Finance Committee on May 24th, 2018

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

It's quite the challenge, indeed. We would need to figure out how to make sure the information gets to you as well as who in the chain should be the reporting entity subject to certain rules.

I have another question, and it's somewhat tied to what my colleague was talking about.

Does FINTRAC have an education mandate, in terms of ensuring compliance?

We heard from a witness who didn't even know he was supposed to submit reports to FINTRAC. He represented an independent entity; he was a real estate agent, I believe.

Do you do any sort of education to make sure entities are aware of their obligations and don't disregard the rules?

Entities that are in the dark about their obligations might not realize until a few months or years later, at which point, they face crushing penalties and fines.

[Nada Semaan]

Yes. It's very important to provide training and educate all entities that submit reports to FINTRAC on their obligations. It's one of the things we do. After we really started doing more outreach, we noticed a big improvement in the quality and types of reports coming in. We need to do more of that.

The centre isn't very big; we have just 360 people on staff. We receive reports from multiple entities, so we work with many organizations, such as the Canadian Real Estate Association, to help educate their members on their obligations. There is always room for improvement. To accomplish our education goals, we have to work with a number of stakeholders.

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

Do I still have time left?

[The Chair, Liberal, Wayne Easter]

You have time. You have a minute.

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

We heard from witnesses that suspicious transaction reports submitted by banks were sometimes subjective. One witness told us that, in some cases, the colour of a person's skin, their appearance, or their behaviour was enough for the employee at the counter to initiate a suspicious transaction report.

Do bank employees ever submit reports that are based on highly subjective factors?

[Barry MacKillop]

It still happens, but not as much. In the early days, FINTRAC didn't have any guidelines, indicators, or even an education or information program. Five, six, or seven years ago, we started seeing fewer and fewer of these reports, particularly from the better-informed reporting entities. It's rare for a bank to send us a suspicious transaction report based solely on subjective factors; it's always tied to a transaction. We do a lot of outreach work with reporting entities. We provide them with information on potentially suspicious transactions, as well as indicators and ways to identify money laundering trends.

I can't say that it never happens, but we seldom receive suspicious transaction reports that are not consistent with the legislation, meaning transactions that do not need to be reported. When they do come in, we don't use them and we remove them from our system. Furthermore, if we were to notice that a reporting agency kept submitting transaction reports that did not meet the threshold for suspicious activity, we would contact the entity directly, making sure it knew when transaction reports were required and what the thresholds were.

In short, the kinds of reports you are referring to are rare, and when they do come in, we delete them. If we notice a trend or an ongoing problem, we talk to the reporting entity directly about compliance. That said, the people in charge of intelligence would help us determine whether the reports were appropriate or not.

[The Chair, Liberal, Wayne Easter]

I have a comment on that last point in terms of working with them to get better compliance and on the questions raised by both of the last two questioners.

In what we will get, say, from a small credit union that only has six employees versus a bank in the next city that has a whole department almost, there is a huge difference in the burden to fill out the information for FINTRAC. How do you work with them? Is it a matter of a phone call? Is it a matter of sending some people in to talk to the institution to help? What's that relationship like when it comes to, say, working with a small institution in a rural area? How do you do that? Is it a paper trail? Is it a phone call? Is it a visit? How do you develop that relationship?

[Barry MacKillop]

Mr. Chair, we use just about every possible technique. Certainly, we have a very informative website, so there is a lot of information available on the website.

If they are a new entity, there may be more specific outreach to ensure they're aware of where to find the information they need. If they're not a new entity, if they are an existing credit union, we work very closely with them. We've done webinars. We've done regional outreach with credit unions in particular regions within Canada. We do information sessions. Personally, I have sat on a two-hour webinar with credit unions across Canada to address questions and concerns, and to talk with them about the burden of reporting, as well as the necessity of reporting. We also talked about how they might ensure that they are doing what is required; what the requirements are; what guidance is available; how their credit unions may or may not be used for money laundering or terrorist financing; what types of things they may be able to look for; and what's required in terms of a compliance program. We do outreach, and we do it specifically with them.

There are Canadian credit union associations, and we will work with them to make sure that the information we provide reaches the individual credit unions within that association. We've done it regionally as well, with regional credit associations. We have a lot of different techniques that we use.

If we were to do an exam—that's another opportunity. When we do a notification letter, there is always a written piece saying that we're coming in, in x period of time to do an exam, what the scope is and what we will look at. There will be discussions usually between reception of that letter and the actual exam. There are discussions throughout the course of the exam. There are also discussions at the exit interview about the findings, the challenges that we see, how they may be corrected, what some of the mitigating factors may or may not be, and what that particular entity is choosing to do or would like to do to address the issues. From there, we move on to whatever the findings letter is.

