The Canada Revenue Agency.
Catching international tax cheats is murky business.
In 2007, Heinrich Kieber, a data processor with the Liechtenstein banking firm LGT Group, walked out of his office with stolen files on thousands of customers from around the world.
He then sold his stolen data to the German government for millions of dollars and a new identity. Germany shared the data with allies – including Canada – and governments began combing through the files.
For tax collectors, the documents offered an unprecedented window into how the world's most wealthy citizens hide their money.
Canada's portion of the treasure-trove included files on 182 individuals who were believed to be Canadian.
Yet as Germany and other countries began using the information to prosecute citizens for tax evasion, there was no news out of Canada. Liberal Senator Percy Downe, who has developed a keen interest in the file, began filing Access to Information requests and written questions in the Senate an attempt to find out what was going on. Officials at the Canada Revenue Agency would insist an investigation was ongoing and that money was being recouped, but the Senator could never get a clear answer as to whether the unprecedented leak from Liechtenstein had produced a single criminal charge in Canada.
This week's report from Auditor-General Michael Ferguson provides new details as to what went on inside CRA and why there were never any charges.
Essentially, the CRA had to make a choice between two options. It could have sent the files to the Department of Justice for a criminal prosecution, but the agency would have to ensure that the data was strong enough to hold up in court. The downside of that option for the CRA is that there would no longer be a reason for the individual to co-operate with CRA auditors.
The second option was to strike a deal: Sign an agreement that promises no criminal prosecution in exchange for paying back money, waiving a right of appeal, a promise to be fully forthcoming and a pledge to provide all requested information and documents.
"Had the agency chosen to refer for criminal investigation those cases where it had grounds to do so, it would have been much more difficult to learn how much taxable income had been earned offshore," states the Auditor-General's report. "The agreement was also a key tool for the agency to learn about the set-up of these offshore accounts."
The CRA did send two files to its Criminal Investigations Division, but the division did not accept either case. The audit report does not explain why.
"Although the agreement served a purpose for the Liechtenstein list audits, we have received no analysis from the agency as to whether such an agreement is appropriate for future offshore-account audits," the audit report states.
In the end, 23 CRA audits led to reassessments totalling $24.7-million in federal tax, interest and penalties.
Mr. Downe, who now has his answer as to why no one was ever charged, said he believes the CRA's actions ultimately come down to budget cuts.
"There's certainly reason for concern here," said Mr. Downe, who argues a budget increase to the CRA would more than pay for itself through higher collections. "We're doing everything on the cheap when we have all kinds of evidence from the CRA that putting money into the department to fight overseas tax evasion returns a tremendous return to the Canadian public."
Tax lawyer Paul DioGuardi agrees that a lack of resources – and possibly a lack of expertise in offshore banking – is likely why the CRA chose not to seek charges.
Mr. DioGuardi has worked for the CRA and has worked privately in Liechtenstein. His practice involves helping clients who run into offshore tax trouble.
"The only thing I would criticize is why did it take six years to complete?" he asked. "I mean, it doesn't make any sense."
He said Parliament needs to take a closer look at funding for the CRA.
"I think what's happening is they're not putting enough people on these things," he said. "For some reason – and I can't figure out why – they are cutting staff in the Canada Revenue Agency... You would think they would save money other ways, because these people collect money."
Bill Curry covers finance in Ottawa.
Bill Curry