Finance Committee on March 21st, 2013

[Russell Purre]

I have a couple of things within that. A jurisdiction established for the purposes of tax evasion is not a jurisdiction in which RBC would ever operate or engage in business activities.

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

In the definition, we referred to tax avoidance.

[Russell Purre]

With respect to tax avoidance, when we talk about tax avoidance or tax minimization, almost all governments on earth have some form of that, including the Canadian government. If we look at the RSP program and RESPs, they are effectively tax avoidance regimes. Those are useful tools for Canadians as far as saving for their retirement and for their children's education is concerned, and it's something that is fully encouraged by the Canadian government and others. When we talk about the extreme of that, about regimes set up for the purposes of facilitating the evasion of taxes, that's where we have to look at multilateral frameworks and the government's ability to share information.

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

I understand, but I am asking whether you consider that definition, which refers to tax avoidance, to be accurate. So that is a tax haven, as the former economic advisor to the island of Jersey put it. I would like to have your definition of what constitutes a tax haven.

[Russell Purre]

Ultimately, I would look at a tax haven or a jurisdiction that again facilitates tax evasion. I view those as very similar, and that's where at the outset I had mentioned that our view of what a tax haven is does fall in that category of where we would not conduct business activity.

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

I would like to come back to something in your presentation.

You said that RBC, the Royal Bank, has established branches in the Caribbean, for example, to take advantage of business opportunities. When we talk about business opportunities, we are generally talking about emerging countries where there are opportunities to invest in rapidly developing economies.

However, if we look at places like the Cayman Islands, in 2011 alone, Canadians invested about $28.5 billion there. The Cayman Islands has a population of about 55,000 people, which is about the equivalent of the population of Rimouski, in my riding, and about half the population of my riding. I can imagine what the people of Rimouski might do with an investment of $25 billion. That is what they have in the Cayman Islands at present.

So I would like to know why you say you are simply following people's desire to invest in business opportunities in places like the Cayman Islands, for example, when, if we are talking about direct foreign investments, we are generally talking about countries where investments can be made in the economy when there is an indication that the economy is growing, such as in the emerging countries, for example.

[Russell Purre]

I think $25 billion would be a windfall for any riding in Canada. That said, I think that number is a little misleading because that $25 billion is with respect to the flow of transactions through a jurisdiction such as Cayman. If you look at a country—take Canada—that is a very trade and export oriented economy, engaging in international business is a key element of the Canadian success story when it comes to the economy of our country. The ability to facilitate that through a variety of jurisdictions, Cayman among them, is important within that as far as the global competitiveness of Canadians, Canadian business, and financial institutions is concerned, which ultimately brings benefit back to this country. Barbados would be another good example where you do see a high volume of activity flowing through that country. That is not $25 billion invested in Cayman. That's $25 billion flowing via financial transactions through that jurisdiction.

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

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Monsieur Caron.

Mr. Adler, go ahead, please.

[Mark Adler, Conservative, York Centre, ON]

Thank you, Mr. Chair.

I want to thank all of you for being here today. Today seems to be a very popular day for bankers in Ottawa. I don't know what's going on.

I want to preface my comments by saying that our government has been fairly active on the closing of tax loopholes since 2006. In fact, we closed over 50 of them, recouping about $2.5 billion annually in taxes owed, all measures and all initiatives which were opposed by the NDP and the Liberals, I may add.

I want to discuss with you the measures you take against terrorist financing. I first want to get an indication of how closely you evaluate potential candidates for employment within your organizations.

Carmina, I'll start with you, because you also have the U.S. experience to speak about. How closely do you evaluate before you hire someone, and then how closely do you monitor them during the course of their employment?

[Carmina Hughes]

We do a number of things upon someone's application in order to determine whether they are worthy of being hired at TD Bank, whether in the U.S. or in Canada. One of the things we do for all employees is to run through the sanctions lists with them. There are multiple lists here as well as in the EU and the U.S.

We do background checks in both jurisdictions. In order to ferret out things like illegal drug use, etc., we take urine tests, and we take fingerprints. We do quite a bit of work to make sure at the outset that our employees are people who should be entrusted with these positions on a going forward basis.

I think TD worldwide has 83,000 or more employees, quite a large number, and to suggest that we monitor every single action of every one is, I think, impractical, but we do have other things in place to look at financial activity. Their accounts are monitored just as anyone else's accounts at TD would be. Certainly for trading and other activities, we have heightened types of processes to look at where they're trading and how they're trading.

