Finance Committee on March 21st, 2013

[The Chair, Conservative, James Rajotte]

I call this meeting to order. This is meeting number 111 of the Standing Committee on Finance.

Orders of the day are pursuant to Standing Order 108(2), continuing our study of tax evasion and the use of tax havens.

We're very pleased to have six witnesses before us this morning. From BMO Bank of Montreal, we have vice-president and senior consultant, Mr. Jean Richard. We have from the Canadian Imperial Bank of Commerce, Mr. Steven Blackburn, vice-president and chief anti-money laundering officer. From HSBC Bank Canada, we have Mr. Scott Bartos, senior vice-president and chief compliance officer. From RBC Royal Bank, we have Mr. Russell Purre, deputy chief anti-money laundering officer. From Scotiabank, we have vice-president Nanci York. From TD Bank Financial Group, we have the head of global anti-money laundering compliance, Carmina Hughes.

Welcome to all of you. Thank you so much for being here this morning. We will proceed in the order I introduced you. We'll have each witness present an opening statement of five minutes, and then we'll proceed to members' questions.

We'll begin with Mr. Richard, s'il vous plaît.

[Jean Richard, Vice-President and Senior Consultant, Wealth Management Group, BMO Nesbitt Burns, BMO Bank of Montreal]

Distinguished members of the committee, Mr. Chair, on behalf of BMO Financial Group, I'm pleased to join my colleagues from other financial institutions to assist in your discussion of tax havens and tax evasion. As you know, my colleagues from the other financial institutions mainly focus on this issue from a perspective of Canadian and international compliance. I offer a different kind of expertise, which concerns our financial institutions wealth management advisory relationship with its individual clients who have domestic, national and sometimes international financial interests.

As you have already heard from the Canadian Imperial Bank of Commerce, the CIBC, and as you will hear from my other colleagues at the table, BMO, just like the other financial institutions, does not advise clients to fraudulently avoid the payment of tax, either in Canada or elsewhere. And of course, just like any other Canadian bank, we have policies and procedures that ensure that our employees comply with both the letter and spirit of the law they are subject to. My colleagues will be able to discuss that with you. That is why we believe it is important to tell you about the services we provide for our clients.

First, we are aware that as a financial institution, we must not give our clients legal or tax advice. We recognize that advice of that kind falls exclusively within the realm of the private practice of law and tax consultancy, a practice that is limited to lawyers and accountants. Only law firms and accounting firms may give opinions to their clients, be they private individuals, corporations or public organizations. We therefore never give our clients opinions on legal or tax matters. Our role relates to the management of our clients' high net value estates and focuses on matters relating to their family, protecting their lifestyle, investing for retirement, estate planning, business continuity, and philanthropy.

Our role is limited to identifying their needs and informing them about the difficulties and the rules and the strategies available in their particular situation. For each of these areas, tax issues are an unavoidable corollary to achieving maximum effectiveness. To that extent, our mission is to make sure that our clients are informed about the tax opportunities and risks they encounter and are therefore able to seek out the professional support that will enable them to improve their situation. It is inherent in my responsibilities to ensure that our clients obtain the advice they need in order to achieve their objectives effectively. This means that in my role at BMO, I bring together the knowledge and experience of our teams of experts to provide assistance to the bank's investment advisors, to help them create sound wealth management plans for their clients.

BMO's investment advisors don't just look at tax, of course. They draw on our resources, for the exclusive benefit of our clients, by tackling the questions we have described, in order to provide them with an integrated and multidisciplinary wealth management solution. This includes all aspects of managing, protecting and transferring wealth, investment strategy, insurance, estate planning, retirement planning, cash management, planned giving, powers of attorney, trusts and wills.

Our information includes the tax aspects. However, they are only incidental to the myriad of supports we offer our clients. We work exclusively within the laws that are in force and within the limits they impose. Our goal is to make sure that our clients are not the victims of bad advice or of the risky or improper use of tax rules. Our aim is always to protect our clients and not put their personal situation at risk, and thus destroy our relationship of trust.

