Finance Committee on Nov. 2nd, 2006

[Horst Intscher]

Because of the very broad range of information that the act makes it possible for us to receive from reporting entities, it was determined at the original passage of the legislation that protections had to be built, so it would not be construed that there was a flow-through of massive amounts of personal information directed to law enforcement agencies. For that purpose, FINTRAC was created as a sort of intervening analytic body, and its responsibility is to analyze the information and make disclosures.

We are also allowed to receive voluntary information from any quarter, including from law enforcement. We are required to operate at arm's length from law enforcement, so that they cannot query us directly and say, please give us everything you have on Joe Blow. But they do provide voluntary information to us, saying, “Joe Blow and his sister-in-law Martha are the subjects of an investigation for drug trafficking and money laundering, and we just thought you should know that.”

This information is then part of the information holding, against which we analyze and check all our data. If there is a connection or a hit, that would then trigger a further investigation to determine whether the information we have is relevant to their investigation, in which case we are then required to disclose certain identifying information about transactions, parties to the transactions, and so on.

So it's not actually fully random, but we cannot be directed by law enforcement agencies, yet we are kept informed by law enforcement agencies and other bodies. We receive in the neighbourhood of 600 voluntary information reports per year from a variety of sources, and probably 70, 80, or maybe 100 of those ultimately figure into the disclosures we make.

Not all of the voluntary information that comes to us is relevant to the information we hold, or we're not able to make a connection with it, or we don't hold the information on it.

We can also disclose spontaneously. We don't need to rely on voluntary information from any other source, but we do receive voluntary information, and it often figures in our cases. So we are able to make disclosures that link to the investigative priorities of the police.

[The Chair, Conservative, Brian Pallister]

Thank you.

The next questioner will be Madam Ablonczy.

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

Thank you, Mr. Chairman.

Thank you to all of you for appearing.

This is very interesting, and especially this sanitized money laundering case. I noticed you didn't say “simplified”.

[Some hon. members]

Oh, oh!

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

But it does give us a flavour of what you do, and we appreciate that.

Of course, the committee is concerned about two things. One is to make sure the regime we have is the strongest it can be, while still balancing our values of privacy and appropriateness. The second is that it's effective. I guess strength and effectiveness go together, but we need to see the link.

You have probably read the Senate report on this issue. In your view, do the provisions of this bill reflect the concerns that the Senate brought forward, because they did quite an extensive study of this? Some of us were curious as to how closely the bill reflects their recommendations?

[Horst Intscher]

My sense is that the package overall addresses almost all of the issues that are flagged in the Senate report. Some of them will be addressed through regulation and others through legislation. But by and large, I think most of what was flagged or recommended in that report is going to be either in this bill or implemented through regulation at a later stage.

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

Is there anything significant in the Senate report that was ignored in the bill for regulations?

[Horst Intscher]

I'm not aware that anything significant was omitted.

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

When you talk about privacy, you mentioned that, in your view, catching people who are engaged in money laundering and terrorist financing and preserving and protecting the privacy of Canadians are not two inconsistent concepts. I wonder if you could just expand on that somewhat.

[Horst Intscher]

I've long felt that the protection of privacy is not an impediment to criminal investigation, and it's certainly not an impediment to our being able to conduct the kind of analysis and make the sorts of disclosures we do.

I think within the bounds of the privacy protections it is possible to conduct meaningful investigations.

What it has meant over the past 15 or 20 years is that investigative bodies have refined and to some extent changed their investigative practices to be able to continue to be effective. But I don't believe that privacy protection is inconsistent with effective investigation or in our case effective analysis of the data.

It does mean that you handle the information in a particular way, that you cannot get access willy-nilly to huge quantities of information and then fish around in it.

If you do get huge quantities, such as we do, then you are circumscribed by law in what you can disclose and what uses you can make of that information.

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

In fact, you mentioned to me that in a way FINTRAC is a black box into which this information goes, but really is held there, except in very unusual circumstances.

[Horst Intscher]

That was the trade-off at the time the legislation was passed, because it was felt to be important to be able to look at large quantities of objectively reported information, in other words, large cash transactions or international wire transfers, which individually are not in and of themselves suspicious, but they are the types of transaction among which it was known that a fair amount of suspicious activity was occurring and could occur. Therefore, to be able to access that information, FINTRAC was created as an airtight or a black box into which all of that information could flow. Then we were very tightly circumscribed as to the circumstances under which we could disclose any of that information to law enforcement.

