Industry Committee on Feb. 21st, 2017

[The Chair, Liberal, Dan Ruimy]

Welcome everybody to meeting number 48 of the Standing Committee on Industry, Science and Technology. We are continuing our fine work on Bill C-25.

Today we have with us Claire Woodside, director of Publish What You Pay Canada, and Mora Johnson, barrister and solicitor. From the centre for women in politics and public leadership, we have Clare Beckton, executive director.

We're just going to move right into it. You each have 10 minutes.

[Ben Lobb, Conservative, Huron—Bruce, ON]

I have a point of order, Mr. Chair.

There was a news article over the weekend from one of our colleagues on this committee about his certain thoughts about members of this party, and comments about responsibility for the Quebec shooting. I find that offensive.

I wonder if Mr. Arya would like to provide a comment about that at this time. Some members of this committee will have a problem looking him in the eye if he has to sit across from us, when he's making comments like that.

I don't know if he'd like to make a comment and clear the air before the committee starts.

[The Chair, Liberal, Dan Ruimy]

Does this have something to do with Bill C-25?

[Ben Lobb, Conservative, Huron—Bruce, ON]

Yes, it has something to do with this committee. If he would like to make any comments now about it, because I would like to hear from him if he thinks that I or any of my colleagues are responsible for that.

Thank you.

[The Chair, Liberal, Dan Ruimy]

When we're talking about a point of order, it's in regard to rules being broken. I'm not sure what rule has been broken here.

[Ben Lobb, Conservative, Huron—Bruce, ON]

Do you want to discuss this all meeting, or do you want to let Mr. Arya have a chance to provide a comment?

[The Chair, Liberal, Dan Ruimy]

It's a point of order that you've put on the table. As chair, I have to understand the point of order to see if there's an actual point of order where a rule has been broken.

Mr. Nuttall.

[Alex Nuttall, Conservative, Barrie—Springwater—Oro-Medonte, ON]

Mr. Chair, what Mr. Lobb is talking about is the relationships on this committee that we were hoping were getting better, and then we have such inflammatory comments coming forward blaming members of Parliament for the slaying of multiple individuals.

If I had said something of that nature—which I wouldn't but if I had—I'd want my colleagues to know that it was not something where I was going after them and then pretending I was going to work with them around the table. I think that's where Mr. Lobb is coming from.

I would love to hear those sentiments from Mr. Arya at this point.

[The Chair, Liberal, Dan Ruimy]

We have witnesses here, and we're going into the realm of debate while we have witnesses here. I still fail to see the relevance to Bill C-25, which is why we're here and why we have witnesses here.

After we're done with our witnesses, we do have time later on to have a debate about it. In so far as relevance to Bill C-25 and the fact that we have witnesses here, I'm failing to understand where we are with this today right now at this point.

[Ben Lobb, Conservative, Huron—Bruce, ON]

Is your position then, as chair, that in the past every single point of order, point of clarification, any other point has been in order? Is that your position as chair then?

[The Chair, Liberal, Dan Ruimy]

When there's a point of order brought forward, we always—

[Ben Lobb, Conservative, Huron—Bruce, ON]

I would argue that 99% of the points of order are not points of order. I'm giving Mr. Arya a respectful opportunity to clear the air before this committee starts. Any honourable member would want to do that, and you, as chair, would want to allow Mr. Arya one minute to clear the air before the committee starts.

Part of this committee is collegiality. If we have members of the committee saying things like he said, I think he would either want to clarify his statement, or confirm to me and the rest of this committee that this is his actual belief. It's going to take him 30 seconds. I don't think he needs to hide behind you, Mr. Chair. He's a big man. He can speak for himself.

I'll let Mr. Arya speak.

[The Chair, Liberal, Dan Ruimy]

If Mr. Arya would like to make a statement, that would be up to him, but we will not be getting into a debate over this.

If you choose to make a statement, go ahead, but then after that we will go to witnesses.

[Chandra Arya, Liberal, Nepean, ON]

Mr. Chair, number one, the point of order is not relevant to committee business; however, I stand by every word I said in my S.O. 31 statement, which is publicly available. Anybody can read it. I'm not going to change any of the words I said in my S.O. 31 statement.

