The Royal Bank of Canada has been ordered to reveal the true owners of 97 offshore corporations that used its services, but a critic is wondering why it took the Canada Revenue Agency six years to obtain a source of information that could help uncover of tax fraud.
All the companies involved are registered in the Bahamas, a tax haven, and originally came to light as part of a a leak of financial records called the Bahamas Leaks.
In filings with the Federal Court of Canada, the CRA said most of the companies used tactics to “obscure the identities of the individuals who truly control and beneficially own these businesses” and wanted to verify whether the real owners were Canadians hiding money in tax havens .
“The CRA is concerned that some or all of these 97 Bahamian corporations may be controlled and/or beneficially owned by persons resident in Canada,” the agency said in a court filing.
Canadian individuals and corporations they have $23 billion in declared, known funds held or invested through the Bahamas — more than France, Spain and Portugal combined. A 2018 CRA Survey estimates that Canadians have another $76 billion to $241 billion in undeclared, hidden wealth stashed away in all offshore jurisdictions combined, but does not break it down by country.
In May, a judge granted the federal government’s request to order Royal Bank and its subsidiary RBC Dominion Securities to provide any information that would help the CRA identify the owners of the 97 Bahamian corporations. The bank did not oppose the government.
The CRA said in its court filings that all the companies had investment accounts with Royal Bank or RBC Dominion at some point, “suggesting that they may be or have been controlled by persons residing or located in Canada.”
It is not inherently illegal for Canadians to have an offshore account or company, but all assets over $100,000 and all income must be reported for tax purposes.
CRA mom for other banks
CBC/Radio-Canada originally reported in 2016 that the Bahamas Leaks reveal that three Canadian banks have provided services to nearly 2,000 offshore companies in the Bahamas since 1990. The banks were the so-called “registered agents” – licensed intermediaries who paid the annual fees to the Bahamas corporate registry, managed the documents and in many cases included offshore companies.
The leaked files show that Royal Bank acted as an agent for 847 Bahamian companies listed in the leaked data, companies with names from Abbatis 1 Inc. to Yellow Jacket Holdings Ltd., while CIBC registered or administered 632 and Scotiabank handled 481.
Royal Bank did not respond to questions from CBC News about Bahamian corporations, but issued a statement saying it generally has “high standards and an extensive due diligence process to detect and prevent any illegal activities conducted through RBC.”
Neither CRA nor RBC would explain how the number of interesting offshore companies was reduced to 97 from 847. Part of this reduction is likely because even in 2016, almost half of these companies were already inactive or wound up. The CRA may also have found that many of the companies did not have Canadian shareholders or other ties to Canada that could result in tax liability.
Toby Sanger of Canadians for Tax Fairness says the Bahamas is a notoriously secretive jurisdiction where people often shift money to stay hidden. (CBC)
There is no indication in the Federal Court case that the CRA has also pursued any of the companies managed by CIBC or Scotiabank. The tax agency may have obtained information directly and confidentially from these two banks using powers under the Income Tax Act that do not require it to first obtain a court order, but it will not say.
“The CRA does not typically release information related to our compliance approaches because it may provide a roadmap for non-compliance,” the agency said in a statement to CBC News. “Therefore, we cannot confirm whether the CRA will seek permission to extract third-party data from CIBC and Scotiabank.”
“Very disappointing”
Toby Sanger, senior policy adviser for the advocacy group Canadians for Tax Fairness, said the lack of transparency doesn’t help the impression that the CRA “seems to be more focused on going after the easy targets, the small guys” rather than the bigger and more complex cases of offshore tax avoidance and evasion.
“We shouldn’t just be writing these carte blanche checks, allowing wealthy corporations and individuals with money in whatever jurisdiction they choose to park it to avoid taxes,” he said in an interview.
KRA which proclaimed as a result of other leaks such as the panama papers and the Paradise Papers, that it was cracking on offshore tax shenanigans, would also not explain why it is now only seeking ownership records of the 97 offshore companies – six years after the Bahamas Leaks exposed them.
“It’s very frustrating and frustrating that it took the CRA so long to act on these leaks,” Sanger said. “The slow motion in this case of Bahamas Leaks means that they are just kind of crying wolf and that it’s more bark than bite.”
The Bahamas Leaks records were obtained by the Sueddeutsche Zeitung, the same German newspaper that leaked the Panama Papers, which then shared the files with the Washington-based International Consortium of Investigative Journalists and its network of global media partners, including CBC/Radio-Canada.
The Panama Papers surfaced a few months earlier in 2016, but the CRA has yet to bring criminal charges against anyone named in that leak. Other states have already filed hundreds of charges and received convictions.
The CRA received nearly $1 billion in additional funding between 2016 and this year to fight tax evasion and avoidance. In an email to the CBC, the agency could not point to a single criminal conviction obtained in the past 4 1/2 years related to offshore tax evasion.
The agency said last week that at one point it had five open criminal investigations stemming from the Panama Papers, but has since closed three. The remaining two cases appear to be under investigation for $77 million alleged evasion of tax at source in Vancouver and Ann an investigation of an Alberta oil slick financier.
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