Finance Committee on June 20th, 2018

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

I mean “better”, not adding more. We're talking about a good review and looking less.... She has said that publicly. You appointed her through the Governor in Council. It was your recommendation. Are you going to work with her on that?

[Bill Morneau, Liberal, Toronto Centre, ON]

I understood the question the first time. Yes, I can confirm that we are going to try to continually improve.

[The Chair, Liberal, Wayne Easter]

Go ahead, Mr. Grewal. This is the last question.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you, Mr. Chair.

Thank you, Minister, for coming here today.

A lot of Canadians sitting at home are playing by the rules. They're working hard, and they want to ensure that everybody plays by the rules and is working hard. We've obviously seen that there is a negative impact on our economy from money laundering. I think a lot of people don't understand the sophistication behind money laundering. Most people just open a bank account and do their transactions without having any fear that their information will be shared with FINTRAC.

Can you in very simple terms walk us through how something would be tracked by a financial institution, passed to FINTRAC, and then tell us at what threshold it might be passed on to the authorities?

[The Chair, Liberal, Wayne Easter]

To the extent that you'd like a detailed walk-through, I think I'll ask Annette—

[Raj Grewal, Liberal, Brampton East, ON]

I don't need a detailed one, just a high-level one, so that most Canadians could understand how this legislation even works in the first place.

[Bill Morneau, Liberal, Toronto Centre, ON]

At a very high level, clearly what we're trying to do is make sure that suspicious activity is considered, so we don't allow that activity to move forward if it's going to result in potential money laundering or terrorist financing, as we're talking about here.

As we know, it's not easy to get to these conclusions. One important threshold we've chosen is the $10,000 threshold. What I know to be the case is that it's an important threshold, but it's not the only thing we need to consider, because there are certainly activities that have gone on around the world in terrorist financing that have been funded through sources that were under $10,000 or through multiple sources that came together. Therefore, it can't be the only threshold. We need to think not only in a purely objective way but also with some level of subjectivity about how we can ensure we get to conclusions that protect Canadians.

We're trying to work to get to that balance. I think at a high level what I'd want Canadians to know is that we see this as an area where we have to have continued vigilance. We can put in thresholds that allow us to review activities that go on outside those thresholds. We will need to continually think about how we update our rules to protect us, considering privacy at the same time, because we don't want to inappropriately capture people who are just leading their life normally.

However, these threats are real. We've seen them in countries around the world. We should not think we're immune to the potential of bad actors who might be seeking to disrupt our way of life.

[Raj Grewal, Liberal, Brampton East, ON]

Mr. Chair, I'm going to cede the rest of my time.

[Angelo Iacono, Liberal, Alfred-Pellan, QC]

Thank you, Mr. Chair.

Thank you for being here, Mr. Minister.

The banks have been making efforts to combat money laundering for a long time. The principal objective of the banking sector has been to work on preventing, detecting and identifying all criminal and terrorist activity, while protecting the privacy of their honest clients.

How does the government intend to exchange information with the parties involved while protecting Canadians' privacy?

[Bill Morneau, Liberal, Toronto Centre, ON]

That is the goal. We always have to assess whether the rules need to be changed, while making sure that people's personal information is protected.

That is why your committee's opinion and recommendations are very important. You have been able to speak with more than 100 experts. We really are all ears as to your recommendations on the changes that we have to make in order to achieve that goal.

[Angelo Iacono, Liberal, Alfred-Pellan, QC]

Thank you, Mr. Minister.

[The Chair, Liberal, Wayne Easter]

Okay. That ends it for questions.

We'll get to the officials in a second, but there are a couple of points that maybe your officials will want to consider. We have heard, both here and on the road, that simplifying compliance was a big concern. One of the witnesses we heard in New York talked about having a user-friendly reporting system with just a drop-down menu and a check box. Those are some things that need to be thought about.

We heard a lot about securities, and we heard from the U.S. and in our meetings with our folks in Canada that our folks don't take the securities issue seriously enough in terms of money laundering. That would be a second point.

Trade transparency was a third, in that when something is imported into a country and then exported, there's different documentation and the numbers don't match.

Geographic targeting is used a fair bit in the U.S., and it led to some big findings.

Both sides mentioned trusts and layers of trusts.

The last one, beyond what's already been said, is that sharing of information is crucial, especially among banks. Currently, if somebody is doing not above-board work and is shut off by one bank, he just moves down the street to another. There has to be a way of finding that information somehow, and then you have to balance all of that against privacy.

Those are other thoughts that weren't mentioned by committee members but that we certainly heard on the road.

With that, Mr. Minister, I know you're on a tight time schedule and that we're a little over that. Thank you very much for your presentation.

We'll take a one-minute break and bring the rest of the officials forward.

[Bill Morneau, Liberal, Toronto Centre, ON]

Thank you very much.

[The Chair, Liberal, Wayne Easter]

Could the officials, Mr. Maxime Beaupré and Mr. Wright, please come forward?

We only have 19 minutes at the most.

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

Yes, of course.

[The Chair, Liberal, Wayne Easter]

Okay. Go ahead.