We have produced quite a number of important leads for law enforcement, and we are increasingly able to identify large networks of individuals who are engaged in money laundering or terrorist financing and were not previously known to the police. Because of the access that we have to the information from a wide variety of reporting entities and information sources, we have been able to identify quite a number of instances where people had been carrying on these activities for many years—eight to ten years—without ever being detected. We have been able to identify them, we've made such disclosures, and some of those disclosures are in fact the subject of prosecutions.

I can't mention them because we have not been identified as suppliers of information to those particular investigations. But over the past year, just watching them go by in the newspapers every day as we read about prosecutions, we've seen 35, maybe 40 instances where prosecutions were ongoing and convictions were being obtained on cases to which we know we supplied some critical information.

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

Thank you.

[The Chair, Conservative, Brian Pallister]

We'll continue now with Madam Wasylycia-Leis.

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

Thank you, Mr. Chairperson.

And thanks to all of you.

I hope I have time to do these four questions.

I did find a couple of discrepancies between the legislation and the Senate report. One is—and you've touched on it—the inclusion of dealers of precious metals, jewellery, and stones.

The other day, the parliamentary secretary said—and you've said today—that it's in regulations. I just don't understand why that piece has been left out for regulations when everything else is in the bill. Why not just put it in the bill? Why have a special scenario? What's the reasoning?

[Horst Intscher]

That's really not a question I'm able to answer.

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

Fair enough.

[Horst Intscher]

Can you add anything to that?

[Yvon Carrière, Senior Counsel, Financial Transactions and Reports Analysis Centre of Canada]

I understand there are ongoing consultations between the Department of Finance and representatives of the precious metal industry as to exactly how they will be covered.

You may be aware that a lot of department stores sell jewellery. There is wholesale movement of jewellery also. To know exactly who will be covered and for what activities, I think there's still some work to be done there.

So by including them in the regulations, there is some flexibility and also more opportunity for consultation.

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

You're saying that once it's sorted out, there's a possibility it could be entrenched in law at some point.

[Yvon Carrière]

Certainly I can see no obstacle to that.

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

Okay. The other area has to do with privacy. You're right, Mr. Director, it is a big concern for all of us, and I don't know if this bill actually deals with the concerns outlined by us or by the Senate when it comes to protection in the context of foreign financial intelligence units.

We are going to hear, I hope, from the Privacy Commissioner, but the Senate recommendation is pretty strong in terms of amendments to the bill to further protect privacy.

I guess my question to you would be about how you see this unfolding. What standards are we operating under when we're dealing with all these 36 foreign financial intelligence units or countries, all of whom have different ideas of privacy?

In fact, June was just telling me there's a report out today saying Canada is number two in the world in terms of privacy protection, next to Germany, so how in fact are we going to be sure, except through some memorandum of understanding? How are we going to check on that? How are we going to know? How are we going to be able to really give some comfort to Canadians?

[Horst Intscher]

Let me describe the process we go through in determining whether we will establish a memorandum of understanding for information exchange with another organization.

We undertake a fair bit of due diligence. We look at questions of integrity and corruption. We look at whether the entity has the capacity to protect information physically if we provide it to them. We look at whether they have the legislative capacity to provide protection if we share information with them. If we satisfy ourselves that those things are in place, then we will undertake to negotiate an MOU. In the MOU we expressly have provisions that require that the information be protected and that it not be further disclosed without our prior concurrence.

This is what is called in the jargon the third-party rule. Intelligence organizations, law enforcement organizations, and financial intelligence units subscribe to that as the basis on which information is exchanged, whether or not they have MOUs in place.

In our case, we expressly state it in the MOU, and periodically we will also have bilateral sessions with FIUs with whom we have exchanged information, partly to get feedback on the usefulness of the information, but partly to inquire and to satisfy ourselves that the information is being protected and is not being passed on to any other parties without our concurrence.

In some cases, we might make a disclosure to a financial intelligence unit that a month or two later might come back, tell us that this particular police organization or this particular prosecutorial office would be interested in this information, and ask for permission to pass it on. If the question were to be stated as broadly as that, we would probably say no, but if they could assure us that the investigation or the prosecution would be related to either money laundering or terrorism financing, then we would probably say yes, but in each case--

[The Chair, Conservative, Brian Pallister]

I will have to stop you at that point, sir. Excuse me for the interruption, but we have to move to three-minute rounds now.

We will continue with Mr. Savage.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

Thank you, Mr. Chair, and I thank the witnesses for appearing today.

This issue is very complex. I think it is something that matters to Canadians, although they may not know about it. I am not sure that putting this chart in my householder would clear it up in people's minds. It looks a little bit like a snakes and ladders game, but I guess that's the business you're in.

You mention that Bill C-25 would make it possible to enrich the intelligence product that FINTRAC can disclose to law enforcement and national security agencies. Does that information flow go both ways? Are there times when you ask for information from them?