Industry Committee on June 12th, 2023

[The Chair, Liberal, Joël Lightbound]

Good afternoon.

I call the meeting to order.

Welcome to meeting number 80 of the House of Commons Standing Committee on Industry and Technology.

Today's meeting is taking place in a hybrid format, pursuant to the House order of June 23, 2022. Pursuant to the order of reference of Thursday, June 1, 2023, we are continuing our study of Bill C-42, an act to amend the Canada Business Corporations Act and to make consequential and related amendments to other acts.

I would like to welcome the witnesses and thank them for their patience. We are getting started a bit late because of voting in the House.

We have with us today Justin Brown, senior director, financial crimes policy, governance and transparency, Department of Finance; Annette Ryan, deputy director, Financial Transactions and Reports Analysis Centre of Canada; Sasha Caldera, campaign manager, beneficial ownership transparency, Publish What You Pay Canada; Denis Beaudoin, director, financial crime, Royal Canadian Mounted Police; and James Cohen, executive director, Transparency International Canada.

Thank you all for making time to meet with the committee to discuss this important bill. As you know, you will each have five minutes for your opening statement.

Without further ado, I will turn the floor over to Ms. Ryan for five minutes.

[Annette Ryan, Deputy Director, Partnership, Policy and Analysis, Financial Transactions and Reports Analysis Centre of Canada]

Thank you, Mr. Chair.

My colleague from the Department of Finance is going to tell you about our coordinated efforts.

[Justin Brown, Senior Director, Financial Crimes Policy, Governance and Transparency, Department of Finance]

Hi, everyone. My name is Justin Brown. I'm the senior director of financial crimes, governance and transparency at the Department of Finance. I'll provide an overview on behalf of the Department of Finance as well as of my colleague Annette Ryan from the Financial Transactions and Reports Analysis Centre of Canada.

In addition to the proposed amendments to the Canada Business Corporations Act, which would stand up a federal publicly accessible registry of beneficial ownership information, the government is putting forward consequential amendments to the Income Tax Act and to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

While Corporations Canada would maintain responsibility for the federal beneficial ownership registry, the government seeks to use additional mechanisms to help support the accuracy of the registry by cross-referencing beneficial ownership information held by other sources.

The Income Tax Act restricts the provision of and access to taxpayer information. Specific exemptions must be enacted in order to share taxpayer information. Clause 17 authorizes the sharing of information relating to shareholdings and to corporate ownership structures of private corporations collected by the Canada Revenue Agency. Providing access to this information would enable officials at Innovation, Science and Economic Development Canada, and at Corporations Canada, to verify and to validate data reported by private corporations to the corporate beneficial ownership registry.

The taxpayer information on shareholdings and on corporate ownership structures would not be published through the corporate beneficial ownership registry and would be shared for the sole purpose of verifying and validating data reported by private corporations to the corporate beneficial ownership registry.

Clause 18 would give the Governor in Council the power to make regulations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act respecting the reporting of discrepancies in information obtained on the beneficial ownership and control of an entity.

Persons and entities regulated under that act, including banks, credit unions, life insurance companies, money services, businesses and real estate businesses, are all required to implement measures to detect and deter money laundering and terrorist financing. On meeting certain conditions, these include requirements to obtain and confirm the accuracy of beneficial ownership information when doing business with a client that is a corporation.

A public registry would provide reporting entities with a tool to help confirm the accuracy of the beneficial ownership information they obtain from clients. Upon becoming aware of material discrepancies between the beneficial ownership information in their records and that filed with the registry, reporting entities would be required to inform Corporations Canada.

The proposed regulation-making authority would allow the government to proceed with regulations setting out the terms and the conditions of a discrepancy-reporting requirement. These regulations would specify the details necessary for implementing the scheme, such as when a discrepancy should be reported, information to be provided in a discrepancy report, record-keeping requirements and consequences for non-compliance.

To conclude, this cross-referencing of beneficial ownership data would supplement Corporation Canada's compliance efforts and would help improve the data integrity of the registry.

Thank you.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Brown.

Now we will hear from Sasha Caldera, from Publish What You Pay Canada.

