Finance Committee on March 29th, 2007

[The Chair, Conservative, Brian Pallister]

Good morning, colleagues.

Pursuant to Standing Order 81(4), we are on the main estimates 2007-08, vote 20, under Canadian International Trade Tribunal, referred to the committee on Tuesday, February 27, 2007.

Welcome.

This morning we're combining both the Canadian International Trade Tribunal and FINTRAC, colleagues, and so we will expedite questions. We will continue until a little after 12:30 because of the later start. I understand we'll have some introductory comments of five minutes each.

I believe Pierre Gosselin will begin.

Sir, you have approximately five minutes.

Over to you, and welcome.

[Pierre Gosselin, Chair, Canadian International Trade Tribunal]

Thank you, Mr. Chairman.

I am pleased to appear before this committee and to answer any questions you may have.

I am the Chair of the Canadian International Trade Tribunal. Accompanying me this morning is Ms. Sandy Greig, Director General of the Research Branch. Before moving on to questions, I would like to give you a brief overview of the tribunal's mandate, and the challenge we are facing.

The tribunal is a quasi-judicial, independent organization that reports to Parliament through the Minister of Finance. The tribunal is currently made up of seven members, who are all appointed by order in council for a specified length of time. The members are supported by 87 employees. Our workload is generated entirely through the number of complaints and cases that are brought to our attention by the governor in council or the Minister of Finance. Most of our cases must adhere to very tight statutory deadlines.

Our mandate is to conduct inquiries following the lodging of complaints, and to provide a ruling on economic, trade, tariff or commercial matters that are brought to our attention by the governor in council or the Minister of Finance. As a quasi-judicial institution, we carry out inquiries into whether dumping, from all countries, and in particular China, has caused, or is threatening to cause, material injury to a domestic industry.

Under the provisions of the Customs Act, decisions made by the Canada Revenue Agency, and the provisions of the Excise Tax Act, the tribunal hears appeals to rulings made by the Canada Border Services Agency. We conduct inquiries on complaints lodged by potential suppliers for federal contracts covered by NAFTA, the Agreement on INternal Trade or the Agreement on Government Procurement.

In cases of damage inquiries, appeals of CRA rulings and federal contract awards, the tribunal's rulings are binding. In cases of safeguard inquiries, the tribunal may provide a legal assessment of damages, and, upon request, forward recommendations on corrective measures to be taken. The CITT also plays an advisory role to the federal government on general economic and tariff matters.

The tribunal's workload is entirely externally generated. Our main challenge continues to be the allocation of our limited resources in such a way as to ensure that the statutory deadlines are always met and that the quality of the tribunal's findings, determinations, and recommendations is not compromised.

We must also ensure the continuity and renewal of our specialized workforce. Sufficient time must be provided for new staff to develop the required experience and competencies, which in some cases will take a number of years.

The tribunal remains committed to advancing government-wide priorities to improve the accountability and transparency of government operations, and to this end, the tribunal will strive to more fully integrate the principal elements of the management accountability framework.

The tribunal has a single strategic outcome and two activities.

The strategic is fair, timely, and effective disposition of international trade cases and government-mandated inquiries in various areas of the tribunal's jurisdiction. The first activity is the adjudication of trade cases, and the second activity is the general economic inquiries and references. The lion's share of the budget is allocated to the first activity, whereas only around $600,000 is spent on the general economic inquiries and references.

In 2006, the tribunal worked on 19 unfair trade cases. The tribunal finished its work on a textile inquiry referred to it by the Minister of Finance and its work on a request to initiate a safeguard with respect to apparel imports from China. We received 52 complaints related to the federal government's procurement practices and 64 appeals of decisions from the CBSA or the CRA. Notably, the volume of work on procurement cases increased in 2006-07 as a greater percentage of the complaints referred to us have been accepted for inquiry.

Throughout the year, the tribunal carried out consultative and outreach activities. First, through the bench and bar committee, the tribunal provides a forum to promote discussion with the bar on issues of importance. The tribunal has also met with representatives from industry, trade associations, and officials from government departments to brief them on our procedures. As well, we have offered training to government agencies in Morocco and Vietnam and participated in technical exchanges with officials from the European community and from Australia.

I would like to mention some initiatives the tribunal is taking to try to improve our accessibility and reduce the administrative burden to the public. We publish and archive all our decisions and statements of reasons on our website. We also issue press releases to inform the public at the time these are made. All notices are placed on our website and subscribers are advised what's new through e-mail. Our questionnaires are available on our website, and parties will soon be able to use a secure electronic channel to file them with the tribunal.

We will shortly be making public case files available to parties electronically. That file will also be searchable and constantly updated throughout a case.

