Thank you very much, Mr. Chair.
Thank you, chairman and committee members, for the opportunity to appear before this committee at its inaugural meeting to study terrorist financing.
My intention today is to give you an overview of Canada's efforts to combat terrorist financing. These efforts fall within a wider framework known as the anti-money laundering and anti-terrorist financing regime, which I will refer to as the “regime.“
I will provide you with an overview of the current threats Canada faces from terrorist financing and how this affects Canada's safety and security as well as its economy. I will next provide a summary of how Canada is engaging internationally in the fight against the financing of terrorism. Finally, drawing on the recent report from the financial action task force on the financing of the terrorist organization the Islamic State in Iraq and the Levant, or ISIL, I will outline what the international community currently understands about the financing of this organization and what we are still seeking to learn.
After Mr. Cossette and I have finished our opening remarks, we would be pleased to answer any questions you may have.
With respect to the domestic AML and ATF—anti-money laundering and anti-terrorist financing—regime, I would like to provide an overview. It is a comprehensive, horizontal initiative led by the Department of Finance that comprises 11 federal departments and agencies. The goal is to detect, deter, and facilitate the investigation and prosecuting of money laundering and terrorist financing offences, which contributes to the overall objective of protecting the integrity of Canada's financial system and the security of Canadians.
Of the 11 partners, seven receive incremental funding totalling roughly $70 million annually to support their activities. These partners are the Department of Finance, FINTRAC, the Department of Justice, the Public Prosecution Service of Canada, the Royal Canadian Mounted Police, the Canada Border Services Agency, the Canadian Security Intelligence Service, and the Canada Revenue Agency. The remaining partners contribute to the regime but do not receive dedicated funding. They include the Office of the Superintendent of Financial Institutions, Public Safety Canada, and Foreign Affairs, Trade and Development Canada.
In addition to combatting money laundering and terrorist financing, the regime complements the work of law enforcement and intelligence agencies related to serious and organized crime and national security threats. It is a key component of Canada's broad counterterrorism strategy.
The regime operates on the basis of three interdependent pillars: policy coordination, prevention, and disruption. Each regime partner plays an important role.
The first pillar is the regime's framework and coordination led by the department. The Proceeds of Crime (Money Laundering) and Terrorist Financing Act, or PCMLTFA, is the primary piece of legislation that establishes this framework. The act requires financial institutions and intermediaries to identify their clients, keep records, and have an internal compliance program in place. The act also creates a mandatory reporting system for suspicious financial transactions, large cross-border currency transfers, and certain proscribed transactions. The legislation also established FINTRAC, and authorizes it to collect and analyze financial transaction reports and to disclose pertinent information to law enforcement and intelligence agencies.
The second pillar is the prevention of terrorist-linked funds or the proceeds of crime from entering the financial system. The onus for this deterrent approach falls to the financial institutions and intermediaries who are the gatekeepers to the financial system, and to the regulators, FINTRAC and the Office of the Superintendent of Financial Institutions, or OSFI, who ensure the compliance of these regulated businesses.
The detection and disruption of money laundering and terrorist financing represents the final pillar. In this pillar, regime partners such as CSIS, CBSA, and the RCMP, supported by FINTRAC intelligence, undertake investigations that follow the money in cases of money laundering, terrorist financing, and other financial crimes. The Canada Revenue Agency plays an important role in detecting charities that are at risk and ensuring that they are not being abused to finance terrorism.
The regime also has a robust terrorist listing process to freeze terrorist assets, pursuant to the Criminal Code and UN regulations, which is led by Public Safety Canada and Foreign Affairs respectively. In total, Canada has listed 90 terrorist entities under these two listing regimes.
Finally, the Public Prosecution Service of Canada ensures that crimes that threaten national or international security, including terrorist financing, are prosecuted to the full extent of the law.
