Finance Committee on May 2nd, 2019

[Mark Schaan]

Thank you for the question.

This project is broader than the scope of the bill.

The project to improve the system of transparency with regard to corporate profits in Canada involves all the provinces and territories. All the stakeholders agreed to carry out the work in two phases. The first phase, which is described here, requires each company to maintain these records and documents. Investigators must also have access to them.

The second piece of this project is to work with the provinces and territories to identify how we want to move forward with further access, recognizing that in the world of money laundering, terrorist financing and tax evasion, you need a coherent system across all of the corporate registries, because if you only do one, then everyone just re-registers in a potential other jurisdiction.

The second phase of this is to work with the provinces and territories to identify how we would like to be able to share this information and what makes the most practical sense in terms of who should have access and how we should store it. For right now, corporations have to hold it and competent authorities can access it when there's a suspicion and a linkage to an investigation. The second phase is who else and where it should be stored.

[The Chair, Liberal, Wayne Easter]

Is that it, Pierre?

Mr. Fergus.

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

Mr. Schaan, you've appeared before this committee several times, and for the first time I can actually say you made a mistake. It's “belts and suspenders”, not “boots and suspenders”. It's a redundancy.

[Mark Schaan]

Thank you, Mr. Fergus.

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

You're very welcome.

Seriously, following up on a comment from Monsieur Dusseault, in regard to the 25% significant ownership threshold that we've established, could you speak to some of the other thresholds that other jurisdictions are doing? I'm speaking in particular of what the U.K. and the EU are offering.

[Mark Schaan]

I'm trying to remember. Darryl will look that up. In the world of publicly traded corporations, it's a 10% threshold because the feeling there is that the transparency of ownership when it's a share of a publicly traded corporation is of a different order, in part because the transparency isn't so much about money laundering or crime necessarily, but about who potentially has access to the proxy and who can control decision-making.

In the U.K. and the EU it's.... There we go. Ian knows this.

[Ian Wright, Director, Financial Crimes Governance and Operations, Financial Systems Division, Financial Sector Policy Branch, Department of Finance]

Within the general world, and within the Financial Action Task Force discussions, it's generally 25%. That's the number that's tossed around, although there are variances. I think that's seen as an appropriate balance between the burden placed upon reporting entities and individuals who fail to report versus the ability to control a company. The ability to get collusion among five, six, eight or 10 individuals is much less of a risk than when you only have to get two or three or four people joined. That said, I think there will be further discussion on that number. A lot of discussion is going on internationally and with our colleagues in other countries on what thresholds are appropriate as the threats and the risks begin to grow.

[Mark Schaan]

We did quite a bit of international scanning as we developed this project. The one piece where I think we made a number of improvements, which relates more to the 2018 changes than these, was around the fact that the registry needs to include the actual person at the end of the chain for the beneficial owners.

From the U.K. model, we learned of their requirement to list only the next entity, which means that you end up having to follow a chain of a series of numbered corporations to finally get to the ultimate owner, whereas we've asked corporations to go as far down the chain as they can.

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

Mr. Chair, I'd appreciate it if Mr. Wright and Mr. Schaan could perhaps send to the committee the latest scan of the international standards from the U.K. and the EU in particular.

It was my understanding that they were going to move to a threshold lower than 25%, if not now, then soon.

[Mark Schaan]

I could do so.

[The Chair, Liberal, Wayne Easter]

Okay. If you could get us that....

You mentioned, in your opening remarks, that there are safeguards for the usage. Could you outline the key three? There is some fear about access out there. We heard that during our hearings.

[Mark Schaan]

One is the types of offences the investigative bodies would potentially be able to secure these records for. The schedule of offences is essentially those that have a tie to money laundering, proceeds of crime and terrorist financing.

The second threshold is that there needs to be a reasonable nexus between the information and the investigative body. It can't be a fishing expedition.

The third is the duty to report. The investigative bodies have to file an aggregate to the director of Corporations Canada so that there can be some transparency as to how often a power is being used and who is using it.

[The Chair, Liberal, Wayne Easter]

Mr. Dusseault.

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

I'll be brief.

