Finance Committee on Oct. 31st, 2006

[The Chair, Conservative, Brian Pallister]

Welcome to our witnesses, and Madam Ablonczy, in a different role from the normal role in committee, welcome to you.

Pursuant to the order of reference of Tuesday, October 24, 2006, the committee is considering 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.

We will begin with a statement from Madam Ablonczy.

[Diane Ablonczy, Conservative, Parliamentary Secretary to the Minister of Finance]

Thank you, Mr. Chairman.

It's always a pleasure to be in committee, this time wearing a little bit of a different hat, but I'm pleased to be here nonetheless to give some background to the committee about Bill C-25. Then I and officials from the department, who've been working very hard on this for a long time, can answer any questions you may have.

Mr. Chairman, this bill strengthens the Proceeds of Crime (Money Laundering) and Terrorist Financing Act to ensure that Canada continues to be a global leader in combating organized crime and terrorist financing. As you know, Minister Flaherty recently addressed the first plenary meeting of the 18th session of the Financial Action Task Force, or FATF, an international body, held in Vancouver this year. He assured the delegates there that Canada takes its global responsibilities very seriously.

We can be proud that for the first time ever, Canada has assumed the presidency of the FATF, the international standards-setting body whose purpose is the development and promotion of policies to combat money laundering and terrorist financing. We are a country on the move, a country with a G7-leading economy, and we are a country committed to meeting our international obligations, including the global fight against terrorism.

We live, as we all know, in an increasingly interconnected world, where terrorists and criminal organizations are becoming more sophisticated in their attempts to move, conceal, and launder funds through financial systems and by other means. I know you can appreciate that abuses to our nation's financial system can have a serious ripple effect well beyond our own borders. The FATF has made great strides over the years in working with regional bodies and international financial institutions to develop a more fortified international system.

Canada must do its part in preventing criminals and terrorists from using our financial systems to fund criminal activities. Canada wants to be relentless in its efforts to combat money laundering and terrorist financing, and Bill C-25 reflects that.

We're committed to playing a stronger role at home and internationally, and we have already been doing so through a number of initiatives. We are committed to making the safety and security of our citizens, and our fellow global citizens, a priority.

The May budget, as you will recall, announced significant new funding for anticipated initiatives and to bolster existing capacities to combat money laundering and terrorist financing. The budget announced funding of $64 million over the next two years for the Financial Transactions and Reports Analysis Centre of Canada, called FINTRAC, funding for the RCMP, for the Canada Border Services Agency, and for the Department of Justice.

This additional funding will help in a number of ways. For example, it will increase the number of RCMP officers working within the anti-terrorist financing and anti-money-laundering units. It will also expand the capability of the Canada Border Services Agency to detect unreported currency at airports and border crossings. Furthermore, the new funding will ensure that FINTRAC can better analyze financial transaction reports and monitor the compliance of the unregulated financial sectors, such as money remitters.

Bill C-25 implements measures that will improve Canada's ability to act decisively against money laundering and terrorist financing. What part does the bill play in the fight against terrorism? Of course, one of the main things terrorists need is money. The measures in Bill C-25 will make it harder for terrorists to get funding. The fight against money laundering and terrorist funding is one where we must stay one step ahead of criminals by continuing to develop ways to defeat them, wherever and however they operate. These proposed amendments will make Canada's anti-money laundering and anti-terrorist financing regime more effective by making it consistent with new FATF standards.

As a founding member of FATF, Canada is committed to implementing forty recommendations on money laundering, as well as nine special recommendations on terrorist financing. In addition to these recommendations from FATF, we have now had the interim report of the Standing Senate Committee on Banking, Trade and Commerce. The Senate is calling for tougher measures to deal with money laundering and terrorist financing.

Mr. Chairman, I'd like to thank the Senate banking committee, on behalf of our committee, for their guidance in shaping the requirements of Bill C-25.

The proposed measures in Bill C-25 also follow recommendations made in the 2004 Auditor General's report and, in addition to that, in a 2004 Treasury Board evaluation of the regime. So we have a number of expert voices calling for some upgrades to our regime.

For example, as recommended in the 2004 Auditor General's report, and at the behest of law enforcement, these proposed amendments enhance the information FINTRAC can disclose to law enforcement and security agencies on suspicious transactions that point to money laundering or terrorist financing. It's important to mention here that the bill proposes an amendment to the Income Tax Act that would allow the sharing of information between FINTRAC, the Canada Revenue Agency, and law enforcement agencies regarding charities where there are reasonable grounds to suspect they are being used for terrorist financing.

Mr. Chairman, these measures will increase the value of FINTRAC disclosures, ultimately leading to more investigations and eventual prosecutions.

