Finance Committee on March 3rd, 2008

[The Chair, Conservative, Rob Merrifield]

We have enough members, so we will call the meeting to order.

Pursuant to Standing Order 81(5), we are dealing with supplementary estimates (B) for the fiscal year ending March 31, 2008.

We have with us the Financial Transactions and Reports Analysis Centre of Canada. Thank you for coming.

We have Margaret Baxter and Janet DiFrancesco. It's good to have you here. I'm not sure which of you is doing the presentation, or if both of you are. Janet is.

With that, we will yield you the floor, and we will follow up with our questions.

Thank you.

[Janet DiFrancesco, Assistant Director, Macro-Analysis and Integration, Operations Sector, Financial Transactions and Reports Analysis Centre of Canada]

Thank you.

Ladies and gentlemen, we are very pleased to appear before this committee today. My name is Janet DiFrancesco, Assistant Director of Macro-Analysis and Integration. Joining me today is my colleague Margaret Baxter, Assistant Director of Finance and Administration.

I would like to make a brief opening statement.

FINTRAC was created in 2000 to assist in the detection, prevention, and deterrence of money laundering, terrorist activity financing, and other threats to the security of Canada. FINTRAC provides intelligence on suspect financial activities to law enforcement and national security agencies and ensures compliance with reporting obligations.

Currently, FINTRAC is making a contribution to drug investigations by shedding light on the proceeds of crime. The financial intelligence we produce assists in the investigation of suspected money laundering activity that often accompanies drug trafficking, and often our analysis is able to identify suspects previously unknown to law enforcement.

The request before you today for $238,000 will be used to dedicate specific resources to the activities of the national anti-drug strategy.

The illegal drug industry, with an estimated value in Canada well into the billions, is cash based. FINTRAC is well placed to support Canada's efforts to address the threat posed by phenomena such as marijuana grow operations and the production of crystal methamphetamine. FINTRAC's disclosure of financial intelligence to law enforcement agencies enhances their ability to strategically target organized criminals and networks. This is accomplished by allowing law enforcement agencies to go after those who handle the money generated by the illicit production and distribution of marijuana and synthetic drugs. Activities that FINTRAC will undertake in support of the national anti-drug strategy include enhancing support to law enforcement, developing financial intelligence, and insuring compliance with reporting requirements among high-risk business sectors.

When it comes to FINTRAC's case disclosures of suspected money laundering, most cases are generated by drug trafficking and fraud. We expect that the additional efforts by law enforcement under the national anti-drug strategy will increase demand for the financial intelligence FINTRAC provides to these investigations. We have made requests for additional resources to meet this demand.

Thank you for your time. We would now be glad to answer your questions.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Actually, I'm just reading a little article that came out on Friday that said you had done some good work with regard to progress in combatting money laundering. We certainly appreciate your efforts in this work.

With that, we will turn to the Liberal Party, first of all. We will start with Mr. McKay. You have seven minutes.

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

Thank you. That is way longer than I need.

Your total expenditures here are about $50 million, and you're asking for a $238,000 increase.

How do we know you're successful? How do you measure success in your enterprise? I know what your intentions are, but I don't really know how you measure that Canadians get good bang for their buck. You're asking for a slight increase on $50 million. It is not, around here, a significant sum of money. What I'd like to know, whether you are asking for $75 million or $25 million this year, next year, or in years previous, is how we measure that you are a successful enterprise.

[Janet DiFrancesco]

FINTRAC measures its success by the contribution we can make to law enforcement investigations. FINTRAC, as you know, is an intelligence agency. We have no investigative mandate. What we do is in support of law enforcement investigations in terms of money laundering, terrorist activity financing, and other threats to the security of Canada. So very much we rely on feedback from our partners. We actively seek that feedback from law enforcement and from CSIS to confirm that in fact the information we're providing is of value and that it's helping with the work they do.

