Finance Committee on Nov. 2nd, 2006

[Brian Fox]

That's part of the equation. Also, if the process of registration is extremely expensive or onerous, it may cause, not necessarily one-person operations, but other types of operations in Canada to slip underground.

[Mike Wallace, Conservative, Burlington, ON]

I wanted to be clear that at present for any of these organizations, and we've got a fairly extensive list, right down to real estate sales representatives--I didn't realize that this morning—the government doesn't provide them with support to help them with the costs of meeting the regulations we've put in place. Is that an accurate statement?

[Brian Fox]

Since our industry is not regulated, there is no support whatsoever.

[The Chair, Conservative, Brian Pallister]

Thank you, Mr. Wallace.

We'll continue now with Mr. McCallum.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you, Mr. Chair.

Thank you to the witnesses.

My apologies, I had to be absent a lot, so I haven't done justice to your presentations. Because of that, Mr. Chair, I'd now like to raise a point of order regarding the scheduling and the GST visitors' rebate program. I want to make sure we get that on the agenda, as we ought to. I'll leave it to you.

[The Chair, Conservative, Brian Pallister]

Mr. McCallum, we'll leave that to discuss later on after the panel is done. How about that, before we break, between the two panels? That way we can get some questions in.

[John McCallum, Liberal, Markham—Unionville, ON]

Okay, great.

And thank you again to the panel. I'll leave it at that.

[The Chair, Conservative, Brian Pallister]

Madam Ablonczy is not here. Who is asking the next question?

Okay, Madam Wasylycia-Leis.

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

I just want to come back and follow up. Mike touched on it a bit but I don't think we really dealt with the question of the added new obligations on the part of all of these different institutions. I'd like to hear from both Mr. Bernier and Mr. Fox, to start with.

What do you think this will mean to institutions that you work with, and what do you think you will need to meet all the obligations under this new legislation?

[Jean-Pierre Bernier]

We have many small and mid-sized life-insuring institutions in Canada, and this point has been considered. Obviously the risk of a large financial institution doing business in many countries is different from the risk of a small insurer doing business in one province or in one region of a province. Having said that, it will be of paramount importance that the regulation to come be principle-based as opposed to rule-based.

Let me give you an illustration of this from a small institution's perspective. If the legal requirement is for me to have a bathroom in my house, the size of that bathroom should not be imposed upon me. So if it's only my wife and I living in the house, I will have a smaller bathroom. If I have a lot of guests, a big family, uncles and cousins, I may need two or three bathrooms. It will be up to me, depending on my risk. It would be very costly if the regulation were to impose on me what colours I should have on the walls, what kinds of fixtures I should have, or the kind of garbage can I should place in my bathroom--plastic, ceramic, it doesn't matter as long as I have one.

That would be the right approach to take; in short, a risk-based approach combined with a principle-based regulation.

[Brian Fox]

From our perspective, our business globally works with an agent relationship and our to-date response to this need for tighter anti-money-laundering control has been to simply create the infrastructure within our organization to allow our agents to comply with jurisdictions everywhere that we do business. So it has been a serious line item of expense for our business, but as I said earlier, we agree with this type of legislation and accept it as a cost of doing business.

That being said, Mr. Bernier's point is exactly how we feel. The nature of the regulations that we keep alluding to but haven't seen is the real crux of the matter in terms of determining how onerous it will be for a business to comply with the bill and still maintain a profitable business.

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

Do you get any sense from anyone that there may be a training course provided for all institutions to adapt to the legislation, that there might be some software given, that there might be some supports provided?

[Brian Fox]

We currently do those things now at our own expense completely. It's an interesting question. I have never given any thought, in all honesty, to what types of government support would be appropriate for this.

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

There are some very small institutions like--

[The Chair, Conservative, Brian Pallister]

Thank you very much, Madam Wasylycia-Leis.

Thank you very much to our panel for your participation. The time you've taken to be with us today is much appreciated and you are excused.

We will have a point of order, and then we'll invite the panel to come forward in a few minutes' time, I expect.

I believe, Mr. McCallum, you had a point of order.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you, Mr. Chair.

You and I had a brief discussion about the presentation that was agreed to in a resolution we passed for the panel on the GST visitors’ rebate program. We'd agreed in that resolution to have that within a certain number of days, and my concern is that by linking it to the timing of the report, it's put that into question.

So I'd like to make sure that this is held--whatever we do with the report--in a timely fashion, before the end of November, and if necessary, before we conclude the report. I just want to put that on the table to make sure it doesn't get lost somehow.

[The Chair, Conservative, Brian Pallister]

It shall be noted.

[John McCallum, Liberal, Markham—Unionville, ON]

We're not asking for a great deal of time.

[The Chair, Conservative, Brian Pallister]

First of all, it's not a point of order. But I will put it on the record that I am committing to the committee to fulfill the resolution they passed. Every attempt will be made to have that debate and discussion prior to December 2. So that's on the record.

[John McCallum, Liberal, Markham—Unionville, ON]

It's on?

[The Chair, Conservative, Brian Pallister]

Yes. So we'll recess. We will reconvene a few minutes from now.

[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.

[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]

Very good, sir. Thank you.

We continue with the Federation of Law Societies of Canada and James Varro, policy counsel.

Welcome, sir. It's over to you.

[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.