Finance Committee on May 6th, 2021

[Lucia Iacovelli]

Unfortunately, I'm not aware of any.

[Ted Falk, Conservative, Provencher, MB]

Okay. What about the Panama papers scheme?

[Lucia Iacovelli]

My understanding is that the listings with regard to the Panama papers are not publicly available. I'm not aware that any of our clients are within those Panama papers.

[Ted Falk, Conservative, Provencher, MB]

When this committee was discussing concerns about tax avoidance and evasion with KPMG in 2016, Gregory Wiebe was asked about whether the Isle of Man scheme helped to restore the trust of Canadians in the tax system. He had this to say, and I'll quote:

I think that if you look at that particular issue through the lens that we look through today, no. I think that if you look at that issue through the lens that existed at the time, in 1999, when it was policy and practice for individuals to have monies in a non-resident structure offshore, it was a very different time. We used to smoke in restaurants in 2006. We used to text in our cars up until two years ago. Times change, and we change with them.

Looking at it through that lens, I can't defend it.

My question to you, Ms. Iacovelli, would be this: How would you say that KPMG has changed since 2016, when that testimony was provided?

[Lucia Iacovelli]

I think that we had already changed by 2016. We operate under our global and national code of conduct, which is our responsible tax practice. Some of the highlights from that responsible code of conduct are that we act lawfully and with integrity and that we provide clients with the highest quality of tax advice.

When we look at the lens from 20 years ago, the lens that we looked through was legality, and it was looking at GAAR. Since then and since the mid-2000s, we've added the additional lens of responsible tax. The tax landscape and social acceptances have changed greatly over the last 20 years.

You can also see it through a great deal of legislation that's been put in place, not just in Canada but globally as well, including Sarbanes-Oxley and the FIN 48 legislations. There was the global financial crisis, which impacted us greatly. The common standards reporting was introduced as well. There's been quite a bit that's changed with respect to transparency, which has very much changed the social landscape and what's acceptable.

[Ted Falk, Conservative, Provencher, MB]

Thank you.

[The Chair, Liberal, Wayne Easter]

I'm sorry; we're going to have to move on. We're over already, Ted.

We have Ms. Koutrakis, followed by Mr. Ste-Marie.

Go ahead, Ms. Koutrakis.

[Annie Koutrakis, Liberal, Vimy, QC]

Thank you, Mr. Chair.

Welcome to all our witnesses this afternoon.

Ms. Watson, I was very disturbed to listen to your testimony, because I've been employed in the financial services industry for more than 25 years. I don't know if my colleagues know, but I started in 1984 as an assistant stockbroker and went all the way up into a leadership role on the retail side, working for large firms owned by big banks and independent firms. I was employed in the industry in 2005, and when the story broke on Mount Real, Norshield and Cinar, I was supervising portfolio managers and financial advisers at the time. One of the primary roles and responsibilities I had as a professional registrant with IIROC was to make sure the people I was supervising were doing the right things.

Doing the right things meant that when new accounts were brought to my desk to be reviewed and opened, I had to make sure I knew who that account belonged to. It was removing the corporate veil. When I listened to the testimony today saying that we don't have a public registry to show the owners of some of these shell companies, I can tell you that through IIROC, we were doing that, so perhaps we can work directly with IIROC and the Autorité des marchés financiers in Quebec as a starting point.

With regard to KPMG, Ms. Iacovelli, I know in your testimony you said that you don't advise your clients—wealthy clients or any kinds of clients—to get into tax avoidance schemes, but I look to you for guidance and professional.... What kinds of checks and balances are in place for companies like KPMG when people approach you for tax information to make sure that they are not crossing the line or going beyond the spirit of the law? Are there any checks and balances when you are giving that type of advice to clients?

[Lucia Iacovelli]

I expect that all my partners abide by our code of conduct with respect to our responsible tax.

Again, we provide legal tax advice. We act lawfully and with integrity, and I expect that of all my partners. We explain clearly and objectively the technical merits and sustainability of tax advice to our clients, and we also don't allow for any transactions that are contrary to any relevant legislation.

We also have a very robust mechanism of client acceptance to ensure that we're working with clients of the highest integrity as well. We also have processes in place so that if there is a transaction that's out of the ordinary, it's brought forward to our risk and reputation committee, which is made up of several partners, and it undergoes a GAAR committee review ahead of that. I'm quite proud of our organization, quite proud of the type of law and the type of planning we provide to clients.

[Annie Koutrakis, Liberal, Vimy, QC]

Thank you.

Senator Downe, you said in your testimony that the CRA has done a really great job on the domestic tax evasion side, but you've been critical of the agency's ability to address overseas tax evasion. What tools or powers does the CRA need to effectively address foreign tax evasion to the same extent as domestic tax evasion?

[Percy E. Downe]

I indicated in my opening statement a suggestion on compensation as well. Some of the people at the CRA are really what I would call unicorns. They have unique skill sets that they have developed over 10 or 15 years working for the Government of Canada, but they bump up against a salary cap that is government-wide. We have to address that. We have to be able to retain these people so that they're not scooped up by those who are working, if you will, on the dark side of tax evasion. You can't blame people for wanting to improve their financial situation, but the government has to take some initiative to keep these people.

