Evidence of meeting #78 for Finance in the 41st Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was financing.
A recording is available from Parliament.
NDP
Conservative
Dave Van Kesteren Conservative Chatham-Kent—Essex, ON
This discussion is starting to split here just a tad. We are talking about fighting in the Middle Eastern region, but this study is supposed to engage us in the issue of terrorist financing. I suspect that what we want to do as a government and a society is to keep that terrorist activity—not necessarily keep it there, as we certainly need to help the Middle Eastern region come to terms with itself, but we certainly don't want it to happen here either.
My question is this. Are we doing what is sufficient to stop those activities here? How much of that money is flowing into the Middle East, or whatever country is involved with fighting, and how much of it is going to, in our particular case, North America? Is there a split there, or are they intertwined?
Criminology Professor, Department of Criminology, Université de Montréal, As an Individual
In that respect, the main challenge is figuring out what types of financial vehicles are being used.
If you go through the conventional banking system, transactions will go through the U.S., simply because those international transactions are in dollars and go through the corresponding banks, in the U.S. or in Canada. The main challenge is to monitor those financial flows in the banks and in other institutions of the financial and economic sector, in order to filter those transactions and trace their profile.
Once again, there is a major problem not only in terms of money laundering—which is already complicated—and terrorist financing, but there could also be transactions that are completely innocuous. The challenge is with small funds, small amounts where the money is earned legally and sent to such and such an organization that may not even be aware that the money would then be used by an organization considered as terrorist by some states.
Furthermore, the broader issue that you raise goes beyond the financial system and banking system and deals with the potential use of other routes—or simply suitcases full of cash. Once again, the challenge is different. Basically, the system in place in Canada is a financial flow oversight system going through the conventional banking system. That has been the focus of the work.
In my presentation, I have listed all sorts of challenges in terms of detection, which is extremely difficult to do, as well as the possible misunderstanding between the two. Bankers and others will first try to protect themselves from regulators. They will show that their hands are clean and say that they have reported what had to be reported. How useful will that be afterwards for financial intelligence services? That is the question.
If I had one recommendation to make, it would be for you to reflect on that. In addition to the use of this concept of risk, whose definition seems obvious, we need to ask how each player in the process interprets risk management, how they see it and what type of surveillance and reporting that entails. Reflecting on this cooperation and on how everyone sees their role could be a very Canadian issue.
NDP
The Vice-Chair NDP Nathan Cullen
Thank you, Mr. Amicelle.
Thank you, Mr. Van Kesteren.
We go over to Monsieur Côté.
You have seven minutes.
Everyone will have another round of questions.
NDP
Raymond Côté NDP Beauport—Limoilou, QC
Perfect, that's excellent.
Mr. Amicelle, since you are on a roll, I'll seize the opportunity.
I would like to bring you to another area. At a previous meeting, one of our witnesses, Haras Rafiq, gave a very interesting presentation on radicalization. He stressed the fact that, to dry up the funding and support of terrorist organizations, we would have to work hard to understand how people become radicalized and why. I asked him about the current problem with funding for basic research, more specifically the funding for human research based on an article in The Globe and Mail about a research group focusing on terrorism, security and society, whose federal funding was eliminated.
I assume you also face funding problems in your work. We know that the Quebec university network complains of lack of support. We will not talk about the relationships with the provincial government, but the federal level has a responsibility in that sense. Do you think, like Mr. Rafiq, that allocating funding for groups that will be able to report on various aspects of the radicalization trend would make a significant contribution to countering terrorist financing and support in other ways?
Criminology Professor, Department of Criminology, Université de Montréal, As an Individual
Thank you for your question.
I happen to be part of those research networks that have been cut. I think the main point in understanding the value of empirical research on these issues is that, every single time, we try to look at both radicalization and the fight against radicalization.
Of course, we are talking about terrorist financing, but at the same time, we need to understand the fight against terrorist financing. All the elements that I presented to you and that I tried to explain today are actually based on field research that I have done with other colleagues in Europe and here. That research definitely requires funding, because you need funding to observe the practices of the subjects being studied. You need research funding to conduct interviews and to have research teams. Having tools for analysis is actually key.
From that perspective, if we don't want to limit ourselves to broad generalities or to empty platitudes on the Islamic State—such as what we read in the papers—and if we want to go a bit further, which is what we are trying to do, in terms of the daily surveillance and intelligence practices on radicalization and terrorist financing, yes, we must do sociological or criminological research that really gets to the bottom of those practices. We need to try to observe them and understand them to identify the challenges and ambiguities that I was trying to point out earlier.
You are absolutely right, funding for research on those issues is important.
NDP
Raymond Côté NDP Beauport—Limoilou, QC
Mr. Amicelle, in the desire to find immediate practical applications at all costs, we often seem to be restricting some freedom in basic research, rather than letting researchers decide which angles or areas they wish to explore.
