Finance Committee on March 27th, 2018

[The Chair, Liberal, Wayne Easter]

We'll call the meeting to order and continue our review of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

With us we have, from the Government of British Columbia, the Attorney General, the Honourable David Eby.

Minister Eby, welcome. Sorry for delaying you.

Do you have electronic voting in B.C.? We could certainly use it here.

[David Eby, Attorney General of British Columbia, Ministry of Attorney General, Government of British Columbia]

Not yet, Mr. Chair. We're working on it.

[The Chair, Liberal, Wayne Easter]

The floor is yours. Welcome.

[David Eby]

Thank you very much.

It's a pleasure to be here at the committee. I want to thank the committee very much for the invitation to come to present to you today and to answer your questions. One of the reasons why I felt it was particularly valuable to take you up on this invitation is that I believe we have a very serious issue and are in need of concerted federal effort and assistance in dealing with it. I really wanted to bring that message to the committee personally.

I would like to share with you a few remarks and a bit of a narrative about my experiences in becoming a new minister in British Columbia. In July, I was sworn in as Attorney General with responsibility for gambling. That was really when my eyes were opened about some of the activities that have been taking place in British Columbia.

It was on one of my first days as minister responsible for gambling that I was briefed by our provincial regulator as part of the briefings I received as the new minister responsible. The first words that I heard at that briefing from a member of our regulator, the gaming policy and enforcement branch, were, “I think we are going to blow your mind.”

Mr. Chair, I can say that my mind was, indeed, blown. The regulator walked me through extensive and overwhelming evidence of large-scale money laundering in Lower Mainland casinos. I was shown video and photographs of individuals wheeling large suitcases packed with $20 bills, others bringing stacks of cash to casino cages. I was astounded by the audacity of those involved. On a purely practical matter, $800,000 in twenties is very heavy. It looked like they were helping somebody move a box of books.

I was equally astounded that this activity had been taking place in British Columbia without an effective criminal, legal, regulatory, or policy response for almost a decade. There have been, to my knowledge, no related criminal charges or tax prosecutions to date related to the activity that I witnessed.

Suspicious cash transactions began climbing at B.C. casinos in 2009 following the defunding of B.C.'s provincial integrated casino policing team. Large, suspicious cash transactions continued unabated from 2009 until late 2017, when our new government instructed B.C. casinos that they should no longer accept large cash transactions when they didn't know where the cash was coming from. We're still not done yet in terms of solving this problem.

I retained anti-money-laundering expert Dr. Peter German, a former senior RCMP officer and the author of Canada's leading textbook on anti-money-laundering law, who has been investigating and reviewing what has happened in British Columbia. He will advise me in a report that I will receive at the end of the month about how the province, at the provincial level, can address this problem.

At the federal level, I would really like this committee to understand the colossal nature of the regulatory failure that took place and, frankly, may still be taking place in British Columbia. The issue in British Columbia is so notorious and so severe that I was briefed on an international intelligence community training session in which international intelligence members were taught about something called the Vancouver model of money laundering.

We are famous internationally—or, more accurately, we have become infamous—for money laundering.

In the Vancouver model of money laundering, a wealthy individual from China, a country with strict currency export controls, wants to gamble. A gangster will meet that gambler at a casino, offering cash in amounts as high as hundreds of thousands of dollars. In one transaction, it was $1.2 million in cash. The cash is the proceeds of gang crime. To pay for the cash, the gambler agrees to transfer money in China from his bank account into a bank account under the control of the gang. The gambler walks the illicit cash into the casino, completes a FINTRAC reporting form, buys chips, gambles, and on leaving, either cashes out, receiving a cheque, or carries the chips out of the casino.

In sum, the criminal gang has successfully laundered difficult-to-manage twenty-dollar bills, moving the money out of Canada while keeping their names off of FINTRAC forms. Those involved in the transaction can truthfully report that everyone is following all of the reporting rules. FINTRAC will aggressively audit and confirm that the reports have been made accurately.

