Finance Committee on June 1st, 2021

[The Chair, Liberal, Wayne Easter]

We will officially call the meeting to order.

Welcome to meeting number 52 of the House of Commons Standing Committee on Finance. Pursuant to the House order of reference of Thursday, May 27 of this year, the committee is meeting to study Bill C-30, an act to implement certain provisions of the budget tabled in Parliament on April 19, 2021 and other measures. Today's meeting is taking place in a hybrid format, pursuant to the House order of January 25. Therefore members are attending in person in the room and remotely by using the Zoom application.

With that, we will get right to it.

I should mention to committee members first, maybe, that the biweekly reports that the committee called for in early April should be in their inboxes now. That's just for their information.

We will start. We finished clause 170.

(On clause 171)

To bring us up to date, we're on division 7, Proceeds of Crime (Money Laundering) and Terrorist Financing Act. I believe Erin O'Brien is here again. She'll be on deck on this one. As director general of the financial services division, she'll be the lead on divisions 7, 8 and 9.

Are there any questions on that, or any explanations?

Go ahead, Ms. O'Brien.

[Erin O'Brien, Director General, Financial Services Division, Financial Sector Policy Branch, Department of Finance]

Good evening. It's nice to see you again, Chair.

Clerk, are we able to dial in Justin Brown and Gabriel Ngo? They're the experts on this division.

[The Chair, Liberal, Wayne Easter]

There are Mr. Brown—welcome, sir—and Mr. Ngo.

Could you give just a very quick statement on clause 171? We'll go through all these clauses until we get to division 8, and then we'll see if there's any ability to move a group of clauses at once.

On clause 171, would you give an explanation, please?

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

Thank you.

I would just remind you that these clauses deal with the government's work to continually strengthen and modernize its anti-money-laundering and anti-terrorist-financing regime. At the previous testimony we spoke to earlier clauses that would implement a cost recovery model for Canada's anti-money-laundering and anti-terrorist-financing regulator and financial intelligence unit, FINTRAC, to recover its compliance costs from reporting entities.

Clause 171 is the regulations-making power of the act, which would enable the regulations that would detail the cost recovery scheme for FINTRAC's compliance activities.

[The Chair, Liberal, Wayne Easter]

Okay, and I think we're at about page 196 or 197 in the bill, for anybody who's trying to monitor the bill as we go.

Mr. Kelly.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

There are many businesses that are subject to FINTRAC compliance. Can you give an example of how cost recovery from industry works and what that looks like? That's especially regarding small businesses that are required under the act—certain small businesses, anyway.

[Justin Brown]

Sure. The details of this specific model would be largely prescribed in regulations, so I can't say what the exact details of this would be. FINTRAC, in undertaking its responsibilities to ensure compliance with Canada's anti-money-laundering and anti-terrorist-financing rules, undertakes certain activities. It monitors compliance, keeps records and has different obligations from reporting entities. It does a variety of outreach. There are over 20,000 different reporting entities under this piece of legislation, from very small to very large. The idea is that the different types of businesses, those reporting entities, derive a benefit from the products and services that they sell for profit, so they have a role in paying for the oversight of the risks that are brought by those products and services.

While the details of the regime would be spelled out largely in regulations, we intend to consult with the reporting entities in advance of going through the normal Canada Gazette process, to obtain their feedback on the details of the proposed model.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

I'm sorry. I don't want to dwell too much on this. The reason I ask the question is, your response is yes. Businesses derive profit from business activity that is regulated under FINTRAC and thus must pay. I think that is what you said.

However, smaller businesses really struggle with compliance that is easier, for economies of scale and expertise, in a large corporation. Regulation eventually—sometimes, in some cases— becomes anti-competitive because of the difficulty that small businesses have with compliance. FINTRAC has been an irritant to many small businesses with their fear of non-compliance, their ability and not always having the right expertise to comply.

I raise it as an issue because I want to know what the compliance meant and what new fees or costs are being imposed through this, but it sounds like that's not yet determined.

[Justin Brown]

That's correct. The specific model has not yet been determined.

I would just reinforce that we will consult with all of the reporting entities in advance of proposing a specific set of regulations. While I can't speak to where that discussion will land—that ultimately will be a decision by the Governor in Council—I think it's reasonable to expect that the large proportion of the costs under this cost recovery scheme would go to the bigger users. These are the entities that have the greatest volume of transactions. They are typically quite large institutions and typically large financial institutions.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Thank you.

