Friday, April 12, 2013

Canada Revenue seeks source data on tax evasion from the ICIJ to bring "appropriate action"; What role due process?

Tax authorities are embarrassed by the ICIJ leak and they want the source data before anything more embarrassing hits the front page news and/or to show they really are serious about cracking down on offshore tax evasion.  As a result I am not surprised to see the Canada Revenue Agency attempt to prise the data from the CBC:
...It is my understanding that a leak of large amounts of data potentially exposing cases of offshore aggressive tax avoidance and possibly tax evasion is the catalyst for these stories. I also understand that your organization may be in possession of some or all of this data. 
You will know that the Canada Revenue Agency has already been in touch with your organization to underscore the importance of this information to our continuing efforts on behalf of Canadians to combat offshore aggressive tax avoidance and evasion. 
I would expect that both the CBC and you, as its president and CEO, have an interest in ensuring that appropriate action is taken if individuals are not respecting their tax obligations. Taking action against individuals who are not respecting their tax obligations is in the best interest of the public and law abiding Canadians. The provision of the data that your organization has in its possession would allow the CRA to pursue cases where this is occurring without in any way infringing on your journalistic mandate. 
I again respectfully request that you provide to the Canada Revenue Agency all of the data the CBC received through its collaboration with the International Consortium of Investigative Journalists so that the Agency may review and take action according to its mandate. I understand that the CBC is reluctant to provide this data, citing concerns with journalistic independence and protecting sources. I can assure you that the Canada Revenue Agency has not asked for the source of the information and will treat any information you provide with strict confidentiality in the same manner it treats all taxpayer information it receives. 
I sincerely hope that you will respond positively to this request and agree to provide this information so that the CRA can carry out its responsibilities.
Lots of loaded language there but it's clear the CRA can't compel the CBC to hand over the data, and is appealing to the CBC's sense of responsibility to society to make sure that tax cheats are brought to justice.  Notice the CRA doesn't confine itself to the data that implicates Canadian taxpayers--they want "all the data." I wonder why they don't offer the temptation of the newly-authorized whistleblower rewards. But is it not the case that the CBC, and the ICIJ, have obtained this information illegally? And if so, what are the ramifications for bringing criminal action in Canada?

The ICIJ received a hard drive in the mail containing millions of lines of personal financial data on individuals and companies that presumably were entitled to confidentiality under existing national laws--laws presumably similar to those that currently protect Canadians' financial data from being given out to unrelated third parties. Recall the CRA's “Declaration of Taxpayer Rights," which states that every Canadian:
“can expect [the CRA] to protect and manage the confidentiality of your personal and financial information ... Only employees who need your information to administer programs and legislation have access to your information. We also take other steps to protect your information and make sure it is kept confidential. For example, we follow government-wide and internal policies on the security of information and privacy.”  
The Declaration is simply an agency statement and lacks the force of law, but many of the rights it details, including the right to privacy and confidentiality, are “legislated” rights, that is, they are contained in the Charter, the Act, other statutes, or the common law.  Legislated rights do have the force of law so Canadians have mechanisms to seek redress in cases of breach of confidentiality or privacy by the CRA. Presumably, other countries have similar confidentiality rules and taxpayers have rights in those countries, too. Have these not been (and are they not being) violated by the sender of the hard drive, the ICIJ, the CBC, and the other journalists?  Of course, the CRA would be entitled to data on Canadian taxpayers from the taxpayers themselves and from relevant third parties under domestic law, but this is the major sticking point of the international tax system today: barring automatic information exchange from other governments, it is hard for the CRA to find money hidden offshore without resorting to extra-legal means of obtaining information.

So if we think the people exposed in the ICIJ leak have violated Canadian law, we must also recall that they have due process rights under that law. Would prosecution of Canadians using such illegally-obtained information pass internal due process requirements? I think the answer is probably yes, and I wonder if Canada might diverge from the US in the ability to use ill-gotten evidence in a criminal prosecution.

The reason I think that Canada could use the data as evidence in a criminal prosecution is that even though every Canadian "has the right to be secure against unreasonable search or seizure," and even though this Charter protection has been interpreted to require law enforcement authorities to seek prior judicial authorization for a proposed search and seizure if the target has a reasonable expectation of privacy with respect to the information sought, the case of Schreiber v. Canada says that the rights and freedoms enumerated in the Charter are guaranteed only against interference from actions taken by the federal or provincial governments of Canada.  Following the Schreiber decision, it seems that even tax information obtained illegally would be admissible against Canadians, so long as it wasn't the Canadian government that was responsible for the illegal action that exposed the behavior.  

