Finance Committee on March 27th, 2018

[Ian Russell]

Mr. Meunier makes a very good point about the importance of the registry. When I saw the announcements by the governments, I was a bit concerned that they were talking more about the transparency of the system and standardization, which is very important, and maybe putting insufficient emphasis on an accessible registry. That certainly was in the white paper. I think that should carry a lot more priority.

To your point about jurisdiction, there isn't a jurisdictional issue here. We're simply talking about the provinces coming to some agreement on harmonizing the thresholds for beneficial ownership. I think everybody would benefit from having a uniform registry.

As the attorney general of B.C. said, if you leave out one province, then you're going to create distortions in the market. You need everybody to play.

The other option here in getting ahead of it is that you could build these things. I noticed that the attorney general talked about a B.C. registry. With technology today, you can link these registries. I was most intrigued by Mr. Meunier's point—he's much more of an expert in this area than I am—about the initiative to develop a more international database. This isn't unprecedented. We already have the CRS for tax reporting. We now file tax reports on non-residents in Canada in a central repository. The OECD oversees that. Precedents are in place to do it.

I think Canada can move quickly. We do have two levels of government, but I think we could do it.

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

If I could just stop you there, because I have a follow-up question.

[The Chair, Liberal, Wayne Easter]

Ask one quick one.

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

Mr. Meunier, the attorney general of B.C., in his very thoughtful testimony earlier today, talked about the lack of enforcement after transactions are reported; there are mechanisms there, be they by FINTRAC and so forth. He used the analogy of someone at FINTRAC receiving a fax of a transaction over $10,000, but then nothing happening.

Going back to the RCMP report from 2009, they estimated that $15 billion is being laundered in Canada, which is probably not a conservative estimate. From your past experience, how do you feel about enforcement by FINTRAC and the CRA now that you are with Transparency International?

[Denis Meunier]

I think that enforcement is an issue, but it's not enforcement alone. It's prosecution as well. The minister who spoke before us made some very good points. I might disagree with the way he characterized the information being sent to FINTRAC, as it being faxed and being in paper boxes. That's obviously an exaggeration to make a point.

However, back to your question on enforcement, I do think that it has to be looked at. If you look at the annual report from FINTRAC, it will tell you how many thousands of disclosures to law enforcement have been made across this country, but you won't see an equivalent number—even if it's only 25%—ending up as criminal investigations and prosecutions. I'm convinced that all of these cases are being investigated, but are they being prosecuted? That's where I think it fails.

Based on an access to information request, FINTRAC produced a report showing me a sample of 40 convictions from 2000 to 2014. I don't know if that was the total number of convictions for money laundering over the 14-year period or not. They might be able to expand on that, because they did say it was a sample, but that's not a lot.

[The Chair, Liberal, Wayne Easter]

Okay, thank you.

Mr. Albas.

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

Thank you, Mr. Chair.

Thank you to each of our witnesses. I might not get a chance to directly interact with you, but I certainly think we have all benefited by your presence and certainly appreciate the comments and expertise you have today.

I will start with the real estate association. Thank you for your presentation.

In almost every conversation I've had with many of your members, often in my constituency and sometimes here in Ottawa, I will hear the common refrain that FINTRAC is a big pain in the tochus. They complain about it endlessly, saying that there is a lot of paperwork. FINTRAC has come here, and obviously they have very important work to do. I don't think either of you would say it's not important work.

Has FINTRAC met with you to discuss ways that your industry can comply more efficiently or any suggestions? I think you said it has been a one-way street and you're not sure whether they've listened. Is that correct?

[Simon Parham]

There are a number of ways we could work better with FINTRAC, or FINTRAC could work better with us, in order to get to where everyone wants to go, which is fighting money laundering.

You are correct. We recognize that there is money laundering in the real estate sector in Canada, and our members play a role, but there is a lot that they can do. They can give us tools in order to get where they want to go. One example would be more meaningful outreach.

