Finance Committee on Feb. 14th, 2018

[Jamie Bell]

We're at the chair's availability.

[The Chair, Liberal, Wayne Easter]

We're out for a week. If we could have it in a couple of weeks, that would be dandy.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Great.

Can I now move on to OSFI, please?

[The Chair, Liberal, Wayne Easter]

Go ahead. I took some of your time.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Thank you.

Out of curiosity, do you calculate the cost of compliance for business to comply with the rules set by OSFI? In this case I'm referring specifically to the banks. At any point did you calculate the cost of compliance for the rules that you set in order for the banks to comply with the regulations set forward to prevent money-laundering operations?

I know people who work in the banking industry, so I'm familiar with some of what happens in the branches to try to catch persons who are engaging in illicit activity and trying to conceal it. I'm just curious if you collect any data on the cost of compliance.

[Christine Ring]

Our focus is with respect to the quality of controls that the institutions put in place to manage their risks. With respect to the cost of compliance, we do not aggregate that information.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Mr. Beaudry, does FINTRAC collect any information on compliance costs for private organizations?

[Luc Beaudry]

No, we do not aggregate those costs. We don't have those figures. We understand that the private sector is investing heavily in compliance matters, and we are very sympathetic to this expense. That's why we're trying to alleviate their burden as much as possible.

An example of that, if I can offer one, is Project Protect. Again, what we did, essentially, was sit down with the reporting entities, particularly in the banking sector, and identify to them the types of transactions that would be the most meaningful to report to FINTRAC in the context of human trafficking. What was distributed to committee members before this meeting is about Project Guardian, which is in the same vein.

If we're talking about the trafficking of illicit opioids and fentanyl, what we did essentially was sit down with the banking community and major money services businesses to identify what would be the most meaningful information to provide to FINTRAC to help us combat money laundering in the illegal opioid field. Recognizing the cost of compliance, we keep an open dialogue—and what we think is a positive dialogue—with the private sector to make sure that we achieve the right balance of keeping the country and Canadians safe while combatting money laundering, terrorist financing, and other threats to the security of the country, and protecting the privacy of citizens, all while making sure that the private sector does not bear all the costs of compliance to the regime.

It is a fair question, and this is something we take very seriously at FINTRAC.

[The Chair, Liberal, Wayne Easter]

Mr. Julian is next.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Thank you very much, Mr. Chair.

I hope we'll be able to see all of you again. Since we have little time, it will be difficult to answer all of our questions. Our time was cut short today, but I hope we'll be able to continue what we started.

I would like to thank you for your extremely important work. You are looking at resource issues, and the committee is trying to make sure that everything is in place so that you can do your job properly.

I would like to tell you about two articles that appeared in the paper over the past 24 hours. First, there's one in La Presse, which covers cannabis and investments from tax havens. Mr. André Lareau is quoted and, roughly translated, this is what he said:

Tax laws are making Canada a real sieve. We tell foreign investors: “Find yourself a Canadian gadget that will increase significantly in value, realize a quick gain, you won't pay tax here, and with the right structure, you won't pay tax anywhere. And it's all perfectly legal.”

My first question is on how departments and organizations coordinate their efforts in terms of tax havens. Even though you were consulted, Canada recently signed an agreement with Antigua and Barbuda and with Grenada.

Are departments and organizations consulted when Canada signs such agreements with tax haven countries, which have an enormous impact on money laundering?

The second article I wanted to cite just came out an hour and a half ago from the prestigious The Guardian newspaper in Britain. The headline is “How Canada became an offshore destination for 'snow washing'”. What follows are just brief extracts:

Canada is one the world’s most opaque jurisdictions when it comes to identifying the owners of private companies and trusts, according to anti-corruption campaigners who say that more rigorous checks are required to obtain a library card than to set up a company in the country.

“Anyone can start a company in Canada. It costs about C$200 and the owner of the company can remain completely anonymous,” said lawyer Mora Johnson, who recently authored a report detailing the country’s lax rules around corporate registration.

A 2013 study by American researchers ranked Canada worst in the world among 60 countries, along with Kenya, in terms of setting up an untraceable company.

This opacity – described in a recent Transparency International report as the “getaway car of financial crime” – has become the perfect vehicle for “snow washing”: the use of Canada’s positive image to tout the country as an offshore destination where suspect transactions can be legitimised.

It goes on to cite in 2009 estimates of $15 billion a year being laundered each year in Canada, mostly through companies where ownership is unclear.

The two questions in English I would like to ask are, first off, what is the amount now that you estimate is being money-laundered through Canada, whether that's through offshore tax havens, an increasing number of which we're signing treaties with, or through other means? What do we need to change? Obviously, you're working very hard. You're doing a lot of good work with scant resources, but when we're getting the reputation internationally for snow washing, what needs to change so you can do your work more effectively?

[The Chair, Liberal, Wayne Easter]

Who wants to start?

[Luc Beaudry]

I think it's a very good question again.

To address your first question, we don't know what the exact amount is for money laundering and terrorist financing is in Canada. We don't have those numbers, and I don't think anyone has them. To arrive at that number, we would have to calculate the amount of the drug trade in Canada, or the extent of fraud, the extent of corruption, the extent of tax evasion, and any other crime that generates money, so no, we don't have those numbers.

We would also have to take into consideration the criminality that occurs overseas when the proceeds are placed in Canada.

We have a very attractive financial system. It is very sound, and very solid, so yes, Canada's an attractive place to launder money. Our financial sector has robust safeguards in place, but because of its soundness, this is a place where international investors want to be.