The only real evidence of a problem is a guy lugging a hockey bag full of $20 bills into the casino. You might think that this alone would be enough to start a police investigation or a Canada Revenue Agency investigation. It has not been. B.C.'s casino policing team was funded again and resurrected with a better mandate in 2016 and is now, unsurprisingly but thankfully, involved in a massive transnational criminal investigation.

I'd like to thank those who work at FINTRAC. I believe they collect critically important information and ensure it is accurate. The issue is not their fault, but there is a problem. An anti-money-laundering system that rigorously enforces compliance with reporting but does not have an enforcement arm puts a sheep mask on a wolf's face. While I know it is not true, I picture submitted FINTRAC forms being picked up by a lonely person at a fax machine in a giant warehouse, who puts the reports into boxes, and the warehouse is filled with boxes from floor to ceiling as far as the eye can see. Although this is clearly not the actual situation, it may as well be true given the apparent lack of action in British Columbia taken with regard to casino money launderers.

Unfortunately, the impact of FINTRAC reporting in B.C. has been that any criticism of allowing massive cash transactions with money from unknown sources is answered simply by, “We comply with all federal anti-money-laundering reporting rules.” I have no confidence that any enforcement or investigation action would result from a report submitted this afternoon with the words “highly suspicious” in all caps and triple underlined. In fact, I believe the current reporting system actually reduces the possibility of action, because the individual completing the form would mistakenly believe that writing “highly suspicious” on the form and then submitting it was the same as reporting it to police. It is not the same.

Unfortunately, if FINTRAC has been concerned about a lack of action on its reports, it has been unable or unwilling to speak publicly about that lack of action. That needs to change. British Columbians take no comfort in the suggestion that this is somehow limited to casinos.

We will be asking Dr. German to take on a second phase, this time looking into real estate, following highly publicized reports of a link between money laundering and our real estate market in British Columbia. Dr. German has requested that I provide you with his interim federally focused recommendations, given the timing of your committee and the timing of his report. It's a little bit like getting the last page of the book without receiving the book itself. I do have the recommendations for the committee here for you today, Mr. Chair, but unfortunately I didn't receive them in time for them to be translated for the committee. I'm in your hands about the best way to ensure the committee receives them.

Important work with the federal government is happening behind the scenes. I'm grateful for that support from the federal government. I'm appearing here so that all members of federal parliament—and as much as possible, all Canadians—can understand why we are asking for more support from the Canada Revenue Agency, the RCMP, and other federal agencies. We certainly hope the federal Parliament supports any interventions that are proposed by the government.

Thank you, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Minister, and thank you for your candour on the recommendations. Just leave them with the clerk, and we'll get them translated. Do we have to hold them as confidential until such time as the report is released?

[David Eby]

No, Mr. Chair. They can be public.

[The Chair, Liberal, Wayne Easter]

Okay.

Dan, is that a point of order or what?

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

No, I was just going to ask if it would be possible to have—depending on how long the recommendations are, Minister—you read them into the record, and then we can ask questions about them. Would that work for everyone, because then at least they're in the record in both French and English? We'd hate to have the resource here and then think we passed the opportunity because we didn't have translation.

[The Chair, Liberal, Wayne Easter]

I think that's a fair suggestion, if you could, Minister. Do you mind doing that?

[David Eby]

Not at all, Mr. Chair. I'd be glad to do that.

[The Chair, Liberal, Wayne Easter]

Okay.

[David Eby]

Maybe I will....

[The Chair, Liberal, Wayne Easter]

How many are there?

[David Eby]

Yes, I think I'll skip the background—

[The Chair, Liberal, Wayne Easter]

Yes, just read the recommendations.

[David Eby]

I'll focus on the recommendations themselves.

For reference when you receive the official document, I'll start at paragraph 14, under the heading, “The Legal Profession”:

Without question, the absence of reporting by lawyers is a significant gap in Canada and is a significant impediment to police investigations involving the movement of money through real estate and other financial sectors. Canada is an outlier here as well. Other common law jurisdictions, including the United Kingdom, have robust provisions in place which require financial reporting by lawyers. Quite frankly, consultation has occurred for years. There is a real need for legislation which can withstand a Charter challenge and requires the reporting of monies held in lawyer trust accounts.

