Foreign Affairs Committee on Nov. 23rd, 2016

[Peter Kent, Conservative, Thornhill, ON]

Without an answer.

[G. Stephen Alsace]

—without an answer, and that has directly impeded economic transactions. We have a number of clients who have been basically in limbo for the last 16 months because we've actually submitted a permit application without any answer. We don't even get an answer regarding the timing of when we can expect an answer, and that's why we're here today. It's because we believe that's unacceptable.

[Peter Kent, Conservative, Thornhill, ON]

Thank you.

Thank you, Chair.

[The Chair, Liberal, Bob Nault]

Thank you, Mr. Kent.

We'll go to Mr. Sidhu, please.

[Jati Sidhu, Liberal, Mission—Matsqui—Fraser Canyon, BC]

Thank you, Mr. Chair.

Thank you both for your testimony today.

We have heard from businesses during this particular study that sanction compliance places a heavy burden on banks facing complicated patchworks of compliance legislation. I met with the Canadian Credit Union Association, and one of the major concerns that they brought forward was that they were disadvantaged against the big banks because of the sanctions, the policies. Do you have any further information about the impact sanction legislation has on credit unions?

[G. Stephen Alsace]

I really can't answer that, being from a chartered bank. I can appreciate perhaps some of their frustration. I mentioned in my earlier testimony that there is a significant cost to compliance. We're not just looking at the Canadian regulations. We also have to look at other international regimes where we do business. When you layer that on top of Canadian requirements, it is fairly onerous.

A point that we wanted to make, though, quite frankly, is that Global Affairs Canada in the last few years hasn't made it much easier. Going back to 2010—no, I won't go that far back. I'll go back to 2013, when I first assumed my role. It was at a time when Global Affairs, DFAIT at the time, was much more collaborative. When there was an introduction, say, of a new sanctions regime, or a new country was added, they would host a conference call, and they would invite industry. They would do separate calls for banking, and I believe they did a separate call for credit unions at the time. They would answer questions fairly openly and would provide some much-needed guidance, because you won't see anything published, as you're aware. At Global Affairs, they don't publish frequently asked questions, as OFAC does in the U.S.

We found it frustrating, because since 2015 it's almost been radio silence. Earlier I could pick up the phone and speak to a lawyer in the economic law division and be able to get at least an indication if that sounded like something we'd need a permit for or if we were on the right track in our interpretation. Now, since 2015, there's nothing. They don't even provide that limited guidance. They'll say to submit an email or submit a permit application.

Well, we'd send an email without any real guidance. Basically their response would be, “You need to seek independent legal advice.” We've heard from lawyers in the industry; it's circular. They don't have the advice. They need to go back to Global Affairs.

Ultimately it comes back to a permit process. You submit something, you ask for general advice, and they say, “No, we can't give you a general answer. It has to be specific.” We wait for a transaction, a live transaction. We have clients waiting. They want to do a letter of credit, and you have to submit an application.

We've been waiting 16 months.

[Sandy Stephens]

I think the recommendations we're putting forward today would be helpful for all participants in the regime from a private sector perspective, including credit unions.

[Jati Sidhu, Liberal, Mission—Matsqui—Fraser Canyon, BC]

Going back to the banks, do you have any experience with overcompliance? Can you pinpoint any one case when it became an issue with the banks?

[G. Stephen Alsace]

It happens fairly frequently.

Where there is ambiguity, where there is any kind of vagueness, banks—and I think credit unions would act the same way—err on the side of caution. You're conservative and you're more reluctant to complete transactions.

That's not necessarily our bank, but we've seen it with other international financial institutions, particularly those that have been subject to enforcement from other regulatory regimes. They will just block it, and they will not deal with certain countries at all. They don't even acknowledge that certain exceptions are permitted. They don't even want to look at that, because of the cost of compliance and the need to have the staffing to look at it and, indeed, because of the potential risk.

We take a position. We try to look at every transaction on a case-by-case basis. What a lot of Canadians don't realize is that although we may clear it as a Canadian bank, there's another party in another country that has to also be a participant in this transaction. They take a policy approach and they say they won't do it. That has had detrimental impacts on our customers. We try to explain to them that it's not us, that it's the other clearing bank that won't do the transaction.

[Sandy Stephens]

Better guidance will help banks in their need to be compliant, but it will also help businesses in their ability to grow and do these transactions.

[G. Stephen Alsace]

If I may, sir, what we've been looking for are just some guidelines, even a list of certain goods and certain countries that are permitted that won't require a permit. That would go a very long way in stimulating the Canadian economy, particularly with a lot of our clients interested in these emerging markets. They want to take advantage of them but they're prohibited from them because of the ambiguities in the legislation and lack of interpretation and guidance.

[The Chair, Liberal, Bob Nault]

Go ahead, Mr. Sidhu.

[Jati Sidhu, Liberal, Mission—Matsqui—Fraser Canyon, BC]

Do you recall any business opportunities denied to the bank by these sanctions?

[G. Stephen Alsace]

Not directly. It impacts mostly our clients. Quite frankly, we're not necessarily racing toward many of these sanctioned countries to open up branches. That said, we have been asked to participate, perhaps in syndicated credit facilities, and we have declined that opportunity because of ambiguities in the sanctions regime, so yes.

