Finance Committee on March 21st, 2018

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you, all.

Mr. Albas. We're in five-minute rounds.

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

Thank you to all for our witnesses for attending today.

I'll start with the jewellers. Thank you for coming and talking about your industry.

In regard to compliance cost, would you be able to share any ballpark figure on what the average jeweller has to do as far as their administrative compliance with FINTRAC is concerned? Do you have any tracking or any indication, whether it would be anecdotal or something that has been bandied about in the industry?

[Phyllis Richard]

We have nothing concrete where we can say that it costs x number of dollars. Going back to what my colleague said, you must remember that so many of the jewellers in Canada that are captured are small independent businesses. Sometimes there are only five employees. To develop and maintain an anti-money-laundering compliance regime can be quite onerous, because they're really not structured in that way.

If you look at a financial institution, for example, it's top-down, it's corporate, and everybody falls into line. Jewellers just aren't like that. I really don't have an answer that I could give you that would be—

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

Do you know whether FINTRAC has done any consultations with your industry to deal with this, to create some type of standards? We had a witness the other day who felt that his understanding of the rules was made only expressly clear after he was taken to court, that he had certain obligations.

Is there any forward guidance to your industry or consultations by FINTRAC?

[Phyllis Richard]

We've been talking to FINTRAC for almost a decade now.

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

Do they talk back?

[Phyllis Richard]

Yes, they do.

On a very positive side, though, we recently had a meeting with FINTRAC where we really looked at the sector profile. I think we really turned a corner in having them understand the uphill battle for a lot of the small businesses. There is dialogue going on that is beneficial to both.

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

I could put myself in the shoes of a jeweller who would say, “Gee, if I sell these earrings as a pair, I'm going to have to file a report and maybe I don't have time, so I'll just ring them up as $5,000 apiece and then not have to do a submission.”

It's really important that FINTRAC engage with your industry and that there's a better understanding of everyone's obligations, as well as what the costs are, because if there's no measurement and the process is onerous, that might be another issue.

Mr. Land.

[Brian Land]

There are two realities out there. There are the chains such as Peoples and Birks, and so on. In that environment, the system is automated. If there is a transaction for cash over $10,000, the system demands the information before the sale can be processed through the point of sale.

For the smaller jeweller initially, that's where the costs are up front, namely in setting up their compliance system and following all the restrictions. On an ongoing basis, the costs are not as significant once they have the compliance in place.

One of the things about our association is that we have a benefit for our members that hooks them up with a tool kit that makes the process easier.

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

Obviously your membership is voluntary, not forced or compelled.

[Brian Land]

Correct.

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

I'm sorry, Mr. Land, I don't have enough time. I'd like to go to the Federation of Law Societies again.

In regard to the ability to send cases to law enforcement, you said that sometimes they're just not interested. I'd like to hear a little more about that.

I also want to hear more about the cases where someone decides, “You know what? There's an investigation going on. I'm going to parachute out. I'm going to resign and no longer practice as a lawyer or a notary, or whatever the association is.” What mechanisms are there, then, for your system in terms of accountability? If that's the case, does the case just stop or does it get referred to law enforcement?

[Frederica Wilson]

I want to clarify one thing. I don't know that law enforcement is not interested. It may be a resource question, or it may be a response to the fact that some action has been taken, so I don't want to smear law enforcement.

When a member is under active investigation or has been cited and is in the middle of a hearing or awaiting a hearing, they are not simply permitted to resign. They must apply for permission to resign or to withdraw their membership. The law society will not necessarily agree to that if they think, for example, that the consequence of a successful prosecution will be disbarment. That's important.

Even if in appropriate circumstances they permit the member to resign, they still have the capacity and do share information with law enforcement.

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

Okay.

Just briefly, on audits, you said that it varies in different jurisdictions. In Manitoba, it's every three years, and five years in Ontario.

Do you feel it is a good thing to have various standards throughout the country, or do you think there should be a uniform auditing process, because FINTRAC does not apply here, though it applies to every other industry. I understand we're a common law country, but with a charter, so we have to do these little workarounds.

Do you believe there should be a uniform standard time for auditing?

[Frederica Wilson]

I do think there should be a uniform standard, and we are working on that. However, the reality, of course, is that when you're regulating 50,000 lawyers, as the Law Society of Ontario does, compared to regulating a few hundred as the Law Society of Prince Edward Island does, there are resource challenges.

However, I want to add that in addition to the sort of periodic random audit process, law societies engage in risk-based audits. They will target for re-auditing any law firm that they've gone into and had concerns about. They also engage—again, it tends to be in a targeted way—in practice audits, where they'll have a more comprehensive look at a law firm. The numbers I gave you are really for the random audit process.

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

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you.

Mr. Sorbara.

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

Thank you for your comments, everyone. I don't want to repeat what my colleagues have said. I am going to try to keep the questions shorter, if I can.

In terms of the submission that was provided by the Federation of Law Societies of Canada—and everyone can open it up—to your point on beneficial ownership, basically what you've stated is that even if we have rules on beneficial ownership, if we don't have a registry, it won't be effective.

[Sheila MacPherson]

That's correct.

Lawyers can verify.... It makes verifying the beneficial ownership very, very challenging, because FINTRAC has said that simply asking your client—verification through your client—is not sufficient.

There's no degree of enforcement. There's no degree of verifying that that information is in fact accurate. That's where a publicly accessible register, with the ability to have some rigour around that, would aid all lawyers.

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

Secondly, Ms. Johnson, you commented on the fact that what we need to be able to discover is whether a lawyer is representing a third party. You made a comment to that effect.

Can you elaborate on that comment you made?

[Mora Johnson]

Sure.

One of the challenges with law enforcement and in this whole area is that often, for perfectly legitimate reasons, corporations will create other corporations to run investments, or lawyers will act as nominees, or they'll be trustees acting on behalf of beneficiaries.

There are all kinds of situations where a third party will be acting for someone else. Especially if that person controls the financial levers, it's not at all obvious that they're a third party, not the principal.

In cases where third parties are acting, I think it's critical that they make banks, lawyers, trust companies, and government officials, including the registrar, aware that they're a nominee, and what the names are of the beneficiaries or the persons for whom they're acting.

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

We could, in your opinion—and obviously, the others, please chime in on this—get to a point where you could set up a registry, have the data available for.... I think the comment was “must be fit for due diligence basis” without violating—I am not a lawyer, so if I use language that's inappropriate, excuse me—or protecting the solicitor-client privilege.

Ms. Johnson.

[Mora Johnson]

Would you like to take that first?

[Frederica Wilson]

Well it depends on whom you're asking for the information. If you're requiring the corporation to file that information—if that is a requirement of corporate law that you provide—as you now have to file a variety of information for publicly traded corporations, then it would have to go in the filing, so the corporation could not be created and would not exist.

If you're talking about this ex post facto, asking lawyers who the beneficial owners of corporations are, that presents potential issues with regard to solicitor-client privilege. That's one of the reasons we are so supportive of the idea of beneficial ownership registries. It becomes a matter of corporate law. It's simply a requirement like many others.

In addition to those situations in which lawyers are creating corporations—and they would have to on behalf of their clients comply with those requirements—there are other situations where lawyers aren't involved in creating the corporations but where we are seeking to impose an obligation on them to know who the beneficial owners are. This will provide a mechanism for them to be able to verify the information they get from their clients.