Finance Committee on Feb. 8th, 2024

[The Chair, Liberal, Peter Fonseca]

I call this meeting to order. We are resuming meeting number 126 of the House of Commons Standing Committee on Finance.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Tuesday, January 30, 2024, the committee is meeting to discuss the statutory review of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

Today's meeting is taking place in a hybrid format. Pursuant to Standing Order 15.1, members are attending in person in the room and remotely using the Zoom application.

I'd like to make a few comments for the benefit of the members.

Although this room is equipped with a powerful audio system, feedback events can occur. These can be extremely harmful to interpreters and cause serious injuries. The most common cause of sound feedback is an earpiece worn too close to the microphone. We therefore ask all participants to exercise a high degree of caution when handling the earpieces, especially when your microphone or your neighbour's microphone is turned on.

In order to prevent incidents and safeguard the hearing health of the interpreters, I invite participants to ensure they speak into the microphone into which their headset is plugged and to avoid manipulating the earbuds by placing them on the table away from the microphone when they are not in use.

I remind you that all comments should be addressed through the chair.

For members in the room, if you wish to speak, please raise your hand. For members on Zoom, please use the “raise hand” function. The clerk and I will manage the speaking order as best we can. We appreciate your patience and understanding in this regard.

For this study, the statutory review of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, we have with us a number of officials from the Department of Finance. We have the associate assistant deputy minister, Julien Brazeau, with us. We have the director general of the financial crimes and security division, Erin Hunt. Joining Julien and Erin is the director of financial crimes policy, Charlene Davidson.

Welcome to all of you. Thank you for coming on such short notice.

We know that you have some opening remarks prepared for us. You'll do those and then we'll get into members' questions.

Go ahead, Mr. Brazeau.

[Julien Brazeau, Associate Assistant Deputy Minister, Department of Finance]

Thank you so much.

Good morning. Thank you for the invitation to speak about Canada’s Anti-Money Laundering and Anti-Terrorist Financing Regime in the context of the parliamentary review of the Proceeds of Crime and Terrorist Financing Act.

I would like to start my remarks by briefly outlining the state of money laundering and terrorist financing in Canada and explaining why it is important to address these serious financial crimes. I also plan to explain the regime, the role of the Act, and the many regime partners working on financial crime in Canada. I would further situate my remarks in the context of important recent international and domestic reviews of Canada’s regime, followed by the responses the government has taken since the last parliamentary review in 2018.

Money laundering and terrorist financing are serious financial crimes that pose real threats to the safety of Canadians and the integrity of Canada's financial system. Financial crime is not a victimless crime. It affects our society by supporting, rewarding and perpetuating broader criminal and terrorist activities in Canada.

The proceeds of crime being laundered in Canada are generated through predicate crimes such as cyber-fraud, automotive theft, human trafficking and drug trafficking, including in fentanyl, which has killed many Canadians. Money laundering can affect affordability by driving up prices in sectors where it is present. For example, the expert panel on money laundering appointed by the Government of British Columbia estimated that money laundering in B.C.'s real estate sector raised housing prices by approximately 5% in 2018. Also, terrorist financing supports the activities of domestic and international terrorists, including deadly and destructive attacks in Canada and abroad.

The complex efforts criminals employ to disguise the proceeds of crime make the scope of money laundering and terrorist financing in Canada difficult to estimate. That being said, in 2021, a report by Criminal Intelligence Service Canada estimated that between $45 billion and $113 billion Canadian is laundered in Canada each year.

Canada maintains an extensive regime to detect, deter and disrupt financial crimes. The regime consists of 13 departments and agencies, each with their respective mandates, led by the Department of Finance. The regime is established by federal statutes, including the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and the Criminal Code.

