Beware wealthy Canadians the taxman cometh!

Offshore bank account probe nets Canadians
Thursday, September 30, 2010 .
By Joseph Loiero, CBC News

Herve Falciani obtained a list of some 80,000 accounts when he worked as head of computer security at HSBC. (CBC)

More than 1,700 private offshore bank accounts belonging to Canadians turned up on a list of secret accounts in Switzerland, a joint CBC News/Globe and Mail investigation into possible tax evasion has found.

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

Falciani, who obtained the list of accounts when he worked as head of computer security at HSBC, told the CBC Investigative Unit's Diana Swain in an exclusive interview that the offshore accounts are large, with a hefty minimum deposit.

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

Falciani claimed he was worried that criminals and tax cheats were using the bank to hide money, so he pleaded with his bosses to become more transparent about their banking practices. When they refused, he decided to start making copies of the accounts in an attempt to reveal his concerns.

"I came to the point that something was very wrong and it should be changed," said Falciani, who began copying information on private accounts to his personal computer in 2006.

Canada Revenue Agency investigates

The Canada Revenue Agency told CBC News it has been in touch with French authorities, but would not provide specific details.

HSBC says the bank 'in no way condones tax evasion and is co-operating with authorities while protecting the rights of our clients to confidentiality.' (CBC)

A spokeswoman for the Ministry of National Revenue, which oversees the CRA, told the CBC and the Globe and Mail that the CRA has received "a list of names of individuals who may be exploiting offshore accounts."

The spokeswoman said the CRA is assessing the names "on a case-by-case basis, and will take aggressive action to recover money owed to Canadians."

It is not clear exactly how much money Canadians are holding in the HSBC accounts, nor is it known precisely how many individual Canadians hold the 1,785 Canadian accounts.

HSBC response

"HSBC would like to make it clear that HSBC Private Bank (Suisse) SA and its clients are the victims of a criminal act. The theft was perpetrated by a former IT employee about three years ago and involves approximately 15,000 existing clients around the world who had accounts with the bank in Switzerland before April 2007. HSBC in no way condones tax evasion and is co-operating with authorities while protecting the rights of our clients to confidentiality. "

Don Johnston, the former head of the Organization for Economic Co-operation and Development, said he thinks the total amount of money in Canadian accounts would be large.

"You're talking about this number of people, you're obviously talking billions of dollars," said Johnston, who was president of the Treasury Board under Liberal Prime Minister Pierre Trudeau.

When Johnston headed the OECD, it was largely focused on trying to hold the Swiss banking system responsible for its practices. He said he has found the offshore banking situation unsettling.

"Frankly, I'm outraged," he said. "Every Canadian who pays his or her taxes here in Canada should be outraged."

Fired by HSBC

After he copied the data, Falciani was fired by HSBC after being accused of trying to sell the information for foreign governments.

Swiss authorities confronted him about that allegation and brought him in for a day of interrogation. They asked him to return the next day, but he never did.

Revenue Canada response

"Our government is taking aggressive action to recover money owed to Canadians.

"We have been working with international bodies like the OECD and Joint International Tax Shelter Information Centre.

"Some new information has come to light within the past day.

"Our office can now confirm that the CRA has been working with French government on this matter. The CRA has received a list of names of individuals who may be exploiting offshore accounts. Due to privacy regulations and the sensitivity of this issue, we are not in a position to comment further on the numbers or the names of individuals.

"The CRA is in the process of assessing these individuals on a case-by-case basis.

"The CRA is reassessing over $1 billion in international assets for the 2009 fiscal year. Also in the 2009 fiscal year, the CRA received almost 3,000 international voluntary disclosures, representing close to $600 million in previously undisclosed assets.

"Just five months into this fiscal year, the number of last year’s disclosures has already been surpassed.

"We encourage any Canadian who has avoided taxes to come forward through the CRA’s VDP program."
Falciani fled to his parent's house in Nice, France, with the data. French authorities searched the house at the request of the Swiss and seized the list of accounts.

French prosecutor Eric de Montgolfier said Falciani explained the importance of the documents to French authorities. There were 8,000 accounts on the list that belonged to French citizens, and only two accounts had been declared for tax purposes.

French officials ultimately gave their citizens an opportunity to pay up without facing penalty. Half a billion euros were returned.

The French have also proceeded with tax fraud investigations, based on the information Falciani provided, and they are looking into the possibility that money in the HSBC accounts originated from criminal activity.

"Let's be clear here, we would not have had access to the data without his contribution," De Montgolfier said of Falciani.

Falciani said since he was the source of the information authorities now have, he is aware he now could be at risk.

British tax authorities recently obtained the list of HSBC accounts from French authorities, and they are investigating possible tax evasion by their own citizens. The Italian government has also received the data.

In a written statement to CBC News, HSBC said the bank "in no way condones tax evasion and is co-operating with authorities while protecting the rights of our clients to confidentiality."

'A wink and a nod'

Don Coxe, a Canadian investment banker who works in Chicago, said the Swiss have a history of recruiting clients for offshore accounts.

"We know that the Swiss banks did do marketing to high-net-worth people, wealthy people in North America, trying to entice them to take their money away from banking with local financial institutions, to bank in Switzerland," he said.

"And that with a wink and a nod, it was indicated, 'Well, this way you get around your local taxes.'"

The Falciani case is one in a string of tax scandal stories in the last few years that have shaken up offshore banking industry.

News tips

If you have more information on this story, or other investigative tips to pass on, please email investigations@cbc.ca

CBC News and the Globe and Mail reported last December that the CRA probed Royal Bank of Canada Dominion Securities for information on Canadians with alleged links to offshore accounts in Liechtenstein in Western Europe for the purpose of hiding money.

In May, that investigation widened to include UBS Bank Canada, Financière Banque Nationale Inc. and BMO Nesbitt Burns Inc, which led to audits of Canadian taxpayers.

The case was sparked by a former Liechtenstein bank employee who stole four disks of confidential client information and then sold them to German tax authorities for the equivalent of $7 million US.