Finance Committee on Feb. 8th, 2018

[Annette Ryan]

I wouldn't think so, Mr. Chair.

I think that the distinction we spoke to earlier, about how law enforcement agencies decide to prosecute the ensemble of evidence and actions they have before them, speaks more to the ability to get a conviction. For that reason, we would like to strengthen the ability for law enforcement agencies to pursue money laundering offences, by changing the standard of proof. We think that's a good piece of advice to follow through.

I would offer that the return on investment of prosecuting one way or another is something that I wouldn't see as a problem. I would say that FINTRAC, the RCMP, and law enforcement agencies do have a high level of collaboration and I would think that they can speak in further detail to this.

[The Chair, Liberal, Wayne Easter]

I've talked to some former chiefs of police, in fairly large jurisdictions, and they would differ with that opinion. Maybe we need to talk to them as well. I do believe that the financial matters, at the municipal level, come into play on this issue. That's something we'll hear more about.

Prior to going to Greg, the second issue I wanted to ask about is this. Mr. Beaupré, you mentioned "know your customer", that at banks there should be an effort to know your customer. Do you think that is really happening today?

If you have a business or a mortgage now, you probably haven't been into the bank for many years, since the time you set it up. From where I live, I have found when dealing with banks that if you do business with a bank in Prince Edward Island, the decision is really made in an office in Halifax, or Toronto, or elsewhere. Do you really think they know their customer now?

[Maxime Beaupré]

I would say that the modalities through which the reporting entities implement their know-your-customer obligations will vary based on the type of business they conduct, their size. In our regime we have 30,000 reporting entities. Some of them are the largest banks in the country, which you are well aware of, and other reporting entities are operations of a few people. Definitely the ways they structure their business to understand their clients and the purpose of their business relationship will differ.

I would argue that for the same reason, because of the variety of models, reporting entities have various levels of awareness as to their obligations to know their customers. On the one hand, I would argue that the largest financial institutions are quite sophisticated in their approach to knowing their customers. It is about when they onboard a new client—and you are right, nowadays not only may you not often go in a branch, but you may not even have to go in a branch to open an account in an institution. We have put flexibilities in the regime so that the reporting entities are able to onboard clients in what we call “non face-to-face” environments while still having measures in place to get a good understanding of who their client is, including verifying their identity, for example, and also documenting the purpose of the account if we're talking about an account opening.

Not only do reporting entities have obligations at the outset of a relationship, but throughout that relationship. That is what we call “ongoing monitoring”, and it is through that process.... Again, reporting entities have different modalities for implementing that. Large banks will have sophisticated systems in place to detect if there are strange patterns emerging that are not consistent with what they were told the account was for.

I'm giving an example. If a client says, I am opening an account to save for my grandchild's studies and then there is a large velocity of transactions happening in his or her account, a bank, through its systems, would find this quite unusual and may decide to investigate and document what is happening. At the other extreme, if we are talking about very small entities, they would have a more personal relationship with their clients and may have other means to see if there is a problem in what they think they know about their client and what is actually happening with the consumption of the services they offer.

[The Chair, Liberal, Wayne Easter]

Thank you.

Mr. Fergus.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you very much, Mr. Beaupré. Your comment leads me to make an interesting distinction between

knowing your client and understanding your client.

I would think there is a slight difference, depending on the size of the financial institution.

I'd like to ask Ms. Ryan a question about money laundering.

You said that money laundering is a process used by criminals to conceal or disguise the origins of criminal proceeds to make them appear as if they originated from legitimate sources.

That's great, but I'm trying to figure out, then, that if our focus is on knowing our clients, it seems to me that the definition of money laundering, or any anti-money laundering efforts we'd want to take on, would require us to want to know the provenance, the sources of those funds. Am I missing the point, or is that correct?

[Annette Ryan]

You're correct. That is the overarching objective of the regime. Knowing the client is an inherent part of that logic of how do you assess whether there is sufficient suspicion that the provenance of the funds may be of interest.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

A retired teacher in Summerside shouldn't have $300,000 going through their account on a regular basis.

[Annette Ryan]

There is a range of advice that FINTRAC has compiled and shares with reporting entities about what constitutes suspicious transactions, but you've got it right; that's the inherent logic.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

To go back to some questions that my colleagues asked, how can we strengthen the regime so that we’d know, not only for our clients in Canada but also for non-Canadians who are investing here, what the provenance or sources of their income are? What kinds of efforts are under way in that regard on an international coordinated level, if any?

