Finance Committee on March 31st, 2015

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Cullen.

We'll go to Mr. Saxton, please.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thanks to our witnesses for being available today.

My first question is for Professor Tupman.

Professor, you said that ISIL is selling oil to finance their activities. Who is buying that oil?

[Prof. Bill Tupman]

It is being sold to a number of different clients. Some of it is being sold just across the border into Turkey to individual purchasers and individual garages, but it actually appears to be heading up towards the Black Sea on tankers—tankers travelling up the road—and it appears to be getting onto boats and crossing the Black Sea, possibly to the Romanian port of Constanta. Somewhere between the oil wells and western Europe, eastern Europe, it seems to change its identity, and obviously there are matters under investigation there to which I'm not privy. That appears to be the route by which it is passing at the moment, and that was the information I was given by the Turkish police themselves about 12 months ago.

[Andrew Saxton, Conservative, North Vancouver, BC]

They likely would be selling this oil at a deep discount to the market in order to find customers.

[Prof. Bill Tupman]

Yes, but if you look at Europol's threat assessment of two to three years ago, they thought that organized crime, European organized crime, was buying some of the smaller refineries, and it is possible that some of it's going to those smaller refineries to become petrol products. All this is surmised and relies upon conversations with people off the record, I must explain. None of this is evidence based.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you very much.

My next question is for Madam Duhaime.

Madam Duhaime, what role should government play in stopping terrorist financing, and how can we work with the private sector?

[Christine Duhaime]

That's a loaded question.

I think it is incumbent on government to take a leadership role, to grab the reins of the horse, as it were, and to actually take a much more active role in ensuring the private sector can play the role it needs to play, which in Canada is the role of gathering information and reporting it to FINTRAC, and then FINTRAC does its role in terms of assessing and reporting it to law enforcement.

Let me give you an example of what I think is important in terms of what FINTRAC does, in terms of whether or not we have the resources, and how the private sector can play a role. When FINTRAC was testifying before you, one of the things Gérald Cossette said that struck me as rather important was that in the last year they have determined that there were national security threats or terrorist financing incidents that occurred more than once every business day. In other words, he referred to law enforcement, or FINTRAC did, 234 reports that were in one of those two categories.

There do not appear to be sufficient resources in terms of policing to deal with one terrorist financing report a day coming out of Canada. That was just last year. Where are those 234 national security threat reports and/or terrorist financing reports? No one asked the question of what stage they're at or what's happening with that. But I think that's an issue on the federal government side where we need to be asking that question. What is the status of those reports? What is the number of reports now into 2015? What role are our federal policing agencies going to play in terms of determining that?

On the private sector side, one of the things he also said was that by working with some of the banks, they were able to determine much more quickly than they would have that there has been an increase in electronic funds transfers to the border towns of Turkey, which of course implicates ISIS. They go to collect funds that have been wired to them from Western Union, for example, and other money services businesses.

I think that type of dialogue that they were able to attain rather quickly, which I thought was crucial as a typology for money laundering and terrorist financing, which is that the border towns are funding ISIS, is really important. That information should go back to the less large reporting entities, which is the money services businesses that are most at risk and tend to be least compliant, so that they can bring into their compliance programs that type of information to make sure they engage in their role in counterterrorist financing.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you.

You talked about digital financing. Could you expand on that? What role do Bitcoin and crowdsourcing, for example, play in this?

[Christine Duhaime]

FINTRAC said it has no evidence that Bitcoin has played any role whatsoever in terrorist financing, and the U.S. government said the same about eight months ago. I don't know if that has changed recently.

With respect to digital finance, what's happening is that Twitter, for example.... There will be thousands upon thousands of requests from ISIS people requesting people all over the world to send money to them through PayPal, or through some other means digitally. The danger there is that it's immediate. It's from me to you. No one really knows how that transaction has taken place other than it can be global and is fairly quick. It's a small number, so it doesn't fit within the typologies that we have typically assessed to counterterrorist financing. We're not searching for it at the big banks, because we're not required to under anti-money laundering laws.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Saxton.

