Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 3 - Evidence
OTTAWA, Thursday, March 15, 2001
The Standing Senate Committee on Banking, Trade and Commerce, to which was
referred Bill S-16, to amend the Proceeds of Crime (Money Laundering) Act, met
this day at 11:10 a.m. to give consideration to the bill.
Senator E. Leo Kolber (Chairman) in the Chair.
The Chairman: Honourable senators, we are hearing evidence today on
Bill S-16. Our first witnesses are from the National Archives of Canada.
Mr. Ian E. Wilson, National Archivist, National Archives of Canada:
Honourable senators, I appreciate this opportunity to speak to the committee.
The issue to which I wish to speak is clause 54(e) of Bill S-16. The intent of
this clause is to require the destruction of records prepared or gathered under
the investigative powers of this bill. This runs directly against the Archives
Act which requires, under section 5, my consent to the destruction of records.
Originally, the amendment in clause 54(e) was to read "despite the
Archives Act." We have now had time to review the legislation and to try to
come up with a legislative solution that meets the requirements of the committee
and Canadians in terms of requiring the destruction of records that are gathered
under investigation while at the same time respecting the requirements and the
review processes established in the Archives Act to ensure that records to be
destroyed do not have permanent historical significance to the country.
My staff and I have had an opportunity to review the records that have been
created or will be created under these forms of investigation. We have
determined that those records are not of permanent significance for the
historical record of Canada. I have therefore, under section 5 of the Archives
Act, issued records disposition authority 2001/003, which authorizes the
destruction of those records pursuant to section 5 of the Archives Act after the
applicable periods built into Bill S-16.
We are therefore proposing alternate wording, which I think, and our advisers
suggest, meets the requirements that require the destruction of the record at
the same time. Rather than overruling the Archives Act, as the original
amendment would have, we are proposing the following alternate wording: "in
accordance with the Archives Act under a records disposition authority that we
have now issued."
That is our proposed amendment. I believe it has been distributed to you in
both languages. It is a cleaner, simpler way of doing this, rather than saying
"despite" or "not withstanding the requirements of the Archives
Mr. Chairman, I will be pleased to respond to any questions.
Senator Furey: Mr. Wilson, is the directive you issued with respect to
the destruction of records revocable?
Mr. Wilson: The wording in that last clause makes it clear that it is
not revocable. The archives very seldom revokes; we do so only in certain
specific instances, but it is discretionary. With that last phrase, discounting
any subsequent amendments or repeal of that authority, we are trying to ensure
that it is embedded in the legislation and cannot be revoked by my successors or
me. That is the intent and our legal advisers say that that will cover it.
The Chairman: As we are seeing this proposed amendment for the first
time, I do not know that anyone here can say whether it deals with our original
objections. Perhaps it does; perhaps it does not.
However, this session of the committee is only to hear testimony and ask
questions. We will conduct clause-by-clause study on Wednesday. I suggest that
our legal advisers, under the guidance of Senator Furey who is sponsoring the
bill, study this in order to satisfy us prior to clause-by-clause study that it
deals with our objections. I do not know whether it does.
If that is agreeable to the committee, I suggest that Senator Furey advise us
as to whether it deals with our objections, and that, if it does not, we
authorize him to act on our behalf, subject to our final approval of course, to
work with Mr. Wilson to produce wording that does deal with our objections.
Senator Meighen: What is the objection?
Senator Furey: It is simply that we wanted the records expunged and
destroyed after a period of time. Mr. Wilson is saying this encroaches on his
authority as the archivist.
The Chairman: Someone cited as an example this morning a person
winning $10,001 at bingo and a file being established on that particular
subject. Why should that file exist forever? Put in a purely simplistic form,
that is the kind of thing we want to avoid. Some of us believe that the era of
"big brotherism" in government may have gone a little too far. I think
it is up to this committee to put some kind of a stopper on it.
Senator Meighen: I agree with what you have said, Mr. Chairman, and I
think that is the consensus of the committee.
Mr. Wilson, you said that your blanket consent cannot be revoked. Did I
understand you to say that that is premised on the supposition that the material
collected pursuant to this legislation would not be of material importance to
Mr. Wilson: I said that it would not be of permanent historical value
Senator Meighen: What if it were determined at one point that
something was of permanent historical value?
Mr. Wilson: Our review would suggest that these investigations could
affect many individual Canadians because the threshold is set very low. We
suspect that, if things are important or if there is an issue, records will then
appear in prosecution files or in court records that will become part of the
permanent record. This would simply authorize the disposal of a file created on
an individual who won at bingo, once privacy and other concerns are satisfied.
This is a routine action of the archives. Given the volume of modern
government records, we only keep 1 to 2 per cent of the administrative record
created by government day by day. Under the authority of section 5 of the
Archives Act, we have the authority to review and identify which administrative
records we want transferred to the archives for permanent retention and which
will be disposed of routinely after the their legal, financial or audit purposes
We are trying to find a way that meets the requirements and objectives of the
committee while at the same time respecting the Archives Act and avoiding
legislation that says "notwithstanding" or "despite the Archives
Act." However, we do it in accordance with the Archives Act and to meet
your intent, as I understand it, which is the disposal of the record.
The Chairman: You are worried that if you do this everyone else will
do it, that it may be the thin edge of the wedge.
Mr. Wilson: We are worried about the precedent. Given the nature of
the record, we concur with you that it should be disposed. It is a tidier
approach to legislation to have it done, rather than suggesting that some other
legislation may be in some way deficient, that we do it in conjunction with
other legislation. We are trying to find the right wording. Whether we have it
or not, we are open to discussion.