Finally, I would like to talk about the variation in our main estimates from 2006-07 to 2007-08, a net increase being $677,000 in operating expenditures under code 20, and it's primarily attributable to a $620,000 increase in funding to cover the replacement of our audio system in two of our hearing rooms.

Other amounts are a $97,000 increase in collective agreements signed in 2006-07, a $20,000 decrease in contributions to employee benefit plans, and finally a $20,000 decrease due to public works procurement savings.

Those, Mr. Chairman, are my opening comments.

Thank you.

[The Chair, Conservative, Brian Pallister]

Thank you very much, Mr. Gosselin.

from FINTRAC.

Mr. Potter is going to do the presentation. You have approximately five minutes, sir.

[Mark Potter, Acting Deputy Director, Strategies and Partnerships, Department of Finance, Financial Transactions and Reports Analysis Centre of Canada]

Thank you very much.

Good morning, Mr. Chairman and committee members. We are pleased to appear before this committee again, to provide an update on FINTRAC's operations and our main estimates.

My name is Mark Potter. I'm the acting deputy director of strategies and partnerships for FINTRAC. Joining me today are my colleagues Alfred Tsang, our assistant director of finance and administration; and Janet Di Francesco, our assistant director of macroanalysis and integration.

I would like to make a brief opening statement.

FINTRAC was created in 2000 to facilitate the detection and deterrence of money laundering and terrorist activity financing in Canada and around the world. FINTRAC is an independent agency reporting to the Minister of Finance, who is accountable to Parliament for the activities of the centre.

We are Canada's financial intelligence unit, or FIU. Our mandate is to receive financial transactions and other information, analyze it, and when appropriate, provide financial intelligence to law enforcement and other investigative agencies, as well as foreign financial intelligence units.

FINTRAC produces financial intelligence that assists the investigation and prosecution of money laundering and terrorist activity financing offences and other threats to the security of Canada. These investigations are carried out by national, provincial, and municipal law enforcement agencies and the Canadian Security Intelligence Service. FINTRAC is an analytic, not an investigative body. FINTRAC sits at the front end of the process, making a contribution of intelligence that assists investigators.

FINTRAC has been very active in the production of case disclosures of financial intelligence, producing 168 such cases in 2005-06, with a total value of just over $5 billion. This financial intelligence is providing value to a growing number of investigations. With each successive year, we have increased our output of these disclosures of suspected money laundering and terrorist activity financing cases.

Our governing legislation, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, places obligations on certain individuals and entities to keep records, identify their clients, and report certain financial transactions to us.

These reporting entities, as we call them, include banks, credit unions, accountants, casinos, money services businesses, foreign exchange dealers, securities dealers, life insurance companies, and real estate brokers and agents.

Recently, as you know, Parliament amended the Proceeds of Crime (Money Laundering) and Terrorist Financing Act through Bill C-25. From FINTRAC's perspective, there are three key thrusts to the legislative amendments. Bill C-25 brings additional business sectors under the ambit of the legislation and regulations, such as lawyers and dealers in precious metals and stones. Their inclusion broadens and strengthens Canada's efforts to combat money laundering and terrorist activity financing.

Secondly, the amendments will augment the deterrence component of the regime by creating a registry, requiring money service businesses to register with FINTRAC and establishing a graduated system of administrative monetary penalties. This will greatly strengthen both compliance with the law and the general deterrence of money laundering and terrorist activity financing.

Third, Bill C-25 will make it possible to enrich the intelligence product that FINTRAC can disclose to law enforcement and national security agencies by including some additional information in our disclosures while scrupulously protecting the privacy rights of Canadians. This responds to the needs of law enforcement to make FINTRAC's core product even more useful to them.

Adjusting to these legislative changes and successfully implementing them will remain a focus for FINTRAC for the year ahead and beyond.

I'll now turn to our main estimates. In our main estimates, FINTRAC is requesting $44.9 million for 2007-08. This represents a substantial increase of $13.8 million over last year's main estimates. The increase for the next few years is required primarily for three reasons: workload pressures; the implementation of Bill C-25 changes; and contributions to the Egmont Group.

Our work has steadily increased since we began our operations about six years ago. This is evident in the significant year-over-year growth in transaction reports received, in our output of financial intelligence, and in the demand from law enforcement and CSIS for our product.

Law enforcement agencies in Canada and financial intelligence agencies in other countries are looking to FINTRAC for more and better financial intelligence to augment their work. FINTRAC is responding to this demand with the production of case disclosures of financial intelligence that assists individual investigations, as well as strategic financial intelligence that takes a longer-term view of areas that may have vulnerability to money laundering and terrorist activity financing.

