There’s one truly remarkable fact behind the recent headlines about offshore tax havens. It’s not that huge sums of money are being hidden in this way—more than the combined GDP of the USA and Japan—since this was already known.
It’s not the large number of people who have been exposed as engaging in this practice—almost 130,000 in this one leak—since this may be just the tip of the iceberg. And it’s not the massive loss of tax revenue—up to $280 billion a year—although this money is desperately needed by governments to maintain essential services in these difficult times.
The most remarkable fact is that one individual, a single anonymous source, provided sufficient data to expose in sharp detail the fraudulent underbelly of a powerful, international industry. This person is surely the whistleblower of the century so far.
Some may wonder: why didn’t he (or she) take this information to the authorities? Governments must surely be highly motivated to recover these lost tax dollars, and in the U.S. there are significant rewards to be had. Unfortunately, past events have shown that the authorities, even in the U.S., cannot always be trusted to use this type of information effectively, nor to protect the whistleblower.
The Swiss banker Bradley Birkenfeld tried this approach in May 2007 by going to the U.S. authorities with information about illegal tax evasion schemes operated by his former employer, UBS, the massive Swiss bank. UBS ultimately admitted to helping 17,000 clients avoid U.S. taxes, provided the names of 5,000 American account-holders, and paid $780 million to resolve a criminal investigation. But Birkenfeld, who had voluntarily provided all of the information that made this possible, was charged and sent to jail for 40 months.
Not a single person at UBS was prosecuted and many observers think the government gave both UBS executives and the wealthy tax cheats “soft landings.” It certainly deceived and betrayed Birkenfeld.
Birkenfeld eventually received the substantial reward that he was entitled to under the IRS whistleblower scheme ($104 million), but this also seemed in doubt for two years as the IRS seemed to be looking for ways to withhold it, and his jail sentence sent a chilling message to others.
Today anyone who has evidence of government or corporate criminality will think twice about blowing the whistle through official channels. Untrustworthy and flat-footed authorities are driving people to make anonymous leaks instead of using official channels.
In Canada this is certainly the case. Our country is notoriously ineffective in pursuing white-collar crimes (which are the preserve of the powerful and wealthy) and is a dangerous place for whistleblowers.
Truth-tellers are simply not protected here: to our knowledge no one has ever been punished in Canada for taking reprisals against a whistleblower. Instead whistleblowers are nearly always crushed and silenced, and their allegations of wrongdoing are rarely even investigated. That’s what we hear consistently from those seeking help from our small charity: we have been contacted by more than 250 whistleblowers in the past four years alone.
As for catching tax evaders, Canada Revenue Agency seems to focus on harassing small fry rather than going after the big fish. The government trumpeted in its recent budget that it would raise billions by clamping down on tax evasion, and announced rewards for people who report on tax cheats. But this is just smoke and mirrors: CRA does not have sufficient capacity to investigate the leads it already has, and budget cuts are forcing it to slash its enforcement staff even further.
The bottom line is that, especially in Canada, blowing the whistle through official channels—about tax evasion or anything else—increasingly seems a suicidal course of action. Many potential whistleblowers either do nothing or go to the media. But since the media can only investigate a tiny fraction of such leads, much wrongdoing continues unchecked.
This problem could be so easily fixed if the political will existed with properly-written whistleblowing legislation and energetic enforcement. But the system that the Harper government created, which has cost taxpayers $37 million over the past six years, is not working, and there are many indications that this government does not want it to work. Canadians deserve better.
What does the future hold for our “whistleblower of the century?” Let’s hope that this individual can remain undetected, because otherwise his life is surely in grave danger: the people that he has helped expose are an unforgiving crowd, including bejewelled but ruthless glitterati, Russian oligarchs and mobsters, former dictators, and the like.
But he has done a huge service to honest taxpayers around the world, and possibly inspired others to emulate his example. I cannot wait to see the next headlines.
David Hutton is Executive Director of FAIR (Federal Accountability Initiative for Reform).
