CRA records missing in KPMG tax dodge affair

Call it the case of the vanishing CRA records.

Some correspondence from the Canada Revenue Agency's former top enforcement official went missing and appears to have been deleted in the months leading up to the agency's secret "no penalties" amnesty offer to wealthy KPMG tax dodgers in the spring of 2015, a Fifth Estate/Enqute investigation has found.

Those revelations may call into question the findings of an external probe that cleared the CRA in its dealings with accounting firm KPMG, which for years had run a secret offshore scheme in the Isle of Man for multimillionaire clients.

"There's no reason to destroy these documents unless you're trying to cover up a decision-making trail," says Duff Conacher, head of the watchdog group Democracy Watch.

At issue is a central mystery in the KPMG affair.

Exactly why did the CRA offer KPMG clients what critics have called a "sweetheart" deal to millionaire Canadians -- on the condition that the public be kept in the dark about it?

That secret offer, leaked to CBC News in a brown envelope, sparked deep resentment even within the agency.

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A parliamentary inquiry into the CRA's dealings with KPMG was abruptly halted by the Liberal-dominated finance committee last year.

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Now, it appears that correspondence between 2012 and early April 2015 that might have helped shed light on why the CRA signed off on the agreement was deleted.

Different answers

Fifth Estate journalists first learned about the possible deletion of CRA records after making two virtually identical access to information requests one to the CRA and one to the Department of Justice.

Those requests asked for any correspondence involving Richard Montroy, then the agency's head of compliance, and the KPMG file.

Initially, The Fifth Estate requested those records from the CRA in early April 2015. However, the Canada Revenue Agency responded that there were no such records.

"Documentation does not exist," the agency wrote CBC News.

The Fifth Estate later decided to request the same records from the Department of Justice, which was also involved in the KPMG file.

And that's when The Fifth Estate received a different response.

The Department of Justice confirmed it did have correspondenceinvolving the CRA's Montroy in that time period but would not release those records for legal reasons.

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So why would the Department of Justice have records of CRA correspondence but not the agency itself?

In a statement to The Fifth Estate, Montroy, now retired, said his practice was to delete emails that were "transitory" or "not considered important."

Records considered transitory are allowed to be deleted under federal government document retention rules.

'Not the way I worked'

"If you think I or my EA ever deleted emails 'because someone might see it' (i.e. thefamous smoking gun), you watch too many police dramas on TV. It is just not the way I worked," Montroy wrote.

Democracy Watch's Conacher says any emailsor other correspondence relating to the KPMG file should not have been considered "transitory."

"There should be an investigation about whether these emails were deleted in violation of the Access to Information Act."

After The Fifth Estate informed the CRA of the apparent discrepancy, the agency's media relations office issued a statement. "We can confirm that a reasonable and diligent search for records was performed by CRA officials."

The agency added that if correspondence was deletedit could simply have been a matter of "routine records management practices."

That missing correspondence might have been relevant to a later probe into the secret settlement offer.

In the spring of 2016, Revenue Minister Diane Lebouthillier brought in Dalhousie University tax professor Kim Brooks to independently examine the CRA's handling of the KPMG file.

Lebouthillier told Radio-Canada that Brooks was guaranteed access to all relevant documents.

"I had specifically asked that [Brooks] get access to every document needed," LeBouthillier later said in an interview.

The correspondence in question, however, would have been deleted by the spring of 2015 nearly a year before Brooks was allowed complete access into CRA files.

Brooks's review concluded the agency had acted "according to standard practice."

Despite earlier media reports, the review also concluded there was no evidence of internal dissent at CRA over the "no penalties" offer to KPMG clients.

Access to relevant documents

Dennis Howlett, head of Canadians for Tax Fairness, says the questions around missing correspondence raise concerns about Brooks's findings.

"If the review did not have access to all the information needed to make a clear decision then I think the review needs to be reopened," Howlett said.

In her report, Brooks wrote she was not asked to decide whether the CRA's enforcement policies are "sufficient to the task" but rather, whether the agency followed the existing practices.

After her report clearing the CRA, Brooks was appointed vice chair of the agency's "independent" offshore advisory committee.

Brooks did not respond to a phone messageand an email request for an interview.

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For his part, Montroy has previously stated that he did not personally make the controversial settlement offer to the KPMG clients. The leaked document shows the offer was signed by a manager in his division.

"What I did do," he wrote, "was provide appropriate oversight, when required, that compliance approaches were based on the facts and merits of the case and in keeping with CRA policies and the legal framework under which my branch operated."