Evidence of meeting #143 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was money.

A video is available from Parliament.

On the agenda

MPs speaking

Also speaking

Dennis Howlett  Executive Director, Canadians for Tax Fairness
Paul Burns  President and Chief Executive Officer, Canadian Gaming Association
Eric Gagnon  Head, Corporate and Regulatory Affairs, Imperial Tobacco Canada Limited
Kevin O'Sullivan  Head, Security and Intelligence, Imperial Tobacco Canada Limited
Vanessa Iafolla  Lecturer, Department of Sociology and Legal Studies, University of Waterloo, As an Individual
Christian Leuprecht  Professor, Department of Political Science, Royal Military College of Canada, As an Individual

4:15 p.m.


Dan Albas Conservative Central Okanagan—Similkameen—Nicola, BC

Thank you, Mr. Chair.

Not to belabour the point, but the losses are not just to the whole of Canada through tax revenues.... I want to remind everyone here that places like Merritt, British Columbia—I met with Mayor Neil Menard just last week—stand to earn quite a bit from Trans Mountain in property taxes and a community agreement, and people are very concerned. The Lower Nicola Indian Band has also signed an agreement. In my region, these kinds of things are seen as an excellent way for those communities to diversify and to improve their quality of life.

I understand why Mr. Kmiec has brought this forward. I hope that Liberal members will put the Conservative members to work alongside them towards this nation-building project, so that we can give the information so that this pipeline can be built.

4:15 p.m.


The Chair Liberal Wayne Easter

Mr. Poilievre.

4:15 p.m.


Pierre Poilievre Conservative Carleton, ON

The investment climate in this country is very much a subject for the finance committee. I will quote from the Bank of Canada's monetary report from today:

In the energy sector, which accounts for roughly 20 per cent of business investment in Canada, the Bank forecasts that investment will decrease in 2018 and remain roughly flat thereafter. Investment in new projects is being held back by reduced competitiveness resulting from regulatory and US policy changes.

The regulatory changes here and the tax policy changes south of the border are moving money out of our country and down south. This might make Donald Trump happy; it shouldn't make any of us happy around this table.

The second reason this is very much an issue for the finance committee is that now we have the finance minister, for some unknown reason, responsible for arranging financing for a project that was already privately funded. We're reading news reports that he's travelling around and flashing the government credit card to try to salvage the damage his government has caused. This is an approach we should study.

Right now we have an approach by the government that holds back economic activity and tries to subsidize it back into existence. It's like the old saying, “If it moves, Liberals tax it. If it keeps moving, Liberals regulate it. If it stops moving, Liberals subsidize it.” That's what we see here. They've wrapped these projects in so much regulatory red tape that they cannot be financially sustainable on their own. Then all of a sudden the finance minister shows up and says, “Now that we've ruined your project, we'll give you some taxpayer money to resuscitate it”. Is that the best way to build a free-market economy? That's something this committee could study.

We are the finance committee. He is the finance minister. He should be here testifying about the approach he's taking to undo the damage his government has caused the energy sector. It is within the purview of the finance committee. It is the most pressing controversy in the country today. And there is not a single reason this committee could not be tasked with doing this job.

I ask members of the other side, what harm would it do if we, as a committee, were to study this? What possible harm could it do to bring light to the questions Tom Kmiec has raised in his motion? If it will do no harm, and if there is a chance it might do some good, let's study it.

4:15 p.m.


The Chair Liberal Wayne Easter

With that, we'll go to....

Tom, you asked for a recorded vote, I believe.

4:15 p.m.


Tom Kmiec Conservative Calgary Shepard, AB


4:15 p.m.


The Chair Liberal Wayne Easter

Mr. Clerk, could you go to the recorded vote.

(Motion negatived: nays 6; yeas 3)

We'll turn to the witnesses.

Thank you for your patience. If you can hold your remarks to roughly five minutes, we'll still have ample time to get in a series of questions.

I'll turn to Mr. Howlett, from Canadians for Tax Fairness.

Welcome, Dennis.

4:20 p.m.

Dennis Howlett Executive Director, Canadians for Tax Fairness

Thank you for the opportunity to present to the committee on the statutory review of the proceeds of crime and terrorist financing act. It's a good thing that the act has built in a periodic review of how it is working because much more needs to be done if the government is serious about ending snow washing and money laundering.

