Finance Committee on March 21st, 2013

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Ms. York, what do you say?

[Nanci York]

The term “tax haven” has such a broad level of definition. Every jurisdiction to some degree has either low taxes, transparency, economic activity, or corruption. To do business in those countries you need to look at a number of different factors in order to make an investment.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Ms. Hughes, what do you say?

[Carmina Hughes]

We take an approach similar to that of HSBC. We find that looking simply at the tax laws in a jurisdiction doesn't provide us enough information to determine what the risk of that jurisdiction is from a money laundering and terrorist financing and anti-corruption and anti-bribery perspective, so we look at a number of factors as well.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

My question is for anyone who wants to answer.

Let us talk about direct foreign investment. In the case of Barbados, as Mr. Rankin mentioned, we are talking about $53 billion in direct investments; for the Caymans, it is $25 billion; for Ireland, it is $23 billion; and for Luxembourg, it is $13 billion. Under your own definitions, are these countries tax havens?

[Jean Richard]

I would ask this. Are these financial destinations the end destinations, or are they places of transit for the funds?

That distinction has to be made. Most of the time, with the exception of Ireland, these are countries of transit, not countries of destination.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

These are countries of transit, to avoid a tax system in one country or the other: the country of origin or the country to which the funds are destined.

[Jean Richard]

It could be simply to avoid double taxation. There are multiple reasons. We cannot make assumptions and draw conclusions without having the facts, however. That would be leaping to conclusions.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

I will conclude by saying that your definition of a tax haven is actually very broad, but it does not apply to many countries, despite what some economists at the Canada Revenue Agency will tell us. That is what I conclude.

[Jean Richard]

It all depends on what you are looking for. In fact, it is more a question of fiscal competitiveness. Each country chooses to tax certain sectors differently. For example, if you are talking about the Caribbean, taxation will relate much more to what comes into the island than to income. However, that does not mean that the country does not levy taxes. It has chosen other taxes specific to its situation and its capacity to develop its economy.

I do not think we can attack a country and say it is a tax haven based simply on the fact that it does not levy taxes that are similar to ours.

[The Chair, Conservative, James Rajotte]

Merci.

We'll go to Mr. Adler, please.

[Mark Adler, Conservative, York Centre, ON]

Thank you, Mr. Chair. I'll be sharing my time with Ms. Glover.

I just have a couple of questions. I think we can all agree that the integrity of the global financial system is of paramount importance.

The first of my very short questions is, could any of you tell me if you've ever identified a sovereign state behind an illegal financial transaction? Is there anybody from any of the financial institutions who has ever identified a sovereign state? No? Yes? No?

[A voice]

[Inaudible—Editor]

[Mark Adler, Conservative, York Centre, ON]

Okay.

My second question, before I turn it over to Ms. Glover, is that I read an article recently that the Pentagon in the U.S. doesn't import any of its software. They manufacture their own software because they have identified bugs in software that has been manufactured overseas, and it's the ability, perhaps, of foreign governments or foreign entities to trigger certain mechanisms within the software at particular times to infiltrate the computer systems of the Pentagon. Is that a practice at all within the financial institutions that any of you are aware of? Do you import all of your software, or don't you know?

[The Chair, Conservative, James Rajotte]

Mr. Purre.

[Russell Purre]

The short answer is I honestly don't know. I think when we look at software, as a rule much of the software per se we end up writing ourselves, just based on the nature of activity and the organization as a whole. Our vulnerability to actually buying dedicated pieces of software and bringing those into the organization, in each instance those are going to be significantly customized, if not written from scratch, internally.

[Mark Adler, Conservative, York Centre, ON]

The software then would be domestically manufactured.

[Russell Purre]

In many instances, yes.

[Mark Adler, Conservative, York Centre, ON]

That probably goes with the others, I would suspect.

[Nanci York]

Yes. When that's not the case, we have very stringent information security that all of our new software must go through.

[Mark Adler, Conservative, York Centre, ON]

Thank you. That's what I need to know.

[The Chair, Conservative, James Rajotte]

Ms. Glover, please.

[Shelly Glover, Conservative, Saint Boniface, MB]

Mr. Bartos, you mentioned that recent events occurred that led your organization to change or enhance your regime, which I found interesting. I'm not sure if you can tell me whether it was an internal event or an external event, but I'd like to learn from you what might trigger that kind of enhancement.

RBC, I'd ask you to answer as well because you said the same thing, that recently you had an enhancement.

[Scott Bartos]

Certainly, there were external events that caused us to re-examine our overall control structure. It was well publicized that HSBC group had a large settlement with the U.S. authorities and U.K. authorities. That was preceded by a lengthy investigation in which we cooperated fully with law enforcement. I think through that process HSBC Group learned many lessons about control structures and what we needed to do better.

There was a case study issued by the U.S. Senate that has many lessons learned that other financial institutions are focusing on. I would say it is a combination of those external factors as well as interaction with local regulators and regulators around the world that is increasing the focus on bringing standards

[Russell Purre]

I would say in this instance we were somewhat thankful to be able to learn from the lessons of others. By that I mean certainly the experience of HSBC, but we also look at Standard Chartered, UBS, Citigroup, and J.P. Morgan, all very large global institutions with historically significant very strong controls in place due to a changing landscape and ultimately a continuously evolving challenge in terms of anti-money laundering controls. There are always lessons to be learned from that, and our policies and procedures evolve with that.