Would you say that, by providing more latitude, by solidly supporting basic research, including in the social sciences, even if the subject of the study is not terrorism, the result could be major benefits for the fight against radicalization and terrorism?
Criminology Professor, Department of Criminology, Université de Montréal, As an Individual
Yes, as I was suggesting just now, it must be realized that a number of security measures come together. In other words, fighting terrorist funding can tie in with measures that also apply to the fight against money laundering, whether it is the proceeds of corruption, tax fraud, and so on. You have joint tools and joint discussions.
Researchers can certainly have difficulty if the research mandate they are given is extremely closely defined. For example, the mandate could ask for recommendations or solutions for such-and-such a topic. As I see it, it seems much more logical and productive to provide researchers with some latitude so that they produce knowledge based on what they see, on the approaches they take. Certainly, we have legislation, but we then have to see how it is applied and the tensions and difficulties it causes.
In my opinion, that simple production of knowledge already points the way to well-founded policy decisions in the future. The ability and the freedom to do that seem to me to be absolutely central.
NDP
Raymond Côté NDP Beauport—Limoilou, QC
Mr. Keatinge, Mr. Rafiq talked about the wrong turn taken by the United Kingdom in its reaction to the 2005 attacks. He felt that Canada was starting to take the same wrong turn by trying to use repression to combat radicalization and terrorism, rather than working to prevent them.
It is clear that the United Kingdom has learned some lessons and is putting many more resources and much more emphasis into drying up the sources of financing and also the recruiting sources that allow terrorist groups like the Islamic State to be so easily supplied.
Do you want to comment on the steps the United Kingdom has taken and that Canada could learn from?
Director, Centre for Financial Crime and Security Studies, Royal United Services Institute
Where that debate has obviously been very hot recently is around the issue of individuals travelling from the U.K. to Syria and Iraq to fight, the so-called foreign fighters.
What is clear is that the U.K. government has espoused a hard line with regards to individuals who want to return to the U.K. In contrast, other European countries, such as Denmark, have tried to make it easy for these individuals to return and engage with them. The U.K. has sent a much stronger message.
There's a large debate in the U.K. as to whether that is the right approach. The fact of the matter is that a lot of individuals have travelled from the U.K. to Syria and Iraq. There is pretty clear evidence that a number of those people would like to come back, but the fact that the penalties imposed potentially by the U.K. on people who do come back are seen to be so strong perhaps means that they decide not to return necessarily. The debate is whether that is the right approach to take.
We have an election going on. There's a lot of discussion about the overall approach that the U.K. takes to what we call prevent as part of our countering strategy, and it's clear that, whatever government we have after next Thursday, that matter will be reassessed across the board, so I think the U.K. strategy will change. Whether it becomes harder or softer will depend on who is in 10 Downing Street next Friday morning.
NDP
The Vice-Chair NDP Nathan Cullen
Thank you very much, Mr. Keatinge.
Thank you, Mr. Côté.
Mr. Saxton for up to seven minutes, please.
Conservative
Andrew Saxton Conservative North Vancouver, BC
Thank you, Chair.
I'd like to go back to Ms. Napoleoni with a couple of questions.
Ms. Napoleoni, can you tell us what the present danger is that terrorism poses, specifically to the west, and how terrorist financing plays a role in this?
Author and Economist, As an Individual
I think the most serious threat that Islamic terrorists are posing to the West is the formation of an anti-imperialist front that goes all the way across the Muslim world. We've seen that Boko Haram has pledged allegiance. It's very important to look at the language, at what words they use: they “submitted” themselves to the authority of the new caliph.
We've also seen the presence of groups that are linked to the Islamic State in Libya. The same thing is happening in Yemen and all the way across to southeast Asia. We've seen the Philippines, just yesterday, and some groups also in Afghanistan. It's just a matter of time before we see central Asia joining this front.
This is extremely dangerous. The message of the Islamic State is very different from al-Qaeda's. It's also not so strongly religious as nationalistic. That is a very strong component that is appealing to young people coming from the West—Muslims born in the west who feel that this experience of joining the Islamic State is a sort of patriotic experience. It is the implementation of the Muslim political utopia: the dream of their parents, grandparents, ancestors. This is serious, because of course it's not true, but this the message that the Islamic State has been projecting.
Terrorist financing, frankly, has played a very important role. Initially, from 2011 to 2013, this group was bankrolled by our Gulf allies; it was officially bankrolled, together with the pledges of other groups. Of course, nobody could predict that this group actually had a completely different agenda, which was a nationalistic agenda. But the truth is it took place.
Terrorist financing did not take place through the international banking system. Since 9/11, very little goes through the international banking system; it's either the informal banking system or we're talking about cash—suitcases, and cash shipped also in bulk. It would have been really difficult to stop that through the normal instruments that we have, including the terror list.
