Finance Committee on May 27th, 2021

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

Hello, I'm Justin Brown. I'm the senior director of the financial crimes policy section at the Department of Finance.

I would ask the clerk to give access as well to Neelu Shanker, a deputy director at Global Affairs Canada, who can provide support if there are any questions on this clause.

Clause 159 amends subsection 7(1) of the Justice for Victims of Corrupt Foreign Officials Act, or the Sergei Magnitsky Law, so that entities regulated under this act are no longer required to disclose to the regulators the fact that they do not have in their possession or control property of a foreign national who is subject to sanctions under the act. In addition, it requires that those entities must disclose without delay—and once every three months after that—if they determine that they are in possession or control of such property.

[The Chair, Liberal, Wayne Easter]

Do I see any hands up?

Ed, go ahead.

[Ed Fast, Conservative, Abbotsford, BC]

With these amendments in place, regulated entities—in other words, financial institutions—will be required to report when they determine that property of individuals who have been sanctioned by the Sergei Magnitsky Law is in their possession.

What is the sanction for not doing so? The banks no longer have an obligation to report proactively on a nil return. My concern is that over time, the oversight becomes more and more lax. If in fact a bank, deliberately or even negligently, fails to report, what is the sanction against the bank for not reporting?

[Justin Brown]

Thank you.

Has Neelu been provided access?

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

Yes. Thank you for that question.

Under the Justice for Victims of Corrupt Foreign Officials Act, the penalties for non-compliance are actually criminal in terms of the orders and regulations made under the act. Financial institutions have an obligation to do this type of reporting, and they also have a corresponding duty to make those determinations on a regular basis. This is basically a requirement as part of their ongoing reporting to their regulator.

[Ed Fast, Conservative, Abbotsford, BC]

Okay, but my question is this: Would a failure to file a monthly report actually trigger those criminal sanctions, or are the criminal sanctions effectively targeted at other behaviour?

[Neelu Shanker]

The criminal sanctions that are set out under the act would apply to any of the orders or regulations that are made under section 4. That would be in relation to the freezing of the funds that belong to a listed person.

[The Chair, Liberal, Wayne Easter]

Ed, are you okay on that?

[Ed Fast, Conservative, Abbotsford, BC]

Not quite, because it's about the behaviour that would trigger the sanction. Are you suggesting now that the criminal sanctions will be triggered by a failure to file a report?

[Neelu Shanker]

No. Basically, when financial institutions or any of the reporting entities identified in section 6 as having a duty to determine if they're in the possession or control of any of the property of a listed person, they have a corresponding obligation as part of their ongoing reporting to the regulator to comply with those provisions. The criminal penalties that exist under the act are with respect to the freezing of the funds.

The financial institutions have a duty under the law. They have an obligation to freeze those funds, and a failure to comply with those orders could result in a criminal penalty, depending on the circumstances of that behaviour.

The requirement to report is part of the regulatory oversight set out as the obligation, the ongoing duty, to determine whether they have this property. It's part of the determination of whether they're freezing the property.

There is a connection between the different actions, in the sense that the financial institutions must be freezing these funds if they have any in their possession or control. It's part of that obligation, but the duty to report does not come with criminal penalties if there's a failure to do that.

[Ed Fast, Conservative, Abbotsford, BC]

Okay. It's the failure to actually freeze funds that attracts the sanction.

[Neelu Shanker]

Yes. That's correct.

[Ed Fast, Conservative, Abbotsford, BC]

I have it.

[The Chair, Liberal, Wayne Easter]

Go ahead, Mr. Falk.

[Ted Falk, Conservative, Provencher, MB]

In the event that there are not necessarily funds, but let's say a financial institution had a mortgage on a property belonging to someone has been found guilty under the Magnitsky act. Do they have to report that mortgage and do they have to then freeze the mortgage, and the government then has access to the equity that's built into the real estate?

[Neelu Shanker]

Currently, under the terms of sections 6 and 7, a reporting entity has an obligation to determine on an ongoing basis whether they are in possession or control of any property of a listed person. That would include things like mortgages. It would include basically any sort of financial instrument, such as an account. It could cover a range of different elements.

If they do identify that they are in possession or control of that property, they would not be able to engage in any dealing with respect to that property or to provide any financial services to that listed person. That would include the payment of dividends or any sort of dealing in any mortgages.

Basically, it's quite a broad transaction ban that would be included in these provisions.

[Ted Falk, Conservative, Provencher, MB]

Mr. Chair, may I follow up?

[The Chair, Liberal, Wayne Easter]

Yes, Ted. Go ahead.

[Ted Falk, Conservative, Provencher, MB]

If there was a mortgage on a piece of real estate for an individual who was under the sanction, that individual wouldn't even be able to buy out that mortgage from the financial institution if he wanted to quickly try to protect his asset. It's not as though he could take cash from another institution and rifle it over there, pay off the mortgage and have a piece of real estate that would be unencumbered. As soon as someone is sanctioned, the financial institution is also responsible to make sure that there are no further transactions in regard to any mortgages or deposits—any financial instruments.

[Neelu Shanker]

Yes, that's correct.

[The Chair, Liberal, Wayne Easter]

Are we okay, then?

Shall clause 159 carry on division?

(Clause 159 agreed to on division)

Okay. Thank you, Mr. Brown.

Before I start division 7, “Proceeds of Crime (Money Laundering) and Terrorist Financing Act”, Gabriel—you're not on screen, but I think you're there—you'd mentioned in the beginning that you wanted to say a couple of things at the end of the meeting, I believe. Do you still want to do that? Yes.

I have to leave enough time for that. I don't want to run into the translators' time tonight. I want to close dead on 9:30 Ottawa time.

All right, we'll start division 7.

There are no amendments on clauses 160 to 177. Do we want to see them as one?

[Ed Fast, Conservative, Abbotsford, BC]

No.

[The Chair, Liberal, Wayne Easter]

No?

[Ed Fast, Conservative, Abbotsford, BC]

No.

[The Chair, Liberal, Wayne Easter]

All right. Then we'll go back to one by one.

(On clause 160)

On clause 160, I'm not sure who's on this.