Finance Committee on May 5th, 2015

[Prof. Martin Rudner]

I've identified that as one of the emergent issues of the greatest importance—capital g, capital r, e, a, t, e, s, t. I think it is extremely important, because it is the emergent methodology of terrorism financing precisely because the terrorists themselves believe they can evade detection. I think we need to develop that investigative capacity on the part of our terrorism-financing detection organizations—FINTRAC, CSIS, RCMP—precisely in order to meet that challenge and to prevent, then detect, and then prosecute.

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

You've spoken in the past about the emergence of the terrorist economy, and commodity markets and energy markets, that sort of thing. The ISIS capture of significant resources in the Iraqi oil assets has increased, of course, their footprint in terms of terrorist financing.

Do you have any thoughts on the impact of lower oil prices on that capacity? Or is their cost of production so low there that it still has significant strength or capacity to finance terrorism?

[Prof. Martin Rudner]

I have a paper submitted for publication that will deal with that. But very briefly, on a complex issue that you've identified quite correctly, on the one hand, with the reduced prices, there's no question that Saudi Arabia has said explicitly that one of their purposes of the supply-management regime they created in OPEC to reduce prices was in effect to curtail the revenues of ISIS.

As you say though, the problem is that the cost of production is so low that even at a low price, let's say $50-plus a barrel, it's still profitable for ISIS. But as we heard from my colleagues, it's much less so than in the past. The thing is, of course, that smuggled oil has a criminal premium, if you could call it that. The criminals involved in that oil trade also want a share of the profits, so that limits their incentive to engage in smuggling.

But it's still significant. Your point is very well taken.

[The Chair, Conservative, James Rajotte]

Okay, thank you.

Thank you, Mr. Brison.

We'll go to Ms. Bateman, please.

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

Thank you very much, Mr. Chair.

Thank you to all of our witnesses this morning. I very much appreciate the time and the information that you're sharing with us.

A number of you have touched on the fact that organizations are effectively being used to funnel money to these terrorist organizations. Whether it's a business or a charity, or indeed, a financial institution, what kind of training could be used, what kinds of strong accounting principles could be used, what kind of awareness building could be enhanced to assist those innocent businesses, charities, and financial institutions...from being used for the nefarious purposes of terrorist financing?

Perhaps Mr. Fanusie could start with this question.

[Yaya Fanusie]

Thank you.

In terms of organizations or businesses themselves, I'll start with charitable organizations. There are two parts to this. First, are organizations being used unwittingly or wittingly? Much of what we've seen involves witting participation, so that's one of the key issues. Anyone can start up a company and anyone can have a representative for a company who usually will know who the original owner is or who the actual beneficiary is.

But there's another sort of tack for that question, which is how to better identify these companies. Using the U.S. example, I can mention that in the press there's been a lot of discussion about front companies that own property. In fact, The New York Times had a very lengthy series on the number of million-dollar properties in New York City, a certain percentage of which are pretty much owned by front companies. So if you go to look up who owns such and such a property, you won't get the original owner if you look in the public records, or you'll have to do a lot of digging.

There's a discussion going on now about how much information should be available when someone owns a property. There are certain protections. There are reasons people do it. A lot of times the owners of properties that might be in North American jurisdictions are from abroad.

I think a legislative discussion needs to occur regarding how we monitor or how we facilitate more transparency in public records. That would be a big—

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

We need to give tools to people.

[Yaya Fanusie]

We need the tools, because from the investigative standpoint, whether it's a government investigator, an intelligence investigator, or a private investigator, you have to use public records, and you have to identify. When we talk about charities, if there's a layer of opacity that keeps you from understanding who the true beneficiary is, that makes it very difficult to connect the dots, so to speak.

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

Okay.

Mr. Stephenson, you said in your opening comments that there are many silos in this business. It's the same in government. It's rife with opportunity for more effectiveness and efficiency if we could somehow break those silo tubes. Could you speak to how you see doing that?

[Kevin Stephenson]

You're right, that's one of the bigger challenges, I think. Even within the FIU community, we have different types of FIUs. Some FIUs are administrative and might be under the Ministry of Finance or might be under the central bank. They might have a little bit of a different culture than, say, some of the other FIUs that we have that are actually under the police or judiciary. Those have different philosophies, and different types of people typically work in those. We even have challenges with trying to get them to communicate together. Even within government, for example, there are FINTRAC, RCMP, and your intelligence services here. Try to get them to not work in silos. I'm not saying that they don't work well together. I'm just saying that historically you'll see there are challenges, because you'll have different cultures and different regimes. It's about building trust between these entities. There are different ways you can do that. This is not necessarily an Egmont perspective. My own personal perspective from working in U.S. federal law enforcement and on task forces, on which there were a lot of different people assigned from different agencies working together on specific tasks, is that they were incredibly successful. One of the best money-laundering task forces that seized the most money was El Dorado out of New York, run by U.S. Customs. At least 22 different agencies were assigned to it, working at state, local, and federal levels, and it was tremendously successful.