We reach out to people in as many different ways as possible.

We also have a 1-800 number. People do call in. They do ask questions.

We do put out policy interpretations, and we do several policy interpretations. In 2016-17 there were somewhere around 1,500 inquiries to FINTRAC. Obviously they were not all from credit unions, but we do respond to those. We respond directly, and when there are policy interpretations.... The question may come from one particular credit union but if there is a wider impact, not only will we put out the policy interpretation publicly, but we will also push it out directly to those in the sector who may be affected by that policy interpretation. They're all on our website, but we will also actively push out a policy interpretation and any new guidance that we develop because we want all sectors to have access to it. While we have a major reporters forum, we do other work as well.

[The Chair, Liberal, Wayne Easter]

Mr. Sorbara.

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

Thank you, Mr. Chair.

My first question deals with your introductory remarks, Ms. Semaan. On page 2 under the heading “Working Together to Strengthen the Regime”, the last sentence in the second paragraph states:

Going forward, we are committed to looking more closely at the 'what' and the 'how' and to engaging businesses transparently, and with an open mind, to find even better ways of running our program. This includes reviewing the burden facing businesses, which is a priority for us.

Can you elaborate on that, please?

[Nada Semaan]

Absolutely. As I mentioned, we know what information we need, but we also need to take a look at the collectivity of information from all of our reporting entities and to ask the question: what exactly do we need from the various reporting entities and how can we actually get it in a simpler way? For example, we've spoken quite a bit about the burden on the real estate sector. The majority of information that we can get from the real estate sector will be suspicious transaction reports that will result in actionable work.

In terms of large cash transactions, we will also get that information from the banking sector and from other sectors as well. It's the question of how we can work better with everybody and make those linkages in order so that we can find an easier way, less burdensome way, for us to get the information.

Also, with the use of technology, people and most banking institutions are now moving into blockchain. In blockchain you actually would have to go get the information. In our legislation we cannot get the information. We must receive it, so how is it that we can actually take advantage of the new technology while still respecting the spirit of why that legislation was in there? You don't want us going in and taking whatever we want, but what kinds of barriers can we put where we can get what we're entitled to, which then would reduce the burden on these people quite a bit as well?

How can we work even with the smallest firms that don't have those big systems in place? Can we create an online capacity for them to just log in and be able to do something very simply? Can we work with them to take advantage of some of those technologies? It's only by talking to them and finding out exactly what it is that they find the most burdensome, what it is we can do to help them, and then to put together an action plan to deal with that. It is a priority, and we are positive that the minute we deal with that the quality and the quantity of reports will actually improve.

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

Thank you.

I want to switch gears a little bit. We all read the CBC article “Ottawa's secret report on money-laundering points finger at Canada's banks”. We're all familiar with when that came out. There was something in here and I wanted to ask you—or your officials may want to address it—about the change that took place in FINTRAC in 2016-17. I'll read it verbatim from here, so I make sure I get it correct. It says that the agency “abandoned its technical audits of banks and others in favour of broader assessments of 'overall effectiveness in complying with their legal obligations.'" It goes on that you can't compare now apples and apples because we're not comparing apples anymore.

Was that a good change? It's easy to say it was a good change, but has it been an effective change? Has it improved the information that's flowing back to FINTRAC in terms of the regime's overall effectiveness in terms of what FINTRAC does?

[Nada Semaan]

I can speak and I'll let Barry jump in after.

In terms of the move from an audit approach to an assessment approach, it is a move that is extremely important. As Barry mentioned, and I believe I might have mentioned, by moving to an assessment approach we're still doing a review and an assessment of the organization.

The difference is in an audit approach as we found a minor deficiency, we would keep looking at that same minor deficiency over and over again. In an assessment we look at the deficiencies. We identify the impact of these deficiencies. We work more with entities in a more collaborative way in terms of saying this is what we require.

We will take that impact and then we will assess how that is helping us or hindering us from being able to do our work. From an audit to an assessment approach, it is the smart way to work.

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

It's almost like when you're looking at accounting you're using rules versus principles.

[Nada Semaan]

Absolutely. That's actually a better way to put it.

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

That's the comparison.

[Nada Semaan]

And outcomes. It doesn't matter if we have 100 very minor deficiencies that really don't have an effect on the outcome, but I might have one deficiency that has an effect on the outcome. Therefore, I need to focus on the one that is important, not the 100 that actually I can just ask them to fix very easily and they can do it. We will still identify those, but we will focus on the principle and the outcome.

