TORONTO - The Canada Revenue Agency believes it could retrieve millions in unpaid taxes if it succeeds in lobbying a Federal Court to force RBC Dominion Securities Inc. to reveal a list of Canadians with financial dealings in the tiny principality of Liechtenstein.
Revenue Minister Jean-Pierre Blackburn says he "will work seriously" to recover taxes from a file of 106 names of Canadians with ties to Liechtenstein, which has long been an attractive place for investors seeking to avoid tax because of its tight banking secrecy rules.
Two affidavits filed by Russell Lyon, a CRA auditor in B.C., listed several RBCDS clients who had set up foundations at LGT Treuhand in Liechtenstein that were managed through accounts at an RBCDS (TSX:RY) office in Switzerland.
The branch filed tax forms for the accounts, but because the owner appeared as a foundation, capital gains and interest income from bonds were never reported, the affidavit said.
The agency is asking a court to force the company to disclose a list of names of Canadians who may have dodged taxes by hiding wealth in the microstate of 35,000 nestled between Austria and Switzerland.
The CRA has already recovered $3 million in taxes after completing 10 audits from the list of names. Blackburn estimated the agency will collect about $17 million more once all 46 audits sparked from the list are completed.
Blackburn said it took close to three years to obtain the initial list of Vancouver Island clients from the court after the agency was tipped off.
The investigation revealed a number of the investments were associated with two financial advisers working for RBC Dominion Securities on Vancouver Island.
"It doesn't mean that there is something illegal about RBCDS, there is nothing wrong to do business abroad, what is illegal is if you have revenue from those investments abroad and you don't declare it," Blackburn said.
The CRA is conducting audits on Liechtenstein entities it believes were established by Colin Ross, a former vice-president of RBC Dominion Securities and financial adviser Kevin Lockwood.
Ross' lawyer George Jones said Monday his client did not receive any money from setting up clients with the Liechtenstein transactions.
"They believe he got money for referring people to these things and it just isn't true...he never got a cent from anybody," Jones said in an interview from Victoria.
"I think really what they're doing is having an investigation and masquerading as an audit."
Canada's largest brokerage firm says it has always acted within the law despite the accusations and is assisting the CRA with the investigation.
RBC Dominion CEO David Agnew said in a statement the firm complies with all CRA requirements, adding "there has never been any allegation of wrongdoing on the part of RBC Dominion Securities in this matter."
"As a firm, we have never encouraged Canadians - not 25 years ago and not today - to set up entities in Liechtenstein, and we have never instructed our investment advisers to recommend that practice," Agnew said.
Lyon said in an affidavit filed in August that, based on ongoing audits, he believes there are other "Canadian taxpayer clients of RBCDS who also used Liechtenstein entities to hide investments and other income from the CRA."
He claimed that information was available to the firm's advisers to assist clients with offshore investments and believes other advisers assisted Canadians in setting up the offshore accounts.
The company says it has never produced marketing materials for Canadians related to investing in Liechtenstein.
No charges have been laid and the allegations have not been proven in court.
LGT, Liechtenstein's largest financial institution, describes itself as a "wealth & asset management group owned by the Princely House of Liechtenstein," providing "access to innovative investment strategies."
In November, Liechtenstein was removed from the OECD's list of countries with questionable banking practices after it said it would adhere to OECD standards of transparency requiring it to reveal client information to other governments.
The principality has signed information exchange agreements with 12 countries, but Canada is not one of them.
The CRA documents said information about the offshore scheme was obtained from an unnamed "confidential informant."
Whistleblower Heinrich Kieber, a former employee of the LGT Bank, sparked a global investigation in 2006 after leaking 12,000 pages of bank documents detailing secret, multi-million-dollar accounts.
He provided details to government officials in England, Germany, the United States and other countries on citizens who allegedly hid wealth and evaded taxes through the bank.
German prosecutors raided homes and offices in 2008 for evidence of those suspected of avoiding their tax obligations by channelling up to euro$4 billion (C$6.2 billion) into the secret foundations set up by LGT Group.
The German chancellor, Angela Merkel, accused Liechtenstein's banks of "encouraging lawbreaking."
In Canada, convictions for tax evasion can result in court imposed fines of up to twice the taxes evaded, plus jail time. In addition, taxpayers still have to pay the taxes owed and all other civil penalties and interest imposed by the CRA.