The amendments proposed in Bill C-25 also include the creation of a registration regime for money service businesses. FINTRAC would act as registrar and would maintain a public list of registered money service businesses and foreign exchange dealers. These businesses are already covered by the existing legislation; however, given that this is an unregulated sector, the registry will assist FINTRAC in ensuring compliance with the regulation.

What's more, Bill C-25 provides for enabling legislation for enhanced client identification measures. What this means is that banks, insurance companies, securities dealers, and money services businesses will be required to take measures to identify and monitor the transactions of foreign nationals who hold prominent public positions.

Finally, Bill C-25 proposes to create administrative and monetary penalties to better enforce compliance with the Proceeds of Crime and Terrorist Financing Act. Current legislation only allows for serious criminal penalties if the act is contravened. But FINTRAC requires the ability to levy fines to deal with lesser contraventions in order to take a more balanced and gradual approach to compliance.

The government believes that the act strikes the right balance between protecting the privacy rights of Canadians and providing law enforcement with the necessary tools to fight serious crimes such as money laundering and terrorist financing. The act contains a number of safeguards designed to ensure privacy rights are protected, such as criminal penalties for unauthorized disclosure.

Officials in the Department of Finance have met with the Office of the Privacy Commissioner and continue to work with them to ensure privacy rights are protected.

In sum, Mr. Chairman, the steps I have outlined here today add up to a better, safer world for Canadians, a world where our financial systems are used only as they were intended, to create better opportunities for our citizens and greater prosperity for our nation. The measures contained in this bill today will help win the battle against terrorist and criminal activity by making our regime smarter, more resourceful, and more tenacious. Mr. Chairman, criminals don't stand still, and neither can we. We need to take decisive action and Bill C-25 does just that.

We would now be pleased to answer any questions from the committee and we look forward to our examination of this bill.

Thank you, Mr. Chairman.

[The Chair, Conservative, Brian Pallister]

Thank you very much, Madam Ablonczy.

We begin with Mr. McKay, for seven minutes.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you, Chair, and thank you, Madam Parliamentary Secretary.

I too want to thank the unelected Liberal Senate for its work on this particular file.

[Some hon. members]

Oh, oh!

[John McKay, Liberal, Scarborough—Guildwood, ON]

It's remarkable what they can do.

My first question has to do with charities. Is there any limitation on the definition of charities? In other words, do you have to be a charity registered with Revenue Canada and in a position to be giving receipts, or can FINTRAC follow charities that are not registered with Revenue Canada?

[Diane Lafleur, Director, Financial Sector, Financial Sector Policy Branch, Department of Finance]

Thank you for that question.

All charities will continue to have to be registered with Revenue Canada. That charities registration process is not being changed here.

[John McKay, Liberal, Scarborough—Guildwood, ON]

So if I'm not in the business of giving donation receipts, but I act as a charity, this legislation wouldn't capture me?

[Diane Lafleur]

My understanding of the legislation is that you cannot issue tax receipts unless you are a registered charity.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Charity is therefore limited to those who issue tax receipts? I just wanted to clarify that. I'm asking this as an open question: is that a potential issue?

My second question is about the threshold of disclosure. When you're following a transaction for the purposes of national security or terrorism, presumably your threshold of disclosure to CSIS and to other law enforcement agencies is far lower than it is for, say, organized crime or criminal activity of any kind. How do you resolve that issue of disclosure? What constitutes a serious transaction for the purposes of organized crime, and what constitutes a serious or suspicious transaction for the purposes of terrorism or national security, or is there in fact a difference?

[Diane Lafleur]

Detecting suspicious transactions is, of course, subjective. FINTRAC has provided guidance to reporting entities, and that is available on the website. Certain things such as indicators are made publicly available: what to look for, and what might constitute something that is suspicious and is something that.... Indicators have been provided to the reporting entities to guide them in making those decisions.

[John McKay, Liberal, Scarborough—Guildwood, ON]

So there is really no difference, in terms of suspicious transactions, whether you're tracking organized crime or tracking for terrorism?

[Diane Lafleur]

I think the indicators might vary, depending on the situation, but all of the indicators are provided to the reporting entity, and they're watching out for both when they're filling out reports.

[John McKay, Liberal, Scarborough—Guildwood, ON]

My third question has to do with the exemption the lawyers have. When this legislation was originally passed by the LIberal government, it was fairly tight vis-à-vis the law society and the lawyers. Yet as I understand it, the law society went to court and succeeded in preserving for themselves a solicitor-client protection.

Now, as I understand the proposal, it is essentially a “know your client” idea. What puzzles me is a lawyer who is intentionally or unintentionally complicit in these kinds of serious transactions. Typically, certainly in the case of organized crime, it's a small law firm with a single practitioner, or two or three, and the client is well known in the area of organized crime—that's what the lawyer does; he defends this particular individual from prosecution in organized criminal activity.

