Evidence of meeting #138 for Finance in the 42nd Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was lawyers.
A video is available from Parliament.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
In the European Union, it has been done for a number of years. With regard to their registry, have they been able to do it without what I call “layering”, adding costs to entities doing business? Have they been able to do it efficiently and effectively?
President, Federation of Law Societies of Canada
That's our understanding.
One of the challenges of doing it at the local lawyer level is that every lawyer will have verification differently and the implementation will be uneven across the country. If there is a national registry—and I've read some of articles that you've done on this topic—that is likely the most cost-efficient way of achieving the ultimate objective. Of course, this is also a provincial-territorial issue as well.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
I was going to comment on that.
In Canada, I would like to have a national securities regulator, if I can say that. Would the same sort of territorial-provincial-federal issues arise in unison in having a national registry for beneficial ownership?
Liberal
The Chair Liberal Wayne Easter
We'll have to move over to the other side.
However, on this point of the lack of a central registry, do you have any suggestions on how to deal with the provincial aspect? We're talking about federal jurisdiction here. Is the only way to address that issue with meetings and agreements between the provincial and federal ministers, or are there other areas to deal with that problem? You're only dealing with part of the equation when you're looking at the feds.
Do you have any suggestions?
Liberal
The Chair Liberal Wayne Easter
Or what's the gap that's left when we don't have the ability to deal with the provincial side?
Barrister-Solicitor, As an Individual
As you're aware, corporations can be incorporated federally or provincially. Provinces are responsible for partnerships of all kinds. There are other business arrangements as well, and trusts. That's also provincial.
My understanding, from the announcement made by the finance ministers in December, is that all the provinces have agreed to make changes to their corporate law statute to require the disclosure of beneficial ownership information. It's an excellent beginning.
In terms of the creation of registries, because of federal-provincial responsibilities, my proposed solution—I mean you can't get away from those responsibilities—would be that there be co-operation to set up a single portal and search engine that could pull information from all of the registries.
By the way, these registries already exist. They're called “business registries” or “corporate registries”. They don't currently contain beneficial ownership information, but they could. They could be amended.
Undoubtedly, it will be a bit of a patchwork over time, but presumably with the commitment, which exists right now, we'll get there. It would be most convenient for businesses to have one search engine that can pull all of the data from all of the registries at once.
Liberal
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
Thank you.
Going back to a remark that Ms. Wilson made early on in this meeting—and I know that Mr. Albas touched on this as well—you mentioned the lack of enthusiasm for prosecution. You specifically identified mortgage fraud. I know something of the prevention of mortgage fraud from my professional life prior to public life. I was pleased to hear you acknowledge the lack of enthusiasm for prosecution of this, because it's real.
At a previous meeting, we had some discussion of this, and I'm pleased that you were able to get this into the record. There is often a lack of enthusiasm for prosecution of fraud in general, and mortgage fraud is a particular type of fraud that is often done to facilitate money laundering.
What are the solutions around this? How can we get law enforcement to encourage the prosecution of fraud? It's a serious crime, and one it seems that law enforcement agencies throw their hands up over.
Executive Director and Deputy Chief Executive Officer, Policy and Public Affairs, Federation of Law Societies of Canada
Well, I know from the law society experience that fraud is complex and difficult to investigate, and difficult to prosecute as a result—certainly one that has any sophistication to it. Therefore, these investigations take quite a commitment of resources.
I'm not expert on law enforcement, but if I had to guess, a law enforcement agency would look at an individual who is potentially guilty of mortgage fraud, see that they have been prosecuted by their law society, see that their law society has disbarred them—it would almost certainly be an offence that they would get disbarred for—and see that a potential victim has been compensated through the law society's lawyer-funded compensation funds. I imagine that in the world of scarce resources, which I understand law enforcement labours under, it may seem like quite a lot has been done in that particular case. Therefore, the public interest imperatives of a prosecution may be partially satisfied.
From my perspective, a huge part of the solution is a resource question. Of course, I know you've heard this, as I've read the testimony so far before the committee. I know there are many people saying that there are resource problems, which are part of the challenge for FINTRAC, for example. I suspect it is a problem for law enforcement at every level, one that requires money.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
Yet to my way of thinking, your own answer to the response partially debunks that question of resources.
When the law society or another professional regulatory body actually does contribute the resources, professional investigative skill and prosecutorial skill, the law society would have its own lawyers who prepare a fraud case for a disbarment process. It's the same thing, in my experience, with the Real Estate Council of Alberta. It has resources to investigate fraud and to professionally prepare a case. It's almost like the case is then handed with a ribbon on it to public prosecution or to law enforcement to go to that next stage. Is that not the case?
Executive Director and Deputy Chief Executive Officer, Policy and Public Affairs, Federation of Law Societies of Canada
I think there are two important things to remember. The first is that law societies exist solely for the purpose of regulating the profession in the public's interest. I believe, from what I see, that they take that responsibility very seriously. They would feel that they have no option but to proceed.
