Information & Ethics Committee on April 11th, 2017

[The Chair, Conservative, Blaine Calkins]

Welcome, everyone, to this 56th meeting of the Standing Committee on Access to Information, Privacy and Ethics.

Pursuant to a standing order and our previous motion, we are glad to have with us today representatives from FINTRAC for a briefing session. From the Financial Transactions and Reports Analysis Centre of Canada, we have Mr. Gérald Cossette, director, who has been here before; and Barry MacKillop, deputy director, operations, compliance and intelligence.

Thank you for coming, Barry.

We also have with us Mr. Paul Dubrule, general counsel.

Gentlemen, we thank you very much. We have about an hour to discuss the items that we would like to address. If you would like to start with an opening set of comments—I'm assuming that it's you, Mr. Cossette—we'll then proceed to some questions. Once we're satisfied with that, or if an hour elapses, whichever happens first, we'll be finished with this.

Mr. Cossette, the floor is yours.

[Gérald Cossette, Director, Financial Transactions and Reports Analysis Centre of Canada]

Thank you, Mr. Chair, for inviting us to speak with you regarding our handling of an access to information request in relation to the penalty that FINTRAC levied against a Canadian bank in 2015.

As Mr. Chair just mentioned, I am joined today by Barry MacKillop, our deputy director of operations, and Paul Dubrule, our general counsel.

I would like to take a couple of minutes this afternoon to describe FINTRAC's mandate and the role we play in helping to protect Canadians and the integrity of Canada's financial system. I will then explain our administrative monetary penalty program and the decision I took in relation to the penalty imposed on a Canadian bank.

FlNTRAC was created in 2000 by the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. As a financial intelligence unit, FINTRAC facilitates the detection, prevention and deterrence of money laundering and the financing of terrorist activities, while ensuring the protection of personal information under its control.

The legislation creates obligations for financial services entities, real estate brokers, money services businesses, casinos and other business sectors subject to the act to establish an internal compliance program; identify clients; monitor business relationships; keep certain records; and report specific types of financial transactions to FINTRAC, including suspicious transactions and international electronic funds transfers of $10,000 or more.

As part of Canada’s anti-money laundering and anti-terrorist financing regime, FINTRAC houses both supervisory and intelligence functions, which allows it to effectively assess and ensure the compliance of regulated businesses and produce financial intelligence for its police, law enforcement and national security partners.

Over the past year, we provided 1,655 disclosures of actionable financial intelligence to our police, law enforcement and national security partners to assist their investigations of money laundering, terrorism financing and other threats to Canada's security.

Our financial intelligence has become increasingly valued by our partners as lead information to expand or define their investigations, and to obtain search warrants and production orders to gather information in pursuit of criminal charges.

For example, just a few weeks ago, FINTRAC's contribution to Project Silkstone was singled out by the Ontario Provincial Police following the arrest of a number of individuals for allegedly trafficking 11,500 pills containing fentanyl and other illicit drugs in Ontario, Quebec and the United States. This is just one example of many dozens over the past couple of years where FINTRAC’s assistance in helping to protect Canadians was recognized by our police and national security partners.

In December 2008, FINTRAC received the legislative authority to issue administrative monetary penalties to businesses that are in non-compliance with their obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its regulations.

I want to be very clear that as set out in the act, the penalty regime is focused on changing the behaviour of entities to bring them into compliance. It is not to punish them for laundering money.

There are other measures in place should FINTRAC have reason to believe that businesses are facilitating, or are knowingly being used to launder money or to finance terrorism. These include non-compliance disclosures to police. This was not appropriate when we penalized the bank for administrative deficiencies last year.

Under the act, the centre may publish specific details of a penalty imposed once all proceedings in respect of the penalty have concluded. This means that all avenues of review and appeal, including court proceedings, have been exhausted. FINTRAC has established and published criteria to guide its decision-making in relation to the naming of businesses that are subject to a penalty.

These internal criteria, however, do not supersede the authority that Parliament afforded FINTRAC's director under section 73.22 of the act to publish or withhold the name of a business that has been penalized.

When we penalized Manulife for non-compliance with the act, I exercised my discretion to withhold its name. I did this because of the administrative nature of the violations. Again, the violations committed by the bank were not in relation to money laundering or the financing of terrorism. In making my decision, I also took into account the mitigation measures the bank had taken in this case.

At the same time, by deciding not to name the entity, we were able to avoid a potentially lengthy court process. We have found that court proceedings often take many years, with information usually being sealed and outcomes uncertain. By not naming the entity, we sent a timely message of deterrence to the other 31,000 businesses subject to the act.

In responding to numerous access to information requests in relation to this penalty, we had to take into account the fact that the bank's name had been withheld, and that we had signed a legally binding agreement with Manulife in order to conclude court proceedings. This meant that FINTRAC had to exempt details from information released under the Access to Information Act that would potentially identify the bank. The centre also withheld confidential proprietary information that was supplied to it by the entity.