That's one idea. I'm not saying that it's what Canada should adopt, but it does help prevent the silo effect.

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

Very briefly, Mr. Johnston, you said $2 million to $3 million a day is coming in. You mentioned a number of categories that were illegal, but you also mentioned that ISIS makes a lot of money through tax collection. Could you just briefly explain how that is possible?

[The Chair, Conservative, James Rajotte]

Could you briefly address that? We may have to return to it.

Mr. Johnston, could you just do that very briefly, please?

[Patrick Johnston]

Yes, sure. It's because ISIS controls the territory that it has in Syria and Iraq much like a sovereign state and is the primary authority.

It's able essentially to clamp down and make the economic rules of the game, and it taxes all kinds of economic activity within the territory, from water to electricity to government salaries, which are still being paid by Baghdad to government employees who are living in northern Iraq, to goods and services. Trucks that are driving through its territory are taxed at checkpoints. This is a very lucrative way of self-funding that ISIS has used, all the way back to when it was known as al Qaeda in Iraq.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Rankin, please.

[Murray Rankin, NDP, Victoria, BC]

Thank you, sir. It's good to be on the finance committee.

I'd like to ask my question initially of Ms. Krause. You've spent, I believe, a considerable amount of your time focused on charities and have expressed concerns about foreign influences, very much in line with what this committee is studying.

I believe, however, that your work shifted to pipelines and energy, or oil and gas issues, in 2011 and 2012 if I'm not mistaken, at the same time as a minister of the Conservative government stated publicly that environmentalists and other radicals opposed to pipeline development use funding from foreign special interest groups.

Do you share that view? Was that part of your work at the time?

[Vivian Krause]

To get the date correct, the first article that I wrote for the Financial Post about the funding of the anti-pipeline campaign was in October 2010.

I had been studying the funding of the campaign against salmon farming and aquaculture between 2007 and 2009, and in the spring of 2010 I noticed more than 30 payments for the tar sands campaign and realized that essentially a campaign was starting against some faction, some part of the oil industry. So I actually started two years earlier, in 2010 not 2012.

[Murray Rankin, NDP, Victoria, BC]

Thank you for that.

You've raised concerns about this foreign funding, although you've said that you've actually never linked any environmental campaigns to specific U.S. companies or individuals that would financially benefit from that work. Is that correct?

[Vivian Krause]

What I've said is that I've seen no evidence of commercial interest. In other words, I haven't seen a particular refinery that is funding the campaign in order to ensure its supply of oil. I've seen no evidence of a particular oil company per se, but what is very clear is that there are charitable organizations that are working together, coordinating amongst themselves, and that those organizations are funding both conservation initiatives and the tar sands campaign in order to stop the expansion of the Alberta oil industry.

[Murray Rankin, NDP, Victoria, BC]

And you think that's illegitimate for those charities to be taking those positions.

[Vivian Krause]

No, I wouldn't say it's illegitimate. It's simply that I think it needs to be out in the open; because this is such an issue of national importance, we need to know who's funding this.

The other issue that I've raised is that there's this multi-million dollar campaign against the expansion of Alberta oil; meanwhile there's been an oil boom in Texas and North Dakota and I find absolutely no funding to constrain that industry.

I've only been trying to—

[Murray Rankin, NDP, Victoria, BC]

I'm sorry, but I have limited time. Still, I appreciate that point you've made.

At the time in 2012 when you were analyzing the oil and gas and pipeline industries, did you consult with any members of the Conservative government regarding these hypotheses?

[Vivian Krause]

No. As I said, I did my research on the pipeline campaign in 2010 and 2011.

[Murray Rankin, NDP, Victoria, BC]

So you never had any contact with Senator Duffy in that period.

[Vivian Krause]

I did research in 2010-2011. In the spring of 2012 the Senate did a study based on some of my work, and Mr. Duffy was a member of that committee. Yes, and I had—

[Murray Rankin, NDP, Victoria, BC]

Well, you may know that his diaries contain many references to you.