You said earlier that, to find the identity of the natural person who owns a company, you sometimes need to go through a whole series of companies, which may own each other, until you can find the owner of the company concerned. This company may be the subject of an investigation.

Take the example of a case where the information isn't accurate. In other words, the company has done everything in its power to discover the identity, but it has made a mistake or it hasn't succeeded because the person concerned doesn't co-operate and disclose their identity. To what extent does the legislation enable us to take action? How does the legislation address this issue? Criminals are unlikely to co-operate and identify themselves at the end of this chain of companies.

[Mark Schaan]

That's a good question. It generated a great deal of discussion in the team that helped develop the bill.

First, we must establish that this issue is the reason for the two types of penalties. It's not the companies' fault if they fail in their efforts to investigate the people who control the shares in the company.

The second important aspect is the incorporation of other tools.

This is just one tool. What we've tried to do, across the overall approach to money laundering and terrorist financing, is to create a set of tools that can collaborate with each other, so among the tax authorities and the investigative bodies and the additional resources that have been placed there. You're right. We can't place too much burden on the corporation, because its full-time job is not to investigate, ultimately, who may be shareholders in their enterprise. Its full-time job is to run the company.

This is one more tool for competent authorities, amongst other things such as tax filing, tax investigations and financial authorities. We hope that it's an additional aspect of the overall effort, recognizing that it has limitations but that these can be made up for in other zones.

[The Chair, Liberal, Wayne Easter]

Okay. Thank you.

From subdivision A, we will turn to strengthening the anti-money laundering and anti-terrorism financing regime, subdivision B.

We have with us Paul Saint-Denis, senior counsel, criminal law policy; Mr. Trudel, director general, specialized services sector; and Ms. Trotman, director, financial crimes.

Okay, Mr. Saint-Denis, the floor is yours.

[Paul Saint-Denis, Senior Counsel, Criminal Law Policy Section, Department of Justice]

Thank you, Mr. Chairman.

The proposal contained in the bill is a very simple one. We are proposing to amend the offence of money laundering with an additional mental element of recklessness. This would mean that this modified offence would have three potential mental elements as alternatives: one of knowing, one of believing and one of being reckless as to the origins of the property that may be proceeds of crime.

We believe that, with this amendment, it will be easier for prosecutors to prosecute certain types of the money laundering offences.

[The Chair, Liberal, Wayne Easter]

Okay.

Are there any questions on this section?

Mr. Fergus.

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

Thank you, Mr. Saint-Denis.

I would like to ask you and your team whether other countries use the recklessness test and what results these countries achieve.

[Paul Saint-Denis]

In Australia, I think that the federal government uses the recklessness test when it prosecutes money laundering offences. However, I don't know to what extent convictions for this offence are based on the recklessness test or other tests such as knowledge or belief.

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

Perhaps I should have asked about the differences between Canada and other countries that have been very successful in their fight against money laundering. For example, does their criminal code contain elements that aren't found in our code?

[Paul Saint-Denis]

It should be noted that money laundering is a particularly difficult offence to prove. In particular, it must be demonstrated that the individual knew that the amounts they were dealing with were proceeds of crime. I think we could say that no country is very successful when it comes to this offence.

In Canada, we actually have two possible charges when we believe that an individual has committed a money laundering offence. In addition to the money laundering charge, we have a related charge of possession of property obtained by crime. We'll charge the individual with both offences, but the crown will drop the money laundering charge, which is much more complex, and keep only the possession charge. This charge is easier to prove, and the penalty is the same as the penalty for money laundering, namely, a maximum penalty of 10 years in prison.

However, to answer your question more directly, I can't think of any specific country that has been very successful in its money laundering prosecutions.

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

I asked this question because, during the study that we conducted last year, we learned that Canada didn't score well in the report of the financial action task force, or the FATF. I wouldn't say that we were the worst, but we weren't the best. I imagine that there are examples in other countries that we could learn from. This was the basis for our recommendations.

[Paul Saint-Denis]

It's important to remember that common law applies in Canada. A number of FATF member countries have a civil law regime, where the approach to prosecutions is completely different.

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

I completely agree. That's why we focused on the United States and the United Kingdom.