The Chairman: We appreciate your cooperation. We hope you will work
with Senator Furey.
Mr. Wilson: Absolutely.
The Chairman: He will advise us whether he agrees, and then we will
decide whether we agree.
Senator Finestone: I was listening with great interest to something I do not
know anything about but I do know something about privacy and the National
Archives of Canada Act. I do not know where this fits in.
Under the Privacy Act, no personal information can be collected by any
institution, and you are a government institution, unless it relates directly to
the operating program of the institution. I do not know where it fits into the
right of your institution to have this information. If I win $10,000, it is bad
enough that everybody who wants money, charitable or otherwise, will know that I
have won. Why should you keep that information in your records?
Under the Privacy Act and the National Archives of Canada Act, why would you
have that material in the first place, or want it?
Mr. Wilson: We are saying that we do not want it. It has no place in
our records. We would not have enough room to preserve everything.
The Chairman: You will meet, or not meet, with Senator Furey, as he
Mr. Wilson: Yes.
The Chairman: We will now hear from Mr. Cullen.
Mr. Roy Cullen, Parliamentary Secretary to the Minister of Finance: I
am pleased to be here to speak to Bill S-16. Last June, I appeared before this
committee to discuss Bill C-22, the bill that put in place the legislation that
we are now proposing to amend.
I would like to take this opportunity to thank the committee for its very
careful study of Bill C-22 back then. The enactment of Bill C-22 was an
important milestone in Canada's legislative framework for fighting organized
crime and money laundering.
Its timely passage also brought Canada's anti-money laundering regime into
line with international standards and allows Canada to participate fully in the
international efforts against money laundering.
As a member of the G-7 and the Financial Action Task Force, Canada had
committed to improving our anti-money laundering regime. It was important that
Canada be seen by our international partners to be making progress on this
front, particularly in that the Financial Action Task Force was engaged in a
process of publicly listing countries as having deficient anti-money laundering
controls about the time the legislation was passed.
At meetings of the OECD and OSCE in Europe that I attended last summer, I was
pleased and proud to report that Canada had passed this important piece of
legislation and, again, I thank you.
Honourable senators, you will recall that the Proceeds of Crime (Money
Laundering) Act provides for a system of mandatory reporting of certain
financial transactions and cross-border movements of large amounts of currency
and monetary instruments. The legislation also established the Financial
Transactions and Reports Analysis Centre of Canada, FinTRAC, which will analyze
these reports in a prescribed way and provide information to police for
prescribed reasons and in a prescribed way to assist them in the prosecution of
money laundering offences.
The establishment of FinTRAC as an independent agency at arm's length from
law enforcement is one of the many privacy safeguards contained in the act.
FinTRAC was formally established on July 5, 2000. It is now building the
technical and analytical capacity needed to perform its mandate. It will begin
to receive financial transaction reports after the necessary regulations have
The proposed regulations for record keeping and financial transaction
reporting requirements were published on February 17, 2001, in the Canada
Gazette for a 90-day public comment period. Consultations are now underway to
develop regulations to implement the reporting requirements for large
cross-border movements of currency and monetary instruments. In addition,
FinTRAC has developed draft guidelines to help financial institutions and
intermediaries comply with the act and has initiated consultations with
Now, I would like to turn to the bill before us today -- Bill S-16. The four
amendments that make up this bill respond directly to issues raised by
honourable senators when they studied Bill C-22 in this committee last June.
The proposed amendments will be familiar to the senators on this committee as
they were outlined in a letter dated June 14, 2000, from Secretary of State Jim
Peterson to the committee chairman. That letter was included in the committee's
report on Bill C-22.
Briefly, the proposed amendments relate to four specific issues. The first
deals with the process for claiming solicitor-client privilege during an audit
conducted by FinTRAC. As you know, FinTRAC is authorized to conduct audits to
ensure compliance with the requirements under Part I of the act, namely the
requirements to keep records and to report certain types of financial
The legislation currently contains provisions that apply when FinTRAC
conducts a compliance audit of a law office. FinTRAC must provide legal counsel
with a reasonable opportunity to make a claim of solicitor-client privilege with
respect to any document in their possession at the time of the audit. The
proposed amendment contained in Bill S-16 deals with situations where documents
are in the possession of a person who is not a legal counsel. It would require
that such a person be given a reasonable opportunity to contact legal counsel in
order to make a claim of solicitor-client privilege.
Honourable senators will recall that this issue was raised by representatives
of the accounting profession when they appeared before this committee last June
Another change ensures that nothing in the Proceeds of Crime (Money
Laundering) Act prevents the Federal Court from exercising its authority under
the Access to Information Act or the Privacy Act to order the director of
FinTRAC to disclose certain information by either of those acts. This proposed
amendment makes it clear that the recourse of individuals to the Federal Court
is fully protected. This was the intent of the original bill and the proposed
amendment will ensure that this will be the result.
The third proposed amendment more precisely defines the kind of information
that may be disclosed to the police and other authorities.
The amendment clarifies that the regulations setting out this information may
only cover similar identifying information regarding the client, the institution
and the transactions involved. This deals with a concern of the committee that
the existing wording may have provided for greater latitude for using
regulations to add to the list of information set out in the act itself.
Bill S-16 would amend the act to ensure that all reports and information in
FinTRAC's possession will be destroyed after specific periods: information that
has not been disclosed to police or other authorities must be destroyed after
five years; information that has been disclosed must be destroyed after eight
years. The archivist presented a proposal that, on the face of it, seems to meet
our requirements. However, if there are any difficulties, we will talk to you
before the clause-by-clause occurs. We believe that it meets our requirements
and we are happy, in that case.