[The Chair, Liberal, Dan Ruimy]

There we go. All right?

We'll go back to our witnesses.

Ms. Woodside, you have 10 minutes. Thank you.

[Claire Woodside, Director, Publish What You Pay Canada]

Thank you.

Good morning, members of Parliament. Thank you for the opportunity to participate in today's hearing.

My name is Claire Woodside, and I'm the director of Publish What You Pay Canada. With me is Mora Johnson, barrister and solicitor, who has been providing us with some legal advice.

Publish What You Pay Canada is part of an international coalition of more than 800 civil society organizations working to increase transparency and accountability in the resource extraction sector.

The public disclosure of beneficial ownership is critical to the global fight against corruption. It will provide governments, citizens, journalists, law authorities, financial institutions, and businesses with information that will help them detect and avoid corruption. It is the first step Canada must take to eliminate the practice of “snow washing”, discussed by Transparency International Canada at a previous hearing.

In the brief circulated this morning, Publish What You Pay Canada makes five recommendations for amendments and additions to Bill C-25. Here I will highlight three of those recommendations.

Firstly, Publish What You Pay Canada recommends that the CBCA be amended to require that non-distributing corporations submit a form to the federal corporate registrar with details of their registered shareholders and beneficial owners. This information should then be included within Corporations Canada's online database.

Secondly, Publish What You Pay Canada recommends amending Bill C-25 to prevent the misuse of bearer shares. The elimination of bearer shares has been identified domestically and internationally as a key step in efforts to increase beneficial ownership transparency.

Regrettably, the current drafting of Bill C-25 will not prevent the misuse of existing bearer shares; nor will it eliminate the shares, as has been stated within government. The current text of the bill prohibits the issuance of new bearer shares and allows for the voluntary conversion of existing bearer shares but does not require that individuals who hold bearer shares register those shares before exercising the rights attached to them.

To prevent misuse of such shares, Bill C-25 should be amended to require that all bearer shares be registered in advance of exercising rights associated with those shares, such as selling or pledging shares. Please see page three of the briefing note provided to you for proposed wording of the amendment. This change will ensure that criminals are prevented from using existing bearer shares for nefarious purposes.

Publish What You Pay Canada's third recommendation proposes amending the CBCA to include higher sanctions for companies that wilfully fail to maintain records and disclose securities information. The current penalty of $5,000 is not sufficiently dissuasive to incentivize companies evading these requirements for tax evasion or criminal purposes.

We recommend increasing the penalty to a maximum of $1 million for companies acting in bad faith in not maintaining or disclosing adequate corporate records. A higher maximum fine will be an important tool in the hands of law enforcement. “Good faith” errors in reporting would not attract the maximum penalty. The higher penalty would be applied in those cases in which the controlling mind of the corporation intended to hide, destroy, or simply not collect legally mandated information.

The proposed amendments will have four important impacts. First, they will enable Canada to fulfill its international obligations. Second, they will help law enforcement detect and investigate crime. Third, they will help banks and other professions, such as real estate agents, comply with Canadian anti-money laundering requirements. Fourth, they will improve the business climate in Canada.

There is mounting global recognition of the critical role that beneficial ownership transparency plays in the fight against corruption and tax evasion. Simply put, beneficial ownership transparency makes it more difficult for individuals to use anonymous companies to commit crimes.

In June 2013, G8 leaders agreed to a set of principles on beneficial ownership transparency. These principles were then reflected in the G20 “High-Level Principles on Beneficial Ownership Transparency”, agreed upon in 2014.

Despite these commitments, a 2016 evaluation by the Financial Action Task Force found that Canada is only partly compliant, or non-compliant, with beneficial ownership transparency recommendations.

While improving beneficial ownership transparency in Canada will require action by both provincial and federal governments, the onus is on the federal government to lead by example and create a public, centralized register of beneficial owners for federally registered companies. The amendment proposed by Publish What You Pay Canada will allow Canada to meet its international commitments and join its peers, including the U.K. and the EU, who have implemented or are implementing public beneficial ownership registries.

Second, increased beneficial ownership transparency will help law enforcement agencies detect crime and pursue criminals. In 2016, the Financial Action Task Force wrote:

Despite corporate vehicles and trusts posing a major [money laundering] and [terrorist financing] risk in Canada, [law enforcement agencies] do not investigate many cases in which legal entities or trusts played a prominent role or that involved complex corporate elements or foreign ownership or control aspects.