The second area—and others have covered it as well—is that some of these international tax units have either been merged with other responsibilities or totally disbanded, so we need a dedicated group, and we're not reinventing the wheel here. The CRA tells us how complex these cases can be, but it's complex for every country. As I indicated, Iceland, with 340,000 people, recovered $25 million through the Panama papers. We have not recovered anywhere near that, if anything, so there's something wrong there with the structure of the CRA, and senior management and/or the finance department should address it.

[The Chair, Liberal, Wayne Easter]

I'm sorry, but we will have to move on, Annie; we're over on you too. We'll go to Mr. Ste-Marie, followed by Mr. Julian, for two and a half minutes each, and then we'll go on to Ms. Jansen.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

Ms. Watson, let me tell you that we are going to do everything we can to get to the bottom of this. We will not give up. You can count on us, no matter how long it takes, we will not give up.

Ms. Iacovelli, I want to tell you how disappointed I am with your answers. Mr. Julian asked you questions, and you say that you have nothing in the Panama Papers, because the list does not exist. It was reported by the International Consortium of Investigative Journalists. I can't believe the extent of your stonewalling. I have a hard time believing you because of your behaviour before this committee.

Ms. Watson mentioned this. You had Norshield and Mount Real as clients. They stole money from the little people, and when they were found guilty, poof, the money was gone. You are telling us that KPMG is not even remotely connected to the missing money. But the reports from CBC/Radio-Canada demonstrate that the sword companies were set up on the same day as the others, and that there is evidence that you set them up.

I don't believe you. I don't believe you.

I want to get to the bottom of this.

We will send you the questions, and we will ask you to answer them. Let me remind you that your code of conduct, which tells you not to answer, is not the law. Your code of conduct is not governed by legislation. I hope that we will have answers to our questions.

Also, Ms. Iacovelli, you say that everything you do is legal. Yes, and why? Because you are in Canada.

In the U.S., when KPMG did the same thing, the Internal Revenue Service (IRS), the equivalent of the Canada Revenue Agency, filed criminal charges against KPMG's executives and the company, even threatening to prosecute it as a criminal organization, which would have resulted in its dissolution.

The U.S. stood up, and that led to change. People paid money back and paid penalties. KPMG, in order not to be dissolved, agreed to dismantle three of its divisions, and to stop selling tax planning services. It paid nearly $500 million in damages to the government, and agreed to have an IRS agent with unlimited access to all of its records at all times for three years. That's what the Canada Revenue Agency should be doing here to get to the bottom of this.

Criminal charges were upheld against the nine executives: two were cleared, six were fined a total of $25 million, and one was imprisoned. That's what should be done here, if the Canada Revenue Agency and the Minister had any spine.

What do you have to say to that?

[The Chair, Liberal, Wayne Easter]

Mr. Ste-Marie, you're at the end of your time, but I will give Ms. Iacovelli equal time to respond.

Go ahead, Ms. Iacovelli.

[Lucia Iacovelli]

Thank you, Mr. Chair.

We have no connection to Cinar. We are not involved with Cinar. We have never provided audit or tax advice to Cinar. We are not connected in any way—

[Gabriel Ste-Marie, Bloc, Joliette, QC]

I had named Norshield and Mount Real.

[The Chair, Liberal, Wayne Easter]

Gabriel, Ms. Iacovelli has the floor, and I think you have a previous note from her as well.

Ms. Iacovelli, go ahead.

[Lucia Iacovelli]

Thank you.

We are not in any way connected to the four “sword” companies. We have never provided any advice with respect to those companies. We have co-operated fully with the CRA. We've provided all the files and all the client names with respect to our offshore structures.

[The Chair, Liberal, Wayne Easter]

Okay. We'll move on to Mr. Julian for roughly two and a half minutes.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Thank you, Mr. Chair.

I, too, am extremely disappointed in the answers from KPMG. We ask questions and we are not getting answers.

The Standing Committee on Finance has the authority to seek that information. KPMG cannot just tell us that the company had absolutely nothing to do with this. They have to respond and explain. So far, we have received no answers to our questions, and there have been many.

I'm very disappointed in the quality of the answers we're getting.

I want to come back to the issue of client companies or shell companies.

We might even say bogus companies.

You said there are no longer any shell companies or client companies as part of KPMG's strategy. Did I understand correctly? Could you give us the date when those companies were dissolved or wound up?

[Lucia Iacovelli]

Thank you, Mr. Julian.

In terms of specific client information, I can't provide you with the details. My code of conduct precludes me.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

I'm not asking specifically. I asked earlier how many companies have been dissolved. You said they've all been dissolved. I'd like to know the dates when those companies were dissolved. That's data; it's not privileged information.

[Lucia Iacovelli]

Mr. Julian, I didn't mention anything with respect to clients. I didn't indicate whether they were resolved or not.

I cannot discuss client information with respect to this committee—

[Gabriel Ste-Marie, Bloc, Joliette, QC]

A point of order, Mr. Chair.

The committee has been given powers by an act that overrides the professional secrecy of accountants, and that argument cannot be made before the Standing Committee on Finance. I am sorry.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

I asked you—