Finance Committee on May 17th, 2021

[The Chair, Liberal, Wayne Easter]

Are there any other questions on division 1?

All right. Are there any questions on any of the divisions we covered on this panel: divisions 1, 2, 3, 4, 5, 8 or 9?

If there are no questions, shall we allow the panellists to depart, get off this Zoom call and go to the next one?

All right. Thank you very much, first for what you do, and then for answering the committee's questions today. We know these are very different times: you can't walk down the corridor and rub shoulders with your colleague when you're trying to sort things out, and that's not easy.

With that, we thank you very much.

We will suspend to allow the clerk time to bring in the next panel. We really don't start for about half an hour, but if people could come back online in 20 minutes, we'll be ready to go.

Thank you very much, folks, again.

[The Chair, Liberal, Wayne Easter]

We are reconvening. We'll call the meeting to order.

We're resuming meeting number 43 of the Standing Committee on Finance on the subject matter of Bill C-30, an act to implement certain provisions of the budget tabled in Parliament on April 19, 2021 and other measures.

We've a number of officials from the Department of Finance with us, and we'll be dealing with them in this section on part 4, divisions 6, 7, 11, 12, 13, 15, 16 and 20.

All the officials who are here are with the Department of Finance, and there are quite a number of them. I'll not go through a list of names at this early stage, but I will ask officials, when you start your presentation, if you'd state your name and your position. I believe it would be easier that way.

We will start with division 6 of part 4, changes to the Justice for Victims of Corrupt Foreign Officials Act, better known as the Sergei Magnitsky Law.

Who's taking that one on?

Mr. Brown, do I see you smiling? Go ahead. Welcome. Introduce yourself, Justin.

[Justin Brown, Acting Director General, Financial Crimes Governance and Operations, Financial Systems Division, Financial Sector Policy Branch, Department of Finance]

My name is Justin Brown, and I am the senior director of the financial crimes policy team at the Department of Finance. I have some colleagues from Global Affairs Canada and also the Department of Finance here with me as well.

Is it the preference for officials to provide a brief overview, or—

[The Chair, Liberal, Wayne Easter]

Yes, that's what we'd prefer. Just give us a brief overview, and then we'll go to rounds of questions from there.

[Justin Brown]

The government has committed to a comprehensive approach to combatting money laundering and terrorist financing, and imposing financial sanctions. This promotes the integrity of the financial system and the safety and security of Canadians.

As part of this work, the government continually works to strengthen and modernize the legislative framework, for example, to respond to technological changes and evolving threats, and to take into account administrative burdens.

Part 4, division 6, proposes legislative amendments to the Justice for Victims of Corrupt Foreign Officials Act, or the Sergei Magnitsky Law, to reduce the reporting burden for financial institutions by removing the monthly nil reporting requirement for financial institutions to confirm that they were not in possession of assets associated with sanctioned entities or individuals, and requiring the financial institutions to disclose, without delay, and once every three months after that, if they determine that they are in possession of assets associated with sanctioned entities or individuals.

I'll pause there. Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much.

Do any members have any questions at this stage?

Justin, I just have one.

We heard at the original briefing as well about reducing the reporting burden, and I understand that. It's a burden on the smaller institutions for sure, but has there been any analysis done on the potential impact that may have in terms of catching those who are involved in this kind of crime more quickly or whatever? The finance committee did—it must be four or five years ago now—a very extensive study on money laundering. We held hearings in Britain, the United States and elsewhere, and came up with a unanimous report, a very good report. I know some of these changes came out of that report.

What are your thoughts on that? What kind of analysis has been done to ensure that it won't weaken the system we already have in place?

[Justin Brown]

We would not expect any weakening of the system. Reporting entities would still be required to disclose without delay the existence of any property in their possession or control that is subject to sanctions. The proposed change simply removes the nil reporting requirement, which is viewed as an unnecessary administrative burden for reporting entities.

[The Chair, Liberal, Wayne Easter]

Thank you.

Mr. Falk.

[Ted Falk, Conservative, Provencher, MB]

I would agree with the change. I think it's a good change. My question would be, would they still be required to submit an annual declaration of compliance?

[Justin Brown]

Perhaps I'll turn that question to my colleague from Global Affairs Canada, Neelu.

[Neelu Shanker, Deputy Director, Operations, Sanctions Policy and Operations Coordination Division, Department of Foreign Affairs, Trade and Development]

Currently, as my colleague Justin Brown has said, the amendment to the Justice for Victims of Corrupt Foreign Officials Act is really a change that would first remove the requirement to report when financial entities have no property in their possession or control.

It also changes the frequency of this reporting from once every month to once every three months. That is currently the requirement set out in the act, so this would change only that specific monthly reporting requirement that's currently set out under section 7(1).