When criminals and tax evaders use legitimate Canadian investments like real estate to clean dirty money, we call it snow washing. Canada has become an international destination for setting up secret companies to snow wash illicit funds from all over the world. It's easier to set up a secret company than it is to get a library card. This is because, in Canada, the true owners of companies and properties can remain entirely anonymous. Their identities can be concealed even from the government agencies entrusted with enforcing laws. This makes it easy for criminals, tax evaders, and those financing terrorism to hide and launder money in Canada, and it makes it hard for law enforcement, tax authorities, and financial institutions to enforce Canada's existing anti-money laundering and anti-terrorist financing laws.

Canada needs to create a publicly accessible, centralized registry of true beneficial owners of companies in an open, searchable format. That's our main recommendation.

Money laundering, terrorist financing, and tax evasion are still big problems in Canada. Estimates of the money involved range from $15 billion to $60 billion a year. Canada has a reputation of being the snow washing destination for the world because of the ease with which you can set up an anonymous company here. The Panama papers revealed that Mossack Fonseca, the law firm involved, was advising its clients to set up shell companies in Canada. When Canada's finance minister attends G20 finance ministers meetings, he has been embarrassed by the fact that Canada is so far behind other countries in beneficial ownership transparency. In fact, tomorrow Transparency International will be releasing a report that compares progress on beneficial ownership transparency among the G20 countries. It will be no surprise that Canada is among the six out of 20 with the weakest frameworks.

Law enforcement and tax authorities do not have the tools or resources they need currently to go after money laundering and tax evasion. Lack of transparency on beneficial owners is a huge problem for them. The steps they have to take to get this information slow down investigations, and this ultimately means they are able to investigate only a relatively small number of cases.

There are gaping holes in our anti-money laundering regime. While banks and financial institutions are required to determine beneficial owners and track financial transactions over $10,000, real estate agents, lawyers, and other high-risk sectors are not required to do this. Money laundering in Vancouver and Toronto real estate markets is a huge problem that is not being properly addressed, in large part due to this gap.

The B.C. government has taken steps forward in requiring beneficial ownership information to be collected by land registries. Other jurisdictions need to implement similar measures.

We need a public registry of beneficial owners of corporations and trusts. This would make it much easier for tax authorities and law enforcement to go after criminals, and it would make it much easier for financial institutions to fulfill their duty to check on beneficial owners. A public registry, I believe, would also be necessary if the AML/ATF regime were to be extended to real estate agents, lawyers, and other high-risk sectors, as I believe it should.

We need much stiffer penalties and more transparency so that there is effective deterrence built into the system. It's much easier to prevent than to enforce. The chances of getting caught currently are very low and even if you are caught, the penalties are not very severe.

The agreement reached with provincial and territorial governments last December to require corporations to know who their beneficial owners are is not much of a step forward. While we appreciate that the federal government has engaged other levels of government in addressing the beneficial ownership issue, unless further steps are taken to set up a public registry of beneficial owners, it does not get us much further ahead.

When you stop and think about it, what has been agreed is really a bit of a joke. Law enforcement would have to go and ask the company they are investigating for information on the beneficial ownership, thus tipping them off that they are under investigation. If they don't voluntarily comply, they have to go through the rigmarole of getting a search warrant, further delaying and complicating investigative efforts. The fact that they are not required to report their beneficial ownership information to provincial/territorial or federal corporate registries means that it's almost impossible to know if companies will actually be doing this and that the information will not be easily assessed by law enforcement and tax authorities. Moreover, there are no penalties for reporting false information.

The federal government has a responsibility to provide more ambitious leadership on this. As a signatory to international agreements, it has a duty to ensure that other levels of government bring their corporate registries up to international standards. If Canada is to become a leader rather than a laggard on beneficial ownership transparency and fighting money laundering, we need to match the U.K. and the EU standard of a public registry of beneficial ownership of corporations.

Thank you very much.

4:25 p.m.


The Chair Liberal Wayne Easter

Thank you very much.

Turning then to the Canadian Gaming Association, we have the president and CEO.

Mr. Burns, welcome.

4:25 p.m.

Paul Burns President and Chief Executive Officer, Canadian Gaming Association

Thank you.

Thank you to the committee for the invitation to appear here today.

