Finance Committee on March 19th, 2018

[Jonathan Hamel]

I would say that I separate Bitcoin from the others because Bitcoin really has the properties of a commodity. First of all, there was never a price set for Bitcoin. It really emerged organically from the community. There was no emission of Bitcoin. It was created, I would say, on the Internet, and it really grew organically, so there was never a launch like there was for most of the cryptocurrencies. For example, the second-biggest cryptocurrency, Ether, was launched based on what we call an ICO—initial coin offering. Now regulators are looking at those activities that are probably the emission of securities, because they're raising capital to launch a technology. Bitcoin is different because it never raised money. It really grew organically, and adoption grew organically as well. There was never a price set for the commodity. It really behaves like a virtual commodity such as gold.

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

Thank you very much for your expertise.

Mr. Mirkhan, thank you again for your presentation today. I'm really not looking to relitigate your case, so to speak, but I do have some questions, because you have rightly asked who regulates the regulators. Obviously FINTRAC was created under a parliamentary statute, and there are avenues such as the courts.

When you were issued a fine, which you subsequently sought to have lowered and were successful in that, did you take it to court at some point? That is the natural alternative for someone who disagrees with a government fine.

[Shahin Mirkhan]

Yes, sir, I fought for four years. For four years I went back and forth to the court. At first they asked me to hire a lawyer. I talked to several lawyers and they all told me that it was funny and that they had never heard of FINTRAC for real estate. Then I found one of the most reputable law firms in downtown Toronto. They took the case and I gave them $10,000, and they called me in about two to three weeks asking for another $10,000. Then for two or three weeks after that I called them to see what was happening. It was all over the news. They took the trust account and they closed down the firm and everything. I went to court and I told the judge, “Money laundering terrorist activity is a big thing. I can't find a lawyer, and I can't afford a lawyer. Send me to Guantanamo Bay, Cuba.”

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

Again, I'm not asking you to reiterate. I just want to make sure that you did have the option, and that you did try to have your day in court. It sounds as though you decided not to continue your case based on it.

[Shahin Mirkhan]

I did continue my case as far as I could.

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

Yes, I understand.

[Shahin Mirkhan]

However, if you don't have a lawyer, going through Federal Court is not an easy task.

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

That is a fair observation, sir. A lot of people have said that the cost of court makes it difficult for them to feel that they have their day in court, and so often they will not pursue it because of that. However, again, I'm not here to relitigate your case. I'm here to understand that those avenues were put in front of you.

You said that originally someone came by and said that there were certain obligations that you as a brokerage at the time hadn't completed. Obviously I'm sure there were other brokerage firms that were able to get their work done. What particular issues did they take with your particular brokerage's records?

[Shahin Mirkhan]

They checked some of our files. They said we didn't have FINTRAC officers, even though I was a FINTRAC officer and my brother was a FINTRAC officer there. We came on the wrong side of each other because when she asked me to pinpoint the terrorism, I didn't know how important it was, and I looked at her assistant and I said, “She looks like a terrorist” and she got upset. Everything started from there even before the four years....

My problem is not.... If I get into any problem with this gentleman, I need a court. However, you're talking about the government. If you have the power to destroy my business, there has to be a body in the government with which I can talk to see what is going on, not to hire a lawyer and go through the court to tell my government what is going on.

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

Again, I'm glad that you had that option, sir, because I do agree with you that governments are given a lot of power. Especially once Parliament makes a law and delegates it to an organization, they do have a tremendous amount of power. I'm glad you got to share some of your story today.

Thank you.

[Shahin Mirkhan]

Thank you.

[The Chair, Liberal, Wayne Easter]

Before I turn to Mr. Dusseault, just on this line of questioning, I think in the beginning, Mr. Mirkhan, you mentioned you felt there wasn't enough training on your side to deal with what you had to deal with. Am I correct that you felt there was an obligation there, on the part of government or whoever, to ensure there was training, so you would know, as a real estate broker, how to deal with this entity, FINTRAC?