The Chairman: Could you clarify that, please? My understanding, after
meeting with the officials this morning, is that if we are satisfied then you
are satisfied. Is that correct?
Mr. Cullen: The officials are satisfied, and I am satisfied on the
face of it. However, I want to make sure that the government is satisfied, as I
am sure they will be. We will contact you immediately if there is any problem.
I hope that honourable senators will find that these four provisions respond
in a meaningful and concise way to the concerns raised by this committee.
Before I conclude, I will mention that the government considered very
carefully this committee's report on Bill C-22, including the suggestions for
three additional amendments to the act.
In response, the government has moved quickly to introduce the amendments
that the Secretary of State committed to make, and that I have just described.
However, the government has decided not to proceed with any further amendments
to the act at this time, and if I you will allow me, I will briefly explain why.
First, the committee report recommended that FinTRAC be required to obtain
either consent or a warrant before entering a law office to verify compliance
with the act, similar to what is required before entering a private home.
Such an amendment, in our view, would treat a law office like a private home,
rather than like other places of business. The government believes that it would
be inappropriate to require a warrant to conduct a compliance audit -- I repeat,
a compliance audit -- of any place of business, including the law office. The
provisions in the act parallel those in the Income Tax Act, which do not require
a warrant except for access to a private house.
Second, Parliament requested that a parliamentary committee review the act
within three years and every five years after that. At present, the act requires
a review after five years.
With respect, senators, I submit that a five-year review is more appropriate,
for a number of reasons. More important, there will not be enough experience or
data available within three years to provide an accurate assessment of the
effectiveness of the legislation or the operations of FinTRAC. In any event,
committees of Parliament can undertake to review any legislation at any time and
could opt to do so in this case.
Finally, the committee report recommended that the act require regulations to
be tabled before a committee in each House of Parliament.
The act currently stipulates a 90-day public consultation period, following
prepublication of the regulations in the Canada Gazette, and an additional
30-day notice period if significant changes are made as a result of those
consultations. We believe that this process provides ample opportunity for
parliamentary committees, if they wish to do so, to review the regulations
proposed by the government.
The Secretary of State has sent to the chair of this committee a copy of the
proposed regulations, which were prepublished in the Canada Gazette on February
17, 2001, and they are also available on the Finance Canada Web site.
In closing, honourable senators, I would like to thank you once again for
your close study of Bill C-22 and for raising the issues that the government has
addressed through the bill before us today -- Bill S-16.
The government has devoted considerable time and energy to crafting its
anti-money laundering legislation in such a way as to meet the needs of law
enforcement while protecting individual privacy. The amendments contained in the
bill considered today result from this committee's invaluable input to this
matter. The officials that are here today and I are pleased to answer any
The Chairman: Could you clarify the difference between a
"compliance" and a "search"? That information is integral to
the whole question of the warrant.
Mr. Cullen: In general terms, if there is a reporting requirement
under the act we are talking about a compliance issue.
Mr. Yvon Carrière, Senior Counsel, Tax Counsel Division, Law Branch,
Department of Finance: When FinTRAC conducts a compliance audit, they verify
whether, in fact, the required reports were prepared. They are not investigating
to know whether money laundering has occurred, or some other criminal activity.
In fact, they would not be authorized to gather such evidence to prove that a
crime had occurred. In the case of a criminal search, a warrant is obtained, and
the people who perform the search in a criminal matter will look for specific
evidence related to that criminal infraction.
A compliance audit is simply performed to verify whether the reports and
records required to be kept under the Proceeds of Crime (Money Laundering) Act
have been kept and that the reports have been made.
Mr. Cullen: Any information obtained by FinTRAC during the course of a
compliance examination cannot be disclosed to law enforcement under section 55
of this act for the purposes of a proceeds of crime (money laundering)
investigation. If it were disclosed, it would render the information
inadmissible in a court of law.
Senator Tkachuk: I have a question about the "dwelling
house." It bothers me as it bothered Mr. Kelleher. Mr. Cullen, you implied
that it was different from a business, but that would be news to me.
I received an article by Mr. Peter Hogg, Dean of Osgoode Law School, that
states that the common law rule is that a police officer or government official
has no authority to enter private property for the purpose of searching for
evidence and no authority to seize private property for use as evidence, unless
authorized by law. However, we do that from time to time, in that common law
continues to apply and that we can sometimes, by statute, make an exemption to
that. However, it was just the way in which you were talking about "house
" that bothered me. The home is special, and my interpretation of it would
be that which we have to protect. It is my right, as a citizen, not to have law
enforcement officials come to my home or my place of business without a warrant,
or anywhere else that I consider my property -- those places should be
protected. This is an exemption that only applies to the Income Tax Act. As far
as we could find, there is no other exemption like this.
Why do you need this special power? Frankly, it scares the hell out of me.
Once you make this exemption, there will be others. If there is no evidence, why
is it necessary to search a dwelling?
Mr. Peter Sankoff, Counsel, Human Rights Law Section, Public Law and
Central Agencies Portfolio, Legal Operations Section, Department of Justice:
You have raised a complicated question. I will try my best to deal with that and
all other aspects.
My understanding of the case law generally, and especially in respect of the
Charter of Rights and Freedoms, is that there is a fair distinction made between
the dwelling house as the place most deserving of protection. In particular with
relation to this act, I would draw a number of distinctions. This act is not
normally designed to cover a dwelling house. It is not a place that would
generally have activities that would generate suspicious transaction reports.
