Finance Committee on Feb. 8th, 2018

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Thank you, Mr. Chair.

Continuing with some of the conversations earlier, Ms. Ryan, you alluded that regimes like the politically exposed person seem to be working rather well.

I opened up a self-directed TFSA using a virtual bank here in Canada and was interested to see that they followed procedures to make sure that elected officials like myself, though I have nothing bigger than my soap box as far as shaking my fist at the government.... It's good to know, though, that those systems are in play and that there's a checklist that they go down, so Canadians know that regardless, their elected officials are subject to a higher threshold. I appreciate that.

It also got me thinking that there are other companies that are operating in certain spaces. For example, obviously the CRA has asked PayPal for a bunch of information, because it believes there might have been some tax evasion.

Has your department also looked at the non-traditional payment space, like PayPal or other groups, to see if it used for money laundering?

[Annette Ryan]

There are different concepts in the question that you put forth. On the one hand, it's about the politically exposed persons and the requirements that we place on reporting entities to know their clients and to track the transactions against whom the client is, to be able to identify what is suspicious in the eyes of the regime.

The second part of your question spoke to companies like PayPal, which are more in the money service business space in terms of how the act and the regime view reporting entities. I would say that the short answer is that we want to have that consistency and comprehensiveness in how various reporting entities, be they the banks, insurance companies, money service businesses, or other types of—

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Prepaid credit cards, for example.

[Annette Ryan]

That also speaks to the margin that we try to keep current with in terms of the types of transactions that we capture in the regime. As you have more innovation in both the number of players and the types of transactions that people make, that speaks to the need to keep all of our regime current internationally and domestically, and part of the work we welcome from the committee, to make sure that we are up to current techniques.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

You said that we were trying to do a made in Canada approach, while working with the international community, where I would hope that we're trying to be leaders. Are there any particular countries you might cite as being good examples that Canada could say, “Here's some good work that's been done here. Perhaps we could look at that and see how it would fit into a Canadian context”? Are there any particular regimes that you think Canada should look at, or do you think we seem to be leading the field? I'm a big believer in seeing what other regimes can offer.

[Annette Ryan]

Absolutely. In terms of areas where Canada has shown leadership, I think Project Protect is important example of how the regimes continue to evolve. The idea of having an understanding of the patterns of specific transaction flows related to very narrow types of crime or so on, and then feeding back that information in a way that protects the privacy of Canadians, is a space where there is a lot of innovation, including Canadian-led innovation.

That said, we absolutely can always learn from other countries. I think there are any number of examples you could look to, but the U.K., as the other member said, is quite like Canada, and is innovating in a number of ways that we're watching closely. They have a variant of Project Protect, project JMLIT, from which I think the committee will find insights. There are other countries that are also active in this space and have learnings for Canada. These would include Australia and New Zealand, who are like us. The Americans are active, and any number of partners have their own innovations, but those are the closest to the Canadian model, I would say.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Thank you. I appreciate that. The United Kingdom, I think, has a lot, especially when it deals with cybercrimes and whatnot, so I'm glad to see that we are checking with people who have similar values but also face similar conditions.

Thank you, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

Ian, did you want to add something?

[Ian Wright]

I would just add that we're very active. The genesis of the FATF came out of the G7 in the late 1980s and we are still very active. We meet regularly with our G7 colleagues because we do share a very common interest in all of this, and those discussions are very active. We also have discussions regularly with our Five Eyes colleagues. We do try to ensure that we can get like-minded people together in the room to try to provide some direction to where FATF is going.

[The Chair, Liberal, Wayne Easter]

Okay, thank you.

Mr. Grewal, and then Mr. Dusseault.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you to the witnesses for coming today.

How big a problem is money laundering in Canada? How many cases have actually made it to court, and how many people have been convicted in, let's say, the last decade or so?

[Annette Ryan]

There have been different attempts to put a specific figure on money laundering. Those figures can be in the range $5 billion to $20 billion, but inherently we don't know what we don't know. If we could identify the money laundering, then the efforts would be to deter and detect it. It is large, it is significant, and it is a threat. We have published a national inherent risk assessment that attempts to speak in a more qualitative sense of the nature of the threat and how pervasive it is, so I would refer you to that work.

The number of prosecutions is relatively low when it comes to money laundering and terrorist financing, given what I think people often expect. Ian spoke earlier to the findings of the Financial Action Task Force that pointed to a dynamic whereby the law enforcement entities will often use financial information that is surfaced through the regime to identify the predicate crimes, and then they will often prosecute the underlying predicate crime rather than the money laundering or terrorist financing offence.

I offer that as an alternate aspect of what success—

[Raj Grewal, Liberal, Brampton East, ON]

Yes, I ask, because $70 million annually is funded to the organizations that track money laundering and terrorist financing, so as a policy-maker, the natural question is what is the return on investment? How much money is being recouped from the financial markets? How many cases are we taking to court? How many people are charged with these offences? In the grand scheme on a macro level, I don't think anybody's going to argue with you on the need for protection, especially in the global environment we live in, but there have to be concrete returns in Canada to ensure that we're on the right track.

My second question has to do with the $10,000 cash limit that one can carry between the U.S. and Canada. That limit got set decades ago, and in your report here, it said that we must have harsher penalties on undisclosed cash, but is there any discussion on raising the limit? The limit seems to represent an earlier era. It was set in the early nineties, I think.

