CRA convicts a fraction of offshore tax evaders: Exclusive

As worldwide pressure grows to fight offshore tax evasion, new statistics obtained by the Star show the Canadian government has convicted only 49 people and levied just $13.4 million in fines for what it calls offshore activity since 2010.

These numbers are far lower than in comparable countries and show the Canada Revenue Agency recovers only a tiny fraction of the estimated $6 to $7.8 billion in taxes Canada loses to offshore tax havens each year.

Experts say the new data reflects the Canada Revenue Agency’s inability to unravel the complex offshore structures that allow wealthy individuals to avoid paying tax.

“These numbers probably reflect a lack of resources at the CRA because there certainly hasn’t been a decrease in tax evasion,” said Dennis Howlett, executive director of Canadians for Tax Fairness. “The biggest tax evaders are doing it offshore. That’s what we’ve been saying for years and that’s where they should be concentrating their efforts.”

Between 2010 and 2015, 662 people were convicted for tax evasion or tax fraud overall, but only 49 had “money and other assets located offshore,” according to documents provided to the Star.

Despite representing only 7 per cent of convictions, these tax cheats evaded, on average, three times more tax, received fines three times as large and were sentenced to jail terms three times as long as domestic tax dodgers.

Even with these numbers, it’s difficult to get a clear picture of how seriously the government pursues offshore tax cheats because the CRA appears to employ an overly broad definition of “offshore” that includes cases with any link to a foreign country.

Outside of the CRA, the term is generally understood to refer specifically to the use of tax havens, experts say.

“The CRA is defining offshore very broadly,” said Howlett. “The fact that some of these convictions have nothing to do with tax havens is consistent with what we’ve been hearing from CRA staff.”

The Panama Papers leak has detailed how the use of shell companies in tax havens deprives public tax coffers of billions of dollars each year. While other governments have devoted significant resources to cracking down on bank secrecy and offshore tax schemes, Canada’s efforts appear to have paled in comparison.

Australia’s Project Wickenby has collected more than $600 million from cheats using tax havens since 2006. The U.K. has recouped more than £2 billion ($3.5 billion) from offshore tax evasion since 2010.

In contrast, Canada has only handed out fines totalling $13.4 million since 2010 — less than half the $35.7 million in taxes the cheats were caught evading.

“This doesn’t make any sense,” said tax lawyer Jonathan Garbutt. “The law states that the minimum fine for tax evasion must be 50 per cent of the amount of tax owing. And judges often fine 75 or 100 per cent.”

The CRA did not respond to questions about the unusually low fines.

Over the last five years, the CRA overall number of tax evasion convictions has dropped by more than half, but the number of offshore convictions has remained fairly stable.

Critics say this reflects the layoffs of about 300 tax auditors after the Conservative government imposed a two-year budget freeze in 2014. But agency spokesperson David Walters said it is due to a change in emphasis at the CRA, “to strengthen our ability to criminally prosecute those who commit tax crimes, targeting the most egregious offenders.”

“The number of convictions has decreased since the changes were implemented, however other metrics confirm that the strategic shift is working, particularly in relation to offshore convictions, as evidenced by an increase in jail sentences and court fines,” Walters wrote in an email.

Because court records are public information, the Star requested the names of the convicted offshore tax evaders through Access to Information legislation. The documents released by the CRA, show 31 separate convictions for tax evasion with an “offshore component.”

It’s too early to measure whether these new efforts have paid dividends, but critics question the way the CRA categorizes a case as “offshore.”

One conviction listed on the CRA’s list of offshore tax cheats is Vaughan tax preparer Doreen Tennina. In 2013, she was found guilty of tax fraud for claiming more than $58 million in fake carrying charges and charitable donations on tax returns for her clients. Tennina’s tax scheme didn’t have any reported offshore elements. Her only international links were two properties she owned in Spain.

This is where she fled during her trial in 2011. Two years later, she was arrested in the Canary Islands before being extradited back to Canada last year. She is now serving a 10-year prison sentence. The CRA considers her an “offshore” tax cheat.

“They’re confusing offshore with overseas or cross-border,” said Nicholas Shaxson, an investigative journalist and author of two books on tax havens and international tax evasion.

The term offshore, Shaxson says, refers specifically to the use of tax havens, where secrecy makes it difficult for authorities to follow transfers of cash through opaque shell companies and trusts.

“They’re talking about overseas and they’re trying to conflate it with offshore, but offshore is a very particular aspect of international finance and the two should not be confused.”

Of the 31 cases revealed to the Star, the CRA provided names to just 13 cases involves 19 people. Of these only six had an identifiable connection to offshore tax havens.

The rest of the case names and all of the case numbers were redacted, making it impossible to determine the identity of the unnamed offshore tax cheats.

The CRA keeps these tax cheats’ identities secret because the link to offshore activity in their cases is only evident in confidential tax filings and not a part of the public court record, Walters said.

But legal experts disagree.

“This is 100 per cent in the public domain,” said tax lawyer Garbutt. “I do not know how or why the court record would not include details of how and where the taxes were evaded.”

The CRA regularly publishes the names of domestic tax cheats on its website.

Despite tough talk in recent years of cracking down on offshore tax avoidance, Canada remains an international laggard.

When the previous Conservative government announced $30 million to combat international tax evasion and aggressive tax avoidance in 2013, the measures brought in as part of the crack down were decades behind the times. For example, the requirement for banks to report all international transfers of $10,000 or more, introduced in January 2015, has existed in the U.S. since 1970.

Since its election last October, the Liberal government has devoted more attention to the abuse of offshore tax havens, pledging to investigate the particularities of each tax haven in order to better tailor enforcement efforts. The Isle of Man, where $130 million was stashed by high-net worth individuals in a scheme designed by the accounting firm KPMG, was the first jurisdiction to be targeted by the CRA.

Garbutt doubts that the CRA still has the expertise to take on these complex projects after losing so many auditors to layoffs.

“They gutted the international department,” he said.