Determining the beneficial owner behind a corporation often poses an insurmountable problem for law enforcement agencies, yet anonymous companies are frequently at the heart of corruption and money-laundering schemes. A World Bank study of over 200 cases of grand corruption found that 70% included an anonymous shell company. Furthermore, the UN Office on Drugs and Crime estimates that between $800 billion and $2 trillion U.S. is laundered each year. Improved beneficial ownership transparency is critical to effective investigations involving corporations. This is likely why beneficial ownership transparency has, internationally, been supported by law enforcement bodies.

Third, under Canadian anti-money laundering laws, financial institutions, and other professions such as real estate agents, casinos, and accountants are required to exercise “know your customer” due diligence and report suspicious transactions to authorities. They are not just on the front lines of crime detection, but in many transactions, represent the best, or only, opportunity available for the state to detect suspicious activity. Banks and others are required to ask companies if they are representing third parties, but currently, there is no mechanism for them to verify beneficial ownership information and properly fulfill their due diligence obligations.

For banks and other professions, failing to fulfill anti-money-laundering obligations can result in regulatory fines and reputational costs. This has been seen in other markets, with HSBC, BNP Paribas, Raymond James, and others facing steep fines for violating anti-money laundering rules. Just recently, closer to home, FINTRAC fined an unknown bank $1.1 million for failing to report a suspicious transaction.

A central registry will allow financial institutions and other professions to fulfill their anti-money laundering obligations in a more efficient and less costly manner.

Fourth, beneficial ownership transparency will help mitigate business risk and create a better business climate by enabling those transacting with corporations to know with whom they are really doing business, who the real person is behind the corporation. The CBCA, in allowing for the creation of limited liability companies with separate legal personalities has the benefit of encouraging people to create businesses. At the same time, it actually increases business risks.

While limited liability protects shareholders and business owners from risking their personal assets, it also limits the pool of money available to creditors, employees, and others if the business should run into trouble. In 2015, there were over 4,000 insolvencies filed by Canadian businesses, amounting to net liabilities of over $5 billion, which have to be borne by unpaid creditors and unpaid employees. Creating public access to legal and beneficial owners of corporations will allow companies and financial institutions to know with whom they are really doing business, thus allowing them to reduce risk and make better business decisions.

Despite the numerous benefits, Canada has not joined the global efforts to address beneficial ownership. Instead, we have accepted the risks posed by an opaque system. This must change.

By accepting the amendments proposed by Publish What You Pay Canada, the federal government will demonstrate international and domestic leadership and ensure that Canada is not a magnet for tax evaders, money launderers, and those who finance terrorism.

Thank you.

[The Chair, Liberal, Dan Ruimy]

Thank you very much. That was just bang on time.

We're now going to move to Clare Beckton from the Centre for Women in Politics and Public Leadership.

You have ten minutes.

[Clare Beckton, Executive Director, Centre for Women in Politics and Public Leadership, Carleton University]

Thank you. I will be very brief on this.

I'm coming at this from a totally different part of the bill and from a totally different perspective as I was asked to do. Just to let you know, the centre works on advancing women's leadership in all sectors through research programs for advancing women, looking at barriers and opportunities, and creating awareness and partnerships. We are not an advocacy group. We will not put forward positions but look at what the possibilities are in different circumstances given what's being presented.

We have done a number of pieces of research, including recently “A Force to Reckon With: Women, Entrepreneurship and Risk“, looking at how women entrepreneurs look at risk, which is very important for the advancement of women in entrepreneurship, and I would also say, in terms of advancing women on boards, because these are a feeder group for potential participation on boards. We will now be looking at how women entrepreneurs look at innovation, because this is key to the Canadian economy.

One of the things we also did in 2012 was a benchmark study of women's leadership in Canada, and this looked at where women were across the various sectors in terms of senior leadership. When we looked at it, it came out that there was 29% of women, but only when you added in the public sector. When you looked at the private sector, it was 26%, and when you looked across the public sector, it varied from very low percentages in mining, resources, and construction to much higher in the financial sectors and the service industries. That continues to be the case as we look at what's happening in terms of board participation.

