Foreign Affairs Committee on Oct. 17th, 2016

[Hugh Adsett]

It's not hard information.... I just want to give you the right number. There are a number of others. I'll see if I can find it in my notes.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

In how many of those—this might be something you could get back to the committee on—situations do the state sanctions then become very specific to organizations or to actors within national governments that are taking actions that are a grave breach of international peace and security or that would fall under the Freezing Assets of Corrupt Foreign Officials Act?

It seems that when you're targeting a national government there are individuals making those decisions within that. I'm just trying to get at how many of those, then, are also being targeted as part of state sanctions, potentially, as opposed to individualized seizures of their assets and prohibitions from travel.

[Hugh Adsett]

Marc-Yves and I were just having a quick exchange here. I think in all situations that would be the case.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

In all situations? Can you get back to the committee on the details of it so we can have that information for future study?

The state sanctions that we levy against different governments and administrations have these individuals, then, but it seems to me that if we're punishing them for taking certain actions we disagree with, shouldn't we also be barring them from entering the country and doing business with Canadian companies?

Doesn't that go part and parcel with sanctioning them without affecting third parties or other states that might do business with them, which we may be allies with or on friendly terms with?

[Marc-Yves Bertin]

Yes—

[Hugh Adsett]

Go ahead.

[Marc-Yves Bertin]

It goes back to a previous question.

We obviously have to work within the legal institutional construct, which is our Government of Canada and the way that ministerial responsibilities are attributed and the space within which they operate. We have an immigration minister who deals with admissibility issues. We have a foreign minister who deals with matters under SEMA.

When we look at a situation in our bilateral relationship with a country and we are of the view that something that's going on is inconsistent with our foreign policy objectives, broadly speaking, I think it's fair to say that there are are a number of cards we can play.

Sanctions would be one of them. Sanctions is not necessarily a legal term. Just in general terms, sanctions can relate to limitations on travel or limitations on the import and export of goods or technical data, as under SEMA. It could involve the imposition of asset freezes, financial services being denied, or even restrictions and prohibitions in terms of transport, marine and air transport.

We have a number of things that we could be doing and that we may elect to pursue at a given time. As the situation evolves, we might decide that we want to ratchet things up or ratchet things down in terms of the types of sanctions that we can take, but also in terms of other types of activities we may want to pursue, such as diplomacy and advocacy on the international stage, if that's even programmatic. There might be something that from a technical assistance perspective we might do in a foreign country in order to buttress or promote human rights or another public policy objective. Whether it's legislative, programmatic, or just operational in terms of advocacy, there are a number of instruments that we can deploy. When looking at a bilateral relationship, our geographic desks have the lead to balance out all of these considerations in terms of where the government wants us to bring the relationship. Therefore, they have to make a calculation as to which instrument they want to deploy and when.

[The Chair, Liberal, Bob Nault]

We'll go to Mr. Saini, please.

[Raj Saini, Liberal, Kitchener Centre, ON]

Thank you very much.

Just out of curiosity, let's say, hypothetically, that you have one country and there's a change in government, either peaceful or non-peaceful. Some of the criteria that you've noticed here are that there has to be inner turmoil in that country and that the political situation is uncertain. How do we decide that the country that's requesting us to make an order to disclose information is not seeking retribution for a political entity, whether it be a dictatorship or a democracy? How do we know that it's not retribution that's being asked of us, but rather a legitimate question?

[Hugh Adsett]

That's an important question. What I can tell you is that every time there is a request under the Freezing Assets of Corrupt Foreign Officials Act, an analysis is done. A number of considerations are taken into account. It's also possible under the act for the Governor in Council to determine not to impose a regulation if it's viewed to be inappropriate to do so.

[Raj Saini, Liberal, Kitchener Centre, ON]

If you have an individual who's under this act and you're going to freeze their assets, one of the things that we've seen, especially in international finance, is that this person may have cloaked their investments in the country either through a corporation or maybe through someone else's name. What resources do we have to make sure that we have the ability to search and to know exactly what assets this person actually does have in this country?

[Hugh Adsett]

I'm wondering if perhaps I can wait on the question of resources because I think the question there may relate to activities of the Office of the Superintendent of Financial Institutions.

[The Chair, Liberal, Bob Nault]

Thank you.

I have a couple of matters.

First, I want to advise the officials that it is very likely you'll be called back. As you might imagine, this was fairly quick, and the beginning of a process. I want to remind you of what I call connecting the dots. When it comes to machinery of government, it's extremely important.

One of the issues that I know is going to be talked about significantly in this committee is the multilateral significance of these pieces of legislation. If you look at SEMA, and the nine sanctions that are still in place, I'll be interested in having you answer some questions at some point. Were these taken independently or were we following the lead of other countries that had already put sanctions in before Canada put its sanctions in? Are there any on the list at all that were done independently of other nations, or are these all connected multilaterally? Is the review based on information of other countries that are making these kinds of decisions as well? I think that's important to know and to keep in mind.

