Finance Committee on May 6th, 2021

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

Okay.

[Lucia Iacovelli]

Thank you.

That was quite a comprehensive question, so I'll try to approach everything that I think I heard.

I want to be clear that KPMG did not set up shell companies to hide money. That's not what we do. We provide legal advice that's tax-effective and we require that our clients meet all their filing obligations.

With respect to your request in terms of providing information, under my code of conduct I'm not able to provide you with client information unless there's a legal order that's provided. We have dealt with the CRA's request. We have provided the CRA with a list of all of the OCS clients and provided the CRA with the OCS files as well.

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

Thank you.

There may have been a problem with the interpretation. I never implied that KPMG had set up strategies that were deemed illegal. That is not what we are talking about. To my knowledge, KPMG, an accounting firm, does not have the authority to refuse to provide such information to a parliamentary committee in Ottawa.

Just to make sure that we understand each other, the clerk can send you the request that I just made and you can provide us with your response within 30 days.

I will also ask you to provide us with the Canada Revenue Agency decision on each client file at KPMG Canada, including refunded taxes, accrued interest and penalties incurred, for each individual.

Thank you.

[Lucia Iacovelli]

May I have an opportunity to respond?

[The Chair, Liberal, Wayne Easter]

Yes, go ahead. The floor is yours.

[Lucia Iacovelli]

Okay.

I just want to point out that under my professional code of conduct, I'm not able to provide any details with respect to clients or former clients. Again, if there's a court order or legal order provided, I can provide that information.

We've provided all of the information with respect to the offshore structure to the CRA, along with files.

[The Chair, Liberal, Wayne Easter]

I might make a suggestion there, Gabriel, if I could.

If the clerk can send you that information, Ms. Iacovelli, then you can respond in kind and we'll see where we're at.

I'll not take that time from you, Mr. Ste-Marie. You still have about a minute and a half.

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

Thank you, Mr. Chair.

Clearly, our respective readings of the legislation are completely different. In our opinion, an accounting firm such as KPMG does not have that power with respect to requests from the Standing Committee on Finance.

Ms. Iacovelli, has KPMG Canada asked a company like KPMG in the Isle of Man or any other company to create, directly or indirectly, one or more of the four companies registered in the Isle of Man under the names Shashqua, Sceax, Katar and Spatha?

If so, which ones were they and how did that happen?

[Lucia Iacovelli]

The four companies that you have mentioned, which are known as the “sword” companies, are not KPMG clients. We have never been involved with those clients and we have not set those clients up.

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

Let me ask my question again, since that's not exactly what I wanted to know.

Was KPMG Canada directly or indirectly involved in the creation or use of one or more of those four companies?

If so, which ones were they and how did that happen?

[Lucia Iacovelli]

We did not participate directly or indirectly. We did not ask another firm to set up these companies. We have no relationships, whether directly or indirectly, with the “sword” companies.

[The Chair, Liberal, Wayne Easter]

Thank you both.

We will turn to Mr. Julian. Mr. Falk, you will be next on the five-minute round.

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

Thank you very much, Mr. Chair. Thanks to all our witnesses for being here.

It's ironic that Canadians were asked last week to file their income taxes in the midst of a pandemic and that Canadians are paying their income taxes, yet we're now talking about tens of billions of dollars that are simply being taken overseas and are not subject to that common good and that collective investment that advances Canadians.

I would like to start with Ms. Watson. Thank you very much for your very important testimony today.

I want to reiterate that as you were doing all of your due diligence and all your work to try to get back the money after the fraud, you were told by every government agency representative, including the RCMP, that there was no way to get that money back once it left the country and went to an overseas tax haven.

Is that correct?

[Janet Watson]

Yes. That's correct.

Some of our members are victims who lost, including Ms. MacDonald who appeared on The Fifth Estate with me, half a million dollars. She doesn't mind my saying so. She has stated that publicly.

They went to the ombudsman. They went to the AMF, the provincial securities commission. They went to the police. They went to the RCMP. They were told the same thing, which is that they may as well forget it. It's gone. There's no way to trace it. Especially at Raymond Chabot Grant Thornton.... I was one of the bankruptcy inspectors working on the file. In all our meetings, they just said we will recover what we can, but there's no way to recover it once it has left the country, especially if there's no agreement with these other countries.

I thought the money was probably in the Bahamas or some place like that, but now I suspect that some of it may have gone to the Isle of Man.

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

You've come to committee today. What would be your message and the message of all of the other victims of this fraud? What should the government be doing so that people can no longer defraud Canadians and just take the money to an overseas tax haven?

[Janet Watson]

They should, obviously, tighten up our laws. The Canada Revenue Agency should be able to trace this money. The police can't do anything more. I think it's a political issue now. I think it's something that the government has to deal with.

