Finance Committee on May 24th, 2018

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

Thank you.

[The Chair, Liberal, Wayne Easter]

Hearing no further questions on the order in council appointment, we will ask the remainder of the witnesses from FINTRAC to come forward to join Madam Semaan: Mr. MacKillop, Deputy Director of Operations; and Mr. Beaudry, Assistant Director, Collaboration, Development and Research Sector.

On this discussion, we will move toward the finance committee's statutory review of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

Thank you for appearing before the committee on the order in council appointment, Ms. Semaan.

Does anybody have an opening statement or are we going to questions?

[Nada Semaan]

We're good to go with questions.

[The Chair, Liberal, Wayne Easter]

Welcome. I think we've met with FINTRAC previously, in camera, I believe.

Ms. O'Connell.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thank you, Mr. Chair.

Thank you to all of you for being here.

I want to refer to the CBC story on April 5, 2018. One of the subheadings states, “The report tabled in Parliament calls banks good citizens. The internal report tells a different story.” The article goes through significant findings of non-compliance through banks, the real estate sector, and money services sector such as payday loans.

When FINTRAC officials appeared before this committee, why were these concerns in the areas of study during this review not disclosed to this committee? This committee should be studying recommendations that should be coming through information that FINTRAC provided to the minister and the department.

[The Chair, Liberal, Wayne Easter]

Who wants to take that?

Mr. MacKillop, and then we'll go to Ms. Semaan.

[Barry MacKillop, Deputy Director, Operations, Financial Transactions and Reports Analysis Centre of Canada]

Thank you, Mr. Chair.

At FINTRAC, when we do our compliance assessments and when we go out and do exams of our entities, those findings themselves, in terms of what we find within any entity, are not made public. We don't publicly release the findings of our entities. Our law does not allow that.

In terms of the discussions we've had here, we have indicated that there's always room to improve in any compliance assessment that we do on any entity. When we look at the reference of significant versus limited versus very significant, you're right that there were significant findings and deficiencies found in many of the exams we do.

It was initially set up as more of an audit approach, so we were counting deficiencies. If you missed an item on a report, it would be a deficiency. When you count up a number of minor deficiencies, you fall into what would be considered a significant area for attention, and we work with the entities to address those areas of attention.

The significant or very significant difficulties in the banks that we've examined, and in areas where historically there were significant difficulties or very significant deficiencies found, we've addressed through a number of different applications we use and a number of different enforcement actions we can take. We've worked directly. We've done outreach. We have action plans. We have follow-up examinations. We have AMPs. We also have NCDs, non-compliance disclosures, that we provide to the police if there are issues.

The reporting historically was an audit approach. We've now moved—and we have been moving over the last couple of years—to look at an assessment approach. While there may be deficiencies—

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

I'm sorry to cut you off, but I do have limited time.

The concern that I'm trying to express is that even if there are minor deficiencies that add up to significant deficiencies, the public report that was tabled implies that compliance is great, that banks are doing well, and there are no concerns. If there are several deficiencies, even if they're minor, shouldn't this committee be told at some point that there's an area, although minor, that banks are having trouble with? Why does one public report demonstrate one thing, and an internal report that had to be accessed through the media and through freedom of information paint a different story? At the very same time, this committee is going through this review, including an in camera meeting with FINTRAC officials where any privacy issues could have been raised.

I understand that you don't release the findings, but if you have, for example, a 75% non-compliance rate in the real estate sector, at what point should that be raised with this committee as an area of concern that our review should look at?

[The Chair, Liberal, Wayne Easter]

To all, we have to be careful that what was said in an in camera meeting is still held in camera.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Did I say anything, Mr. Chair?

[The Chair, Liberal, Wayne Easter]

No, you didn't say anything. It's just a warning. It's one of the difficulties with in camera meetings. What happens in camera remains in camera.

Who's taking it?

[Nada Semaan]

I looked at the same thing. Quite honestly the two reports put together provide the minister with a full picture of what is happening. They both highlighted that enhancements in reporting had happened in all sectors, and that is true.

As Mr. MacKillop has said, we changed the way we were doing audits. In 2017 we moved to an assessment model. You will see a difference. The way we were doing audits before, we would go into a bank and we might find a minor deficiency. For example, perhaps an address was not entered completely. That still allows us to do the work we need to do, but it's a minor deficiency.

