Finance Committee on March 8th, 2011

[The Vice-Chair, Liberal, Massimo Pacetti]

Good morning.

Good morning to the witnesses.

We are here in accordance with Standing Order 108(2) to study tax evasion and offshore bank accounts.

We have two groups of witnesses: people from the Financial Transactions and Reports Analysis Centre of Canada, and people from the Royal Canadian Mounted Police.

I think you have 10 minutes more or less, Mr. Meunier. Go ahead.

[Denis Meunier, Assistant Director, Financial Analysis and Disclosures, Financial Transactions and Reports Analysis Centre of Canada]

Thank you, Mr. Chairman.

I would like to make a brief opening remark about FINTRAC's mandate and what we do.

With me today is our senior legal counsel, Yvon Carrière.

The legislation adopted by Parliament in 2000, the Proceeds of Crime (Money Laundering) Act, created FINTRAC as an independent agency reporting to the Minister of Finance with a mandate to detect, deter, and prevent money laundering. In 2001, post-9/11, the Anti-terrorism Act added combatting terrorist activity financing to our mandate.

FINTRAC is Canada's financial intelligence unit, or FIU. We have a staff of slightly over 300, and we have three regional offices in addition to our headquarters.

We are a unique agency in Canada, as our mandate is both to analyze financial transaction information and disclose certain information to investigators within the thresholds, and to provide strategic-level financial intelligence.

The Minister of Finance is responsible to Parliament for our act and for making proposals for amendments to the act and the regulations made under it.

I think it is important to clarify exactly what money laundering is. The Financial Action Task Force, or FATF, defines money laundering as the processing of the proceeds of criminal acts to disguise their illegal origin. In essence, money laundering makes it more complicated to identify the criminal origin of the money, which is now clean. That is where we come in.

Under Canadian law, a money laundering offence involves various acts committed with the intention to conceal or convert property or the proceeds of property, such as money, knowing or believing that these were derived from the commission of a designated offence.

In this context, a designated offence means most serious offences under the Criminal Code or any other federal act. It includes, but is not limited to, those relating to illegal drug trafficking, bribery, fraud, forgery, murder, robbery, counterfeit money, stock manipulation, and, since very recently, tax evasion.

To give you the most accurate picture of our agency, I would also underline what FINTRAC is not. We are not an investigative body. We do not have powers to gather evidence, lay charges, seize and freeze assets, or create watch lists of suspect terrorist financiers. FINTRAC does not investigate or prosecute suspected offences.

Rather, we are an analytic body that produces financial intelligence to be disclosed, if appropriate, to help further investigations conducted by law enforcement and security agencies and to provide strategic-level analysis to policy departments and assessment agencies.

Because we hold millions of financial transaction records of Canadians, Parliament wanted to ensure that the act was drafted quite carefully to be very specific and clear on what information we can receive and what information we can disclose. The act stipulates that we can only release information to police where we have reasonable grounds to suspect that the information would be relevant to an investigation or prosecution of a money-laundering offence or a terrorist activity financing offence.

Furthermore, the act requires that, once FINTRAC has reached that "reasonable grounds to suspect" threshold, it must disclose that information. In the same way, once FINTRAC has reasonable grounds to suspect that certain information would be relevant to threats to the security of Canada, the act stipulates it must disclose that information to the Canadian Security Intelligence Service.

Our job, in brief, is to provide financial intelligence leads to law enforcement and to national security and intelligence agencies. We are a resource for every police department in Canada, with a unique ability to follow the criminal money trail across the country and around the world.

We also disclose information to the Canada Revenue Agency, the Canada Border Services Agency and the Communications Security Establishment when specific additional statutory tests in relation to disclosure to these agencies are met. Finally, we may disclose information to foreign financial intelligence units, as well.

Our work begins with the daily intake of over 65,000 reports on several kinds of financial transactions from a variety of businesses, which we call reporting entities. The most prominent of these entities are banks; however, we also receive reports from casinos, credit unions, life insurance companies, and money service businesses, not to give you an exhaustive list, but all of whom are obligated by the act to send reports to us.

