Bill C-25 (Historical)

An Act to amend the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and the Income Tax Act and to make a consequential amendment to another Act

This enactment amends the Proceeds of Crime (Money Laundering) and Terrorist Financing Act to enhance the client identification, record-keeping and reporting measures applicable to financial institutions and intermediaries. It establishes a registration regime for money services businesses and foreign exchange dealers and creates a new offence for not registering.
It allows the Financial Transactions and Reports Analysis Centre of Canada to disclose additional information to law enforcement and intelligence agencies, and to make disclosures to additional agencies.
It permits the Centre to exchange compliance-related information with its foreign counterparts and permits the Canada Border Services Agency to share information about the application of the cross-border currency reporting regime with its foreign counterparts. It also includes a consequential amendment to the Canada Border Services Agency Act.
It creates an administrative monetary penalty regime.
It amends the Income Tax Act to allow the Canada Revenue Agency to disclose to the Centre, the Royal Canadian Mounted Police and the Canadian Security Intelligence Service information about charities suspected of being involved in terrorist financing activities.

[The Chair, Conservative, Brian Pallister]

The amendment is that Bill C-25, in clause 6, be amended by replacing lines 21 and 22 on page 3 with the following:

under section 8 of the Regulations Implementing the United Nations Resolutions on the Suppression of Terrorism shall also make a

(Amendment agreed to on division)

(Clause 6 as amended agreed to on division)

(Clause 7 agreed to on division)

(On clause 8)

[The Chair, Conservative, Brian Pallister]

Clause 3 proposes, among other things, to make an amendment to proposed paragraph 5(l) of the application section of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act to include departments or agents of Her Majesty that sell prescribed precious metals. This amendment proposes to also include in this section persons in the business of money lending, including “payday lenders”, persons or entities in the business of selling new and used motorized vehicles, as well as persons in the business of buying and selling precious metals, stones, and jewellery. This broadens the scope of the application of the bill.

According to page 654 of Marleau and Montpetit, “An amendment to a bill that was referred to a committee after second reading is out of order if it is beyond the scope and principle of the bill.” In my view, this amendment goes beyond the scope of Bill C-25 and is therefore inadmissible.

[The Chair, Conservative, Brian Pallister]

Order, please.

Welcome, Mr. Martin. Thank you for being here. I understand that you have some associates who will be joining us shortly, but we'll commence pursuant to the order of reference of Tuesday, October 24, 2006, Bill C-25, An Act to amend to Proceeds of Crime (Money Laundering) and Terrorist Financing Act and the Income Tax Act and to make a consequential amendment to another Act.

My colleagues will proceed. I will ask you whether various clauses that have no amendments attached to them shall carry, but I will stop the proceedings at the point of amendment. We also have an understanding with Mr. McCallum, who is currently drafting an amendment, that we will revert back to the appropriate clause. Even though it may have carried, we will revert back to it if that is indeed where it is determined that that amendment should be placed.

With that understanding, shall clause 1 carry?

Yes, Mr. McCallum?

Criminal Code

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

Mr. Speaker, first, the Conservative member makes an important point about the use of these payday lenders on a more frequent basis, not simply because banks have up and left the town, but because sometimes the hours, terms and conditions for doing banking are not conducive for ready access. In fact in parts of Winnipeg many individuals cannot access a bank because they do not have the right ID or cannot fit into the schedule of the bank.

The member is right. There are other reasons why payday lenders have grown in this period of time and why we need to have regulations in place.

With respect to the question of provincial legislation, I think the Manitoba bill provides a model for the country. I know six other provinces are looking at this as a model. It is a bill that prohibits rollovers. This is the first important principle that is enunciated in Bill C-25, introduced by the finance minister, Greg Selinger.

It also ensures that payday loan companies must operate within a comprehensive regulatory framework. It does this by amending the Consumer Protection Act and by working through the Public Utilities Board as a regulatory body to ensure that all rates are set according to a set of principles in an open, upfront basis, with a publicly administered board, so there can be no questions about how the rates are applied and what penalties are at play.

I could go on at length, but I would recommend Bill C-25 as a blueprint for going forward. The Manitoba government is ready to have it proceed to the final stages in the Manitoba legislature, as soon as there is some guarantee from this place that the Criminal Code provisions have been set aside so the regulatory framework can get up and running.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

Mr. Speaker, I listened to my colleague with great interest. There are payday lenders In several communities in my constituency. They provide a greater access when banking hours are sometimes restrictive and when people can not otherwise get their cheques cashed. I can just imagine the horror of having a paycheque in one's hand, having a young family to feed, but not having access to the bank to deposit the cheque or not having a debit card.