We do meet with them on occasion, but not regularly. It can be a struggle sometimes to meet with them. When we do meet with them, we ask for policy interpretations. Sometimes we email them policy interpretations. It's great that we can do that, but when we get a response, which sometimes can take many months, which is not helpful, the policy interpretations we get can be vague or require further confirmation from them of what they exactly mean. They might just quote us the legislation again. They might not use the language that real estate brokers and salespersons use, which is really important. A one-size-fits-all approach and the use of generic language is not a helpful policy interpretation. That is something else that we could get.

Also, there may be instances where clear and specific regulation and guidance tailored to the real estate industry might be necessary. We're seeing this on the guidance side. Right now, FINTRAC is looking at updating their suspicious transaction reporting guide. What we're looking at right now is core guidance that is applicable to all sectors, but if you look at the language, a high percentage is geared towards financial institutions.

There are lots of ways that we think we can benefit.

[The Chair, Liberal, Wayne Easter]

Mr. Russell wants in here for a minute.

[Ian Russell]

To follow up on your question, it seems to me that the response you got about the burden of complying with FINTRAC and the FINTRAC regulations or the act seemed to be related more to getting greater clarity, and whatever, from the FINTRAC people. I represent an industry that has 123 members in it. There are 80 firms that probably have, on average, maybe 20 professional employees. These are very small securities dealers that carry the full burden of compliance with FINTRAC.

Now you say, “How do we do that?” That's a big burden on very small securities firms, regional firms across the country. The reason they can do it is that there's a lot of technology out there to enable compliance, third-party entities, vendors who provide a lot of this technology to assist in the compliance.

Yes, there are issues with FINTRAC. We don't have the same level of communication as we would like, and that's another issue. Certainly we find that we have very small members who are able to comply with those regulations.

[The Chair, Liberal, Wayne Easter]

Go ahead, Mr. Albas.

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

Thank you for that.

Maybe I'll add that from my viewpoint, to be fair to FINTRAC, they actually are no longer the first thing cited by real estate professionals. There is now a regulator in B.C. that has been set up, and right now, when I talk to real estate people, complaints about it are actually well ahead of those about FINTRAC, at least to my mind.

Right now, FINTRAC, though, to be fair to them, is legislatively restrained from sharing information of any sort outside of what has been determined in law by Parliament. Would your organization be in favour of amendments being made to FINTRAC allowing them to give forward regulatory guidance to deal with what Mr. Russell is saying, as well as your data outlining where some of the issues are, so that there would be a better understanding? Moreover, would you be in favour of what I mentioned to the minister from British Columbia, namely, that FINTRAC be given authorization to aggregate the data so that no personal privacy rights were waived but allowing real estate professionals who actually go through those efforts to give that information to FINTRAC and actually have a return where they could know what the market is doing and how many private cash sales there are?

I'll extend that as well to Mr. Russell.

[Simon Parham]

I think so, but they actually have given us some information. It has just been anecdotal, but if they feel they can't give us more without a legislative or regulatory amendment, then, yes, anything that would facilitate more of a two-way conversation would certainly be of benefit.

[The Chair, Liberal, Wayne Easter]

Mr. Russell.

[Ian Russell]

Yes, first of all, I think there certainly is a lack of communication. You're citing the legislation. I do know that there is not a problem under the privacy laws, because we're talking about specific transactions with specific dealers who already have that privacy obligation.

The other point I wanted to make is kind of related to that. It seems to me—and Mr. Meunier talked about it in his testimony—that there isn't sufficient transparency to know exactly what is happening with FINTRAC and the responsibilities it is engaged in.

For example, from my members' point of view, it's not clear whether there are sufficient resources at FINTRAC to manage the transactions, or whether there's some reason they are not communicating back. There's no information on prosecutions, no information on actual convictions, and it seems to me that while much of the information shouldn't be made public—some of it could be and some may not be—it seems that government could come to grips with it because there are some important public policy questions that need to be raised.

[The Chair, Liberal, Wayne Easter]

Okay, we'll be going to Mr. McLeod, but I'll ask this question first.