[Ted Falk, Conservative, Provencher, MB]

I think it makes sense.

[The Chair, Liberal, Wayne Easter]

Are there no other questions on division 6?

Division 7 is on the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

Mr. Brown, go ahead.

[Justin Brown]

Further to what I said earlier, part 4, division 7 proposes amendments to the Proceeds of Crime and Terrorist Financing Act.

These amendments—there's a short list—would expand the requirements of the act to cover businesses engaged in the transportation of currency or certain monetary instruments, more or less the armoured car services sector. They would strengthen criminal penalties under the act and the registration requirements for money service businesses. They would enhance the operational effectiveness of the anti-money laundering and anti-terrorist financing regulator, the Financial Transactions and Reports Analysis Centre of Canada, or FINTRAC, by enabling a cost-recovery model for its compliance activities, clarifying its authority to follow up with reporting entities to obtain information, and expanding the information that FINTRAC can disclose to law enforcement agencies and other disclosure institutes.

Finally, the proposed amendments would include technical amendments such as clarifying the definitions of politically exposed domestic persons and heads of international organizations.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you, Mr. Brown.

We'll start with Mr. Julian and then go to Ms. Dzerowicz.

Peter.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Thanks, Mr. Chair.

Thank you, witnesses, for coming forward today, and thank you for your dedication during this pandemic and your service to our country. It's deeply appreciated.

I want to get more details on the cost-recovery model with FINTRAC. This is something that the finance committee has spent a lot of time on, so I'm interested in hearing more of the details.

[Justin Brown]

Sure. The proposed legislative changes would essentially be enabling provisions, so they would allow FINTRAC to impose a cost-recovery model on reporting entities for their compliance activities.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

I'm sorry. I appreciate what you're saying, but how does that work in practice?

[Justin Brown]

The details of that would be prescribed in regulations. The proposed legislative amendments don't contain the details of the methodology for cost recovery. However, broadly speaking, the regulated entities that are supervised by FINTRAC and that are subject to those compliance activities would become the ones that are responsible for paying for those compliance activities, following a methodology that would be set out in regulation.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Would you be able to share with us what the finance ministry is actually proposing in that regard? Obviously, the legislation has been set up with a framework and a view to put the regulations on top of that. Unfortunately that doesn't really give us enough detail.

What are the entities that are foreseen to be paying the cost recovery? To what extent, when we're talking about these activities, are we talking about partial cost recovery or full cost recovery? What is the model that led to the legislation being put forward? The regulation, I am sure, has already been considered to fit into and to fit on top of the legislative proposals. If you could share with us more of the details, I think that would be helpful. If those details are not forthcoming, what is the consultative model?

We just had a discussion in the first panel around where the ministry is going in terms of merchant fees that small businesses are paying, so we now know what the timelines are and what the consultative process is. If you're not able to share with us the details on the proposal because it hasn't been elaborated yet, could you share with us what the process would be?

[Justin Brown]

Sure. I'll provide a little more detail.

It would be businesses and professions regulated under the anti-money-laundering legislation, so there's a list. It would include financial institutions such as banks and credit unions. It would include the casino sector, certain actors in the real estate sector, and dealers in precious metals. There are entities that are regulated under that act and specified under that act.

For the model, we looked to other international jurisdictions. We also looked at other regulators within Canada, specifically the Office of the Superintendent of Financial Institutions. FINTRAC recently assumed sole responsibility for the supervision of federally regulated financial institutions for anti-money-laundering purposes from OSFI, and OSFI covered these costs through its own cost recovery mechanism, which is similar to what is being proposed here. For OSFI, there's an enabling clause in legislation, and the details of that cost recovery model are laid out in regulations. I think the Financial Consumer Agency of Canada is another regulator in the federal financial sector space that has a similar approach.

In terms of consultations, following the passage of this legislation, the Department of Finance, with colleagues at FINTRAC, intends to consult with regulated entities on the overarching proposed scope of the regulations, so they'll be given an opportunity to see what the methodology would look like. We would have the opportunity to receive their feedback, and following that, like all regulations, it would go through the Canada Gazette process, so there would be a further publication of the draft regulations and an opportunity for stakeholders to comment once more.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Thank you.

[The Chair, Liberal, Wayne Easter]

We'll go to Ms. Dzerowicz, Mr. Fast, Ms. Jansen and then Mr. Ste-Marie.

Julie.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thanks so much, Mr. Chair. I too want to to thank all of our presenters for being here today.

Thanks for your service to our country.

The summary of division 7, at paragraph (c), talks about amending the definitions of designated information “to include certain information associated with virtual currency transactions”. Does that include non-fungible tokens?

[Justin Brown]

I'll ask my colleague Gabriel Ngo to jump in on that. He's the virtual assets expert here at the Department of Finance.