As a precaution, a section has been included to deal with dwelling houses in
case there is activity that would generate these kinds of reports. Because it is
unlikely that this will occur, a special warrant provision has been put in to
deal with that. It is not uncommon for that to be the case. A number of pieces
of legislation have distinctions about what can be done in a dwelling house and
what can be done in any other type of place.
I do not disagree with your proposition, that, as a rule, we wish to have
preauthorized judicial authority to go into any place.
Nonetheless, the case law once again has made a rather serious distinction
between what we would call regulated activity and what we would call a search
for criminal purposes. In this case, it is very clear that the particular matter
that we are discussing relates to regulated activity. The centre is only allowed
to go into these types of premises where they are regulating compliance.
As Mr. Cullen pointed out earlier, none of the information can be used. It is
clear from the way the act is currently worded that any information obtained in
the course of a compliance audit cannot be used in a criminal investigation and
cannot be used by the centre to determine whether money laundering has taken
place. The sole purpose is for compliance. The manner in which this has been
drafted goes a long way to ensuring that the distinction between regulatory
compliance and a search for criminal purposes that has been made so clear in the
case law is upheld. Therefore, I would see those two distinctions as making this
Senator Tkachuk: You mentioned the Charter of Rights and Freedoms.
First, you are telling me that the Charter of Rights and Freedoms gives less
rights than common law, which talks about property, not just dwelling place.
Second, it is not the fact that you may find evidence of other wrongdoing that
concerns me; it is the very act of government officials coming into my property.
It is not the fact that you may find something but the fact that you have no
right to be there in the first place, unless you have a reason to be there, and
the reason should be supported by enough evidence to obtain a search warrant. I
do not like you walking in. It is not because I am a criminal but because I do
not like you walking in. You can have all these other exemptions, but as
governments and legislators we have to prevent governments and police from
walking in. We have a responsibility to do that, and that is what I am trying to
Mr. Sankoff: I understand that. All I can say in response is that the
number of situations where the government has the right to intrude on a business
-- I hate to use the word "intrude," but let us say to assess a
business or a property without a warrant for regulatory purposes -- are beyond
my ability to number at this time. There are a number of areas where there is a
purpose that is pressing. As I understand it, the justifications put forth for
this initiative are pressing. I do not think this would be an everyday thing or
that they would be going in at any time. It would be something undertaken from
time to time for the purpose of ensuring compliance only. That, in my opinion,
is not uncommon. In countless industries, government officials have the ability
to go in solely to monitor compliance or to ensure that the very important
process that is underway is actually taking place in the manner in which it was
I understand the concerns about privacy here; nonetheless, the courts have
generally accepted that for these purposes only. That is why the distinction
about what is going on is so critical. They have generally accepted that the
government needs to monitor compliance with various regimes, and the purpose
that is being put forward for this one is seen as very important. That is where
the distinction comes from.
Senator Meighen: Could someone refresh my memory as to what triggers
the audit compliance initiative. What makes FinTRAC decide that they are going
to undertake an audit compliance?
Ms Patricia M. Smith, Deputy Director, Policy, Liaison and Compliance,
Financial Transactions and Reports Analysis Centre of Canada: Senator, a
number of factors determine that we come in.
First off, we will have liaison officers in the field. They will be in
contact with the reporting entities, finding out if they are comfortable with
the legislation and with the regulations. I should point out that, as part of
the regulations, there is a requirement to put in place an anti-money laundering
compliance regime. The liaison officers will be going out and seeing if more
information is needed to put such regimes in place.
Part of the job that we are doing now in terms of trying to become
operational is to assess the training needs of the reporting entries. Hence,
another factor that comes into place is this: What will be the training
requirements of all these reporting entries?
Eventually, when we do become fully operational and start to receive
transaction reports, we will have some statistics on the general nature of
reporting and compliance. If 95 per cent of all entries from a particular sector
are reporting, then we will know that there are some anomalies, and we will go
back to the reporting entries and see if they understand the regulations and the
law. Is there something they are not doing? Is the problem something to do with
timeliness? Is the problem we are looking at something to do with their
inability to connect with our reporting mechanism? They will be reporting
largely through the Web or through a secure socket network.
There will be a number of methods by which we will be able to determine
lapses in compliance. If, after looking at this and talking to the reporting
entry, we determine there may be something more serious, then we would inform
them that we are coming in to do a compliance examination, and we will give them
feedback on the results of that compliance examination.
Senator Meighen: The reporting entity is any body that is required to
report under the act?
Ms Smith: Yes.
Senator Meighen: It could be a law office.
Ms Smith: It could be.
Mr. Cullen: As I understand it, there could be situations where
information would indicate that some intermediary, on the face of it, should be
reporting, or there are sufficient grounds to believe that they should be
reporting and the reports are not coming in. That would be cause for someone to
ask the question.
Mr. Richard Lalonde, Chief, Financial Crimes, Financial Sector Division,
Financial Sector Policy Branch, Department of Finance: I can give an example
just to clarify that it is not just any business that will be reporting. The
bill sets out very clearly that we are dealing largely with regulated financial
institutions, and those are spelled out in clause 5 of the bill.
The bill also provides the ability to prescribe under regulation additional
reporting entities, which we have done in the regulations that were prepublished
in the Canada Gazette just recently.