In the United States, the result might be different. The cases of United States v. Wolf (1984) and U.S. v. Phillips (1979) suggest that information requested from another government by the IRS would be inadmissible as evidence against a U.S. citizen if it was seized by the foreign government in contravention of U.S. law (even if the seizure was allowed under foreign law).  Turning that around, I am not sure what happens if the IRS tries to use information that a private citizen produces in contravention of foreign law, but perhaps the cases suggest that if the information is produced in a manner that also violates US law, it could not be used as evidence in a criminal prosecution. If anyone reading this could shed more light on the subject, I'd be grateful for the insight.

Relatedly, I've been wondering what happens to the ICIJ, the CBC, etc. themselves, if they expose names and financial information about anyone that turns out not to be engaged in anything illegal? Maybe this seems improbable but it bears recalling that it is not illegal to own an account in another jurisdiction, including in the Cook Islands. What is illegal is failing to fulfill disclosure obligations under the laws of any jurisdiction that claims sovereign rights over you. That kind of information is perhaps not on the hard drive, so mistakes could be made in exposing people to public scrutiny who are not engaged in anything illegal. Thus the CRA makes the leap from data on a hard drive to evidence that Canadians are shirking their tax obligations, but it's certainly possible that not all the data points in that direction. That may be why the ICIJ has not made the source data public as Assange did--perhaps there is some sense that disclosure of all the data on the drive might not necessarily be "in the best interest of the public and law abiding" population, of Canada or otherwise.

In any event this story continues to unfold and as usual raises more questions than I can readily answer. I will be very interested to see how things proceed in terms of the CBC or the ICIJ releasing the source data to any tax authorities.


  1. A couple of comments:

    I have been traveling for the last few days. Jim Flaherty has been travelling himself to a place called Bermuda. Not only did Flaherty travel to Bermuda he spent two days there and a give an interview to the local newspaper the Royal Gazette. There were several remarks I thought were interesting. One Flaherty re-iterated the calls of Gail Shea for the CBC to turn over whatever data it had obtained from CRA. Second Flaherty said in his mind and that of the Canadian government Bermuda is NOT a tax haven. Flaherty went on to say Canada has a TIEA with Bermuda that is working quite well and TIEA's are the international "standard" and Bermuda is passing the international "standard" quite well. Unfortunately, as I write this the article on the Royal Gazette website is "down." As soon as it is up I will provide a link.

    It is quite interesting as to "why" Mr. Flaherty traveled to Bermuda on such short notice. I have a hard time believing Flaherty went to Bermuda just to promote Canada Bermuda relations. Is it just a coincidence the same day as Flaherty is in Bermuda the EU6(UK, France, Germany, Poland, and Spain) are demanding automatic information exchange as the international standard with an eye to using the G7/G8 summit in June(which Canada is a member of) to essentially mandate AEofI as an international standard. Lets put it this way right now in Europe if George Osbourne, Moscovici, Schauble, or any other EU Fin min went to Bermuda and said what Flaherty did they would be out of office by Monday morning Flaherty though gets away with it. That sure is a message being sent be Flaherty to the EU Fin Mins especially his G7 colleagues.

  2. I got the link:

    We’re all good!’ Canadian Finance Minister on exchange of information

    The two countries signed a Tax Information Exchange Agreement in 2010, an agreement that Mr Flaherty said was “going very well”.

    And while Canada is now looking to close tax loopholes and crack down on tax dodgers, Mr Flaherty said Bermuda was not on his target list of tax havens.

    “The TIEA has gone very well between Canada and Bermuda. It creates transparency and allows for the flow of information.

    “There’s much more transparency in the exchange of tax information than there was three or four years ago.

    “Bermuda is not a tax haven according to OECD and Bermuda has a TIEA with Canada, so we’re all good.”

    Canada has been able to weather the economic storm of global recession better than most economies, in part by balancing budgets and keeping down public debt, according to Mr Flaherty, who has been Finance Minister since 2006.

    I just find it amusing Flaherty goes to Bermuda and says this the day the EU6 Fin Mins are trying to round up as much political muscle as they can to say that TIEA's are basically junk. All the while domestically they could never get away with what Flaherty just did.

  3. Along these lines too apparently Austria was in everyone's line of sight in the EU however, they appeared to have been fighting back quite strongly.

    Austria hit back at critics of its banking secrecy on Thursday by urging Britain and the United States to crack down on money laundering and tax havens in their own backyards, as EU ministers prepared to debate the issue in Dublin.

    Isolated in the European Union following Luxembourg's move this week to share foreigners' bank data to foil tax cheats, Austria's finance minister said she could discuss such a change of tack - but insisted it could not be a "one-way street" and accused London and Washington of failing to close international tax loopholes in the likes of Delaware and the Channel Islands.

    "Delaware and Nevada are tax havens and money-laundering centres that have to be laid bare just as much," Fekter told Die Presse newspaper and adding that Britain was "the island of the blessed for tax evasion and money-laundering".

    Fighting words indeed.