However, I am also concerned. When people are in a vulnerable situation like that, they can be taken advantage of, and that is an unfortunate thing. I really appreciate hearing the hon. member say that she and her party fully intend to support these changes. I am glad for that.

Could she elaborate on some of the clauses in Bill C-25, which I just spoke to a few minutes earlier? One area that is of particular concern to me is the ability of payday lenders to rollover, which means that if there is a loan that is not paid back in time, the payday lending organization, because it is unregulated, may charge a second set of fees over and above the additional interest rate. We know the interest rate charged on these is fairly minimal. It is the fees and everything that gets added onto these payday loans that make them quite expensive.

Would she support legislation that would take care of this rollover problem in her province?

[Pat Martin, NDP, Winnipeg Centre, MB]

Mr. Speaker, I voted, yes, for Bill C-9 on June 6, and I will vote yes for it again in its amended form.

Bills evolve as they go through the process. I believe Bill C-25, the proceeds of crime bill, is not tough on crime and we are trying to amend it to get tougher.

I do not know why the government is going so light on criminals in being able to keep their luxury homes, their tricked out Escalades and their fancy motor boats. We believe those assets should be seized and put the reverse onus on the criminal to prove they were purchased by legitimately earned monies and not the proceeds of crime.

I do not know why--

[Mike Wallace, Conservative, Burlington, ON]

I appreciate that.

My final question is for the senator. It's fairly simple. And thank you for coming.

You indicated during a couple of responses that we could study this and study that...there are some other areas. Is it not important for our country to have this law in place before we are reviewed by our international partners in the early winter? If there are other areas for improvement in this legislation, that could be done after we pass Bill C-25. Then we can look at other issues, as a finance committee.

[The Chair, Conservative, Brian Pallister]

Thank you very much, Senator.

Thank you all for your comments today.

As a quick item of housekeeping, committee members, have your amendments to Bill C-25 to the clerk by five o'clock on Monday, s'il vous plaît. The meeting will be on Tuesday, with clause-by-clause from 12:30 to 1:30 on Bill C-25, but we'll precede that with an appearance by finance officials in regard to the pre-budget consultations. That will begin at 10 o'clock and go until 12:30.

Very good. We'll continue now with questions.

You have six minutes, Mr. McCallum, to commence.

[Lawrence Boyce, Vice-President, Sales Compliance and Registration, Investment Dealers Association of Canada]

Thank you, Mr. Chairman. On behalf of the association, I'd like to thank the committee for the opportunity to comment on Bill C-25. The Investment Dealers Association is the national self-regulatory organization for full-service investment dealers. As part of our function we have commented extensively on Canadian money laundering law and regulations. We also audit and supervise our members in respect of their compliance with the current regulations. We have an information-sharing agreement with FINTRAC, and we share information with them on the results of those audits.

I also represent the association on the International Council of Securities Associations working group on anti-money-laundering procedures. As part of that, we have been involved in a project by FATF called the electronic advisory group on the risk-based method. It started with a meeting in Brussels last year to examine the application of risk-based approaches in the anti-money-laundering regimes.

We support the legislation. We believe that all of the issues it addresses are important and that it will significantly enhance the anti-money-laundering regime in Canada. I'll speak only about our reservations on a couple of issues. These are broader than the legislation itself, and they reflect our long-standing concern with some of the approaches in the current regulations.

I would like to focus first on proposed subsection 9.6(2). This is the beginning of a risk-based approach to anti-money-laundering provisions. Unfortunately, there is some difficulty with it. Proposed subsection 9.6(3) suggests that financial institutions should assess the risk of specific clients. In the event that they find these clients to be high risk, the institutions are required to take certain measures in dealing with them.

A risk-based approach should in fact work up and down the line. A full risk-based approach, which is what the FATF group is working at delineating, suggests not only that additional measures should be directed at high-risk customers and high-risk transactions, but also, on the other side, that there should be the opportunity to use less rigorous approaches toward lower-risk transactions and clients. In our current regime, the prescriptive nature of the measures that must be taken, particularly on the due diligence front, has resulted in a significant amount of resources being devoted to low-risk transactions or customers. They are considered by many in the industry to be largely a waste of time and resources. They bring about a checklist mentality, which deters financial institutions from bringing their expertise to bear and from placing resources where they would be most properly directed, namely, at higher-risk customers and transactions.