The PCMLTFA is an essential component of Canada's regime. The act establishes the Financial Transactions and Reports Analysis Centre of Canada, or FINTRAC, as it's more commonly known, as Canada's anti-money laundering and anti-terrorist financing regulator and financial intelligence unit and defines its operations. It also requires financial institutions and designated non-financial businesses and professions to report certain financial transactions to FINTRAC, have compliance and training programs in place, identify clients and keep records.

Collectively, businesses subject to the PCMLTFA and its regulations are known as “reporting entities”. There are over 24,000 reporting entities that play a critical frontline role in efforts to prevent and detect money laundering and terrorist financing in Canada. Reporting entities include banks, credit unions, casinos, real estate professionals, money services businesses, accountants, dealers in precious metals and stones, and the armoured car sector.

Canada's regime operates based on three interdependent pillars. The Department of Finance’s role aligns with the first pillar: policy and coordination. The department is responsible for leading the assessment of money laundering and terrorist financing risks and developing and coordinating domestic and international policy. Other regime partners also play an important role in informing and developing policy, including Public Safety, Justice, Global Affairs, and Innovation, Science, and Economic Development Canada.

The role played by FINTRAC, the Financial Transactions and Reports Analysis Centre of Canada, aligns with the second pillar of the regime, prevention and detection. It is responsible for promoting, supervising, and enforcing anti-money laundering and anti-terrorist financing compliance and collecting, analyzing, and disseminating financial and other intelligence.

The third pillar, investigation and disruption, involves identifying, investigating, prosecuting, and sanctioning money laundering and terrorist financing offences. Responsibility for implementing this pillar rests with federal agencies, including the Royal Canadian Mounted Police, the Canada Border Services Agency, the Canada Revenue Agency, the Canadian Security Intelligence Service, and the Public Prosecution Service of Canada.

While the regime as a whole falls under federal jurisdiction, there are many areas with shared provincial and territorial responsibility. Provincial and municipal law enforcement bodies, provincial Crown attorneys' offices or prosecution services, civil forfeiture offices, and provincial regulators play important roles in combating the laundering of proceeds of crime and terrorist financing.

Canada’s regime has been the subject of a number of domestic and international reviews in recent years. These reviews found that Canada’s regime generally has a strong legal framework, but achieving operational effectiveness remains a persistent challenge. Other criticisms of Canada’s regime include challenges in the ability to use financial intelligence, ensure transparency of legal persons and arrangements, successfully investigate and prosecute money laundering, and deprive criminals of the proceeds of crime. The government acknowledges these important reviews and is committed to bringing forward measures to strengthen Canada’s regime.

The rapidly evolving and complex nature of financial crime requires ongoing changes to improve and modernize Canada’s regime. In recent years, the government has brought forward measures to provide tools to support law enforcement investigations and prosecutions, enhance information sharing and address risks posed by new technologies and sectors.

Since 2019, the government has made investments of $319 million, with close to $50 million ongoing, to strengthen data and inform technology resources, financial intelligence, information sharing and investigative capacity to support money laundering investigations in Canada. Significant funding also went to FINTRAC and the RCMP.

A public and searchable beneficial ownership registry of federal corporations was launched in January 2024. It will address the use of anonymous Canadian shell companies to conceal the true ownership of property, business, or other valuable assets with a view to laundering money, avoiding taxes, evading sanctions, or interfering with our democracy.

The need for a beneficial ownership registry was a key finding of the mutual evaluation by FATF, the Financial Action Task Force, and of the Cullen Commission and the 2018 parliamentary review of the Proceeds of Crime and Terrorist Financing Act. The federal government will continue calling upon provincial and territorial governments to advance a national approach to beneficial ownership transparency.

Budget 2023 also announced a suite of legislative and regulatory measures to strengthen the investigative, enforcement, and information sharing tools of Canada’s regime. This includes changes to: enhance information sharing powers within the finance portiolio and allow FINTRAC to better support decision making, including on national security risks; allow the Minister of Finance to direct reporting entities to undertake enhanced due diligence to help counter risks to the financial system, including from foreign interference; and require the financial sector to report information on sanctioned assets to FINTRAC.