[The Chair, Liberal, Bob Nault]

Madame Laverdière is next, please.

[Hélène Laverdière, NDP, Laurier—Sainte-Marie, QC]

Thank you very much, Mr. Chair.

I would like to start by mentioning that the points raised by the witnesses today are things we have already heard. I'm not saying that your presentation was pointless, quite the opposite. You made an excellent summary of the points and problems we have already heard in terms of implementing this legislation, even the Special Economic Measures Act, or SEMA. In this regard, there has been one prosecution in 25 years under this act, so I think there are some very real problems.

I would like to ask you about overcompliance with the act. In particular, there were sanctions against Iran. I met with some Iranian students whose bank accounts were closed because the banks preferred to be cautious more than anything else. That is what's affecting these measures here in Canada.

I think that we have a good understanding of the problems, and that your recommendations will be very helpful. You are also required to comply with sanctions in other countries where you are able to operate, including in the United States, Europe and elsewhere. I suppose this also complicates things for the banks.

Is there anything the Government of Canada could do to ease the burden?

[G. Stephen Alsace]

That's an excellent question.

I would reiterate that yes, in our view, there are certainly things that the Canadian government can do. A large part is around some of the points we have already raised. It's around administration. It's around guidance. We don't find significant or material flaws in the legislation itself; it's just in support around that legislation, be it a consolidation of lists or being able to provide guidance on interpretation. That could help alleviate some of those issues.

Quite frankly, if there were an outlet, an ability for us to approach the government in those instances, to say we're not exactly sure with respect to these students and these new sanctions that came into force at that time—if we had that opportunity to have a dialogue with somebody in the government to allay those fears, etc., I'm sure it would not have had the same kind of consequence.

With respect to international sanctions, yes, there are concerns. Quite frankly, you raised Iran as an example. Although Canada has lessened the general sanctions regime against Iran, the United States, for the most part, hasn't, so we still have to be very concerned about any transactions that might be done in U.S. dollars. Some of the banks may have had or may continue to have restrictions on the ability to open up U.S. dollar accounts. Why? It's because U.S. dollar items need to clear through a U.S. correspondent bank, and they have to be concerned about the implication of sanctions.

Our belief—and we've made this clear in our position—is that the government could do more in supporting administration and infrastructure. If you were to look at Australia, you would see it is a good example of a jurisdiction where they do outreach. The government actually has a national road show twice a year. They meet with companies and industry to give guidance on sanctions. They actually attend conferences.

I've been to four international conferences in the last two years. There were two in Toronto, one in Washington, and one in New York, and they were organized by the American Conference Institute. I know directly, because I've spoken at each one of these conferences. They've asked me, “Who would you like to see attend from the Canadian government, as a Canadian representative, in addition to lawyers?” I said to each one of them, “Please invite Global Affairs Canada.” They've been invited four times. They have not appeared at any of these conferences.

It's not just Canadians who are participating, but the international community. You have lawyers. You have banks. They want to hear what the position is on Canadian sanctions.

[Hélène Laverdière, NDP, Laurier—Sainte-Marie, QC]

Thank you very much. Those were very good points, again.

Also, our civil servants could learn from others' experience by going to those international conferences anyway.

[G. Stephen Alsace]

I agree.

[Hélène Laverdière, NDP, Laurier—Sainte-Marie, QC]

Yes, absolutely.

Maybe I have one last question on guidance. We've seen the little booklet on guidance, which hasn't been updated since 2010. Do you need both a general framework guidance manual or something for sanctions in general, and then specific documents or exercises or outreach for every time there's a new regime of sanctions that comes into place? Would it be useful to have a kind of umbrella guidance, and then specific guidance, such as for sanctions on Iran or whatever?

[G. Stephen Alsace]

Yes, as a very short answer, I think that would be useful.

I think the OSFI guide is of use to smaller financial institutions, such as the credit unions. If you're starting up, it is quite useful. It goes into the basics, but it is fairly basic.

We really could have used outreach when the Russian sanctions came. I have to say from a practical perspective that when the Russian sanctions came down it was, quite frankly, almost pandemonium. They were a completely different type of sanction. They're not list-based per se. There's a portion, but you have three other schedules that are divided, and they separate credit and debt issuance transactions. They have different time periods. They say for any transaction that's a debt issuance in excess of 30 days, a credit transaction that is in excess of 90 days.... It's very complicated. Even to this day, we have to review anything that's a Russian type of transaction manually. We have to go through them to see if they fall within any of these new categories, or if it goes into, say, Arctic deepwater drilling or fracking. We don't even have a definition for “Arctic”. There are three definitions used for the Arctic Circle internationally. The Europeans have one, the Americans have one, and we have one.

[Hélène Laverdière, NDP, Laurier—Sainte-Marie, QC]

So then—

[G. Stephen Alsace]

So when you have to actually pinpoint the location, we actually ask for the site. Where are you drilling? I have analysts who try to plot that on a map, and they have to figure out the longitude and latitude to know if it actually falls within the sanction. It's very difficult to actually understand.

[Sandy Stephens]

Many areas of government do this. When there's a new regulation or they develop new guidance, they have a road show and they explain it to the industry. That is a typical type of process.

[The Chair, Liberal, Bob Nault]

Thank you very much, Madame Laverdière.