Taxman takes on Swiss bank to reveal Canadian fortunes

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On the heels of a landmark settlement that allows U.S. tax collectors a rare peek inside the vaults of Switzerland, lawyers with Canada Revenue Agency are preparing to meet with the embattled Swiss bank UBS in a few weeks to discuss the Canadian fortunes hidden offshore, the Minister of National Revenue says.

"We want to obtain information. How much money is involved?" Minister Jean-Pierre Blackburn said yesterday in an interview. "UBS tried to delay, but in the beginning of September, we will have a meeting between our lawyers and them to obtain that information."

This week, the U.S. Department of Justice announced that a lawsuit it brought against the bank, one of the largest managers of private wealth in the world, had pressured UBS into handing over details on 4,450 accounts holding an estimated $18-billion (U.S.) - a major blow to a bank, and a country, that has long prided itself on its discretion and secrecy.

Mr. Blackburn was short on details about what his agency's lawyers are demanding. A UBS spokesperson, Karina Byrne, declined to comment on the meeting.

However, judging by the number of Canadians who have come forward to voluntarily report their holdings in Switzerland, the bank's clients don't fear the CRA the same way Americans tremble before the Internal Revenue Service.

American clients of UBS have been turning in droves to tax lawyers who specialize in voluntary disclosures, the clemency program that allows taxpayers to declare their offshore holdings, plus interest, to avoid prosecution. Some lawyers quoted in the U.S. media say they are juggling as many as 50 UBS clients.

Canada, on the other hand, has accepted a total of seven voluntary disclosures from UBS clients, Mr. Blackburn said.

"I know, it's not enough. There's a lot more," he said, adding that the agency wasn't able to tell him how much money in back taxes had been recouped from those seven clients. "Is it a question of thousands of dollars or millions? I don't know."

Information about the bank's operations in Canada have been publicly available since last summer, when a U.S. Senate subcommittee launched hearings into the affair. The committee, chaired by Michigan Senator Carl Levin, subpoenaed Martin Liechti, a then-UBS executive who was responsible for a team of Switzerland-based bankers that were trained in counter surveillance and regularly flew to North America to woo wealthy clients.

Mr. Liechti, who was on the board of directors of the wealth management division of UBS's Canadian subsidiary, refused to answer questions, exercising his constitutional right under the U.S. Constitution to avert self-incrimination.

At that same hearing, investigators released documents that showed part of Mr. Liechti's unit - known internally at the bank as The Canada Desk - had helped wealthy Canadians funnel as much as $5.6-billion to Switzerland as of 2005. Yesterday, U.S. prosecutors unsealed another indictment against another former UBS banker - Hansruedi Schumacher, who oversaw the bank's illicit cross-border business in North America until 2002.

When asked why the Canada Revenue Agency hadn't taken the same steps as the United States to obtain the details behind those accounts, Mr. Blackburn insisted his agency didn't have access to the same information. He pointed to the role of Bradley Birkenfeld, the former UBS banker turned informant who has supplied the U.S. Justice Department, the IRS and the Securities and Exchange Commission with piles of internal UBS documents.

"The difference with the United States is they had two people who gave the information to the government. We do not have that here," he said.

"Our legislation is not the same one, and for that, we're not able to do exactly what they have done."

Mr. Blackburn said he has supplied a list of proposed legislative changes to the Department of Finance. (It is CRA's role to enforce the laws enacted by Finance.) The changes, which he says will clamp down on tax-haven abuse, include a provision that will allow the agency to view all records obtained by the Financial Transactions and Reports Analysis Centre, or FINTRAC. Currently, FINTRAC is only allowed to pass on transactions where they suspect money laundering, terrorist financing or tax fraud.

Mr. Blackburn is also proposing that all Canadian financial institutions be required to report any offshore accounts they create for taxpayers.

It's not clear how this provision would have affected the UBS bankers who set up accounts and trusts for Canadian residents, as they were not part of a Canadian financial institution.