Finance Committee on Feb. 8th, 2011

[Scott D. Michel]

I would say that relying on voluntary disclosure without some fairly strong enforcement at the same time would only give you half a loaf; that if voluntary disclosure is accompanied by aggressive enforcement, if the CRA has resources such as were given to the IRS to go after UBS and other bankers....

The enforcement, coupled with the policy, resulted in a dramatic increase in assets coming back into the system. If the IRS had simply announced a policy on its own to encourage people to come forward, it would not have been effective. In fact, that is what happened in the early part of the last decade. The IRS announced two initiatives that didn't work.

[Paul Szabo, Liberal, Mississauga South, ON]

Mr. Bartos.

[Scott Bartos]

Mr. Chairman, as the representative of a financial institution, I'm really not in the position to provide any expertise on that particular topic.

[Paul Szabo, Liberal, Mississauga South, ON]

Okay.

Mr. Michel, are you talking about the enforcement procedures and efforts vis-à-vis the voluntary disclosure program?

[Scott D. Michel]

In part I am, but also those outside the VDP.

[Paul Szabo, Liberal, Mississauga South, ON]

The point I wanted to make is that we still seem to be talking about the voluntary disclosure program, which is basically saying, let's deal with the problem after it has happened; let's not prevent it. Where are the deterrents?

We're doing a study on tax evasion. If we do nothing, or if we more rigorously do a better job on the voluntary disclosure program, the problem gets bigger. So let's move away from the voluntary disclosure program.

From your experience or expertise, if you have anything to offer, what deterrents, what factors are in play that we have to deal with to permit people to in fact take those steps? They don't do it as individuals. There are lawyers, accountants, consultants, banking officials, offshore officials, etc., who are all involved and who have knowledge of what's going on.

Are there any significant effective deterrents to the problem before it occurs, rather than after?

[Scott D. Michel]

In the United States you have 300 million people who probably file, altogether, half a billion tax returns a year—corporate, individual, and so forth. The government prosecutes only a thousand people criminally.

Now, in my judgment, if you wanted to have an increased deterrent effect, I think white-collar crime is such that if people feel a greater risk of detection, that would have an increasing deterrent effect. I think a lot of people play the lottery and assume they won't get caught.

[Paul Szabo, Liberal, Mississauga South, ON]

Okay.

Canadians who are looking at possibilities for tax havens offshore and maybe want to make a decision to do the wrong thing are looking to what countries are out there. We've had representation from the OECD and others that there are certain countries where conditions exist that are a problem—the secrecy provisions and basically the mask that's put on the system.

Countries like Canada and the United States have significant bilateral agreements or multilateral agreements on trade and other matters. Why don't these jurisdictions incorporate into that, along with, say, double taxation agreements, etc., some tax information sharing agreements? Why isn't that part of the culture in which our banking system and governments operate? What is the problem?

[Scott D. Michel]

I think that trend is being reversed slightly. Within the last three or four years, I think countries have been afraid of being put on the OECD grey list and black list. For example, you saw Switzerland adopt, at least with the United States, a new protocol on information exchange that dramatically widened the scope of the types of cases in which information would be disclosed.

But as Mr. Sohmer points out, correctly, these treaties still prevent what are called “fishing expeditions”, which puts a significant crimp on the ability of a requesting state to ask for information. If you can't name the client or the bank, you're in trouble.

[Paul Szabo, Liberal, Mississauga South, ON]

I have one last thing. I understand that the U.K. put in 4 billion euros, or something like that, into a program of fishing, and it got 100 billion euros back.

[David Sohmer]

I think that may have been to purchase data that was stolen from Crédit Suisse.

[Paul Szabo, Liberal, Mississauga South, ON]

We were told it was four and seven.... In other words, it simply was a small amount of money that yielded a significant amount, which showed the dimension of the problem.

Why aren't more countries investing in an aggressive approach, contrary to your approach of let's be nice to the people who have evaded taxes so we get something in the future, while foregoing what we had—

[The Chair, Conservative, James Rajotte]

A brief response.

[Scott D. Michel]

I would say that being nice to people in a voluntary disclosure is only part of an effective enforcement system. You've got to be aggressive in enforcing the law against tax cheats. That's what brings people in to make voluntary disclosures.

[David Sohmer]

I might add that Canada doesn't have the muscle of the United States to have as effective a deterrent. We're a small country. They're a large country; they have much greater resources.

UBS, for example, had 28,000 employees--more employees in the United States than they had in Switzerland. In the rest of the Americas, there were about 1,100 employees. UBS assets here, in terms of its branch operation and its subsidiary, were in the nature of about $2 billion, which is a grain of sand.

Even in the United States, it was not possible for the IRS to bring UBS down after Lehman Brothers collapsed, because the world financial system would have collapsed.