We received several categories of reports. We are required by law to receive terrorist property reports, suspicious transaction reports, or STRs, and reports of attempted suspicious transactions, large cash transaction reports of $10,000 or more, or LCTRs, casino disbursement reports, and reports of international electronic funds transfers, or EFTs, of $10,000 or more. When I say “international”, I mean EFTs entering or leaving the country. We are not authorized to receive reports of domestic EFTs.

Over the years we have built a very large database of these different types of transaction reports. Through sophisticated computer programs and the skills of highly trained and experienced analysts, we can analyze this data from both a tactical and strategic perspective and understand it in combination with information from other sources, such as law enforcement databases, commercially or publicly available databases, and sometimes information from foreign financial intelligence units.

We specifically look for financial transactions and patterns that make us suspect money laundering or terrorist activity financing. As you can imagine, the movement of illicit funds is often a well-hidden and complex affair, involving hundreds and sometimes even thousands of transactions, as well as dozens of individuals and companies.

I would like to note that our act was carefully crafted to provide the highest possible protection for personal information, while also making it possible for some information to be disclosed to law enforcement.

We are the only federal agency whose mandate specifically includes an obligation to ensure the protection of personal information under its control. Our data banks cannot be accessed by any other outside body. And the act provides for serious criminal penalties to be applied to the unauthorized disclosure of information.

Now let me turn to the subject of interest to this committee, that is, tax evasion by Canadians through use of offshore bank accounts.

In the last two years, we have stepped up our disclosures to the Canada Revenue Agency, sending them 287 cases. These disclosures have been used for criminal investigation into tax matters and also by their Special Enforcement Program, which targets those persons suspected of deriving taxable income from such crimes as commercial fraud and drug trafficking. We know from feedback from CRA that our disclosures have been useful to them in carrying out their investigations and audits and recovering millions in federal taxes.

Until just recently, FINTRAC could provide case disclosures to the Canada Revenue Agency when a dual threshold was met. First, there had to be a reasonable suspicion that the information being disclosed was relevant to money laundering, and secondly, a determination had to be made that the information was relevant to tax evasion.

In the cases we disclosed to the CRA in the past, the predicate offence was very often linked to drug trafficking or fraud. I might add that in these cases the police are the lead investigators, and the culprits are usually investigated in relation to the predicate offence and money laundering. In other words, the law did not permit us to use tax evasion as a predicate offence, that is, the criminal activity giving rise to the proceeds from which to build a case disclosure.

With the recent adoption of Bill C-9, we are now permitted to use tax evasion as a predicate offence from which to build a case disclosure. The Criminal Code regulations were amended to make tax evasion a predicate offence to money laundering when determining whether to send a case to the CRA.

But equally important, just weeks ago, on February 14, pursuant to the coming into force of the regulations to the bill, the threshold for disclosing information to CRA was lowered from “determining” to “reasonable grounds to suspect” that the information being disclosed is relevant to tax evasion.

As you may know, we received additional funding in Budget 2010 to help fight tax evasion. FINTRAC analysts recently received in-depth training on the impact of these legislative and regulatory changes. Also, we received training from CRA specialists on tax evasion with respect to the work they do.

In cases of money laundering, we have developed what we call indicators of money laundering, which are used more or less by financial intelligence agencies around the world to determine money laundering. We have now done the same with tax evasion, through the assistance of CRA. Over the last three years we have worked with the Canada Revenue Agency to develop indicators of tax evasion that would help our analysts determine when cases could be referred to the CRA.

With the changes in the law, the additional funding, and with such training, we feel we are poised to provide more information to help tax investigators with their tax evasion cases.

Thank you.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Monsieur Meunier.

From the Royal Canadian Mounted Police...I'm not sure who's going to do the presentation.

Mr. White, go ahead.

[Assistant Commissioner Stephen White, Director General, Financial Crime, Royal Canadian Mounted Police]

Good morning, Mr. Chair and members of the committee. Thank you very much for inviting us to participate in today's hearing.