We'll go to three-minute rounds so that people can get a question in.

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

I still find the minister’s answer on beneficial ownership a little surprising. He meets with the provincial finance ministers, but seems not to have taken a position on the issue. They have talked about it, and moved forward one step, but the Department of Finance has taken no position during the current talks. It is simply listening.

[Annette Ryan]

If I may, I will respond in English.

The minister's comments are respectful of the dialogue he continues to have with provincial and territorial counterparts, which go towards what is essentially very timely progress on this issue. The first step, which was the basis of the December agreement of last year, would put in place the legal specifications that give us the granularity to facilitate a discussion of what it would take to create a registry.

If you think about the concept as being an IT project that could span federal and provincial and territorial jurisdictions, that aspect of proceeding lets people all agree on what we're talking about in terms of what information we mean and to harmonize and standardize it to the extent possible. We could then have a discussion about how you could collect it and who should have access to what types of information.

That is a logical way to proceed, and I would point to the leadership he's brought to that discussion as having gotten us to that first step. We continue towards it.

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

I understand.

Earlier, I did not have the time to ask the minister about cryptocurrencies. The department also identified this as an at-risk sector.

Why has nothing been done on this issue up to now, especially in terms of trading? We have heard that certain countries have regulated cryptocurrency trading, that is, going from real currency, fiat currency, to virtual currency?

Why, up to now, has Canada not regulated trading between real currency and virtual currency?

[Annette Ryan]

I'm happy to report to the committee that the government has taken an important step in this space. On June 9, we pre-published comprehensive regulations that target exactly this issue. The regulations that are now before the Canadian public for consultation would essentially do just that: they would specify that dealers in virtual currency, who are now defined for the first time in Canada in legal detail, would be treated in essentially a parallel way as other money service businesses.

To respond to specific elements of your question, this would govern the point of exchange from crypto-currencies into fiat currency and also exchanges in the crypto-to-crypto space, on which I know you've been taking testimony from many witnesses.

[The Chair, Liberal, Wayne Easter]

Thank you all.

Go ahead, Ms. O'Connell.

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

Thank you very much.

It might be helpful if that can be passed on to the clerk so we have it specifically for all members.

I want to ask more of a technical question. We have the STRs, the suspicious transaction reports with FINTRAC, and FinCEN has SARs, the suspicious activity reports. There was significant testimony we heard in the U.S. from various stakeholders who appreciated how much easier the SARs in the U.S. were and how much more effective they were. We had testimony from someone who reports both in the U.S. and in Canada and specifically knows both systems.

From a technical standpoint, has the department looked at the SARs in the U.S. and looked at making some technical changes to the forms we have to make them more user-friendly? As well, if individuals at these institutions who should be reporting don't understand how to report, are we worried that they're spending more time? We had testimony from an individual who, every time he had to fill out an STR for Canada, had to refer back to pages and pages of a manual on how to do it, while the SARs in the U.S. took 15 minutes.

[Annette Ryan]

This is a very important question, and I'm glad to have a chance to speak to it today.

The way the U.S. is able to simplify that initial reporting for SARs and then subsequently allow their authorities to go back to banks is really effective, and it is good in terms of reducing burden. It is different from the situation in Canada because of the way that our Charter of Rights and Freedoms is structured. Specifically, sections 7 and 8 of the charter are really quite pertinent here, and they speak to search and seizure, the rights of Canadians, and how their information could or should not be used in prosecuting them. That's something that prevents us from being quite like the U.S.

Can we do better in that space? We have a range of discussions under way right now with Canadian financial institutions as well as with different parts of the academic world. The Royal United Services Institute in the U.K. has been working with us and the private sector to look at best practices from other countries that would align with our charter. We're very much seized with that and we look forward to thoughts and advice from the committee.

You raised two other points. One was on user-friendliness and how we can take in information from any number of private sector entities through alignment with their IT systems. I believe you heard the director of FINTRAC saying that's something we understand, and that goes to doing a range of work to be able to take in that information in a way that aligns with businesses.

Then the third point of communicating better with businesses as to what their requirements are—the how, why, etc.—is also very much within the objective set of our FINTRAC colleagues.

[The Chair, Liberal, Wayne Easter]

Go ahead, Mr. Albas.

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

Thank you, Mr. Chair.

I want to thank each one of you for the work you do every day. We appreciate your expertise at the committee.

Your department has published a paper with regard to our work, which has been very helpful, and I know that you have to work with the government if there are going to be any legislative changes, so I'm not going to ask you at this point about any of them, but right now Canadians are under obligations on sanctions, for example. If a group or a person has been named under our economic sanctions and a financial institute or someone who is under the anti-money laundering and anti-terrorism funding regime works with them, that could be punishable under a variety of different statutes. It's the same, obviously, with the anti-terrorism compliance.

One of the challenges we've heard—these are the current rules—is there is no consolidated list. Global Affairs handles some of the sanctions. You handle some other ones. Is there no ability for your department to work productively within current laws to make this easier, so that people who are working in this industry every day can quickly and accurately check to see if the people they are dealing with are not going to get into trouble?