In 2008, three years after blowing the whistle on widespread tax evasion facilitated by Switzerland’s largest bank, Bradley Birkenfeld started sending faxes to Canada.
At the time, Birkenfeld, a former UBS AG private banker who resigned in 2005 after approaching management with concerns that it was breaking U.S. law, was working with U.S. authorities, providing information about how UBS helped American clients evade taxes by secretly holding their undeclared assets overseas.
Other countries have used his information to recover billions of dollars in unpaid taxes from UBS clients, slap the bank with hundreds of millions of dollars in fines and conduct dramatic raids on the homes of key employees. But even with information from the famous whistleblower on their desks, Canadian authorities didn’t take any legal action against the bank or its employees.
“I said, ‘Look, you’ve got to act on this, this is serious stuff. It’s the same thing that’s going down in America,'” Birkenfeld said. “The information that was provided to them should have made them jump at it.”
In addition to contacting the Canadian Department of Justice, Birkenfeld said he sent anonymous faxes to two offices of the Canada Revenue Agency with the names and contact information of UBS Canada bankers, the amount of Canadian assets under management by the bank, and $1 billion in taxes clients should have paid.
Nine years later, however, things haven’t worked out the way he hoped.
In an emailed statement, the CRA said 3,000 UBS clients have made voluntary disclosures to the tax agency since 2009, with disclosures and audits resulting in the collection of more than $270 million in unreported income. But that’s only a quarter of the amount Birkenfeld said Canada could have recovered with the help of his information.
Neither UBS nor its employees have faced any Canadian penalties to date. Most of the $270 million the CRA managed to get came years after receiving the information and only after stepping up measures to combat offshore tax evasion in 2013.
“The signal Canada gives to individuals who bypass the fiscal and legal systems is, if you cheat and you’re caught, Canada will treat you easily,” said Alain Deneault, a professor at the University of Montreal and author of Canada: A New Tax Haven.
He said Canada is becoming known as a country that’s friendly to tax havens, citing the CRA’s no-penalties amnesty deal offered to wealthy clients of firm KPMG who had taken advantage of an Isle of Man tax scheme. First reported by the CBC in March, KPMG helped wealthy Canadians create shell companies on the island as a way to avoid paying tax on investment income.
Having a bank account in another country isn’t illegal, but it is against the law to fail to declare the interest and capital gains it earns. Birkenfeld, who once admitted in court to smuggling diamonds for a client in a tube of toothpaste, said UBS would send bankers such as him to art shows and yacht clubs to network with wealthy North Americans, advising its employees on how to disguise the true purpose of their trips when questioned at customs.
In 2009, the U.S. fined UBS US$780 million in exchange for avoiding criminal prosecution. France summoned Birkenfeld to testify in 2015 as part of an ongoing investigation into whether UBS laundered the proceeds of tax fraud. Last July, Greek investigators raided the home of UBS’s former head of investment banking.
UBS spokesman Peter Stack declined to comment on Birkenfeld’s assertion that he has information showing UBS had $5.6 billion in Canadian assets under management in 2005, accounting for $1 billion in unpaid taxes. “We’re not particularly anxious to have a comment for you,” he said.
Birkenfeld isn’t letting it go. Working with Canadians for Accountability, an organization founded by Allan Cutler, the whistleblower on the federal Liberal sponsorship scandal, he’s still trying to drum up political interest in his cause.
Independent B.C. Senator Larry Campbell has invited Birkenfeld to write a letter requesting that he make a presentation to the senate’s Banking, Trade and Commerce Committee. Birkenfeld’s entry to Canada may be complicated by his U.S. criminal record, which requires him to apply for special permission to cross the border.
After earning a US$104-million whistleblower award for tipping off American authorities, Birkenfeld spent two-and-a-half years in prison after being convicted of fraud for withholding information about a client. Birkenfeld disputes the charge.
Not everyone is impressed by Birkenfeld’s persistence. David Sohmer, a tax lawyer and a founding partner of Spiegel Sohmer Inc., said the majority of the UBS clients Birkenfeld knew about have likely already come forward to the CRA. Sohmer suggested the whistleblower is chiefly interested in publicity for his recently published book.
“There’s nothing he’s going to teach by way of a PowerPoint. He’s going to give a Grade 1 talk to the politicians?” Sohmer said. “Birkenfeld has no information today that is of any material value to Canada.”
