Finance Committee on May 17th, 2021

[Gabriel Ngo, Senior Advisor, Financial Crimes Governance and Operations, Financial Systems Division, Financial Sector Policy Branch, Department of Finance]

I'll try to live up to that introduction, Justin.

Canada's regulations were actually amended in 2019 to cover virtual currencies, and virtual currencies would be covered in a function-based manner, such as if they were used to transfer value, or if they were used to exchange from fiat to virtual currency or vice versa, or even from virtual currency to virtual currency.

NFTs, as they stand, could trigger obligations under the proceeds of crime legislation, just because of how they're going to be used. That's not a direct answer, but regulations are meant to be function-based, so that if ever NFTs were to be used in a financial transaction, or if they were to be used to exchange value, at that point there would be some triggering activities under that.

[Julie Dzerowicz, Liberal, Davenport, ON]

Mr. Chair, just so that I understand properly, I want to ask, are you saying that if they are used for these transactions, the definition would then include non-fungible tokens? They're used for these types of transactions.

[Gabriel Ngo]

I'll just follow up by saying again that the regulations don't use the term “non-fungible token” or the terms “cryptocurrency”, or “Bitcoin”. They are used to explain that it's a token or a type of virtual currency that's used for payment and investment purposes. This means that if ever an NFT were used for those purposes, it would be triggering AML and ATF, or anti-money-laundering and anti-terrorist-financing, regulation obligations. It's thus meant to be future-proof and is meant to be function-based.

The answer, then, is that it depends if NFTs were to be used in that fashion moving forward.

Thank you.

[The Chair, Liberal, Wayne Easter]

Mr. Fast is next, and then Ms. Jansen.

[Ed Fast, Conservative, Abbotsford, BC]

Chair, I have two questions. The first one has to do with criminal penalties.

Division 7 strengthens criminal penalties in the Proceeds of Crime and Terrorist Financing Act to align with previous amendments to the Criminal Code.

Could you just refresh our memories as to what those new comfort penalties might be?

[Justin Brown]

The maximum criminal penalties on summary convictions for all offences under the act would be increased from six months to two years less a day of imprisonment. In addition, the two-step penalty structure for offences related to non-compliance with suspicious transaction reporting would be amended to eliminate the lesser penalty for a first-time offence.

Looking at the monetary penalties, this change was made to establish consistency with the structure of monetary penalties under the act. For a summary offence, and to ensure that the maximum available penalty is consistently half that of the monetary penalties for its indictable counterpart for the same offence, the current fines for a summary offence range from $50,000 to $500,000. The proposed changes would increase the monetary penalty to a maximum fine of $250,000, and to $1 million for more serious offences, such as violations of reporting requirements.

I would add that even though these penalties have increased, it would ultimately remain at the discretion of the judiciary to determine the appropriate penalty.

[Ed Fast, Conservative, Abbotsford, BC]

There are, then, no mandatory minimums here.

[Justin Brown]

I do not believe there are any.... Well, there are ranges provided, but—

[Ed Fast, Conservative, Abbotsford, BC]

Ranges are not mandatory minimums.

[Justin Brown]

Right. The judiciary would retain its discretion—

[Ed Fast, Conservative, Abbotsford, BC]

Full discretion.

[Justin Brown]

—to determine the appropriate penalty.

[Ed Fast, Conservative, Abbotsford, BC]

Okay.

My second question is related to Ms. Dzerowicz's question; that is, the definition of “politically exposed domestic person”. On at least three occasions, clause 161 redefines or amends the definition of “politically exposed domestic person”.

Can you tell me what problem this is intended to address?

[Justin Brown]

Broadly, in the space of anti-money-laundering legislation, it's recognized that politically exposed persons are in positions that are vulnerable to attempts to commit money laundering and related offences, including corruption and bribery. That's why Canada's legislation requires reporting entities to identify when their clients are politically exposed persons and to conduct enhanced due diligence on high-risk politically exposed persons.

In this case, the proposed amendments to the definition of politically exposed persons are to specifically include positions equivalent to a mayor. These would help clarify the definition and achieve the overall public policy objective of including public officials of leading organizations with control or influence over large amounts of public funds due to the nature of their position.

[Ed Fast, Conservative, Abbotsford, BC]

Thank you. That's helpful.

[The Chair, Liberal, Wayne Easter]

Thank you both.

We'll go to Ms. Jansen, followed by Mr. Ste-Marie.

Tamara.

[Tamara Jansen, Conservative, Cloverdale—Langley City, BC]

Thank you.

You're making these changes, yet under the persons who are being regulated, you're not adding lawyers. It's my understanding that it's a real issue that lawyers are using client privilege to keep some of that stuff under wraps.

Can you talk about how this will help that?

[Justin Brown]

As you mentioned, this does not add any regulation of lawyers. In the view of the Department of Finance officials, the legal profession remains a high risk for money laundering, and we are continuing to work with the legal profession and specifically the Federation of Law Societies of Canada. We have an ongoing working group with them to explore ways to enhance the anti-money-laundering and anti-terrorist-financing supervision of the legal profession.

[Tamara Jansen, Conservative, Cloverdale—Langley City, BC]

What sorts of options are you looking at? There has to be something.

[Justin Brown]

We're exploring all of the options. I'm not in a position to say which options are on or off the table, but I can give a couple of examples.

A notable example is that we've been having a lot of discussions recently with the Federation of Law Societies of Canada on their model rules. They have model rules that deal with things such as practices that law societies should implement with respect to anti-money-laundering supervision. They're looking to update those model rules. We've been having conversations about how those could best align with the federal anti-money-laundering framework.

We've also had ongoing discussions with them in terms of information sharing with federal authorities, notably the Royal Canadian Mounted Police, and how we can improve information sharing between the legal profession and federal authorities with a role in anti-money-laundering supervision.

[The Chair, Liberal, Wayne Easter]

Thanks, Tamara.

Mr. Ste-Marie.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Chair.

Hello, Mr. Brown. Good day to you all.

Do you and your team believe that this division will have some sort of impact on real estate prices in Canada?

Today, the Toronto Star published an opinion piece by Mr. Wong. According to Mr. Wong, foreign investors can have an impact on the real estate market. What's more, he is suggesting that some foreign capital is actually linked to proceeds of crime or money laundering.

Do you and your team believe that this division will have an impact on the residential housing market in Canada?

[Justin Brown]

Thank you.

The proposed amendments are pretty precise and targeted. Some studies are showing that there is indeed a link between crime and real estate prices. The changes will strengthen and update certain parts of the act. This could prove useful, but I would not say that there is a direct link with these amendments.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you for your answer, and thank you for giving it in French.

[The Chair, Liberal, Wayne Easter]

Are there any other questions from members?

I have just one. It is on the cost recovery aspect. What protection is there for institutions so that the cost recovery doesn't get out of control?

By having it in regulation, cost recovery can be increased with the stroke of a pen. It doesn't really have to appear before Parliament—just in the Gazette. I've had a lot of experience with cost recovery in the farm sector, and sometimes it gets out of control.

What's the protection against overburdened cost recovery as an institution staffs up in its own interests?