This committee will know of the myriad of excellent programs that are in place to give Canadians the opportunity to be tax efficient within the fiscal policies decided by Parliament. The RRSP, for instance, has long been one of the most successful retirement savings tools ever developed in Canada. There are many other tools that operate alongside it.

BMO Financial Group is a strong supporter of the recent creation of new instruments that have the dual advantage of supporting Canadians who are saving for retirement, through tax relief, while helping to achieve an important social goal: financial security for our fellow Canadians in retirement. New tools such as the tax free savings account, or TFSA, the voluntary retirement savings plan, or VRSP, disability savings plans, and for some time now, education savings plans, have been added to the fiscal tools put in place to help achieve clear public objectives.

The function of our wealth management service is to make sure that our clients take advantage of the opportunities that Canadian tax policies offer and avoid the traps that can be hiding behind the shiny returns or the smoke and mirrors. Our function is to inform them and encourage them to explore the opportunities available to them with their legal and tax advisors.

At the international level, we also have to ensure that our clients do not fall into traps, whether because of double taxation when they hold assets or property outside Canada, estate taxes on their property if they have heirs who reside outside Canada, or any other complexity that arises when different legislation intersects, whether in relation to the personal nature of liability for tax, the economic basis of tax liability or conflicting rules. International tax advice is intended primarily to avert the dangers of double taxation.

The same is true for foreign nationals who invest in Canada...

[The Chair, Conservative, James Rajotte]

Mr. Richard, I am going to ask you to finish, please.

[Jean Richard]

I am at the end, Mr. Chair.

The same is true for foreign nationals who invest in Canada, who do not want to see the capital they have invested in our economy penalized by the impact of Canadian tax liability on income from Canadian sources, while at the same time being taxed in their country based on citizenship or residence. Our role is therefore to inform our clients and make them aware of the options, within the rules.

Mr. Chair, ladies and gentlemen of the committee, BMO Financial Group is pleased to be here to discuss international taxation questions with you.

[The Chair, Conservative, James Rajotte]

Thank you for your presentation.

Next we'll hear from Mr. Blackburn, please.

[Steven Blackburn, Vice-President and Chief Anti-Money Laundering Officer, Canadian Imperial Bank of Commerce]

Thank you, Mr. Chair, and good morning.

It's a pleasure to be with you this morning at this hearing of the Standing Committee on Finance. I commend you for undertaking this study on tax havens, which is clearly an issue for all members of Parliament.

My name is Steven Blackburn, and I am the vice-president and chief AML officer for CIBC.

As many of you know, CIBC is a Canadian-based financial institution. Through our three main business units—retail and business banking, wealth management, and wholesale banking—our 42,000 employees provide a full range of financial products and services to more than 11 million individuals, small businesses, commercial entities, corporate entities, and institutional clients in Canada and around the world. CIBC was recently named the strongest bank in North America, and the third strongest bank in the world by Bloomberg Markets magazine.

In my role I am responsible for all aspects of CIBC's anti-money laundering and anti-terrorist financing regime, including our AML program, our policies and standards, inherent risk assessment, AML training, effectiveness testing, and reporting to the Financial Transactions and Reports Analysis Centre of Canada, otherwise known as FINTRAC, as well as to law enforcement agencies.

CIBC has implemented procedures to ensure that all relevant regulatory obligations with respect to client identification and reporting of suspicious transactions, large cash transactions, electronic funds transfers, and cross-border movements of cash and monetary instruments are met in each jurisdiction in which we operate.

In addition to running CIBC's financial investigations unit, I provide advice to business units with respect to the application and interpretation of AML law, our policy and standards, and the application and interpretation of Canadian and American sanctions. I also assist individual business units with the development, implementation, and monitoring of policies and procedures under our AML compliance regime, including the regular testing of their effectiveness in partnership with CIBC's internal audit group.

