Finance Committee on April 30th, 2015

[Ron King]

If I may, there are two points I'd like to make.

One is that all of these alternative technologies very often ultimately need to find a link into the legitimate or the traditional financial system in some way, shape, or form. In some respects, if you can put in place safeguards at those points of entry, that's helpful. One of the things that new legislation is contemplating, or new regulations, is the idea of requiring financial institutions to identify where foreign money services businesses are registered in Canada.

I think the other thing, though, is that this very much is an evolving world. We have to think about the financial system in its entirety and think about safeguarding all aspects of it.

[The Chair, Conservative, James Rajotte]

Thank you. We'll have to return to this theme later. The round is up, unfortunately.

We'll go to Ms. Bateman, please.

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

Thank you very much.

Thank you to all of our witnesses. This is very interesting. I thank you for spending some time with us this morning.

I want to focus in on your comments, Mr. King and Mr. Donovan. You both mentioned FINTRAC, you have particular insight into FINTRAC, and you both mentioned that while the investments we're making with taxpayers' dollars are good, they could be better.

I would really appreciate you walking through a transaction, and from both sides. That's the accountant in me coming out that I want to see both sides of this entry. One side is where FINTRAC is alerting you and what potential improvements could be found. But maybe the side where you're alerting FINTRAC is the best one to start on. With that transaction, how could we be more effective and efficient with taxpayers' resources in the best interests of all Canadians?

I leave it to the two of you to figure out how you would like to answer that. Clearly you have the background, and you both mentioned it in your presentation.

[Michael Donovan]

Yes.

Maybe I'll start with the hypothetical where we see unusual or suspicious activity happening in a bank account. That information may involve money coming in from other institutions within Canada or being sent out. It may actually be transactions that are happening among a number of different subsidiaries within, say, the TD Bank Group or any of the big banks' affiliates.

That information we assess. If we work that up and we say, yes, we believe we have reasonable grounds to suspect that it might be related to money laundering, we have to then file it to FINTRAC. FINTRAC will take that information and look across their database of information and reports that they receive from other institutions, other reporting entities. Following their processes to reach reasonable grounds to suspect, and bringing in other intelligence that they may have in their possession, they get to their threshold to then refer it to law enforcement.

There are a number of different parties in that process. Where we hand it over, as Mr. Cullen mentioned before, we don't get direct feedback on that. Actually, the law prohibits FINTRAC from being able to disclose any type of information back to us. It only allows FINTRAC to disclose that information to law enforcement when they've met their threshold. FINTRAC plays as a bit of a gatekeeper to protect that information from abuse.

Where we do see potential, though, is with regard to the example I gave you, where I saw, in my case, money coming in from another institution or going out to another institution. I'm not allowed to query that other institution, or query the institution that my bank is sending the money to, in order to let them know that, hey, we have a suspicion here.

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

You're not allowed? TD couldn't let Scotiabank know that there was a problem?

[Michael Donovan]

No. That's one area that we're proposing should be looked at, to allow for that to happen. Right now, because of the way the privacy legislation is constructed, and the fact that the current AML legislation is silent on this fact, we aren't allowed to be able to provide each other with that type of information. We feel that this is something we could probably be doing better.

Again, we want to make sure that we have the right framework in there to protect individuals' privacy and to make sure that it's not a fishing expedition between two firms, that it's really based on criteria that we can all work with.

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

That's interesting.

Do you have anything to add, Mr. King?

[Ron King]

I agree with those comments. I would just add that this is a relatively immature business, this whole thing of anti-money laundering and anti-terrorist finance, with most of the progress being achieved in the last decade or so. I think some of our learnings have been that it very much changes. To the extent that we can be agile in adapting our methodologies, in a fairly proactive way, to risks as they emerge....

We've seen greater cooperation between government agencies and the regulated entities more recently, and I encourage that. We also look forward to the threat evaluation that's presently being prepared by the finance ministry. We look forward to receiving that to help us better understand what the threats and vulnerabilities are. That needs to be a continuous part of a cycle of risk assessment, building controls, and evaluation.

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

It's interesting that you're noting greater cooperation between various government entities. Breaking down these silos is so important if we're going to communicate cross-sectorally.

[The Chair, Conservative, James Rajotte]

You have one minute.

