We are indebted to Just a Canadian over at Isaac Brock Society for picking up on this important point. For the full context of the discussion in which this came up, see this link: Was TD overzealous here?
Under the Bill C-31 as approved by Parliament, a Canadian Financial Institution (FI) MUST attempt to contact you about any US indicia they think they have about you, BEFORE reporting your account information to CRA (which then will forward it to IRS). That is the law in Canada, and if any FI ignores it, you’d have IMO excellent grounds for suing their bloody socks off.
This is particularly important to those Canadians who have a CLN or other reasons why they should not be considered “US persons,” not to mention those Canadians for whom their FI might have on file some note or other concerning something they said in a conversation with a bank employee which may have been taken out of context or misinterpreted by whoever recorded the note, as constituting indicia of US personhood. It’s all about “due process”.
What follows below is a cut-and-paste of what Just a Canadian said in response to an observation I had posted in the Brock thread linked above (based on my reading and copy of a version of the IGA that predates Bill C-31 as it was finally approved.
Schubert1975 said: My reading of the IGA is that (horribly and outrageously though this is), that agreement merely says a Canadian FI MAY notify the account holder and seek clarification of the indicia. It doesn’t say the FI MUST do this (I think the agreement damn well should have said that, but as far as I can see it doesn’t).
(Just a Canadian said and quoted as below:)
The IGA contained the “MAY” language, but bill C-31, the enabling legislation, makes one change to the agreement. Annex I 2.B.3 is the paragraph that requires banks to report accounts with indicia and states that they MAY apply one of the exceptions. Bill C-31 replaces that paragraph with:
(quote from C-31 as approved:) 3 If any of the U S indicia listed in subparagraph B(I) of this section are discovered in the electronic search, or if there is a change in circumstances that results in one or more U S indicia being associated with the account, then the Reporting Canadian Financial Institution MUST SEEK TO OBTAIN OR REVIEW THE INFORMATION DESCRIBED IN THE PORTION OF SUBPARAGRAPH B(4) of this section that is relevant in the circumstances and must treat the account as a US Reportable Account unless one of the exceptions in subparagraph B(4) applies to that account.
(Just a Canadian continues:) Paragraph B(4) is where they ask for a self-certification, a CLN or a reasonable explanation.
In other words the BANKS MUST CONTACT YOU before turning your financial information over.
It seems that most of the copies of the IGA that are floating around do not contain this revised paragraph but instead contain the original text, but that is not the version that is the law in Canada.