The Canadian Gaming Association is a national trade industry association representing leading operators and suppliers in Canada's gaming industry. I had occasion to appear before the Senate's finance committee several years ago as part of their statutory review of the act, and I am grateful for today's opportunity.

To give you a snapshot of Canada's gaming industry, it directly employs more than 125,000 Canadians, contributing $6.5 billion in direct labour income. Our purchasing power equals more than $14.5 billion annually in goods and services, which generates over $8.5 billion annually for governments and charities in revenue.

Canada's gaming industry is one of the most highly regulated industries in the country, and virtually every facet of the gaming industry is subject to scrutiny. Regulations affect employees licensed to work in establishments, suppliers to the industry, gaming equipment, and rules of play. They also assist us in delivering on our requirements under the proceeds of crime and terrorist financing act. Regulatory oversight is built into the DNA of our industry. It's top of mind for every operator, every day.

The success of our business is built upon upholding the public trust by delivering fair games in safe and secure environments. We deliver on that trust through rigorous regulatory oversight, testing of gaming products, strong internal controls, and world-leading responsible gaming programs.

One measure of our regulatory oversight is through our industry's commitment to be a strong partner in Canada's anti-money laundering regime. We do this by collaborating with FINTRAC, provincial gaming regulators, and law enforcement, as we recognize that Canada's AML regime operates on the basis of three interdependent pillars: policy and coordination; prevention and detection; and disruption. In short, it's a partnership that is strongest when we work together.

As gaming operators, our role is prevention and detection, through identifying and reporting large and suspicious cash transactions and large cash disbursements made by casinos. We report that information not only to FINTRAC but also with gaming regulators and directly with law enforcement, as needed.

Our industry commitment is demonstrated through the deployment of a large number of dedicated and well-trained security, surveillance, and compliance professionals, and through the use of sophisticated tools such as state-of-the-art surveillance and information management systems to monitor and record activities. Our activities are regularly audited by provincial regulators, third-party firms, and FINTRAC itself.

The recently released Department of Finance memo identified the casino sector generally demonstrates high levels of compliance, and it should be noted that casino sector compliance levels were double those of chartered banks and money service businesses.

While casino reporting represents less than 2% of the reports received by FINTRAC in any given year, we value the relationship with the Department of Finance and FINTRAC, as they have been good partners to the gaming industry by working on refinements and improvements in the reporting relationship over the years.

Our industry participates in FINTRAC's industry advisory group, and on several occasions we have welcomed the participation of the Department of Finance and FINTRAC officials in our industry's annual conference, the Canadian Gaming Summit.

Recent media reports might leave one the impression that casinos are easy places to launder money. I want to make it clear—they aren't. It's virtually impossible to be anonymous in a casino. Surveillance begins in some instances as soon as you pull into the parking lot, and by the time you reach the front door, your image has been recorded. If you wish to buy chips with large amounts of cash, you'll be asked for ID, plus additional personal information, which we are required to collect by FINTRAC.

If you think you can play a couple of hands of blackjack and cash out with a cheque, you're wrong. Cheques are issued only for verified winnings, with your original buy-in returned in cash. You will receive only a cashback if there are no verified winnings.

Our industry works diligently to identify and mitigate risks, as in the case in British Columbia. It's been widely reported that the British Columbia Lottery Corporation and gaming operators in the province proactively responded to an increase in large cash transactions beginning in 2012. They did that by placing significant restrictions on the use of cash for certain players through increased interviews and scrutiny, increasing training and education for frontline staff, and encouraging—or mandating—customers to use cash alternatives such as player gaming fund accounts.

Thanks to these efforts, players were barred from B.C. casinos, including Paul Jin, who has been identified in media reports as a key suspect in B.C. money laundering efforts. Many of Mr. Jin's known associates were subsequently barred, and, as the media reported, details of their activities were shared directly by BCLC with the B.C. RCMP.

As a direct result of these proactive measures, we have seen a 60% decline in suspicious cash transaction reports since 2015. These types of transactions now represent less than 4% of the revenues of casinos, and they continue to decline with the recent efforts by the B.C. government.