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

Thank you, Mr. Chair.

I'm curious. Do either of you have specific policy recommendations for us to maybe entrench that? Sometimes cooperation between agencies can be the result of individuals who are collegial and cooperative. Do you have comments on things that you'd like to strengthen or do you see opportunities?

[The Chair, Conservative, James Rajotte]

Just give a brief response, please, Mr. Donovan.

[Michael Donovan]

Between federal agencies there is a lot of work happening in that regard, and I understand there is regulation to allow for that to happen.

What we're interested in, as we are a key partner in the regime providing that information to FINTRAC and then further on to law enforcement, is whether there is an opportunity there for us to be part of that as well, bringing in the private sector in that greater information sharing.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Ms. Bateman.

I'm trying to be fair on time here, but we can return to that.

Monsieur Dionne Labelle, s'il vous plaît.

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

Thank you, Mr. Chair.

For a few weeks, we have been studying terrorist financing in Canada and abroad and from Canada to abroad. I am starting to get some idea of the way that works.

Most of the stakeholders from institutions, such as banks, the Canada Revenue Agency, FINTRAC and the RCMP, have talked about the need to have more information sharing. There is a lot of information. Since January, banks have been required to inform FINTRAC of any electronic funds transfers of $10,000 or more. This year, FINTRAC will have to process over 10 million pieces of information. That is a lot of information.

What I have learned here is that, in reality, terrorist financing from Canada to abroad is done through small amounts of money that are not covered under those reports. It could be someone who sells his car and sends the money to his brother in some other country. Once the money is there, we don't know whether it will be used to finance terrorist activities. It could also be someone whose mother is in the Middle East and to whom he sends $800 or $500 a month. The person at the other end might be using that money for food or may transfer it to terrorist organizations. The problem is that the type of information we now have does not really reflect the reality.

I would like to go to Mr. King, who is asking to be informed in real time. Based on what I have heard so far, it does not seem that large amounts go from Canada abroad. Even if that was the case, how can we separate the wheat from the chaff among the 10 million electronic funds transfers?

[Ron King]

Thank you, Mr. Labelle.

It is difficult, and very often where thresholds are set for the reporting of information, one of the first things the criminal element does, whether money launderers or terrorist financiers, is to find ways of avoiding those thresholds. The other thing they do is to try their best to mask movements of money and other transactions to make it appear as legitimate activity. It's the commingling of these, among many millions of legitimate transactions, that is the challenge that faces us. So some of the things we are advocating for are better information sharing and better analysis on an ongoing basis to enable us to be more focused so that we aren't unnecessarily generating a large number of reports, but can be more focused. That is how the various—

[Ron King]

The constituents in the regime need to work closely together.

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

At any rate, that is one of my conclusions.

I really liked the remarks of the official from the Canadian Bar Association, completed by Mr. Carter. At the beginning of the meeting, it seemed that Canadian charities were transferring money to terrorists. However, based on what Mr. Carter said, that is not the case at all. That use is insignificant, just 0.001% of cases.

Mr. Schwisberg, you said that charities are an asset in countering terrorism. Could you comment on that?

[Samuel Schwisberg]

Clearly, complying with Canadian laws costs a lot of money. That is money well spent, but it is a problem for us. I am thinking of very small charities. It is even more difficult for them to comply with the laws. That is why we have suggested in our document that assistance be provided to those charities so that they can comply with Canada's laws.

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

In what way are they an asset in countering terrorism? Is it because they are working on prevention?

[Samuel Schwisberg]

It is through the way they connect with people around the world. Providing humanitarian aid can touch people and their thoughts. In that sense, charities allow friendships to develop. Even though that is not the actual goal of what they do, that's what happens when they provide financial assistance to those who need it.

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

So it is a corollary impact.

[Samuel Schwisberg]

That's right.

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

You also talked about raising awareness before doing the audits. What type of awareness are you suggesting? Are you referring to the legislative framework or other aspects?

[Samuel Schwisberg]

It is a question of education. Charities don't have a lot of tools allowing them to comply with the legislation. We feel that the CRA can do more to provide information to people. Mr. Carter said the same thing. There are notices, but that is often not enough.

In other areas, the CRA does a good job. We can also find a lot of information on the website and elsewhere. We think this aspect of the legislation is a little weak.