Finance Committee on March 8th, 2011

[Denis Meunier]

Okay. I'll give you an example of pre-tax evasion as a predicate offence.

Let's say you had somebody who opened a business and opened an account with a bank. They had two or three employees, and they said they were building furniture.

The banks, after a while, would have sent us a suspicious transaction report saying that the individual had unusual activity in the account: large cash deposits, structured deposits under the threshold of $10,000, sending EFTs to a bank account in the U.S. with no rationale for it as a small enterprise, no payroll deductions, no payment of GST, no payment to suppliers.

You know, suddenly just something doesn't smell right. The individual might even have mentioned that he'd been paying the staff under the table, in cash.

We also get a voluntary information record from the police, identifying the person involved in a.... The police were involved in a drug investigation on this particular individual.

So in terms of the indicators and the kinds of transactional behaviour that we would notice, it would be the unusual or no payments to suppliers and the large cash deposits for a business that normally would have a lot more credit card or debit card accounts.

That information came from the banks. Combined with the information that we had there, as well as open source, the person didn't exist on the...or had no place of business.

All of these things indicated to us that we had reasonable grounds to suspect a money laundering offence at that time, drugs being one; the police provided the information. Of course, we reached the threshold or the determination that this looked like tax evasion as well, so we would have referred this to the RCMP.

[Shelly Glover, Conservative, Saint Boniface, MB]

It's all reactive indicators. You don't have proactive indicators?

[Denis Meunier]

Yes, we do.

[Shelly Glover, Conservative, Saint Boniface, MB]

What are those?

[Denis Meunier]

I'll go back to the pre-tax evasion situation prior to July, when tax evasion was not a predicate offence.

We run patterns. We have computer programs that help us proactively identify, with all of the information we get every day, some of these cases. If we can detect, either with a suspicious transaction report...and we get about 64,000 suspicious transactions a year, so those are good cases. We will proactively go toward the police or CRA with indications and say, look, here's a pattern that looks like drugs and tax evasion.

So we do this without being prompted by police or the CRA. We do this active analysis.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Ms. Glover.

Thank you, Mr. Meunier.

Mr. Mulcair, you have seven minutes.

[Thomas Mulcair, NDP, Outremont, QC]

Thank you, Mr. Chair.

Mr. Meunier, Mr. White, I first want to congratulate you, something we rarely do here. Your presentations were extremely clear and I sincerely thank you for that.

I want to ask you a few questions so we can find out, somewhat as Ms. Glover did, what we can do to help.

I attended a conference in London a few months ago where they gave us a statistics that astounded me. They told us that every four days, the equivalent of the GDP of the entire world is transferred on this planet. That is astounding. It means that the filters we have to put in place to try to find out what is being done properly and what is being done crookedly have to be as elaborate as what is in place.

We must not fall into what Mr. Rudderham described: it must not turn around in a nanosecond and end up in a black box in the Cayman Islands. We have to be as cunning as the people who are doing that. So that is kind of what I want to look at which you today.

One thing sometimes surprises us when we examine the cases offered as examples. I am always very careful, as well, not to drag you into our purely partisan world. I am going to try to adhere to that today.

I'm going to talk to you about a concrete case, one that has already been tried and is over: the Earl Jones case. I have the entire file, all the court documents and all the internal documents from the Beaconsfield branch of the Royal Bank of Canada, where Earl Jones did business and where he stole $50 million from his clients in an absolutely classic Ponzi scheme.

In the documents from the bank, it says at every stage:

They told him he was using an interest account for reasons that were not related to the normal establishment of such an account. It was clearly illegal and he could get into trouble.

That went on that way for years and years, in the Earl Jones case.

There is a disagreement between the Conservatives and us. They say the best thing to do is to create a national securities regulator, and I never cease to repeat that the Office of the Superintendent of Financial Institutions did nothing in the case of Earl Jones.

Does a case like Earl Jones's affect you directly or indirectly, the people at FINTRAC, or does it fall strictly within the responsibility of the Office of the Superintendent of Financial Institutions of Canada?

[Denis Meunier]

I can't comment on the Earl Jones case. However, if that kind of case arose, we would obviously rely on the reports we received from the financial institutions.

A bank that detects that kind of conduct on the part of a client is obliged to send us suspicious transaction reports when it determines that it has reasonable grounds to think that transactions are connected with money laundering. When we receive that information, we put it together, and if we reach the disclosure threshold required by the legislation, we have to share it with the police—I'm describing what happens generally. If those requirements are met, we have to disclose the information.

[Thomas Mulcair, NDP, Outremont, QC]

Thank you, Mr. Meunier, for that answer, which was just as clear as your presentation.

Now, Mr. White, while trying to stay within the bounds of nonpartisanship, I am going to ask you a question about something that is in the news and that relates to what I said.

If people are in fact able to make that kind of transfer with the click of a mouse—that isn't something that just happened yesterday, it has been at least 30 years that this has been possible—then certain things have to be done every time a new structure to facilitate the transfer of money might be put in place.