I have here with me today Superintendent Stephen Foster, who oversees our commercial crime branch at our headquarters in Ottawa, and Inspector Dave Rudderham, who oversees our commercial crime unit in the city of Winnipeg. I am the director general for the RCMP's financial crime programs.

I'm pleased to have this opportunity to say a few words about financial crime, our involvement related to income-tax-related investigations, and our ongoing relationship with the Canada Revenue Agency.

In today's complex and increasingly global environment, criminal activity often involves multiple jurisdictions. Criminals today are becoming much more sophisticated in disguising their illegal profits without compromising themselves. Criminals are now taking advantage of the globalization of the world economy by transferring funds quickly across international borders. Rapid developments in financial information, technology, and communication allow money to move anywhere in the world with speed and ease, making it much more difficult for law enforcement scrutiny and providing criminal organizations new financial avenues. As a result, addressing increasingly complex transnational financial crimes requires law enforcement to work closely together with domestic and international partners.

Generally, tax evasion involves individuals or companies attempting to conceal income earned from taxation authorities. This same increasingly connected global environment also creates significant opportunities for tax evasion-related activities. In August 2010, Bill C-9 amended the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, making tax evasion a designated predicate offence for money laundering. In other words, tax evasion is a criminal offence that, if committed, could give rise to criminal proceeds—the evaded taxes. In addition, laundering the proceeds of tax evasion will also be a money laundering offence.

Unlike the Canada Revenue Agency, the RCMP is not a primary recipient of tax evasion information. CRA has its own investigative capacity and is well positioned to investigate tax evasion. As a result, the RCMP generally does not investigate income tax evasion related to legitimate funds earning income offshore.

When the RCMP does identify activity related to income tax matters, it is almost always incidental to an investigation we are conducting on another matter. When feasible, matters are referred to the CRA for their action.

The RCMP commercial crime and integrated proceeds of crime programs have long had a close working relationship with the Canada Revenue Agency. The working relationship between the CRA and the RCMP commercial crime program dates back to the early 1970s, and the integrated proceeds of crime units have been working closely with the CRA since they were created in the mid-1990s. The RCMP may share information with the CRA; however, the RCMP only shares information with the CRA when it is permitted by law and the sharing will not jeopardize an ongoing criminal investigation.

Information sharing between the Canada Revenue Agency and the RCMP as it relates to income tax matters is generally from the RCMP to the CRA. The Canada Revenue Agency does not generally make referrals to the RCMP. When requested by CRA investigators, the RCMP does provide assistance to them. In some instances, tax-related information may be provided by the Canada Revenue Agency to the RCMP pursuant to a judicial order under the Criminal Code or after charges have been laid in relation to a criminal investigation.

Through the RCMP integrated proceeds of crime program, the RCMP regularly shares and refers information to the Canada Revenue Agency regarding tax-related matters. Between March 1999 and March 2009, the RCMP proceeds of crime program made referrals to the Canada Revenue Agency that resulted in federal tax assessments totalling approximately $145 million.

In preparation for this appearance, we conducted a search of the RCMP's occurrence records and found that for the same 10-year period, from 1999 to 2009, the RCMP initiated 542 files related to the Income Tax Act. These files pertained primarily to providing assistance to the Canada Revenue Agency.

Within the RCMP financial crime program we currently do not have any investigative resources dedicated solely to tax evasion. However, with the recent legislative amendments I just mentioned, the future may see the RCMP becoming more involved in investigating tax evasion connected to proceeds of crime and money laundering.

As I indicated earlier, the changing environment is one of the greatest challenges we face in our efforts to combat all types of financial crime. The growing sophistication of criminal activity is abetted by the same techniques and technologies that spur legitimate opportunities for business.

As Canada's national police service, the RCMP recognizes that it has an important role to play in combatting financial crime and helping to protect Canada's economic integrity.

Mr. Chair, honourable members of the committee, that concludes my prepared remarks. I would now be happy to answer any questions you may have.

Thank you.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. White. We will go directly to members for questions.