In June 2023, the government launched a public consultation on strengthening the regime. The government took a broad and comprehensive look at Canada’s regime and considered many potential measures for its improvement.

This included improving operational effectiveness and enforcement outcomes, facilitating greater information sharing, modernizing legislative and regulatory obligations while balancing the burden on the private sector, and responding to national and economic security risks that have evolved in the past two decades since the PCMLTFA was first enacted, including the risks posed by Russia’s illegal invasion of Ukraine.

The government received 129 written submissions from a wide variety of stakeholders, which indicated strong support for further measures to strengthen Canada’s regime to improve operational results. For example, submissions spoke to support for dedicated anti-money laundering and anti-terrorist financing investigative and prosecutorial resources and support for the creation of a Canadian financial crimes agency, support for the creation of a corporate beneficial ownership registry and support for greater information sharing, including private-to-private and public-to-private information sharing to detect, deter and disrupt money laundering and terrorist financing.

Many suggestions were made to strengthen and/or modernize criminal justice measures to combat money laundering and terrorist financing, such as proposals to reflect the use of new technologies and address third party money laundering. Regarding sanctions evasion and threats to the security of Canada, most stakeholders agreed that FINTRAC should be enabled to provide intelligence on these matters, though some were concerned regarding the possible dilution of the PCMLTFA beyond its core focus on anti-money laundering and anti-terrorist financing.

Finally, submissions indicated support for taking a risk-based approach to anti-money laundering and anti-terrorist financing regulation, including to the expansion of the framework to new entities, and many suggestions were also made to improve regulatory compliance and streamline administrative burden while maintaining the intelligence value of reporting to FINTRAC.

In summary, the government is commited to continuing to strengthen Canada’s regime. The regime seeks to combat money laundering and terrorist financing while respecting the constitutional division of powers, the Canadian Charter of Rights and Freedoms and the privacy rights of Canadians. The regime relies on multiple partners and all levels of government to work collectively to detect, deter and disrupt illicit financial flows.

The government has undertaken investments and other measures in recent years to strengthen the framework and respond to evolving risks.

The government has undertaken investments and other measures in recent years to strengthen the framework and respond to evolving risks. The parliamentary review of the PCMLTFA provides an important means to continue to improve the regime, and the government is ready to support the Standing Committee on Finance in carrying out the review.

I, as well my colleagues Ms. Hunt and Ms. Davidson, would now be happy to answer any questions.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Brazeau and colleagues, for coming before the finance committee to answer questions from members. That is what we are going to get into right now.

In this first round of questions, each party will have up to six minutes to ask questions.

We are starting with MP Chambers for the first six minutes.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you very much, Mr. Chair.

Welcome back to committee to those of you returning for your second time or more.

You mentioned “achieving operational effectiveness”. In layman's terms, would it be fair to say this basically includes to catch more and convict more money launderers, tax evaders and criminals?

[Julien Brazeau]

Yes.

[Adam Chambers, Conservative, Simcoe North, ON]

When you say that the government has done some international comparisons, does the department have any international comparisons on the operational effectiveness of the regime? For example, in a previous appearance, we had some information that showed that in one year, four convictions under the act were achieved. In the next year, there were maybe 12. Do we know how our operational effectiveness compares to that of our peer jurisdictions?

[Julien Brazeau]

We do have and released in March 2023 some metrics around the operational effectiveness of the regime. It showed that in a 10-year time span, the effectiveness of our ability to prosecute financial crimes has steadily declined and has not been aligned with the risk profile of money laundering in Canada.

In terms of what's been done internationally, I will turn to Erin, who can speak to that more specifically.

[Erin Hunt, Director General, Financial Crimes and Security Division, Department of Finance]

Thank you. That's an excellent question.

