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James Fitz-Morris has been reporting from Parliament Hill for more than a decade and joined the CBC’s parliamentary bureau in 2006, covering finance and foreign affairs among his beats. Fluent in English and French, he has also worked in Beirut and is still grappling with Arabic.
Starting next July, Canadian banks will be required to ask anyone opening a new account if they are now, or ever have been, an American “person.”
It comes at the behest of the U.S. government and its efforts to “smoke out” tax dodgers.
The Foreign Accounts Tax Compliance Act, or FATCA, was passed by the U.S. Congress in 2010 and comes into force July 1, 2014.
The law forces all banks and other financial institutions outside the U.S. to search for customers who have certain “indicia.” Those are markers that show the person may be a U.S. citizen or a former permanent resident who, under U.S. law, must file income tax returns to Uncle Sam no matter where they reside in the world.
The only other country with similar tax rules for expats is Eritrea.
When announcing the law, U.S. President Barack Obama said, “if financial institutions won’t cooperate with us, we will assume they are sheltering money in tax-havens and act accordingly.”
The threat is a withholding tax of 30 per cent levied on every transaction a non-compliant bank has coming from, or even passing through, the U.S.
“Bottom line is: there is absolutely no way that a large, modern financial institution like a Canadian bank or a large credit union could escape FATCA,” says Marion Wrobel, vice-president of policy and operations at the Canadian Bankers Association (CBA).
Wrobel says his organization has been fighting FATCA since it was announced, calling it the “extra-territorial” application of American law.
“The only reason the Americans can do it is because it is a large economy, financial markets are integrated globally,” Wrobel adds, “and it is virtually impossible for a large institution like a Canadian bank, an insurance company, a securities dealer, a large credit union to avoid being caught up in a FATCA net.”
Starting July 1, 2014, banks will be required to scour the records of all of their customers with more than $50,000 in an account.
They will be looking indicators such as: place of birth, alternate addresses and phone numbers, and past residency in the United Sates. Every file with at least one indicia marker will be flagged as a “U.S. Reportable Account.”
At the same time, anyone wanting to open a new account will be asked directly if they are a “U.S. person” as defined by the IRS. Anyone who answers affirmatively will be flagged.
Wrobel says refusing to answer the question could also land any Canadian in trouble.
“If you refuse to answer it you could be considered recalcitrant and your information could be reported.”
So far the banks’ protests have changed little. The best they have been able to do is take some of the heat off themselves directly. Canada is close to negotiating an Inter-Governmental Agreement (IGA) with the U.S. to implement FATCA.
Once in place, the bank would no longer be required to send private customer information directly to a foreign government agency. Instead, Canadian banks will flag their customers to the Canada Revenue Agency, and — under the terms of the agreement — the CRA will be the one that automatically transmits all the information to the IRS.
‘Infringement of liberty and privacy’
To enact the IGA, the Canadian government would almost certainly need to introduce a new law or amend existing ones to allow financial institutions to breach the privacy of Canadian citizens and residents.
It’s not clear how that can be done without running afoul of the Canadian Charter of Rights and Freedoms.
Constitutional lawyer and expert Peter Hogg wrote to the Finance Department to express his concerns about the proposed deal.
In a copy of the letter released under Access to Information, he says: “To impose on financial institutions the duty to report to CRA (en route to the IRS) the names, addresses, place of birth and date of birth and details of the bank accounts of account-holders identified only by their place of birth in or citizenship of the United States, and all under the implicit threat of taxes, penalties or prosecutions by the IRS, seems to me to be a clear case of discrimination in contravention of [Section] 15 [of the Charter].”
He goes on to say: “There is no mechanism in the Model IGA whereby individuals who are suspected to be U.S. citizens would even know that their personal information was provided, “ Hogg’s letter argues, “thus there may be no opportunity to provide additional information or take other steps in order to prevent the transmission of this information from Canada.”
At best, Hogg believes, it is an infringement “of liberty and privacy,” but possibly also violations of at least three sections of the Charter.
The plan has critics around the world.
“I don’t think it’s pejorative to use the term ‘fishing expedition,’ that term has been used by the U.S. government already and people talking about FATCA — that’s exactly what this is,” says Allison Christians, the Stikeman Chair of Tax Law at McGill University.
She points out Canada and the U.S. already have a tax treaty that’s been in place for almost 20 years, which allows the IRS to obtain information on specific individuals from the CRA automatically.
“But FATCA wants more,” Christians adds. “They want not just the ones we have already identified; they want to, in the words of a former treasury secretary, ‘smoke out’ the Americans who are hiding.”
And this is where many experts believe FATCA might not just be unconstitutional, but also misguided.
“It’s not risk-based, it’s not targeting known tax havens. It’s looking at places like Canada, you know — Americans do not come to Canada for the low taxes,” says Wrobel.
