Finance Committee on Feb. 8th, 2024

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Here is another change of subject. Artificial intelligence is very much in the headlines and it can be very beneficial, but numerous authors have written about the deleterious impacts. To what extent is your department readying itself for the impact of artificial intelligence on money laundering and criminal activity?

[Julien Brazeau]

For artificial intelligence, we absolutely recognize that it's both an opportunity and a threat. We review our financial sector statutes every five to seven years because there are sunset clauses in our acts. We're in one of those reviews at the moment. We issued a public consultation that closed recently.

One of the topics we're looking at specifically is AI and how it presents opportunities and challenges and what that means for financial services more broadly. We're in the process of looking at the feedback we've received and talking to experts about what is coming down the pike and what measures will have to be taken from a legislative and regulatory perspective to trust those services.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Please move quickly on that.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Lawrence.

Go ahead, MP Thompson.

[Joanne Thompson, Liberal, St. John's East, NL]

Thank you and welcome to the committee.

I want to circle back to some of the points that have already been brought forward and delve into more specifics, beginning with how you've seen the treats of money laundering and terrorist financing evolve over the last two decades. Could you be a bit more specific in terms of what we've seen in that period of time?

[Julien Brazeau]

Sure. I'd be happy to.

Over the past two decades, we've seen that financial crimes are not victimless crimes. We've talked about the impacts on the real estate market and the impacts that fentanyl has had on drug users across Canada. We've seen the use of technology to mask the identity of individuals. We've seen the use of complex or corporate structures to, again, obfuscate the ability to identify who the ultimate perpetrators of crimes are.

Canada is an open economy with a stable financial sector, but one that is easily accessible. As a result, it makes Canada a target for money laundering and terrorism financing. Certainly, we've seen the complexity of those cases increase over the past two decades.

[Joanne Thompson, Liberal, St. John's East, NL]

Staying with the same theme, are there new groups or new motivations driving money laundering and terrorist financing, specifically around regimes that are linked to right-wing terrorism or extreme white nationalism?

[Julien Brazeau]

In March 2023, in addition to releasing the regime strategy and some of the performance metrics, we released the updated national inherent risk assessment. The national inherent risk assessment, or the NIRA, is the tool through which we work with our intelligence and enforcement partners to identify risks and how those risks are evolving.

If you look to the NIRA, you will see that the issue of ideologically motivated crimes has been identified as a growing area of concern for the government. The NIRA is used as a tool to try to inform how we prioritize our enforcement efforts and where we need to dedicate resources.

The issue of white nationalist groups and ideologically motivated crimes is an area of concern that we're mindful of.

[Joanne Thompson, Liberal, St. John's East, NL]

The last thread in that line of questions is on the technologies and the proliferation of cryptocurrency. You mentioned AI. I don't know if you want to add anything else to that. Could you comment on how this is impacting money laundering and terrorism?

[Julien Brazeau]

On the use of cryptocurrency, again, there are benefits and disadvantages to the technologies that underlie these innovations. I think one of the drawbacks from the AML and ATF perspective is that the use of cryptocurrency often masks, from a privacy perspective, who the users are. That represents a challenge. The ability for us to track the money is complicated as well. As I mentioned, we have invested important amounts with FINTRAC and with regime partners to increase their ability to identify those crimes. We've also added cryptocurrencies and the users and distributors of cryptocurrencies as reporting entities under the regime.

We are looking at trying to cast a broader net to catch these technologies, but as we said, these things evolve quickly. We would appreciate the committee's views and recommendations on how we remain at the forefront of those innovations.

[Joanne Thompson, Liberal, St. John's East, NL]

Thank you.

I'll put in another question, following on what you've said, to try to pull out more specifics.

The Cullen commission report said that FINTRAC is not sharing enough information. You've referenced that you're taking the recommendations seriously and will certainly act on those recommendations. Are you able to say—because obviously the reporting is so central to the previous comments—what you have started in the short term?

[Julien Brazeau]

I'll speak very briefly to it, and then I'll turn to Charlene. She has more specifics on it.

We've looked to expand the number of parties to which FINTRAC can provide disclosure reports. We've also looked at that in the context of sanctions and the use of potential intelligence to inform sanctions evasion and things of this sort. We are actively iterating on how that intelligence and those intelligence products can be better used or disseminated within the law enforcement community to inform prosecutions.

