Finance Committee on Feb. 8th, 2024

[Charlene Davidson, Director, Financial Crimes Policy, Department of Finance]

Thank you very much for the question.

The obligation for money services businesses to register has been in place for several years now. What we did through budget 2023 was try to strengthen the requirements for registration—for example, the kinds of documents required for criminal record checks and the types of verification required for translated documents coming from other countries. Anything we can do to ensure we're not registering MSBs that might have business owners who are criminals or who are involved in organized crime protects Canada from these types of crimes.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Thank you, MP Weiler.

It's over to MP Ste-Marie.

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

Thank you, Mr. Chair.

Thank you to the witnesses for being here.

I also want to welcome the members who are joining the committee today. We have Ms. Collins, who is not a frequent visitor, Ms. Shanahan and Mr. Aldag, who are leaving us, and Ms. Gainey, who is continuing to gain experience on the Standing Committee on Finance.

It is a pleasure to work with you.

Mr. Brazeau, your presentation and discussion were very interesting. We are learning a lot about this subject, which is of great concern to us. You talked about the beneficial ownership registry. Mr. Weiler asked some good questions about that. While this exists at the federal level and in Quebec, there is still a lot of work to do in each province so it is well coordinated and usable.

When the bill was considered, before it was enacted by Parliament, people often said they had the impression that when it came to fraud, financial structuring and money laundering, frequent use was being made of shell companies. At this time, the beneficial ownership registry does would not go that far, obviously.

What work is being done at present, in your department, to get access to beneficial owners in tax havens?

[Julien Brazeau]

Thank you for your question.

First, the beneficial ownership registry is going to help entities like the Canada Revenue Agency identify these individuals and carry out investigations relating to the use of shell companies in tax havens, as you say.

I will be honest with you: tax havens and income tax are not areas in which I have direct knowledge. However, I will be happy to consult my colleagues on this question and provide you with an answer later.

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

Many thanks for that.

So I will change the subject and focus on fraud in the banking system, in particular identity theft for opening an account.

Is it correct that at present, the banks are not required to report the number of attempted frauds that they succeed in blocking?

[Julien Brazeau]

Financial institutions, including banks, have certain obligations. One of their obligations is to report any suspicious transaction to FINTRAC, the Financial Transactions and Reports Analysis Centre of Canada. Then, if FINTRAC thinks the information could be useful in an investigation, it forwards it to the provincial police service concerned or to the RCMP.

Financial institutions are also bound by obligations associated with guideline B‑20 from OSFI, the Office of the Superintendent of Financial Institutions. That guideline requires financial institutions to verify the information they receive and make sure that the statements made by consumers are true.

Regarding fraud in the system, we rely on police services and the criminal justice system to initiate the necessary prosecutions.

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

Thank you; that is very clear. However, I am still going to ask you for a second confirmation.

To my knowledge, when someone opens a bank account or obtains a credit card by fraud, the financial institution is obliged to report it. However, I believe that if an institution saw that an account had been opened at midnight with somewhat shady information and decided to block the transaction, it was not obliged to report the event, given that no fraud had been committed.

If I understand correctly, you are telling me that even those cases must be reported to FINTRAC by financial institutions. Is that right?

[Julien Brazeau]

If the institution has doubts about the legitimacy of a transaction, then, in theory, it must report it to FINTRAC.

I encourage you, in your study of the revision of the act, to have representatives of FINTRAC testify. I think they could provide the committee with some very useful information.

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

That is true, I could ask them my questions about cases where the transactions were blocked.

I would now like to talk about cases of fraud that are detected in financial institutions. I have the impression that previously, as a general rule, the institution reimbursed the client who was defrauded. However, it seems to me that we are now seeing a reversal of responsibility and the institutions are increasingly blaming the customer.

Is your perception the same as mine?

[Julien Brazeau]

In fact, the Proceeds of Crime and Terrorist Financing Act is aimed at fraud detection, not restitution practices. This aspect is more in the nature of consumer protection.

I can't answer your question because I don't have the figures to back me up on this point. I think the Financial Consumer Agency of Canada, the FCAC, would be in a better position than me to give you that information.

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

Right, thank you.

My time is almost up, but I would like to ask you one final question.

Do you think that consumers have enough information about attempted frauds at each financial institution?

Do you believe that there is enough information transparency at present, or should we, as legislators, bring in legislation that includes measures to give consumers access to more information about the subject we are concerned with?

[Julien Brazeau]

I think that is a question that is worth discussing. We would certainly like to know the committee's opinion on that subject.