As Mr. Cullen and Ms Smith have indicated, there may be instances where there
may be gaps in reporting from certain sectors. I can give an example of the
currency exchange business. There may be instances where, in one part of the
country, FinTRAC may be receiving lots of reports from currency exchange
businesses. Perhaps in another region of Canada there are very few. That may
trigger a question as to why that is occurring and therefore prompt FinTRAC to
inquire with those reporting entries in that region.
Senator Kroft: I am curious about this idea of reports that should be
coming in. That suggests to me that you would take classes of institutions or
offices or businesses and develop almost a statistical base saying that, given a
certain volume in a certain industry, you should be getting a certain number of
reports a month. Perhaps you are not meeting your quota. Is it that kind of
analysis, or does there need to be some sort of a more specific fact-based
trigger to prompt it?
The example you gave kind of fell in the middle. It was not exactly clear to
me. Do you need a specific situation in order to trigger this, or will it be
done on a statistical basis?
Mr. Lalonde: FinTRAC has the authority to do compliance audits on all
reporting entries. As a matter of practice, it will not necessarily have the
resources to visit all reporting entries on a routine basis and as such will
have to decide and prioritize which entities will be conducting compliance
audits. In the example I gave would be perhaps one criterion that they might
The legislation also provides, and I mention this in passing, the authority
for FinTRAC to enter into collaborative arrangements with other regulators and
other self-regulatory organizations for the purpose of carrying out this
particular function of compliance audit as well.
Senator Meighen: Although you have answered the question, I am still
not clear how you get this wonderful status of reporting entity. What do you
have to do to get that? Do you have to be RBC Dominion Securities? Do you have
to be Senator Kelleher's law office? How do you get this exalted status?
Mr. Lalonde: We use the term "reporting entity" to describe
all those businesses covered under section 5 of the Act. Under this section, we
talk about banks under the Bank Act.
Senator Meighen: There must be a catch-all clause.
Mr. Lalonde: There is an additional clause that allows us to respond
to situations where, for example, internationally there may be new industries or
new ways that money is being laundered. It allows us to add to the list of
entities covered by the requirements by regulation.
As I indicated earlier, in the draft regulations that were prepublished on
February 17, we have included, for example, the wire transfer business -- the
Western Unions of this world -- as a business that ought to be covered by the
requirements of the act. They may not be specified in the act, but they are
prescribed in the regulations. We will be receiving views from that particular
industry concerning that issue.
Senator Meighen: Let me turn, if I may, to the specific example of a
law firm. How does a law firm fall into that status?
Mr. Lalonde: It would be in precisely the same manner as the Western
Union or the wire transfer business would be included, by regulation.
The Chairman: That does not make sense.
Senator Meighen: Is my law firm obliged under this legislation now, or
do I wait for a letter from you?
Mr. Lalonde: We have had extensive consultations over the last year or
two with the Canadian Bar Association, the Barreau du Québec and others
concerning the Proceeds of Crime Act, as well as the proposed regulations. At
the association level, certainly, they are well aware of the government's
The government has also prepublished these regulations and has announced this
Senator Meighen: With respect, I do not understand your answer to my
The Chairman: Is every Canadian presumed to read all regulations?
Senator Meighen has an interesting tact here. Is a letter going to go out from
FinTRAC to every conceivable suspect? Of course, I am using that word in
quotation marks. Really, how does it start?
Ms Smith: There are a number of things. It is an iterative process on
which we are just embarking. There have been consultations on the regulations
that were prepublished; we are also commencing consultations on the guidelines
that enumerate some of the requirements of the act.
As Mr. Lalonde has said, the regulation that pertains to lawyers is very
specific. There are certain actions that a lawyer has to take before he or she
becomes a reporting entity. He or she must be engaged in financial transactions.
A lawyer giving out legal or criminal advice is not covered. It is only when he
or she is engaged in very specific financial transactions. The regulation states
that every legal counsel is subject to Part 1 of the act when he or she engages
in any of the following activities on behalf of a third party, including the
giving of instructions on behalf of a third party in respect to those
activities. Then it lists the receipt or payment of funds other than those
received or paid in respect of professional fees.
Senator Meighen: Let me pose a hypothetical situation. I am a client.
I am interested in investing in a property in Ottawa. I send $500,000 cash to my
lawyer in Ottawa, or $20,000.
Ms Smith: Are you the lawyer or the client?
Senator Meighen: I am the client. I am interested in buying properties
in Ottawa. I have not sent the funds for the purpose of paying a fee.
Ms Smith: Your lawyer would probably then be a reporting entity.
Senator Meighen: That is my point. You will have many lawyers who are
reporting entities because often, heretofore, at least, clients have given money
to lawyers to hold for a future specific purpose.
The Chairman: Is that cash or cheque?
Ms Smith: It is only if it is cash for large cash transaction
Senator Meighen: My colleague Senator Tkachuk just asked, if it is an
electronic transfer, is it cash or cheque?
Ms Smith: If it is cash, your lawyer, as a reporting entity, must
report the large cash transaction, which is any amount over $10,000. However, if
you come in with a suitcase and you make a number of smaller transactions, it
might be considered suspicious and would also be covered as a reporting
Senator Meighen: What is the situation if it is an electronic
Ms Smith: I am not aware that lawyers have that capacity. It is
Senator Meighen: That qualifies as cash?
Ms Smith: It is a transaction that needs to be reported.
Going back to how to inform everybody, we have been dealing with the Canadian
The Chairman: Excuse me, but there is something really wrong here. Are
you telling me every electronic transfer is subject to some kind of
something-or-other? There must be thousands of these transfers every day.