[Mark Adler, Conservative, York Centre, ON]

Okay. When comparing Canada to the U.S., because you have the experience of working under the Patriot Act, how do our two jurisdictions compare in terms of combatting terrorist financing and terrorist transactions?

[Carmina Hughes]

I think they're very similar, actually. There are some nuances, certainly, that are different. In Canada there are more prescriptive requirements in terms of opening accounts than there are in the U.S. I think it's an often misunderstood notion that the U.S. is more regulated than are other countries in this area, because it's not. The regulations that came about as a result of the Patriot Act were the first big slew of regulations that the U.S. had promulgated in some years. The Americans are generally quite opposed to anyone having information about them personally, particularly their banks. So as a result there has been in the U.S. an evolution of regulatory guidance and expectation. That's really the case anywhere we operate. It's the same in Canada. There are rules and then there are what the regulators expect you to have over, above, and beyond the rules. We all adhere to those expectations.

[Mark Adler, Conservative, York Centre, ON]

Okay.

Mr. Bartos, you indicated earlier that there is no finish line in combatting financial crimes. How sophisticated are these terrorist organizations when it comes to laundering money and to financing operations? Is this kind of activity limited to terrorist organizations or do you find different states also engaged in it?

[Scott Bartos]

Certainly, I think we find that the illicit actors, whether they be terrorist financiers or what you might call organized crime or other money launderers, are quite sophisticated. The tactics they use to avoid detection continually evolve and change, so detecting them always places strains on governments, law enforcement, and banks. I would say the level of sophistication is relatively high. They're continually finding new techniques.

[Mark Adler, Conservative, York Centre, ON]

How much coordination is there between all the banks when it comes to trading information on best practices and that sort of thing?

[Scott Bartos]

There are two forms.

One is obviously the sharing of best practices. There are a number of industry initiatives, whether it's through the CBA or some non-industry associations where we meet, learn, and discover best practices by others. There's obviously informal interaction.

The second way is through a legally enshrined ability to share information between banks. When we believe there are people conducting suspicious transactions, there is an ability for bank-to-bank communication about that client once we meet the legal threshold. I approach it from two ways, both learning best practices and then following up on the specific—

[Mark Adler, Conservative, York Centre, ON]

Can I ask one more question?

[The Chair, Conservative, James Rajotte]

You're well over your time, Mr. Adler. I apologize.

Mr. Côté, you have the floor.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Thank you, Mr. Chair.

I want to thank all the witnesses for being here with us.

I would like to thank you, Mr. Richard, for addressing the question of the agreements to avoid double taxation that have been signed with some countries. That principle is entirely valid, in essence. In addition to sitting on the Standing Committee on Finance, I have the privilege of being on the Standing Committee on International Trade. Unfortunately, I have been in a position to observe the very naive and very problematic approach this government takes to free trade agreements. I see that it takes the same problematic approach to these agreements.

On Tuesday, at our meeting on Bill C-48, we were able to demonstrate the problems that are inherent in the process that involves introducing a 1,000-page technical bill after a very, very long time has passed. Brigitte Alepin talked about the new rules for upstream loans. I will not ask you to comment on that subject, which is really very technical and very difficult to grasp. She said that in themselves, these new rules were perfectly valid, which was very interesting. However, she saw a problem, a potential contradiction, in putting these agreements to avoid double taxation in place with certain tax havens, or certain countries that might be considered to be tax havens. Obviously, this is a political issue. It is a matter of making decisions. I hope the government will hear what I am saying about this kind of problem someday. I will not ask you to voice an opinion on that, but do you and your colleagues think that every country in the world merits an agreement with Canada to avoid double taxation? Could we very well think that we might avoid entering into this kind of agreement with certain countries?

[Jean Richard]

First, Canada has signed slightly over 80 double taxation agreements. I am not including agreements for the exchange of information in those agreements. About 190 countries are members of the United Nations. So we can see that there are double taxation agreements with fewer than half of those countries. There are reasons why this is the case. Some countries do not need to have a double taxation agreement, because they do not collect the same kind of income tax as we do. In any event, all countries need financial resources to meet their needs. In some countries, the word "merits" is a word that has a value connotation and I would not want to express an opinion on that. Does Canada need to have double taxation agreements with every country? I think not, given the situation. On the other hand, I think that signing information exchange agreements should be the norm.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Obviously, but that is another matter.

[Jean Richard]

Should they be individual or multilateral? A multilateral agreement promotes a healthier exchange.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

I agree with you.

[Jean Richard]

As well, the exchange must be done on request or be mandatory, again based on the information. All of that is subject to the constraints imposed by the Charter and by privacy legislation. These are very complex areas.