Finance Committee on April 16th, 2018

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

In your comments on the difference between principles-based regulation and rules-based regulation, are you indicating—and this may be tangential—that the smaller financial institutions are having a hard time with the compliance costs? Is it too labourious? I'm going to use the word “layering”: is there too much bureaucratic layering going with the smaller banks, or fintechs.

[John Jason]

Well, it's a couple of things, but I think it's a distinction. The smaller institutions tend to be what I call “momma lines”, so they'll be uniquely mortgage lenders, or uniquely credit card banks. What sometimes happens is that when you drop the entire regime—which was designed for a large, full-service bank—on the small bank, the small bank is forced to put in place a lot of compliance processes that may not be relevant or necessary to their business model. If we had more of a principles-based approach, the individual institution could be a little more flexible in the processes it adopts. In fact, according to the discussion paper that came out, for example, Canada has always adhered to mandatory identification requirements. You must get these types of identification and nothing else will suffice. In other places, it's more of a principles-based approach, which means taking reasonable measures to properly identify your customer. That allows the individual institution to be a little more flexible in the processes they adopt.

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

That's much the same as it was in the years I sat on the CICA board in the accounting profession. The differences between the principles and rules-based approaches are large, because the principles-based approach does offer you that flexibility.

Let's go back to the focus at hand, the money laundering side. You're a lawyer; we've heard a lot of testimony—and obviously with the Supreme Court case—that it's difficult to bring in that profession. Is there a path?

[John Jason]

Well, I have to say that I'm a regulatory lawyer, and a lot of that law emanates from litigators who are obviously concerned about solicitor-client privilege, which quite frankly rarely arises in what I do. Typically, I'm not giving people legal advice about potential litigation.

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

Thank you.

I'd like to go to Marc.

Monsieur, please comment. You offered a lot of commentary on beneficial ownership, which our committee has heard a lot about in testimony from witnesses. You do mention Criminal Code amendments that will make it easier to investigate—I think those were some comments you made—if it is a legal profession. Is there a path you can see whereby greater oversight, without impinging on civil liberties—or whatever legalese term you want to use—is afforded the committee?

[Marc Tassé]

Yes, in two ways. The first one, I think, would be in terms of the solicitor-client privilege and the fact that if for some of the transactions we can show there's an intent of doing something wrong, then it would not fall under the solicitor-client privilege. That would help.

Also, it would help if the law were to be reviewed or amended in such a way that the letter of the law represents the spirit of the law. There is always a chief loophole officer somewhere, hanging around and making a very healthy and very wealthy living just by finding loopholes. That's the thing: I think that every time there is a review you need to try to identify what are the loopholes and stuff like that.

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

Lawyers are famous for finding loopholes, right?

Am I out of time?

[The Chair, Liberal, Wayne Easter]

You have a little time left.

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

Ms. Saperia, I've read a bit of your bio. You've done a lot of work on victims of terrorist activity and on potentially going after them civilly.

You've spoken a lot about countries in terms of money laundering and corruption. I think there is something there. We can't do an audit on someone buying a house through a corporation, whether in west Vancouver, north Vancouver, or anywhere in the Toronto region—pick any city—where they made their money. Canadians are subject to that because we file income taxes and so forth.

What would you recommend along that vein so that we could tighten up those rules? We did have the attorney general from British Columbia here, who presented very compelling testimony.

[Sheryl Saperia]

Yes. I read his testimony, and I agree that it was very compelling.

I think this speaks to this issue of beneficial ownership. I think that's what you're getting at. The reason I didn't mention it was that I didn't want to be repetitive. There is a consensus emerging among some of the witnesses who have come here, I feel, and perhaps among the committee as well, that there is some need for greater transparency when it comes to beneficial ownership.

It seems to me that the question was not “if” but who it was going to be available to, and whether it's going to be publicly available or available just to financial institutions. As a general principle, I think the greater the transparency the better.

I would also say this. I'm sneaking this in, but I'm going to try to keep it as much on your topic as possible. I recently spoke to a friend who is a charities lawyer. He talked about the fact that non-profits have very minimal filing requirements and very minimal oversight compared to charities, which do have more. As a result, there is a greater opportunity for money laundering to take place through non-profits. That speaks to your issue about the lack of transparency.

For instance, let's say we have a foreign state and their funds come in through some illicit means. They give their funds to a non-profit in Canada, let's say, and the non-profit gives them—I'm just using this as an example—to a radicalized mosque here in Canada. That mosque would have to report the donation very minimally as coming from the Canadian non-profit, but it obscures where the funds ultimately came from, which is that foreign state that may have obtained those funds in an illegal way.

[The Chair, Liberal, Wayne Easter]

Thanks, all of you.

Before I turn to Mr. Albas, on Francesco's question to you, Mr. Binns, there's no question in the Department of Finance discussion paper that they are pushing for what they call “a spectrum of regulatory options” on the white-label automated teller machines. They argue that law enforcement continues to express concern with regard to the WLATM industry, including the use of ATMs by organized crime groups in Canada. The paper then goes on to talk about how the Province of Quebec has introduced stronger regulations for that industry.