[Annette Ryan]

That's very much a focus of the regime and there is existing advice on that. I think it's a space where we could make better progress, especially with our private sector entities, particularly with a more nuanced identification of suspicious clients and transactions among regime partners. To the extent that the international and intentionally complex and opaque transactions would require a series of transactions and events and actions to come together, being able to bring that information together from different sources in a more fluid, robust, practical way is part of the way forward to doing just what you said.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Again, in that regard, we would want to make sure, and I imagine that in any efforts we would want to make, it would be much better, that we prevent funds originating from undesirable sources. It's better to enact measures to prevent that and to ensure that whatever funds come into the Canadian financial system are legitimate and are not being used for money laundering, the proceeds of crime, or terrorist fundraising.

I'm just trying to figure this out. In the recipe that we have for the activities we could do, one is prevention, one is detection, of course, and the other is disruption. Are we putting enough efforts into prevention to make sure that the money that comes into the system is legitimate?

[Annette Ryan]

I would point to the evaluation of the Financial Action Task Force to say that, on balance, the Canadian regime and efforts are effective. It is a difficult space. It is an evolving space, and we do have advice on how to do better in that space.

The international piece of it is difficult. We do require that people who are moving money into the Canadian system do their due diligence to understand their customers, the institutions, and so on with which they are dealing, so that the provenance of funds is as compliant as it can possibly be. We hope to tighten that. We hope to improve it, but my summary would be that, yes, that's very much the focus of how we want to move the regime forward.

[The Chair, Liberal, Wayne Easter]

We'll go to Mr. Dusseault, then back to Mr. McLeod.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Thank you, Mr. Chair.

I have a quick question. I am not sure what kind of an answer you will be able to give, since my question is a bit

out of the box,

This may reveal my age.

Cryptocurrency is said to provide guaranteed anonymity, but isn't it true that the cash within the system is also a big part of the problem? People can have large amounts of cash, which affords them anonymity.

Have you taken that into consideration? In the longer term, could eliminating cash transactions solve part of the problem?

[Annette Ryan]

Again, I agree with you.

Cash is a traditional and ongoing challenge for the regime. It is inherently anonymous, and the ability to track cash going across borders, the ability to withdraw cash that may be falling into misuse is an important challenge and we bring forward advice about that question. It is a nice parallel to some of the challenges for the emerging technologies. So that aspect of anonymity and being able to move funds to finance terrorist activities, or move funds that flow from criminal activities and essentially increase the reward for crime, in terms of what it can purchase and how transparently, is inherent to the challenge in front of the regime.

We have spoken to some of the risks of these new technologies but also the potential to build new safeguards into the technologies as they emerge and as digital means have the potential to replace cash going forward.

Je suis d'accord.

[The Chair, Liberal, Wayne Easter]

Go ahead, Mr. McLeod.

[Michael McLeod, Liberal, Northwest Territories, NT]

Thank you, Mr. Chairman.

Thank you to the presenters today. The subject is certainly broad and very complex, and there is a lot of information that's been provided that I'm still struggling to digest. Your presentation today was very helpful. I appreciate it very much.

There are some questions I have, though. The subject that Mr. Grewal raised, namely the $10,000 threshold, is not clear to me. There are already reporting entities that are required to exercise discretion by flagging transactions below the thresholds. Could you tell me if you believe that the existing threshold of $10,000 is an effective and efficient level for the regime to use? I didn't get that answer from your response.

[Annette Ryan]

I answered the question earlier by saying that what we flag as suspicious transactions and how we assess the more pertinent patterns of transaction is where I would put our focus rather than on the $10,000 number itself.

[Michael McLeod, Liberal, Northwest Territories, NT]

Should the number be removed? Do we need it anymore?

[Annette Ryan]

I would say that some level is important so that minor transactions can flow without a major level of attention. I'd be happy to bring forward some thoughts on whether it's the right number. Should it be higher, or should it be lower? I think some level of consistency is important. We do have instances that we flag in our administrative section where the threshold is different—$3,000, $5,000. I think there is merit to having a single threshold. As to the exact number, I would prefer to defer that question till another time. I'd be happy to talk to our partners and see how we can answer that question for the committee.

[Michael McLeod, Liberal, Northwest Territories, NT]

I'd like to go to another issue you raised around Project Guardian and the ongoing opioid crisis that's happening across the country, including in my riding in the Northwest Territories.

Many members of the regime, including FINTRAC, are involved in the anti-fentanyl initiative, Project Guardian. I'd like to know more about it. Can you give me more details of the project and its function and maybe some of its impacts?

[Annette Ryan]

With respect, Mr. Chair, I think FINTRAC is the better witness to walk you through that. I'd refer you to them, because they've worked closely with any number of partners and can answer in detail.

[Michael McLeod, Liberal, Northwest Territories, NT]

Okay. Since the last review of the act, we've seen a significant increase in technology, the popularity of technology relevant to the regime in the areas of cryptocurrency and crowdfunding. I'm curious to know how the regime has adapted in these areas since the last review.

[Annette Ryan]

We—

[Michael McLeod, Liberal, Northwest Territories, NT]

Maybe you could tell us if further tools are needed to do a better job.