I know that our appearance here today is a small part of your larger study, and I'm aware that the Canadian Bankers Association presented a broad-based financial services sector perspective to you a few weeks ago.

I look forward to answering your questions this morning, along with my colleagues, and I hope we're able to provide some clarity and useful commentary as you consider this important subject.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Blackburn.

We'll hear from Mr. Bartos, please.

[Scott Bartos, Senior Vice President and Chief Compliance Officer, Chief Anti-Money Laundering Officer, HSBC Bank Canada]

Thank you, Mr. Chairman.

Good morning. My name is Scott Bartos, and I am the senior vice-president and chief compliance officer for HSBC Bank Canada. I'm the senior executive responsible for the oversight of HSBC Canada's regulatory and AML compliance program.

Just to give you some context about HSBC, we are a Canadian chartered bank operating under Canadian law and regulated by the Office of the Superintendent of Financial Institutions. Our bank is a member of the global HSBC group, and a subsidiary of HSBC Holdings PLC, U.K., one of the largest financial institutions in the world.

HSBC Canada is currently the seventh largest Canadian bank with over 140 branches across the country and roughly 6,000 employees. HSBC Canada is a significant Canadian taxpayer, having paid approximately $252 million in federal, provincial, income, and capital taxes in 2012 alone.

Since my last appearance before this committee in February 2011, events have occurred that have reinforced the need to further strengthen our efforts to combat tax evasion and all other financial crimes. The entire HSBC group, including HSBC Bank Canada, is committed to implementing industry leading controls and best practices for combatting financial crimes and tax evasion.

As a whole, the HSBC group invests approximately $500 million per year to ensure regulatory compliance and combat financial crimes. In addition, the HSBC group has taken a new approach in the industry, and they have appointed, or established, a financial systems vulnerabilities committee, which will be advised by subject-matter experts in money laundering, terrorist financing, organized crime, and tax evasion.

Our anti-financial crime strategy can be described as deter, detect, and disclose. To successfully execute this strategy, HSBC Canada has instituted the following controls and safeguards: to deter, we have instituted controls to ensure that we've verified the identities of our customers and that we understand the intended purpose of their banking relationship with us; to detect, we monitor account activity to identify transactions that do not match usual patterns, or stated customer purposes—any transactions that appear unusual are subject to further review or formal investigation by the compliance team; and to disclose, we file suspicious transaction reports, large cash transaction reports, and electronic fund transfer reports with FINTRAC, the federal government agency. To give you some idea of scale, in 2012 HSBC disclosed approximately 725 suspicious transaction reports, over 96,000 large cash transaction reports, and approximately 600,000 electronic fund transfer reports. In addition, we cooperate fully with Canadian legal authorities with respect to any formal investigations they initiate.

While we're confident that these measures will help deter, detect, and disclose financial crimes and tax evasion, we must always be vigilant. To quote our HSBC group chief executive, Stuart Gulliver, “There is no finish line when it comes to combatting financial crimes. Money launderers, tax evaders, terrorist financiers continuously implement new means of abusing financial institutions. Their efforts represent a threat to the integrity of the global financial system, and to national security. We must always be one step ahead of them. As a steward of the global financial system, we must play a full part in protecting it. In doing so, we will work side by side with governments and regulators.”

I would like to thank the committee for the opportunity to be here this morning, and to share our observations on this important topic. I would be happy to answer questions in due course.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Bartos.

We'll now hear from Mr. Purre.

[Russell Purre, Deputy Chief Anti-Money Laundering Officer, RBC Royal Bank]

Thank you.

Good morning. My name is Russell Purre, and I'm the deputy anti-money laundering officer for RBC. Prior to this, I was chief compliance officer for RBC Dominion Securities, and head of wealth management compliance here in Canada and for Latin America.

While many of you know RBC because of our presence in Canada, you may not be as familiar with our broader organization, which obviously is of importance to your committee's study. I will take a few minutes to tell you about who we are and what we do from a global perspective.