Gaming operators are delivering on their pillar of Canada's AML regime—prevention and detection—but as others who have appeared before this committee have stated, there is a need for increased effort by law enforcement to disrupt the system. To my knowledge, despite information going back to 2012 collected by BCLC and B.C. gaming operators, which was shared with law enforcement, on the illicit attempts by Mr. Jin and his associates to launder money in B.C. casinos, he is still operating in the Vancouver housing market.

The assistant commissioner of federal policing criminal operations with the RCMP commented to this committee that “due to time constraints, resource limitations, and the efficacy of prosecuting certain charges over others in these dynamic and complex cases, following through on proceeds of crime or money laundering charges is often not tenable.”

Across Canada, the gaming industry has strong and productive working relationships with law enforcement, but we need to know that our reporting efforts are being acted on. Awareness of police investigations and of the ensuing arrests are visible outcomes and are deterrents as well as proof that the system works.

Thank you very much for your time. I will happily take any questions.

4:30 p.m.


The Chair Liberal Wayne Easter

Thank you, Mr. Burns.

We'll turn to Imperial Tobacco Canada Limited, and Mr. Gagnon, head of corporate and regulatory Affairs; and Mr. O'Sullivan, head of security and intelligence.

Go ahead, Eric. I believe it's you.

4:30 p.m.

Eric Gagnon Head, Corporate and Regulatory Affairs, Imperial Tobacco Canada Limited

Thank you very much, Mr. Chair.

Thank you for this opportunity to appear before the committee.

As the chair pointed out, my name is Eric Gagnon and I am the Head of Corporate and Regulatory Affairs for Imperial Tobacco Canada.

4:30 p.m.

Kevin O'Sullivan Head, Security and Intelligence, Imperial Tobacco Canada Limited

Good afternoon. My name is Kevin O'Sullivan. I am the Head of Security and Intelligence for Imperial.

I came to this position after a more-than-20-year career in law enforcement, in which I was most recently the detachment commander for the national investigation service of the Canadian Armed Forces here in Ottawa, responsible for investigations of serious and sensitive crimes both domestically and abroad. My experience in both these roles has afforded me first-hand knowledge of the impact and the immense profits gained by organized crime groups through their involvement with illegal tobacco.

Since 2012 there have been four major investigations in Canada that have demonstrated specific links between contraband tobacco and organized crime, those being Lycose, Mygale, Cendrier, and most recently Olios.

I am pleased to contribute to your review of this act, because the ties between illegal tobacco and other criminal activity are well documented, most recently in a March 29 report by W5, which I encourage you to watch.

4:35 p.m.

Head, Corporate and Regulatory Affairs, Imperial Tobacco Canada Limited

Eric Gagnon

First, let me provide you with some information about the size and scope of illegal tobacco and the links to organized crime.

Since I appeared before you in October, new data has been released on the illegal market in Ontario, which has jumped by more than 37%, a 66% increase in just three years. A recent report by Ernst & Young suggests that Ontario alone will lose up to $5 billion in tax revenues from tobacco by 2020.

We are also seeing alarming declines in tobacco tax revenue in provinces like Alberta and Saskatchewan, suggesting there has been a significant increase in illegal activities in western Canada, where the illegal rate has been 12% to 15%, depending on the province. Meanwhile, rates in Atlantic Canada have been consistent, between 15% and 20%. The only province seeing a significant decline is Quebec, where aggressive law enforcement actions have seen rates drop from over 40% to less than 15%.

We estimate that the national illegal tobacco rate to be 20% to 25%, or around seven billion cigarettes, the equivalent of 35 million cartons. From there, you can do the math. If they're sold for $40 each, which is not uncommon, that's over $1.4 billion. We're talking about big money. In fact, the Sûreté du Québec recently said that the importation of illegal tobacco is eight times more lucrative than cocaine, which is why it is so attractive to organized crime groups. According to the RCMP, there are more than 175 organized crime groups involved in illegal tobacco in Canada. There are also at least 50 illegal cigarette factories in Canada and more than 300 smoke shacks selling tobacco outside existing legal, regulatory, and tax frameworks.

As Kevin mentioned, in March 2016, police forces in Ontario, Quebec, the U.S., and around the world were involved in the largest illegal tobacco bust in Canadian history, Project Mygale. This criminal operation involved much more than just tobacco. Also seized were millions in cash, over 800 kilograms of cocaine, meth, marijuana, and enough fentanyl to kill ten thousand Canadians.

