Finance Committee on Feb. 8th, 2011

[Carol Hughes, NDP, Algoma—Manitoulin—Kapuskasing, ON]

I'm just wondering if you would see this as a positive step in having something like that provided to the client when they're investing--only because some people will say, “Oh, I didn't really realize that.”

[Scott Bartos]

Certainly it's something that we wouldn't object to.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Ms. Hughes.

Very briefly, Mr. Sohmer, would you change that form? Would you recommend that CRA amend that form?

[David Sohmer]

I don't think it's the problem of changing the form. I think it's the problem of compliance with the form.

[The Chair, Conservative, James Rajotte]

Okay.

Thank you.

We'll go to Mr. Tonks for a five-minute round, please.

[Alan Tonks, Liberal, York South—Weston, ON]

Thank you very much.

Thank you to our witnesses for being here.

I don't sit on this committee, so I'm just trying to pick up the thrust and intent of the legislation, and the effectiveness of its application.

Mr. Michel, you talked about a congressional initiative. The acronym was FATCA. It's sort of trying to characterize fat cats, but it gets a little short there.

What does that acronym stand for again?

[Scott D. Michel]

The Foreign Account Tax Compliance Act.

[Alan Tonks, Liberal, York South—Weston, ON]

Okay.

How effective has that been in the American experience?

[Scott D. Michel]

It has not yet taken effect. Significant portions of it don't come into effect until 2013. And financial institutions like HSBC and others are struggling with a fairly significant compliance burden to implement it. The IRS has issued one set of guidance on implementation, but there's a lot more to come.

So it's too early to judge how effective it may or may not be.

[Alan Tonks, Liberal, York South—Weston, ON]

But you've heard the characterization of what is an attempt to strike a balance between prosecuting those who deliberately attempt to circumvent existing tax regime law and those who may do so naively, or at a lesser degree, with a regime in balance that would encourage them to come forward.

In your estimation, is that sort of congressional initiative the kind of balance that you think will be effective in doing that?

[Scott D. Michel]

Yes, I think any effective tax policy has got to have a mechanism for people who have cheated to come in and make things right.

We may not like the fact that people cheat, and we may do our best to try to deter them from doing so. But there's an expression that the only two certain things in life are death and taxes. I believe you can add that there will be people who try to cheat on both; that's another certainty.

Enforcement, accompanied by a path for people to come back into the system, would constitute a broad-based tax enforcement policy.

[Alan Tonks, Liberal, York South—Weston, ON]

Against that, then, how effective have the voluntary tax disclosure mechanisms been?

[Scott D. Michel]

There's a debate in the United States over just how successful this IRS program was. I happen to be of the view that, notwithstanding some of the procedural and bureaucratic difficulties, from a macro perspective it was enormously successful.

Over 30 years of practice, before the program, I may have advised 100 to 150 clients to make voluntary disclosures. Our law firm had 400 cases within the course of about seven months: 15,000 people came forward. I think the average size of the accounts that were disclosed in our office was probably somewhere in the $3 million to $5 million range. These are assets that are coming back into the system. They'll be taxed every year in the United States. Now they're taxed again when you die.

So I think the system--for some of its flaws--that the IRS implemented in 2009 was an extraordinary success.

[Alan Tonks, Liberal, York South—Weston, ON]

Thank you for that.

I think the committee would be interested in the example that you used with respect to a Swiss bank that has assets that.... If an asset holder wanted to invest in an American company, there would have to be full disclosure under American law. You continue that analogy, and you said that it might leave the door open to that same person saying that then they'll invest through a Panamanian tax shelter.

Now, the United States has signed a free trade agreement with Panama. Surely they would be aware that this could circumvent American law.

Is that why the Congress has taken the initiative under FATCA, to try to close that door?

[Scott D. Michel]

In part, that's right. I think FATCA is perceived as an overarching legislative fix to a lot of perceived loopholes that people might be able to use to skirt the information reporting requirements.

[Alan Tonks, Liberal, York South—Weston, ON]

Mr. Chairman, I think that's important for the committee to take into consideration. Essentially, you have a very wide spectrum of deliberation on this criminal side and the civil side. That is where Canadian policy needs to be firmed up. Perhaps there's some indicator through that of how we could approach it.

[The Chair, Conservative, James Rajotte]

Thank you.

Monsieur Carrier, s'il vous plaît.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Good morning gentlemen. I will direct my comments first to Mr. Bartos.

To get back to what my colleague was saying earlier, you started your presentation by showing how important your company is. There is no doubt about that. Some news articles mention HSBC as an international banking giant. That's what you said as well. However, I dislike the fact that you represent your company in Canada and that, when submitting documents, you failed to recognize the fact that this country has two official languages. I am part of the French-speaking nation in Canada. That being said, I will move on to something else.

You said that, when a client wants to open a foreign account, the bank itself does not transfer the money. As someone said earlier, you sort of wash your hands of the whole thing. You refer the client to your representative in the other country. Given the fact that it is nevertheless your company which is then targeted in case of a potential tax evasion, I was wondering if you take into consideration the grey list established by the OECD. This is a list of countries with lax policies respecting the disclosure of declared income sources and paid taxes. These are countries where tax evasion is likely to occur.

In our discussions related to a bill on a free trade agreement with Panama, the Liberal members said that tax havens are legal, that it's okay and we should accept them. Perhaps tax havens are legal, but the tax evasion that could take place there is illegal and even immoral.

I would like to know whether or not you refer clients to banks in countries that are on the OECD grey list.

[Scott Bartos]

Mr. Chairman, HSBC does operate in a number of countries. I can't tell you off the top of my head how many of those countries may or may not be on the grey list.

But when we refer customers to another country, it is always under the framework that HSBC has a global set of policies and procedures in which we apply the highest compliance standards. We comply with all the applicable laws, whether they be in Canada or in Panama. And we apply our own internal high set of standards and policies so we know and understand our customer. When we refer a customer, whether it be to the United States or to Panama, it is done under the terms that the group entity in that country will apply very high standards of values when dealing with that customer.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

So you rely on your branches in those countries to conduct the necessary analysis for preventing tax evasion, correct?

[Scott Bartos]

Yes, that is correct. They would be customers of the other country. We have group policies that specifically provide that we do not condone or support tax evasion. So yes, we would rely on our counterparts to ensure appropriate compliance with applicable laws.

You have to remember, they are our clients and they are also the clients of the entity carrying on business in whatever country it may be, whether it's Panama or some other country.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

I think that its reputation and the proper management of its branches are important to your bank. Canadian clients of your bank, whose names were revealed a few months ago, were referred to Switzerland. If I am not mistaken, almost 1,800 Canadians had bank accounts in Switzerland.

[The Chair, Conservative, James Rajotte]

Avez-vous une question?

[Robert Carrier, Bloc, Alfred-Pellan, QC]

How were those clients dealt with? How many of them were subjected to an investigation and were perhaps accused?

[The Chair, Conservative, James Rajotte]

Be very brief, Mr. Bartos.