[Sasha Caldera, Campaign Manager, Beneficial Ownership Transparency, Publish What You Pay Canada]

Mr. Chair and fellow committee members, thank you for inviting me to speak today.

My name is Sasha Caldera, and I am the beneficial ownership transparency campaign manager at Publish What You Pay Canada. Publish What You Pay Canada is part of the global “publish what you pay” movement of civil society organizations working to make oil, gas and mineral governance open, accountable and responsive to all people. For the past five and a half years, I've been leading a coalition of three civil society organizations to advocate for a public beneficial ownership registry with our partners Transparency International Canada and Canadians for Tax Fairness.

Bill C-42 will deliver a critical blow to criminals who desire to take advantage of corporations governed under the CBCA. We applaud Minister Champagne's commitment to ensuring that Canada's beneficial ownership registry is publicly accessible, free of cost, searchable and scalable with provinces and territories.

As Canada is a G7 country with an advanced service economy and an AAA credit rating, experts estimate that approximately $45 billion to $113 billion is laundered annually into the country. Canada's publicly accessible registry is in line with the G20 and Five Eyes countries that are deploying these tools as part of national security strategies to prevent corrupt foreign officials from hiding dirty money in liberal democracies. Currently, 108 countries around the world have made commitments to implement publicly accessible registries.

Bill C-42 is a positive step, and we recommend the following legislative amendments to strengthen the deterrence capability of Canada's registry.

First, allow anyone to have the ability to search by country of residence and name of corporation.

Second, ensure all publicly accessible data fields are searchable.

Third, forbid post office boxes to act as the service address.

Fourth, add hybrid offences to subsection 21.1(1) or 21.31(1) of the CBCA.

Finally, require beneficial owners to submit non-expired, government-issued photo ID numbers to corporations for safekeeping and future ID verification.

These amendments will improve the searchability of the registry, penalize sophisticated offenders who have the financial resources to absorb current offences and add mechanisms to prevent beneficial owners from knowingly abusing the PO box system or providing false information to corporations.

We are pleased to hear there are efforts on behalf of Minister Champagne and Minister Freeland to reach out to provinces and territories. To bring provinces on board, we recommend the federal government strike an agreement with provinces and territories that allows provincially registered corporations to send beneficial ownership information directly to the federal registry. Provinces would need to pass legislation in their own business acts, yet this harmonization approach was used during the first beneficial ownership agreement in 2017.

The federal government can also suggest that provinces can choose to implement their own beneficial ownership registries using the same design parameters and with the beneficial ownership open-data standard to ensure they are interoperable with the federal government. Through a flexible approach, smaller provinces would not have to devote resources to upgrading their own business registries, while larger provinces can follow the lead of early adopters like British Columbia and Quebec.

As someone who was born and raised in Richmond, British Columbia, I think this registry will mean a lot for my hometown and the province of B.C. Richmond is one of the entry points for money laundering in Canada, and the harm to the province has been well documented by the B.C. Cullen commission. From the fentanyl crisis and increased gang violence in broad daylight to underground casinos and artificially inflated real estate, my hometown has changed.

The impact of Bill C-42 will be felt beyond Canada's borders. Should Canada pass this legislation, this registry will be cheered on by communities around the world that are relying on these tools to track down officials who are looting tax dollars from national treasuries or stealing vital foreign-aid dollars for personal gain. This registry will be a game-changer in the global fight against tax evasion, organized crime, corruption, bribery and terrorist financing. I am proud to see Canada taking this decisive step today.

Thank you so much for your time, and I am happy to take your questions.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Caldera.

We will now go to Superintendent Beaudoin from the Royal Canadian Mounted Police.

Go ahead, Mr. Beaudoin.

[Supt Denis Beaudoin, Director, Financial Crime, Royal Canadian Mounted Police]

Thank you, Mr. Chair.

I'm pleased to appear before the committee today. I am Superintendent Denis Beaudoin, and I am the director of financial crime in federal policing criminal operations at the Royal Canadian Mounted Police, or RCMP.

I want to say first that the RCMP welcomes the measures to implement a beneficial ownership registry. The resulting transparency and disclosure of information will enhance our efforts to combat financial crime.