This committee should also be alarmed that illegal tobacco from Ontario is now being found throughout Mexico and Central America. You can draw your own conclusions on why this is happening.

For your current study, our recommendation is fairly blunt. Laws are only useful if they are enforced. Therefore, our recommendation is to enforce the existing laws, which are not presently being enforced when it comes to illegal tobacco. Billions of dollars are being diverted to organized crime, often in plain sight. The government can barely bring itself to mention the problem, let alone act. Compare that to the U.S., where extensive action is being taken to address illegal tobacco because of the links to other criminal activities and terrorism.

I also have to flag that MPs will soon be asked to vote on a bill called Bill S-5, which seeks to impose plain and standardized packaging of tobacco products and standardization of cigarettes themselves, making it impossible for consumers, retailers, and law enforcement to differentiate a legal pack or product from an illegal one. This is even more so because the federal excise stamping system has been compromised, with legal stamps already routinely turning up on illegal products.

Health Canada even wants to impose the pack and cigarette formats made by illegal operators rather than pack and cigarette formats used in the legal industry. If you asked organized crime groups to come up with a piece of legislation to help them gain even more of the market share, it would be hard to beat Bill S-5. I know this is outside the scope of this study, but these issues cannot be looked at in isolation. If you want to combat money laundering and organized crime, legal tobacco companies must be given some means to differentiate their products—as is allowed for cannabis—and that means not passing Bill S-5 as is.

Thank you, and we look forward to your questions.

4:35 p.m.


The Chair Liberal Wayne Easter

Thank you very much, Mr. Gagnon and Mr. O'Sullivan.

We will turn then to the individual, Ms. Iafolla from that department of sociology and legal studies at the University of Waterloo.

4:35 p.m.

Vanessa Iafolla Lecturer, Department of Sociology and Legal Studies, University of Waterloo, As an Individual

Hello. My name is Vanessa Iafolla, and it's an honour to appear before the committee as part of the current review of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. Thank you so much for the opportunity to contribute today. I'll be speaking from some of my research findings.

I'd like to draw the committee's attention to several issues that I think are particularly important in the fight against money laundering and the financing of terror. These include, firstly, the need for improved guidance and feedback to regulated entities by bodies of oversight such as OSFI and FINTRAC; secondly, the issue with respect to the use of discretion by individuals in reporting entities, and here I'm talking specifically about financial services; and, thirdly, the need for a business registry and improved transparency regarding ultimate corporate beneficial ownership.

My research within financial institutions has impressed upon me the desire of our schedule I banks not just to minimally comply with the legislation, but also to set industry-wide standards and be first in class. Our banks take compliance with the law seriously and, as I'm sure you know, have developed a significant apparatus with respect to the detection and reporting of money laundering and terrorist financing.

Still, many people with whom I've spoken have expressed a desire for their regulators to provide more structured guidance. These individuals have expressed that they feel that regulations are imposed with little guidance as to implementation. They describe this process as cryptic or interpretive, and while they appreciate the considerable flexibility, they feel that a better balance should be struck between providing sufficient direction and guidance, and the freedom to implement regulations in ways that work institutionally.

Another issue I've discovered is that this lack of guidance trickles down throughout the reporting process. At all levels that I've studied, bank employees have expressed a desire for feedback about the kinds of intelligence they are gathering. If you want intelligence to be truly intelligent, it's important for meaningful feedback to be provided to regulated entities. The banks don't get a good sense of the use or quality of the intelligence they generate, unless of course the report is rejected for incomplete information. In turn, employees down the reporting chain don't know if what they're sending up the line is useful or helpful.

I appreciate the difficulty inherent in providing such detailed information to the number of regulated entities in this country. However, people who are doing this work in earnest need to know if what they're doing is on the money, so to speak, or if they've missed the mark. I've heard FINTRAC's attitude described as, “Give us the info. We'll figure it out.” That isn't necessarily helpful to reporting entities who want to make sure that the resources they pour into this endeavour are bearing good fruit. Banks want to be more than a resource. They want to do real meaningful work on this issue, and feedback is crucial to that end.

