Canadian tax-evasion fight zeros in on transactions involving Israeli bank

The Canada Revenue Agency headquarters in Ottawa is shown on November 4, 2011. The Canada Revenue Agency says it won't hesitate to investigate new evidence of offshore tax evasion in the wake of a second massive leak of tax-haven financial records. The leak of some 13.4 million records, dubbed the Paradise Papers, lifts the veil on the often murky ways in which the wealthy --including more than 3,000 Canadian individuals and entities -- stash their money in offshore accounts to avoid paying taxes. THE CANADIAN PRESS/Sean Kilpatrick

OTTAWA -- The Canada Revenue Agency is seeking information from three Canadian banks about customer transactions linked to a major Israeli financial institution as part of a federal crackdown on offshore tax evaders.

Newly filed court records reveal the agency wants to see account records associated with Bank Hapoalim to determine whether Canadians are hiding income or assets.

The Federal Court of Canada filings come amid renewed public pressure on the government to show it is taking steps to find and penalize Canadians who improperly use offshore accounts to avoid taxes.

Like many foreign banks, Bank Hapoalim has correspondent accounts in Canada to conduct Canadian dollar transactions on behalf of its customers, the revenue agency says. The bank operates in Israel and is affiliated with other financial services companies in Switzerland, Luxembourg, the United States and the Cayman Islands.

The agency is asking the Bank of Montreal, Royal Bank and Toronto-Dominion Bank for records of deposits, cheques and electronic funds transfers associated with Bank Hapoalim's correspondent accounts from April 1, 2011, to Sept. 30, 2017.

The records will be reviewed and analyzed under the direction of the agency's offshore compliance section and, where warranted, lead to formal audits.

Stephanie Henderson, manager of the section, says in an affidavit the agency is aware of Canadian taxpayers who have previously used Bank Hapoalim "to conceal income and assets," shielding offshore activities from the taxman.

Through one audit, the agency became aware of a Canadian taxpayer who maintained bank and investment accounts for over 10 years at Bank Hapoalim in U.S., Canadian and Israeli currencies, Henderson says. "This taxpayer failed to report the interest income earned on account balances and neglected to disclose assets held offshore totalling approximately $11 million."

In another case, a Canadian had bank and investment accounts with Bank Hapoalim and failed to report $1.5 million in income and approximately $5 million in reportable offshore assets.

The agency has also learned of offshore activities in Bank Hapoalim through the federal voluntary disclosure program, which gives people a second chance to file a tax return and ask for relief from penalties.

From April 1, 2015, through March 31 of this year, 114 Canadian taxpayers made voluntary disclosures involving the Israeli bank, Henderson says. The disclosures covered $59 million in unreported income -- such as interest, dividends and capital gains -- resulting in $17 million in federal taxes.

Since January 2015, the agency has been able to tap into a new stream of information through mandatory reporting of international electronic funds transfers of $10,000 or more.

Some of these transactions entailed Canadian taxpayers closing their accounts at Bank Hapoalim's subsidiary in Switzerland and transferring the funds to other financial institutions outside Canada, Henderson's affidavit says. Other dealings involved Canadians moving funds from the bank in Israel to accounts in Canada or other Bank Hapoalim branches internationally.

In a number of these instances, the individuals "may not have reported sufficient income or disclosed sufficient offshore assets in Canada" to justify the size of the transactions, she adds.

The revenue agency wants to see whether other, as yet unidentified, Canadian taxpayers have similarly used Bank Hapoalim's correspondent accounts to transfer funds to or from Canada.

Last year, the Federal Court approved the revenue agency's requests for seven years' worth of transaction information from the Royal Bank and Citibank, N.A., related to accounts in the name of Cayman National Bank Ltd.

Henderson's affidavit says the information led to audits that uncovered attempts to avoid paying tax in Canada.