In Budget 2019, the federal government continues to bolster its tools and resources to detect and prosecute tax evasion and money laundering. These proposals are relevant both to those who do not pay the amount of tax the law requires, and to tax professionals who either intentionally or inadvertently offer services to those who are offside the law.
In words from the budget, the government is “cracking down on tax evasion and aggressive tax avoidance”. It will do this through “significant investments” which will “strengthen the Canada Revenue Agency’s (CRA’s) ability to unravel complex tax schemes, increase collaboration with international partners, and ultimately bring offenders to justice.” To these ends, a number of measures are proposed:
- Audit teams will continue to focus on “high net worth individuals and their associated corporate structures”. The budget reports that at present, there are more than 1,100 offshore audits being conducted and these have resulted in “more than 50 criminal investigations with links to offshore transactions.” It is unknown how many of these investigations have or will translate into prosecutions.
- A new investment of $150.8 million over the next five years will fund new initiatives including hiring more auditors to “target non-compliance associated with cryptocurrency transactions and the digital economy”.
- The technology used to analyze information as it relates to the detection of tax evasion and aggressive tax avoidance will be improved through an investment of $65.8 million over five years.
- A commitment has been made to “improv[e] corporate transparency so that Canadian authorities can more clearly know who owns which corporations in Canada”. To that end, “beneficial ownership information” in respect of federally incorporated corporations will be “more readily available to tax authorities and law enforcement.”
- Noting that money laundering, terrorist financing and tax evasion are all a threat to the safety and security of Canadians, to the financial sector and to the economy as a whole, anti-money laundering and anti-terrorist financing (AML/ATF) laws will be strengthened. The government states its concern that “illicit funds are finding their way into the Canadian economy through channels that millions of Canadians rely on, including corporations, real estate and trade.” To address this, the budget “proposes an integrated plan to modernize Canada’s AML/ATF framework and strengthen data resources, financial intelligence and information sharing to identify and meet evolving threats—while continuing to protect the privacy rights of Canadians and manage the regulatory burden on the private sector.”
- Interestingly, under what is described as the first phase of this initiative, it is the police, and not the CRA, that will be given more resources. In addition, under this first phase resources will be allocated to “address gaps in information sharing”. Further, a team will be created “across intelligence and law enforcement agencies to strengthen inter-agency coordination and cooperation and identify and address significant money laundering and financial crime threats.”
- The budget proposes “complementary legislative measures to strengthen Canada’s legal framework and support operational capacity” and these would include “new tools for investigators and prosecutors”.
- One of the “new tools” of specific interest is a Criminal Code amendment to tie “recklessness” to the offence of money laundering, in order to “criminalize the activity of moving money on behalf of another person or organization while being aware that there is a risk that this activity could be money laundering and continuing with that activity in spite of the risk.” According to the budget, this would “provide law enforcement with an important, practical tool in the fight against professional money launderers in Canada.”
Some of these proposals engage significant privacy concerns. For example, opening the tap on the flow of information between agencies within Canada and internationally will certainly make it easier for tax evasion to be audited, investigated and prosecuted. However, this is not the test for constitutionally justifying a loss of privacy.
Some budget proposals never come to be. However, there can be no doubt that the government’s focus on tax compliance continues to intensify, and that standards have changed when it comes to what files might be audited, investigated or prosecuted. For some taxpayers, this might mean that careful consideration needs to be given to whether a voluntary disclosure should be made to the CRA in respect of past misstatements or omissions in tax filings. With increased resources, increased information sharing, and increased cooperation between tax and law enforcement agencies within Canada and internationally, the risk of detection will increase.
For tax professionals who are representing clients in high risk audits, it is imperative to understand how an audit can potentially shift to a criminal investigation, how information or documents provided in the course of an audit can potentially be used as part of an investigation or prosecution of a client, and how to protect a client’s interests in these circumstances.
Finally, for tax professionals themselves, increased vigilance is needed to ensure that a client’s wishes do not result in the professional becoming ethically or legally compromised, or perhaps even becoming the target of an investigation her or himself. More so than ever, tax professionals should be well acquainted with the definitions of “tax evasion”, “proceeds of crime”, “money laundering”, “aiding”, “abetting”, “conspiring”, “willful blindness”, and now, “recklessness”, to ensure that the services and advice that they offer to their clients cannot be construed as the commission or facilitation of a criminal offence.