Part of the issue on the lack of guidance ties into the second issue that I would like to discuss, the use of discretion. Reporting employees with whom I've spoken, and internal reports I've seen, highlight the significant latitude that reporters have. This is good, insofar as they're not tied to specific dollar amounts or thresholds for reporting, but there are issues related to the quality of intelligence generated, and frankly issues of privacy and fairness, when individuals are reported not for the suspiciousness of their financial transactions but for reasons that are fundamentally subjective.

Bank tellers have disclosed to me that they have reported suspicious transactions because the individual was wearing a hoodie or sunglasses; that the person was employed as an exotic dancer, which as we all know is legal, providing you have a licence to do so; that the person was too friendly or not friendly enough; worse, that the person was black or a Muslim. Those are not necessarily solid reasons to suspect someone of crimes, yet those concerns are significant enough for reporters to disclose them to me. I've worn a hoodie. I've worn sunglasses. I'm a very friendly person. I can assure you I've never financed terror, and I shouldn't be reported for presenting so in a financial institution.

Better guidance up the chain could translate into these kinds of reports being minimized, and thus in turn into better intelligence for FINTRAC. I think some of this is tied to the fact that, unlike other jurisdictions, Canada does not require the identification of a predicate offence on its suspicious transaction reports. The idea of suspiciousness is less tied to legal definitions, and instead can be more subjective. Perhaps tightening that up would be helpful for producing smarter intelligence.

Finally—and I won't belabour this point as Mora Johnson has spoken to it, and Dennis Howlett has mentioned it today—I think there's a real need for a public registry of beneficial ownership that could be accessed. It's problematic that law enforcement of any kind, and I mean not just criminal but also regulatory enforcement, cannot necessarily determine the connections between business entities, because of the way that our laws enable corporate secrecy. Dirty money isn't just the product of criminal acts; regulatory violations are also done in pursuit of financial gain. It's important for us to recognize that the value of a public registry of beneficial ownership extends beyond the police to other agents of social control.

Thank you so much for your time, and I look forward to your comments.

4:40 p.m.


The Chair Liberal Wayne Easter

Thank you very much.

Next we have Mr. Leuprecht, professor in the department of political science at the Royal Military College of Canada. who is coming to us from Australia. Welcome, and thank you for your patience, Christian.

April 18th, 2018 / 4:40 p.m.

Dr. Christian Leuprecht Professor, Department of Political Science, Royal Military College of Canada, As an Individual


Mr. Chair and members of the committee, thank you for inviting me to appear before the committee.

I will make my remarks in English, but you may ask questions in either official language.

I first want to define the problem space, which is the under-utilization of money laundering, proceeds of crime, and terrorism financing statutes. I also point out in my fairly detailed and lengthy submission that this is a long and well-known problem. I cite from testimony given by the RCMP before the justice committee in 2012, which had already identified many of the issues that are now recurring here in the conversation. I think one of the questions we need to ask ourselves is, why do we keep beating around the same bush, and so little is being done?

I think in terms of the problem space, first there is a lack of political will and a lack of law enforcement will around these particular issues. Unless we change the will behind this, we can change all the legislation we want, but we're not going to get anywhere.

Second, there is also a problem of capacity. These investigations are highly complex, time-consuming, and resource- intensive, so law enforcement by and large, I would say, shies away from these investigations. I can provide ample data to this effect from both federal and provincial agencies. Prosecutors shy away from them because they're complex and take a long time, so if you get evaluated on how many cases you can prosecute, let alone how many of them you can prosecute successfully, these are not the kinds of cases you're going to take on.

Third, there is a problem of domain awareness. FINTRAC sees a bit of the domain; the banks see a bit of that domain. The banks abroad, to which money might be transferred, might see some of that domain; and much of the domain nobody actually sees if you think about the massively growing problem of trade-based money laundering, for instance, and if you think about some of the charges that have been laid against banks in Australia. All of this points to major coordination and collective action problems here.

There are two last points that I want to raise about the problem space here. One of them has already been mentioned, the problem of concealing ownership of assets obtained by criminal proceeds. The corollary of that is to prevent the dissipation of forfeitable assets that cannot be physically seized. I'll get back to both of these points, but the essence here is that we have two corollary problems.

Really, I think the problem around forfeiture is a particular issue because ultimately it's important not just to punish people and the defendant and to remediate markets, but also to make sure that these markets actually work. As I point out, if it continues in Canada it will only reinforce the way legal businesses get embedded in the Canadian market that engages in these illicit purposes.