The irony is that in British Columbia, most personal real estate transactions are handled by notaries, who do report to FINTRAC. It is hard to rationalize why their handling of money should be treated differently than that of lawyers.

Under the heading, “High Risk Sectors”:

The consultation paper lists several businesses and persons to which legislation could be extended, through amendments to the POCMLTFA. It is something akin to 'whack a mole' as FinTRAC attempts to close gaps with vulnerable sectors that do not currently report. Of interest are the following:

Under the heading, “Par-mutuel or horse racing sector”:

GPEB

—that's the gaming policy enforcement branch in British Columbia—

currently regulates this industry. I am not aware that B.C. has ever examined the prevalence of money laundering in the horse racing sector. Reporting requirements would certainly shed light on what is occurring.

Under the heading, “Auto dealers”:

It is well documented that the criminal lifestyle is often attracted to expensive consumer goods; such as luxury cars and pleasure craft. Due to their high value, these items are also excellent places in which illegal cash can be reintroduced to the legitimate economy during the integration phase of the laundering process.

Luxury items are of interest because there is no tracking by government of cash purchases. They are not reportable transactions to FinTRAC.

Vancouver has been described as the number one super car city in North America. Also, auto dealers in Greater Vancouver are among the highest new and used luxury car dealers in Canada, by sales volume.

In essence, an individual can walk into a luxury auto dealership and purchase a high-end vehicle with $400,000 cash. The only obstacle will be dealership policies.

An incredibly large number of 'curbers', unregulated intermediaries, are believed to be operating in B.C. and a vigorous awareness campaign is underway to alert British Columbians of the dangers inherent in dealing with curbers. The fact that these are all cash-based activities makes them extremely vulnerable to the introduction of dirty money.

Under the heading, “Company Service Providers”:

This high-risk sector is relevant to the issue of beneficial ownership.

Pardon me, Mr. Chair, but it's difficult to pull out the recommendations, because clearly they are part of a larger integrated document. Maybe I'll start a little earlier because I might be able to get through the two pages that would give some context.

[The Chair, Liberal, Wayne Easter]

Okay.

[David Eby]

On February 7, 2018, the Minister of Finance released a public consultation paper with respect to PCMLTFA. Parliamentary committee hearings on the statute are taking place this month in Ottawa.

Since 1989, Canada's Criminal Code has contained the offence of laundering as well as possession of the proceeds of crime. In 1993, Parliament enacted a federal statute, which required financial institutions to keep records of certain transactions. That legislation was replaced in 2000 by the PCMLTFA—I'll call it the act from here on in—which has been amended many times since.

The act moved Canada from a recording to a reporting regime and created Canada's financial intelligence unit, FINTRAC. The legislation was a response to international commitments made by Canada.

Although the Criminal Code falls under the purview of the Attorney General of Canada, the Minister of Finance is accountable for the act. Approximately 100,000 businesses and financial institutions are now required to make large cash transaction reports and suspicious transaction reports to FINTRAC. Some industries have additional reporting requirements. In this regard, casinos must also make cash disbursement reports.

FINTRAC performs audits on reporting entities and does so every two years at B.C.'s casinos. It has the power to impose administrative monetary penalties. The largest penalty ever imposed with respect to casinos was meted out to BCLC in 2010. BCLC, the B.C. Lottery Corporation, appealed the administrative monetary penalty to the Federal Court. The case was resolved in 2016 in what is best described as a draw. By this time, FINTRAC was satisfied with the quality of BCLC reporting. In addition, its entire administrative monetary penalty structure had been called into question because of unrelated cases, which questioned the lack of objective criteria being used to determine the quantum of a penalty.

I'll skip ahead, Mr. Chair.

It is beneficial to review the latest FATF mutual evaluation of Canada's legislation, which points to various deficiencies in Canada's existing scheme. In the past, it has almost always been through this form of international peer pressure that substantive changes have been made to Canada's various criminal and other federal legislation related to proceeds of crime, money laundering, and corruption. The FATF review can be found at the link provided.

