Finance Committee on May 24th, 2018

[Michael McLeod, Liberal, Northwest Territories, NT]

Thank you, Mr. Chair.

Thank you for your presentation today. We've heard a lot about FINTRAC and the whole regime over the last while.

One of the things that stood out for me was information sharing. I read in an article the other day that a bank was fined, but the bank was not identified. There was no information on which bank it was. I would assume that trying to create awareness about money laundering and everything involved in it would be something that would help us, but it seems that FINTRAC wants to keep things under wraps.

I'm wondering why FINTRAC would protect a bank from public scrutiny, as was reported.

[Nada Semaan]

First of all, I think the former director came to the committee and spoke to the decision that he exercised under his discretion. The one thing I'd probably say, though, is that under the legislation the way it currently is, a bank cannot be named until all proceedings have been completed, including any potential appeals process. That is a question for the committee: is that where it should be or not?

However, Finance Canada, as well as our past director, also identified and committed that they will look at ways of being more transparent. I believe in transparency and openness wherever possible, so I'm very much looking forward both to your review and also to the document, the discussion paper, put out by Finance, which actually talks to the naming issue as well.

I am committed to ensuring that we continue on that work, and with the administrative monetary penalty review as well, in being able to create the proper program. As the regime puts it, it's an administrative monetary penalty; it's intended to be not the first response but a response within the tool kit. I am committed to being able to work with the committee as well as Finance Canada on the naming and what is the most appropriate method going forward.

[Michael McLeod, Liberal, Northwest Territories, NT]

Okay.

I'm going to assume, then.... The recommendations brought forward by the Canadian Bankers Association indicated that they felt the regime should be improved through “greater collaboration” and better “communication, and information sharing between governments, law enforcement, and financial institutions”. They talked about allowing financial institutions to share information amongst themselves. They also pointed out that it is hard to restrict a customer who they feel is a high risk and to provide that information to other banks.

Maybe you could give us your view on that. Is that something that really needs to be improved? Maybe we need to make a recommendation in that area.

[Nada Semaan]

I heard the same thing when I met with the banking association as well as a number of banks individually. As I mentioned originally in one of the comments I made, there is a sweet spot in terms of protecting Canadians' privacy and the Charter of Rights and being able to share the information.

Yes, obviously if banks can share information amongst themselves, that would be information that would be well known, and it would actually help them, but I think we do have to weigh that against the Charter of Rights.

I don't know if you want to add anything, Barry?

We do have to look at it that way.

[Barry MacKillop]

I agree. I think there are certain benefits in information sharing. We've seen it through Project Protect, and the information shared around indicators of crimes related to human trafficking, for example. We've done it with Project Guardian, working with our big banks, credit unions, our money services businesses to look at the trafficking of fentanyl and financial transactions related to that. We've worked with them to develop and provide indicators to them. We've seen the benefits in enhanced reporting.

PIPEDA currently allows the banks to share information related to fraud. I understand that the committee is giving consideration to expanding that from fraud to financial crimes. Certainly, there would be some benefit.

We've heard from the banks. We're continuing to work and study this issue with them. As Madam Semaan mentioned, what is the sweet spot? Where is the protection of privacy versus the protection of the economic system versus preventing, detecting, and identifying money laundering, particularly terrorist financing? Work continues to be required on that. I think it is an avenue that requires some very informed and dedicated work.

[The Chair, Liberal, Wayne Easter]

I have Mr. Grewal. Are there any others? Mr. Dusseault, did you want to get in for a little question?

Mr. Grewal.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you, Mr. Chair.

Thank you to the witnesses for coming today. I want to pick up on the question of compliance by financial institutions.

How many anti-money laundering investigations per year lead to charges? Do we keep that type of data?

[Barry MacKillop]

As you know, FINTRAC provides intelligence to law enforcement and national security. It's up to them to do.

Many of the investigations are on the predicate offence to money laundering. If we look at StatsCan, there are lots of arrests, lots of charges every year. How many money laundering charges in the end has been an area of criticism in Canada's regime. That would be more appropriately answered either by law enforcement or public prosecution services, as opposed to FINTRAC.

The requests for assistance in voluntary information records that come into FINTRAC and the type of assistance that we provide law enforcement are increasing year over year. That would suggest the intelligence we're providing is in high demand, is quite useful, and actionable. We've seen that.

When we help stop a human trafficker by providing financial intelligence, is there a charge of money laundering at the end? There may be or there may not be. As you know, it's often pursued after the conviction for the predicate offence. It's hard to say, and we do not track. We provide intelligence. We can't say one disclosure from FINTRAC leads to one...we're just a piece of the investigation and of the intelligence we provide to our law enforcement and national security partners.

[Raj Grewal, Liberal, Brampton East, ON]

I have a personal example when it comes to regulation. Because we're elected officials, we fall under the PEP legislation.

I recently got engaged, and my fiancée works at a financial institution and made me get a bank account at that financial institution.

We're getting married this summer, and she had to pay a vendor in India, because that's where she bought her traditional outfits, and they were flagged because the transaction was a wire transfer to India. It wasn't a big amount. It was $5,000. She had to answer a bunch of questions on it. She was a little annoyed for having to do that, and she asked me why.

I thought she was flagged as somebody close to a PEP. I felt that was an over-regulation to a certain extent because there's a privacy concern. Where's the balance between stopping anti-terrorism funding and somebody being able to shop for their wedding? I think that covers a huge spectrum.

[Barry MacKillop]

First of all, congratulations.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you.

[Barry MacKillop]

I hope it was just opening the bank account that.... We won't go there.

You're right. You're all PEPs, as is Ms. Semaan. I am actually, as well.

When you're a PEP, it simply means that when the bank account is being opened by any institution, credit union or otherwise, they have to ask a few more questions in terms of source of funds, source of wealth, those kinds of things, and then determine the risk. They do that with all clients.