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

You mentioned this at the beginning. We've obviously heard a lot on blockchain technology. I don't really know what it is. I've heard a lot about it, but I haven't been exposed to it. It seems that in this world things are changing with regard to blockchain. Even the energy requirements for Bitcoin are massive if you want to talk about what's going to drive energy bills. In terms of blockchains within our financial institutions and within FINTRAC's purview, do you have the resources? Is the legislation appropriate for this changing technology that you're guided under?

[Nada Semaan]

I think it is appropriate to look at the guidance document that Finance has put out. It is appropriate to take a look at what we need to deal with new technologies, whether it be cryptocurrency or blockchain.

I'm not convinced that means there is a change in legislation. I think we need to understand it and review it to make sure that we can take advantage of both those technologies but also understand the information of these technologies and the capacity that it gives actors to potentially abuse the system. It's sort of a two-sided coin. We want to take advantage of it to be able to work more efficiently with our reporting entities, but we are also very aware that some of this new technology allows bad actors to abuse our system. We need to work very closely on that.

In terms of knowledge, we have incredibly dedicated staff who are quite knowledgeable in cryptocurrencies. As a matter of fact, we're leading, through the Egmont Group, a study paper that we are putting forward internationally on the impact of virtual currencies.

We are very aware of the issues, and we work closely with our colleagues at the Department of Finance to ask how we can move into that area in a very measured and appropriate manner.

[The Chair, Liberal, Wayne Easter]

Mr. Albas.

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

I'd like to continue to talk to the administrative burden. Obviously, you're a compliance agency, so you have a set of marching orders, so to speak, delegated to you legislatively, and you seek to do that.

In the United States, on every piece of paperwork with which you deal with the government, the bottom right-hand corner will say how much time it takes to fill out the form on average. That's one way of assessing the amount of time that an entrepreneur might take to report. Here, closer to home, we have the Red Tape Reduction Act.

Your role is a little different, because it's not quite the same as a regulator, but even to be taking an industry-by-industry average of what the compliance costs are and then setting reasonable goals.... Do you feel that, under the current framework you have, you can start to measure those compliance costs or is this something that should be spelled out by Parliament legislatively so that you can start to take a look at the proportionality on your administrative burden?

[Nada Semaan]

On the question in terms of this requiring legislation, I believe we have all the capacity to be able to do it. In terms of how we do it, whether legislation is put forward or whether we are asked to do it and we find a way to do it, there's one thing about looking at the data, but there's also making sure that it's telling you the right thing. That would be my concern, making sure we're getting the right information.

We will have to at some point take a look at.... As I mentioned, my goal is to work with all reporting entities to identify and understand that reporting burden. If there is a way to be able to measure it—and you've given me a number of ideas on terms of how to look at it—we will look at it. Does it require legislation for us to look at it? No, it just requires us to find a way.

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

I sincerely appreciate hearing that, because I know you have a very difficult job to do. There are lots of information transactions coming out on a regular basis, but I am glad to see that you're interested in asking if how we are doing this is not just effective but efficient.

Again, with Treasury Board Secretariat for example, the Red Tape Reduction Act, and the small business lens, there are codified systems within government. I would hope you would tap into that, because there is a lot of good work that has been done to reduce the administrative burden on a systemic basis industry by industry. I would hope you would look at that, because I'm sure there are some industries.... We've heard from jewellers and whatnot who oftentimes are small family operations. For example, the temptation to sell a pair of earings each separately for $5,000 so that they don't have to report the $10,000 threshold level would be something that some entrepreneurs may look at just because they don't want to have to fill out that extra form. Putting those incentives in that way seems to skirt compliance.

Director, you mentioned earlier that if you can make the compliance easier, you'll see better results. I would greatly encourage you to look at that. I would also encourage my colleagues to look at making recommendations to make some sort of administrative compliance at least in an initial inventory, but to find that efficiency so at least we cap that administrative burden, particularly on some smaller industries.

[Nada Semaan]

Thanks for that. I would argue, though, that it cannot be one size fits all; there will be a different burden depending on the size and on the reporting entity. That is why it will be so critical to really work with the industry. To put in a goal before we've sat down with the industry, spoken to them, and truly understood what they mean when they say “administrative burden” could actually take us through the wrong door.

I totally agree with you. That is why I believe strongly that we have to work with the industry. We need to hear from them exactly what it is and how we can do it, and it will have to be tailored to the capacity of the industry.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thanks to both of you.

Mr. McLeod.