Great. Thank you very much. I'm a lawyer working in the field of anti-corruption and anti-money laundering.
It is a great pleasure to be invited today. Thank you.
I'm the author of certain reports on beneficial ownership transparency, and I will make sure that these get into the record of the committee.
Given the shortage of time, I'm going to quickly make a number of brief points.
First, I welcome the announcement by the federal and provincial finance ministers in December on making corporations more transparent. I would recommend that Canada follow the example set by European Union jurisdictions in creating public beneficial ownership registries. I will leave with the clerk a copy of this report, which highlights best practices and lessons learned from European Union efforts. They have a couple of years under their belt, and it would be useful to look at that.
I would also highlight one point from this report, which is that beneficial ownership registries must be fit for due diligence purposes. IDs and other information provided by corporations, upon incorporation, for example, must be verified by the registrar, and risk-based due diligence must be performed. The registrar should have an anti-money laundering and counterterrorism mandate, which currently is not the case with the business registries.
If criminals can simply provide fraudulent information to the registry, then repeat the same fraudulent information to a bank or a law office and say, well just check the federal registry, then that registry will be useless. Banks and others will not be able to rely on it for due diligence purposes.
A verified risk-managed registry will cost more, but there will be aggregate savings across the economy and even within government, because right now you have all kinds of people doing the same due diligence on the same companies. You could simplify that. Federal-provincial co-operation would be required to create a one-stop portal to conveniently search all registries.
Second, I would recommend the creation of new legal duties for nominees, agents, trustees, essentially people representing third parties, including nominee shareholders and directors. Those representing others should be required to always disclose their status, as well as the identity of the third parties they represent, to federal and provincial officials, including beneficial ownership registrars as well as financial institutions, designated non-financial businesses, and professions. Currently in the statute, financial institutions and others have an obligation to ask clients if they are representing third parties, but there is no statutory obligation to answer this truthfully.
Third, all designated non-financial businesses and professions should be required to inquire about beneficial ownership of corporations, entities, and arrangements as part of their due diligence obligations, but only when processing large cash transactions. Obviously this would be a huge burden on businesses, but not if there's a public beneficial ownership registry that's convenient and contains all the information. That would make it a very simple task.
Next, I want to briefly address the role of lawyers in the money-laundering scheme. As we heard, there are rules in place by, and enforced by, the law society, not FINTRAC. These rules as such are very useful. In my view, “no cash over $7,500” is an excellent and really important rule. Personally, I would take some of these rules further, but there's a process that's ongoing right now.
There are a lot of questions raised about the efficacy of this regime, and I feel that more empirical data is required to fully answer them. For example, what is the extent of the problem? Do we know? Do we understand? Money laundering is very difficult to detect. There's no dead body. How do we know the extent of the problem? What are possible advantages and disadvantages to restoring the cash due diligence record-keeping obligations of lawyers in the statute, as opposed to leaving them in the rules? Because of solicitor-client confidentiality, detection of these crimes must occur in other parts of the financial system.
As a simple example, imagine a situation where a lawyer were to deposit huge volumes of cash into his or her trust account in presumed violation of the rule. Would a bank be more likely to flag this to FINTRAC as a suspicious transaction if it were a legal breach rather than a rule of the law society? What about judges issuing warrants? What is the impact of there being a legal scheme versus the current scheme?
These are the types of questions that I think we need to answer before we decide whether or not the statute is the right place for due diligence obligations.
In terms of who should supervise the enforcement of these rules, it's pretty clear from the Supreme Court decision that it's unconstitutional for FINTRAC to access lawyers' files in the absence of a warrant and the Lavallee procedures. This will always hamper FINTRAC's ability to be a supervisor of lawyers.
Even if this committee were to conclude that due diligence obligations for lawyers should be restored to the act, could the law society remain a supervisor and enforcer of those obligations? This is currently the case in certain other jurisdictions, such as the English bar, and it might be a possible solution to some of the difficult issues.
Furthermore, I wanted to add that if the government plans to simplify the prosecution of money laundering offences, including facilitating money laundering by reducing the mens rea to a reckless or willfully blind or negligent standard, then a defence should be provided to lawyers and others of a reasonable due diligence.
Last, I wanted to mention something about Export Development Canada, which as I understand it, is currently exempt from the proceeds of crime act because it does not accept deposits.
However, recent media reports of its support for corrupt transactions have shown that it is at a high risk for handling the proceeds of crime. For example, if it makes loans of tens or hundreds of millions of dollars to companies that obtained business through bribery, EDC is at risk of being repaid with proceeds of corruption, some of which goes into the government coffers through corporate dividends. While the Proceeds of Crime (Money Laundering) and Terrorist Financing Act is not ideally suited for these types of risks, as it focuses a lot on deposits, and there are currently no statutory due diligence obligations in place for EDC, this might be something worth looking into, as the committee reviews risks of proceeds of crime entering the financial system.
Thank you very much for this opportunity. I'd be pleased to answer any questions.