Finance Committee on March 14th, 2022

[Dustin Walper]

It's also very important—I'm sorry.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Go ahead, sir. Finish up.

[Dustin Walper]

I was going to say I think it's very important—and this applies to various FINTRAC rules—that we often have an obligation not to inform the customer. It's called the “no tipping rule”. We do not tip them off if there is an active investigation.

Sometimes it doesn't involve our freezing their accounts, but when it did, the lack of clear process from the client's point of view would be very difficult to handle, especially if they were, perhaps, not named appropriately.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Within this emergency economic measures order, there is talk of lots of things about reporting obligations, but that's for reporting to the government; it's not for reporting to your clients. That must have been relatively unclear, because this isn't like your typical AML, anti-terrorist financing, regime.

Is that correct?

[Blair Wiley]

It is a separate regime, so it's not one and the same.

The one thing that is important to distinguish here is that with someone's day-to-day chequing account, which they might be using to buy groceries or pay the rent, it would be quite disruptive for that individual to go to the store to buy groceries and find that they were unable to access their account and their funds.

In the types of businesses that we operate, as either wealth management or cryptocurrency platforms, the assets that we hold for clients are not typically used for the same day-to-day spending activities. It's a different context when you look at the cryptocurrency or investment space versus daily banking activities.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Your client provisions are very similar to what would be in a chequing account.

[Blair Wiley]

Absolutely. I was referring only to the point about proactively telling a client that their accounts had been impacted in some way. It's a different experience for a Canadian to find that their debit card doesn't work, for example.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

On the point that—

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Albas. I know the time goes quickly.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

It does.

Thank you, Mr. Chair.

[The Chair, Liberal, Peter Fonseca]

We are moving to the Liberals and MP Chatel for five minutes.

[Sophie Chatel, Liberal, Pontiac, QC]

Thank you, Mr. Chair.

My question will go to Messrs. Wiley, Mosoff and Walper. Thank you for this very good discussion. I was particularly reassured to hear you talk about how important it is to identify the use of cryptocurrency to finance illicit activity, terrorist groups and criminal activity. I was particularly worried when I read recently two main reports that, according to a very reliable estimate, Russia has the world's largest volume of dark money. That money, as you pointed out, escapes the radar because it is offshore—often through several bank accounts. They use a lot of shell companies or even trusts, which makes it very hard to know the source and the ultimate beneficiary.

I know there's good work being done on that at the OECD and by the Financial Action Task Force. Canada is part of this important work on beneficial ownership. But in terms of the value, the estimate is that about $1 trillion is going abroad, and it comes from Russia, mostly attributed to Mr. Putin and those surrounding him. We know as well from the Mueller report, for example, that this money is used extensively for misinformation in our democracy and also to finance interference in democratic elections. There's no doubt that Russia is at war with our democracy and has many means to undermine it.

In 2001 we put forward new regulations that came into effect on the proceeds of crime and terrorist financing legislation. Could you please update this committee on whether or not the regulations will allow the authorities to flag and stop criminal activities? I'm particularly concerned about cryptocurrency, but you can expand your answer beyond that, as I know that you have vast knowledge in this field. If the regulations will not allow it, what can be improved to stop the financing of these illicit activities?

Mr. Wiley, maybe you could start.

[Blair Wiley]

Sure. I have a couple of comments.

First off, we have abided by the additional sanctions that have been added on Russian names since the terrible invasion of Ukraine. We are of course ensuring that we are doing everything we can to prevent our platform from being used as a means of illegal financing of that war or a place for Russian oligarchs to hide their money.

We actually see cryptocurrency having a positive impact in this conflict, in that there are people around the world who are donating directly to the Ukrainian government using cryptocurrency as a means of doing so. Dustin mentioned that journalists operating in Russia, reporting from within Russia on that regime, sometimes need external ways to be funded and supported in their investigative work. Cryptocurrency has a place in those sorts of repressive regimes.