We are Canada's largest bank, as measured by assets and market capitalization. We are also among the largest banks in the world, based on market capitalization. We are one of North America's leading diversified financial services companies, providing personal and commercial banking, wealth management services, insurance, investor services, and wholesale banking, all on a global basis. We employ approximately 80,000 full-time and part-time employees who serve more than 15 million personal, business, public sector, and institutional clients through our offices in Canada, the U.S., and 49 other countries globally.

Our international activities are predicated on client service and exploring business opportunities. To use the Caribbean as an example, we've been active in that region since 1864. We actually had branches in the Caribbean before we had branches in most parts of Canada. The reason for this was that we followed the trading activities of our clients as they sailed from our original headquarters, which was based in Halifax, to pursue business opportunities to the south. Those same client services and business considerations motivate our international activities now. We are looking for competitive opportunities to service clients in our key business lines, wherever they may be.

Our goal is to have a positive impact on the economies of the communities and countries in which we do business by delivering shareholder returns, creating good jobs, paying our fair share of taxes, and purchasing goods and services responsibly from suppliers of all sizes.

To this end, last year RBC helped create economic prosperity by providing good jobs to our 80,000 employees with compensation and benefits of approximately $9.3 billion globally, by paying taxes of $3.1 billion, and by buying 5.9 billion dollars' worth of goods and services globally from 36,000 suppliers of all sizes.

We provided loans, services, and advice to businesses and organizations around the world, enabling them to operate, build, and grow.

Our reputation for trust is the foundation of our relationship with clients and the reason for our success both at home and abroad. We go to considerable lengths to ensure that we do not undertake activities that would compromise this reputation, by conducting ourselves with integrity in everything we do, guided by our comprehensive code of conduct. All RBC employees are governed by this code, which reflects our fundamental values and provides the integral foundation for the way we do business. Based on eight guiding principles, it is for all RBC companies and for all our employees globally.

We work hard to uphold the principles, policies, and procedures that promote integrity and ensure compliance with applicable regulatory requirements. Of interest to this committee will be our activities in 2012 to update our framework for managing regulatory compliance risk. We recently updated our anti-money laundering framework and related policies, and we'll continue to ensure our policies and procedures are updated to comply with new regulatory requirements, industry developments, and business processes. In the area of taxation, we fully comply with all domestic and international regulations, and we have extensive internal risk management and governance controls in place.

For any type of account opening, we follow know-your-client rules. This is the case anywhere we do business globally. This includes beneficial ownership of the funds, source of wealth, and the purpose of the activity intended in the account. We do other background checks as well, such as running our clients against a variety of global AML lists and checking to see if they are politically exposed persons.

There is an RBC enterprise-wide baseline policy that drives information collection, which derives from OSFI and FINTRAC. This is closely monitored and tested by OSFI, and we are always improving standards and procedures.

On top of our baseline policy, we also apply local standards based on local regulations in the markets in which we operate. The regulatory standards of all the jurisdictions in which we operate are very high, and the internal policies and procedures build on and enhance these global standards.

Thank you for your attention to these matters. I would be pleased to answer any questions from the committee.

[The Chair, Conservative, James Rajotte]

Thank you for you presentation.

We'll now hear from Ms. York, please.

[Nanci York, Vice-President, Enterprise Regulatory Projects, Scotiabank]

Hello. My name is Nanci York. I am vice-president of enterprise regulatory projects at Scotiabank.

I am the bank's point person for the implementation of the Foreign Account Tax Compliance Act, or FATCA. In this role I am responsible for FATCA readiness and compliance across our global operations, and as a result, have experience with international efforts to address tax evasion and tax reporting. My hope is that this experience will be of assistance to the committee as it looks for practical approaches to addressing tax evasion and tax avoidance concerns in Canada.

In reviewing past testimony before the committee, we know that bilateral approaches such as the TIEAs as well as multilateral efforts such as the OECD's Global Forum have been discussed.