Ms Smith: It is international.
The Chairman: Yes, international.
Ms Smith: The amount must be over $10,000.
The Chairman: That is nuts. That is how business is transacted every
day. As an example, I just transferred money electronically to one of my
children. Is that a suspicious transfer?
Ms Smith: No, sir.
The Chairman: Why not? It comes under your definition.
Ms Smith: It is under the definition of a prescribed transaction.
The Chairman: Someone has to report that?
Ms Smith: That will be reported.
The Chairman: It is idiotic.
Senator Tkachuk: That is what we were trying to say the first time.
Senator Meighen: To go to the other tack, the thrust of all this seems
to be an assurance that the proper reporting procedure is being followed. Once
we know that it is being followed, then everybody is happy.
Ms Smith: Yes.
Senator Meighen: I do not know where that takes us. I will now come at
it from the other side. Now you are saying that anything that is discovered by
action in the course of investigation cannot be used as evidence in a criminal
prosecution. Therefore, we are going through all this sound and fury merely to
ensure that we have a nice, tidy, complete reporting function that goes nowhere
except to allow someone to tick off and say, "Yes, the report was received
in due and proper form."
Mr. Cullen: The first step is to get the reporting on track. Once the
reporting is on track, the normal provisions would apply, I would suspect.
Senator Meighen: Let us say in the course of a totally normal
compliance audit that you do come across something that is suspicious. I
understood you to say that you can do absolutely nothing with it, under any
circumstances. Is that correct?
Mr. Sankoff: The way it is drafted right now, that is the way it is.
Senator Meighen: What is the point of doing it?
Mr. Sankoff: The idea is that the persons who do not go further with
these will be subject to prosecution for non-compliance. The idea, as we
understand it, is not that persons captured by the act are going to regularly
disobey the law. There are penalties for non-compliance. There are obligations
in this act, and non-compliance is a problem, so the idea is that, over time,
people will comply.
Senator Meighen: If I were a big, nasty money launderer, first, I
would not be worried about an administrative slap on the wrist for not filling
in some form; and, second, I would be sure to fill it out very accurately
because I would be certain that you would be on my tail immediately if it were
not filled out accurately, even though you might have told me that you would not
do so. This is confusing.
Mr. Sankoff: It will not actually be the money launderer filling out
the forms. It will be the other entities.
Senator Meighen: The money launderer's lawyer?
Mr. Sankoff: Theoretically, money launderers could engage in massive
fraud, but in each case they will be subject to other penalties. There are other
ways of deterring these sorts of activities.
Non-compliance is designed solely to deal with non-compliance. It is a
regulatory function. Senators have expressed difficulty with the procedures that
allow us to go in without a warrant to check for non-compliance. There is good
reason why you are only allowed to go in for the purpose of non-compliance. It
is quite reasonable that, in these circumstances, you cannot use that
information for a prosecution.
The only reason that the centre is allowed in without the protection that has
been expressed by senators is that it is strictly for non-compliance. If you
were allowed to use that information, we might have a problem.
Senator Furey: Senator Meighen basically reiterated what has been said
already in terms of any documentation that is found to be suspicious during a
compliance. You are satisfied that section 55 prevents the use of that, is that
Mr. Sankoff: The way it is worded, that is correct.
Senator Furey: Would you also say that you would be satisfied that it
would include the use of it to ground an application for a warrant?
Mr. Sankoff: First, the centre is caught by various non-disclosure
provisions. It is more than section 55. There is also the proposed amendment to
section 54, which precludes the centre from using it in their analysis. The
centre has very broad non-disclosure provisions. They cannot give it to anyone
to get a warrant. The centre has no ability to get warrants on its own. Since
they are precluded from disclosing it to the police -- or anyone else for that
matter -- there is no way you could ground a warrant with that information. I
would say you are correct.
Senator Furey: If that is case, you are back to the normal rules. If
an investigating officer wanted to go into a business, he or she would have to
satisfy a justice of the peace that there are reasonable grounds to believe,
say, in this case, relevant records exist. That information would come outside
of anything to do with a compliance audit. Is that correct?
Mr. Sankoff: That is correct, except what might be obtained during the
prosecution for non-compliance, but it would not include the specifics of the
records. Once there was a prosecution for non-compliance, it would be on public
Senator Furey: Presumably, that would follow an application for a
warrant that was grounded in information not obtained through a compliance
Mr. Sankoff: That is is not entirely correct. The person could be
prosecuted for non-compliance. The centre has the ability to turn over material
to the police strictly on non-compliance -- that is, where it is shown that
there is non-compliance.
Senator Furey: A document that was found during compliance and could
disclose criminal activity -- and I will not call non-compliance criminal
activity; we will call it quasi criminal for now, just to differentiate -- could
be used in a non-compliance prosecution. Is that what you are saying?
Mr. Sankoff: It would not be relevant to compliance, so it would not
be used in that compliance prosecution.
Senator Furey: But it could be?
Mr. Sankoff: I have difficulty seeing how that could occur. If it did
not relate to non-compliance, it could not be used in a non-compliance
Senator Furey: But it could relate to non-compliance.
Mr. Sankoff: If it related strictly to non-compliance, it could be
used in a non-compliance prosecution; that is correct.
The Chairman: Does anyone in your department have the vaguest idea how
many wire transfers of over $10,000 are done in a year? It must be tens of
thousands. Every time you buy stock in excess of $10,000, you wire the money to
the stockbroker or to the person buying the stock for you. That must represent
many tens of thousands of dollars.