[Shelly Glover, Conservative, Saint Boniface, MB]

I have a point of order.

[The Vice-Chair, Liberal, Massimo Pacetti]

Yes, go ahead.

[Shelly Glover, Conservative, Saint Boniface, MB]

The point of order has to do with the conversations we had, prior to receiving these witnesses, with regard to going in camera, simply because of the nature of some of the questions we may have and the need to protect the secrecy of the investigation.

I would ask my colleagues around the table if we can now proceed to go in camera so that we can ask specific questions, such as about indicators and so on. I know that we had this conversation before. I'm a little surprised that we're in public, because it was decided that we would be inviting the police to go in camera.

I would refer that to you, Mr. Chair.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you.

It's not necessarily a point of order, but it's something we discussed at the steering committee.

Can I first ask Mr. White and Mr. Meunier if it would it be preferable if we were in camera? Then I'll go to the members.

[A/Commr Stephen White]

We can tailor our responses accordingly.

[The Vice-Chair, Liberal, Massimo Pacetti]

If we were in camera, would you speak of a specific case anyway?

[A/Commr Stephen White]

I would probably not speak about specific details of an investigation.

[The Vice-Chair, Liberal, Massimo Pacetti]

What about Monsieur Meunier?

[Denis Meunier]

The law would prevent us from disclosing any specific information about individuals. However, there are a few indicators we could share with you that are public knowledge. But we would reserve judgment, for operational reasons, about going into more details. There are some that are publicly available that the committee may wish to hear about again.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you.

Members, the committee meeting is not televised. It's up to the members. I'll just hear one or two interventions, and then we'll decide.

Mr. Szabo, you wanted to speak.

[Paul Szabo, Liberal, Mississauga South, ON]

For the purposes of our study, I wasn't anticipating getting involved with any specific cases.

Given the disclosures that have been made already about the things you do and the things you monitor, and so on, I suspect that most of the things you're going to talk about flow from what's already been said.

I'm more interested in whether the witnesses could at least give me, for my edification, a little bit of information about what these other--

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. Szabo. I just want to get a feeling from the.... It's not your question period. You're speaking to the chair, not to the witnesses.

Monsieur Paillé, I want to hear you.

[Daniel Paillé, Bloc, Hochelaga, QC]

Mr. Chair, I will go along with your wishes.

I would like the session to remain public. One way or another, we are going to hear it on Enquête or another program.

[The Vice-Chair, Liberal, Massimo Pacetti]

I will inform you that the meeting on March 22 will be in camera.

[Thomas Mulcair, NDP, Outremont, QC]

If I assume that Mr. White's answer to be that he might have "tailored" his responses, as he just said, I think, personally, that even the in camera sessions are held in the presence of staff and a lot of people. If it is only because of that, I prefer that the session remain public. In the event that there were really things that he thinks he could tell us in camera, we could make a decision on that later. But for now, the presentation was relatively factual and I don't think there is any reason to change the general rule of Parliament, which is openness.

[The Vice-Chair, Liberal, Massimo Pacetti]

Perfect.

Ms. Glover, you have the floor.

[Shelly Glover, Conservative, Saint Boniface, MB]

I'm going to ask my colleagues to then consider inviting Mr. Rudderham to come back, simply because I intend to ask questions, given my law enforcement background, that deal with specifics on how we improve what we have. Without being able to ask questions with regard to how they get from A to Z, which in a public setting would actually educate those who want to commit crimes, it's going to be very difficult to complete a thorough study.

I'll agree with my colleagues that we continue today in public, but if we intend to do a fulsome assessment of this problem and get to some suggestions from the grassroots folks who are working in it, I would suggest that we re-invite Mr. Rudderham.

[The Vice-Chair, Liberal, Massimo Pacetti]

Okay. Thank you.

[Shelly Glover, Conservative, Saint Boniface, MB]

If I could, I'll just finish, Mr. Chair.

I think for today's purposes we will stay high level, but I would like to hear whether my colleagues are in agreement that we invite the RCMP back.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Go ahead, Mrs. McLeod.