Finance Committee on April 16th, 2018

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

Thank you, Mr. Chair.

Thank you for that interesting commentary, Ms. Saperia.

I want to go back to Mr. Tassé and Mr. Jason with regard to the verification of owners.

Mr. Tassé, you talked about politically exposed people as related to the legal profession, high-risk folks with respect to the legal profession. How can we ensure, for someone setting up a trust or certain structures through the beneficial ownership, that we can get to who they are and potentially to how they obtained their income, if that is possible? Of course I think we should go through...but I'd love to hear your thoughts.

[Marc Tassé]

I would say it's all about whether the transaction makes sense. Does the person who is actually buying have that amount of money? We saw, a couple of months ago in Vancouver, a young student who had a condo worth $27 million. When they asked the student where he got the money, he said it was from people giving money to his dad. When he was asked what kind of business his dad was in, he said he didn't know; he just said he was a businessman.

If I'm a lawyer, and I'm representing a person and asking the person about buying a $27 million condo, I have to ask how they're going to finance it, and what the source of the income is, and stuff like that.

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

Just on that comment, if I may interject, you hit the nail with the hammer exactly. That condo would have been purchased through a trust or through a corporation, and we have no idea today who the purchaser is.

Is that correct? We need to know that—

[Marc Tassé]

That's right.

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

—because as vibrant and important as our real estate market is, we need to ensure that it is wholesome. I'm going to use the word “wholesome” today, if I can. We need to ensure there are no games going on, because millions of middle-class families across this country work very hard to purchase their home—whether a condo, townhouse, or detached—and we don't need to have people doing things and using ill-gotten gains or whatever to purchase their home here in Canada. They're more than welcome to study, work, or whatever, but the other stuff I don't have time for.

Mr. Jason, you referenced your expertise on the regulatory front. I would love to hear your opinion. We have a number of regulatory agencies that banks have to deal with, one of them being FINTRAC. Can you opine on that relationship and on what you see may be going well and what may not be going well in terms of going back to a principle versus rules-based approach?

[John Jason]

Yes. Certainly from the smaller institutions' perspective, I guess the first thing I would say is that FINTRAC is not a very direct regulator. For years and years, FINTRAC deferred to the Office of the Superintendent of Financial Institutions for the supervision of banks and other financial institutions on its behalf. They seem to have come to some better understanding about who is responsible for what, but I think that from the institutions' perspective, it's still very unclear who their primary regulator is. They've ended up in a world where they're really subject to two regulators.

OSFI continues to play a role. They take the position that compliance with anti-money laundering laws is a prudential matter and that institutions are subject to reputational risk and therefore that OSFI should continue to play a role. FINTRAC has begun to do its own examinations, which are separate and distinct from the OSFI examinations, on the basis that they are the actual statutorily empowered regulator.

For the small institution, I think they are left in a confused situation as to which regulator is really responsible for oversight. I think that continues to evolve, but from the small institution's perspective, it's not precisely clear who is responsible for what.

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

If I can just take that point, I'll end off with this. In terms of responsibility, is that less-than-100% clarity hampering in any way the ability of all agencies—and effectively, of any entity of the government—to investigate, enforce, and prosecute folks who are participating in money laundering activity?

[John Jason]

I don't know the specific answer to your question.

What I would say is that the institutions usually want to comply. Having a regulator that is helpful and of assistance in providing direction to the institutions is more useful. I think right now the institutions—

Another source of frustration would be that it's very difficult at times to get clear direction from the regulator. First, you're not sure which regulator is in charge, and second, certainly in terms of FINTRAC, they are not that approachable in giving assistance to the industry, particularly the smaller institutions. Undoubtedly, that has some effect on the ultimate strength of the regime if the institutions themselves are uncertain as to what precisely they're being asked to do.

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

Thank you, sir.

Thank you, Chair.

[The Chair, Liberal, Wayne Easter]

Go ahead, Mr. Dusseault.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Thank you, Mr. Chair.

I want to continue talking about the financial and banking sectors.

We know that Canada's big banks have the means to have computer systems that can detect all kinds of suspicious operations. In small institutions, it is perhaps more difficult to do so because they have fewer human and financial resources.

