Foreign Affairs Committee on Dec. 5th, 2016

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

Yes.

[Gretta Fenner]

—but if the case was solved or closed in a domestic Canadian investigation for money laundering, the situation, technically and legally speaking, presents itself differently. In that case Canada, legally, under the treaty, has the possibility of only giving back 25%, but politically, I can assure you, it is definitely not considered good practice—on the contrary.

There is a lot of debate between requesting and requested states, and I would love Canada's input to this debate. Currently we've been working with the UN system on this for years now. There is an expert panel coming up in February in Addis Ababa that will look at what good practice is, and good practice is for the requesting and the requested state to talk together about how the money can go back and be employed meaningfully in the former victim state in such a way that the damages that were caused by corruption can be somewhat remedied. This really should be a partnership approach, and certainly in no case should the requested state keep 75%. That's fairly shocking.

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

Thank you very much.

I must point out that I am not sure of the percentage. It was a few years ago and I do not have the figures in front of me. It was nonetheless a fairly small sum of money. Many people, myself included, were upset by this. I do not remember the exact percentage though.

You also mentioned $1.1 trillion in illicit flows of money.

We know it can range from very clear instances of corruption, pure and simple, to business practices that are quasi legal.

What is included in that amount of $1.1 trillion?

[Gretta Fenner]

The $1.1 trillion—it's hard for me to imagine these figures—is an estimation by the global financial integrity initiative, and that includes the so-called illicit flows. This may be legally earned money that leaves a country for tax evasion purposes, as well as proceeds of corruption and other forms of crime.

I would like combine this comment with something that was said earlier about the end game.

The point is that all these efforts—fighting corruption, stopping illicit financial flows, returning stolen assets—is not just around corruption. Corruption, in a sense, is one of the root causes of almost every global crime. Terrorism, human trafficking, modern slavery issues, all the security concerns we have—even illegal immigration, as silly as that term is, or trafficking in immigrants—are all possible only because we have such a huge amount of corruption, so we need to see this as much bigger.

I like to refer to the $1.1 trillion because although it's not all due to corruption, corruption is behind most of the crime that have led to the $1.1 trillion. I think this is something that we don't want to acknowledge, and our financial centres are still much too protected.

We can call it “letting themselves be misused” or “being misused.” I don't mind which way we turn the words around, but the same debate applies in Switzerland. The banks and the international financial centres are definitely not doing enough to stop the money coming into our centres, and we have an obligation to do more about that.

[The Vice-Chair, Conservative, Dean Allison]

Thank you very much.

We're going to turn it over to Mr. Saini, please.

[Raj Saini, Liberal, Kitchener Centre, ON]

Thank you very much, Ms. Fenner and Mr. Ferguson, for being here.

Ms. Fenner, I want to start with you because you've written quite a lot on the Swiss asset recovery mechanism. I think they have a special system whereby they can recover the assets very quickly or freeze assets very quickly. I was hoping that for the benefit of the committee you could highlight some of the advantages they have in that system, and where we might improve our own legislation.

[Gretta Fenner]

Thank you.

I think what you're referring to is probably the freeze under the constitution, which has now actually been put into regular law. Originally the Swiss constitution allowed for the federal council to freeze assets immediately if they could be considered a concern to its foreign policy interests. This was used very creatively—and very openly, positively so—for many years to freeze assets. They were typically the fastest ones to react to the Arab Spring, to the fall of the Yanukovych regime, and so on. That allowed assets to be preventively frozen. It is a very important system.

I understand that Canada has a somewhat similar system. It is maybe not as fast, but it is important.

Obviously that doesn't prevent criminal law enforcement activities from double-freezing and triple-freezing later on. Under this provision you cannot keep it frozen forever, because at some point you have issues with the rights of the defendants.

I think the recent change in the Swiss legislation that's really important to look at is the issue of mutual legal assistance with countries that are so-called failing states. I won't be able to go into details here, but it's definitely worth looking at the legislation that entered into force on June 1 or July 1 in Switzerland. I'm more than happy to share the link to the legislation with the clerk for distribution, and it certainly is available in French. It deals with one of the critical issues of mutual legal assistance with failing states, which is what happens when a case falls apart. Oftentimes, you don't get the evidence you need from the other jurisdiction or you cannot transfer evidence to that jurisdiction because the systems have fallen apart. That part of the Swiss legislation is probably really worth looking at.

