Tax evasion probe spreads to Canada

Tax evasion probe spreads to Canada

PAUL WALDIE AND TARA PERKINS

Globe and Mail Update

February 26, 2008 at 10:30 PM EST

Heinrich Kieber is an unlikely whistle-blower, given his criminal past and his alleged theft of information about 1,400 clients at
LGT Group, the biggest bank in Liechtenstein, a country that prides itself on bank secrecy rules that have made it a tax haven for the superrich.

But when Mr. Kieber, once a lowly document scanner at the bank, sold that information to the German intelligence service for €5-million ($7.5-million U.S.), he sparked a tax-evasion probe that has spread across Europe and into Canada.

Yesterday, the Canada Revenue Agency (CRA) said it is investigating 100 Canadians on the list of account holders to see whether they owe tax on the money. “If we get to them before they get to us, then we would take the appropriate measures, unless they want to go through the voluntary disclosure program before we actually can identify them,” CRA spokeswoman Jacqueline Couture said. She declined to say how much money is at stake.

Officials in close to a dozen other countries are also poring over the information, and German prosecutors have used the list to conduct raids on more than 160 people who held nearly $300-million at the bank. In the United States, the Internal Revenue Service said it is reviewing 100 Americans on the list while British authorities have acknowledged paying £100,000 ($199,000) to obtain information about Britons who held as much as £100-million at LGT. Ms. Couture said the CRA does not pay for information and that it obtained the names from German officials who shared the list with members of the Organization for Economic Co-operation and Development's Forum on Tax Administration, which includes Canada.

Mr. Kieber has reportedly gone into hiding in Australia, thanks in part to a false identity created by the German police.

LGT has filed criminal charges against him in Liechtenstein and
expressed outrage at the conduct of the Germans. “LGT regards such
methods as being extremely offensive, particularly as it is apparently
accepted that the person concerned could also misuse the confidential
client data for other criminal purposes,” the bank said in a statement.

The saga dates back to October, 1999, when Mr. Kieber joined an
information technology company in Vaduz, the capital of Liechtenstein,
which did work for LGT. The bank hired him two years later and his job
was to transfer account information to an electronic archive.

LGT has about 77,000 international clients and it is owned by Liechtenstein's royal family.

Shortly after Mr. Kieber was hired, the bank found out that he was
wanted for fraud in Spain over a real estate deal, the bank said in a
statement. Charges were later filed in Liechtenstein as well but Mr.
Kieber fled in 2002, taking four CDs worth of LGT client data with him,
the bank said.

After unsuccessful appeals for help from Prince Hans-Adam, the
country's head of state, Mr. Kieber returned to Liechtenstein in 2003
and was convicted. He received probation and the bank said he turned
over the CDs.

The bank now says it was duped because Mr. Kieber kept a copy of the
data and began trying to sell the information to various countries. The
Germans reportedly began negotiating with him in 2006 before finally
purchasing the information. German officials stand by the arrangement,
insisting it is a legal tool to go after tax evaders.

Liechtenstein has been blacklisted by the OECD as one of three
“unco-operative tax havens” for its banking system, which allows
foreigners to open anonymous accounts. The other two are Andorra and
Monaco.

“Excessive bank secrecy rules and a failure to exchange information on
foreign tax evaders are relics of a different time and have no role to
play in relations between democratic societies,” Angel Gurria, the
OECD's Secretary-General, said last week. As long as there are
financial centres that fail to meet international transparency
standards, residents in other countries will continue to be tempted to
evade their tax obligations, he said.

While he said he does not have experience with clients who have opened
accounts in Liechtenstein, Michael Templeton, a tax lawyer with
McMillan Binch Mendelsohn LLP, said that aside from the possible
purpose of tax evasion, some Canadians might be using such accounts to
hide money from their spouses or business partners.

Stephen Ruby, a senior tax partner at Davies Ward Phillips &
Vineberg LLP, also said that “not all foreign bank accounts set up in
places like Liechtenstein are for the purpose of evading tax,” and that
they might be created for legitimate reasons.

Mr. Templeton said the law is not clear on whether a tax evasion case
could be brought forward based on this information, although he expects
the Canadian courts would allow it. It was an individual in
Liechtenstein, not the Canadian government, that acted improperly to
obtain this evidence.

Mr. Ruby added that the information on the CDs was just a tip, and the CRA would follow it up with a full-scale audit.

In the previous federal budget, Finance Minister Jim Flaherty announced
an “anti-tax haven initiative” aimed at the use of tax havens by
multinational corporations. It included measures designed to deal with
the government's concern that secrecy laws in other jurisdictions
facilitated tax evasion in Canada.