This problem is international in scope. Canada has limited resources to deal with it.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Szabo.

Monsieur Paillé, s'il vous plaît.

[Daniel Paillé, Bloc, Hochelaga, QC]

My comments and questions are for the HSBC representatives.

I do not want to go back to the comments Mr. Mulcair and I made at the very beginning. However, you say that you are committed to following the letter and the spirit of the laws and that you represent HSBC Canada. So you should know that you have to submit bilingual documents here. I would like to thank Mr. Michel, who is an American, for respecting Canada's laws.

That being said, just as we do not choose our parents or our siblings, you seem to want to distance yourself greatly from your HSBC colleagues abroad. After boasting about the fact that you are present in 86 countries, you seem to be telling us that those 86 countries are responsible for what happens over there. In a way, you are absolving yourself of all responsibility.

Your bank is this seventh largest chartered bank in Canada. You say that you must establish and verify your customers' identity and, at the same, even though you do not participate in evasion, you say that HSBC does not open bank accounts in Switzerland and that it does not open bank accounts for the father of the family that sends his child to Paris or London. However, that is not what we were talking about. What we would like to know concerns Canadians who want to open a bank account in Panama, Belize, or the Cayman Islands.

You seem to have built up something of Chinese wall, to use a financial expression, among HSBC Canada and its branches abroad. A list came to light of almost 2,000 Canadians with an HSBC bank account in a tax haven. That must have resulted in bad publicity for you. Here's my first question: Has HSBC group conducted an investigation to determine how this information was leaked?

[Scott Bartos]

Mr. Chairman, in response to the question, I am a representative of HSBC Bank Canada, and so I am limited in what I can speak for the HSBC group.

I'm advised that there has been an investigation into what caused the leak and appropriate actions have been taken to ensure that data thefts do not occur in the future.

[Daniel Paillé, Bloc, Hochelaga, QC]

This basically means that HSBC is taking measures to avoid this kind of leak in the future. From our perspective, this information was useful because that's why the committee decided to hold meetings on the topic. You hope that it won't happen again and that we will not get all the information we need to do our work. I am not very surprised at that.

You say that you only refer clients to branches in other countries. For instance, you may refer Canadian clients to an HSBC bank in Panama. HSBC Canada knows who the clients involved are, and it sends to Panama a letter saying that they are good clients and that they should be allowed to open an account. In turn, Panama processes the information according to its laws. Basically, you do not want to know anything about what those people are doing in Panama. You wash your hands of the whole thing.

Is there a broker or a nominee between the two countries who can blow the whistle if the clients you referred to Panama are doing something deemed illegal in Canada? Is there a third party, a broker, who can relay this kind information?

[Scott Bartos]

Mr. Chairman, in the hypothetical example, no, there is not an intermediary, and there is no sharing of information as between the two entities.

I mean, it's important to recognize that most countries, I think, have instituted privacy laws, as we have here in Canada, that are very strong over the protection of individuals' information--personal information, banking information, things of that nature.

So no, there's not a sharing between the two countries, through an intermediary or otherwise. That's in compliance with the laws that have been established in many countries.

[Daniel Paillé, Bloc, Hochelaga, QC]

So, your being here is not very useful, since you say that you cannot disclose information regarding Canadian clients who do business in Panama. In addition, I don't think that this is a hypothetical example. The truth is, you say that you will disclose information to Canada, but you have little information and you hide behind the law by saying that you cannot disclose information that you do not have.

Mr. Michel, I want to take advantage of your experience, since you talked about U.S. disclosure laws and measures. Do you feel that Canada should resort to much more aggressive enforcement in dealing with this situation or set penalties similar to those in the United States that apply to tax evaders?

[Scott D. Michel]

I think aggressive enforcement will lead people to come in and make disclosures and will deter tax evasion.

In the context of voluntary disclosure, I think it's a difficult balance to strike as to where and how people are penalized, because you want to set a penalty at a level high enough to recognize that the people coming forward have violated the laws and need to bear some pain as a result, but also, the penalty can't be so high that people are discouraged from coming forward.

So if the question is on being more aggressive, on the enforcement front I would say yes; I've always believed that tax enforcement should be aggressive to deter tax evasion. On the voluntary disclosure front, I think the aggressiveness needs to be tempered with a degree of leniency to encourage people to come in.

[The Chair, Conservative, James Rajotte]

Thank you.

Merci.

Madam Glover, please.

[Shelly Glover, Conservative, Saint Boniface, MB]

Thank you, Mr. Chair.

I have to say that my juices got flowing as I was listening to some of these testimonies. My background is that I'm a police officer on a leave of absence, so as I was listening to you, Mr. Michel, make your statements about how we might provide more leniency to those who frankly are cheating their countries out of taxes that are owed, I thought I was going to have the big one.

[Voices]

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