Charlene, did you want to talk to a couple of specific examples?

[Charlene Davidson]

Thank you very much.

In budget 2023, in order to increase information sharing from FINTRAC, we established powers for FINTRAC to disseminate strategic analysis related to the financing of threats to the security of Canada. We also expanded the designated information that FINTRAC is allowed to disclose to law enforcement when it has reasonable grounds to believe that the information would be relevant to investigating or prosecuting a money laundering or terrorist financing offence. OSFI, the prudential supervisor for banks in Canada, was designated as a recipient of FINTRAC financial intelligence as it pertains to threats to the security of Canada.

In addition, in the fall economic statement in 2023, in order to combat environmental crimes, FINTRAC.... It's under consideration, as the bill hasn't passed yet, but it is proposed that FINTRAC be able to share financial intelligence information with Environment and Climate Change Canada and the Department of Fisheries and Oceans to combat environmental crime.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Thompson.

Members and witnesses, we're moving into our third round.

MP Hallan is first.

[Jasraj Singh Hallan, Conservative, Calgary Forest Lawn, AB]

Thank you, Chair.

Before I get started, I just want to put a motion on notice, if you could pause my time, please.

As the committee knows, more tax hikes are coming on April 1. I think it's really important for us in this committee to make sure that we stop them as soon as we can, especially the escalator tax, which is supposed to go up on April 1. As we know, business costs are skyrocketing, with 40-year highs in inflation, and insolvencies and bankruptcies are on the rise.

Therefore, the Conservatives would like to put the following motion on notice:

Given that:

a. Taxes on beer, wine and liquor will automatically increase on April 1, 2024;

b. This year's tax increase will be 4.7%—the amount equivalent to average inflation over the past year; and

c. Canadians and businesses cannot afford another tax increase;

The committee report to the House that it calls on the government to cancel its April 1, 2024, tax increase on beer, wine and liquor.

I'd just like to put that on notice, please. Thank you.

[The Chair, Liberal, Peter Fonseca]

Yes, that's captured.

Go ahead.

[Jasraj Singh Hallan, Conservative, Calgary Forest Lawn, AB]

Thanks, Chair.

Thank you to the finance officials for being here today.

Ms. Hunt, you mentioned earlier that Canada's ranking is on the lower end when it comes to effectiveness. Do you have the number for what ranking we are?

[Erin Hunt]

It's an excellent question.

I think Julien mentioned that Canada doesn't get a specific ranking with a numerical value. We're evaluated on two areas under the Financial Action Task Force. We're evaluated on our technical compliance. There are about 40 recommendations against which Canada is evaluated. We're given a recommended grade, we could say, on each one of those technical compliance areas. We're also evaluated on our overall effectiveness. There are 11 areas where we're evaluated on our overall effectiveness.

Canada's ranking is a combination of those factors, but no one country is given a specific.... There's no numerical order.

[Jasraj Singh Hallan, Conservative, Calgary Forest Lawn, AB]

Okay. What are some of the main factors there that have been decreasing since 2015?

[Erin Hunt]

That's an excellent question.

Canada, as we have said, has a very strong legal framework. In one of the areas in our 2021 report where we were re-evaluated on some of the technical compliance, our ranking changed with respect to our coverage of non-profit organizations. The standards with which Canada was evaluated in 2015 changed as FATF continued to evolve where they saw risks—

[Jasraj Singh Hallan, Conservative, Calgary Forest Lawn, AB]

It's interesting how it changed in a negative way. It went down.

[Erin Hunt]

It became more stringent, yes, so Canada's evaluation was lowered in our 2021 evaluation with respect to our obligations on non-profit organizations.

[Jasraj Singh Hallan, Conservative, Calgary Forest Lawn, AB]

Were the transparency requirements one of those factors that went down as well?

[Julien Brazeau]

No. Beneficial ownership and transparency were one of the gaps listed by the FATF during the 2016 review.

[Jasraj Singh Hallan, Conservative, Calgary Forest Lawn, AB]

Since 2015, has the ranking gone down or up or stayed the same?