The 2022 Budget shows once again Canada’s ongoing commitment to the investigation and prosecution of financial crime including money laundering and tax evasion, including by injecting substantial funds into expanding the CRA’s audit and enforcement activities. Having previously invested $2.2 billion in the CRA since 2016, the government proposes in Budget 2022 “to provide a further $1.2 billion over five years, starting in 2022-23, for the CRA to expand audits of larger entities and non-residents engaged in aggressive tax planning; increase both the investigation and prosecution of those engaged in criminal tax evasion; and to expand its educational outreach”.
In addition, the government’s new proposed measures include:
- developing legislative changes to strengthen the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, the Criminal Code, and other legislation to enhance the ability of authorities to detect, deter, investigate, and prosecute financial crimes and to manage emerging threats, such as those posed by the digitalization of money;
- establishing a new “Canada Financial Crimes Agency”, which will become
Canada’s lead enforcement agency in this area;
- accelerating amendments to the Canada Business Corporations Act to implement a public and searchable beneficial ownership registry, which authorities will use to counter the use of shell companies for illegal activities, including money laundering, corruption, and tax evasion; and
- investing $89.9 million over five years in the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) to, among other things, implement new anti-money laundering and anti-terrorist financing requirements for crowdfunding platforms and payment service providers and continue to build expertise related to virtual currency.
Until draft legislation is released, it is impossible to know what specific measures to “detect, deter, investigate and prosecute financial crimes” are being contemplated. Similarly, the Budget provides few details on the proposed Canada Financial Crimes Agency but states that further details will be announced in the 2022 fall economic and fiscal update.
The Budget also refers to efforts that began in 2021 and 2022 to reinforce the work of the CRA to “unravel tax avoidance schemes”. These efforts include “strengthening the CRA’s ability to fight tax crimes such as money laundering and terrorist financing by upgrading its tools and increasing international cooperation”, “increasing the CRA’s offshore audit capacity to focus on people who avoid taxes by hiding income and assets abroad,” and “providing legal resources to support audits and to defend against appeals to courts by wealthy taxpayers motivated to spend large amounts on litigation.”
It is safe to say that the ongoing investments to expand the CRA’s enforcement activities will increase the risk that certain tax audits will result in referrals for criminal investigation and prosecution. From this, two practice notes arise for professional advisors. First, professional advisors representing clients at the audit stage must be alive to the fact that a client under audit may be at risk not only of a significant reassessment, but also a criminal investigation, prosecution, conviction and jail sentence. It is imperative for such advisors to understand how information or documents provided to the CRA during 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.
Next, professional advisors who provide tax planning advice must remain vigilant to ensure that their services do not potentially facilitate the commission of an offence. To protect both their clients and themselves, all tax advisors should ensure that they are well acquainted with the definitions of “tax evasion”, “proceeds of crime”, “money laundering”, “aiding”, “abetting”, “conspiring”, and “willful blindness”. As the CRA casts its investigation net further and wider, professional advisors want to be sure that their actions and advice keeps them free from what the investigation might catch.