By: Jonathan Garbutt, Benjamin Ross
Back in February our blog post “Shiver Me Timbers, Mateys – Ahoy the Age of Tax Privateering” , talked about several cases of high profile thefts of data from private banks. The objective of the “Whistleblowers” is to give information on many offshore accounts used in order to evade income taxes to the relevant tax authorities to get a reward. One of these Whistleblowers was an ex-IT employee of HSBC in Switzerland, by the name of by Hervé Falciani, who stole some information which benefited the French “Fisc”. This public body, which is the equivalent to Canada’s CRA, was at the time lead by the Budget Minister Eric Woerth. Minister Woerth claimed at the time that the information given would only pull out 10 possible names of a list of 3,000 suspects they had already put together themselves. Previous new stories had suggested that there was more to the disclosure than that, but there had been nothing definitive.
In this weekend’s French newspaper “Le Monde”, there was a small article tucked away on page 2, near the bottom, entitled “1 Billion euro recuperated by Bercy (which is where the Fisc has it’s grandiose offices) from tax evaders”. The new Budget Minister, FranÃ§ois Baroin, announced some breath-taking information on the 18th June; which just so happens to be the anniversary of Charles de Gaulle’s famous call for resistance against the Nazi occupation while he headed up a liberation army in England. However, Minister Baroin used this occasion to cry out victory over the enemy that is the tax evader.
The French government formally acknowledged that Falciani’s data did not bring in 10, but rather 127,000 accounts! Obviously there were other informants, but his specific aid is always mentioned. Is it because he is now famous? Or is it because he actually brought in the large majority of these accounts? We are more prone to the second answer.
One of the astonishing things about this case is that we know the Whistleblower’s name. Although he’s being protected by the authorities in Nice, he has given interviews and played the public celebrity card… Does he not fear for his life? It is even more astonishing when you realize how valuable his actions were, making him a high profile target for anyone out there who is about to loose out on a lot money! However, it is possible, given the variety of stories out there, that the real reason that he is giving interviews is that he needs money, as it appeared that at least initially the Fisc was not willing to pay Mr. Falciani very much, if anything, for the disclosure.
In any case these accounts are held by 79 000 individuals of which 8 231 are French. How he did it remains a mystery… maybe he handed over an actual “enigma” machine which the Fisc was able to decode; whatever is was they did, they did a good job at it. It would seem like the French may have been using an old WWII strategy of misdirection: “We’re going to keep everything on the down-low. If there is a leak to the press, tell them that the information is minimal, and point them in the wrong direction.” Indeed, Minister Woerth had claimed that the data was pretty much worthless and yet 1 billion was sent straight to the state’s coffers last weekend.
France is not the only country that will benefit from the HSBC Whistleblower case. If you look at the history of recent Whistleblower cases, and more specifically to the case involving Liechtenstein’s main bank, LGT. In that particular case, a long list of LGT clients was sold to the German government. The Germans passed on all relevant information to England, France, Australia and Canada in accordance with their bilateral tax treaties. If France is holding details on more than 70 500 non-French individuals, it is very likely that Minister Baroin’s office is overloaded with calls from treaty countries. In any case, “Le Monde” only mentioned the break through briefly and finished up by explaining that the Budget Minister would be getting back to us in 10 to 15 days… So the saga is to be continued.
Again going back to one of our previous comments, (“Canada, Voluntary Disclosures & UBS – the Good News, the Bad News and the Truth” (http://www.garbutt-taxlaw.com/updates_comments/content/6.html), last year we claimed that the CRA was making a lot of noise through the press in order to have people think that they held large amounts of information about tax evaders. In our view, “the Minister is spouting off a little too loudly” just so that people will “panic” and come forward with a voluntary disclosure form. Well, that is definitely another set of tactics, that capitalizes on the tax payer’s fear. It worked well, as many people with undisclosed income came forward, considering the CRA didn’t have that much information to start with from LGT. The French, on the other hand, appear to have taken another, more aggressive tactic; it took them 6 months of under-the-radar work and it seems to have paid off; 1 billion euro is a big pay check! It is entirely possible, given the relative number of taxpayers involved who are not French, that the total world-wide recovery as a result of Falciani’s work would be a multiple of the French recovery.
Specifically, HSBC is very well know as a powerhouse in Asia and in particular Hong Kong and China. Approximately 5,000 years of Chinese history make it clear that disclosing everything to the government only guarantees that the government will steal your money. As a result, in our experience in dealing with clients from Asia, it is very difficult for people from the region to be completely forthcoming to the Canadian authorities even after they have become resident in Canada. It takes a generation for the family’s, entirely rational, absolute distrust of government to wear off. So if you are a Canadian tax resident who has undisclosed dealings with HSBC, or if you suspect your parents may have undisclosed funds with HSBC, you should assume that the cat is out of the bag. If your name is not on the French list, there will likely be some names who are resident in Canada. If the CRA can get some names, they could use that to go after the bank and attempt to pry out further disclosure. How much they can get is debatable, but we do know they will do everything they can.
It is important to note that if a taxpayer makes a voluntary disclosure before they hear footsteps, they can avoid jail time, penalties and additional interest. But if you wait too long, the CRA may take the position that the disclosure was not voluntary. How late is too late? Well, that is a matter of ongoing litigation in the Canadian courts. If you think you have a problem, dealing with it sooner is better that later.