Finance Committee on Feb. 28th, 2018

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Chair.

Good afternoon and welcome.

First of all, to CRA, I want to say congratulations on your announcement a few weeks ago, which you referenced in your remarks today. I think it gives our committee and Canadians confidence that resources are being put to use to make sure all Canadians and Canadian organizations or foreign organizations are paying their share of taxes and that tax evasion is being rooted out.

My first question is with regard to your comments. In terms of the business transformation that took place in 2013-2014, we all know the issues that can occur, whether in the private or public sector, when there is a sort of reorganization that occurs within a company or a government agency. How is that reorganization going? What do you think are the outcomes? How are CRA and the teams and individuals there working better within the organization and between the agencies?

[Stéphane Bonin]

First, the business transformation was essential. I was looking yesterday, and almost six years ago to the day there was a committee appearance to review the PCMLTFA, and a former colleague, who has since retired, was here, and I think at that point it was made clear that CRA had to renew its criminal investigations program, and this is what we did.

We had 32 small offices conducting mostly small cases of tax evasion. The desire at that point was to be closer to our partners, the RCMP, the securities commissions, the Public Prosecution Service of Canada, and others to tackle the most egregious cases of tax evasion. That was the driver behind it, how to get a greater critical mass of investigators and greater teams put together to tackle those large files that we are now doing. That was the driver behind it.

In realigning 32 offices into six offices, we lost some expertise. We knew we would lose some expertise, but at the same time, it was an opportunity for us to get new blood—new auditors—and external talent at the same time. That was also at the same time that tax evasion became a predicate offence to money laundering.

We trained all of our folks on money laundering components to sensitize them, and I think we are doing very well. There are still a lot of things that we can do better, but I think we are on the right track to conduct the type of investigations that Canadians expect of us on the most egregious cases.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

In the first two budgets, our government invested nearly $1 billion in CRA. When I think about that, it's giving CRA the tools and giving the people the tools and the systems needed to go after very complex—I think that was the term I read—forms of tax evasion and tax avoidance.

Have those investments allowed these teams specifically in this area within the CRA to effectively go after individuals or organizations undertaking tax evasion or tax avoidance?

[Stéphane Bonin]

There was a lot of investment put into CRA systems and business intelligence. Considering that almost 89% of Canadians now file electronically, CRA had to step up and organize its system to ensure that what we have in our system can generate more cases or more indicators of tax evasion that will make their way eventually to the criminal investigations program.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Okay.

I could ask CRA several more questions, but I do want to spread the wealth around, if I can use that term.

To the Office of the Privacy Commissioner of Canada, I believe that, in September of 2017, the OPC released its audit report on FINTRAC. It concluded there were “significant efforts to enhance...personal information handling practices.”

I think there's a bigger issue. We live in a society where data sharing, data collection, and data storage are very valuable to organizations. What I want to hear from you is, over the last several years, have there been improvements on FINTRAC's side in terms of how they handle personal information from Canadians?

[Daniel Therrien]

The short answer is yes, although we still see some difficulties. Our mandate at the OPC is in part to verify whether FINTRAC's security measures to protect the information they collect are appropriate and sound. Generally, we find they are sound.

We've had concerns over the years with the fact that some financial institutions over-report to FINTRAC, and that FINTRAC over-collects and over-retains information. This led to the amendment to the legislation that I referred to in my remarks, which was an improvement. The situation has improved in that regard, but we still see, including in our most recent review, instances of over-retention.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Can you give me an example? Is it the length of time that they're holding the information, or is it just—

[Daniel Therrien]

It's the type of information. I'll ask Ms. Ives to give you an example.

[Lara Ives, Acting Director General, Audit and Review, Office of the Privacy Commissioner of Canada]

It's a combination of things. We found reports that don't meet thresholds, so they were underneath the financial thresholds, or which didn't meet thresholds about suspicion—that type of threshold as well.

The point is that if institutions are over-reporting to FINTRAC, then they should not be retaining that data. They have implemented measures to screen reports with validation rules, but there's still information getting into its databases that doesn't meet the threshold. We would hope that it would not get into the databases in the first place.

The provision that the commissioner is referring to only imposes an obligation for them to dispose of information that they come across in their normal course of business. We're suggesting something more proactive than that.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you.

[The Chair, Liberal, Wayne Easter]

Before I turn to Mr. Kelly, you mentioned in your remarks, Mr. Therrien, Bill C-59. I took it that you might have thought there needed to be amendments to Bill C-59.

Is what you're talking about there related to issues relative to money laundering and terrorism financing, or was that other issues related to privacy with the new security agency?