I understand that from the committee's perspective, it's not something you can tangibly see, but as an intelligence agency, we are one element in that investigative process. Our information is there to provide leads. It provides a new context for law enforcement in the work they do. To the extent we're able to do that, we feel we are successful.

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

You're still spending 50 million bucks to provide leads. It's very hard, sitting on this side of the table, to know whether that's a well-spent $50 million unless there's some form of third-party verification that the efforts you put into getting those leads are, to the agencies to whom you feed the information, worth it. Is there some form of third-party verification that this $50 million is well spent?

[Janet DiFrancesco]

FINTRAC has recently undertaken a fairly significant effort to get feedback from our partners. We do have information speaking to our results. We've had some testimonials about the value that FINTRAC's intelligence plays in law enforcement investigations. We've had feedback that said these intelligence reports identified new individuals, new targets for investigations, and this information has allowed them to identify assets and confirm evidence and broaden the scope of what they're doing. I think it's one of those areas where performance measurement for the national initiative to combat money laundering and terrorist financing could maybe do some more work. Certainly, those third-party testimonials need to come from our partners, as opposed to having FINTRAC report them to you.

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

It would be nice to see something saying the $50 million is a well-spent sum of money and that other agencies think it's well spent, rather than having you folks say it.

In the years FINTRAC has existed, which I think is something in the order of about five years now, you've obviously developed some expertise--I hope you have--in the whole money laundering issue. What have been the changes in those five years in terms of criminal behaviour? What have been the significant changes and trends from when you started to now? How has the legislation actually impacted the changes in how money is laundered?

[Janet DiFrancesco]

When you talk about changes over time, I think from FINTRAC's perspective we see changes related to the methods that are used to launder money. Very much we see that having a sophisticated financial sector, as we have in Canada, allows for plenty of opportunity to try to integrate and commingle funds into our financial system. We are seeing, though, the rise of the use of Internet payment providers to facilitate the flow of funds. We're seeing over-complicated use of funds. We're seeing more use of shell companies. When I say “over-complicated use of funds”, I mean more movement of funds to effect a transaction than you would normally have seen in the past.

There are certainly still the elements of what we would say is “smurfing”, or bringing cash into the system physically, and what we would call placement in the money-laundering world. Certainly we are also seeing much more evidence of layering and integration, which simply refers to the number of transactions used to move money into or out of the country, or between entities in a criminal network.

That's a very high-level answer, but I think we are seeing evolving trends, and they are things we've identified in our work.

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

What you're watching are the complications of money laundering. They're becoming more complicated in their transactions, and they're speeding up the transactions as well by use of the Internet. What will this $238,000 do to help you with those two trends?

[Janet DiFrancesco]

This $238,000 is actually directly linked to the anti-drug strategy. In particular, this money is going to be used to focus more work on tactical intelligence analysis. We do anticipate that with the other partners in the drug strategy getting additional money, there will be more demand for FINTRAC's intelligence. This will allow us to keep pace with that demand.

To the extent that drug traffickers are using those means to move their money, of course we will follow that and provide that information to law enforcement. The money will also be used to do more outreach to law enforcement to make them aware of what FINTRAC can do for them, and also to work with them closely to make them understand the kind of information that is most valuable to us if we are to help them in their investigations. We'll also use some of that money to work with reporting entities, so those businesses that have to report to FINTRAC--banks, credit unions, accountants, money exchanges, and those kinds of entities--will understand what they should be looking for vis-à-vis some of the drug operations that we're seeing.

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

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Monsieur Crête.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Thank you, Madam Chair.

This issue is becoming increasingly important, particularly when we know that an investigation carried out in Liechtenstein showed that hundreds of people had invested in Liechtenstein, including 100 Canadians. They are being investigated for tax fraud. This is what we can read: “Over two weeks, German authorities say they found over $300 million, discreetly deposited in Liechtenstein [...]” Following these disclosures, a spokesperson for the Canada Revenue Agency said: “We have initiated audits of some 100 Canadians.”

Are the names of those 100 Canadians known, and have they been made public? After discovering that such things are happening, how does one go about prosecuting the culprits?

