Finance Committee on Nov. 2nd, 2006

[Douglas Timmins]

Mr. Chair, certainly the member is right that this is an issue we raised in our chapter in our audit in 2004, and we do confirm, as I said in the opening statement, that this exemption has been reconfirmed with this legislation. We do understand, although we don't know all the details, of the discussions or negotiations between the government and the law societies on putting in something that would complement or substitute for that requirement, so I can't comment on it. I don't know the details, but that might be something the committee would wish to pursue before you consider whether you want to propose an amendment in that area.

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

I think what we'll want to do is find out why it would appear that they didn't really look at some of the European examples when the legislation was drafted. They may have, but I don't know.

[Douglas Timmins]

Mr. Chair, I think they did know about the European examples before. I think the issue, as I mentioned, is that the lawyers obtained a successful legal challenge, and that was the original rationale for their being exempted. I suspect that may have been a factor in the discussions about continuing that exemption.

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

Brian Fox, I'm not so sure how difficult you will find it to respond to this legislation, in terms of the administrative requirements and the changes in procedures alone, but I would guess that certainly some small credit unions and some small financial services are going to have some difficulty. What kinds of supports do you think should be in place?

[The Chair, Conservative, Brian Pallister]

I'm sorry to have to cut you off. I urge you to work your response into the next question, if you wish.

We'll move to Mr. Savage now for four minutes.

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

I may come back to you, Mr. Fox, but I want to ask a question of Mr. Law and/or Mr. King.

You were talking in your opening comment about the correspondent banking, and I think you had talked about the potential for competitive disadvantage for Canadian banks. Can you expand on that a little bit?

[Warren Law]

That's an issue of how we define correspondent banking versus how other countries define it. As I mentioned in my opening remarks, there's one area in particular where I think we may be too broad in our definition, and that's with respect to this issue of foreign exchange transactions. As I understand it, under Bill C-25, if a person goes into a bank branch here in Canada and wants to transfer money to a location outside the country, and does not have an account with the bank, you have to have a correspondent banking relationship under Bill C-25. That means that you have to have a formal relationship between the two banks, etc. We think this is going a bit too far. We think that when you look at what other countries have done, this is going too far. We think that as a result, some consideration should be given to amending this legislation to narrow it a little bit, to deleting from the definition the reference to foreign exchange transactions.

Do you have anything to add?

[Ron King]

I would just like to add one point to that, which is that at a wholesale level, large financial institutions may typically settle their foreign exchange surpluses or shortages on an open-market basis. They might enter into those transactions with an entity that offers the best foreign exchange rate. That entity wouldn't necessarily have a foreign correspondent banking relationship with them, but this legislation would require us to treat them as a correspondent and do all the due diligence. That's the industry concern.

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

You mentioned an amendment. If you think you have specific wording around that, I encourage you to get something in to us, as I think Mr. Pacetti suggested.

[Warren Law]

Because of the shortness of time around when this hearing was called, we didn't have an opportunity, but we certainly will.

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

I understand that.

You mentioned also that banks had been very proactive on the AML/ATF file. Can you give me a brief sense of what Canada's banks have been doing on this issue?

[Warren Law]

I'm sorry, I didn't hear you.

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

You mentioned in your earlier comments that banks had been very proactive on this file. Can you give me an example of what Canada's banks have been doing?

[Warren Law]

I think it's reflected by the amount of capital investments that are being made by the Canadian banking industry in the fight against money laundering and terrorist financing. It's literally in the tens of millions of dollars. Millions of dollars are spent each year to improve systems, and in the education and training area with staff. I think we have taken a leading role in the fight against money laundering and terrorist financing.

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

Mr. Bernier, you've given us some very good specific amendments--and I thank you for that--which will get consideration. If these were not adopted, you would still support the bill. Is that correct?

[Jean-Pierre Bernier]

Yes.

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

And Mr. Fox, you're concerned about the regulations, but you support the bill.

[Brian Fox]

Yes, absolutely.

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

And that would be the same with the banks. You have issues around what the potential regulations might look like.

[Warren Law]

We share that concern. It's difficult to consider legislation when it's obvious that a lot of the meat will be in the regulations themselves, and we've never seen them.

[The Chair, Conservative, Brian Pallister]

We continue with Monsieur St-Cyr.

You have four minutes, sir.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Thank you very much, Mr. Chairman.

I have a general question I would like to ask. Mr. Law has just spoken, among other things, of the efforts made by banks to combat money laundering and terrorist financing, and I know that Mr. Fox and Mr. Bernier have told us about the efforts that have been made from their side.

This is something quite specific to the financial world. We don’t ask merchants to check if the money used to pay them comes from crime or a suspicious source. I fully agree that the requirements on financial institutions should be greater, but in purely economic terms, beyond the corporate duty to fight crime, what is the impact of such a requirement? Aren’t there only negative repercussions for you? If, for example, you discover that criminals are using your systems for illegal purposes, those are customers you would be losing. So in addition to having to invest money in such efforts, you might also lose customers. The more you do your job, the better you do your job, the greater the chances are of people taking their business elsewhere. Are there any benefits for you business-wise, or are you simply doing it out of a sense of corporate duty?

I would first like to hear Mr. Law, and then Mr. Fox.

[Warren Law]

Perhaps I can start, because I think the answer to your question is very simple. It's a very good question and is very insightful. You should be working for a bank.

With respect to financial institutions generally, but particularly banking, there is no question that our success rests on our reputation—on the security of the institution, what people think of us, the confidence that people have in our operations, the reputation of the banking industry. It makes good business sense to fight money laundering, obviously. It makes good sense to work with all the stakeholders involved in this area to make sure Canada as a whole has an effective deterrence program. It simply makes good sense. We could not operate, obviously, if there was any doubt about our institutions being used by the bad guys to launder money.

[Brian Fox]

I would have to echo those comments.

Western Union has been involved in this globally in a very large way probably since 2002, but always a component of what we try to offer our consumers is confidence, and we rest on that. Our entire business hinges on that confidence. We don't want illicit activities in our businesses. We just don't want it.

[Jean-Pierre Bernier]

It’s the same thing.

Transacting with professional money orders or les terroristes financier is bad business, period, and we have a reputation to protect.