What I would add is that Canada is a member of the Financial Action Task Force, which is an international money laundering standard-setter and the body that undertakes peer reviews of all countries around the world on how they're meeting their money laundering and terrorist financing standards.

Those reviews show that Canada has a strong money laundering framework, but our operational effectiveness is lower and could be improved. In comparison to other countries, Canada is among the lower of our peers in the G7, for example, in how effective our regime is in combatting money laundering and terrorist financing.

There's one area where Canada's regime is a bit different from those of some of the countries that have high effectiveness in their enforcement: Those countries often have a dedicated police force focused on combatting financial crimes in this space.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you very much.

The Coles Notes version is that it's a decent regime, but on metrics and outcomes, we don't catch and convict and that's quite difficult in comparison. I would appreciate direction on where the March release is, if that's possible.

I have a couple of other questions. I'm going to run out of time, so feel free to follow up with information.

You referenced British Columbia's Cullen commission and said that potentially 5% of the house price appreciation is related to money laundering. Has the department looked at a similar analysis for the rest of the country on the impact of money laundering on the housing market specifically?

[Julien Brazeau]

I don't have that data with me. We can take that back, though.

[Adam Chambers, Conservative, Simcoe North, ON]

Sure. If there is anything on that, I'd be very interested in hearing about it.

You talked about private-to-private information sharing. Bill C-27, the privacy act, is being reviewed now. The financial services sector for many years has asked for the ability to share information with peers in cases of suspected money laundering. Today they can already do that for fraud. I'm telling you all things you already know.

Did the Department of Finance make any recommendations to the government on expanding the safe harbour provision, if you will, in Bill C-27?

[Julien Brazeau]

That's an area of active discussion at the moment. We've had discussions with our ISED colleagues and with the Canadian Bankers Association. We recognize the importance of moving that forward, so it's under consideration.

[Adam Chambers, Conservative, Simcoe North, ON]

Is there currently no provision?

[Julien Brazeau]

There's no provision at the moment that provides the safe harbour that financial institutions are seeking.

[Adam Chambers, Conservative, Simcoe North, ON]

You mentioned reporting entities. One of the big differences between Canada and the U.S. is that land title companies in the U.S. are an equivalent reporting entity. Land title companies are not going to pay an insurance claim to somebody they don't know. If we're trying to find out who individuals are, I'd recommend we consider adding land title companies to a reporting entity list. I'm not in their good books now. I'm off their Christmas card list, but I would strongly recommend we look at those.

It appears you had a summary of the consultation, which you released in June. If there is a summary and the department has provided it to the minister or the government, it would serve our interests very well to have the summary of the consultation responses you received. I think that would help direct us in our inquiry. I note that the last Parliament spent 14 hearings on this matter. I'd love to spend 25, but we might have somewhat fewer than that. If you could provide that information, that might help us focus our efforts and decide where to go.

I have 10 seconds left, so we'll come back to it, but I'd like to hear from you before we leave today about where you would recommend we focus some effort regarding things that have not yet been probed sufficiently.

I appreciate your appearance here today.

I would like to reserve the right to recall the witnesses later, Mr. Chair.

[The Chair, Liberal, Peter Fonseca]

You have that right.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Chambers.

We now go over to MP Weiler for six minutes.

[Patrick Weiler, Liberal, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

Thank you, Chair.

I want to thank our witnesses for being here today as we start our study, which is not quite a legislative review—we would need a motion for that—but a bit of a taste of the work we're going to do. I appreciate your laying out the many steps that have been taken in recent years to address some of the shortcomings in Canada's anti-money laundering regime.

Mr. Brazeau, something you touched on in your opening was some news from earlier this year on the beneficial ownership registry for federally incorporated corporations. This is of course based on Bill C-42, which passed into law last year.

I was hoping you might be able to share with this committee in further detail how getting access to this beneficial ownership information will help the government to better go after money laundering by understanding who the real owners of property are and explain to us how this will work with the beneficial ownership registries that are in other jurisdictions as well.