Mr. Brison, please, for your round.

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

Monsieur Therrien, you said there's evidence of a problem in terms of the collection and retention of data, and that FINTRAC is maintaining data not relevant to its mandate. What type of data, just to give us some flavour for this, is being retained that's not pertinent to their mandate, and what type of protocol should there be to identify that type of data and to purge it from FINTRAC? Where should it go?

[Daniel Therrien]

The information I was referring to was uncovered in the course of our two-year review audits that we've conducted over the years. Essentially, the problems stem from the discretionary criteria applied by financial institutions and providing information to FINTRAC, namely, that a transaction appears suspicious.

It is for the financial institution to determine whether a transaction is suspicious. The institution is well placed to determine that. But in the course of our audits, we found that certain transactions were referred to FINTRAC for reasons such as the ethnic origin or the place of destinations of an individual, or because the age of the individual involved did not match the amount of money at stake.

The risk, I think, is that in gathering massive amounts of information and then trying to make sense of it, you will apply criteria, some of which may be discriminatory. That's one issue.

There's a proposal apparently on the table to get rid of the financial threshold that would result in reporting to FINTRAC from $10,000 to zero dollars. I do not suggest that a financial threshold is necessary, but certainly, if you remove a financial threshold, the risk of catching information about law-abiding citizens increases mostly into your question about protocols.

Either you have objective standards for when financial institutions share information with FINTRAC, or if you get rid of a dollar threshold—and then there is no threshold, there is no objective criteria—then there should be some objective criteria, whereby FINTRAC looks at the data bank that contains all of this information to ensure that it is investigating people involved in criminal or terrorist activities as opposed to law-abiding citizens.

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

You're saying that the problem actually could begin or does begin with perhaps a public perception as to the source of terrorist threats and potentially that people are identifying people based on race and that may not necessarily reflect in any way actual terrorist threat, that in fact, the information coming in from financial institutions may be tainted from the outset based on false public perceptions.

[Daniel Therrien]

I don't want to exaggerate the importance of the problem, but we did find occurrences of reporting by financial institutions to FINTRAC that appeared to be based in part on race, place of destination, and age.

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

You've said that amendments could help address some of your concerns in terms of Bill C-51. Have the government amendments addressed those issues?

[Daniel Therrien]

To distinguish between the current laws as they apply to FINTRAC and Bill C-51, current laws, some of which are being revisited or reconsidered including the dollar threshold, to me are reasonable because reporting to FINTRAC is either on the basis of whether a transaction is suspicious. So we're not tackling or targeting law-abiding citizens. We're targeting suspicious activities or the size of a transaction, which creates a particular risk presumably for, again, suspicious activities. The elimination of the dollar threshold would change the situation considerably in that regard. That's point one.

Point two, Bill C-51 would also change the situation in that rather than targeting suspicious activities or transactions of high amounts, FINTRAC would be able to receive and share information based on whether that information might be relevant to its mandate which is the detection of money laundering and terrorist financing. The objective standards that currently exist would be greatly diminished and would increase the risk, again, that the information of law-abiding citizens would be caught by supervision.

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

You were asked a question earlier about oversight and you responded—I think it was in the context of what other countries are doing in terms of the Five Eyes, in terms of congressional or parliamentary oversight—with the description of a review.

How do you define review versus oversight in terms of other countries?

[Daniel Therrien]

There is all kinds of review and oversight. There's review before the fact to authorize a certain government action, for instance, a court authorizing the issuing of a warrant. Review normally takes place after the fact. So it is an auditing system whereby one verifies whether or not the government activity was lawful. What we have currently for FINTRAC is only limited review, again vis-à-vis privacy issues, not vis-à-vis the legality of its activities generally or the effectiveness of its activities.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Brison.

Ms. Bateman, go ahead, please, for your round.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

Thank you to all of our witnesses this morning. I very much appreciate the testimony we've heard. I'd like to start with Mr. Kumar.

By the way, I think we received very succinct and clear recommendations from our two teleconference participants, and that's sometimes difficult, so I very much appreciate that.