As you know, keeping beneficial ownership information hidden is a technique used for money laundering and terrorist financing. Front companies or shell corporations make trade-based money laundering much easier by separating illicit actors from their activities. When information about a company's beneficial owners is concealed, it increases the risk of tax evasion, sanctions evasion, and the domestic and international movement of proceeds of crime.

Without transparency around verified beneficial ownership, our ability to prevent and combat financial crimes is undermined. Not being able to quickly identify the beneficial owners of a company without their knowing can slow criminal investigations, prevent police from tracing suspects, witnesses and evidence, and hinder the identification and seizure of suspected proceeds of crime.

The importance of beneficial ownership transparency is well recognized internationally, and beneficial ownership registries are increasingly the international norm. They have existed in the U.K. and in the EU countries since 2016 and have proven a useful tool for law enforcement in deterring the misuse of corporations for illicit finance activities.

Evolving global anti-money laundering standards now expect countries to make these registries accessible to, at a minimum, competent authorities, with the majority of Canada's G7 and Five Eyes counterparts having implemented these registries to put them in place.

In 2021, G7 finance ministers and central bank governors agreed that beneficial ownership registries are an effective tool to tackle illicit finance. The Financial Action Task Force, which is the global money laundering and terrorism financing oversight mechanism, recently adopted new requirements with respect to beneficial ownership registries. Canada is a founding member of the FATF, and the RCMP is a full participant in the Canadian delegation.

With Canada making efforts to address beneficial ownership gaps, including through Bill C-42, we are showing that we are contributing to the global fight against financial crime.

Identifying beneficial owners of corporations means lifting the veil of anonymity on the people behind the transactions and account activities. Beneficial ownership registries are an effective tool for law enforcement. When we combine the information in the registry with other evidence and investigative practices, we are better able to track illicit funds. Registry information serves to complement other evidence-gathering methods, which can take longer and potentially alert suspects to an ongoing investigation. Lastly, this measure will improve the application of sanctions here and abroad, and make it easier to track and freeze financial assets.

Although the RCMP welcomes the bill, the legislation will apply only to a small percentage of companies in Canada, since most of them are incorporated under provincial statutes. In order to prevent illicit actors from exploiting vulnerabilities, it is necessary to address beneficial ownership transparency across the country if we want the registry to be useful. Otherwise, criminals will use provinces without registries to launder the money their criminal activities generate. The full co-operation of provincial and territorial governments is vital.

While a transparent corporate registry is a step in the right direction, it will not resolve all the challenges law enforcement faces in its fight against financial crime. The RCMP welcomes the recent changes announced in the budget, such as the criminalization of the unregistered money service business and the addition of a structuring offence.

Looking at our international partners, Canada's AML regime could benefit from better information-sharing legislation between private and public organizations and tools to investigate professional money launderers. We're working with our AML partners to address these information-sharing gaps and challenges.

Thank you for the opportunity to be here today. I welcome any questions.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Beaudoin.

We will now hear from Mr. Cohen, from Transparency International Canada.

Go ahead, Mr. Cohen.

[James Cohen, Executive Director, Transparency International Canada]

Mr. Chairman and members of the committee, thank you for inviting me to speak to you today. My name is James Cohen, and I am the executive director of Transparency International Canada.

TI Canada is a registered charity and is the Canadian chapter of Transparency International, the world's leading anti-corruption movement.

TI Canada, a member of the informally known “end snow-washing coalition”, along with Publish What You Pay Canada and Canadians for Tax Fairness, is enthusiastically supportive of Bill C-42, which will establish a publicly accessible corporate beneficial ownership registry at the federal level in Canada.

Not only are we pleased with the government's introduction of Bill C-42, but we are greatly encouraged to see the cross-party support for the principles of the bill. All parties should be proud to work in this co-operative manner to achieve a win for Canadians in the fight against global corruption.

The term “snow washing” was coined in the Toronto Star and CBC's 2016 investigations into the Panama papers. Essentially, it means bring your dirty money to Canada and it will be cleaned like the pure white snow. Why? First, who thinks of Canada as a destination for illicit funds? Importantly, second, our laws have had transparency gaps and weak enforcement.