It's just that with PEPs, there's an added understanding of who the person is, and the potential for corruption, potential for access to public funds, those kinds of things. It applies to foreign PEPs as well as domestic PEPs.

With regard to the electronic fund transfer being flagged, I didn't hear you say it was stopped. Questions were raised, but it was not likely because she was a PEP. It was probably more likely the area where the money was going and the fact that it was an unusual transaction for her. It's not her normal course of business to send money home, for example, to India. If she had been doing this on a monthly basis, there probably wouldn't have been any questions.

The fact that it was unusual, was new, someone said, “Oh, what's going on?” “Well, I'm getting married. I'm buying a dress.” The next time she sends the additional money—for $5,000, she may or may not have gotten the dress; it may have been a down payment—to pay the balance, it likely won't be flagged. Being flagged at the bank doesn't necessarily mean it's flagged and sent to FINTRAC.

With all of your $10,000 or more electronic funds being sent anywhere out of Canada or coming into Canada, those reports will automatically be sent to FINTRAC. Again, when we—

[Raj Grewal, Liberal, Brampton East, ON]

How many of these happen per day? I can only imagine that it's in the thousands.

[Barry MacKillop]

Over $10,000, we get about 19 million a year, and I'd have to divide—

[Raj Grewal, Liberal, Brampton East, ON]

With 19 million a year, what's the process at FINTRAC to identify what ones are worth investigating and what ones aren't? That number of transactions—19 million—is a lot, but the $10,000 transaction could be just as bad as a $1.1-million transaction.

Do you have the resources to dive deep into 19 million transactions, or is it like there's a requirement to flag it so the banks are covered? They say they sent it to FINTRAC, but is FINTRAC able to do its job?

[Barry MacKillop]

Yes is the short answer, and quite well. We did well over 2,000 disclosures last year.

Do we examine every electronic fund transfer that comes into FINTRAC? No. Those that we do not disclose after 10 years are segregated and disposed of. The issue is that we won't know right away whether that transaction that came in is worth developing actual intelligence on. We use that as one piece of the intelligence picture that we put together for law enforcement or national security or international....

We may have an electronic fund transfer, or a number of them sitting in our data bank, and it's not an issue in Canada for that person, but somebody from another country is looking at that person for potential money laundering.

[Raj Grewal, Liberal, Brampton East, ON]

You're seeing electronic fund transfers. That's $10,000 or more sent by a wire transfer in or out of this country.

What if it's a cash transaction, or a certified cheque that's being withdrawn? Is that the exact same thing? If I'm buying a car and I take a certified cheque from my bank account, is that sent to FINTRAC as well?

[Barry MacKillop]

No, it's large cash transactions of $10,000 or above within 24 hours. The multiple $5,000 in two days within 24 hours would get reported. With electronic fund transfers, it's automatically any electronic fund transfers of $10,000 or more within 24 hours. We also have suspicious transactions, which could be a $2 transaction. If it's suspicious, that would also get reported to FINTRAC.

[The Chair, Liberal, Wayne Easter]

We're well over time, Mr. Grewal.

Mr. Dusseault.

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

Which reporting entities currently have the most trouble complying with the rules? Do you evaluate their performance? What I seem to be hearing is that banks do the best job. Perhaps it's due to the fact that they have the necessary infrastructure in place.

[Barry MacKillop]

Every sector has problems, issues, and challenges.

It varies from one sector to the next. For instance, I can't say that credit unions have more trouble following the rules simply because we detected a problem at one credit union after conducting an examination. It happens in the banking and real estate sector as well. I can't really say that one sector is more problematic than the rest. However, certain reporting entities in some sectors may have a harder time than others, and that's why our examinations focus on reporting entities and not whole sectors; sectors are not uniform.

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

My next question is about the possibility of partnering with the Canada Revenue Agency, CRA, to combat tax evasion.

If I understand the responses provided by the Minister of National Revenue correctly, CRA employees analyze thousands, if not millions, of electronic transactions of $10,000 or more involving countries where tax evasion is problematic. Does FINTRAC work with the agency to flag transactions of $10,000 or more?

If so, is the current mechanism doing the job, or could it be improved to make more information available to the agency in order to fight offshore tax evasion? I'm thinking of large or frequent transactions involving countries with next to no taxation.

[Barry MacKillop]

Yes, we work closely with CRA employees. Initially, we helped them set up their data reception system. Both of our organizations use the same system for transactions of $10,000 or more, so we receive the same documents. FINTRAC probably receives more suspicious transaction data than the CRA.

We receive requests related to voluntary reports. If CRA employees are conducting an investigation, they can come to us for information, which we regularly provide. We also co-operate on forums and talk about ways to update tax evasion indicators tied to money laundering. We work with the CRA, sharing information that is necessary for ongoing investigations.

[The Chair, Liberal, Wayne Easter]

The last question will be from Mr. Sorbara.

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

Thank you, Chair.

This has been a very good meeting this morning, and thank you for all your commentary thus far.

I do wish to ask, considering the severity of the transactions and the information technology out there, if we can do a better job. This is also going to Mr. Albas' comment on the transactional burden on entities, especially smaller ones, credit unions and so forth. I think we're getting to a point where bigger is always better, or if it's not that bigger is always better, it's that only bigger that can handle the administrative burden. We're not going to get those small banks that are founded at one time and can grow into larger institutions, or smaller credit unions that can grow into large institutions. I wanted to get some colour on that front. With the information technology out there—going to Mr. Grewal's comment that a $10,000 transaction can indicate a much more severe “washing”, or whatever term you want to use, than a million-dollar transaction—is it possible to get to a point where businesses will have less of a burden and the system will be more efficient?