[The Chair, Liberal, Wayne Easter]

Mrs. Jansen.

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

I'm not a hundred per cent sure this is the right place to be asking the question. How would FINTRAC investigate a suspected money laundering and terrorist financing offence involving virtual currency, given that blockchain provides anonymity to its users?

We were talking about this last time, I think.

[Justin Brown]

I think on anything blockchain- or virtual assets-related, I would bring in Gabriel Ngo, who has worked extensively on these questions. Gabe, are you able to respond to that question?

[The Chair, Liberal, Wayne Easter]

Go ahead, Mr. Ngo.

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

Thank you, Chair, and thank you, Justin.

In short, the regulations coming into force are actually coming into force today, on June 1, 2021. They require businesses to keep records and submit transaction reports as they relate to virtual currency transactions. Those reports would have key identifying information, such as public key and transaction identifier numbers. Also, the business would be required to identify its clients and keep records. There would be a cross-reference between what's available on the blockchain vis-à-vis what's available with the private business. Law enforcement would receive these financial intelligence disclosures from FINTRAC. They would be able to get production orders and get that information directly from the businesses.

In short, there is a layer of anonymity with the blockchain, but because it is a public ledger and everything is immutable and transparent, law enforcement can work backwards. That would be the short answer.

Thank you.

[The Chair, Liberal, Wayne Easter]

Mr. Falk.

[Ted Falk, Conservative, Provencher, MB]

Thank you, Mr. Chair.

I have a further question on cost recovery on FINTRAC reporting requirements. I was president of a very large credit union for 17 years. I know that FINTRAC compliance was a very significant part of the day-to-day activities of the credit union. It came at significant cost, as regards labour and dedicated staff.

I'm wondering what further implications this would have for credit unions across Canada.

[The Chair, Liberal, Wayne Easter]

Who wants to take it?

[Justin Brown]

I'm fine to answer the question.

Credit unions are reporting entities under the act, so they would be subject to this cost recovery model once it is in force.

[Ted Falk, Conservative, Provencher, MB]

Yes, I understood that they would be required to be compliant and implicated, but what, in essence, will that mean? They're already paying all kinds of staffing costs and incurring significant cost just to be compliant, but what do you mean by cost recovery? Are you going to be offloading or downloading the department's expenses onto credit unions?

[Justin Brown]

The compliance costs that have been mentioned relate to the costs the individual entities incur to implement and to be compliant with this act and the anti-money-laundering rules.

This law proposes that reporting entities would become responsible for paying for FINTRAC's compliance costs, which are the costs it incurs as a regulator to undertake those activities. It's comparable to what we've seen with other financial sector regulators, like the Office of the Superintendent of Financial Institutions, for example, which previously had a role in supervising anti-money-laundering compliance with federally regulated financial institutions. Some of those responsibilities have moved over to FINTRAC.

OSFI has a cost recovery model and so does the Financial Consumer Agency of Canada. We've looked at the different models of different financial regulators in Canada, and what's being proposed here is broadly consistent with that.

[The Chair, Liberal, Wayne Easter]

I see no further questions.

(Clause 171 agreed to on division)

(On clause 172)

[The Chair, Liberal, Wayne Easter]

Erin or Justin or Gabriel.

[Justin Brown]

It's still me, Chair.

By way of introduction, the next few clauses, 172 to 176, relate to strengthening penalties under the act and other changes for consistent language. There are different offences listed for contraventions of different sections under this act. The changes to penalties with respect to imprisonment would align to those under recent changes to the Criminal Code. The changes to monetary penalties are meant to establish consistency for the monetary penalty structure in the PCMLTFA for a summary offence and ensure that the maximum available penalty is consistently half of the monetary penalties for its indictable counterpart for the same offence.

It is important to note that although the maximum criminal penalties have increased, or are being proposed to increase, it does not impact the discretion of the judiciary to determine the appropriate penalty. Specifically, clause 172 amends the penalty on summary conviction when found guilty of an offence under subsections 74(1) and 74(2) to a fine of not more than $250,000 or imprisonment up to a term of not more than two years less a day, or both.

[The Chair, Liberal, Wayne Easter]

Mr. Fast.