[Janet DiFrancesco]

I did see the news article in the paper about the investigation you refer to, but I believe that is primarily a CRA investigation, and we do not have specific information I could share with the committee on that case.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

In your brief, you stated some of your priorities for 2007-2008. They include:

Disseminate strategic information on money laundering and terrorist activities financing to partners, stakeholders and the general public. Deliver timely and high-quality financial intelligence to law enforcement, security and intelligence agencies [...]

What kind of relationship do you have with the Canada Revenue Agency? Do you work with them? Do you have to take action on the dissemination of information regarding those 100 Canadians?

[Janet DiFrancesco]

FINTRAC can disclose information to the CRA once we meet our threshold of money laundering and also determine that the information is relevant to tax evasion, in this particular kind of example. FINTRAC is working closely with the CRA to define indicators and to improve that working relationship, so that we can better meet their needs and so that they understand the kinds of information we require to facilitate that kind of a working relationship. But again, vis-à-vis a specific case, I really couldn't comment.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

In La Presse, Yves Schaëffner wrote the following:

Over two weeks, German authorities apparently found over $300 million, discreetly deposited in Liechtenstein by their citizens. As a result, 195 Germans have already conceded that they concealed amounts from the tax authorities, and have agreed to pay $40 million in taxes, according to Bloomberg.

Why did Canada not respond this quickly?

Would these additional amounts help you to do this sort of thing, if that were your goal?

[Janet DiFrancesco]

Again, in this particular case you're talking about a law enforcement investigation, and as an intelligence agency, FINTRAC would only be one element there. I think probably the CRA would be better placed to be able to respond to that particular investigation.

In terms of a role that FINTRAC might have or could have played, our financial intelligence would have flowed to CRA for their investigation, if in fact that was something we were involved in.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

The Group of Seven comprises seven countries involved in anti-tax-haven initiatives. Have you been involved with the work of the Department of Finance committee which is fast-tracking measures and legislation to deal with the increased use of tax havens, particularly as a result of increasing globalization in the financial sector?

[Janet DiFrancesco]

No, FINTRAC does not participate directly in that particular OECD body. I'm sure the CRA does, but you'd have to direct that question to them.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Could you be a little more specific about what the additional amounts will help you do in coordinating information-sharing in Canada among the organizations involved?

You said that at present, the agency is conducting its own investigation, and that you are not part of the Group of Seven. Is there no interest in having better coordination, so that we can see tangible results and accelerate the process?

[Janet DiFrancesco]

I didn't mean to imply that the Department of Finance doesn't participate in that particular forum. In fact I have a colleague here from the finance department who would confirm that in fact finance does, as the lead department in this role, but FINTRAC itself does not.

That said, in terms of the money we're receiving today, again, it's very much focused on the national anti-drug strategy. But FINTRAC, in its regular role in terms of disclosing vis-à-vis money laundering and tax evasion, will continue to work with CRA. I do think you raise an important point about information sharing and how we can facilitate the investigations CRA would undertake, and we will continue to work with them on that front.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Lastly, could you please tell me what your role is in the investigation on those 100 Canadians?

Does FINTRAC have a role in that investigation? If yes, what is that role?

All transactions potentially related to money laundering do come under your purview it seems to me. However, it seems that you have no link in practical terms with the organization which must decide whether Canadians are or are not to be prosecuted. I am somewhat surprised, because we know that money laundering is frequently associated with drug trafficking. It is also associated with other aspects of organized crime.

Would it not be natural for you to have some involvement?

[Janet DiFrancesco]

There's definitely a connection between money laundering and the anti-drug strategy, but with respect to the particular case I believe you're referring to in the newspapers, I really couldn't comment on FINTRAC's role, given that the investigation is active and ongoing.

Certainly FINTRAC has a role to play in both the national anti-drug strategy and in facilitating the work that CRA does, but I'm not able to actually get into any specifics in terms of actual cases that are under way.