Perhaps to add insult to injury, the individual Canadian financial institutions being deputized by the IRS to sniff out wayward U.S. taxpayers need to cover the cost of the added scrutiny, monitoring, and reporting themselves.
The CBA estimates it will likely cost the big banks $100 million each to comply with FATCA.
CBC’s flagship news program sold favorable coverage to the Harper government, then lied about it – Boing Boing
CBC’s flagship news program sold favorable coverage to the Harper government, then lied about it
Cory Doctorow at 6:46 am Wed, Nov 13, 2013
Jesse Brown from the Canadaland podcast (RSS) writes: “CBC News has made a bad error in judgment. They sold news coverage to the Harper government, who were seeking publicity for a shipwreck salvaging expedition which, in a federal Minister’s words, is an effort to “enhance” Canada’s sovereignty claims in the Arctic. The government is embroiled in a land claim dispute with Russia; both nations covet the massive oil and gas deposits that are thought to reside beneath the the Arctic Ocean. The CBC covered the government’s (fruitless) salvage expedition with fawning stories across its platforms: there’s a dedicated news website and a two-part documentary that aired on The National, CBC’s flagship newscast. CBC Chief Correspondent Peter Mansbridge himself reported live from the Arctic on a Parks Canada boat, at no time informing viewers that the subjects of his story had paid for his presence.”
“We do not get paid to provide coverage. Ever.” -CBC News Editor in Chief Jennifer McGuire
“CBC will provide news coverage on various platforms” -invoice for services provided by CBC to the government in exchange for $65,000 (p.147)
Whistleblower lawsuit says CN is cooking its books – CBC News – Latest Canada, World, Entertainment and Business News
A whistleblower lawsuit in the United States is accusing CN Rail of fudging its numbers to increase executive bonuses and to make it appear to be North America’s most efficient railroad for investors.
Tim Wallender, a former CN trainmaster based at the company’s Harrison Yard in Memphis, Tenn. has filed a lawsuit under the U.S. Sarbanes-Oxley Act — which was passed into law to protect whistleblowers following the Enron scandal in the early 2000s.
CN is asking that Wallender’s claims that it routinely reported fraudulent efficiency statistics to shareholders and customers be thrown out. CN claims he repeatedly reported train movements falsely and got fired for it.
Wallender, 42, does not deny fudging the numbers but insists he was ordered to by his boss.
He alleges in his suit that his managers made large bonuses, and the company was able to promote itself as being 20 to 25 per cent more efficient than its competitors, by creating favourable statistics that “were based on a persistent and pervasive fraud.”
None of these allegations has been proven in court.
“My (general) superintendent was always talking about how he had carte blanche to do whatever he had to do to make it work in Memphis,” Wallender told CBC News in an interview in Mobile, Ala. where he’s now working for a different railroad. “He would talk about how him and [then-CN vice president] Keith Creel were so tight and how they talked every day and he had permission to do whatever he needed to do.
“What do I do? — that’s my livelihood, this job. Without it I have no insurance, no pay, no benefits, nothing. “
Wallender outlines how to misreport ‘efficiencies’
Wallender claims he and other lower-end employees were asked to tamper with “dwell time” statistics — an industry measure of how long freight trains sit in a yard — to make it appear that trains moved quickly. The crucial reporting time was 5 a.m., and if trains arrived later their dwell time clocks would not start until the next morning.
The goal, Wallender alleges, was to get trains out of the yard just before 5 a.m., or have them arrive just after, either by moving the train so it could trigger time-stamp sensors, or by adjusting the clock in the company computers.
They also reported cars were either broken or delivered to the customers — so they would be taken off the clock — when in each case they would still be in the yard, he claims in his lawsuit.
Another trick was to move a train onto a ghost or dummy track which did not get monitored on the company’s computer, he claims.
“I’m telling you everybody knew about this,” said Wallender, who originally hails from Wisconsin. “It’s a common practice. I know it happened in Chicago, Champagne, Memphis, Jackson — it happened all over the U.S.”
According to CN documents related to the case, the company did audits of the Memphis yard — three times before Wallender’s dismissal in September 2012 — and indeed found several employees were falsifying efficiency records.
“I am extremely disappointed to learn about these reporting infractions,” wrote Creel in a February 2012 letter. The letter acknowledged other reporting scams at CN, not listed above. “It cannot and will not be tolerated. We have an obligation to our customers and shareholders to continue our pursuit of ‘service excellence.'”
But Wallender says Creel’s letter was just “lip service” to the idea that the company cared about accurately reporting its efficiency ratings to the stock market.
“The allegations in this matter are unfounded and factually incorrect,” said Creel, who is no longer with CN. “I have, and always will, hold all employees to the highest ethical standards and the facts in this case will reflect that.”
Because of a December 2011 audit, Wallender was to be disciplined. He brought a tape recorder with him to the meeting with his boss, general superintendent Andrew Martin.
“I was supposed to be [suspended] for two days, lose two days’ pay, and [they were going to] put a letter in my file,” recalls Wallender.
