Industry Committee on June 12th, 2023

[Justin Brown]

I'm not sure those were my words, to be honest.

[Voices]

Oh, oh!

[A witness]

I think they're my words.

[Ryan Williams, Conservative, Bay of Quinte, ON]

I'm sorry.

[Justin Brown]

Without commenting on whether or not this bill is perfect.... As I said, if it were passed, based on international standards and our own examination, it would leave an important gap for corporate beneficial ownership registries on a Canadian approach. It would cover up to 15% of incorporations in Canada that are done at a federal level, which, obviously, leaves up to 85% or more at a provincial and territorial level. That's why it's so important to continue to work with the provinces and territories to develop this pan-Canadian approach.

I'll say that, for several years now, we've had a working group with the provinces and territories. It's a rather mature relationship. It's an ongoing discussion, so we're well prepared to deepen that engagement. I believe Minister Champagne said that, last week, a letter went out from Minister Champagne and Minister Freeland to their provincial and territorial counterparts to help use the momentum of this bill to deepen and further that work. That's going to be one of our major priorities.

If this bill passes, it will be a very important step to then exploring that pan-Canadian approach even more.

[Ryan Williams, Conservative, Bay of Quinte, ON]

This is the last question.

Mr. Caldera, you can answer this as well.

What is the projection from the government, if this bill goes forward? We have $113 billion a year in money laundering right now. What will we drive that number down to?

[Justin Brown]

I'm beginning to regret giving that statistic, which was provided by the United Nations. I do not own that statistic. I'm just trying to be helpful and provide information. That's not just in Canada. That was a global range—2% to 5%. I spoke already about the limits of the methodology.

Again, there's no one piece of legislation or activity that will completely bring that down. There are a lot of initiatives. As I mentioned, the government is looking to establish a Canadian financial crimes agency. In terms of looking at some of the biggest gaps in the effectiveness of the Canadian regime, having a group of experts who prioritize this—who have the expertise to investigate and prosecute money laundering and terrorist financing offences, and to go after or seize the assets of criminals—will take us a long way, in addition to important legislative changes like this.

[The Chair, Liberal, Joël Lightbound]

Thank you.

[Sasha Caldera]

Thank you.

I would say it's very difficult. In fact, it would be almost impossible to forecast how much these illicit financial flows would be reduced as a result of this registry, because the problem is so complex.

What I can say is this: There is emerging evidence coming from the U.K. that shows the beneficial ownership property registry is having an impact on reducing the number of incorporations coming from tax havens. That's one way we can look at the effectiveness of this registry—its deterrence capability.

I believe my colleague from TI Canada can speak more to that effect.

[James Cohen]

Thank you for the question.

To build on my colleague's point, when you're looking at the numbers exactly.... By their very nature, they're secretive, so they're difficult to find.

You want to look at impact. I think that might also wind up being something that gets.... If there's any last holdout province that doesn't want to join this registry and, all of a sudden, we see a certain province's limited partnerships starting to skyrocket as other provinces go down, there's pressure to be put on that particular holdout jurisdiction: Why do you want to be Canada's remaining secrecy jurisdiction?

This follows what we saw with the U.K. registry, where Scottish limited partnerships dropped by 80%. This is one way to mine the data once the registry comes online: Look for movement shifts, because, of course, the crooks are going to go where the weakest link is. This is why it has to be a harmonized approach. It's not just a federal approach.

[The Chair, Liberal, Joël Lightbound]

Thank you.

Over to, Mr. Van Bynen.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

Thank you, Mr. Chair.

Thank you to the witnesses as well.

I'd like to come back to a recommendation.

I believe, in 2018, the House of Commons Standing Committee on Finance recommended we establish a body similar to the U.K.'s Office for Professional Body Anti-Money Laundering Supervision.

Did we make any progress on that, or was that implemented?

[Justin Brown]

I'm sorry. I'd have to look back at specifically what that office does in the Canadian context.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

Okay.

Let's go forward, then, to the risk-based approach raised by Mr. Cohen.

Could you tell me what that looks like as opposed to ratcheting down the limitations to 10%? How could we be more effective if we established a risk-based approach? What would the criteria be? How well would that work across the different groups who are here as witnesses?

[James Cohen]

Thank you for the question.

I don't think, for one, lowering the threshold from 25% to 10% and a risk-based approach are mutually exclusive. I think they actually go hand in hand. I would note that the 25% isn't so much a standard as it was an initial global recommendation that everyone just kind of grabbed on to. There is room to go down to 10% and provide more information for the RCMP.

