Finance Committee on June 20th, 2018

[The Chair, Liberal, Wayne Easter]

I call the meeting to order.

I'm just amazed at how you can quiet down a room. Do you have a special technique?

[Bill Morneau, Liberal, Minister of Finance]

At my house, it doesn't work that way.

[The Chair, Liberal, Wayne Easter]

Okay.

As everyone well knows by now, we're dealing with the statutory review of the Proceeds of Crime and Terrorist Financing Act. I think the minister knows that we've heard from a lot of witnesses and done a fair bit of international travel as well on this subject. The last witnesses, at least for the moment, will be the minister and others from the Department of Finance.

Minister of Finance Morneau, welcome.

I will remind committee members that we are sticking to this subject today and that we're not going off onto other subjects. It is the Proceeds of Crime and Terrorist Financing Act, and that's where we are sticking.

Mr. Minister, with you is Annette Ryan, Associate Assistant Deputy Minister, Financial Sector Policy Branch. Welcome as well, Annette.

The floor is yours, Minister Morneau.

[Bill Morneau, Liberal, Toronto Centre, ON]

Thank you, Mr. Chair.

With that introduction, I guess I'm happy I brought this speech and not another speech.

[The Chair, Liberal, Wayne Easter]

Yes.

[Bill Morneau, Liberal, Toronto Centre, ON]

Thanks to all of you for giving me the opportunity to speak with you today about the parliamentary review of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

I want to start by thanking the committee for taking the time to review the administration and the operation of the act. I know that members of this committee take this issue very seriously, and I just want to reinforce that the government does as well.

We appreciate—and speaking for myself, I appreciate—the serious effort of the committee to study this complex issue, to listen to valuable contributions from a wide variety of witnesses, and to work on recommendations for the government to consider.

As you know, the government has been working for almost three years to make investments that will cause the economy to grow, strengthen the middle class and provide genuine assistance for those who are working hard to join it.

We have also worked hard to make our tax system fair for all Canadians. In simple terms, the economy cannot work for everyone when not everyone pays their fair share.

After all, the taxes that we pay as Canadians help to provide the services that we all rely on to give us a good quality of life. Taxes help us to build the infrastructure to get our goods to market, infrastructure that helps to sustain good, well-paying jobs. Of course, the taxes we pay help to set broken bones and to push cancer into remission across the country. They help to pay for the programs and services for people who help to keep Canadians in Canadian communities safe.

It is vitally important to all of us that everyone pay their fair share. That's why we are continuing to take steps to continue to fight tax evasion and tax avoidance. We recently tabled a motion to introduce legislation that would enact an international convention known as the Multilateral Instrument, or MLI, into Canadian law. The MLI is aimed at countering tax avoidance strategies that lead to base erosion and profit-shifting, in which businesses and wealthy individuals use tax treaty loopholes to inappropriately shift profits to low-tax or no-tax locations to avoid paying taxes. This is an important tool for us in combatting aggressive international tax avoidance.

By making sure that everyone pays their fair share, we can continue to safeguard our ability to invest in the programs and services that we know Canadians deserve. That's also why we're actively engaged in complementary efforts through the G20 aimed at combatting international tax evasion and aggressive tax avoidance, including strengthening beneficial ownership transparency for corporations and trusts.

We're also working with our international partners within both the G7 and the wider international community on a range of fronts to combat money laundering and related risks, including terrorist financing. This work includes legislative and regulatory amendments, risk assessments, evaluations, and contributions to international efforts through groups such as the Financial Action Task Force, or FATF; the United Nations; the G7; the G20; and the Counter ISIL Finance Group.

This past April, I had the opportunity to speak at the No Money For Terror conference convened by President Macron in Paris, where ministers from 70 countries came together to discuss the evolving and complex challenges that need to be met to cut off terrorists' access to funds. These efforts help to keep Canadians safe, and of course we are proud to do our part.

Also important to the government is making sure that the growth we achieve works for everyone, not just for the most wealthy. This was a central theme of the recent G7 meetings and continues to be a priority going forward.

It is important to mention that the objective of growth that works for everyone cannot be achieved in isolation. To reach that goal, a number of factors must be in place.

We have to have solid democratic institutions, an open and stable economy, and an accessible and advanced financial system. We are fortunate to have all those factors here in Canada.