Ms Smith: We are engaged in those discussions with the industry. We
are in the consultation phase and are attempting to establish whether reporting
entities will be able to use batch file transfers for reporting. That is one of
the key elements we are working on, namely, estimating how many electronic
transfers FinTRAC will receive.
The Chairman: You will need an credible army of people to police this.
Senator Meighen: That is another reason to review this after three
Mr. Cullen: This is new territory for Canada and for us. We want to
make sure that the net is cast widely enough. Once you make exceptions, that is
where the money launderers will go. We have also said at this committee that,
given the regulatory regime we have, we can adapt and change and meet new
requirements as they arise while being more flexible in terms of changing the
guidelines regarding what comes into the net and what does not. At the first
instance, we want to be sure that we do not create openings so that would be
easy for people to come through.
We will grow and learn with our experience. I am not here to tell you that we
have every single answer on every single type of transaction. We will be
developing that through regulation and guidelines as this progresses.
Senator Setlakwe: In the case of compliance, you said there was a
preclusion. If that occurs, what do you do? Do you not report it to the police?
In the case of compliance, do you find something that is disturbing and that
should be reported to the police but you are prohibited from doing so?
Mr. Sankoff: On material that is discovered, if you discover that the
person has not complied, that means the regulator entity is subject to
prosecution for non-compliance. The rest of the material -- that is, the
material that may reveal other crime -- is not reported to the police unless it
is for the purpose of the non-compliance prosecution solely.
Senator Tkachuk: If you find cocaine, there is no problem?
Mr. Sankoff: There is a general exception at common law, namely, the
plain view exception. If, for example, you walked in on a murder, you are not
precluded from calling the police and telling them that a murder is taking
Senator Tkachuk: If the cocaine is on top of a desk versus being
locked up in a safe, is there a difference?
Mr. Sankoff: The limits of the doctrine have not been explored, so I
cannot give a comprehensive answer. Generally, the courts hold that compliance
inspections are designed to ensure compliance. If the centre went beyond its
powers, I have no hesitation from saying the courts would stop them from doing
so. While your situation may provide some border line examples of cocaine on a
desk, the power here is toward compliance. If the centre abuses its powers, the
court still retains control to censor that.
Senator Setlakwe: If you come upon an indictable offence, you would
not report it?
Mr. Sankoff: If compliance is being done, it is not the centre's
purpose to report on other activities. The centre is a non-investigative agency.
Senator Tkachuk: When we met last spring, we did not really get a good
definition from you of "suspicious transaction." We had problems with
that term, if you remember. Has there been anything further regarding that? What
is a "suspicious transaction"?
Ms Smith: That is not an easy question to answer. We have written a
draft guideline that is out for consultation now. A "suspicious
transaction" will differ in the context in which it is found. There are few
examples of an individual suspicious transaction but, rather, in a context where
the transaction itself is suspicious. Let me try to simplify this.
If you are the Toronto-Dominion doing private banking, you will be looking
for very different indicators of suspicion than if you are the credit union in
It will, in part, relate to how well you know your client and what is normal
for that client's activity. If your client is a business and normally they have
cash deposits of $10,000 four times a week, then that is normal. If a $10,000
deposit is made, there is no suspicion. If, on another day, $1 million is
suddenly deposited, that may or may not be suspicious depending on what the bank
or the entity knows about that client.
Senator Tkachuk: Last June we were under a tremendous rush to pass
Bill C-22 because the government needed to get the centre up and running. How
many employees do you have at the centre and what do you think its projected
annual cost will be for the year?
Ms Smith: Right now, we have approximately 70 per cent of our total
employment in the centre. We have approximately 70 employees. I believe our
budget for this year is $20 million.
Senator Tkachuk: Last year, I believe you said it would be $15
Ms Smith: I do not have the exact numbers.
Senator Tkachuk: Do you expect to have 100 employees?
Ms Smith: Right now we are resourced for around 100, yes, and we have
approximately 70 in place.
Senator Tkachuk: Would you send me a letter with a more precise answer
I am not sure if what I experienced was a mistake on the part of Nesbitt
Burns, but I had what they call a locked-in retirement plan from a previous
employment. At the age of 55, I wanted to convert that locked-in plan into what
they call a RRIF. The broker requested that I produce a picture ID. I have known
this broker for 15 years and therefore asked him why picture ID was necessary.
He told me that it was to conform with either this act or the act passed
previously, and that it had to do with money laundering. I refused to produce
the ID and he informed me that I would then need to sign a waiver. I signed a
waiver and sent it away. I do not recall what the waiver stated. It was small
I thought that odd, and that is why I worry about bills like this. Why would
such a request be made? Would any of the department officials here today know
the reason for that request? Why would a picture ID be required? What was the
waiver all about?
Mr. Lalonde: The "know-your-customer" principle is one of
the cornerstones of the international anti-money laundering standards. As well,
being able to ascertain the identity of your client is key. In the current
regulations, which have been in force since 1993, there is a requirement that
those financial institutions covered by the previous act ascertain the identify
of their clients by reference to a number of pieces of identity. For example, it
could be a driver's licence or another similar document.
It is required of the security's broker or the financial institution, when
opening up new business relations with a client, to ascertain the identity of
the client by reference to a driver's licence, for example. There is also a
requirement to record that fact and take note of the reference number. That is
the current requirement.
Senator Tkachuk: In order to open an account an individual must
basically put his or her whole life on paper, just to open the account, right?