[Daniel Therrien]

There are two things I'm saying about Bill C-59. First, there are a number of oversight bodies overseeing FINTRAC. We, as one of the bodies, cannot legally share information that we collect in the course of our review with other review bodies. We're saying that it would be very helpful to having fully informed reviews by us and other review bodies if we were able to share our work and come up with more informed conclusions. That's one point.

The other point is the analogy with collection and retention rules by CSIS, which are in part 4 of Bill C-59. There is some analogy to FINTRAC and the PCMLTFA. Under part 4 of Bill C-59, CSIS can collect considerable information, much of which is about law-abiding citizens, as FINTRAC collects a lot of financial transaction information about law-abiding citizens. However, under part 4 of Bill C-59, there are mechanisms to ensure that the collected data is reviewed fairly promptly to determine whether it is of probative or investigative value, and that if it is not of investigative value, it must be discarded.

I think that's an interesting compromise. You have broad collection but screen it fairly promptly, leading to not unduly long retention of information regarding law-abiding citizens.

[The Chair, Liberal, Wayne Easter]

Thank you.

What I'm trying to get at is that if things that are being done via Bill C-59 are important to moving ahead on money laundering and terrorism financing, which is our review, then they need to be done fairly quickly, because that committee will be starting clause-by-clause on that bill. If there are areas that you think we can deal with in our review, then drop us a note on the specifics and we'll have a look at it.

[Daniel Therrien]

We can do that.

However, as a practical matter, if you let Bill C-59 pursue its course—and perhaps, I would suggest, be inspired by some of what is found in part 4—and then translate it to any recommendations you would make to amend the act you are reviewing. I think that would be good.

[The Chair, Liberal, Wayne Easter]

Okay, thank you.

Mr. Kelly.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Thank you.

I have some questions that come to me based on the lengthy career I had in the mortgage business. Through many seminars, for years and years, and including course material when I was a prelicensing instructor, it comes from a general assumption in that industry that there is a tremendous amount of money that is laundered through real estate transactions. I'd like both Service Canada and the CRA to comment on this.

We know that large, complicated, international money-laundering schemes gather a lot of attention. Government agencies are right to be concerned about these broad, complicated schemes, but what about the simpler, ground-level transactions that seem to occur every day? What about the lower-level criminal who deposits money in smaller transactions that don't meet the FINTRAC threshold, and eventually buys property where they launder more cash in the form of exaggerated rental incomes. With these kinds of things happening every day, how do our institutions catch this type of criminal activity?

I'll maybe ask Service Canada to comment first, and then CRA.

[Lynne Tomson]

I may not be the best person to answer that question in the sense that I'm mandated by the RCMP to help them in their money-laundering cases. In terms of what's happening at a more local level, our services may not necessarily be called upon.

[Stéphane Bonin]

For CRA, similarly we get engaged only when there's a suspicion of tax evasion. I think it's the role of the local police, law enforcement, to make a determination if there is mortgage fraud going on, and would they initiate a criminal investigation? At that point, maybe they would like to call in the CRA to say, “Would you like to have a joint investigation?”

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

How often would that happen?

[Stéphane Bonin]

That happens pretty frequently. Currently, we have, I would say, 13 joint investigations that we have with law enforcement, and that would be the RCMP and others, but it would not be specifically on real estate, but joint investigations on large-scale money laundering and tax evasion cases.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

That actually sounds like a shockingly low number to me of investigations, given the assumptions that many have about the scale of offences that go on.

[Stéphane Bonin]

Sorry to interrupt, but those are joint investigations that we have with law enforcement or security commissions or joint investigations, but CRA criminal investigations always have on the book around 300 investigations of tax evasion, of which some could be in the real estate sector.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

I'm going to go back to public services again. Are you saying, then, that you are not typically called upon by the RCMP or other law enforcement agencies for assistance with these types of investigations?

[Lynne Tomson]

I'd have to come back to you with more specifics in terms of if we're helping at the very local level. We do help provincial police forces, but in terms of whether it's related to those specific cases that you're mentioning, I'll have to come back to the committee on that.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

This really gets to the reason often given for why prosecution for mortgage fraud, prosecution for money laundering through real estate, seems to happen so seldomly that the enforcement agencies don't have the expertise to prosecute. When investigative authorities on the professional conduct side hand over a professional investigation to law enforcement, there's still no prosecution.

I am actually interested to know how frequently you are called upon on real estate fraud.

With the few moments that I have left, for Mr. Therrien, you talked about the over-reporting to FINTRAC. What causes over-reporting? Is this staff in financial institutions who are being trained to be too assertive and too aggressive? What leads to the over-reporting that you've identified?