A reporting entity such as a bank has millions, even billions, of transactions. If a bank had that deficiency occur a number of times, the number of issues in that one field would result in a major deficiency. The current definition of major deficiency can be clarified a bit further, because a lot of minor doesn't always mean it's major. The banks can fix that quite quickly, through a system fix, for example. As Mr. MacKillop said, the more we do audits, every single time we look at a file, if it's the exact same issue that we have found, we will add it every time. The number, because it's so big, turns the issue into a major deficiency.

As we move to an assessment model, we are actually looking more at the impact, which is a more outcomes-based approach, looking more at what is the impact of not having this information. If it is severe, it will be very significant. If it is a field that is missing that still allows us to do the job, it won't be identified as very significant. We're in the process of making those definitions a bit more clear and transparent in terms of what they really mean.

We are pleased that our reporting entities are improving. We're getting more suspicious transaction reporting in all of our sectors. We've actually received more. The quality is improving. Can we do better? Absolutely. Will we do better? Absolutely. We are moving in the right direction.

Also, a number of new obligations were introduced last year. Always, with new obligations, as they are preparing their systems, there could be deficiencies that are found.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thank you.

[The Chair, Liberal, Wayne Easter]

There will be more rounds.

Mr. Albas.

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

Director, as you have fresh eyes on the organization and you've seen other organizations and whatnot, I'd like to ask you a few questions about FINTRAC.

First of all, Mr. MacKillop mentioned that FINTRAC is legislated to report certain things and obviously to not report others because they're not given permission to do so.

We're looking at possible recommendations to the government. In order for you to build better trust in the institution of FINTRAC and better awareness of the responsibilities, do you think this committee could make recommendations that would allow more information to be made public?

[Nada Semaan]

I look forward to your recommendations.

At two months on the job, I would be very reluctant to start identifying areas to improve. However, I must say, the first thing I was actually told was we can't do this and we can't do that, because it's actually against the legislation. I was briefed very quickly in terms of what we can't do. One of the areas, for example, is on our results. Many times we can't speak of what we have given to law enforcement organizations. However, when they acknowledge our support, you can actually see that we provided support.

There are pros and cons to that. I know the committee has raised it, and it's a very appropriate question for the committee to study. Quite honestly, I look forward to seeing your recommendations. There are a number of variables that have to be looked at before one can come up with a solution to that.

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

As decision-makers and policy-makers grapple with the issues about provincially regulated space in terms of real estate, transaction mortgages, private mortgages, etc., there are a lot of unknowns.

We did a study, basically, on the real estate markets of Canada last year. It was a good report. One of the things we heard was that CMHC and OSFI don't have the information that FINTRAC may have on purchases of homes with cash and whatnot.

There could be some aggregated data that may be able to provide policy-makers and the public with more information. You are legislated not to violate anyone's privacy, but do you believe this committee could make recommendations that would allow more information to be shared in those terms with policy-makers? This would be on an aggregated basis, where there would be no compromise on privacy. Do you think that would help your institution to be part of the solution when it comes to these challenging situations?

[Nada Semaan]

I must say I think we are already part of the solution. As I've mentioned, since I've been here, I've seen almost on a weekly basis a number of acknowledgements from law enforcement saying how our information has helped them. However, to your point, I think it is very much a balance of what Canadians expect of us in terms of respecting their privacy rights, the Charter of Rights in terms of what we collect, and also having sufficient information to be able to administer our anti-money laundering and our anti-terrorist financing regime. From that perspective, I think there is a sweet spot that we need to find, and I do feel that we need to keep looking at that.

In terms of sharing information amongst other federal governments, we do share currently within the legislation in certain areas. Again, I believe we need to take a look at who shares what. Part of the reason FINTRAC was created was that a lot of these transactions that we do get may not be required for disclosures, so it is important we protect that information. It is important that we guard that.

The Office of the Privacy Commissioner comes every two years. We're the only federal government agency that actually has a review every two years. I think it's important that we maintain that for public trust. Always, the more information you have, the better you can do, but we really also must maintain the Charter of Rights and public trust.

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

I agree. You mentioned it to be a bit of a sweet spot where there is information that policy-makers want to know, that only FINTRAC may have access to. It would help to collate that in a format that doesn't compromise anyone's personal information.

