Canada Revenue probe focuses on some RBC DS clients

Canada Revenue Agency alleges investment advisers at a branch of RBC Dominion Securities Inc. helped clients set up offshore accounts that their clients used to evade taxes, a CBC News/Globe and Mail investigation has learned.

Two CRA affidavits say RBC Dominion Securities investment advisers in Victoria assisted in setting up 16 offshore entities with LGT Group in Liechtenstein. While that is not a crime, 13 Canadians who held these offshore entities have all either made voluntary disclosures admitting to evading taxes or are being audited by the CRA for tax evasion.

The three remaining entities were either established but never used or are anonymous entities; no establisher or beneficiaries have yet been identified in connection with the entities.

The CRA is now investigating whether more Canadians are doing the same thing through RBC Dominion Securities advisers across the country.

Canada Revenue has requested from RBC Dominion Securities "a detailed list of all retail accounts held or that have been held with RBC Dominion Securities Inc. (RBC DS), that were created for account holders of Liechtenstein, or having mailing addresses in Liechtenstein, at any time during the years 1999 to 2008."

According to the CRA, Colin Ross, a former investment adviser at the brokerage's Victoria branch, was connected to 15 of the entities. The CRA said he "assisted" in setting up the foundations in Liechtenstein, which is known for its banking secrecy laws. All of those foundations, in turn, opened up accounts in Switzerland with RBC Dominion Securities, the investment dealer arm of Royal Bank of Canada.

The CRA's investigation, launched last year, found that the foundations were used by taxpayers to "masquerade as non-residents." The agency says the taxpayers were "hiding their investments and other income" and "evading their obligation to pay Canadian tax."

Ross's lawyer told CBC News that Ross, who has since retired, only did what his clients directed. But Andre Rachert, a lawyer who represents many of those clients, said they followed Ross's advice.

"To a person, they were advised the way the investments were structured," Rachert said. "They wouldn't have to pay taxes in Canada and that RBC [Dominion Securities] or their specific adviser said, 'This is fine and you can set this up and you won't have to pay taxes in Canada.'"

RBC's response

RBC Dominion Securities issued a written statement that said:

"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.

"We comply with all CRA requirements. This means that we provide all our clients with the forms they need to meet their personal tax obligations, and also file reports with CRA that form the basis for reviews such as this.

"It's legal to invest outside of Canada, but it is illegal not to report the income to CRA. And every Canadian client is responsible for reporting their income and capital gains to CRA based on the forms we provide."

Court documents filed by the CRA point to two other RBC Dominion employees the agency believes directed clients to Liechtenstein.

Kevin Lockwood, an adviser with RBC Dominion Securities and currently a vice-president at the brokerage's Victoria branch, is named as having assisted one man in setting up a foundation. That man made a voluntary disclosure to the CRA in 1998 and brought his money back to Canada from offshore.

A third RBC Dominion Securities employee is not named in the documents. The revenue agency is pursuing that person's identity.

The CRA affidavits also recount how Ross travelled with a client to Liechtenstein, a tiny principality between Switzerland and Austria, allegedly telling him that the "CRA would not know this income existed because the investment activity was conducted in a tax haven."

Client says offshore account was glamorous

One of the clients, Howard McDiarmid, a former member of the B.C. legislature, has admitted hiding $1.3 million in "retirement money." He made a voluntary disclosure and, according to an affidavit, knew that what he was doing was wrong.

But others didn't make disclosures, including one Victoria woman who told investigators she felt having an offshore account was glamorous, according to an affidavit.

The court documents name several B.C. and Alberta residents, including Ross's brother and nephew.

The investigation arose after the agency learned of 106 Canadians connected to the Liechtenstein tax evasion scandal, in which a former employee of the principality's LGT Group stole four disks of confidential client information and then sold them to German tax authorities for $7 million.

The German authorities shared that information with Canada, resulting in the revenue agency's investigation of the 106 Canadians. That investigation has been named Project Jade.

Minister of National Revenue Jean-Pierre Blackburn told CBC News that the agency has already collected $3 million in back taxes and penalties from 10 Project Jade audits.

He said that 38 audits remain open, and that he expects those audits will bring in another $17 million in income taxes. Canadians still have time to contact tax officials to make voluntary disclosures, he said.

"You still have time to call us and do a voluntary disclosure. If you do before we have your name, no penalties — only interest and income tax that you have to pay."