I think the real danger today is this phenomenon, which is taking place because our system of checks and balances for terrorist financing has not worked. Now we face a new enemy, a new model, and you sit up here using the old technique. We have to look ahead, because this also involves radicalization. This involves a new narrative, which is a nationalistic narrative, so we have to look at the phenomenon from a completely new point of view. This is why I made my remarks initially about how to fight this phenomenon, not with the traditional instruments we have used until today.
Conservative
Andrew Saxton Conservative North Vancouver, BC
Thank you very much.
My questions now go to Mr. Keatinge.
Mr. Keatinge, are you familiar with the Club de Madrid and how they're proposing to tackle terrorist financing?
Director, Centre for Financial Crime and Security Studies, Royal United Services Institute
No, not under that name.
Conservative
Andrew Saxton Conservative North Vancouver, BC
Okay.
In your opinion, how has terrorist financing evolved over the years? We just heard Ms. Napoleoni describe how the financing is no longer going through the traditional banking system. In your opinion, how else has it evolved over the last number of years?
Director, Centre for Financial Crime and Security Studies, Royal United Services Institute
Money is like water; it will find the cracks and will flow through them. As has been rightly pointed out, the banking system, whatever one thinks, has spent a lot of money and a lot of time trying to seal the formal financial borders.
You don't move money through the formal financial system if you want to get it from A to B in an illicit way; you move it through remittance companies; you move it through bulk cash, as has been mentioned; you move it through trade-based mechanisms.
It's very important that one acknowledge that terrorist financing changes according to geopolitical situations and that it will change the direction it flows in depending on the barriers it faces.
Conservative
Andrew Saxton Conservative North Vancouver, BC
Thank you very much.
My next question is for Mr. Amicelle.
Mr. Amicelle, how successful have we been in Canada in combatting terrorist financing?
Criminology Professor, Department of Criminology, Université de Montréal, As an Individual
Before I talk about that, I would like to make a small clarification.
For a while, we have been talking about terrorist financing and terrorism in the singular. However, there are extreme differences among the groups labelled as terrorist. We focus a lot on the Islamic State. But, for a number of years, the European Union’s terrorist list has run the gamut from three-person Italian anarchist groups to Hamas and FARC. This is just to say that the notion of terrorism applies to a number of different groups and is not synonymous with the Islamic State. That point is a real issue.
In regard to effectiveness, Canada does indeed have a system in place. It is quite unique compared to other states in that, for a dozen or so economic sectors, it is based on a requirement to make a declaration based on suspicion and a certain threshold. In other words, any transaction of more than $10,000 has to be sent to FINTRAC, the cell where financial intelligence is kept. In Canada, all our eggs are in that basket.
Let me put that into perspective. In Europe, most declarations each year, almost 200,000 of them, are received in the British cell, the one in the United Kingdom. The figure may be lower now. In Canada, we receive two million each year. The main issue is the opposite. Financial information goes to the financial intelligence cell. The main issue is how that mass of information is processed. That also raises questions, especially from the privacy commissioner, about the use of personal information collected because of that $10,000 threshold, or whatever it is, not because of specific suspected cases.
That is the issue. To an extent, the information is going around, cooperation really is being established with its points of tension and its ambiguities. However, the issue remains to analyze the information and produce financial information. That is really what it revolves around here in Canada.
NDP
The Vice-Chair NDP Nathan Cullen
Thank you very much.
Thank you, Mr. Saxton. I'll take one round now.
Mr. Hunter, I wasn't following the court proceedings so much. Have specific sections been struck down by the court, or are they still in litigation?
NDP
The Vice-Chair NDP Nathan Cullen
Again, to be very specific, these particular aspects were with regard to a lawyer's inability to undermine a client's particular cause and the confidentiality breaches that were required under the act, were they?
Hunter Litigation Chambers, As an Individual
Well, those were the legal principles engaged. What the court did was enunciate.... For example, solicitor-client privilege is well-known and has been accepted for many years as a principle of fundamental justice. But this concept that the state must not undermine a lawyer's commitment to his or her client's cause is a newly expressed principle of fundamental justice, which ties in the independence of the bar and the lawyer's duty to the client and that sort of thing. That was the underlying principle.
NDP
The Vice-Chair NDP Nathan Cullen
I'm not sure whether you have familiarity with this, but leading up to the creation of this act—the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and the other amendments—what consultations or work was done with the legal community, which is obviously a vital component, as the banking community is, in attempting to stop not just terrorist financing but also potentially terrorist activities? Was there a lot of consultation? Was there a bringing in of the law societies or the various groups that represent lawyers in this country?
Hunter Litigation Chambers, As an Individual
I wasn't personally involved at the outset, but from putting the case together I'm not aware of any significant consultation.
It really took place in two stages. Around 2001, when the first legislation was enacted and hit counsel, as far as I'm aware there was no consultation at all. In 2008, when regulations were brought in, there was some discussion, but it was basically a matter of presenting the regulations and asking the law societies whether they would agree.