There are numerous references to casinos in the FATF report. I will not comment on the issues of beneficial ownership and whistle-blowers, with which the minister is already very familiar and which are covered in some depth in the consultation document.

Mr. Chair, I hope it was of some use to the committee to provide a little bit of an overview of the contents of that recommendation document. As I say, it is a piece of a much larger report that we're expecting to receive at the end of the month.

[The Chair, Liberal, Wayne Easter]

Yes, and some of those points are raised in the Department of Finance discussion paper, as well, in relation to the FATF.

Okay, we'll turn to questions, and we'll go to five-minute rounds rather than the regular seven.

Mr. Fergus, go ahead.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you very much, Mr. Chair.

Thank you, Minister, for your report. Also thank you for very quickly, given the time that you've been in office, drilling down on an important and, I think, huge issue for Canada and certainly for British Columbia in dealing with the proceeds of money laundering and terrorist financing.

I really appreciate, also, how you pointed out the loophole we seem to have in terms of dealing with how the criminal element can be using casinos to launder their money. I'm very interested in something, though. You made passing reference to it, but it's also come out in a lot of testimony, and it came out in the Department of Finance report, as well. It's the question of beneficial ownership.

I was wondering if you could give us a sense as to what British Columbia is doing in terms of increasing the transparency regarding beneficial ownership, in terms of private corporations that are registered on the provincial books, and how British Columbia would like to see Ottawa work co-operatively with it to perhaps establish a Canadian registry.

[David Eby]

The issue of beneficial ownership has been particularly acute in British Columbia as a result of our out-of-control real estate market. Metro Vancouver's real estate market was reviewed by Transparency International Canada. They looked at the top 100 properties, by value, in the assessment authority, and then they looked at the land title registrations for those properties. They found that for almost half of those properties, it was impossible to determine the true owner of the property. The properties were held by international trusts or by companies where the sole director was, for example, a lawyer, or were owned by a student or a housewife. The recommendations from that report, quite obviously, were of significant interest to British Columbians, who note that the average price for a family home in metro Vancouver far exceeds the average salary for a family. People naturally ask where the money is coming from.

It has been a priority for our government. The Minister of Finance has committed to establishing a land title registry in British Columbia in which the beneficial owner of the property must be declared. We're looking at international examples. I understand that the United Kingdom has adopted a beneficial ownership land registry based on similar concerns, and we anticipate introducing one in British Columbia. There is also a significant opportunity for British Columbia around corporate beneficial ownership. The Province of Alberta has a beneficial ownership scheme for its corporate entities.

I think it's important to underline how important it is for there to be a Canadian standard around corporate and land registry beneficial ownership, because we'll end up displacing the activity. If in British Columbia you have to declare beneficial ownership, they'll just move the money somewhere else.

I wouldn't wish the kind of issues that we've seen in British Columbia on other jurisdictions in Canada, so I think that a national standard would be welcome there. We've had good support, and I understand there's great interest among federal government officials and elected members around introducing beneficial ownership disclosure requirements. I hope that we can work together on that in ensuring national standards.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

What standards would you like to see the federal government adopt, or, if you prefer, what standards will British Columbia adopt for land registry and for beneficial ownership for private corporations?

[David Eby]

The policy work is still ongoing, and we'll be introducing legislation based on that policy work.

The bottom line for British Columbians is they want to know who owns the property, and they want to know where the money is coming from. The concern that I want to bring to this committee is an increasing lack of confidence in British Columbia around the enforcement of laws related to tax evasion, and the enforcement of laws related to the laundering of money.

I understand that there are logistical issues around the index offence, and there may be a need to revisit these pieces. However, the fact that we don't know who owns almost half of the most valuable properties in Vancouver and we don't know where the money came from is disturbing to a lot of British Columbians. That will be the mischief at which this legislative reform is aimed.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

It's entirely—

[The Chair, Liberal, Wayne Easter]

I'm sorry, Greg, we're out of time. I'll be turning to Mr. Albas.

Is that report available publicly, Minister?