[Shahin Mirkhan]

Exactly, Mr. Chair. Before you ask me for anything, you have to train me, then ask me if I did anything wrong. Where was the training? You just sent an email. I didn't get it from the government, I got it from the franchise I was with at the time, HomeLife, that this is FINTRAC, in effect, and these are the things you have to do. Not one of them mentioned I have to catch terrorists. Why?

[The Chair, Liberal, Wayne Easter]

Okay, that leads me somewhere.

Mr. Dusseault.

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

Thank you, Mr. Chair.

I will turn to Mr. Hamel with my questions about cryptocurrencies and will talk about not my own interests, but those of my riding. I am the member for Sherbrooke, so the announcement made by Bitfarms—

[Jonathan Hamel]

Congratulations!

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

I hope that the development of those technologies will go well and that legislators will not impede it.

My question is rather about other cryptocurrencies. You are saying that bitcoin is pseudo...

[Jonathan Hamel]

It is pseudo-anonymous.

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

That's right.

If my understanding is correct, there are other cryptocurrencies that are completely anonymous.

[Jonathan Hamel]

Yes, absolutely. Technologies such as those from Monero, Zcash and a number of other currencies make them completely anonymous, so we lose track of transactions completed using those currencies.

Those currencies are probably used on what we call the dark web, or the illegal Internet, which is the part of the web that is the most difficult to access for average people. Those technologies are probably also used for illicit trade because they are not traceable.

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

As legislators, we should look into those technologies created to preserve anonymity.

You are saying that bitcoin transactions can be accessed. Is that public? Can anyone access a database containing transactions and user names? Of course, those are not real last names and first names, but rather user names.

[Jonathan Hamel]

Yes. Those are code names, also referred to us as wallets or bitcoin accounts. They are identified in a pseudo-anonymous way, but they are relatively easy to trace. For example, the RCMP may seize a computer and identify the wallet of a drug dealer. It will be able to trace that dealer's transactions and perhaps even establish a link with a network. That technology is very easy to trace.

When it comes to the more anonymous currencies, we are starting to see an autoregulation in the exchange of those currencies. For example, Japan decided to stop dealing with anonymous currencies. The industry seems to be putting forward two categories of cryptocurrencies, with bitcoin being the first or the standard of cryptocurrency and the easiest to trace, and the others, which are difficult to trace.

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

Other witnesses have told us that, to have access to the bitcoin's value, an individual needed to have a bank account. People can keep bitcoins in a wallet, as you are saying, but if they want to use that money in their daily life, they need a bank account. At the end of the day, it can be traced back to a physical person with a real last name, first name and address.

[Jonathan Hamel]

You are absolutely right. There is no direct link between bitcoin and the traditional banking or monetary system. To deposit or withdraw bitcoins, people have to use an intermediary, as in the case of cryptocurrency exchanges such as Coinsquare and Coinbase in Canada.

Those players are the ones who require that their clients be identified. According to what I read in the legislation on money laundering and prevention of financing for terrorist activities, the Proceeds of Crime (Money Laundering) and Terrorists Financing Act, that protocol could easily be deployed by those players.

That also goes for some exchanges of currencies on the street, where bitcoins are bought and sold. Above a certain amount—I think the threshold is $3,000—people have to provide a piece of ID. When someone wants to deposit or withdraw bitcoins in Canadian or U.S. dollars, they also have to identify themselves.

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

For example, when it comes to the obligation to produce reports, we know that banks have very important obligations in terms of submitting reports to FINTRAC and other organizations.

However, in your case and in the case of Bitcoin, there is no central administration. If I understand correctly, the whole principle consists in not having any kind of a centralized system.

Banks have to run checks when suspicious transactions are entered into the system, among other situations. When an operation is suspicious, we know that it may be related to crime or criminal activities.

In the case of bitcoin, when suspicious transactions take place and it is known that they are made for criminal purposes, who would be responsible for reporting them to the authorities to ensure that the case is well documented?