clients of the accounting giant KPMG to be free from any future civil or criminal prosecution — as well as any penalties or fines — for their involvement in the controversial scheme.

The clients simply had to agree to pay their back taxes and modest interest on these offshore investments, which they had failed to report on their income tax returns.

While this might come as no surprise to many, what compounds this egregious injustice is the fact that the CRA is far less forgiving of ordinary people, many of whom, through no fault of their own, found themselves the victims of very punitive CRA action:

Toronto tax lawyer Duane Milot, who represents middle-income Canadians in disputes with the CRA, says his clients are routinely dragged through the courts for years by Canada Revenue.

"It's outrageous," he told CBC News after reading the leaked document. "The CRA appears to be saying to Canadians, 'If you're rich and wealthy, you get a second chance, but if you're not, you're stuck.'"

Just how much contempt the CRA feels for non-wealthy people is evident in the first four minutes of the following report:



Will relief for such iniquitous inequity be forthcoming from our 'new' government? In his finely-honed prosecutorial style, Thomas Mulcair asked some hard questions of the Prime Minister in the House. I was less than reassured by the answers he was given:


I couldn't help but note that in the response he gave, Mr. Trudeau sounded alarmingly like his predecessor, deflecting the questions by criticizing the questioner and then launching into some pious platitudes.

It seems that in some ways, our new government is getting old very quickly. Consequently, the CRA's foul practices continue apace.

Suspicious Deletions At CRA

While it may not qualify as a smoking gun, a series of text-message deletions at Canada Revenue Agency looks decidedly suspicious. Given what many see as the Agency's Harper-directed war against non-profits that are critical of government policy, there is ample reason to see foul play in the move.

Today's Star reports the following:

The Canada Revenue Agency has destroyed all text message records of its employees and has disabled logging of these messages in the future, the Star has learned.

Emails, released through access to information legislation, reveal that Shared Services Canada, the federal organization responsible for information technology services, destroyed the records in the middle of a business day in August.

The CRA has steadfastly denied that the audits are politically motivated, a denial that rings hollow given that no right-wing organization (The Fraser Institute, Macdonald-Laurier Institute, et al.) has been given such scrutiny, while even the most seemingly innocuous of entities, such as The Kitchener-Waterloo Naturalists have been harassed, apparently as reprisal against once having a guest speaker address the tar sands issue at one of their meetings.

The fact that the text messages were deleted during the day has raised eyebrows:

Srinivasan Keshav, a computer science professor at the University of Waterloo, said he was surprised that the government deleted records and disabled logging in the middle of the day, when there’s a risk of disrupting the service.

Shared Services Canada told the Star in a statement that it operated IT infrastructure, based on instructions from individual departments and agencies that are responsible for their own information management practices.

Perhaps whoever ordered the deletions was feeling some heat?

The matter has come to the attention of Information Commissioner Suzanne Legault:

“If the commissioner is satisfied that there are reasonable grounds to investigate this matter, she may initiate an investigation. Investigations under the Act are confidential,” Legault’s spokeswoman Natalie Hall told the Star.

Under the law, deleting messages for the purpose of restricting access to information is guilty of an indictable offence and could face up to two years in prison or a $10,000 fine.

While it is highly unlikely that this latest outrage against transparency will ever find its way into a court of law, I can only hope that, given the secretive and vindictive nature of the Harper regime, the court of public opinion will render an unequivocal verdict in 2015.

Denial And Outrage

During my teaching career, it was occasionally my unpleasant task to confront a student with evidence of his or her cheating; most situations revolved around plagiarizing essays or having skipped a test. The student's responses when confronted were invariably the same; indeed, they tended to parallel Elizabeth Kubler-Ross' five stages of grief.

I won't bore you with the details, but common initial reactions were denial that any offence had occurred, ("I have no idea what you are talking about"), and when that failed, anger that I would harbour such unfounded and unworthy suspicions ("I am really hurt that you would accuse me of such a thing"). Invariably, they were guilty as charged.

There seems to be an analogous system at work in politics.

Let's start with the Harper regime's upcoming campaign against marijuana use, the one that the three main groups representing doctors, Family Physicians of Canada (CFPC), Canadian Medical Association (CMA) and the Royal College of Physicians and Surgeons of Canada have refused to be part of because they "... do not, support or endorse any political messaging or political advertising on this issue".

The accusation that the campaign has become a political football aimed at discrediting Justin Trudeau, who favours legalization of pot, has been hotly denied by Health Minister Rona Ambrose:

“Telling kids to not smoke pot is not a partisan attack on Justin Trudeau by Health Canada,” Ambrose told a news conference Monday on the sidelines of the annual Canadian Medical Association meeting.

“It is a sound public health policy backed by science. Whether pot is legal or illegal, the health risks of marijuana to youth remain the same, and we should all be concerned about them.”

She added that Trudeau “made this a political issue.”

Denial and shifting the blame, both time-honoured tactics of my former wayward students.

Next, the anger:

This morning's Star reports the following:

The federal New Democrats are hoping to put the Canada Revenue Agency under the microscope Tuesday after recalling a House of Commons committee to examine a wave of audits against registered charities.

NDP MP and revenue critic Murray Rankin (Victoria) has questioned whether the audits were politically motivated actions against those advocating for environmental causes and other issues clashing with the Harper government’s policies.

However, Revenue Minister Kerry-Lynne Findlay rejects the allegations, and with great umbrage:

“Your baseless allegation that I have used my office to blatantly misappropriate CRA resources to target and intimidate charities that don’t agree with our government’s policies is absolutely reprehensible,” wrote Findlay in a letter to Rankin, dated Aug. 5.

“As an honourable parliamentarian, I find your unwarranted attacks on the integrity of the CRA and my office shameful and plunges parliamentary discourses to new lows.”

To quote from my favourite Shakespearean play, "The lady doth protest too much, methinks." Such indignation may play well to the party's base, but critical thinkers may wonder at the rhetorical flourishes employed by Ms. Findlay here.

The final stage in the five stages of grief is acceptance. For the Harper regime, I suspect that will only come after the results of the next election.