Birkenfeld disputes that, saying he has many documents that have not been made public and knows former colleagues at UBS who would be willing to come forward as witnesses if Canada decided to open a criminal investigation.
He said his refusal to let the issue go has nothing to do with self-publicity or the pursuit of additional whistleblower awards — which he isn’t eligible for in Canada anyway, because of his felony conviction.
“I’ve got enough money,” Birkenfeld said. “It’s the right thing to do.”
Sohmer disagrees that the penalties Birkenfeld is pushing for are the right thing to do. He said the Canadian method of coaxing tax evaders into voluntary disclosures by promising to waive harsh penalties is much more effective at recovering taxes than dramatic raids and threats of incarceration.
“If what you’re looking for is revenge — ‘You son of a bitch, I lost my house, why did you get away with it?’ — the fact of the matter is that there’s a massive amount coming in,” Sohmer said. “The average Canadian is going to have far more benefit with a sacrifice on fairness.”
Even if the Canadian government decided to retroactively throw the book at UBS and its clients, those cases would be more difficult to prosecute than in the U.S.
Geoffrey Loomer, a law professor at Dalhousie University in Halifax and an expert in tax law, noted many things that are illegal today — such as flying to Montreal to deliver a suitcase full of a client’s cash from an account in Zurich without declaring it — were within the bounds of Canadian law when Birkenfeld worked for the bank.
The Canadian government also entered into an information sharing agreement with Switzerland last year in an attempt to combat offshore tax evasion. Canadian UBS clients are now required to fill out a form verifying they have declared their assets to the CRA.
“What’s the use of getting more information to expose these offshore accounts where no one has done anything illegal and there’s nothing you can do about it?” Loomer said. “I’m not saying that’s a good situation. In fact, it’s a dismal situation. But that’s the reality the CRA faces.”
But Deneault, the University of Montreal professor, said Canada’s soft treatment of wealthy tax evaders effectively creates two sets of rules for taxpayers.
“If you’re poor and weak, you’ll have big fines, they’ll throw the book at you,” Deneault said. “But if you’re a millionaire, if you’re wealthy, you’ll be able to pay only the tax you didn’t pay before you were caught and maybe a bit of interest.”
That is precisely what happens to the tens of thousands of Canadians, including 3,000 UBS clients, who have participated in the CRA’s voluntary disclosure program. The CRA typically requires offshore tax evaders who come clean to pay back the tax they should have paid in the first place, at a reduced interest rate and with no additional penalties.
The lenient treatment encourages participation. The CRA said it has identified more than $1 billion in domestic and offshore income through the program in the past 12 months, with the amount of identified income quadrupling over the past six years.
Stephane Eljarrat, a tax lawyer who has represented both the prosecution and defence in white-collar crime cases, said there are advantages to having an appealing voluntary disclosure program. But the ideal system should also have harsh penalties for tax evaders who decide to pass it up, he said.
“You have to have a carrot and a stick,” Eljarrat said. “If you’re given that chance, you don’t take it and you get caught, the consequences should be extremely serious.”
From Birkenfeld’s perspective, Canada is missing more than a stick. Other countries have spent hours grilling him under oath, but Canada has barely acknowledged him, he said.
In addition to the faxes he sent the CRA in 2008, Birkenfeld said he had a lengthy correspondence with a Department of Justice official. But in 2014, Canadians for Accountability filed an access to information request for records related to that correspondence and was told no such records exist, a response that is currently under review by the Office of the Information Commissioner.
Cutler, the sponsorship scandal whistleblower, said he has contacted the leaders of every political party to see if anyone would be interested in sponsoring Birkenfeld to come to Canada and present what he knows. So far, he hasn’t received any responses, he said.
“At the political level, they’ve decided corruption wins,” he said. “That’s a comment I really hate to make.”
UBS bankers in other countries have been subpoenaed or subjected to raids on their residences as a result of Birkenfeld’s disclosures, but the careers of high-level Canadian staff carried on undisturbed.
Meanwhile, Birkenfeld is now a free and wealthy man, thanks to the largest whistleblower award in U.S. history. In addition to advising foreign governments about offshore tax evasion — or attempting to, in Canada’s case — he spends his time travelling, lecturing and collecting memorabilia related to the original six National Hockey League teams.
Birkenfeld has the means to let go of the past and retreat into a life of leisure, but he won’t do it.
“If you ask your mother for the keys to drive the car and she never gives them to you, you keep asking,” he said. “That’s, in essence, what we’re talking about.”