TI Canada led a coalition report in 2022, called “Snow-washing, Inc”, where we looked at the websites of foreign corporate service providers. Their sales pitches are shocking in how blatant they are, letting potential clients know that a Canadian or provincial limited partnership is a great vehicle for funds to not be noticed. One website went so far as to say, if you think the U.K. has become too transparent thanks to their registry of significant control, why not try Canada?

While a public beneficial ownership registry is not a panacea for solving money laundering, it is a critically important tool in the fight to end snow washing. As an example of its effectiveness, the civil society organization Global Witness conducted research where they observed that Scottish limited partnerships, which were notorious for being abused by criminals, saw a steady increase of incorporation from 2011 to 2016. In 2016, when SLPs became subject to a registry of significant control disclosure in the U.K., their incorporation rate dropped by 80%. Transparency International has also documented numerous cases of civil society organizations working across borders to help identify kleptocrats and their stolen assets.

On the content of Bill C-42 itself, TI Canada is pleased to see a number of features that the coalition called for, such as zero pay for search, protection for whistle-blowers, and a tiered system for data for the public and for law enforcement.

I would also add that the justification for Bill C-42, which is not just to fight money laundering but also as a form of corporate due diligence, will hopefully bolster the beneficial ownership registry from legal challenges like we saw in Europe last year, where anti-money laundering directive five only justified registries from an AML perspective.

Where the real merit of the registry will come will be its implementation. We urge the government to provide the necessary funding for the registry so that it may be staffed, so regular risk-based approaches to data reviews can take place and so that a dependable form of data verification can be set in place.

Of course, as everyone knows, the provinces and territories need to work with the federal government to make this registry truly effective. I implore provincial representatives who are following these hearings to respond to Minister Champagne's and Minister Freeland's letters to co-operate. Do not be the holdout secrecy jurisdictions in Canada. It's not a reputation that you want.

After years of being an international laggard on this front, Canada now has a foot to stand on, diplomatically, to bring holdout countries up to our standard on beneficial ownership transparency. We encourage the Canadian government to do just that, especially at the Conference of State Parties to the UN Convention Against Corruption later this year. The more the good guys co-operate on this, the more the bad guys lose and we can work toward ending snow washing.

Thank you. I am happy to take any questions from the committee.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Cohen.

Thank you to all the witnesses for their opening statements.

We will now begin the discussion.

Mr. Vis, you have the floor for six minutes.

[Brad Vis, Conservative, Mission—Matsqui—Fraser Canyon, BC]

Thank you, Mr. Chair.

Thank you to all of the witnesses here today.

To the group that sent in this awesome document on Friday, I wish we'd had a bit of time between hearing from witnesses and receiving the information. However, we're going to do our very best to get some of your amendments that you brought forward put into the bill today. I think you do a lot of good work.

Mr. Caldera, coming from British Columbia as well, I've seen first-hand the damage that money laundering has done in our province. It's one of the big reasons that we're working with the government to see this legislation pass. I don't think the legislation is perfect, but it is a very positive step in the right direction to giving our law enforcement agencies the tools they need to stop and end snow washing.

With that, I don't know if you guys.... Were any of you provided access to any of the amendments that were brought forward by our party or any other political party?

[Sasha Caldera]

No, not to my knowledge.

[Brad Vis, Conservative, Mission—Matsqui—Fraser Canyon, BC]

Okay. They're confidential.

On that note, then, one of the big challenges that I think everyone around this table has recognized since we had our last meeting is the undeniable fact that most corporations in Canada are not registered with the federal government. When we break it down with a significant threshold, the number of companies that would be included in this is actually quite small.

This is for Mr. Caldera and Mr. Cohen: Would your organizations be in favour of stronger provisions in the legislation to ensure provincial participation—and the minister, I will note, has committed to working with the provinces—and, in the case of fines, if a province or territory makes an agreement with the federal government to participate in it, of the Criminal Code provisions embedded in this legislation applying to provincial corporations as well?

[Sasha Caldera]

Maybe I can answer this one.

With respect to the threshold, I think you're referring to the 25% versus 10%. Is that correct?