[Annette Ryan]

I would describe the $10,000 limit as always subject to discussion, but it's not an area that we've received a lot of feedback about, compared to other areas, for reform in the regime.

[Raj Grewal, Liberal, Brampton East, ON]

Every transaction in any bank in Canada that's over $10,000 gets flagged by FINTRAC. That's got to be thousands of transactions on a daily basis, I would assume. I used to work as a corporate lawyer on Bay Street, and we were always dealing in the hundreds of thousands and millions of dollars in wire transfers.

How many resources does FINTRAC have to go after each little $10,000 transaction? If I'm money laundering, I'm not doing transactions in the millions to catch attention. I'm doing them at the $10,000, $15,000 limit to get away with it.

[Annette Ryan]

I would respond to your question in two directions.

The first would be to speak to the efforts we have under way with the private sector not just to focus on the specific dollar limit but to find ways that we can focus on the truly suspicious transactions. That speaks to understanding the typologies of crime: money laundering, terrorist financing, and finding ways to turn that back into actionable algorithms and practices that will sift through the haystack and find the needles.

As you say, the numbers of transactions in Canada that exceed $10,000 is quite vast. The question of how to focus on what is important is one of the higher-level questions before us that we are undertaking with private sector colleagues, and I'm quite certain they will address it when they appear here.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you very much.

My last question is on digital currency. I think we're behind the pendulum here. Billions of dollars of wealth has been created in the cryptocurrency space. Our government, our country, and a lot of western countries are slow to regulate it and really don't understand what it is. If you read a lot of the opinion articles on the Internet in established sources, a lot of it has to do with money laundering. People in the black market are trying to legitimize their wealth by coming into the crypto space.

What are we doing, from a regulatory perspective, first, to track this and, second, to counter it and see how we can actually stop money laundering in the cryptocurrency space? I ask because it is the next big thing, and we can't be this slow to evolve, because innovation is happening on a daily basis.

[Annette Ryan]

I appreciate the question. It is, again, one of the higher-level questions facing us.

We've spoken to efforts that we will be bringing forth, in coming months, in regulating virtual currency dealers. The question of how to put in place the requirements so that transactions entering the Canadian financial system will not be anonymous and so that you will be able to know your customer and to identify what is suspicious is an active area for all of the regime. We are seized by it. We share your concerns, which you've described very well.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you very much.

[The Chair, Liberal, Wayne Easter]

Thank you, Raj.

Mr. Dusseault.

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

Thank you, Mr. Chair.

I'd like to pick up on the idea of going after more detailed information that reveals trends and patterns, instead of focusing on the specific dollar limit that triggers reporting, in other words, $10,000. The vast majority of those transactions are completely kosher, as we know. What the committee must do, then, is try to figure out how the system can flag situations that are potentially troubling, such as recurring transactions between two entities during a given period of time or repeated transactions of $9,900.

At the end of the day, shouldn't the objective be to have a system that flags situations that truly pose a threat, as opposed to setting a specific limit?

[Annette Ryan]

Yes, absolutely.

We are seized with the question not of whether a transaction is above or below $10,000, but rather whether it is suspicious. That goes to a profound set of guidelines to reporting entities regarding what they should consider to be suspicious, based on their knowledge of their client. I would offer the committee that we focus not specifically on $10,000 plus or minus, but rather on the pattern of transactions that would raise concerns. That question of being ever-more precise and practical and tangible in the guidance we give to reporting entities is something that we're seized with.

With regard to the question of structured transactions that are meant to fall below the radar, below $10,000, we also have advice in our paper that would give us better tools to identify efforts to go below the threshold. The term for this is “smurfing” when someone takes a large transaction and turns it into a series of small transactions that would evade the objectives of the act.

Yes, we want to focus on the suspect transactions more so than on the amount. Yes, we also want to make sure that we're not creating blind spots with that threshold, but it's a question of magnitude.

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

My next question is out of curiosity, but also for the sake of government transparency.

Fortunately, the system is working. Proceeds of crime are being seized, whether in the form of money or other. That said, I'd like to know what you do with it.

Where does the money end up? Does it flow back into the system?

[Annette Ryan]

It's an excellent question and it relates to the discussion with the honourable member.

It's a mixed answer. At the federal level, the proceeds of crime that are captured and seized through money laundering are in the order of $30 or $40 million in any given year. There is an overlay with the provincial and territorial responsibilities for forfeiture, which is separate, and it's more in the predicate crime space. I would answer it that way.

In terms of whether the money flows back to the regime, yes, but indirectly. It flows into the central revenue fund of the government, which is then the basis for departmental budgets and so on. Is there a dedicated fund? No. It's a problematic concept, in that, in any given year, the funds might exceed or fall short of what the regime would need. On balance, we would prefer to get the resources right for the purpose, rather than tie it to seizures in any given year.

[The Chair, Liberal, Wayne Easter]

On that point of where the money flows, you said earlier something along the lines that rather than prosecuting or seizing the proceeds of crime, there are other underlying issues other than money laundering itself. Is that partly because police from other jurisdictions than the federal one are involved? If you go to the proceeds of crime, then that's going to head towards federal coffers. If you prosecute under something else, it's likely going to be a provincial or municipal coffers, where they have done the work, to a great extent.

Are there problems there?