Canada not targeting offshore tax cheats, analysis shows

There is no question Robert Chen cheated the taxman. He lied about $496,530 in income and, in 2008, he pleaded guilty to tax evasion and received a $107,000 fine and a 15-month conditional sentence that allowed him to travel abroad.

But for reasons it wouldn't explain — perhaps because some of his undeclared earnings came from a business that imported clothing from China — the Canada Revenue Agency considers the Richmond, B.C., resident an offshore tax outlaw.

He's on a list titled "Offshore Convictions" compiled by the agency in 2011 — a list that says Chen was hit with "total fines of $320,000 and 27 months in jail."

That has Chen's lawyer piqued.

"Frankly, the material that has been released by the CRA is wrong in many respects," Ravi Hira said.

"One, this was not an offshore conviction. Two, he was not sentenced to 27 months in jail…. Three, he did not receive a $320,000 fine. The information is false."

As it turns out, Chen is not the only Canadian who the federal government has questionably classified as an offshore tax cheat, an analysis by CBC News shows.

• 10 Canadians from the tax-haven data leak
• Revenue Canada rejected secret tax haven files

The government says 44 people were convicted of criminal tax evasion related to offshore assets between 2006 and 2012, but won't provide any details on those convictions, citing privacy concerns. Pressed by a freedom of information request and related queries, the Canada Revenue Agency finally turned over 25 names, including the Offshore Convictions list that included Chen.

But after speaking to Crown and defence counsel, and poring over court records, CBC News found only eight instances among those 25 known convictions where the person was found guilty of hiding income or assets in an accepted tax-haven jurisdiction.

What's more, two of those eight cases were piggy-backed onto Project Colisée, a massive police bust of organized crime in Quebec. In one of them, Nicolo Rizzuto, the late patriarch of the Montreal Mafia, after pleading guilty to a serious gangster offence in 2008, also acknowledged that he had failed to declare earnings on his multimillion-dollar Swiss bank accounts and pleaded guilty to tax evasion.   

Looking tough

These days, calls to crack down on offshore tax havens have been given new life following the recent global leak of financial records from Caribbean and South Pacific hideaways.

British Prime Minister David Cameron, French President François Hollande and international organizations like the OECD have all joined the chorus, and the issue is squarely on the agenda for next week's G8 summit in Northern Ireland.

Meanwhile, here at home the Conservative government has boasted of being tough on people who stash money in secret foreign accounts.

Since the massive financial data leak to selected news organizations in early April, Revenue Minister Gail Shea has made no fewer than six pronouncements trumpeting the government's efforts against offshore tax evasion.

One number both she and the CRA have repeatedly cited, in emails to reporters and replies to parliamentary questions over the last few months, is the 44 convictions.

"I don't have the names, but convictions of course are a public record. There have been 44 … since 2006," Shea told CBC Radio's The House recently.

Not everyone is convinced, however.

"If you really look, upon close scrutiny, at the prosecutions they are touting," said Toronto lawyer David Chodikoff, an expert on international tax, "they certainly don't smack of great success in my estimation."

As he sees it, the really egregious cases of possible tax-haven abuse over the last half-decade would be found in the big leaks of account records from banks in Liechtenstein and Switzerland.

The Canada Revenue Agency got its hands on a list of 106 Canadians with accounts at Liechtenstein's LGT Bank, and another of 1,785 Canadians with Swiss accounts at HSBC, after bank employees filched the files.

But, says Chodikoff, "when you look at the data they've obtained from those sources, where are they? Where are the prosecutions?

"There aren't any. Not related to the accounts that relate to those institutions." 

What's a tax haven?

While the government uses the 44 number to say it's penetrated the shadowy world of offshore finance, a closer examination of what it terms "offshore" tax evasion suggests it doesn't stick to its own definition.

A tax haven is "a jurisdiction with no taxes or a very low rate of tax, a lack of transparency in the operation of its tax system, and a lack of effective exchange of information with other countries," the Canada Revenue Agency says on its website. "Tax havens usually also have strict bank secrecy laws. There is often little or no economic activity in a tax haven."

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But on the list of "Offshore Convictions" that the CRA created in 2011, the majority of cases have nothing to do with those kinds of places — locales like the Cayman Islands, Jersey, Bermuda or Liechtenstein.

For example, one of the prosecutions the government touts as a successful crackdown on offshore tax evasion is the conviction of Mathew Kai Ming Ma, a former auditor for the Canada Revenue Agency in B.C.

Ma pleaded guilty in 2010 to dodging $57,958 in tax. His "offshore" crime: He owned rental property across the border in Washington state on which he failed to declare the income, and he claimed his parents as dependents to gain a tax deduction, even though they lived in Hong Kong.

Another case the government lists as a successful prosecution of offshore tax evasion is that of Maurice Specogna, found guilty by a B.C. jury in 2005 of obtaining a fraudulent GST refund for his mining company.

Specogna, the court record shows, took the ill-gotten rebates and deposited them in a bank in Italy. He then transferred the funds to an account in the U.S., a country that is hardly the definition of a tax haven.

CRA responds

CBC News presented its findings to the Canada Revenue Agency. Its director general of criminal investigations, Claude St-Pierre, acknowledged the agency uses a broader definition of "offshore" when compiling its conviction numbers.

"If it's outside Canada, yes, we would have counted that," he said in an interview last week.

St-Pierre also said he considers it fair game to count a case as an offshore conviction even when all the tax that was evaded was on income earned domestically — as long as the tax cheat put some of their money outside Canada.

"It could be that that individual then took those ill-gotten gains and either bought property offshore or put the money offshore," he said. "It's legitimate to say that we've identified a particular case that had links to offshore assets or monies.

"Because we have a conviction, it's tax evasion, there's money offshore and we're going after that particular money."

But that doesn't satisfy lawyer Hira, whose client's case has been labelled an "offshore conviction"

"Somebody at CRA or some political person decided to show that the CRA was cracking down on offshore tax transactions — that is, illegal tax transactions," he commented. "The fact is the list was wrong. It was false. It was defamatory and something should be done about it."

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