Basically, we're using the document of February 7 from the Department of Finance as the foundation for our hearing. Are there any glaring problems in that discussion paper that you want to present to us? If there are, then relay them to us because we should know about them. You can think about that, and we can come back to it.

Mr. McLeod.

[Michael McLeod, Liberal, Northwest Territories, NT]

Thank you, Mr. Chair. I want to thank everyone for their presentations.

We had the Auditor General present prior to everyone coming to the table, and he really opened my eyes to the extent of the problem in the casinos and gambling sector. He pointed out that in British Columbia the issue is not restricted to casinos. He made a reference to looking at real estate as part of their next round of review.

I wanted to ask a question of the people who are here from the real estate sector. In your own assessment, is there an issue with money laundering in the whole area of real estate? If there is, how widespread is it?

[Simon Parham]

We do recognize that there is an issue with money laundering in the real estate sector. We share the concerns when we see media reports in the news about money laundering in whatever city, in Vancouver or elsewhere in Canada. That concerns us. That is why we take very seriously the obligations that are imposed on our members.

As my colleague, Dina, mentioned in her opening remarks, we have prepared numerous materials. We prepare template forms and office compliance manuals. We communicate regularly with our members on specific issues that are brought to our attention, such as the need to do a training program or the need to file suspicious transaction reports.

It is a concern to us. At the same time, we're also concerned that the manner in which obligations are being imposed on our members may not be the most efficient or best way this could actually be done. Unfortunately, we don't know how much money laundering is going on in the real estate sector. If we knew, I think there would be another issue. We don't know those numbers.

[Michael McLeod, Liberal, Northwest Territories, NT]

Thank you.

You mentioned in your presentation that although you're meeting your FINTRAC requirements, which looks like it's a huge task to embark on, a lot of times the information never sees the light of day. What do you think the percentages of that are? Is it more than half? Is it three-quarters?

[Dina McNeil]

It's not necessarily data. What we can explain is that a realtor has to ID their client and fill out several forms for each transaction. That information is filed away and is usually never seen by FINTRAC. FINTRAC will see a large, suspicious cash transaction. All the other files that members and brokers have to fill out are not seen by FINTRAC. That's where the frustration comes from.

[Michael McLeod, Liberal, Northwest Territories, NT]

We've heard a lot about the rules and burden of having to oblige the government in filling out all the requirements. We talked about suspicious transactions and the $10,000 limit, but we never talked about the penalties. The FATF had done a review and identified making penalties related to money laundering and terrorism financing more proportionate and dissuasive as something to consider.

Maybe you could all answer this. Do you support that? Should we be looking at stiffer penalties?

[Simon Parham]

There can be cases where penalties are warranted. We don't have a specific example where we would say that you should adjust it one way or the other, but I think it's important to recall the objective of this legislation, which is to detect and deter money laundering. The reporting entities, such as brokers and salespeople, are not the ultimate target. The money launderers are the ultimate target. The discussion on the compliance burden or whether the penalties placed on them are enough sometimes distracts from the real issue, which is what we can do to encourage more suspicious transaction reports being made to give FINTRAC what it wants.

[Michael McLeod, Liberal, Northwest Territories, NT]

Does anybody else care to comment?

[Denis Meunier]

I think my colleague has expressed it well. There is a regime of penalties at this point, and I think the penalties FATF may have referred to, if I'm correct, are perhaps in regard to the effort put into prosecution and trading off a predicate offence for money-laundering offences. I'm assuming that, though I could be wrong. At this point I don't know that we need to increase the penalties on the compliance side.

[Ian Russell]

It just seems to me that maybe the challenge is more around the detection of an actual money laundering transaction. The other issue is how difficult it is to prosecute, as opposed to an achieving an actual conviction, then a penalty, and then a recurrence of the crime. I don't think we're that far out. I think we're still sitting back and asking how effective detection is within FINTRAC and how successful they are at prosecution. Those seems to be the bigger uncertain questions.