We are concerned about the prescriptive nature of this approach, not only in the legislation itself but also, prospectively, in the regulations. They prescribe procedures or activities that are a continuation of this approach. It will not enable Canada to compete with other countries, many of which are establishing a full risk-based approach to preventing money laundering. We already encounter frequent situations in which Canadian financial institutions, particularly those dealing with institutional customers and foreign dealers, are at a considerable competitive disadvantage. These institutions are required to undertake procedures that are not required in other countries and that in fact prevent them from doing business, simply because the customers in these countries consider procedures of this kind to be unnecessary and frequently intrusive. For example, consider the part of the bill dealing with PEP, politically exposed persons, proposed subsection 9.3(3). It outlines a number of positions that would be required to be approved in dealing with these kinds of clients.

By “senior management” of the financial institution, it's unclear exactly how senior that might be, but for example, if a retired or even a currently functioning family court judge in Buffalo decided they wanted to open an account at a Canadian bank because they have a cottage there and want to pay their utility bills, they would be forced, under these regulations, to meet whatever these prescribed account opening and also monitoring provisions might be, including the specific requirement to have the account approved by some senior management at the bank. One can wonder whether a risk-based look at who the customer was and what they intended to do wouldn't suggest that this was somewhat overboard.

I'll conclude my remarks at this point and welcome any questions.

[Ron Skolrood]

Thank you.

I'd also like to thank the committee for the opportunity to appear here today. I expect I will echo much of what Mr. Varro has said on behalf of the federation.

I'd like to make two points, if I may, concerning the proposed legislation. The first concerns the special considerations that apply when including the legal profession in the fight against money laundering. Second, I'll address briefly the proposed expansion of information sharing with international authorities.

To begin, let me say that the Canadian Bar Association supports the objectives of Bill C-25 insofar as the bill aims to protect society against the threat and impact of money laundering. Indeed, as Mr. Varro has touched upon, the legal profession, through the various governing law societies that regulate it, has voluntarily and proactively adopted regulations to prohibit lawyers from accepting large amounts of cash. This is specifically to address those rare occasions when lawyers might unwittingly be drawn into an illegal scheme. In addition, the law societies are now considering ways to address the government's goal of having a client identification scheme.

Clearly, lawyers have shown their willingness to aid the government to fight money laundering. However, given the importance of an independent bar in the administration of justice, and given the fundamental significance of solicitor-client privilege, we believe the proper approach to ensuring lawyers' compliance is within the sphere of self-regulation. We therefore strongly support and indeed commend the government for recognizing the importance of solicitor-client privilege by explicitly removing legal counsel and legal firms from the reporting requirements of the legislation.

We are also pleased that the recent Senate committee report recommended that negotiations between the federation and the federal government continue, and that it recognized the proactive efforts of the profession to address concerns about money laundering through lawyers by self-regulatory mechanisms. However, one aspect of the Senate committee report that we do take issue with is the suggestion that lawyers are a major problem in the fight against money laundering. The report suggested that lawyers either knowingly participate in money laundering activities or are innocent pawns used by criminals in money laundering schemes. Frankly, we disagree with that assessment.

The overwhelming majority of lawyers in Canada adhere to the highest legal and ethical standards. Like all citizens, lawyers are bound by the Criminal Code and other statutes, and they are rightly exposed to criminal prosecution for any violation of the law. Lawyers are also subject to demanding professional codes of conduct and other law society requirements, and as we have heard, efforts are ongoing to strengthen those requirements.

Briefly, with respect to the information sharing issue, Bill C-25 proposes a significantly expanded regime for information sharing in proposed section 38.1, including sharing information with foreign governments based on a reasonable suspicion of involvement in money laundering. Recent experience has shown that unchecked information sharing can lead to gross violations of the human rights of innocent Canadian citizens. This experience highlights the need for effective independent oversight and the accountability of all Canadian security forces. Our point simply is that there should not be expanded information sharing until effective independent oversight and accountability are in place.

Again, thank you for the opportunity to address the committee. I, too, would be pleased to answer questions.

[Tamra Thomson, Director, Legislation and Law Reform, Canadian Bar Association]

Thank you, Mr. Chair. The Canadian Bar Association is very pleased to have been able to accept the committee's invitation to appear today on Bill C-25.

I'd like to start by telling the committee members about the distinction between the Federation of Law Societies and the Canadian Bar Association, so that you understand the difference between our organizations.

