Thank you, Mr. Chairman.
It is a sincere pleasure to appear before this committee as you begin your review of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. I'll also refer to it by its better-known acronym of PCMLTFA, or more simply, the act.
My intention today is to give you a brief overview of the importance of combatting money laundering and terrorist financing and explain the goals and structure of Canada's anti-money laundering and anti-terrorist financing regime. I'll also review Canada's recent international peer review evaluation and then describe the efforts we've taken with federal and private sector partners to assess and expand this international peer input. With federal partners, we have summarized all of this advice in a policy discussion paper, which we released yesterday. The paper is intended to support your committee's current review, and we hope that the paper will serve as a helpful baseline in your deliberations.
Money laundering and terrorist financing are crimes that facilitate and reward the commission of other crimes, such as those perpetrated by organized criminals and terrorists and terrorist groups, as well as the actions of those who engage in tax avoidance and tax evasion.
These financial crimes can be carried out in Canada or elsewhere, but they affect all Canadians. In order to face these threats, Canada's anti-money laundering and anti-terrorist financing regime was established in 2000, with the mandate to combat terrorist financing being added in 2001.
The regime is designed to deter criminals and terrorist financiers from using Canadian financial institutions and other entities for their criminal purposes, and to provide appropriate tools to law enforcement to combat money laundering and terrorist financing, while also respecting the privacy rights of Canadians and minimizing the compliance burden on private sector reporting entities.
Canada has a stable and open economy, an accessible and advanced financial system, and strong democratic institutions. Those seeking to launder proceeds of crime or raise, transfer, and use funds for terrorism purposes try to exploit these strengths.
Because they act as a deterrent to financial crime, effective regimes to combat these threats are essential to protect Canadians, the integrity of markets, and the global financial system.
A strong legislative and regulatory framework is required to effectively detect and deter criminal activity. This framework has evolved and matured in recent decades by adopting and adapting international best practices as informed by domestic threat risk assessments and close collaboration among partners. Doing so allows Canada to meet our international commitments in the fight against transnational crime and terrorism, and to bring new intelligence and tools to domestic security efforts.
Canada takes a comprehensive and coordinated approach to combatting money laundering and terrorist financing. This regime involves coordinated action by 13 federal departments and agencies, in addition to law enforcement entities across the country.
The overarching objective of the regime and the act, as I said, is to detect and deter money laundering and terrorist financing, while facilitating the investigation and prosecution of these crimes. The objectives thus place equal emphasis on preventing illicit funds from entering or moving through Canada's financial system and creating a paper trail to assist law enforcement in detecting and prosecuting these crimes.
Reporting entities also play a crucial role in achieving those objectives. These financial institutions and designated non-financial businesses and professions are the gatekeepers of the financial system.
Under the act, reporting entities have an obligation to properly identify their clients, keep corresponding records, exercise customer due diligence, monitor transactions on an ongoing basis, and submit mandatory reports.
The Financial Transactions and Reports Analysis Centre, FINTRAC, Canada's financial intelligence unit, receives those reports and analyzes the financial information they contain. In addition, FINTRAC, as a regulator, ensures the compliance of reporting entities with their obligations under the act.
The framework also contains measures that are critical to support law enforcement in pursuing money laundering and terrorist financing. This includes requirements to keep proper documentation which law enforcement can access through court-mandated orders. It includes reports that are provided to FINTRAC when thresholds of suspicion are met.
Once reports are analyzed by FINTRAC, the resulting actionable financial intelligence is disclosed to law enforcement when it meets the threshold of reasonable grounds to suspect that this information would be relevant to the investigation of a money-laundering offence or terrorist financing offence. In turn, law enforcement, national security, and other investigative bodies, supported by FINTRAC's disclosures of financial intelligence, undertake investigations in relation to money laundering, terrorist financing, other profit-oriented crimes, and threats to the security of Canada, in accordance with their individual mandates, in order to disrupt, prosecute, and sanction these criminal activities.
In its efforts to protect Canadians through anti-money laundering and anti-terrorist financing measures, the Government of Canada is committed to respecting the constitutional division of powers, the Canadian Charter of Rights and Freedoms, and the privacy rights of Canadians.
Although the act requires businesses to disclose private financial information to FINTRAC, it also sets out strict measures to safeguard charter and privacy rights.
The PCMLTFA prescribes the information that FINTRAC can receive and disclose. It sets out the specific law enforcement and intelligence agencies to which FINTRAC may disclose the financial intelligence. The act also limits the circumstances in which FINTRAC must disclose information to these agencies. FINTRAC must have reasonable grounds to suspect that the information would be relevant to the investigation or prosecution of a money-laundering or terrorist financing offence, or relevant to the investigation of threats to the security of Canada. Unlike other intelligence agencies, FINTRAC does not conduct investigations. This set of safeguards supports FINTRAC's independence from law enforcement agencies.
Since the legislation was enacted, in 2000, the regime has undergone two parliamentary reviews, three reviews by the Office of the Privacy Commissioner of Canada, and a number of external evaluations. This scrutiny has led to amendments to the legislative framework in response to evolving threats, in order to better support law enforcement efforts. Over time, the framework has undergone changes to provide for new types of reporting entities and new recipients of FINTRAC information, as well as to strengthen existing obligations and add others.