What's your comment on that? I think you indicated that it's really a false argument, but is there a different regulatory requirement in the province of Quebec than in the rest of the country? I don't know, to be honest. What are your comments on what the discussion paper is arguing here? This is one of the areas that we have to look at pretty closely.

[Curt Binns]

Correct. There is a separate regulation in Quebec. It's called the Money-Services Businesses Act. Quebec is the only province in Canada that has a money-services business act that includes ATMs, white label ATMs. Banks are regulated federally, while white labels are provincial and federal, but Quebec is the only province that has that regulation. They are grouped in with money transfer places, payday houses, anyplace where they dispense cash, where you can get cash.

We are working very closely with the Quebec government on an ongoing basis to attempt to have either the act repealed or ISO ATMs taken out of that act since they're regulated at a very high level as it is today.

[The Chair, Liberal, Wayne Easter]

So you wouldn't be in favour of applying what is happening in Quebec across the rest of the country, I take it.

[Curt Binns]

What do you mean?

[The Chair, Liberal, Wayne Easter]

If we were to use the Quebec example as the model, that isn't what you would want to be applied across the country.

[Curt Binns]

No.

[The Chair, Liberal, Wayne Easter]

Okay, that's what I thought.

Go ahead, Mr. Albas.

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

Thank you. I certainly appreciate it, Mr. Chair.

Thank you to all of our witnesses for coming here today.

Just following up on Ms. Saperia's response in regard to not-for-profits, I do know that, for example, the B.C. Societies Act is the statute that regulates not-for-profits in British Columbia, of which I'm a member. Under it, a minister can require an investigation if it's thought there is criminal activity going on. To your point that they're often left unregulated, the government, at least the Province of British Columbia, has really stepped back from oversight of these bodies to a large extent. I certainly take your point.

Did you have anything else on not-for-profits in the way of concerns?

[Sheryl Saperia]

I think it was my main concern. I tried to understand what the process is for non-profits, what their responsibilities are. Because they don't get to issue tax receipts, the thinking is that they shouldn't have to do very much by way of reporting, but they have to file a tax return and a schedule that lists their assets, and it is my understanding, based on my conversations with some friends, that it's a very awkward form for non-profits.

My understanding is that it looks as if there's going to be an overhaul of non-profits here, and so I'd be very curious about whether this type of issue will be included.

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

Yes. Even in the B.C. Societies Act there is a provision that if someone offers financial assistance—and it's defined in the regulations—to a B.C. not-for-profit, a note should be made of them. But if it's for the purpose of forwarding the society and its main purposes—and again it doesn't say what those purposes would be—they don't even have to keep a note of who made the loan available. At least that's my read of it.

This is an area, perhaps, Mr. Chair, where we might want to invite someone from an association to speak for not-for-profits in this area or perhaps to have CRA come back and maybe discuss the differences between charities that can issue charitable receipts and not-for-profits, because I think there might be an area to go there.

I would like to turn to Mr. Jason.

Mr. Jason, there has been a lot of discussion about administrative compliance and the administrative burden of agents like FINTRAC. The Canadian Credit Union Association spoke a lot on that topic. A very small, single credit union told me they estimate that their compliance costs are about $50,000 just on the FINTRAC measures. I do take the legitimate criticism that you cannot have a one size fits all, because those costs cannot be borne out. Many financial institutions will actually have someone in an area where they all send their FINTRAC reports to, so that's all that one person does, but obviously a small unit can't do that.

One of the things we've been suggesting is that FINTRAC not track administrative burden by industry or at all. When they came, they said they do their job quite effectively and they think this is the right way to go. But you can't really manage what you don't measure. Do you think FINTRAC needs to start measuring, by industries, its compliant costs so that it can start to work on this end?

[John Jason]

Yes, I definitely think that doing some benchmarking so that they understand how much effort is involved, by institution, would be helpful because, as I say, it's the one-size-fits-all problem. They look at what the large institutions do, convince themselves that this is the level of effort that's appropriate, and then just apply it blindly to the smaller institutions.

If they had some ability to benchmark and understand what the different institutions do, depending on their business and however you might classify it in a rational way, I think that would be very helpful information. It's information that we try to share among ourselves as compliance officers so that we can get a sense of whether we're doing everything that we should be doing to address whatever the issue is.

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

Great.

I'd like to just go to the ATM Industry Association briefly.

I have seen some news stories about some ATMs offering to exchange cryptocurrencies, such as Bitcoin, into Canadian dollars. I'd like to ask, first of all, is this a growing trend?

We've heard from some people who have here to discuss cryptocurrencies that some banks—financial institutions, for example—are maybe coming a little bit late to the game in offering those types of currencies to Canadians. Is this a growing area for ATM use? How widespread is it? Is there a particular province where you see this happening more? Or am I getting my lines crossed here with American news stories?

[Curt Binns]

In the Canadian landscape, that is on the radar screen of ATMIA. In the past several years, several cryptocurrency operators have approached ATM operators in hopes of dovetailing into their infrastructure or making it easy for a customer to buy Bitcoin through an ATM. That hasn't happened yet in Canada.

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

Okay, so it's a non-issue for Canada right now.

[Curt Binns]

It is for right now. We are watching it.