As the body representing the independent regulators of the legal profession, the Federation of Law Societies is the primary party that is negotiating with the government around the application of the money laundering regime as it affects lawyers. The Canadian Bar Association, on the other hand, is the national professional association of lawyers across Canada. As such, our mandate is to assist the government in crafting the best possible law while protecting the rule of law and the rights of all Canadians with respect to their legal rights.

I'm now going to ask Mr. Skolrood, who is chair of the national constitutional and human rights law section of the Canadian Bar Association, to address a couple of issues in the bill.

[James Varro, Policy Counsel, Anti-Money Laundering Committee, Federation of Law Societies of Canada]

Thank you very much, Mr. Chair and honourable committee members.

The federation appreciates the opportunity to address this committee on the subject of Bill C-25. I should say at the outset that normally the president of the federation, or at least the chair of our anti-money-laundering committee, would be before you today, but the entire federation council, including the chair, is in Vancouver for a council meeting. I am your representative today, and I'm policy counsel to the federation's anti-money-laundering committee.

The federation is the coordinating body of the 14 law societies in Canada. The member law societies, as you may know, are statutorily charged by legislation in each province and territory with the responsibility of governing the some 88,000 lawyers, and in Quebec the 3,500 notaries, in the public interest.

The federation supports Canada's effort to fight money laundering and terrorist financing. The federation recognizes the importance of the objectives of the money laundering act and concurs with its basic purposes. The initiatives to fight these crimes, which include the fulfillment of Canada's commitment internationally pursuant to the FATF requirement, however, must be accomplished within the framework of the values and the constitutional principles on which Canadian society rests. This includes the rule of law and, within that, the right of an individual to an independent judiciary and independent legal counsel.

My comments today are going to be limited to two aspects of the bill: proposed section 10.1 and proposed section 6.1.

First, proposed section 10.1 is the new section that exempts lawyers from the suspicious transactions and prescribed transactions reporting requirements. The federation is very pleased that this exemption has been provided in this bill. The federation has implemented its own regulation to deal with the issue of suspicious transactions and prescribed transactions reporting requirements.

As you may know, the law society regulations prohibit lawyers from receiving cash or accepting cash of $7,500 or more, with some limited exceptions, from clients and others. It actually goes further than simply requiring lawyers to report transactions; it prevents lawyers from accepting the money that might have required a report.

The federation appreciates the fact that this exemption is in the bill. The reporting requirements initiated, as you may know, the constitutional challenge to the money laundering act back in 2001. The result was injunctive relief, thus suspending the application of the act to lawyers pending the resolution of the constitutional challenge.

The federation's view is that the public interest, in addressing money laundering and terrorist financing as it relates to the legal profession, is best served by having lawyers, through their self-regulatory authority, address the risks their profession presents. In this way, the independence from government is maintained and the core values of the legal profession, for the benefit of the public, are protected. I've already mentioned the no-cash rule by which lawyers are prohibited from accepting $7,500 or more from clients. They are also required to keep a cash transactions record as part of their record-keeping requirements.

I'd like to move now to proposed section 6.1 of the bill, which is an enabling provision for regulations on the client due diligence and identification requirements. This follows from FATF requirements for enhanced customer due diligence and client identification requirements.

The federation acknowledges the importance of Canada's commitment to the FATF standards and as a matter of principle doesn't oppose these methods to fight money laundering. The federation's position, as it has been from the start, is that the law societies, as statutorily authorized regulatory bodies, must regulate the conduct of lawyers. In this respect, the federation has moved to adopt another model rule on client identification and verification standards, which mirrors the FATF requirements. This model rule would respect the threshold between the constitutional and unconstitutional requirements imposed on lawyers when it comes to gathering information from clients.

The federation is working with the Department of Finance on the issues relating to client ID and record-keeping compliance procedures for legal counsel and is looking forward to a resolution of these issues.

To sum up, the federation's view is this. The no cash rule and the client ID model rule will accomplish three goals. They will impose on lawyers a more rigorous standard than the requirements under the act. The rules will address the activities of lawyers as financial intermediaries, but form part of the extensive statutorily authorized regulatory regime for lawyers through law societies. As rules, law societies' regulations will respect the constitutional principles upheld by the legal profession for the benefit of the public.

The federation supports the goal of fighting money laundering and terrorist financing in ensuring the safety and security of Canadians, and any amendments to the current legislative regime must preserve the rights that have long been recognized as fundamental in Canadian society.

I'll be happy to answer any questions of the committee.