I think I mentioned we recovered some money in a class action suit in which we sued some of the accounting firms. When the money came back to us, some of it was in registered RSPs and RIFs. Some of it was investments outside. The Canada Revenue Agency made us jump through all sorts of hoops. They thought people would lie and say that they had already paid tax on the money because we had the option of putting the money back into RRSPs. They made us jump through hoops to do that, yet these rich people get these tax breaks all over the world.

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

Thank you very much.

I'm going to move on to Ms. Iacovelli. As Mr. Ste-Marie has mentioned, when a committee requests information, it's important to follow that request. As you know, there's a non-cooperative tax jurisdiction list, which basically lists tax havens around the world.

I have a series of questions. As well, we'll be following up with a letter that we'd like KPMG to answer.

First off, how many client companies or shell companies—you called them “client companies”—that currently exist in the Isle of Man and in all of the other tax jurisdictions that are “non-cooperative jurisdictions” has KPMG set up? That's my first question.

Second, how many were established since 1999—again, in the same list—by KPMG internationally?

How many have been dissolved or wound up since 1999? That's my third question.

My fourth question is, how many Canadian clients of KPMG invest in overseas tax havens, either offshore bank accounts or shell companies—you've called them “client companies”—and how many out-of-court settlements has KPMG negotiated on behalf of those clients with Revenue Canada?

Those are the questions that we will ask you to follow up on.

I also note that you are here voluntarily. We certainly appreciate that. We will be convening other witnesses from KPMG, I believe, including Serge Bilodeau, who runs your Montreal office, and we appreciate that co-operation.

Can you also indicate, when you receive a notice to preserve documents, how those notices are observed within KPMG internationally?

My final question is around Parrhesia, which you've acknowledged is a KPMG client company incorporated on the same date as the “sword” companies on December 17, 2001. First you said in your testimony that it was a common registrar that KPMG had approached, and then you said that nobody was engaged to actually incorporate Parrhesia. Could you clarify that, please? Who within KPMG actually moved to register that client company?

[The Chair, Liberal, Wayne Easter]

There are a lot of questions there, Ms. Iacovelli. I think some of them will come in written form, so on the general one at the last, could you respond?

[Lucia Iacovelli]

Maybe I'll start with the question with respect to products. We don't offer products. We offered the OCS product until 2003. We stopped offering the product in 2003, and we have not offered products since 2003.

I think you also asked a question with respect to tax havens. We don't provide any tax schemes or shelters with respect to clients. It's not what we do. We provide legal tax planning with respect to our clients, and we ensure that our clients pay the taxes that are required.

Unfortunately, I can't speak to Parrhesia. I'm not familiar with that. I will have to undertake to provide that if I can. You could appreciate that if it is a client, I can't provide information with respect to client files.

[The Chair, Liberal, Wayne Easter]

Thanks to both of you. We'll come to Mr. Julian in a later round.

We have Mr. Falk for a five-minute round, followed by Ms. Koutrakis.

[Ted Falk, Conservative, Provencher, MB]

Thank you, Mr. Chair.

Thank you to all the witnesses here at committee today. Your testimony has been very interesting and intriguing, and I wish I had lots of time to ask you all the questions I have.

Senator Downe, I just want to mention—because I don't want it to be lost and I want it to be recorded—that you've provided testimony that many of the other countries involved with offshore tax schemes have been able to recover funds and Canada has not. I find that very intriguing.

Ms. Watson, I would like to ask you some questions. You and Ms. MacDonald participated with The Fifth Estate. I found that episode very intriguing. As for my question on that, you've done 14 years of a relentless pursuit of justice and digging and trying to recover and acting on behalf of many of the individuals who lost money through this tax scheme on the Isle of Man. Would you be willing to comment on whether The Fifth Estate broadcast accurately reflects the research you've done?

[Janet Watson]

Yes, I would definitely say that it accurately reflects the research I have done. I worked with them during the producing of the program. They went way beyond. They uncovered things that I had no knowledge of.

I'm a 74-year-old housewife living in the Eastern Townships. I do not have the resources that they do to do this kind of investigative reporting. I was really very intrigued. I didn't know until I watched the show exactly what they had uncovered in the Isle of Man. It was an eye-opener.

It was something that we always suspected, because the money just disappeared. I'm not talking just about Mount Real; I'm also talking about Norshield and Cinar. The three companies were linked. There was $500 million, and it didn't just disappear.

I believe that KPMG was the accounting firm for one of the Norshield companies. Ms. Iacovelli keeps mentioning Cinar, but I believe they were also an accounting firm for one of the Norshield companies.

[Ted Falk, Conservative, Provencher, MB]

Thank you.

My sympathies go to you and to all the other victims of that fraud.

[Janet Watson]

Thank you very much.

[Ted Falk, Conservative, Provencher, MB]

With that, I would like to switch over to KPMG.

Ms. Iacovelli, you've indicated that you weren't involved as a company and that you didn't provide advice to your clients on how to develop any of these schemes. Have any of your clients or your organization been involved in the Liechtenstein scheme?