I then go in fairly significant detail to some of the legislative measures that can be taken. I point out in detail some elements in the Canadian legislation that are quite good, in particular with regard to predicate offences, and that there are elements that are particularly weak and confusing. For instance, section 462.31 requires the intent to conceal or to convert, which is deliberately waived, for instance, in U.S. legislation.

I also point to Florida statutes because we talk a lot about beneficial ownership, in particular, the problem around bearer shares. But there are code provisions around that for law enforcement that then force companies to be able to identify these owners. I point in particular to Florida provisions here, and I think all these provisions could be readily adopted in Canada.

I'd also like to point out one of the ironies in all this. With regard to the issue of corporate laws that anonymize ownership of assets and the issue of bearer shares that can cross borders largely illegally and undetected, Canada has pressured countries such as the Bahamas and Panama to abolish their bearer regimes, but it has refused to do so itself, so I think we need to get our ducks in line here.

There are 12 specific recommendations. I won't go through them in detail. I will just flag them.

First, we need to change some of the structures around the RCMP that the organization has overstretched. It doesn't have the capacity to engage in this. It needs separate employer status so that it can engage seasoned experts—accountants, lawyers, and whatnot.

I suggest that we need to restructure Criminal Intelligence Service Canada and take it out of the purview of the RCMP. We should create it as a separate, stand-alone organization similar to the Australian Criminal Intelligence Commission. We should embed a special unit of that with the Criminal Intelligence Service Ontario and give it separate employer status. We should basically create what we already have in regard to terrorism, the integrated national security enforcement teams. We should create the same thing on the market enforcement side through this particular structure.

The integrated market enforcement team of the RCMP in Toronto, I believe, has been in existence for eight years. I need to check my data on this, but I believe it has never laid a single charge in those years. This is not to criticize the RCMP. There are a number of issues around IMET, but needless to say the current structure is not working and therefore I have very specific proposals here on what we need to do.

With regard to the domain awareness issue and the collective action problem between banks and financial intelligence that I raised before, one option is to shift the burden, as the U.K. has done, to convince us this is an innocent transfer and we'll allow it. I think that maybe the charter provision as interpreted under Oakes would make this very difficult to do, but we could change the crime to an illicit money transfer, which then means we can seize the money by default as the U.K. has done. Then you can engage in litigation to get the money back that we spend on these proposals.

We should drop to zero the reporting requirement of $10,000. This $10,000 threshold was always arbitrary. It creates significant costs for banks, because now they have to filter transactions, as opposed to pumping all the transactions to FINTRAC. The current regime is untenable because banks are basically the cops that have to provide the evidence. We think compliance will always be weak under this system. Banks have great trouble providing the suspicious transaction reports precisely because they only have a limited picture.

We need to create—and this is really key—separate legislation for money laundering and terrorist financing. I understand after 9/11, it was easy to draft the terrorism financing piece onto money laundering. This has been the global trend not just in Canada, but around the world. This combination of legislation is not working. Think about having a transportation act for maritime and air transportation and saying that since they're both transportation, we'll put them all into one act. They're both transportation, but they're really different things.

By and large, money laundering takes illicit funds and tries to make them legal. Terrorist financing takes legal funds and uses them for illicit purposes. This government has to be prudent to introduce separate legislation. I think it has recognized this in other domains.

We need to make sure that only account holders at banks can make deposits, and cash deposits over a certain amount—I would suggest $10,000—have to be done in person to their account.

I suggest we take $100 bills, and possibly also $50 bills, out of circulation. After all, when was the last time any member of the committee used a $100 bill? This largely fosters money laundering and an illicit cash economy. We need to follow best practices set by AUSTRAC, which require legislative changes. AUSTRAC embeds bank analysts within their financial intelligence organization, and AUSTRAC embeds its analysts within bank organizations to improve co-operation and domain awareness. We can see this is yielding a genuine payoff.

They also need to make sure that the agreement from December 2017 is implemented for the federal, provincial, and territorial corporate statutes so they are changed to beneficial ownership and bearer shares, and bearer share warrants and options are replaced by registered instruments. We've already mentioned the national registry of beneficial ownership; both Germany and the United Kingdom are in the process of doing so.