The takeover of the Toronto Stock Exchange by the London Stock Exchange, which is controlled in the Middle East, is one of the things that are on the table at the moment. Are you going to be consulted on this subject, and your opinion asked for? The Department of Industry is going to make a determination, under the law, to determine whether the transaction represents a net benefit for Canada, as we saw in the potash case.

As experts, if you are the ones having to track that case, if I may use that expression, will you be consulted and will you be able to ask that certain things be considered? In fact, it's a stock exchange located in another country, controlled in the Middle East petrodollars, that is going to be in charge of our stock exchanges here. We will have even more problems. Will you at least be consulted about this? Will your opinion be solicited?

[A/Commr Stephen White]

I can't say for certain whether we will be asked to provide any opinion or input into that. Obviously, that type of decision is a larger policy decision for the Government of Canada. If we were asked, we would have to have all the information and all the dynamics of the actual process in order to do a proper assessment of whether we would see any impact on law enforcement, criminal activity, the flow of funds, or our ability to do our work as law enforcement officials. At this point, I haven't looked at it, and I don't think any of my colleagues have looked at it either.

[Thomas Mulcair, NDP, Outremont, QC]

I have a more general question that Mr. Rudderham, Mr. White, or Mr. Foster might be able to answer. We work with other parliaments. We wind up working with people who do our jobs. We try to come up with the best ideas to put into legislative form to keep the country working in the public interest. You wind up working with law enforcement officials in other jurisdictions. As Mr. Rudderham describes the black box in the Caymans...I've been in several conferences in France where President Sarkozy has been leading the charge on this and President Obama has also been very strong. Why can't we get through that black box? Why can't we get into it? What's missing when the most powerful, most structured countries in the world say that this is a priority but we just can't get through it? What's missing?

[A/Commr Stephen White]

In a number of cases, we can get through it. We have the mutual legal assistance treaty process, and Canada has mutual legal assistance treaties with a number of countries, including a number of tax haven countries such as the Caymans.

Some countries may be more protective in releasing information related to tax investigations, as opposed to other types of criminal activity such as drug trafficking. In our experience, they've been largely cooperative. In a place like the Cayman Islands, if we have a drug trafficking investigation and we know there are accounts established in those countries, we send an official request under the mutual legal assistance treaty. For the most part, cooperation in those types of investigations has been fairly good. Because we haven't been involved in many tax evasion investigations, we haven't had much experience in dealing with other countries on tax evasion.

[Thomas Mulcair, NDP, Outremont, QC]

But theoretically it would produce the same result?

[A/Commr Stephen White]

Do you mean on tax evasion?

[Thomas Mulcair, NDP, Outremont, QC]

If we now have these predicate offences you described, which in Canada now include tax evasion on the same footing as drug trafficking, then you'll be able to go, under the same treaty, to the Caymans and say this is tax evasion money and we're allowed to—

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. Mulcair.

Could we have just a quick response?

[A/Commr Stephen White]

They're proceeds of crime. How they would react to that I can't say at this point, but that option is now available.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. Mulcair.

Thank you, Mr. White.

Before we go the second round, just out of curiosity, can I ask why, Mr. Foster and Mr. White, you're in uniform and, Mr. Rudderham, you are not? It's just curiosity.

[Insp David G. Rudderham]

I was just unaware that they were going to wear uniforms.

[The Vice-Chair, Liberal, Massimo Pacetti]

How comfortable are they, Mr. Foster and Mr. White? Your buttons are all the way up. It's pretty hot in here. Are you okay?

[Voices]

Oh, oh!

[A/Commr Stephen White]

We're fine.

[The Vice-Chair, Liberal, Massimo Pacetti]

Mr. Brison, go ahead for five minutes, please.

[Scott Brison, Liberal, Kings—Hants, NS]

I have no questions on red serge or anything like that this morning.

Further to Mr. Mulcair's questions on cooperation with other jurisdictions, given the complexity of financial instruments today and the complexity of technologies and the integrated nature of global capital markets, how would you describe the sharing of technology, methodologies, protocols, and information with other jurisdictions compared to, say, what it was 10 years ago?

[A/Commr Stephen White]

From our experience, compared to 10 years ago, I think it has evolved significantly. Whether in terms of money laundering, fraudulent activity, capital markets, or criminal investigations, in all of those areas we have very strong partners internationally, in a number of countries, especially the larger countries.

We have a lot of working groups with a number of countries, especially the United States, the U.K., Australia, and New Zealand. In all of those domains, we regularly come together to look at what is being done in each other's countries and at methodologies others may be using that we can either share or adopt. In terms of technology, for example, we just had some experts over from the United Kingdom who have some very impressive software they are now using to analyze criminal intelligence related to fraudulent activity, which we are looking at.

It's ongoing, and I would say at this point it's very good.