The logo of Swiss bank Credit Suisse is seen in Zurich, Switzerland, Thursday, April 24, 2008.Alessandro Della Bella/AP
Financial giant Credit Suisse is trying to quash a federal court order that requires the bank to hand over 500 boxes of records to tax collectors, setting the stage for a battle that experts say will have similarities to the legal clash that resulted in the United States obtaining details on thousands of undeclared Swiss bank accounts.
In October, Canada Revenue Agency auditors obtained a judicial order for Credit Suisse Canada, which operated private banking offices in Toronto, Montreal and Vancouver until 1998, to provide all of its archived records. The order was based on the confession of a Canadian resident - identified only as "Taxpayer X" in court documents - who told federal auditors he was encouraged by his investment adviser to hide his savings from CRA and, as a first step, to funnel his funds to the Swiss city of Lausanne via a now defunct Credit Suisse office in Vancouver.
The bank struck back late last week with an application to nullify the order, arguing among other things that it is "inordinately broad." No date has been set for a federal court judge to hear the case, but whatever the outcome, it will significantly affect Canada's ability to recover revenue stashed abroad - a campaign that is also being waged by other debt-laden governments, such as the United States and Germany.
"[The U.S.]is obviously leading the way and I think others are following, and you see Canada following now, too," said David Duff, a tax law expert and the associate dean of the faculty of law at the University of British Columbia.
The original order obtained against Credit Suisse is what is known as an "unnamed person requirement" - a judicial ruling that forces financial institutions and other businesses to hand over information on clients, even though auditors can't identify them by name. In a statement from the bank's headquarters in New York, Credit Suisse said: "Canadian law requires certain conditions to be met before CRA can issue such a request and we do not believe that those legal conditions have been satisfied. Furthermore, we are very concerned about the personal and financial privacy interests of our clients."
But legal experts said Canadian courts have been very clear about the need for tax collectors to have a lot of latitude when seeking such orders, primarily because it's one of the only tools they have to ensure people are being compliant. Most recently in 2008, the Federal Court of Appeal upheld a similar order that was issued against the online auction house eBay, which the CRA believed had information on sellers of goods who weren't declaring their income.
"In that case, they were trying to get information on eBay's clients, and the information didn't belong to eBay, and it was stored on servers in the U.S., and the court still said you could get it," Prof. Duff said. He added that for Credit Suisse, "there are a number of things that indicate it's a steep hill to climb."
The order against Credit Suisse comes two years after the United States launched a highly-publicized investigation into another Swiss bank, UBS AG. The bank eventually admitted that it dispatched bankers to the U.S. to recruit wealthy clients and help them hide their funds in Switzerland, where bank secrecy laws are almost impenetrable for auditors. The bank was fined $780-million, agreed to hand over the names of about 4,500 clients, and U.S. prosecutors indicted more than a dozen bankers and clients.
Documents obtained under the Access to Information Act show that while the U.S. investigation was under way, CRA officials were trying to obtain a similar court order against UBS's Canadian subsidiary, UBS Canada. In an e-mail dated Jan. 7, 2009, a senior tax officer named Phillip Cherrett wrote that his team was "looking at building a case for an unnamed requirement on UBS AG's branch in Canada for individuals using their wealth management services in Switzerland."
No such order was ever obtained, and UBS Canada has consistently said that its offices had nothing to do with Swiss bankers who travelled to North America and serviced high net-worth clients.
The CRA probe of Credit Suisse, however, has drawn a link between the bank's Canadian operations and the vaults of Switzerland. A recent joint Globe and Mail/CBC investigation revealed that in 1993 the Vancouver office of Credit Suisse Canada approved the transfer of about $200,000 for "Taxpayer X" to a new Credit Suisse account in Switzerland. The Credit Suisse Canada official who approved the transfer was Andrew Saxton, now a Conservative MP for the riding of North Vancouver.
There is nothing to suggest that Mr. Saxton knew the money was being transferred as part of a tax evasion scheme, and he has not been accused of any wrongdoing. He has issued a statement condemning tax evasion and explaining that he doesn't know the identity of "Taxpayer X."