Finance Committee on March 10th, 2011

[Darren Hannah]

As I said before, we are strong supporters of the government's effort to create a competitive tax system--

[Scott Brison, Liberal, Kings—Hants, NS]

That's not the question.

[Darren Hannah]

Let me finish, please--because we believe that creates the kind of growth that ultimately grows the economy and starts to address the issue that you're trying to address.

[Scott Brison, Liberal, Kings—Hants, NS]

Why are you prejudging what I'm trying to address? I'm asking you a question about the deficit.

[Darren Hannah]

Yes, what I'm saying is the economic growth that is created by having a competitive tax jurisdiction will ultimately create the jobs and create the sort of prosperity that we need to be able to grow the economy and address the deficit.

[Scott Brison, Liberal, Kings—Hants, NS]

Yes, and that's why we cut corporate taxes from 29% to 19% when we were in surplus.

[Darren Hannah]

Absolutely.

[Scott Brison, Liberal, Kings—Hants, NS]

We have a deficit now, and that's something that 30 million Canadians have to deal with, not certainly the members of your organization--

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. Brison. You'll have another round later.

Thank you, Mr. Hannah.

Monsieur Carrier, you have five minutes.

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

Thank you.

Good morning to our witnesses.

I have some questions for our witnesses from the Canadian Bankers Association. You always make great presentations. It shows that you are a determined and well equipped organization. However, I find myself wanting more when I read your presentation, because you haven't really shown that tax evasion is very serious. Our committee took the trouble of initiating this study because it is a very serious matter for all Canadians and taxpayers who have to pay taxes, while some companies avoid doing so.

How many subsidiaries or branches do members of your association have in foreign countries and tax havens? Since that is the subject of our study, it is important that we have that information.

[Nancy Fung]

Unfortunately, we do not have that information with us. It's something that I can try to obtain and get back to the committee on, unless Darren has any additional information that I don't have on that.

[Darren Hannah]

Certainly we do not operate in bank secrecy jurisdictions, if that's what you're getting at. Canadian banks have branches in low-tax jurisdictions in some cases, absolutely, but certainly not in places where there is tax secrecy, where there is bank secrecy in the way that a classic tax haven is understood to be.

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

I'm just talking about tax havens—about branches operating in countries where the taxation level may be different. I'm talking about tax havens, not tax evasion. Do you have any information about the number of subsidiaries?

[Darren Hannah]

No, I don't have that figure with me, but I can tell you with certainty that they will be operating fully in compliance with the laws of the jurisdiction, wherever that is.

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

I am not passing judgement here. I just want to know the number. If you're not ashamed of it, you should at least have that information. It is critical for our study.

As you know, the Director of the HSBC in Canada appeared to talk about the recently disclosed information regarding the existence of Swiss bank accounts. Indeed, some 1,800 taxpayers had Swiss bank accounts through that subsidiary. I believe it was the President or Vice-president of the Canadian branch of the HSBC who appeared. He mentioned that when a Canadian investor wanted to invest money abroad, he would direct that person to his subsidiary in another country and simply wash his hands of the whole business. It was no longer his problem.

Do you approve of that attitude?

[Nancy Fung]

From what we hear from our member banks, that is the practice. Before even that piece in terms of referring them to the branch, they still follow the standard protocol of making sure they know who the client's customer is and also of determining the reason for their wanting to open an account. They do carry out preliminary due diligence on that before they would refer them to the branch.

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

Is that a requirement set by your association or is it up to each member organization to establish its own policy?

[Nancy Fung]

It is up to each bank. “Know your customer” rules are standard throughout the banks because of securities regulations and bank regulations. As for the actual procedures, they are determined by each of the banks.

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

You know that public opinion does matter. A lot of tax evasion occurs through Canadian banks. You know that.

We are trying to determine publicly how all of that works. Can you prohibit investments in branches of Canadian banks operating in countries that are on the OECD's grey list? The grey list refers to those countries where tax evasion is practised and with which there is no information exchanged.

Do you at least have the power to prevent investments by Canadian banks in countries that are on the OECD's grey list?

You refer to the OECD in your paper, but do you at least have that power?

[Nancy Fung]

Do you want to go into more detail?

[Darren Hannah]

I want to make a couple of points, because I think they're important.

We said in the opening remarks, and I'll say it strongly again: Canadian banks do not support tax evasion, they do not want to be involved in tax evasion, and they don't come near tax evasion. If somebody goes into a branch and appears even remotely to want to do something that entails tax evasion, that's going to set off all manner of alarm bells. It's going to cause a suspicious transaction report. It's certainly going to prompt a response, because a reputable Canadian bank does not want to get involved in anything like that.

[The Vice-Chair, Liberal, Massimo Pacetti]

All right, thank you, Mr. Carrier.

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

They're just words.

[The Vice-Chair, Liberal, Massimo Pacetti]

There will be another round, Mr. Carrier. You took more time than you were entitled to. Thank you.

Thank you, Mr. Hannah.

Mrs. Block.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

Thank you, Mr. Chair.

I join my colleagues in welcoming you here this morning.

Throughout this study we have asked for witnesses to clarify the difference between the illegal use of tax savings and the legal use of offshore financial centres. In your opening remarks you stated that “Canadian banks do not promote tax evasion by their clients in Canada or in any other country. In fact, banks have policies and procedures in place to ensure that the products and services they offer are not used for the purpose of evading taxes”. You went on to say that banks “fully comply with the letter and spirit of all laws, regulations, and reporting requirements designed to detect and prevent tax evasion”.

So within the context of fully complying with the letter and the spirit of all laws, could you explain how Canadian banking institutions and businesses legally use offshore financial centres to expand into international markets?