Unfortunately, these strengths can sometimes make us a target for those seeking to launder the proceeds of crime, or to raise, transfer, and use funds for terrorist purposes. To complicate matters even more, money laundering and the financing of terrorist activities are crimes that facilitate and reward the commission of other crimes, compromising the safety and security of our communities. They also compromise the affordability of our communities.

We know that money laundering has the potential to cause distortional effects in local housing markets, contributing to making some communities simply unaffordable for many Canadian families. We need to stop this. Canada's anti-money laundering and anti-terrorist financing regime should marshal every tool at its disposal to detect, stop, and prosecute these illicit activities.

Of course, we in Canada are not unique in this regard. Countries around the world are working hard to detect and deter financial crimes. We can learn a great deal from the efforts of others. I know that members of the committee have taken on this challenge, travelling to the United Kingdom and the United States, two of our Five Eyes intelligence alliance partners, to learn more about what has worked in those jurisdictions when it comes to cracking down on money laundering and terrorist financing.

Here at home, I understand the committee has made time to hear from a broad range of Canadian witnesses who have a stake in ensuring that money laundering and terrorist financing are not perpetuated on their watch. They included leaders from provincial governments, members of law enforcement, privacy and transparency experts, and those working in the private sector representing financial institutions, legal and other professional associations, and realtors, as well as other reporting entities. This sort of co-operation is important, as money laundering and terrorist financing are often complex and the techniques that are used are often very sophisticated.

Those who finance crime and terrorism exploit the fact that these crimes know no borders. In many cases, these persons have been able to evade the attention of authorities, effectively protecting those who benefit from their illegal activities.

An effective, global response has to be balanced, flexible enough to respond to new challenges, and well coordinated. That is where Canada's anti-money laundering and anti-terrorist financing regime that the government has established comes into play. Using major tools that allow us to detect, discourage and prevent money laundering and the funding of terrorist activities, the Regime is designed to protect the integrity of our financial system and ensure that Canadians are safe.

The regime is effective and consistent with international standards, but that doesn't mean there isn't room for improvement. As a government, we're mindful of the need to protect the rights of Canadians and the need to respect the division of powers between the federal and the provincial or territorial governments while also minimizing the burden on the private sector.

We know there's a delicate balance to be achieved here. I encourage the committee to consult with those who can speak to how we can improve Canada's anti-money laundering regime while protecting the rights of Canadians. Our privacy commissioner, for example, would be a key person to consult on this issue.

The unfortunate reality is that criminals are always finding new ways to exploit the financial system and to use legitimate businesses for criminal purposes. We need to match their creativity with our resolve. Since the last review was completed in 2013, the environment in which money laundering and terrorist financing take place has evolved considerably. I know that five years seems like a short span of time, but we need to consider what has changed. There's been significant growth in complex financial products, including virtual currencies that provide anonymity to their users. There has also been broader adoption of emerging financial technologies, such as mobile banking, that are changing the way Canadians access the financial system.

In recent years we've seen the continued use of complex legal and corporate arrangements that may be used to conceal the proceeds of crime and the true ownership of companies. There have also been improvements to digital identity recognition that can help better protect the identities of consumers.

It is worth remembering that the government relies on major partners in the fight against money laundering and terrorist funding activities. In Canada, companies have an essential role to play too. That is why the awareness and compliance activities conducted by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) are crucial.

I know that the committee has heard of the importance of providing user-friendly training, and of the need to simplify the task of Canadian companies in fulfilling their obligations. I hope that the committee will take those recommendations seriously and will consider what more we can do to reduce the burden on the companies.

Similarly, regime partners within government need to continue to work together to ensure that policy and operations are well integrated so that we can most effectively counter new threats as they emerge. We cannot effectively combat money laundering and terrorist financing without good collaboration between reporting entities, national security agencies, and federal, provincial, territorial, and municipal law enforcement.

At the same time, while it's important to have quick and reliable exchanges of information among regime partners, it's also essential that collectively we respect the rights of Canadians, including their privacy rights, rights guaranteed to Canadians through the Charter of Rights and Freedoms. Privacy and the protection of personal information is very important to the government. That's why reports required by the act we're discussing today go to FINTRAC, not directly to law enforcement. Reports and other information submitted to FINTRAC, whether about suspicious financial transactions or about the cross-border flow of funds, are subject to independent review and analysis by the agency. Numerous checks and balances have been built into the regime, including those that ensure FINTRAC's independence and impartiality for law enforcement or national security investigations.