The implementation of Bill C-25 changes will also expand our workload and require the development and implementation of significant new functions, such as a registry of money services businesses, as well as an administrative monetary penalty system. The operation of these two elements is still being defined in greater detail through regulations, based on ongoing research and consultation. We will keep parliamentarians abreast of our progress in implementing these and other elements of Bill C-25 through our regular reporting documents such as our annual report, and through future committee appearances.

Money laundering and terrorist activity financing are transnational phenomena, and cooperation internationally is essential to any successful effort to curb them. The Egmont Group is an international body comprising the financial intelligence units of more than a hundred countries. In 2006, the Egmont Group selected Toronto as the site of its permanent secretariat for its global operations. This is an achievement for Canada, and an opportunity to help lead the global fight against money laundering and terrorist activity financing. It is the funding of this permanent secretariat that is identified in these main estimates for a contribution of $1.8 million in 2007-08.

As for FINTRAC's overall budget, it is relatively straightforward. It largely comprises two main elements: staff costs and other expenditures in support of our operations, which are very technology-intensive.

FINTRAC currently employs 230 staff, located here in Ottawa as well as in three small regional offices--one in Montreal, one in Toronto, and one in Vancouver. That figure is expected to rise to about 270 staff next year. In terms of other expenditures, they are mainly for information technology, security, and accommodation.

We believe FINTRAC has made and will continue to make a significant contribution, along with our partners in law enforcement and national security, to combating money laundering and terrorist activity financing. This investment in FINTRAC is an investment in the safety and security of Canadians.

I will conclude my presentation here, and we will be pleased to answer any questions you may have.

Thank you.

[The Chair, Conservative, Brian Pallister]

Thank you very much, Mr. Potter and Mr. Gosselin, for your presentations. They've been very informative.

We'll move first to Mr. Thibault.

[Robert Thibault, Liberal, West Nova, NS]

Thank you, Mr. Chairman.

I thank everybody for their presentations. They've been quite informative and quite straightforward.

I don't think there's a lot that's contentious here, but I would like to ask you a question, Mr. Potter. When we read the papers or follow the news, we see that one of the areas that seem to be of concern is the electronic transactions that seem to have a lot of ways of getting around the rules.

I will try not to use the names of the organizations, so as not to cast aspersions on any of them. They might all be completely legitimate, but there's always the potential that they might be misused. I know there have been some charges laid against one of the Canadian organizations in the United States that works with gambling sites or any other sites. It seems this would be a way to transact money internationally, using the Internet under various guises.

What type of work do you do there? Is that advancing? Do you have a handle on or an idea of what we might be missing in terms of illicit transactions?

[Mark Potter]

You are certainly correct in noting that a significant technique used by money launderers and terrorist financiers is to take advantage of the scope to very rapidly move money around the world electronically. They use this to disguise the source of the funds and to move the funds in such a way that it makes it very difficult to track them, thus making our job rather challenging.

We do have an advantage in Canada. Under our law, reporting entities are required to report electronic funds transfers of $10,000 or more if they are of an international nature. If the transfer is made from Canada to abroad or into Canada, then that is reported to us. That represents a very significant reporting stream. In fact, in 2005-06 about eight million of these reports were received by FINTRAC.

That also explains why information technology, for example, is a big part of our work. Information technology, along with the increasing experience of our analysts, is able to comb through these various transactions and establish linkages, identify patterns, and help to build cases. We take that information, along with our other reporting streams—suspicious transactions and large cash amounts—as well as information we might be getting from law enforcement via voluntary information on targets of interest to them. This also includes media reports and other publicly available information. We combine all of these to build our case, reach our legal threshold for disclosure, and disclose that information to law enforcement and CSIS for further investigation.

[Robert Thibault, Liberal, West Nova, NS]

I found your figure of $10,000 interesting. I realize you have to put the base somewhere, but if I do repeated transactions of $9,999, is that going to catch your attention? Will your systems pick that up?

[Mark Potter]

The answer to that is yes and no. It won't pick it up through an electronic funds transfer report, because this is a prescribed report, it's automatic, and it's objective. Once it's $10,000 or above, it's automatically reported. However, if an individual or a business entity is moving moneys that are just under the threshold, the financial intermediary might consider that suspicious, so they're likely to file another key report to us, which is a suspicious transaction report.

So we do see, whether it's large cash or whether it's electronic, banks and other reporting entities providing information on transactions that are just below the threshold, that are repeated regularly. They would then file a suspicious transaction report, which would be of great interest to us.

[Robert Thibault, Liberal, West Nova, NS]

Do those transfers happen to an organization other than a reporting organization, other than a bank? Could it be to a point of sale? Are there leaks in the system in that sense, that if I'm an illicit seller of goods or services and I'm receiving these transactions, could I be getting these transactions and getting around the banks or other disclosing entities?