I'm not an expert on the risk-based approach. I'm sure there are others at the witness table who can speak to the specifics of it. It's essentially modelling and looking at what the typical patterns are that one would see in money laundering; what the data that we're now being provided shows us; being able to do an analysis as opposed to doing one-at-a-time searches of companies; being able to strategically mine through the data and see where the activities of a certain company match our modelling; and taking a little bit of a deeper look into a company, just in case.

One of the said experts would know.

[Annette Ryan]

Thank you for the question.

In terms of FINTRAC's role, we're both a regulator of the private sector for literally hundreds of obligations that they have to comply with in the relevant anti-money laundering statute in carrying out their obligations. As part of those requirements, we work with businesses so that they scope beneficial ownership requirements into how they assess clients that they're going to do business with. There's an element of risk assessment in terms of the private sector accepting a given business entity or so on as a client.

There are further risk assessments that go on in terms of how they monitor those transactions and decide what's a problematic set of interactions that they, in turn, report to us in FINTRAC. We layer on other risk assessments in terms of our compliance functions. As we look back in terms of the reporting entities that we oversee, which ones present profiles that are problematic so that they would be higher on our list of compliance examinations?

It does happen at different stages in how we do our work. Depending on your question, I could speak more fully on that.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

I wanted to determine if there was any measure of success by the body that was apparently recommended in the U.K. We can come back to that.

Have any countries successfully made progress on money laundering? I'm sure there must be some dialogue going along with the groups on an international basis. What are some of those examples of best practices? I know that we've heard of the U.K. What are some examples of best practices that you're aware of?

[Justin Brown]

I would say that money laundering is something that all jurisdictions in the world struggle with in terms of addressing. In terms of successes, perhaps my colleagues can give specific examples.

What does good look like? The standards are set by the Financial Action Task Force. Similarly, most countries struggle to meet all those standards, similar to Canada. We all have our own unique challenges that are based on the threats faced by our countries and also our different structures of governance and legislative parameters. Some areas where Canada does particularly well in, other countries might struggle in, and vice versa.

Go ahead, Annette or Denis.

[Annette Ryan]

Most simply, sir, money laundering, terrorist financing or crime are not static targets. I think my colleague from the RCMP described that well earlier. We absolutely work very closely with a range of international partners—in particular the Five Eyes countries most closely, but through a range of bodies—to stay current with the most recent trends in criminality, money laundering, etc., and adjust our system's tack towards those threats. To the extent that those efforts surface gaps in the policy landscape, then we absolutely share them with our colleagues, such as the finance ministry.

I would also flag that the report you mentioned, the 2018 study, is poised to have its next overall assessment of the regime. There's currently a publicly available consultation paper about what those most pressing challenges would be.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

I have one last question.

Given the interaction not only across the departments here but internationally, doesn't it become a bit problematic if we have different criteria, different levels and different reporting mechanisms?

[Justin Brown]

Standards exist to help countries understand what the main risks are and what main actions they should be taking to address those risks. They are standards. They're not prescriptive, in general, so each country can implement them in its own way. There are technical standards, which refer more to legislation and regulations, and then the FATF assesses effectiveness.

We all sort of have the same baseline, but then every country is going to implement things in a different way. I'd say that, domestically, we have a very good relationship between all of the different organizations involved in countering money laundering and terrorist financing. Internationally, similarly, Canada has a seat at the table in terms of establishing those standards and representing our positions. Our colleagues in different organizations, similarly, have relationships with their counterparts internationally, and they find a way to share information to support the anti-money laundering efforts in each others' jurisdictions.

We have, I think, a pretty successful and sophisticated regime for doing that.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

Is there any estimate as to how much the workload would increase by dropping from 25% down to 10%, and do we have the capacity to respond to that?

[Justin Brown]

I don't have an estimate on the workload. I would echo comments by Mr. Beaudoin. From a strictly anti-money laundering perspective, more information is better.

However, in terms of providing advice on anti-money laundering policy, we always look to the administrative burden and whether something is “implementable”, if that's a word. I can't speak to this piece of legislation, but on an anti-money laundering side, I would say that, if we were to look to lower the current threshold of 25% to 10%, I would want to undertake consultations with reporting entities to understand what that means to them in terms of their administrative burdens.

In the context of this beneficial ownership, I think it would also be important to understand what the perspectives are of the provinces. If you have a federal regime with a standard of 10% but the provinces have already mostly signed on to a level of 25%, just understanding their perspectives would be important to me in providing advice so that I would understand the impact of their being willing to buy into a pan-Canadian solution. I'm not saying what their views are. I'm just saying that would be a consideration from my perspective.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

The question would be return on effort.

[Justin Brown]

Yes. There's always a cost-benefit of collecting more information versus the potential burden put on reporting entities in our case and on corporations in the case of this bill.