French probe reveals 1,800 Swiss accounts held by Canadians

September 29, 2010

By Greg McArthur
From Thursday's Globe and Mail

Names given to Canada Revenue Agency

The Canada Revenue Agency has received details on nearly 1,800 Swiss bank accounts registered to Canadians that were uncovered by French prosecutors during a probe into the clients of Europe's largest bank.

For more than a year, investigators in the French Riviera city of Nice have been poring over a trove of banking records from the Geneva offices of HSBC. The documents, which were stolen by a former employee of HSBC and handed over to investigators, have sparked a diplomatic spat between France and Switzerland and waves of anxiety for HSBC clients who may have turned to the Alpine state to conceal their wealth.

French investigators decided to examine the documents in case they revealed any criminal activity by French clients of the bank. To narrow down their search, they organized the accounts by nationality. The analysis revealed that Canadians held more accounts than citizens of some countries with much larger populations and economies, the chief prosecutor told The Globe and Mail and CBC in a joint interview. In comparison, Americans represented about 1,600 accounts.

"The government's been working with the French government on this issue and we've received a list of names of individuals who may be exploiting offshore accounts," said Erin Filliter, a spokeswoman for Keith Ashfield, the Minister of National Revenue. She declined to provide details of the data that had been received.

The HSBC case is another blow to an embattled Swiss banking industry and its strict culture of secrecy, and supplies another boost to governments that have declared war on tax havens in a bid to stave off rising deficits. Nine months ago on a trip to France, then Minister of Revenue Jean-Pierre Blackburn told reporters he was close to receiving the records, but the CRA had been tight-lipped ever since.

Although it is not illegal to have a Swiss bank account, Canadian residents are required to declare all of their world-wide income to the CRA. Switzerland does not recognize tax evasion as a criminal offence, which historically has made it difficult for governments to obtain information about suspected tax cheats stowing away money there. In 2009, the United States cracked the veil of Swiss banking secrecy when it fined Swiss banking giant UBS $780-million and forced it to hand over the names of 4,450 clients after the UBS officials admitted they had encouraged wealthy Americans to evade tax.

HSBC has not been accused of any wrongdoing, and has repeatedly censured France for relying on stolen documents to investigate potential fiscal crimes and pursue unpaid taxes. While Swiss authorities clamour for help from the French in returning the man behind the theft - a former IT employee named Hervé Falciani - he remains a free man near Nice, where he has helped guide investigators through the voluminous records.

Just six months ago, HSBC issued a letter to the Canadians whose accounts were part of Mr. Falciani's hoard, reassuring them that it is unlikely government agencies will be able to use the information in the documents. "Our outside lawyers believe that it would be difficult to take advantage of the stolen data for legal ends," states the March 10 letter, which was signed by the Swiss office's chief executive and chairman. "In fact, they are bits and pieces of data, which were manipulated by the former worker and are a result of serious punishable crimes."

The chief prosecutor in Nice who obtained the records, Eric de Montgolfier, defends his use of the stolen material. His investigators stumbled across the records when the Swiss requested that he search Mr. Falciani's Nice-area home in January, 2009. When Mr. Falciani explained why the Swiss were so interested in him and that prosecutors might be interested in the files he took with him, Mr. de Montgolfier said he had an obligation to examine them.

"Imagine that in the case of an international investigation, I found a dead body in a basement ... do I have to close my eyes? No. I have a duty to investigate," he said.

He shot back at Swiss criticism that he is encouraging employee theft, saying: "Who else than bank employees would be able to denounce the wrongdoings in these fortresses? Yes, you need to be inside those banks. If they do not talk, who else will? Certainly not the ones who take advantage of the system."

It's unclear how much money is in the 1,800 accounts. In an interview, Mr. Falciani said that clients of the Geneva office were required to deposit a minimum of $500,000.

If Canada is successful in its efforts to obtain the data, it won't be the first time it has used stolen material to audit offshore funds. For the past two years, tax collectors in British Columbia have relied on files that were stolen from a financial institution in the tiny European tax haven of Liechtenstein and later sold to the German government to audit more than a dozen Canadians.

Mr. de Montgolfier declined to provide details on the Canadians in the records.

"I thought it was a high number for Canada," he said.