I also would comment more broadly on the trillion-dollar figure you mentioned. I don't know this for sure, but that would effectively be half of the total market value of all cryptocurrencies. We have high confidence that this money is not being stored in cryptocurrency. I think some recent studies by U.S. foreign services and security services would show that cryptocurrency is not of a size or magnitude that it can be an effective tool for hiding billions or trillions of dollars. The traditional finance system and the role of offshore banks and offshore shell companies still dwarf the size of the cryptocurrency industry. It is important to make sure that we keep that in context when evaluating how crypto could be used for negative purposes.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Chatel. That is the time. I just thought maybe some of the other witnesses had some comments on your question.

Members, we are moving into our fifth round. We're going to truncate this round a little bit just because I need a few minutes of members' time at the end of our session today to discuss our study. We'll be doing four minutes, four minutes, two minutes, two minutes, four minutes and four minutes. We're starting with the Conservatives.

For four minutes, MP Fast, go ahead, please.

[Ed Fast, Conservative, Abbotsford, BC]

I'm going to begin by directing my questions to our three cryptocurrency witnesses. If there were one or two regulatory or legislative reforms that the federal government could undertake to foster a more competitive and secure and welcoming cryptocurrency landscape here in Canada, what would they be? I'm asking that question because you're here in front of us and it's a challenge for us as decision-makers to understand the scope and the opportunity of this industry. I think it behooves all of us in government to get this right. You are the ones who have the information required to help us make really sound decisions on this. Again, I'm looking for maybe the top one or two legislative or regulatory reforms that you would suggest the federal government undertake.

[Dustin Walper]

I could maybe speak on two and then pass it over. Again these suggestions are a little bit off the cuff because I wasn't totally prepared for that question. One thing that we've seen work very well in jurisdictions like Switzerland, Wyoming and other places in the world is creating a special class of banking licence that allows not just crypto companies but also fintechs to access payment networks and payment rails. Right now it's impossible to do, so you typically have to go through a payment process or then go through Interac or through the EFT system and through the major banks. That would be one big area.

The other would be in concert with the provinces to create a framework for innovation in DeFi and Web3. Right now it's sort of a grey area. It might fall under existing securities law. If you operate in that space, you really risk potentially as much as a criminal kind of liability. Having a clear framework for experimenting in those areas would be quite beneficial.

[Ed Fast, Conservative, Abbotsford, BC]

Thank you.

[Blair Wiley]

I would just add that I think the securities industry focus on the simple buying and selling of crypto assets has been a good focus, but the next evolution of crypto technology is in payments, in lending, in insurance, in art and in gaming. Many of those dimensions are federal in nature, and having a supportive tax regime, a supportive accounting regime and a supportive financial and banking regime, to enable the technologies will require, I think, a whole-of-government approach, which is what we saw the White House instructing the U.S. government to do just last week with an executive order. We would certainly support something similar in Canada.

[Ed Fast, Conservative, Abbotsford, BC]

Have we fallen behind the U.S.?

[Blair Wiley]

It's really hard to know. I think it's like one step forward and two steps back. We're each working towards it, but you certainly see more venture investment in the United States. You see more companies that have achieved a global scale operating out of the United States. I think for us to have not just a domestic industry but also homegrown champions operating internationally, more could be done.

[Dustin Walper]

I will say that the provinces are more coordinated than the states are at the moment, which is one benefit.

[Ed Fast, Conservative, Abbotsford, BC]

Is Mr. Mosoff still here or has he left? It's looks as though he left. I was hoping to get his comment as well.

[The Chair, Liberal, Peter Fonseca]

I think he has left.

[Ed Fast, Conservative, Abbotsford, BC]

All right.

I have a question for Chief Archibald. You have lamented the fact that the government didn't give you more than a day's notice that the Emergencies Act would be invoked. You also mentioned that you would like to see some amendments to the Emergencies Act. Could I ask you to table with our committee at least some high-level points that you feel should be included in a revised or an amended Emergencies Act? I am asking for that because this committee is going to be asked to come up with a report that will include recommendations. If the report is unanimous, the likelihood of its actually gaining traction within the government is vastly enhanced. Your feeding into this now would be very helpful. Could I ask you to do that?

[National Chief RoseAnne Archibald]

I'll definitely work with the AFN staff to submit our thoughts, feelings and a suggested approach. Ultimately, it's more difficult when we're talking about some of the underlying issues around systemic racism, but perhaps there is something that we can add on that as well.

Thank you.