I know that you've heard from the Privacy Commissioner and other witnesses, who remind us that these checks and balances are there to protect the privacy rights of individual Canadians. I'm looking forward to all your recommendations, but in particular to your advice on how the regime can be more effective at combatting money laundering and terrorist financing while reducing the burden on business and continuing to respect the individual rights and freedoms of Canadians.

As we consider our next steps, we also need to look for ways to close the legislative and regulatory gaps highlighted in 2016 in Canada's mutual evaluation report by the Financial Action Task Force in addition to dealing with the many issues raised by stakeholders and our regime partners. One such gap has to do with the collection of and access to beneficial ownership information, information on who truly owns corporations in Canada. As you know, the government is already working hard in collaboration with provinces and territories to improve the availability of beneficial ownership information. This is proof of the value of a collaborative approach when taking on complex problems.

Another issue on reporting entities that has been identified relates to legal professions not being part of Canada's regime. We know that a recent legal decision form the Supreme Court of Canada ruled that some of the provisions of the act relating to lawyers are unconstitutional. We understand that there are risks posed by not having legal professionals as part of Canada's anti-money laundering and anti-terrorist financing regime. In that regard, we're open to your suggestions on how to better integrate legal professionals into the regime in a way that's constructive and respects the court and its decisions.

Both these gaps, the ones relating to beneficial ownership information and to legal professionals, are evident in the real estate sector, which is vulnerable to tax evasion and money-laundering schemes, given the number of large financial transactions that take place in this market.

At the federal level, both FINTRAC and the Canada Revenue Agency have increased their activities to improve compliance with anti-money laundering and tax obligations, but more needs to be done. As you know, there are other areas of emerging activity by money launderers and terrorist financiers, such as crypto-assets and trade-based money laundering, that the government is also working to address. I look forward to hearing your advice on these issues.

Mr. Chair, before I wrap up, I'd like to assure the committee that these concerns, money laundering and terrorist financing, are concerns that the government takes very seriously. To put it bluntly, these things are a threat to the safety and security of Canadians, and the government knows that keeping Canadians safe has to be a top priority.

Once again, I must thank the committee for the hard work it has done to keep Canadians safe. I am grateful for the meticulous and thoughtful work you have brought to this complex topic and I look forward to receiving your recommendations very shortly. As I receive them, I will be sincerely grateful for the broad scope of the task you have undertaken.

Thank you for giving me the opportunity to make these comments today. I will be very pleased to answer your questions.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Minister.

We'll go to five-minute rounds to try to get everybody in.

Mr. Fergus goes first.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you, Mr. Chair.

Mr. Minister, Ms. Ryan, thank you for joining us today.

Mr. Minister, the open way in which you say you want to tackle this problem is inspiring for me. I believe that there is a rare unanimity among members of the committee in agreeing that the recommendations will have to push the limits a little. So we will be going a long way.

Mr. Minister, I heard you say that we need to marshal every tool at our disposal to detect, stop, and prosecute proceeds of crime from money laundering and terrorism financing. There's room for improvement, you said, but you also pointed out quite correctly that there are some issues: the division of powers in our country in terms of the federal-provincial relationship, privacy concerns, and the constitutional right to protect solicitor-client privilege. We understand all that, but I must tell you, after seeing and speaking with our witnesses and after having an opportunity to see what's being done in other jurisdictions such as the United States and the United Kingdom, that I do think there is a lot of room for improvement in how we organize ourselves.

One of the key aspects of it, Minister—and I'd love to get your initial thoughts on this—is transforming the relationship that FINTRAC has not only with the financial institutions that submit their suspicious transaction reports, but also with with law enforcement agencies or other government agencies. This is about transforming that relationship so that rather than a one-way relationship, which is how it seems to work, it's a direct relationship into FINTRAC.

There's no opportunity for the financial institutions to get regular and more precise feedback. Actually, there's no opportunity legally for financial institutions to have a more detailed conversation among themselves as to any suspicious activities that they've identified.

I'm wondering how you would feel about transforming FINTRAC's one-way relationship into more of a dynamic dialogue with financial institutions.

[Bill Morneau, Liberal, Toronto Centre, ON]

Let me start by acknowledging again, as you've noted, that there's always more to do in this regard. This area is one where the bad guys are spending time and money to try to evade laws in our country and in countries around the world. It's heartening to hear that there's unanimity around this table for those efforts. We do need to remain vigilant.

