A global crackdown on those using the tiny European principality of Liechtenstein to hide wealth and evade taxes has led investigators to Canada's largest brokerage firm, RBC Dominion Securities.
The Canada Revenue Agency believes that at least three investment advisers with the firm "assisted Canadian taxpayers in establishing Liechtenstein entities for the purpose of hiding investments and other income," according to an application filed in Federal Court.
A CRA audit has led to more than a dozen Canadians who allegedly used a division of a Liechtenstein bank, LGT Treuhand, to conceal their wealth abroad. Among the clients who have been identified are a former British Columbia provincial politician, a deceased Alberta mayor, three lawyers and a restaurateur.
The chief executive of RBC Dominion says the firm is co-operating with auditors and denied that his firm promoted the tax haven. No charges have been laid and the allegations have not been proven in court.
For the past two years, federal auditors have interviewed RBC Dominion clients and employees and contacted officials in Liechtenstein and Switzerland. The agency has twice asked Federal Court judges to compel the firm to hand over files, a Globe and Mail/CBC investigation found.
Auditors believe the scheme generally worked like this: A Canadian taxpayer would create a Liechtenstein foundation - a corporate entity that is unique to the European principality of 34,000.
The foundation would then open a trading account with the RBC Dominion office in Lausanne, Switzerland. The Lausanne office filed tax forms for that account - but on paper the owner of the account was the foundation, so capital gains and interest income from bonds weren't reported to Canadian authorities.
It isn't illegal to create a foundation or a bank account in Liechtenstein, where secrecy laws make it very difficult to determine who is really behind a financial structure. But auditors allege the foundations were used to help Canadians "masquerade" as non-residents and escape their legal duty to report worldwide income.
The investigation is part of an international sweep that began with an LGT Treuhand document scanner named Heinrich Kieber. It was Mr. Kieber who, in 2006, contacted the German intelligence service with hints about confidential information that he had taken from LGT, which is owned by Liechtenstein's royal family. Eventually the names of more than 1,400 clients had been shared with tax agencies around the world.
The Canada Revenue Agency will say only that the inquiry was sparked by a "confidential informant." It has dubbed its probe of the Liechtenstein accounts "Project Jade."
The initial batch of secret files, which were first obtained by CRA in 2007, contained an intriguing trend that auditor Russell Lyon would later outline in a sworn affidavit: Three of the Vancouver Island residents listed were also clients of the RBC Dominion branch in Victoria.
Armed with the secret account details, the auditors started pushing the three Canadians.
Donald Mayrand, a resident of Gabriola Island, told auditors that he first discussed creating an offshore account in 1994 with Colin Ross, an RBC Dominion vice-president in Victoria. Mr. Mayrand had made about $1-million on the sale of a coal mine and he wanted to protect it from "potential government claims for environmental liability," the affidavit states.
The two men journeyed to Vaduz, the capital of Liechtenstein, to create the foundation, the affidavit states. Mr. Mayrand granted Mr. Ross power-of-attorney to trade securities owned by his foundation and regularly instructed the broker to make transfers to Mr. Mayrand's personal bank accounts, the affidavit states.
In 2006, when they started to wind up the foundation and transfer the assets back to Mr. Mayrand's personal accounts, Mr. Mayrand said he was advised by Mr. Ross "that it wasn't necessary to report" the income, the affidavit states.
CRA alleges that Mr. Mayrand failed to report more than $300,000 in capital gains, dividend and interest income.
Andre Rachert, a lawyer for Mr. Mayrand, disputes the outstanding debt to the government, as well as several portions of Mr. Lyon's affidavit.
Two other names in the initial cache of Liechtenstein data - Harry Loucas, the owner of a downtown Victoria restaurant, and Jack Gaunt, the inventor of a popular fishing lure - were also clients of the same RBC Dominion office. According to Mr. Lyon's affidavit, auditors believe Mr. Loucas failed to report a total of more than $100,000 in income linked to his Liechtenstein foundation, while in 1998 Mr. Gaunt filed a voluntary disclosure, an amnesty program that allows Canadians to confess unreported income without fear of prosecution.
The RBC Dominion involvement in these three cases prompted auditors to obtain a Federal Court order in 2008 that required the firm to hand over information on clients of Mr. Ross and another adviser, Kevin Lockwood, who was linked to Mr. Gaunt's account.
The auditor, Mr. Lyon, said in his most recent sworn affidavit that RBC Dominion delivered files on 14 other Liechtenstein entities linked to Mr. Ross. One was created for Howard McDiarmid, a developer and former British Columbia politician. Auditors believe that, before the former Social Credit MLA filed a voluntary disclosure in 2007, he had failed to report more than $1.2-million in income that was disguised behind a Liechtenstein foundation.
Mr. McDiarmid did not respond to requests for comment.
Another was for Susan Bregg, another Victoria resident. She first told auditors that she didn't have offshore holdings, before acknowledging she put money "over there" because she considered it "glamorous," the affidavit states. Ms. Bregg also declined to comment.
Audits have been launched into other Canadians with Liechtenstein entities, all with ties to Mr. Ross.
One of them, former Drumheller mayor Eneas Toshach, died in 2001. His son, Eric Toshach, said he was shocked to learn from auditors that his father, a former radio station owner, had a Liechtenstein foundation and a Swiss account with RBC Dominion.
Eric Toshach, who was the executor of the estate of his father and mother, said that, at the Canada Revenue Agency's request, he demanded documents from the Liechtenstein financial institutions where his father banked. The paper trail led to more startling discoveries.
For about 10 years, his parents' RBC Dominion account in Switzerland had periodically wired exactly $9,500 to a bank in Washington State, just a few hours from his parents' retirement home on Vancouver Island. That amount is just small enough that it doesn't raise flags: North American bankers are required to fill out what is known as a "large cash transaction report" if someone withdraws more than $10,000 in cash, and any amount of cash over $10,000 must be declared at the U.S.-Canada border. After considering his mother's frequent shopping trips to Seattle, he suspects his parents were withdrawing the money in cash in the United States to avoid detection in Canada.
"Let's face it," Mr. Toshach said, "it should have been in Canada. Myself, I really don't understand the purpose of it. Canadians all know we're taxed pretty highly, but look where we live - it's a pretty good spot."
David Agnew, the CEO and national director for RBC Dominion, said in an e-mailed statement: "As a firm, we have never encouraged Canadians - not 25 years ago and not today - to set up entities in Liechtenstein, and we have never instructed our investment advisers to recommend that practice."
Colin Ross, who retired about a year ago, declined to comment. His lawyer, George Jones, declined to address the allegations about Liechtenstein foundations, except to say: "We hope that … if charges are laid that they're laid soon and that we have a chance to defend ourselves."