We need to expand FINTRAC's mandate so it can also engage in investigations. I think this would be a great improvement for everybody. It's not a whole lot of use if you have a financial intelligence agency that can only do the analysis and then passes it off to law enforcement, and then ultimately nothing ever happens.

Finally, as the United States Internal Revenue Service and Treasury do, I suggest that we should publicize the successful prosecution of transnational financial crimes. I say “transnational” because even the government has at times confused this in the statements it has made. It has claimed a number of prosecutions for transnational illicit financial dealings when the crimes that were prosecuted were crimes committed in Canada, domestic offences under the Criminal Code. These cases had transnational dimensions, but nobody was prosecuted for these transnational issues.

If we don't get at this in a globalized society where borders are increasingly fluid, Canada is going to become an even greater haven. The problem is that this is now so entrenched in the legal economy that the longer we wait, the more difficult it is going to be to root out the underlying complex issues.

I've made a very detailed submission, and I'm happy to speak to any of the issues and recommendations that are raised in that submission as to what needs to be done to improve the Canadian regime.

4:55 p.m.


The Chair Liberal Wayne Easter

Thank you, Mr. Leuprecht. We do have the 12 recommendations in the submission on our iPads.

With that, we can get eight questioners on if we stick to four minutes each.

I assume that most of our witnesses have seen the discussion paper by the Department of Finance, and if you have any additional comments, the deadline for feedback to the Department of Finance on that paper is April 3-—now extended to May 18. If you have any other information on, or any concerns about, the real concerns in the paper, don't be afraid to lay them before us as well.

You have four minutes, Mr. Fergus.

4:55 p.m.


Greg Fergus Liberal Hull—Aylmer, QC

Thank you very much, Mr. Chair.

I want to thank all the witnesses for being here today.

Since I have just four minutes, my questions will be for two witnesses only.

I will begin with you, Ms. Iafolla. Thank you very much for your presentation.

I was particularly taken when you said that, based on your research, people in financial industries who are trying to provide information do find the guidance subjective or cryptic, and that not only should there be some clarity on that front, but also some opportunity to have feedback.

Can you give us a little bit more on that? This is bringing something new to the table, so I'd like to do that, but please be brief because I'd also like to make sure I can ask another question after that.

4:55 p.m.

Lecturer, Department of Sociology and Legal Studies, University of Waterloo, As an Individual

Vanessa Iafolla


As you know, regulations are set forth by the government. This is no surprise to you. Financial institutions are left to implement processes. Once legislation came in, they all built up their anti-money-laundering, anti-terrorist-financing units piecemeal, as things came through. The experience of financial institutions is one of receiving direction or regulations, making them fit within their risk management frameworks and implementing this process by creating intelligence from the teller counter or from algorithms and feeding that into the financial intelligence unit, and sending it to FINTRAC. All those along that chain feel as though they're putting this information forward, but they have no real sense of whether that information is actually useful or valuable.

4:55 p.m.


Greg Fergus Liberal Hull—Aylmer, QC

Do you think that FINTRAC doesn't provide that type of feedback because it feels that to do so would tip off, perhaps, the organized crime, or people who are trying to launder money, as to what FINTRAC is looking for and that could be avoided?

4:55 p.m.

Lecturer, Department of Sociology and Legal Studies, University of Waterloo, As an Individual

Vanessa Iafolla

It could be possible that FINTRAC could provide information to financial institutions in a way that isn't necessarily put on the website for organized crime syndicates to use. It could even be to say, “We've received x number of reports from you, and we've been able to utilize and invest in x number of investigations into these reports. Financial intelligence containing this type of information, this kind of behavioural information, was useful, but this type is less useful.” Financial institutions can also then inform their employees that this kind of information is useful, be it behavioural, numerical, or pattern-related, and that other kinds are less so. That way, the work they do could be much more targeted.

4:55 p.m.


Greg Fergus Liberal Hull—Aylmer, QC

Thank you very much.

4:55 p.m.

Lecturer, Department of Sociology and Legal Studies, University of Waterloo, As an Individual

Vanessa Iafolla

You're very welcome.

4:55 p.m.


Greg Fergus Liberal Hull—Aylmer, QC

Mr. Leuprecht, thank you very much for your presentation; it was very complete.

I have two quick questions for you.