I've also been part of the Canadian Board Diversity Council, assisting with its founding through a grant from Status of Women, and I've also been part of their advisory board. One of the things the Canadian Board Diversity Council has been doing is mapping the changes in board representation. We know that we have a comply or explain regime in Ontario, and in a number of other provinces now, 10 other provinces, I believe they're now looking at whether that's been successful.

Just as an example, in 2015, looking at the Financial Post 500, there was 19.5% female representation on boards, and in 2016, 21.6%. Progress is slow at this rate. It will take quite a long time to reach that goal of 30% to 50%, which is what most people would say is appropriate representation.

When I was asked to come here, I took a look at Bill C-25, and this kind of legislation is designed to be a nudge to nudge corporate boards forward, as I'm reading it, without the imposition of quotas. I know that this committee has looked at various options, including quotas. There will be some who say quotas don't work. I think that we have evidence that quotas do work in some countries, depending on the length of time those quotas are given. If you have only a short period of time and corporate boards don't turn over very quickly, then it's not likely to be successful.

Whenever there's talk about there not being adequate feeder groups, we know that is not the case. There are more than enough very highly qualified women to serve on the boards that have positions in Canada. That is something that has been looked at through the Canadian Board Diversity Council, through Catalyst, and through other organizations that have ongoing lists of already pre-qualified women who have gone through.

When I looked at the bill, I looked at how it was put forward. It was put forward as a bill with, as one of its objectives, increasing gender participation on corporate boards that are under the Canadian Corporations Act. But when I looked at the actual legislation, there is no mention of the word “gender” in it. The word is “diversity”, and diversity is not defined as it stands in the current legislation; it's left to regulations.

I tell corporations and others all the time that lumping diversity and gender together without articulating the need to have the larger participation of women on boards does not always work, because we know that women are not a diversity group; they are 50% of the population. As for diversity, yes, bringing women on boards will bring diversity, but if it's left only under the rubric of diversity, you may not get the numbers you're attempting to get.

One of the things the Canadian Board Diversity Council has advocated is aspirational targets. I'm not sure if there have been discussions at this table, but I think aspirational targets are very useful.

I'm not sure the legislation, as I read it, really requires an explanation. Did you actually look at diversity candidates? Did you actually look at women when you were choosing your board members? If you didn't, why didn't you?

Just to put it on the table, I am a lawyer. I practised law with the federal government for many years, and taught it, so I come at the bill from a lawyer's perspective as well. There are some things in the existing legislation that I see as challenges that may not achieve the goals of the legislation, which I think are very positive goals that we need to be moving forward with.

I'll leave it at that. I know you have lots of questions, and we can have a good discussion as a result.

[The Chair, Liberal, Dan Ruimy]

Thank you very much.

On that note, we'll jump right into questions.

Mr. Arya, you have seven minutes.

[Chandra Arya, Liberal, Nepean, ON]

Thank you, Mr. Chair.

Ms. Beckton, you mentioned the study on women's leadership in Canada and the fact that women were hired for 29% of the leadership positions. Did that study look into how many of the women were indigenous or in the visible minority category?

[Clare Beckton]

We know that when it comes to visible minorities and indigenous women, they are not at 29%. In fact they are below the representation that you would like to have in most of the industries. We didn't do a specific look. We will be looking at indigenous women when we look at women entrepreneurs and the innovation questions, but we did not do a specific deep look. We do know, however, that visible minority women, immigrant women, aboriginal women are under-represented in greater numbers than—

[Chandra Arya, Liberal, Nepean, ON]

You're on the board of the Canadian Board Diversity Council.

[Clare Beckton]

I'm on the advisory committee.

[Chandra Arya, Liberal, Nepean, ON]

You said you've been mapping board representation. Does that mapping consider or look into the number of indigenous women or visible minority women?

[Clare Beckton]

I don't have the report in front of me, because I don't speak on behalf of the diversity council, but when you look at the statistics on the number of visible minorities—they weren't segregated by women or men—the percentage of visible minorities on boards has been dropping as opposed to rising. That is something that's of grave concern in terms of looking at this.

When you look at the indigenous population, there certainly has been a great effort to try to increase the number of indigenous women and men on boards.