CBC has obtained a copy of the recording in which Martin can be heard saying: “I’m suspending you for two days, but I’m suspending you for two days to put you on your off days… I have to draft this letter. I’m going to give you a copy of this letter. I ain’t gonna never send it” to human resources.
“He never told me to stop,” said Wallender, echoing arguments in his lawsuit. “He just said ‘Don’t be so perfect on the report next time.'”
A complaint against Martin from another railway worker in the summer of 2012 led to the investigation that led, Wallender claims, to his demise at CN.
Wallender handed over emails of the instructions he had received to fudge CN’s numbers, and his audiotape of his discussion with Martin, to CN’s human resources investigator.
He recalls telling the investigator: “I’m done lying. If I get fired for this, which I expect to do, at least I can walk away with my head up, that I got fired for telling the truth.”
He was fired the following month, CN claims, for continuing to fudge the numbers. After his dismissal, he pointed out to his bosses how others were continuing to fudge the numbers, and his access to CN’s computers was cut off.
Wallender’s lawyer, Bill McMahon of the Chicago law firm Hoey & Farina, said Martin got a slap on the wrist after the review, “and continues to be employed at CN. The only person who got terminated, who lost his job, is the man who came forward with the concrete irrefutable evidence of the statistical manipulations of efficiency ratings in the Harrison yard.”
CN told CBC News yesterday, in a three-page email from spokesman Mark Hallman, that CN “collects data to make informed business and operational decisions. The notion that CN would condone any misreporting in that context is untenable.”
CN ignored many of the CBC’s requests, including a question about why their computer software is so easily manipulated to change data, but they did say that through their auditing process CN has found “only a limited number of reporting issues which did not affect the integrity of the data that the Company has reported to the rest of the rail industry.”
Although it boasts of its dwell time and train speed on its website and heralded a five-percent drop in dwell time in this week’s third quarter report to the market, CN says its “operating metrics such as yard dwell are performance indicators that are not included in any part of CN’s audited financial reports that are sent to shareholders and securities regulators.”
Hallman added that the Montreal-based company’s “decision to terminate Mr. Wallender was fully warranted given his history of misreporting, management’s repeated admonishments for such misreporting, and Mr. Wallender’s brazen disregard and continued misreporting of data even after he was ordered to cease such practices. Mr. Wallender’s termination illustrates the seriousness of CN’s approach to insure data integrity.”
Former CN employees back Wallender claims
However, two former employees of the Memphis yard have come forward to CBC to back up some of Wallender’s claims.
Toby Lehman, a former CN yardmaster in Memphis, put in the aforementioned complaint about Martin because he and others were constantly being harassed to falsely report the efficiency statistics of the yard, such as by inputting false arrival and departure times. When nothing was done for three months, he sent a complaint further up the chain of command, and an investigation commenced that, he believes, led to Wallender’s dismissal.
“I apologized to Tim — he was just backing me up with his evidence,” said Lehman, who has since left CN for another company. “Even after Tim got fired,” the manipulation of the train’s arrival and departure times continued, said Lehman.
A former clerk at the Memphis yard, Sara Welch Wood, also jumped to Wallender’s defence, saying employees shouldn’t be made to choose between their jobs and doing the right thing.
She remembers the fear that went through the office if employees didn’t find a way to make cars disappear so they wouldn’t be on the 5 a.m. report.
“There were a lot of different times that I didn’t want to deal with the hassle of getting chewed out,” recalls Wood, 30, who is now a nursing student. “At 4:45 those cars were miraculously gone. There were several times I’d show them at a different yard,” though they were still at Harrison in Memphis, she said.
“I felt bad because I knew I was lying about it. So you’re in between making your supervisors happy and lying. That was one of the reasons it was such a stressful job. It never feels good to lie.”
In his lawsuit, Wallender alleges that “Creel — whose compensation substantially depends on a high price for Canadian National’s shares — protected Martin from discipline, gave a green light for Martin’s misconduct, and gave Martin carte blanche to continue the misconduct that protected and increased the value of his stock options.
Martin, who remains the general superintendent of the Harrison Yard, did not respond to messages.
Wallender’s lawyer, McMahon, said the victim in this case is just not Wallender, who suffered the indignity of being fired, losing his income and his health insurance for himself and his daughter who is suffering from a chronic illness, but all employees of CN.
McMahon said that what the U.S. has learned from the Madoff, Enron and Worldcom scandals is that the “real victims that we know from this type of corporate malfeasance are the employees, their families and the people that rely upon these corporations to accurately and professionally manage their businesses in order to provide a job.”
Wallender got a job with another railroad in the southern U.S. where he is happy to accurately report figures on the company’s efficiency, but he wishes CN well. “There are a lot of good people there. The problem I had with all the cheating is you can’t fix anything unless you know it’s broken.
“And by us hiding everything, nobody knows it’s broken.”