Finance Committee on April 30th, 2015

[The Chair, Conservative, James Rajotte]

Okay.

Just briefly, Mr. Carter.

[Terrance Carter]

Yes, I'll speak to that just briefly.

Back in 2007 this committee made a recommendation that CRA should consult with the charitable sector to develop made-in-Canada best practice guidelines to assist charities to be able to comply.

Justice Major for the Air India inquiry back in 2010 said:

It is essential that measures to defeat the use of charities or NPOs for TF not unnecessarily impede the valuable activities of legitimate organizations. Any new guidelines or best practices that the CRA may contemplate to help it address [terrorist financing]...

should take into account the input of the charitable sector.

[The Chair, Conservative, James Rajotte]

Okay.

Thank you. Merci.

We'll go to Mr. Cannan, please.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you, Mr. Chair.

To our witnesses, good morning, and thank you for being here.

As you know, Finance Minister Oliver sent the letter to the committee requesting that we look into this serious issue of terrorism financing and the implications, not only locally but across Canada and globally.

My first question would be for Mr. King, who I understand is a former Okanagan resident. It's not too far from home, so it's good to see a fellow British Columbian.

In your opening comment you talked about money laundering versus terrorist financing and you described them differently. I just want to clarify to follow up on the comments of my colleague, Ms. Bateman. Do you see them as being mutually exclusive?

[Ron King]

They're not mutually exclusive because these two typologies share a number of things in common. Very often they're the same vulnerabilities within the financial sector and other regulated entities that the criminal element will seek to exploit. As I mentioned earlier, things like the ability to convert cash into something that's non-cash or a legitimate asset, the ability to move money across borders or between persons and entities, and the ability to conceal the activity behind some form of anonymity or some way of breaking the information flow or the audit trail, if you like, are all things that they seek to exploit.

The two typologies, money laundering and terrorist financing, are very difficult, and each presents its own challenges in trying to identify them.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you.

I'll follow up with Mr. Donovan. Maybe he can answer this question as well.

You both alluded to the need for enhanced disclosure of personal information. Our committee has heard from numerous witnesses. Actually, last week we had a former RCMP officer for over 30 years advocating the same perspective. Sitting right next to him was a wonderful lady, a British Columbian and a civil libertarian, saying, “Well, no, you can't do this and you can't do that.”

Maybe you can provide some balance as to how you provide that personal sharing of information while still protecting the privacy of your customer and Canadians.

[Ron King]

Obviously, there are existing safeguards behind the walls of FINTRAC that prevent and limit how they disclose information when it comes to them. Our role in the financial sector is providing the information to FINTRAC so that they can convert it into intelligence. I think what we're advocating is a method that would allow us to be more focused in our efforts as opposed to being more broad-brushed, which in turn could actually reduce the amount of inappropriate personal information that is disclosed.

[Michael Donovan]

I think it's important to remember that part of why the banks exist is the trust that our customers put in us to protect their information and their assets, and the privacy related to that. So we have a vested interest that anything we want to do in trying to combat money laundering or terrorist financing that allows for greater information sharing of a customer's personal information be done within the proper framework to keep that information secure.

We do send that personal information now over to FINTRAC. That has been working for a number of years now. There haven't security or privacy breaches by submitting that information into FINTRAC. Millions of reports a year go to FINTRAC. What we're looking for is the reciprocity of getting some information back so we can target more of our activities, which we think will help the regime as a whole and really focus on where the risk is the greatest.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

You also mentioned in your comments, Mr. Donovan, other countries that have this personal sharing of information and the protection of privacy. Do you have any examples?

[Michael Donovan]

In TD's experience because of our North American presence, we have a fair number of branches located in the U.S. The U.S. has a regime there under the Patriot Act, section 314(b), that allows for this type of information sharing among financial institutions. It's under the auspices of their equivalent of FINTRAC—FinCEN. You register with them and you share information, and it's very prescribed as to what type of information you can share, the reasons you can share that information. It's been working quite well in that regard.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thanks. I'm also a former small business operator and I'm concerned, every time we put a regulation in place, about all of the burden that also puts on small business. I had an example from a realtor yesterday. He emailed me and talked about the FINTRAC program and how the extra paperwork is burdensome. From your experience in banking, and from FINTRAC, does that help, or is it just more of a perspective to look like we're doing something to try to control the terrorism? He's just saying it's a waste of time and money and he can still usually illegally proceed without any signature. It's just a facade.

[Michael Donovan]

I'll maybe answer more from a TD perspective. To my earlier opening comments about the responsibility to detect and deter, having a lot of these procedures and processes in place has a deterrent effect of keeping the bad guys out of our financial system. We also then do further monitoring and risk assessment of the ones who are in the system, to identify them to FINTRAC and hopefully get them out of our system and dealt with by law enforcement,

To the extent that brings a compliance burden on us as a bank, we do look for opportunities to make sure that what is coming to us from the government, from a regulatory or guidance perspective, works in practical terms with how banking works. We have dialogue with the Department of Finance, with FINTRAC, with OSFI, in these regards. To the extent that is working, I think we've had a good relationship in that regard. Can we always do better? Of course we can, and we continue to have those dialogues.

