CRA audits just 5 Canadians out of hundreds of RBC Panama Papers accounts

Two years after it took aim at hundreds of Royal Bank clients exposed in the Panama Papers leak, the Canada Revenue Agency has decided just five cases require an audit.

That's because most of the offshore accounts it unearthed ended up belonging to foreigners, the CRA says.

The revenue agency went to court in the wake of the Panama Papers in 2016 to compel RBC to hand over decades' worth of records on clients with offshore companies. The CRA's court filings at the time said it was prompted by revelations from CBC News and the Toronto Star, which found RBC and its affiliates had set up or handled at least 429 offshore entities for clients since 1977 through a shady Panamanian law firm.

• RBC handing over Panama Papers accounts to CRA
• Full coverage of the Panama Papers leak

A year later, the CRA quietly went back to Federal Court to get a second order from a judge forcing Royal Bank to hand over yet more client records stemming from the Panama Papers. (The bank did not oppose either court order, and the CRA has never alleged it did anything wrong.)

• Read the CRA's application to compel RBC to provide files

The tax agency confirmed this week that it has finished analyzing all the data.

"The CRA determined that the majority of the corporations and officers in the information are non-Canadian taxpayers," spokesperson Karl Lavoie wrote in an email. "The CRA determined that there were fewer than 10 Canadians from the information, and five taxpayers have been identified for audit."

Instead, a significant number of foreigners might be in for a surprise from their own domestic tax authorities. Lavoie said the CRA has provided details on dozens of those non-Canadian taxpayers who had offshore holdings at RBC to their home countries.

"As of [Thursday] there are 20 exchanges with 19 countries directly related to the information" from Royal Bank, he said. "Each of these exchanges involved multiple taxpayers."

'May not comply with' tax obligations

The CRA had pursued the Royal Bank clients through what are known as "unnamed persons requirements," with which it can force an organization to provide information in bulk on a class of account holders, without naming each client. The tax agency has used this tool before to go after Canadians with PayPal business accounts, eBay income and assets in Liechtenstein.

In this case, the CRA got court-ordered access to records on any RBC clients who had connections with, or received services from, Panamanian law firm Mossack Fonseca, the firm whose files were blown open by the Panama Papers leak.

The CRA said in Federal Court filings that, in its experience, "Canadian taxpayers who hold… property through an offshore entity, or who may carry on business through an offshore entity, may not comply with their duties and obligations" under the Income Tax Act.

It is not illegal to have an offshore account, but any income must be reported for tax purposes, as well as any offshore assets totalling more than $100,000. Offshore jurisdictions like the Cayman Islands, British Virgin Islands and Panama often have confidentiality rules for bank accounts and shell companies that make it easier to hide assets from tax authorities.

Royal Bank closed about 40 accounts

Royal Bank also conducted its own internal review of all its accounts with links to Mossack Fonseca. It announced last March it was closing roughly 40 such accounts after it found they did not meet its risk-tolerance criteria.

Overall, the CRA has already begun or is planning 150 audits related to the Panama Papers, according to its latest figures. The huge leak of offshore financial records contains the names of at least 625 Canadians.

The CRA says it is also criminally investigating some of those people for possible tax evasion or tax fraud. Last month, revenue agents raided three locations in Calgary, West Vancouver and the Toronto area as part of those probes.   

The Panama Papers leak was revealed in April 2016 by a global consortium of media outlets, including the CBC and Toronto Star in Canada, and a month later the CRA obtained all the records through official channels.

Then, last November, the same consortium of journalists revealed the Paradise Papers leak, which included the names of 2,700 Canadians. The CRA said earlier this year it was trying to get the full set of leaked files through its partner agencies but, in the meantime, had already launched some audits.

Read more about the recent Paradise Papers leak:

• CBC's full coverage
• Trudeau's chief fundraiser linked to Cayman Islands tax scheme
• Queen's estate 'not aware' it held indirect offshore investment in stores accused of exploiting poor
• More than 3,000 Canadian names in the Paradise Papers
• Canadian scalper's multimillion-dollar StubHub scheme exposed in Paradise Papers
• BMO's offshore dealings detailed in Paradise Papers leak