[Raj Saini, Liberal, Kitchener Centre, ON]

I want to get your commentary on two specific instances. In one instance with General Abacha in Nigeria, the return of the assets was negotiated with the Swiss government. The returned assets were supposed to be directly funded back into the central budget, which was for 2005, but in 2004 the money was already spent.

The second part of the issue I have is with Angola, where the Swiss government decided not to return or repatriate all the assets but to create a fund in Switzerland that only the Swiss government or Swiss banking officials would have access to.

Once an asset has been recovered and is returned back to the country of origin—in many cases, as you mentioned, these are failing states, or they are states where they may not have a command and control structure within their own economy—how do we make sure the money that's returned is not utilized by that regime to further their own interests or to take that money and put it somewhere else?

Can you comment using these two specific examples I have highlighted?

[Gretta Fenner]

You chose the not-so-good examples, but you.... They are worth talking about, and they are the cases we often cite in order to convince the international community, and especially the United Nations Office on Drugs and Crime, which is reluctant to develop guidelines for this effort.

I can openly say we are in the middle of negotiating a return between Peru and a European jurisdiction, one of the very old cases relating to former president Fujimori. Peru has every right to say, “Give us the money. It's our money under the UN convention. Give it back to us, and it's none of your business what we do with it.” Because we work closely with them, we have made them realize that it's actually in their interest that the money be returned in a very transparent way so that they can distinguish themselves from those like the previous regimes that have stolen. Even in Peru the levels of corruption are such that I would not trust, if the money goes back to the treasury, that it would not be effectively stolen.

At the moment the only instrument we have is soft diplomacy. There is no legal instrument that obliges any requesting states to take any condition. We never talk about conditionality. We talk about modalities for return.

At the moment, you have soft diplomacy and actors such as ours who try to facilitate these discussions. There is, however, as I said, an international process now that we are supporting, led by the UN Office on Drugs and Crime, which is trying to come up with a set of guidelines that would give both countries a common ground to develop monitoring systems for spending of assets on specific earmarked projects, and so on. That is currently where this debate stands. It's not stronger than that, I'm afraid.

[Raj Saini, Liberal, Kitchener Centre, ON]

I have one final question, a technical question. Maybe you can help me understand how this protocol would work out. Let's say you have a person in country A who bribed somebody in country B, and that money is deposited in country C. Who has that money? Who has the rights to that money? If an individual in one jurisdiction bribes someone in another jurisdiction for some sort of business endeavour or whatever, and that money is deposited in a third country, who owns that money? Where should that money be repatriated to?

[Gretta Fenner]

That's exactly the case I was referring to. That's not the traditional case of corruption like General Abacha, who stole from the treasury and stashed it somewhere else. This is a foreign bribery case, in which the jurisdiction that leads the foreign bribery investigation will end up either settling or finding the company and keeping the money.

The country that actually investigates its company for bribing somewhere is going to be the country that keeps the money. The international debate I was referring to earlier is trying to push for countries to give considerations to these kinds of settlements in foreign bribery cases to be returned to the country or given to the country that has suffered the damage from the bribe.

[Raj Saini, Liberal, Kitchener Centre, ON]

I have one last question, and maybe I can ask both of you for a quick answer.

When someone coming from another country goes to a foreign bank account and deposits.... General Abacha had $700 million U.S. to $1 billion U.S. deposited in a Swiss bank account. Was there no protocol or measurement when this gentlemen just walks into the bank, drops this much money, or does a series of transactions? Was there nobody wondering how this person could have so many assets? I'm wondering how you could determine that, or why someone didn't determine that at the time.

[The Vice-Chair, Conservative, Dean Allison]

Ms. Fenner, please give a quick response. Then we'll go to the next round.

[Gretta Fenner]

Sure. I also need to point out that I have a flight to catch.

Yes, this is astonishing, and that's where the banking industry was at that time. I don't think this could happen today anymore, especially with the Abacha case. It's so blunt and banal. It's so cash-oriented. It's not complicated. It doesn't go through offshore structures.

In a positive sense, you can say today that this would not be possible anymore, either in Canada or in Switzerland, because we have improved our standards. In the negative sense, you can say that the criminals have just gotten smarter and are now doing it through 15 offshore centres. You can see it as a positive or a negative in that sense.

[Prof. Gerry Ferguson]

I agree with that answer.

[The Vice-Chair, Conservative, Dean Allison]

Perfect. Thank you.