Thanks to new technology and computers, it is perhaps easier to do this today. Is there a way to bring all those efforts together so that we can develop IT systems that, while they may not be uniform, they at least allow small institutions to comply with the rules at a reduced cost?

[John Jason]

It's a very good question and one that we confront all the time. As I mentioned, we do provide compliance risk management software to some 15 or 20 banks right now. The difficulty we have is that, while the law is sort of common, each bank operates in a distinct way, particularly in the small bank community. At the end of the day, there's not a huge difference between the Royal Bank and the Bank of Montreal. They're both full-service banks that operate substantially in the same way.

In the smaller institutions, the problem we have is that each of them has quite distinct operating models and quite distinct business lines, so it's difficult. While you know what the law is, applying it in every institution is a unique exercise and it's hard. We've put a lot of thought into how to ease that effort for those smaller institutions, and, to some extent, it's why our software is successful. We automate as much as we can, but it's hard to go that much further. Software helps, but at a certain point, human beings have to be involved.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Has there been any collaboration with FINTRAC, any discussions or dialogue with a view to finding out what they expect to receive? It could help you in developing that kind of software or other mechanisms to bring about compliance.

[John Jason]

Before coming here today I wrote a small list of the things in the discussion paper that would be quite helpful for the small institutions. In fact, two of the things that were proposed on the list would give FINTRAC more authority to deal with the institutions and provide information to the institutions. Rather than leaving each of these banks to their own devices to try to figure out where they're susceptible to money laundering, where they might be able to put more effort and more attention, getting more of that information sharing would most certainly be helpful to the smaller institutions.

One of the other measures that was raised in the paper was the possibility of the institutions themselves sharing information. As we know, every institutions is subject to privacy rules and confidentiality requirements, so they're hampered in their ability to talk to one another and say, “Oh, gee, I saw this transaction that caused me concern. Maybe it would be useful to you to know that transaction is out there and those people...”. Right now there's limited ability to share that information.

Those were a couple of things that were of quite a lot of interest to me to sort of free up this information sharing.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Thank you.

[The Chair, Liberal, Wayne Easter]

Mr. Fergus.

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

Mr. Binns, thank you very much.

I was wondering if you could talk a little bit more about white label ATMs and the number of measures that your association members are taking to minimize the risk of money laundering using their products.

[Curt Binns]

Our members are subject to several regulations. For example, they have to be a member of Interac to carry on business. They are subject to FINTRAC rules through their financial institution and KYC regulations with their financial institution, and any provincial regulations. We work closely with regulators, with police agencies, and whoever needs our assistance in thwarting any crime.

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

Precisely. You could walk the committee through this, perhaps, or you can provide it to us in written remarks, but it would be great if you could briefly walk us through where your ATMs find themselves. I'm just trying to think of that bar or that off-track business that doesn't seem to have enough revenues to justify having one of the labelled ATMs. How does it work? What's the business model?

[Curt Binns]

If the business operator for an independent machine is so small they can't afford to comply with all of the regulations, they can operate under the umbrella of a larger independent operator or even a bank so they can afford to comply with all of the regulations. There are different business models, depending on the size of the company.

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

I'm not trying to be disrespectful in any way, but the rumour is, and we might as well just talk it out, that some of these white label machines have been installed in some businesses that do not have a great reputation and for the purposes of laundering money. Can you please talk to that and why those rumours are wrong?

[Curt Binns]

I think the record speaks for itself in that there has been only one money laundering conviction in Canada in 20-plus years for the thousands of machines that are out there. The location doesn't really matter. The location doesn't dictate the amount of compliance they have to fulfill, whether you're in a bar or a bank.

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

Is a conviction just too high a level of threshold to evaluate that to? Are there any other indicators? The number of complaints dwarf the number of convictions that come out of the wash at the end, but is there something else, a different standard, that you could inform the committee of?

[Curt Binns]

We find there's a lot of sensationalism in the press when something is reported about an ATM. Often the press will talk about money laundering, when they're reporting a physical crime at an ATM. Whether it's a smash and grab, or even a cybercrime, it gets swirled in with, “Wow, it's an ATM, and they must be laundering money”, which is pretty much impossible to do.

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

Thank you.