As I've mentioned, a well-functioning framework is critical to combatting money-laundering and terrorist financing in Canada and globally. These transactions do not stop at national borders, and strong national anti-money laundering and anti-terrorist financing regimes enhance the integrity and stability of the global financial system. Given the interconnectedness of the financial system, the fight against money laundering and terrorist financing can be undermined if there are weak links in the chain of efforts by national authorities.
The Financial Action Task Force, or FATF for short, is an intergovernmental body that sets international standards for combatting money laundering and terrorist financing. The FATF monitors the implementation of those standards by states through mutual evaluation and public reporting, to ensure a level playing field for all member countries. Canada is a founding member of the FATF and actively contributes to its work.
The Financial Action Task Force released a mutual evaluation report of Canada in 2016. Overall, the evaluation found that Canada has strong anti-money laundering and anti-terrorist financing legislation and regulations, and that the regime is effective. They did, however, note a number of areas where technical action could be taken to ensure that the framework meets international standards to be even more effective.
The report found that Canada has a good understanding of its money laundering and terrorist financing risks, and that anti-money laundering and anti-terrorist financing co-operation and coordination are generally good at the policy and operational levels. In addition, Canada was assessed as having financial institutions that have a good understanding of their risks and obligations and generally apply adequate mitigating measures. Canada was found to have reporting entities that are generally subject to an appropriate risk-sensitive supervision framework; financial intelligence that is used by law enforcement agencies to aid investigations, prioritize pursuit of terrorist financing activities, and for provision of useful mutual legal assistance and extradition; and a comprehensive sanction regime against Iran and the Democratic People's Republic of Korea.
That said, the mutual evaluation process identified areas for improvement in Canada's regime. Notably, these include a limited availability of accurate, beneficial ownership information to be used by competent authorities; the fact that the legal profession in Canada is not covered by the PCMLTFA; and the fact that other vulnerable sectors are also not covered. This includes finance and leasing companies as well as unregulated mortgage lenders. They found a gap in the application of the act requirements related to politically exposed persons, also known as PEPs, heads of international organizations, and beneficial ownership information requirements for the designated non-financial businesses and professions sector. The international evaluation also noted the need to improve the number of money laundering investigations and prosecutions, in particular for more complex money laundering and terrorist financing schemes such as third-party professional money launderers. I will note that they also assessed that the penalties for violating our laws are neither proportionate nor dissuasive.
The findings of the mutual evaluation are welcome and in many instances align with the views provided by federal partners and private sector stakeholders. Notably, views from federal partners were profiled in the “Assessment of Inherent Risks of Money Laundering and Terrorist Financing in Canada” report that was publicly released in 2015.
In recognition of the upcoming parliamentary review, we worked with our partners to put together a discussion paper highlighting areas of consideration that could lead to improvements in the framework.
The possible legislative directions described in the paper released yesterday draw heavily from the mutual evaluation and are organized around the following five themes. First are legislative and regulatory gaps. Second is enhancing the exchange of information while protecting Canadians' rights. Third is strengthening intelligence capacity and enforcement. Fourth is modernizing the framework and its supervision. And, finally, there are the administrative definitions and provisions.
The government has already taken action in response to the broad policy directions set out in the paper. For instance, when they met in December 2017, federal, provincial and territorial finance ministers pledged to work with their fellow ministers on amending current legislation, in order to improve corporate and beneficial ownership transparency, by requiring companies to keep the information on record.
Thanks to these efforts, the appropriate authorities will be able to follow the opaque money trail of suspicious transactions all the way back to the originating client who made the transaction or is benefiting from it.
We anticipate that the committee will hear from civic society and the private sector, and that parties may differ on how to strike the appropriate balance between sometimes conflicting objectives at play in this policy space. A balance must be struck between efforts to minimize the burden on reporting entities that are on the front lines of the fight against money laundering and terrorist financing; how to leverage innovation to find new ways to meet obligations while reducing the burden on the private sector; efforts to counter new and evolving threats, including through new measures and enhanced international standards, to better protect the safety and security of Canadians; and efforts to actively protect the charter and privacy rights of Canadians by being constantly mindful of the limits and constraints that these entail.
As you begin your deliberations, we also offer the perspective that not all regime improvements require legislative changes. In our discussion paper we point to tangible examples that show new ways that public and private sector partners have begun to work together to modernize our efforts and improve effectiveness. One such example is Project Protect. This is a private sector led initiative to combat human trafficking. Partners worked within existing authorities to identify specific transaction patterns typical of human trafficking and sex crimes. This has yielded concrete results for law enforcement agencies. This model has been expanded to other types of criminality, which has led to successful investigations of different types of drug trafficking. In recent weeks FINTRAC issued a new operational alert to identify and target fentanyl trafficking.
In conclusion, Canada must remain actively committed to combatting money laundering and terrorist financing. This requires a continually evolving framework in order to ensure an effective and robust regime able to respond to new threats and vulnerabilities, while adhering to international standards.
We sincerely embrace the parliamentary review process. We've worked well and closely with domestic and international partners to assess tangible actions that will address the evolving landscape of financial crime. We have profiled these areas for action in our discussion paper. We look forward to supporting your deliberations, and receiving your assessment of our work and your priorities for action.
I thank you, Mr. Chair, for your attention and look forward to your questions.