They also have a lower burden of proof. The standard of proof in a law society prosecution does not have to meet the threshold of “beyond a reasonable doubt”. It's not a criminal prosecution. I know that when law enforcement and provincial and federal prosecutors are looking at issues, they look at the likelihood of conviction. The fact that there is a higher standard of proof to be met is sometimes a reason not to proceed with a case.
Liberal
Michael McLeod Liberal Northwest Territories, NT
Thank you to all of you for coming to present here today.
I have a question for the jewellers. I come from the Northwest Territories. We have a number of diamond mines operating there. We have agreements with the diamond mines to provide the rough stones to different polishing companies, different people who are going to cut and polish them. I understand that the industry is fairly well regulated in terms of the finished product and that type of jewellery.
Do either of your organizations provide oversight for the organizations that take in these rough stones, the stones that are discoloured, the stones that are not as desired? Over the years, I've seen companies come into the north from different countries. They're foreign-owned. Once they have the stones in their hands, who's watching? That's my first question.
Former Executive Director, Jewellers Vigilance Canada Inc.
It's an interesting question.
First, under the act, miners, cutters, and polishers are not covered, so the act doesn't apply to them. That said, government certainly wants royalties from the resource that comes out of the ground, so I imagine it would be Natural Resources Canada or another government agency that would be monitoring that sort of thing.
The vast majority, in fact to my knowledge all the rough that comes out of any mine anywhere in Canada leaves the country and goes to a sorting facility in Antwerp, London, or somewhere else, and then some of it is returned. I could be wrong on this, but I think even the small amount of rough that is cut and polished in Canada, which is diminishing all the time, has left the country and comes back. In there somewhere would be another government agency, I think, that would have oversight on it.
Liberal
Michael McLeod Liberal Northwest Territories, NT
My next question is also for both of you because it wasn't clear to me and I didn't understand the use of cash. Is it still possible for somebody to buy large amounts of jewellery with cash?
Former Executive Director, Jewellers Vigilance Canada Inc.
Absolutely. Yes, certainly. I wouldn't say it's a common occurrence. Of course, FINTRAC can speak to that because of all the cash transactions that we report as a reporting sector, but, certainly, cash can be used at retail, although, again, the most common form would be debit card or credit card in terms of paying for a piece of jewellery.
Liberal
Michael McLeod Liberal Northwest Territories, NT
How about digital currencies? Is that something that your industry is...? Is that a common practice?
General Manager, Canadian Jewellers Association
No, to my knowledge digital currencies are not used in Canada.
Liberal
Michael McLeod Liberal Northwest Territories, NT
Okay, thank you.
My next question is for the Law Society of Canada. It was mentioned that there was really no oversight of the transactions that happen in your membership. It's based on trust, and it was mentioned that FINTRAC didn't have a role anywhere in it. Would that be something that could be incorporated so that more people would have faith in the system?
President, Federation of Law Societies of Canada
I think, Mr. McLeod, if the take-away is that there isn't any oversight, that's not accurate. I think there is oversight in ensuring the enforcement of the no-cash rule and the client identification rule, which mirror the federal rules and, in some cases, are stricter than the federal rules in that we're not allowed to take as much cash. For example, it's $7,500 instead of $10,000 in the federal rules. There is oversight in ensuring the enforcement of those rules, and there's oversight in ensuring that lawyers comply not only with those rules, but also with their professional obligations.
Where there are concerns that a lawyer may be an unwitting dupe, for example, of a money laundering scheme, then there can be reporting, and that lawyer can be investigated and scrutinized through the regulatory process as well as the criminal process, so there are a couple of different layers of oversight. With the new proposed rules, we will be looking at even greater oversight and, hopefully, a greater collection of data that will allow us to come back and talk about that oversight in a way that makes sense.
President, Federation of Law Societies of Canada
Yes. I'm going to ask Ms. Wilson to answer that.
Executive Director and Deputy Chief Executive Officer, Policy and Public Affairs, Federation of Law Societies of Canada
Prior to the introduction of the client identification and verification rules, we had extensive discussions/negotiations with the Department of Finance and FINTRAC to explore ways that we might be able to avoid the constitutional battle that we then had. There was, at that time—and I anticipate there would be now—a willingness to try to work with those organizations in a constitutionally compliant way.
What does that mean? It means that the information that lawyers obtain from their clients in the course of the solicitor-client relationship—and that is distinct from something you might do; it's purely business and nothing to do with providing legal advice or representation—is protected by solicitor-client privilege. Lawyers are no more allowed to share that, to breach that, than anybody else is, because that is the law, and the privilege belongs to the client.
There is quite a lot of information that could be provided to FINTRAC, for example, in an aggregate form, or ways that identify potential patterns via typologies and so forth, as Ms. Johnson and I were talking about before. The reaction of FINTRAC at the time was that they were not interested if we were not talking about enforcing the federal regulations. We remain willing to talk.