When it comes to beneficial ownership, I think this is one of the key aspects of this review, Mr. Chair, with all due respect. I think this can go a long way to fill gaps that have been identified internationally, particularly by the Financial Action Task Force. I think the Department of Finance rightly identified this issue and is consulting on it. We are looking forward to the views of this committee on this issue.

In relation to tax evasion, I will let Mr. Lambert elaborate a little bit on this matter for you.

[The Chair, Liberal, Wayne Easter]

Go ahead, Mr. Lambert, and we're going to quickly run out of time. We're out of time for you, Peter, but give us a quick answer, Mr. Lambert.

[Dan Lambert, Assistant Director, Intelligence, Operations, Financial Transactions and Reports Analysis Centre of Canada]

I would just mention something in the context of your question on the offshore aspect and so forth, and the aspect of the Panama papers.

Earlier today, CRA announced that they had done a number of searches. Much of the information and the intelligence that was provided that supported those searches was as a result of the significant contribution that FINTRAC has made in relation to working on tax evasion and money laundering in Canada.

[The Chair, Liberal, Wayne Easter]

Okay. I can see that we're going to have you back.

Mr. Fergus is next.

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

Thank you very much, Mr. Chair.

I would like to thank all the witnesses who are here today.

Since it is late, I will ask my questions right away.

Mr. Beaudry, what measures are G20 countries taking to fight money laundering and the financing of terrorist activities? What measures should Canada take, given what the G20 and the Financial Action Task Force, or FATF, are doing to fight money laundering?

Is there a type of information that is not in the transaction reports, but that FINTRAC should be collecting?

Ms. Ring, how do your office and FINTRAC share information as part of their memorandum of understanding? Does sharing information help to fight money laundering and terrorist financing? Are there areas where the memorandum of understanding could be improved to strengthen co-operation between your two organizations?

[Luc Beaudry]

Thank you very much for your question.

The FATF conducted an evaluation and found two important things about the Canadian system. The first is that lawyers do not act as reporting entities and the second is with regard to beneficial owners. These two factors are truly crucial to improving the system. They are difficult and complex issues. Including the legal profession is particularly complex from a constitutional standpoint.

The committee's study will be rather important. The weakness in the Canadian system that was underscored by the FATF is quite sizable.

In terms of information that could be useful to FINTRAC, they could first look at e-currencies,

the cryptocurrencies, Bitcoin and the others.

This aspect was not envisaged when FINTRAC was created, when the law was originally adopted. I think it needs to be updated in that respect. I think the government signalled that.

I think the second category is in relation to foreign money service businesses that offer services to Canadians. Again, when the legislation was adopted in the early 2000s, this was not envisaged. I think this is a sector that is emerging strongly. We're talking here about the PayPals of the world, and others. This financial service is offered to Canadians, so we need to make sure the information they have that could be relevant to money laundering or terrorist financing is sent to FINTRAC. I think the government is also committed to looking at that issue.

I think closing those two information gaps would advance our work significantly.

[Christine Ring]

There is an MOU that permits the exchanging of information between OSFI and FINTRAC. We do exchange information with federally regulated financial institutions.

In addition to that, we have been working collaboratively to work more efficiently and reduce the regulatory burden on our on-site assessments of the FRFI, the federally regulated financial institutions sector. This is an ongoing relationship that we have with each other. We recognize each other as important regime partners and—

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

Great; I'm glad you guys have an MOU and it's working out. I knew that, but I was just wondering in what ways you can be working better.

Can you identify places where you feel there are some gaps? What would be desirable to make sure there is even more co-operation, or more effective co-operation?

Can you give us examples? You said you're working more efficiently. How, and then what are those gaps?

[Christine Ring]

Right. In the FATF report, the Financial Action Task Force mutual evaluation report, it was recognized that there could be opportunities for us to work more efficiently. We are very focused on the scope of our work with respect to on-site assessments, to ensure that we are reducing the possibility of duplication of efforts and that we are leveraging each agency's strengths when we are assessing the quality of an AML/ATF program at a FRFI.

In addition to that, the regime itself is more proactive with respect to working groups, and both OSFI and FINTRAC, with our colleagues at the Department of Finance, are engaging with the private sector, with the financial institutions, with respect to ongoing issues, communication, and sharing of information that helps them to comply with their obligations under the AML legislation and expectations in the regime.

[The Chair, Liberal, Wayne Easter]

Thank you.

In order to balance it up, can we go five minutes over, so it's balanced in terms of the questions? Agreed?

[Some hon. members]

Agreed.

[The Chair, Liberal, Wayne Easter]

Mr. Albas, you have five minutes.

We were supposed to adjourn at 5:30 p.m. I know it's Valentine's Day, and we get pretty severe orders to that effect, I'm told.

Go ahead, Mr. Albas.

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

Well, since it's Valentine's Day, I just wanted to reinforce the expectation of the committee to Mr. Bell that when we ask for an answer, our constituents are expecting us to do our job, so I do hope that you come back with a substantive response to MP Kmiec's concerns, and I do appreciate the chair adding that to do our job well, we deserve those things.

I'd like to go to FINTRAC.

Mr. Beaudry, first of all, in regard to the ongoing cost of compliance with FINTRAC, if you don't measure it, how do you know you're being efficient?

[Luc Beaudry]

We are very confident in the efficiency of the agency when we see results that are being published and shared with our partners. Law enforcement, national security agencies, and others regularly come to FINTRAC and increasingly come to FINTRAC for financial intelligence.