The other issue that we will be again exploring is to look at the differences. For example, I don't imagine the economic sanctions in Burma are the same as the economic sanctions of the other eight. There's a fairly broad context of how you arrive at economic sanctions. I wonder if you could categorize them for us, meaning there might be simple sanctions for certain countries, and much more complex and elaborate ones, especially on the financial side, for countries like Russia, Ukraine, and then potentially even Iran.

I want to get those differences because they would make the discussion flow a little simpler, I think, if we could do that.

On behalf of the committee, I want to give you the chance to say a last few words, and then we'll go on to our next witnesses. I want to thank you for this opportunity to begin the dialogue, and I want to stress “begin the dialogue”.

Mr. Adsett.

[Hugh Adsett]

Mr. Chair, thank you for that.

I only wish to give the response to the question that I was asked earlier regarding the number of United Nations Act regulations. There are 16 United Nations Act regulations. I apologize for not having that at hand, but that's the information.

[The Chair, Liberal, Bob Nault]

Thank you very much.

We'll take a five-minute break, and then we'll get to our next witnesses.

[The Chair, Liberal, Bob Nault]

Thank you, colleagues.

We're now into the second hour of the reference that was referred to earlier on section 29 of the Freezing Assets of Corrupt Foreign Officials Act, and our statutory review of the act.

In the second hour, we're going to hear from the Royal Canadian Mounted Police, Superintendent Steve Nordstrum, director, federal policing criminal operations, national security; Sergeant Peter Hart, federal policing criminal operations; and the Office of the Superintendent of Financial Institutions, Christine Ring, managing director.

Welcome to you all.

Mr. Nordstrum, you have the floor.

[Superintendent Steve Nordstrum, Director, Federal Policing Criminal Operations, National Security, Royal Canadian Mounted Police]

Good afternoon.

Thank you for your time today, ladies and gentlemen.

My name is Superintendent Steve Nordstrum, and I'm with the Royal Canadian Mounted Police.

I'll speak mainly in English since my French is very rusty.

I'll begin today with an overview of the RCMP's role in relation to SEMA and the Freezing Assets of Corrupt Foreign Officials Act, FACFOA.

I'm also going to share some examples of a couple of investigations that were successful pursuant to those acts, and I'll briefly address some of the challenges that we face not just within the investigation prosecution of these acts, but writ large in the criminal justice area.

The RCMP's mandate is a multi-faceted one, and it includes preventing and investigating crime, maintaining peace and order, enforcing laws, and providing vital operational support services to other law enforcement agencies in Canada and abroad.

While the RCMP leads national security enforcement efforts, we can't do that without our partners provincially, regionally, municipally, and at the city level. We will refer to them as co-operative ventures. The RCMP also works in partnership with other federal government departments and agencies, predominantly in this area that we're going to discuss today, such as the Canadian Security Intelligence Service; the CBSA; Global Affairs Canada; Immigration, Refugees and Citizenship Canada; and FINTRAC. We also work with international law enforcement and industry, both from here and abroad, through our liaison officers, and we work within the Export and Import Permits Act, as well.

With CBSA, we work to address inbound and outbound breaches of sanctions and regulations at ports of entry, and we identify travellers who are ineligible for entry into Canada pursuant to the Immigration and Refugee Protection Act, or IRPA. The RCMP also has a shared responsibility with the CBSA to investigate cases linked to the proliferation of strategic goods and technology.

With FACFOA, the RCMP receives information from banks and other financial institutions reporting that they have blocked all financial services to someone subject to the act or its regulations. Financial institutions are also regularly mandated to search their records and inform the RCMP if they freeze assets and if they identify prohibited financial transactions pursuant to FACFOA.

While the RCMP's role with respect to sanctions has included enforcement and investigations, we also provide training, participate in industry outreach activities, and contribute to general policy development as it relates to sanctions and counter-proliferation. Any individual, company, or Government of Canada department can provide information to the RCMP relative to a possible federal offence. In the cases relating to sanctions, the referrals are often made by CBSA and our international law enforcement partners such as the Federal Bureau of Investigation or the immigration and customs enforcement branch, or ICE, in the U.S.A.

Specifically, the UN act, its regulations, and SEMA also require anyone in Canada, and Canadians abroad, to provide the RCMP with information they know pertaining to property that could belong to anyone on a sanctions list. This includes information about transactions or proposed transactions relating to such property.

When the RCMP receives information, it is assessed to determine whether it is within the law enforcement mandate and what the appropriate next steps may be. Within the national security arena, the RCMP utilizes the priority rating of operational files, or PROOF, which was designed to assess information to determine the next steps, the level of risk that may be incurred as a result of the information, and the level of governance that the federal policing criminal operations, national security, must exercise.