Professor Kumar, you mentioned how the issues have changed. I reference your op-ed of September 24, in which you said that was then with al Qaeda, and this is now with ISIS. We're dealing with a different world. Would you be kind enough to use that as a lens to say...? At the end of the day, we are a committee. We must make a recommendation, and we must make report findings. What are your top recommendations for this committee, sir, in that context of the changing world?

[Dr. Amit Kumar]

I have outlined five recommendations, and I'm not going chronologically based on my opening statement but rather am speaking offhand. One is the fact that FINTRAC has always been blamed for not sharing enough information with the law enforcement, but the way things are played in the FIU business, unless FINTRAC gets the counterterrorism intelligence blended information from law enforcement, it's not able to inform and educate the financial community or the financial institutions as to what to look for in a suspicious activity report.

What is suspicious activity? There has to be a dovetailing of the law enforcement counterterrorism information with the financial intelligence that's gathered by FINTRAC from financial institutions in order to remove the problem of defensive filing of suspicious activity reports, overregulation, or not exact.... Because the financial institutions badly need guidance from the government. That is one recommendation I'd like to make.

Then there's always this fact of Canada being an active member of the UN and funding a lot of UN programs and making requests to the UN al Qaeda monitoring team as well as the counterterrorism executive directorate for impact assessments and implementation effectiveness assessments. Where are the taxpayers' funds going? There has to be some accounting for that. There hasn't been any study of either impact or implementation effectiveness.

Those are two key recommendations I'd like to make. Also, I did look at whether in Bill C-51 the scope of material support could be brought in to include.... The U.S., for example, has a pretty huge and expansive scope regarding what material support is. It includes anything that has value to a terrorist organization, be it messages or money or materiel or men, or that could be of use to a terrorist organization. I would recommend having a more expansive and broader scope of material support.

Then I'd say you should work with social media companies to take down videos, like the YouTube videos, which really give a lot of information to the terrorists to do this or that. There has to be some provision. I'm glad Bill C-51 has started mentioning taking down videos, of course while balancing privacy concerns and free speech.

Basically those are the main recommendations I'd like to make. There is also the fact that when you look at foreign terrorist fighters, given Mehdi Nemmouche and other attacks, even in Ottawa, it's difficult to really pinpoint Iraq and Syria as the two regions. The ISIS phenomenon is global and worldwide. So men, materiel, messages and money could be coming from any country, transiting through any country and perpetrating acts in some third or fourth or fifth country.

I thank you for that.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

Excellent. Thank you very much.

Professor Leuprecht, perhaps you could answer the same question for me. We are going to be making recommendations. What are your top recommendations to be effective and efficient in the fight against terrorism?

[Dr. Christian Leuprecht]

You already heard my remarks with regard to what we do on the extraterritorial side in terms of capacity building, especially in Foreign Affairs and DND, which is very important.

As Mr. Kennedy mentioned, I think the skill set within the RCMP.... Here is an organization where I think we need to completely rethink how we do federal policing in this country, the current organizational set-up, and the professional development schemes. An organization with minimum qualifications at entry of a high school degree and no criminal record, and posting people from somewhere in the north to Toronto and to white-collar crime investigations, as sort of a reward, is not the way we can do federal policing in this country. No other western democracy does federal policing the way we do, in terms of throwing all this together from local.... I think we need to completely revisit that.

With regard to Mr. Brison's question on FINTRAC, one of the challenges on suspicious reporting is that there is no consistent way of suspicious reporting. When banks file reports, essentially it's more or less at the discretion of the banks how exactly they fill in that report. In terms of data mining, for instance, if you're trying to get patterns and trends, it creates huge problems because if you don't have a consistent way of filing the data, it also makes it difficult to get a consistent trend analysis across the data.

I think we need to look at our listing regime both for organizations and for individuals.

The chair wants me to slow down, so I will.

[The Chair, Conservative, James Rajotte]

I apologize, but the time is up for Ms. Bateman. Thank you, and we can return to that later.

Thank you, Ms. Bateman.

Mr. Dionne Labelle, go ahead.