[Brad Vis, Conservative, Mission—Matsqui—Fraser Canyon, BC]

That's one thing. I just said that as a side comment, but my real question is this: If we get provinces to opt in, should provinces and territories be subject to the same Criminal Code provisions as federally registered corporations?

[Sasha Caldera]

Yes, I think they should because this could pertain specifically to beneficial ownership information. Because the registry is set up in such a way where provinces, should they choose to do so, can send their beneficial ownership information in to the federal registry, I think those penalties or offences could apply.

[Brad Vis, Conservative, Mission—Matsqui—Fraser Canyon, BC]

You're from Richmond. One of the big problems that we have in Richmond is numbered companies buying up very critical agricultural land. In some cases, they build mega mansions on it. In other cases, we don't know who owns this land or what their purpose for holding this land is.

Do you think that this legislation could be strengthened if we included some provisions to have real estate included with the numbered companies, that their real estate listings be available to law enforcement agencies? It is an undeniable fact that in Richmond, British Columbia, there is land that is used for money-laundering purposes.

[Sasha Caldera]

I think the tricky part with real estate is that, because it is provincially regulated, that always makes legislation like this a little more complicated. One advantage in B.C. is the land owner transparency registry, which would cover companies that have an interest in land.

What we're thinking, as a coalition, is that these beneficial ownership property registries, twinned with a pan-Canadian corporate registry, should be able to provide enough information to law enforcement and competent authorities to triangulate individuals of significant control.

[Brad Vis, Conservative, Mission—Matsqui—Fraser Canyon, BC]

With regard to thresholds, you wrote in your letter to the committee that you support the spirit of some of the discussions we've had around this table on lowering the threshold to 10% for significant ownership or, as another option, adopting more stringent language, as found in the U.K. registry, to ensure that stacked corporations, or the problem that Mr. Van Bynen and I raised regarding stacked corporations, could be addressed accordingly.

Maybe I'll pose this question to the RCMP.

Would lowering the threshold to 10% create any unnecessary administrative complications between the terrorism financing and money-laundering act and this registry? Could we work it out so that law enforcement agencies have the right information if the threshold under this legislation is different from, say, the threshold for significant ownership in the other legislation?

[Supt Denis Beaudoin]

I don't think it would create a burden on law enforcement. I think the burden may be on the registry itself just because of the increased amount of ownership and everything that would have to be kept. The RCMP standpoint is that the more names and more information, the better. As we're trying to make links in a criminal investigation, it certainly can help.

[Brad Vis, Conservative, Mission—Matsqui—Fraser Canyon, BC]

Then, Mr. Beaudoin, if we were to a adopt a lower threshold of significant ownership, that would provide the RCMP with more tools to combat money laundering in Canada, and maybe we could work out the administrative challenges with the terrorism financing and money laundering act later.

[Supt Denis Beaudoin]

Yes. As I said, the more people we find who own these companies, the better, as we're trying to make links.

[Brad Vis, Conservative, Mission—Matsqui—Fraser Canyon, BC]

Okay—

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Vis. I'm afraid that's all the time you have.

I will now yield the floor to Mr. Sorbara.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Chair.

It's wonderful to join the committee this afternoon. I want to say thank you for the opportunity and also applaud the committee, all individuals here from all parties, for the great work they've done on this bill.

If I can just go back in time a little bit, in my first session of Parliament, I had the good fortune of participating in a study entitled “Confronting Money Laundering and Terrorist Financing: Moving Canada Forward”. It was published in November of 2018 and we travelled to the U.K.; Washington, D.C.; Toronto; and New York. We had extensive missions. There was a rotation between the Senate and the House every five years when this study was taking place, and the first recommendation was—I'm just looking at it now—to implement a public registry, a beneficial ownership registry with the threshold of 25%. I was reading a list of recommendations just now, so I'm very happy to see that this is going forward. I applaud the chair and Minister Champagne and the entire team for the work that's been done. This is a huge step forward.

Sasha, I kind of nodded to you when you were giving your comments. I also had the good fortune of growing up and living in British Columbia before I moved to Ontario and became an MP among other things. I wonder if you could elaborate on just how big a step the implementation of this public beneficial registry is in combatting money laundering, especially within the real estate sector in British Columbia.