When it is a medium or a high risk, that is when our national security governance mechanism comes into play.

Matters that receive a low priority or a low PROOF get referred to other government departments, potentially CSIS or to the police of jurisdiction. That all depends on whether it relates directly to a national security criminal offence or another federal statute.

The RCMP relies on the expert controls division at Global Affairs Canada to determine whether a good or technology is controlled under the export control list. Such determinations are essential to investigations and even more essential to a successful prosecution.

Once the RCMP determines that it may commence an investigation and what degree of oversight is required, the mechanics of police work kick in. Federal statute investigations are complex, resource intensive, and onerous. It's very likely that they will meet the definition of what we call a major project and if that's the case, then we have a prioritization process for major projects.

Many of the major project investigative techniques require approval from national headquarters, so when an operational plan is written that includes such an investigative technique, it will come into the headquarters from the divisional level. My shop will then assess it and will move it up the line to the assistant commissioner for federal policing operations for approval.

At the same time, we have what we call a project prioritization scale. Within that scale, what we're looking for is the effective use of major case management techniques to enhance the likelihood of successful prosecution. The prioritization model results in the federal policing operations information management personnel looking at all of the factors surrounding that project and assigning to it some scores.

Then there's a standing committee within our national headquarters of personnel, such as myself and chaired by the director general of federal policing criminal operations, that will assign a tier to that file. Tier 1 are the highest priority files and they require significant oversight from federal policing criminal operations. Tier 2 requires less, and tier 3 won't require any sort of NHQ oversight.

This isn't a stop-start process. The investigators are still building a case, gathering evidence, and submitting their operational plans for assessment. Once the investigation is approved, the specialized investigative techniques are put into play, and it's deemed a priority one or a priority two, and that's really when the police work starts. We can't do that without good partnerships, particularly with our Public Prosecution Service of Canada personnel.

Many of our integrated national security enforcement teams have embedded crown prosecutors with them, which is very helpful. Not that we're led by the crown, but it's nice to have that specialized legal background to help us manoeuvre through some of the trickier areas of the law. Of course, at the end of the day, the attorney general has to give consent to many charges being laid pursuant to the Anti-Terrorism Act or some of these acts that we have here, SEMA, in particular.

There are two investigations that I'll mention briefly that have been successful in these areas. The first is the Yadegari case. As I spoke to partnerships earlier, it was a referral from the U.S. immigration and customs enforcement and it came by way of CBSA. It resulted in a project called OWATCH in 2009 and it determined that a male named Mahmoud Yadegari, who was an Iranian-born Canadian citizen was using a front country to procure pressure transducers or a pressure sensor from manufacturers and distributors in the U.S.A and Canada in contravention of the Iran regulations, the Export and Imports Permit Act, the Canada Customs Act, the Canadian Nuclear Safety and Control Act, and the Criminal Code of Canada.

These transducers were to be exported from Canada to Dubai, but intended for use in Iran's nuclear program.

The investigation was an onerous one, as I said before. It gathered evidence to show that Mr. Yadegari had falsified export documents, removed identifying labels on the transducers, received large amounts of cash deposits and international money transfers, and contacted over 118 companies and exchanged more than 2,000 emails with suppliers and manufacturers, both domestically and abroad. This case was complex, resource-intensive, and dependent upon the co-operation of our other governmental partners.

At the conclusion, there were sufficient grounds to conduct the first-ever Canadian prosecution of charges pursuant to the United Nations Iran regulations and the Canadian Nuclear Safety and Control Act. That resulted in a guilty finding under the acts previously mentioned, and Mr. Yadegari was sentenced to a total of four years and three months in prison.

In another case, in May 2011 CBSA intercepted a shipment of highly specialized rubber rings with dual uses: for Alberta's oil fields, or oil fields generally, and in a nuclear program. In a joint investigation, the RCMP and CBSA investigated Lee Specialties Limited, a company in Red Deer, Alberta, that manufactures oil field equipment. The investigation determined that in fact Lee Specialties was exporting the rubber rings as a prohibited good in contravention of the United Nations Iran regulations, SEMA, and the Canada Customs Act. On April 14, 2014, Lee Specialties Limited pleaded guilty to charges under SEMA and was fined $90,000. This was the first successful charge and prosecution in Canada under SEMA.

Investigations into transgressions of the above-discussed and other federal acts require a sound, in-depth knowledge of Canada's export control lists, intersecting domestic and international legislation, close collaboration with domestic and international partners, and investigative expertise in what is a constantly evolving arena. The investigation of these statutes is dependent upon a number of determinations. Whether a good is allowed to be exported is a highly complex and time-consuming process that requires assistance from experts outside of the RCMP. Once major project investigations do commence, they are lengthy and resource-intensive, and require dedicated personnel across a spectrum of agencies and departments to work co-operatively to enhance the likelihood of a successful prosecution.