As I said, that seems to be something that relates more to consumer protection. The anti-money laundering regime focuses more on detecting crimes at reporting enterprises and entities. That is certainly a problem, and we would be happy to hear your views and discuss it with you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Brazeau and Mr. Ste-Marie.

We now welcome MP Collins.

The floor is yours for six minutes.

[Laurel Collins, NDP, Victoria, BC]

Thank you, Mr. Chair.

I want to thank the witnesses for being here.

I still remember the 2017 Transparency International study that came out. It said that Canada had tied with South Korea for the worst transparency regime, and the term “snow-washing” was used very frequently here in Canada and around the world. It sounds as though progress has been made since then.

I think about the impact of this, especially with Mr. Brazeau having mentioned the statistic of 5%. In my home community of Victoria, the median cost of a single-family home is about $1.1 million. The benchmark value is about $1.2 million. That means for first-time homebuyers, there is $50,000 to $60,000 in increased costs, which is a huge amount. Folks are being impacted, and we know that's driving up rent prices as well.

The NDP has done a lot of work on pushing for a beneficial ownership registry, one that's public and searchable, and it sounds as though that work is under way.

I'm curious as to whether we are following international standards for things like ID verification, a tip line for whistle-blowers and a registrar with comprehensive powers so that we know people can be issued significant fines.

[Erin Hunt]

I can say pretty simply that the answer to that is yes.

I will start with the whistle-blower protections. One of the things we introduced very recently was new whistle-blower protections under the PCMLTFA to ensure that those who are reporting to FINTRAC have protections similar to those that already exist under the Criminal Code.

In terms of ID verification, this is a fundamental aspect of the PCMLTFA. All of our reporting entities have a responsibility to ensure that those they're doing business with do that type of due diligence so they know who their clients are. That's a fundamental aspect of how our regime works.

Perhaps Charlene has something else she would like to add.

[Charlene Davidson]

Sure. Thank you.

You also mentioned having the proper regulatory authorities for the beneficial ownership registry, and that's really important. The components of that exist in Bill C-42, and we continue to work with ISED on increasing those powers and authorities.

[Laurel Collins, NDP, Victoria, BC]

I'm curious as to how effectively it's up and running. I know we're just getting started. Can you give an update of where we're at and what needs to happen next?

[Julien Brazeau]

We have just started. It was just launched a couple of weeks ago, so I think it's early days at this point with regard to determining what the effectiveness is.

Certainly, the policy decision to have Corporations Canada do this was accompanied by funds to increase its capacity to assess this information and enforce it. The weeks and months ahead will give us a better sense of how that's working. Again, there is still important work ahead in terms of working with provinces and territories, because I think the real value of beneficial ownership registries lies in our ability to have the most complete information possible. That's the importance of this continued work.

[Laurel Collins, NDP, Victoria, BC]

Thanks so much. I'm looking forward to seeing the work that happens between the B.C. government and the federal government. It's good to see folks on track.

You mentioned the Cullen commission. As you know, it released its final report in 2022. Most of the report pertained to B.C., but there were a couple of recommendations for the federal government. One was “that the Ministry of Finance—either in conjunction with Canada Mortgage and Housing Corporation or on its own—develop the required data and conduct a market integrity analysis in order to identify suspicious transactions and activity in real estate.” Another was “that the Ministry of Finance develop an action plan for addressing the data gaps and data quality issues identified by the federal-provincial working group on real estate in its reports, focusing on data issues within the Province's jurisdiction.” Of course, the report also recommended the public beneficial ownership registry.

[Julien Brazeau]

I'm happy to speak on that.

We think the Cullen commission was an important milestone for the regime. Recognizing that the focus was on the provincial regime, we certainly took note of the recommendations, as they involved the broader federal regime.

In terms of the creation of a real property registry, that issue is a bit complicated by the fact that real estate and property lie more within the provincial remit. We continue to have discussions with federal-provincial-territorial partners about the broader corporations beneficial ownership registry, however.

[Laurel Collins, NDP, Victoria, BC]

In terms of action on those two specific recommendations, has there been anything concretely developed to address those data gaps?

[Julien Brazeau]

Is this in terms of data gaps for the real estate sector in particular?

[Laurel Collins, NDP, Victoria, BC]

Yes.

[Julien Brazeau]

We work consistently with the CMHC to try to better our understanding of information related to the real estate sector, especially in the current context, where the real estate sector and access to housing are so important. There are ongoing discussions in that regard. I would say they are specific not only to the Cullen recommendations but also to broader policy on housing.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Collins.

Now we're moving into our second round, members and witnesses.

We're starting with MP Morantz for five minutes.