As well, we were aware that the name of the entity was known. However, FINTRAC couldn’t confirm this. As a result, the Centre took care to exempt details of its assessment of the bank's non-compliance that, if released, would prejudice the competitive position of, or cause financial loss to, the entity. This is not the intended purpose of the penalty regime, which, I repeat, is non-punitive.

From the increased reporting that we’ve received from businesses across the country and the discussions that we’ve had with them following the publication of the penalty, I believe our message of deterrence was heard very clearly.

However, improvements can always be made. On that note, I’ve acknowledged the need to work with Finance Canada to review the legislation in relation to our penalty program. We’re also currently examining our administrative monetary penalty policies to ensure they strike an appropriate balance between the need for transparency and the requirements of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

Thank you, Mr. Chair. We’re now ready to answer your questions.

[The Chair, Conservative, Blaine Calkins]

Thank you very much, Mr. Cossette.

We'll now go to Mr. Erskine-Smith, please, for questions.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

Thanks very much.

I have a number of questions. I understand that between 2008 and 2013, details and names were regularly published and that subsequently there was a change in disclosure policy. Do you think a move back to the previous policy would make sense in light of your experience with Manulife?

[Gérald Cossette]

We need to look at each case. It's very difficult to generalize the approach that should be taken.

In 2013 the policy was changed because I thought that naming organizations that we penalize for smaller amounts of money gave them a bad name and did not necessarily change their behaviour. Therefore, we established different criteria for naming at that time.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

So a bank is fined over $1 million and their name is not disclosed. However, I have Toronto Star articles here that indicate that the CEO of Altaif Inc. was fined $42,600 for two of the same violations, that is, failing to report the sending and receiving of money transfers of more than $10,000. His name was publicly disclosed. The name of another individual who was fined $12,750 was also disclosed.

Walk me through the consistency in your decision-making.

[Gérald Cossette]

I will start at the beginning of the process. We start with a risk-based assessment of entities, trying to identify which ones may be susceptible to not complying with their obligation to report—not to money laundering, but to their obligation to report. Once we've done that process we conduct an examination. The examination reveals a certain number of things. If the entity does not agree with the results of the examination, they have the right to ask for a review, which is conducted by a separate side of FINTRAC. The review unit makes recommendations to the director as to whether the penalties the examiners would propose should stand, based on a series of criteria, or attached to the violations themselves. For instance, some of them may be attached to the capacity of the entity to pay.

Then, depending on my response, whether I want to stand with the suggestion or change the decision taken by the examiner, then entities have the right, if they want, to go to court.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

Could I jump in, because I'm confused. I understood that the policy indicates that FINTRAC will name an entity if one of three criteria is met: where a person or entity has committed a very serious violation—

[Gérald Cossette]

Yes.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

—where the base penalty amount is equal to or greater than $250,000—

[Gérald Cossette]

Yes.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

—and repeat significant noncompliance on the part of the person or entity.

[Gérald Cossette]

Yes.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

So if I understand that criteria correctly, why would the bank's name not have been disclosed?

[Gérald Cossette]

The entity cannot be named and the penalty cannot be imposed until the full process is exhausted, which includes court proceedings. If an entity were to decide to go to court, the case might be sealed, which means that you might never know there was a penalty, you might never know the name of the entity, and the court decision might take years before we know what it is.

Between the uncertainty of the potential court process and the certainty of the penalty and the deterrence attached to it, I decided to go for the penalty without naming the institution.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

So court sealings almost never happen and there's a very high wire for court sealings. In a regular civil or criminal suit.... I'll read. This is Richard Leblanc from York and Harvard universities:

Naming of the institution would cause media scrutiny, but the procedural rights of the bank would remain intact. If a person or firm is charged civilly or criminally, the name of the person or firm is almost always disclosed, as a matter of public interest and transparency, at the time the person or firm is charged, not after the sentence or appeal rights have been exhausted.

Why would we treat banks differently in the FINTRAC regime?

[Paul Dubrule, General Counsel, Financial Transactions and Reports Analysis Centre of Canada]

I can answer that, Mr. Chair.

Under the provisions of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, the Federal Court is required to look at the need to hold hearings in camera, to seal documents, and to make sure that all the proceedings are confidential. Reporting entities have applied to the court pursuant to that provision and been granted the right to have confidential hearings.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

Sure, I don't dispute that there are court hearings, but that doesn't get away from my question. If we have a civil case and a criminal case and the name is disclosed and procedural rights are protected—if “as a matter of public interest and transparency” the name is disclosed—why would we treat the bank differently? The bank can seek the court sealing of the document under the rules, but—

[Paul Dubrule]

It did so.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

The court required this to be sealed in the first instance, or FINTRAC made the determination...?

[Paul Dubrule]

There was an appeal to the Federal Court pursuant to which the court said that all matters before it were to be confidential in relation to Manulife.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

When—

[Paul Dubrule]

Subsequently, if I may continue—

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

Sure.

[Paul Dubrule]

—that is when the parties negotiated to come to an agreement to facilitate the payment of the penalty, the ability to say that the penalty had been imposed, and to use that as deterrence not just for Manulife, but for all other entities, which would see that a penalty of over $1 million was imposed for the violation set out.