[Nicolas Burbidge, Senior Director, Compliance Division, Office of the Superintendent of Financial Institutions Canada]

Thank you, Mr. Chairman.

I'd like to thank the committee for this opportunity to appear before it as part of your consideration of Bill C-25.

I am the head of the group at OSFI responsible for our anti-money-laundering and anti-terrorist-financing program.

We do not have a legislated role with respect to this bill, but like many other regulators around the world, we are members of international bodies that develop standards to which we must adhere for the supervision of financial institutions. That includes adequate “know your client” standards.

I'm moving very quickly through my prepared remarks, which you will have in writing, because I want to add a couple of comments to what you heard at the earlier session.

The FATF, which you've heard about, sets international AML/ATF standards and uses a peer review system to evaluate implementation in member countries. I have participated in this process personally and I can tell you that I know the importance that will be attached to the contents of Bill C-25 in Canada’s evaluation next year.

A good review will be important to make sure that the perception is reinforced that Canada is a safe place for financial transactions and investments. Strong AML/ATF programs are an important component of a safe and sound financial system. We therefore strongly support the passage of Bill C-25.

I want to emphasize that we have a very close working relationship with FINTRAC, from which you heard earlier. We operate on their behalf in assessing our financial institutions for money laundering--and I'll come back to that in a second.

We're allowed to share the results of our work with our institutions fully with FINTRAC and to receive information about our institutions from FINTRAC. We also work very closely with the Department of Finance and other key government departments on the regime generally and on the financial institutions' role in it.

This legislation raises the bar significantly on AML/ATF standards in Canada and will require more effort and resources by the financial sector to implement it. However, our banks and other regulated entities are already allocating significant dollar and people resources, as you heard earlier, to the fight against money laundering and terrorist financing.

Most of the financial institutions we have assessed have assigned a very high level of importance to getting AML/ATF right. A few institutions have needed more specific guidance and we have been proactive in providing that guidance, both by interventions and by undertaking an extensive program of outreach to the financial sector on money laundering and terrorist financing issues.

I'd like to add a couple of quick comments to the exchanges and subjects you heard from the earlier panel.

First of all, there have been comments from the private sector with respect to the fact that they have not yet seen draft regulations, which will be coming out following the initial legislation. It's true that those regulations have not yet been finalized, because of course there have been extensive consultations. I hope I'm not speaking out of turn when I say that the Department of Finance, with which we work very closely, has been consulting on those regulations for many months. The private sector organizations have all been part of those consultations.

Secondly, with respect to membership in the FATF and the discussion that was held earlier on that part of it, there is a big difference between the standards that are in place in FATF member countries and standards that are in place in countries that are members of these so-called FATF-style regional bodies, which are subsidiaries of the FATF around the world. Those standards are not necessarily as good as the standards in the FATF itself.

Finally, on the issues with respect to extending these requirements to foreign branches and foreign subsidiaries, the bill makes an appropriate distinction between foreign subsidiaries, which are creatures of foreign countries' jurisdictions and of foreign legislation, and branches of Canadian financial institutions, which are Canadian entities. In that regard, we believe we've looked very carefully at the wording in the bill, and as Canada's banking and life insurance regulator we are quite happy with the wording in the legislation as it now stands, because it talks about standards for foreign subsidiaries and does not actually impose any direct Canadian legal requirements.

I believe that Bill C-25, when enacted, will result in Canada's being viewed internationally as having a strong anti-money-laundering and anti-terrorist regime.

Finally, Chairman, thanks again for the opportunity. I will be pleased to respond to any questions the committee may have.

Thank you.

[The Chair, Conservative, Brian Pallister]

We are reconvened.

Welcome to our panel members. Thank you for being here.

We are continuing our testimony and discussion on Bill C-25, An Act to amend the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and the Income Tax Act and to make a consequential amendment to another Act.

I welcome you. I will give you an indication when you have one minute remaining. I don't like to have to cut you off, but of course I take special joy in doing so, and will. It will allow time for exchange with committee members thereafter.

We'll begin with OSFI, the Office of the Superintendent of Financial Institutions Canada. Nicolas Burbidge is here.

Welcome, sir. Five minutes to you.

[Warren Law]

Bill C-25 is certainly useful in making sure that Canada is up to snuff in terms of fighting the good fight. Bill C-25 is very useful with respect to making sure our FATF requirements are met and with respect to what other countries are doing. For example, the fact that we're now addressing attempted suspicious transactions is something that's been done in the G7 countries. I think we need Bill C-25 to continue to fight money laundering and terrorist financing activities.