We're going to finish up with Mr. Miller. He's going to ask a couple of questions.

If you have time, Ms. Fenner, that would be great. Thanks.

[Marc Miller, Liberal, Ville-Marie—Le Sud-Ouest—Île-des-Soeurs, QC]

Thank you both for coming. This study has gone off on a bit of a tangent. If we were purists about the bodies of legislation we are studying, you wouldn't be here, although I think, Ms. Fenner, you raised an extremely important point. The relevancy of your presence here today is that corruption causes the behaviour that we are, at the basis, examining today, whether it's violations of international law or human rights violations or different reprehensible practices by governments, or by corporations in this case. It hits on an extremely important point, which is that corruption is at the root of a lot of behaviour.

The question I had generally was on deferred prosecution agreements and what their impact is on recovering the assets. The U.S. has them. It has gone after a number of corporations. Those corporations are listed on a website. Their guilt, their culpability, is clearly stated. The idea behind it is that once a corporation makes a payment, that money is gone to the official in question. However, in prosecuting the corporation in question, at the end of the day, more often than not it isn't so much the shareholders or the beneficiaries who will pay, but the employees, because business will be lost.

I'd like your view on that as it applies to Canada with respect to deferred prosecution agreements.

Perhaps Professor Ferguson can go first.

[Prof. Gerry Ferguson]

The United States, of course, has been very active in terms of its deferred prosecution. There have been suggestions that Canada should also develop that.

I think when one is looking at corporate global foreign corruption, one has to look at a range of sanctions. Some jurisdictions refer to these as monetary or administrative penalties, much as the securities commissions do. They are quasi-criminal.

The deferred prosecution agreements are very important for two reasons. One is that companies are either bludgeoned into or find it economically appropriate to enter into a prosecution agreement. One of the main reasons—and I heard you use the word—is that no criminal conviction arises out of that deferred prosecution, provided they pay all the necessary disgorgement and administrative sanctions. That allows the corporation to continue, saying that there may have been some problems in their company, but they're not first and foremost a corrupt company. Secondly, it prevents them from being debarred from negotiating, for example, with the World Bank on huge infrastructure projects, or with many other countries.

Avoiding a bribery conviction has various benefits for the corporation, but I think it's also fair to say that it does have some benefits for the country, because it allows the United States to process about 15 times more corruption cases than any other country in the world. I think we should be seriously investigating the pros and cons of that process. It will look on the one hand as if we're simply providing leniency to these big corporate criminals, but I think one has to take a bigger view of this as a huge international global approach to how we need to try to reduce the corruption.

The United States has been, as I said, the only real world enforcer in terms of this global corruption. Germany is second, but well behind, and Canada, as well as many other OECD countries, is doing almost nil.

[Marc Miller, Liberal, Ville-Marie—Le Sud-Ouest—Île-des-Soeurs, QC]

Ms. Fenner, do you have a couple of words? I don't want you to miss your flight.

[Gretta Fenner]

No, that's fine.

I must admit that I don't really have much to add. I perfectly agree with everything that Gerry said. I will only say that the issue I would like to bring up in the asset recovery context is that of where the money goes and who has actually suffered, whether we settle or we bring it to a full-fledged criminal proceeding.

Another key term you might want to look at is “civil asset forfeiture”. More in terms of the traditional corruption cases, that could be a practice you might want to look at as well. It has similar types of pros and cons.

I think that's all I need to say.

[The Vice-Chair, Conservative, Dean Allison]

Thank you very much.

Ms. Fenner and Mr. Ferguson, thank you very much for your time today.

We're going to call it a wrap here right now.

[Prof. Gerry Ferguson]

If I could, Mr. Chair, I'd like to make one very brief statement.

You will no doubt hear about International Anti-Corruption Day on December 9. Transparency International Canada has announced that it will be releasing an important study that it has done on beneficial ownership. I encourage you to.... I haven't seen the report, but I'm quite confident it's going to, number one, say that Canada hasn't been pulling its weight and, number two, say that we have to start moving forward in that area. That'll be this Friday.

[The Vice-Chair, Conservative, Dean Allison]

Thank you very much for that suggestion. We'll make sure that we try to get a copy of that.

Thank you to both of you.

[Prof. Gerry Ferguson]

Thank you.

[The Vice-Chair, Conservative, Dean Allison]

We'll suspend for just a couple of minutes while we get our new witnesses in. Thanks.