The regime is a made-in-Canada approach to dealing with the threats of money laundering and terrorist financing, which respects the constitutional division of powers, the Charter of Rights and Freedoms, and the privacy rights of Canadians. The regime is also consistent with international standards that are developed by the Financial Action Task Force, the international anti-money laundering and counter-terrorist financing standards-setting body.
Canada's regime is regularly reviewed and enhanced to address emerging risks. The Proceeds of Crime (Money Laundering) and Terrorist Financing Act is reviewed by Parliament every five years. The regime is also subject to a number of formal reviews and audits, including a five-year performance evaluation and a biennial privacy audit of FINTRAC from the Office of the Privacy Commissioner.
Most recently the Standing Senate Committee on Banking, Trade and Commerce issued a report of its five-year review in March 2013. The department supports the committee's goal of improving the effectiveness of the regime and many of its key recommendations, which can be broadly categorized in three themes—implementing the regime structure to increase performance, enhanced information sharing, and ensuring an appropriate scope for the regime. The government has moved forward to implement many of the recommendations.
The government announced in economic action plan 2014 that it will introduce amendments to strengthen the regime, and these amendments were introduced in budget bill C-31, which received royal assent in June 2014.
These legislative and regulatory changes will strengthen customer due diligence standards; close regime gaps; improve compliance, monitoring, and enforcement; strengthen information sharing; and give the Minister of Finance the power to issue countermeasures against jurisdictions and foreign entities that lack sufficient or have ineffective money laundering and terrorist financing controls.
The amendments also enhance the ability of FINTRAC to disclose intelligence to federal partners on threats to the security of Canada. The department is currently developing a regulatory package to support these changes.
Administratively, the regime is revisiting its performance measurement strategy, and FINTRAC has increased its feedback to reporting entities through publishing its policy interpretations online.
Also, as announced in economic action plan 2014, the government, led by Foreign Affairs, will make changes to improve the effectiveness of Canada's targeted financial sanctions regime. These changes aim to streamline the ability of the private sector to implement financial sanctions, thereby increasing their effectiveness and reducing the burden on the private sector.
I would now like to turn to assessing terrorist financing threats. To make the most effective use of resources available, Canada, like many other countries, utilizes a risk-based approach to assessing and combatting terrorist financing threats. By adopting a risk-based approach, law enforcement, intelligence agencies, and financial institutions ensure that measures to prevent or mitigate money laundering and terrorist financing are commensurate to the risks identified.
Building on existing assessment practices, the regime is in the process of completing a comprehensive whole-of-government identification and assessment of the threats and Canada's vulnerability to money laundering and terrorist financing risks. The results of this exercise, when complete, will also deliver on Canada's 2013 G-8 action plan commitment to conduct a risk assessment and align with FATF, Financial Action Task Force, recommendations.
Work done to date indicates the terrorist financing threat in Canada is not as pronounced as it is in other regions of the world, where weaker anti-terrorist financing regimes can be found and where terrorist groups have established a foothold, both in terms of operations and also in financing their activities. Although the terrorist threat to Canada posed by radicalized extremists supporting entities like ISIL is real, the terrorist financing threat appears to be lower.
Canada has taken actions against many of these identified terrorist groups through the terrorist listing process. That said, Canada is not immune to abuse by those seeking to support terrorist financing, and I expect that my colleagues from the Canada Revenue Agency, the RCMP, and CSIS will address that in their presentations to the committee.
Now, I'd like to turn to how Canada is engaging on this matter internationally. Terrorist financing is a threat that does not respect borders, and Canada's efforts to fight it are undertaken in conjunction with international partners. Canada's international counterterrorism financing initiatives are accomplished through the FATF, the G-7, the G-20, and most recently, the Counter-ISIL Finance Group.
Canada, led by the department, is a founding member of the FATF and an active participant. The FATF develops international anti–money laundering and counterterrorism financing standards, and monitors their effective implementation in the 36 members and the more than 180 countries of the global FATF network. The FATF leads international efforts related to policy development and risk analysis, and identifies and reports on emerging money laundering and terrorist financing trends and methods. This important work helps the international community stay ahead of criminals, including terrorists and their financiers, to ensure that countries have the appropriate tools in place to address them globally.