If there is one key lesson I can take from the U.S. approach with FATCA, it is how important it is for Canada to avoid the problems of this model and instead pursue a multilateral, government-to-government exchange, such as the Global Forum. The peer reviews within the Global Forum must lead to changes in order for the transparency and reporting to be enhanced. With G-20 and Canadian government attention, Scotiabank believes that the most effective way to address tax evasion and tax avoidance is through this mechanism.

I'd also like to quickly add that we believe recent efforts by the CRA around self-reporting and raising awareness around tax issues, such as tax avoidance, are helpful steps in enhancing a culture of compliance and transparency within Canadian businesses.

Our own experience in international markets and our success in meeting or exceeding the requirements of the jurisdictions where we operate hinge on Scotiabank's history and continued focus on our culture of risk management, governance, and compliance. We value our reputation tremendously, and it guides our actions across our global network.

I look forward to answering your questions.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. York.

We'll now hear from Ms. Hughes, please.

[Carmina Hughes, Head, Global Anti-Money Laundering Compliance, TD Bank Financial Group]

Good morning. My name is Carmina Hughes. I'm very pleased to be here today representing the TD Bank Group.

At TD, I am the global anti-money laundering officer or, as we call it, the GAMLO. I am responsible for AML compliance in all the jurisdictions in which TD operates. I have the pleasure of leading a team that works to build and sustain a culture of anti-money laundering compliance, where all of TD's business partners understand the goals of AML and link them to their business objectives.

I have over 30 years' experience in anti-money laundering and compliance-related work in the financial sector, mostly in the U.S. I have served as a federal prosecutor, a regulator, a teacher, and a private consultant to the financial services industry, as well as working directly for TD.

As special counsel for enforcement and special investigations for the Board of Governors of the Federal Reserve System, I served on the front line of the U.S.A. Patriot Act and the Bank Secrecy Act implementation efforts and compliance. I represented the board at the Financial Action Task Force, FATF, an international standard setter, and at other international bodies, thereby gaining a broad understanding of other AML regimes, as well as commonly recognized money-laundering and terrorist financing schemes.

In my years as a federal prosecutor, I investigated and prosecuted many fraud and financial sector crimes, including money laundering and income tax evasion.

I'm happy to be here today to speak to the Canadian AML regime and the ways in which the AML rules help to prevent and deter the illegal use of tax havens, and to discuss any other topics to which my experience may be relevant or helpful.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. Hughes, for your presentation.

We'll begin questions from members with Ms. Nash.

I will indicate to our witnesses that there is a five-minute maximum for a member's time as well, so their time is limited.

I would ask the members to direct their questions as best they can to one or more witnesses.

Ms. Nash, please.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you, Mr. Chair.

Good morning, everyone. Thank you for being here today.

Because I have just five minutes, I'm going to try to get in three different questions.

I want to start by referring to a point made by Ms. York. You indicated that, given your experience with FATCA, you are in favour of multilateral rather than bilateral agreements. This is something that we have been looking at.

Could I get a quick yes or no from each of the witnesses as to whether you favour multilateral agreements or bilateral agreements? Multilateral, yes or no?

Monsieur Richard.

[Jean Richard]

Multilateral.

[Steven Blackburn]

Multilateral.

[Scott Bartos]

Multilateral.

[Russell Purre]

First, I commend the work that's been done in establishing international tax treaties and also the establishment of TIEAs, which I think are ultimately a much more effective tool in terms of addressing the needs of the Canadian government and the Canadian populace.

[Peggy Nash, NDP, Parkdale—High Park, ON]

So do you prefer bilateral agreements?

[Russell Purre]

I would prefer multilateral agreements.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Multilateral.

Ms. Hughes.

[Carmina Hughes]

Multilateral.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Okay, thank you.

Going back to you, Mr. Purre, you talked about the RBC approach, know your client, and the importance of determining beneficial ownership for clients who open accounts. You talked about compliance with regulations in Canada and in the country where the subsidiaries are based.

In those countries where you have subsidiaries, does RBC comply only with the local regulations, or are there company-wide standards that would apply regardless of the country?