This was raised and actually answered by one of your officials when I asked about the administrative burden, because there is a burden. It's important work that you do, but many industries feel the proportionality of filing papers, etc., to be quite onerous. Your agency does not track administrative burden. I'm all for public safety, and I'm all for making sure you have the resources you need to do your job. However, there seems to be an emphasis in your organization where it's only about being effective and not being efficient and working with groups, whether it be banks or small credit unions, particularly ones that I've heard of, where the proportionality of the reporting is quite onerous.

[Nada Semaan]

As I mentioned in my opening remarks, and as my experience has proven, at least at Service Canada, it is about working with the banks. It is about service. It's about smaller reporting entities. It's not just the banking sector. Burden is important to us at the centre. When you talk about effectiveness, effectiveness is very important, but efficiency is just as important. If it's extremely burdensome, we might not get the quality or the number or the volume that we need. That's why I committed in my opening remarks. We need to work with our reporting entities to find out what it is that we can do, whether it be technologically finding different ways of getting the data, in terms of receiving it, but also how we can work with them in terms of our requirements. Is the data required? Where is it required? How is it required? That was what I meant when I said the what and how is what we really need to focus on.

I've met with the Canadian Bankers Association. I've been to at least one of our regions and I've met with a number of CAMLOs, liaison officers in banks. That is part of the conversation that we're trying to have. Let's work together in order to find out what the sweet spot is.

You mentioned the smaller reporting entities. They also have fewer reports. Over 90% of our responses come from the banking sector, so they do have less of a burden.

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

I appreciate that, Madam Director, but by the same token, the proportionality is there. There's a small credit union that I've spoken to. They've said, just on FINTRAC alone, they are over one full-time equivalent, and that's in a very small entity that has a high proportionality cost that gets put on it. Again, as a committee, we also see common reporting standards, FATCA. With all these different measures getting thrown onto these agencies, it gets to be a bit much.

Director, are you planning to start measuring administrative compliance by industry? If you don't measure it, you cannot manage it.

[Nada Semaan]

I think it will be difficult to measure something that is at another location. I think we can talk about what the burden is in terms of the requirement. We can focus on measuring, but we also need to focus on addressing it in terms of finding different ways. We are talking to different reporting entities to find out what the burden is. I am starting to ask the question everywhere I go to explain what the burden is, where they are seeing it, and how we can actually make it better. That is something that we're looking at.

In terms of measuring, some of our staff are starting to look at ways we might be able to measure, but it is not an easy way to measure in terms of what's happening outside of our organization.

[The Chair, Liberal, Wayne Easter]

We're substantially over on this round. We'll come back on another round, I'm sure.

Mr. Dusseault.

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

Thank you, Mr. Chair.

Once again, I thank all the witnesses for joining us.

My first question is about an issue that was raised and that has not been given enough attention. I am talking about ATMs. I don't know whether we raised this issue with FINTRAC, when you appeared before our committee.

The responsible or the representative of the association of owners of automated teller machines seemed to be saying that everything was going well, that there was no problem and that the media were painting a negative picture of the situation, which was in fact not negative at all.

Do you think the ATM issue is a concern when it comes to money laundering?

What recommendations or suggestions could we make to try to resolve the problem that, for many, exists, although the association is saying that there are no problems?

Do you feel that there is a problem in that area? What can we do to resolve it?

[Barry MacKillop]

That is a good question.

It is difficult to know whether there really is a problem because this is not something that is currently being measured. The association does not report to us. There is no report on this, and we are not doing anything in that area. Based on the available information, we cannot be sure. Anecdotally, it is certain that, if there are ATMs at certain locations, there is reason to believe they could be used for nefarious purposes. A problem probably exists.

That is just another way to launder money. Money can be laundered through an ATM. We are not provided with a registry as such. We don't know who the owners are, we don't know where the money that goes into those machines comes from and we don't know who is withdrawing the money. Is that a way to launder money? Definitely.

It is difficult for us to provide a recommendation. This issue is raised in the document published by the Department of Finance. Other issues are also raised in that document.

Could a recommendation put an end to the use of ATMs to launder money? I am not sure. Since a solution is difficult to find, I invite you to be very creative.

The issue also involved compliance. What can be done? Who should support the compliance regime? Is it the owner or the actual location? Is there a real owner? It is difficult to answer those questions.

ATMs are indeed a way to launder money. Is that the most important issue? I don't know.

I will let you decide whether a recommendation should be made in that respect.