What I don't understand is how this kind of legislation is going to capture the intentional or unintentional complicit activity on the part of the member of the law society.

[Diane Ablonczy, Conservative, Calgary Nose Hill, AB]

There are two things to say about that, Mr. McKay.

One is that you can never capture everybody. We all know that. One of the two things that will make it more likely that these individuals will be captured is the fact that now there is a legislative duty to collect certain information, which may have to be disclosed under the terms of the Supreme Court decision in Lavallee, which the law society, of course, fully accepts. Now you have people under a positive duty. Then you have, as you know as a lawyer, law societies able to examine books of individual members of the society, and when that happens, if there are breaches of the law, there are serious penalties for breaching the law. So it's important that you have a regime that, potentially, captures everybody. Some people may try to wiggle out of it, but the consequences are very clear for doing that. You're more likely to have compliance if you have a duty than if you just leave it wide open and say you can't catch everybody, so you won't do anything.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Isn't my defence, as a practising lawyer, that I complied with the requirements of the law society? I know my client. I have a record of who he or she is. I've done everything that's required, but I don't have any obligation to anybody to disclose that I transferred $10 million to Afghanistan.

[The Chair, Conservative, Brian Pallister]

The next person up will be Mr. Paquette.

[Pierre Paquette, Bloc, Joliette, QC]

Thank you, Mr. Chair.

I would like to come back to the issue of reasonable grounds and criteria used to determine whether information must be sent to the concerned police forces. The bill does not provide any regulation listing the reasonable grounds.

Would it not have been preferable to have a number of standards to help the centre determine whether a transaction is suspicious? I would like to know why the organization, which will forward information where there are reasonable grounds, is being given sole responsibility to establish criteria in order to determine whether there are reasonable grounds or whether transactions are suspicious. Perhaps the act or the regulations could have provided safeguards to ensure consistent decisions by the centre, which forwards information to the concerned police forces.

[Diane Lafleur]

Trends are constantly changing. If the act or the regulations included such indicators, they would become outdated pretty quickly. The work done by the Financial Action Task Force on money laundering, or FATF, or other organizations shows that the typologies, trends and techniques of laundering proceeds of crime are constantly changing. We therefore have to be able to adjust the indicators and provide the authorities that send reports to the Financial Transactions and Reports Analysis Centre of Canada, or FINTRAC, with additional information to keep up with criminal trends.

[Pierre Paquette, Bloc, Joliette, QC]

In the event that FINTRAC defines a number of criteria to determine whether transactions are suspicious or not, how would the Department of Finance interact with police authorities? How can you assess the merits of a decision to forward information? Will the department or parliamentarians be regularly informed of the criteria used to determine whether there are reasonable grounds to think that a transaction is suspicious? There has to be some interaction, because a single organization cannot be left to determine such criteria. That way we can assess the quality of the work done by FINTRAC. Does the act provide for such an interaction mechanism?

[Diane Lafleur]

There is a constant dialogue between the various partners, whether it be FINTRAC, the RCMP, police authorities or the international community, in order to share information. Partners also share information with their international counterparts to stay abreast of trends and provide their private sector partners with the most up-to-date information on current trends and typologies.

A number of interdepartmental committees meet regularly to discuss these issues. Discussions are not about establishing strict rules, but about giving private sector agencies guidelines to help them do their work, because it is they who are on the front lines.

[Pierre Paquette, Bloc, Joliette, QC]

We are talking about guidelines; I fully understand that. In that case, what kind of relationship will there be with the privacy commissioner? Will the commissioner be asked to ensure that the criteria in place do not contravene the right to privacy?

[Diane Lafleur]

Needless to say, the commissioner was asked for her input during the preparation of the bill. I do not want to speak on her behalf. As you no doubt know, the act contains a number of privacy provisions. As Ms. Ablonczy mentioned, the legislation contains serious penalties in cases of non-compliance with its provisions.

[Pierre Paquette, Bloc, Joliette, QC]

I have another, more general question.

All studies show that tax havens are major money laundering hubs. I even read that a reported 20 to 25% of the money sent to tax havens comes from proceeds of crime and is used to fund terrorist organizations.

Will this bill have an impact on the use of tax havens for such purposes? Other purposes are no more legitimate, but we are dealing here with money laundering.

[Diane Lafleur]

Canada is cooperating with the FATF and similar regional organizations, such as the Asia Pacific group, to insure that the FATF recommendations are implemented worldwide. Members of the FATF and those regional organizations are evaluated to make sure that they have taken the necessary measures to fight money laundering and terrorist funding. Common standards are used to ensure that the system is seamless. Clearly, this is a work in progress, and we must remain vigilant. That is why we try to play a leading role, both internationally and domestically.