[Mark Potter]

I'll answer that in two ways. The current breadth of reporting entities is quite large. As I mentioned, it's everything ranging from banks to casinos, to accountants, to insurance agencies, to real estate agencies, and so on. So it's very broad in terms of the potential financial intermediaries that would be involved in such transactions. However, via Bill C-25, we are expanding that to include, for example, dealers in precious metals and stones, because it has been found, not only in Canada but around the world, that this is a vulnerable sector.

So you want to make sure you have the broadest possible coverage. We think we have very broad coverage, but is it perfect? Are there any holes? That's what criminals are trying to find all the time.

[Robert Thibault, Liberal, West Nova, NS]

That's why you're spending more on technology, I would presume.

[Mark Potter]

That's right.

[Robert Thibault, Liberal, West Nova, NS]

In reference to the Egmont Group, I'm pleased that we have the siège social, the headquarters of the Egmont Group. Do we pay a premium for that in terms of the operational funds, our contribution as a partner within that? How is the funding arranged? Is it per capita?

[Mark Potter]

That's a very good question.

We think the Egmont Group is essential for promoting operational cooperation among agencies like ours, so we've been an active participant in the Egmont Group. In fact, we were quite instrumental in helping that group evolve, in terms of establishing a permanent secretariat, developing a charter or constitutive document, and developing a funding formula, which gets to your specific question.

That funding formula will be rolling out starting in 2008. The agency and its secretariat will become entirely self-funding. Canada has made a contribution to facilitate its establishment and start-up. The funding formula is based primarily on GDP, and GDP per capita, so all the jurisdictions will contribute proportional to their income levels.

[Robert Thibault, Liberal, West Nova, NS]

Monsieur Gosselin, I notice in your estimates that you have an increase of some $600,000 for general economic inquiries, from $60,000 to over $600,000. Is there a change happening? What is causing that? Is it a new service that you're evolving?

[Pierre Gosselin]

No, actually the increase in our estimates is to pay for a new audio system in the hearing rooms. The audio system has been in place for about 12 years and we can no longer find anyone to service the system. It's very vulnerable, so we have to replace it.

[Robert Thibault, Liberal, West Nova, NS]

I have a final quick question.

Will the budget that has been introduced before the House cause you some additional expenses, additional areas of activity? If so, can you give us an idea of how much it would cost or if we'd be seeing them later?

[Pierre Gosselin]

Not that I know of, sir.

[The Chair, Conservative, Brian Pallister]

Mr. Paquette.

[Pierre Paquette, Bloc, Joliette, QC]

Thank you, Mr. Chairman.

Thank you for your presentations.

I will only address the trade tribunal, and my colleague Mr. St-Cyr will ask you further questions later.

As members of the Canadian International Trade Tribunal, you provided a good presentation of your activities. I met with representatives of the Quebec furniture industry, who, after having lodged a complaint, were told by the tribunal to do their homework. They are reluctant to push further, because on the barbecue issue, for example, despite your positive ruling—you recommended that the Minister of Finance impose import duties on barbecues manufactured in Southeast Asia; I do not recall exactly which country these barbecues were produced in—but the government did not follow up on your recommendation.

What do we say to people who are wondering if they should spend between $200,000 and $250,000 to prepare proceedings regarding possible safeguard measures, when, to my knowledge, the government did not act upon one single one of your recommendations regarding safeguard measures as sanctioned by the World Trade Organization?

[Pierre Gosselin]

Mr. Paquette, you should ask your colleagues on the government side to answer that question, because it is incumbent upon them to decide whether or not they should follow up on an inquiry that we have conducted. Our responsibility is to answer the following question: Was there injury, or not? We answered that question. The government also asked us to put forward measures to mitigate damage, which is what we did. What happens next is not our responsibility, our job is to make recommendations. It is up to the government to decide whether or not it will heed our recommendations and act accordingly.

[Pierre Paquette, Bloc, Joliette, QC]

If memory serves me correctly, one of the problems affecting the barbecue industry was that anti-dumping duties were imposed, but for some reason, China was deemed to be a market economy.

Was this decided by the Canadian International Trade Tribunal, or by another tribunal? I assume that must have made proving that China or other Southeast Asian countries were dumping imports somewhat complicated.

[Pierre Gosselin]

What happened was that the Canada Revenue Agency changed its methodology. In this case, the CRA decided that China was a market economy, and that had an effect on the degree of dumping determined. After that ruling, the industry contacted us and asked us to launch a safeguard inquiry.

[Pierre Paquette, Bloc, Joliette, QC]

The safeguard inquiry would have allowed them to prepare a case to reopen a claim regarding anti-dumping duties.