I wouldn't say that it's an overly burdensome concern for us, but we're always looking for opportunities to make sure it's efficient and effective.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Cannan.

Mr. Côté, the floor is yours for six minutes.

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

Thank you, Mr. Chair. My thanks to all the witnesses for joining us today.

I will just continue along the lines of what Mr. Cannan said. Clearly, I took the time to examine the 18 recommendations in the Senate committee report entitled Follow the Money: Is Canada Making Progress in Combatting Money Laundering and Terrorist Financing? In fact, the Canadian Bankers Association testified before the committee as part of its work.

Mr. Donovan, recommendation no. 10 clearly indicated that, under the legislation, FINTRAC had to provide entities required to report with quarterly, personalized feedback on the usefulness of their reports. Unfortunately, I understand that FINTRAC is not currently following this recommendation. There is no regular and personalized feedback so that you can understand the usefulness of your reports?

[Michael Donovan]

FINTRAC has in the past provided feedback to TD at, I would say, a very macro level as to the data quality of our reporting. But, no, we do not currently receive regular updates from FINTRAC or feedback on our reports, nor do we receive more tactical information back on the reports we've submitted to FINTRAC.

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

Thank you.

Mr. King, I am going to talk about recommendations no. 14 and 16 specifically.

Recommendation no. 14 seems to echo what you said in your presentation, in terms of implementing “a risk-based approach to identifying higher risk customers.” This recommendation does not seem to have been implemented. It reads as follows:

The federal government enhance Canada's existing anti-money laundering and anti-terrorist financing regime by placing additional emphasis on: the strategic collection of information; and risk-based analysis and reporting.

Does that correspond to what you recommended in your presentation?

[Ron King]

Thank you, Monsieur Côté.

I think we do apply a risk-based approach today in Canada. In fact, the guidance from FINTRAC—and FINTRAC is working on additional guidance now on the risk-based approach—and the guidance for Canadian federally regulated financial institutions from the Office of the Superintendent of Financial Institutions advocate a risk-based approach. Also, the work being undertaken now by the finance ministry on Canada's threat assessment is very much about identifying threats and vulnerabilities to augment the risk-based approach.

Can we do better? Perhaps, and I think this is always something in an area that is evolving. I'm very much in favour of greater information sharing and ways of making the regime better, but also of an agility, an ability to react quickly to changing and emerging threats or typologies.

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

Absolutely. I agree with you.

I will follow on the observations made by my colleague Pierre.

In light of the volume of information you have to transfer, we may wonder whether there is a level of efficiency in that.

Recommendation no. 16 in the same report states:

The federal government eliminate the current $10,000 reporting threshold in relation to international electronic funds transfers.

Mr. King, what do you think about that recommendation of the Senate committee?

[Ron King]

Certainly for financial institutions it would remove a burden that today is fairly onerous in respect of reporting of transactions at the $10,000 threshold. Not only must we report transactions individually that meet the $10,000 threshold, but we must aggregate multiple transactions that together, within a 24-hour period, add up to that $10,000 threshold, which makes it a complicated task.

We do know that when thresholds are set, the criminal element immediately tries to to circumvent those thresholds to avoid reporting. It is a real challenge that we need to address.

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

How much time do I have left?

[The Chair, Conservative, James Rajotte]

You have a minute and a half.

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

Wonderful.

Mr. Schwisberg, in the testimony we heard at a previous meeting, Mr. Clement, a former RCMP officer now self-employed, said that this Herculean task of gathering information did not lead to convictions, unfortunately. He also said that there was a problem with maintaining the expertise within the RCMP and that it was difficult to have truly dedicated and experienced prosecutors take cases.

Could you comment on the issue of implementing this entire information gathering system to have convictions?

[Samuel Schwisberg]

It is a question of funding. We need to invest money if we want laws to be enforced properly. You cannot pass legislation without allocating the resources and funding needed to enforce them. We agree on that up to a point.

We believe that the Crown has some very talented and outstanding lawyers. I must add that it is always a question of education. Lawyers are trained to properly understand legislation that has been amended. I have no problem with that.

[The Chair, Conservative, James Rajotte]

Merci.

Mr. Van Kesteren, please.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Thank you, Chair. Thank you all for being here.

It's an interesting discussion. As I said at our last meeting, it's getting more and more interesting as we get into this thing. I want to direct some of my questions, maybe all of them, to Mr. Black.

Mr. Black, I'm going to be 60 years old this year, and I have found in life that the older I get, the more I thought I understood things, the less I understand them. Often what we think is reality, we find out is not. I think you know what I'm talking about. Some of the things you mentioned are startling. I guess I shouldn't be surprised.

I want to ask you first of all if Canada is participating in this like the United States, I suspect possibly through the UN. But this seems to be an American problem. I don't want to be critical of Mr. Schwisberg, but I think a lot of this had good intentions at one time. We thought we might be able to alleviate some of the misery in the Middle East and well-intentioned people pressured their legislators to forward millions, probably billions of dollars, but we're being fooled.

I wonder if you could let this committee know whether or not we as a Canadian government are participating in this as well.