In conclusion, I'd like to highlight that the RCMP, as Canada's national police force, has a broad mandate to prevent, disrupt, and investigate some of the most serious criminal and federal statute violation activity in Canada and abroad. It relies upon its domestic and international partners to safeguard Canada, Canadians, and our allies.

Thank you.

[The Chair, Liberal, Bob Nault]

Thank you, Mr. Nordstrum.

I want to go now to Madam Ring for her remarks. Then we'll go right to questions.

[Christine Ring, Managing Director, Office of the Superintendent of Financial Institutions]

Good afternoon.

Thank you for inviting me here today to discuss the role of the Office of the Superintendent of Financial Institutions as it relates to the Special Economic Measures Act, SEMA, and the Freezing Assets of Corrupt Foreign Officials Act, FACFOA.

The Office of the Superintendent of Financial Institutions, or OSFI, as we are known, is Canada's primary prudential regulator and supervisor of federally regulated financial institutions, such as banks, insurance and trust companies, and private pension plans. We promote financial stability by keeping a close eye on the solvency, liquidity, safety, and soundness of federally regulated financial institutions.

OSFI, like other major financial regulators, is a member of the Basel Committee on Banking Supervision and the International Association of Insurance Supervisors. We subscribe to these bodies' core principles of prudential supervision, which are recognized by the Financial Action Task Force, or FATF, the organization that sets international anti-money-laundering and anti-terrorist-financing standards.

OSFI's expectations are outlined in guidance that forms the basis of its anti-money-laundering assessment program. This program focuses on whether an institution has put in place the appropriate risk management systems and controls to detect and deter money laundering and terrorist financing.

Although OSFI does not have a legislative role under SEMA or FACFOA, it assesses the quality of controls in place at federally regulated financial institutions to comply with criminal anti-terrorist sanctions under the United Nations Act and the Criminal Code.

This work is included as a module in our general AML/ATF assessment program. We leverage this work to address similar controls that are required to comply with SEMA and FACFOA and require institutions to address weaknesses in this regard.

While OSFI is permitted to share certain information with FINTRAC, OSFI does not share information with those responsible for enforcing SEMA or FACFOA.

To help financial institutions, OSFI has published an overview of AML/ATF sanctions in an instruction guide on its website. Most federally regulated financial institutions subscribe to OSFI's email notification system alerting them to changes. This in turn enables them to implement the searching, blocking, freezing, and reporting obligations set out in regulations.

OSFI's AML and compliance group also acts as OSFI's liaison with other Canadian international stakeholders on financial crime-related matters. OSFI, for example, is a member of the advisory committee on money laundering and terrorist financing, which meets semi-annually under the leadership of the Department of Finance.

Today I've touched briefly on OSFI's role as it relates to the area of study by this committee, and I would be pleased to answer any questions that you have in due course.

[The Chair, Liberal, Bob Nault]

Thank you very much.

I'll now go to Mr. Kent.

[Peter Kent, Conservative, Thornhill, ON]

Thank you, Chair.

Thanks to both of you for attending this meeting.

Did you attend the entire hour of the testimony of the witnesses from Foreign Affairs previous to this?

[Christine Ring]

Yes.

[Peter Kent, Conservative, Thornhill, ON]

I want to speak to the case of an individual, Vitaly Malkin. I won't go through the list of alleged and credible evidence of wrongdoing, but here is the case.

Superintendent, you spoke to the interdepartmental partnerships, but I think the Vitaly Malkin case, over more than two decades, is a good example of interdepartmental dysfunction to a certain extent. We see a case where the immigration department regularly and quite frequently refused his entry to Canada and eventually refused and blocked his application for Canadian citizenship, with his access to Canada overturned by a judge. Russian foreign ministers intervened with the foreign affairs department of Canada on his behalf.

Also, CSIS has a file, we understand, which cannot be released because of its sensitive contents. We know that Mr. Malkin, although eventually allowed entry if not citizenship, has brought tens of millions of dollars into Canada and has acquired real estate properties and investments well known to you—I assume—as well as other authorities, and certainly well known in my home city of Toronto.

I'm wondering if either of your corners of government are aware of any other cases wherein the international criminal activity of a person, supported by credible and abundant evidence, was known to these government agencies, your agencies, and if other individuals, as well as Mr. Malkin, were able to bring their assets into this country.

[Supt Steve Nordstrum]

Thank you for the question, sir. I have no knowledge of the specifics of that case.

[Peter Kent, Conservative, Thornhill, ON]

In general terms...?