[Julien Brazeau]

Thank you. I'm happy to answer the question.

The use of Canadian shell companies to conceal the true ownership of businesses is a real problem. FINTRAC estimates that 70% of money laundering cases in Canada involve a shell corporation. The ability to determine who are the rightful owners of those corporations is important not just for money laundering purposes, but for tax evasion purposes and other purposes as well.

The government, as you've said, introduced a bill, and the federal registry went live just a few weeks ago now. This is a searchable and publicly accessible registry with information. Some information will be shared directly with some of our enforcement partners—that is, information that is not made public—but again, the goal is to help our enforcement partners determine who are the rightful owners.

One limitation of the federal open banking regime is that federal incorporations account for only about 15% of corporations in Canada; therefore, there's a need to collaborate with provinces. Since 2016, a working group has been established of federal, provincial and territorial partners to discuss beneficial ownership, and all provinces or territories have put in place some laws that require at least the gathering of information on beneficial ownership.

The Province of Quebec took a head start in the creation of a publicly accessible regime. The Province of British Columbia has now committed to doing that as well. At the federal level, we're working closely with our provincial partners to see how we can integrate those provincial regimes to ensure we have a full pan-Canadian framework that would be accessible for our enforcement entities.

[Patrick Weiler, Liberal, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

Thank you.

You mentioned a few of the provinces that have already brought in or have intentions to bring in those regimes. I'm curious at this point to know if there are jurisdictions that have yet to make that commitment or, to your point on the need to work together, have yet to commit to sharing that information with the federal regime, which of course is critically important to tackle money laundering.

Also, in order to go after what is oftentimes transnational crime as well, it's critically important for Canada to work with other jurisdictions on the need to have a similar format for information so that it is easily shareable.

[Julien Brazeau]

Absent Quebec and British Columbia, I would say that Ontario has started talking about the potential creation of a registry itself. We've had productive conversations with our provincial and territorial partners in that regard. I think it's a question of prioritization among their respective governments as well. In some cases, some of them do have registries, but they are pay-for-access registries. How we can align that with the goal of having publicly accessible free access for Canadians is an area under consideration.

As I said, it's an area of active discussions for us and for partners at the Department of Innovation, Science and Economic Development, which oversees the registry as well. We're hopeful that in the coming months and years we'll be able to get some momentum and get additional provinces on board.

[Patrick Weiler, Liberal, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

One of the other changes announced in the budget last year is a new requirement for money services businesses to be registered. I understand that regulations are being put together on that matter. I know it's oftentimes pointed to by many folks in my community that those are major risks for people laundering money, and many people have information they are sharing about that.

I was hoping that you might speak a bit more to the importance of having this registration system and how that might help the government tackle money laundering that may be taking place at some of the money services businesses across the country.

[Julien Brazeau]

Sure. I'm happy to.

I'll start by talking about benefits more broadly and being a reporting entity under FINTRAC and then maybe turn to my colleagues. They can speak a bit more to the specific changes in the legislation and regulations.

The goal of having reporting entities is to ensure they are subjecting the clients they deal with to enhanced due diligence and ensure they are reporting suspicious transactions to FINTRAC. FINTRAC relies on all of those disclosures to form the basis of its intelligence, which it refers to the RCMP and other provincial police services to investigate and then to the prosecution service to prosecute.

We continuously, as a regime, evaluate where the risks exist in the regime and look to expand the number of reporting entities based on what level of risk they represent. As you've mentioned, over the past couple of years, we've broadened the number of reporting entities on a number of occasions, including for armoured cars and players in the mortgage sector and real estate sector, cognizant of the ML risk in that space.

I'll turn to my colleague Charlene. She can speak more specifically to the latest changes.

[The Chair, Liberal, Peter Fonseca]

Madam Davidson, it will have to be very quick. We're over time already.