The FATF also undertakes comprehensive peer reviews that assess compliance and effectiveness of member countries' anti–money laundering and counterterrorism financing regimes against its 40 recommendations. These recommendations require all countries to have effective systems for preventing and addressing money laundering, terrorist financing, and the financing of proliferation of weapons of mass destruction.
The recommendations set out the measures that countries should have in place within their criminal justice and regulatory systems, the preventative measures to be taken by financial institutions, measures to ensure corporate transparency, the establishment of competent authorities with appropriate powers and mechanisms for cooperation, and the arrangements to cooperate with other countries.
I note that Canada will be subject to an FATF mutual evaluation that will begin this fall. This assessment will review the extent to which Canada has the laws, regulations, institutions, and powers and procedures in place, and how it effectively implements them to combat money laundering and the financing of terrorists.
Canada is also participating in international efforts to counter terrorist financing through global capacity building. Specifically, the counterterrorism capacity-building program, run out of Foreign Affairs, has undertaken several counterterrorism financing capacity-building projects in countries of strategic interest, in the Americas, the Middle East, and South Asia.
As a last element to my remarks, I'd like to speak to the ongoing effort to combat the financing of ISIL. In addition to the core business of the FATF, Canada is actively engaged in the new work of the FATF on counter-ISIL financing, which is being undertaken in response to a call made this February by G-20 finance ministers. Last month, the FATF published a report drafted by experts in a number of countries, including Canada, summarizing the most significant revenue sources of ISIL, and highlighting a number of new and existing measures to disrupt its financing.
Specifically, the paper finds that ISIL is able to to draw significant funds through its control of large swaths of territory in Iraq and Syria. Known ISIL activities include the direct sale or taxing of economic assets, such as cash, oil, agricultural goods, cultural property, and other natural resources and commodities, and the looting of banks within the territory that ISIL captures.
Other sources of funds from abroad include kidnapping for ransom, the sale of archeological goods, external private donors, including through the non-profit or charity sectors and foreign terrorist fighters.
This report also notes that the group's active presence on the Internet and social media has allowed it to generate and convert international support into tangible funds. The group is known to exploit new technologies and modern communication networks, including crowdfunding techniques, to solicit financial contributions.
As the FATF paper notes, the infrastructure and organizational needs at ISIL make ongoing funding a necessity. Coalition air strikes have been effective in limiting the ability of ISIL to efficiently exploit oil and gas resources within their spheres of control. To supplement these military activities, international efforts are currently under way to help prevent ISIL from using or benefiting from the financial and commercial sectors under its control.
However, there are still issues of ISIL funding that are not well understood. To address this knowledge gap, the FATF will continue its important work by convening counterterrorism financing experts this September to study emerging trends and methods related to terrorist financing.
The FATF will also immediately review all of its members, including Canada, on their ability to restrict terrorism-related financial flows in accordance with its 40 recommendations. The focus of this exercise will be on the proper criminalization of the terrorist financing offence and the freezing of terrorist assets, including measures required by the United Nations Security Council resolutions.
This is particularly important given that some countries have yet to adequately implement the FATF standards on terrorist financing, which creates vulnerabilities within the entire financial system. In the fight to counter terrorist financing, we are only as strong as our weakest link.
In addition to the work of the FATF, Canada is also actively engaged in the U.S.-led anti-ISIL coalition, and its recently established working group to counter ISIL financing, which held its inaugural meeting last week. This working group is currently developing an action plan to help coordinate coalition activities. Canada's participation in this counter-financing working group is part of overall government efforts to counter ISIL.
Allow me to briefly conclude. Canada is committed and very engaged, both domestically and internationally, in the fight against terrorist financing. The risk is present and evolving.
We have a strong regime and are in the process of strengthening it through new regulatory amendments. We will continue to take stock of the risks and react accordingly.
Thank you.