Around FINTRAC, what I would hope that the committee will come forward with your reflections, after having met with witnesses, on potential areas for improvement. We need to be constantly considering how we're currently doing things and ensuring that we're having the impact we want while respecting the laws that protect Canadians.

In the course of that consideration, we'll have to think first and foremost about privacy laws and balancing the need for privacy versus the need for back-and-forth between institutions, if that were the case, or between FINTRAC and the institution. We also will need to consider that the organization charged with policing sometimes has a requirement for the relationship to be governed in a particular way.

I don't have the answer. I'm anxious to hear your observations on how things can be improved, and I'm open-minded.

[The Chair, Liberal, Wayne Easter]

You have less than half a minute.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

I'll go very quickly. On the issue of beneficial ownership registry and the negotiations with the provinces, what would be your best guess as to how quickly we can have a national registry? What's the best guess for having an agreement with the provinces on sharing information on beneficial ownership?

[Bill Morneau, Liberal, Toronto Centre, ON]

This has been—and I think I have a very short period of time—a very positive file. If someone else has a question, I'm happy to go into more detail. We already have agreement—

[Greg Fergus, Liberal, Hull—Aylmer, QC]

You have more time than I do.

[Bill Morneau, Liberal, Toronto Centre, ON]

—that we're working with provinces in this regard. The provinces have said that they will work with us to make sure that they do get beneficial ownership information available. Then the question, and I'll be anxious to hear the committee's report, is how we make sure that that is a dynamic process that gets us the right information to satisfy our goals of ensuring that we don't have problematic behaviour.

[The Chair, Liberal, Wayne Easter]

Thank you both.

Mr. Albas is next.

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

Thank you, Mr. Chair.

Minister, you've recently made changes to the Criminal Code in regard to the money-laundering regime we have here in Canada, and it was not the Minister of Justice who did that. Effectively, you've made it possible for big corporations to get a “get out of jail” card for money laundering.

Why do you think that this makes Canadians safe?

[Bill Morneau, Liberal, Toronto Centre, ON]

Perhaps you could provide more detail on how you've come to this conclusion.

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

In Bill C-74, division 20, you've made a change that includes a schedule in the Criminal Code that includes money laundering that gives, effectively, large corporations a “get out of jail” card. Do you not remember your own legislation?

[Bill Morneau, Liberal, Toronto Centre, ON]

How is it that you see this gives an organization a “get out jail free” card? That is what I'm trying to understand.

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

A deferred prosecution agreement basically allows them to not actually have any consequences in a court of law for cases of proven, found money laundering. It's your legislation, Minister. How does that make Canadians safer?

[Bill Morneau, Liberal, Toronto Centre, ON]

I think there may be a fundamental misunderstanding on your part of what we're trying to achieve here.

We recognize that when organizations are found to be offside with the laws, they should be held to account, and they should be held to account for their actions in a way that ensures we protect Canadians. That is what we're trying to achieve. We want to make sure that as we do that, we have a method that gets those organizations to pay the price of their criminality or their bad behaviour and that doesn't in any way negatively impact their employees or other unwitting people who happen to work in those organizations. Moving forward with a deferred prosecution agreement approach—an approach taken, as you probably know, by other countries, including the United States and the United Kingdom, as two good examples—we think it is a prudent way to ensure that we have companies pay the price for any wrongdoing in a way that allows us to ensure that our economy continues to be successful and that the people who are legitimately responsible for the bad behaviour pay a price, as opposed to people who aren't, such as people who are unwittingly employed by firms that have had that bad behaviour. We think it's a good approach.

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

Not allowing this legislation to be studied by the justice committee—actually, the amendment was made at clause-by-clause study, Minister—meant we didn't actually get to see the justification from your government on that. I'm very disappointed that you just simply can't explain exactly why this measure makes Canadians safer.

However, I am going to go back to the line of questioning on beneficial ownership. You are working with the provinces—that's good—to create a registry. Obviously, both the provincial governments and the federal government have access to that. Does that include the CRA?

[The Chair, Liberal, Wayne Easter]

Mr. Minister, do you want to complete your other answer first? I don't think you quite completed it—

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

Do I have time?

[The Chair, Liberal, Wayne Easter]

Yes, you have time—and then go to this one.