The paperwork to be filled out is quite thick. The situation I described
referred to the RRIF account. I had already filled one in for the other account
to get the locked-in plan.
What happens with the picture ID? Would it be put on a wall in the broker's
office so that they can throw darts at it because I am a senator? If I had sent
it in, what would have happened to my ID? Would it have been sent to the
government or would it be kept in a file in the broker's office?
Mr. Lalonde: There are several ways in which securities brokers are
allowed to ascertain the identity of their clients. If we are talking about
picture ID, typically what must occur is that the institutions would need to
ascertain your identity face to face. There is no requirement for them to
maintain a photocopy of whatever picture ID you gave them' they simply must
record the reference number. It is due diligence for them. It records the fact
that they have actually done this.
Senator Tkachuk: I just thought it was odd.
Senator Furey: I should like to go back to this issue of documentation
disclosed during a compliance audit.
It was my understanding that any information obtained during a compliance
audit could not be disclosed, in accordance with section 55, among other
sections, as you pointed out; that in fact if information were disclosed it
would render the evidence inadmissible. I hear you saying today that if
documentation were discovered it could be used in a non-compliance prosecution,
which would put it in open court. Is that correct?
Mr. Sankoff: That is correct. It could be used solely for the purposes
of non-compliance. It is highly arguable that material could not be subsequently
used in a prosecution for a different purpose because of the manner by which it
was obtained. The act makes clear, first, that the purpose in obtaining that
information is for non-compliance. There are also constitutional guarantees that
back up that basic premise.
Senator Meighen: I appreciate, understand and support the idea of the
necessity of protecting privacy. On the other hand, Mr. Cullen, you have said
that this put us right up there with our international allies in the fight
against organized crime in money laundering, et cetera. If, as you say, the bill
- which is entitled "An Act to Amend the Proceeds of Crime (Money
Laundering) Act" -- is designed solely to ensure that people are complying
with an administrative requirement and that any evidence gathered in that
process can only be used for a non-compliance prosecution, how will we advance
the war against money laundering?
Mr. Cullen: Senator, maybe we are not communicating well. First, if
people are not complying with the act in terms of reporting then FinTRAC and the
whole legislative package cannot click into operation, obviously. If people are
not reporting when they should be, then how can we ever get at money laundering?
Therefore, you must have a mechanism to get people who should be complying to
comply with the reporting requirements of the act. Once people are reporting,
then the normal provisions of the act and the legislative package click into
place in FinTRAC.
The senator has raised an interesting point. If someone keeps non-complying,
then that is probably a challenge and that is one of the balances that we needed
to bring to the table -- balancing privacy with the need to deal with money
laundering. If someone refuses to comply continually then that would be a
We are looking at a small percentage. Many organizations will want to comply,
or they will comply. They may not know that they should be complying or they may
not be complying in the appropriate way, and we want to ensure that they will be
complying with the act and reporting.
For those players who do not comply because of the balance of privacy issue,
we will be challenged. I am sure it will be challenging.
Senator Meighen: Presumably the proposed legislation applies only to
people in Canada. I see a nod from behind. I would suspect that 99.99 per cent
of those people are not money launderers. They may be used by money launderers
unknowingly; is that correct?
Mr. Cullen: I think there may be more than you would think.
Senator Meighen: There might be. That is fine. I am still having
trouble understanding how the reporting will do more than perhaps establish a
pattern of carelessness or innocence, or a pattern of continuing non-compliance,
which then leads you to say that there is something more here.
Mr. Cullen: Let me give you an example. If, under the Income Tax Act,
someone is not filing an income tax return, in a sense they are participating in
tax evasion. However, there are various forms of tax evasion. If they are not
filling in a tax return, how will you ascertain whether they are evading tax?
You must first of all have people reporting and complying with the reporting
provisions of the legislation. Once they are doing that, then the provision
kicks in. That means that transactions are analyzed. If there is other
corroborating evidence that would suggest that the transactions are suspicious,
that information would then be forwarded in a tombstone way to the RCMP, and so
forth. Without any reports, there is nothing much that one can do with anything,
I would suggest.
Senator Meighen: Fair enough.
Senator Furey: Let's go back to the question on the evidence. You are
still satisfied, I presume, that there is the safeguard of the claim on
solicitor-client privilege there, even during a compliance audit on any
Mr. Sankoff: Absolutely. No matter what, the solicitor-client
privilege exists. To be honest, whether it in here or not, solicitor-client
privilege is a claim at common law. The express protections are set out here.
The solicitor-client privilege will always take precedence in this matter. If
there is a valid claim of solicitor-client privilege, it will go before a judge
to be tried.
Senator Furey: We all need diligent solicitors, Mr. Chairman.
Senator Wiebe: My question may be a little comical. I am not a lawyer,
and I cannot always understand some of their concerns.
Let us assume that this proposed legislation is passed and that I am in the
drug trade and have had a successful week. As such, I have a pile of money that
I do not know what to do with it. I cannot process it through the regular system
because it will be detected by your people, who are doing a great job. If I hire
a backhoe operator and have him bury the money for me, will he be under the law
The Chairman: The backhoe operator may not know what is in the
Mr. Lalonde: The short answer is "no."
Senator Poulin: I would like to thank Mr. Cullen and Mr. Peterson for
their speedy reply to the questions we raised during our discussions on Bill
C-22. The four changes that have been tabled deal directly with the centre
framework legislation. I would like to ask a similar question to the one asked
by Senator Tkachuk. If I understand correctly, the centre is developing. It has
a staff of 70 and an annual budget of $20 million, approximately. Under Bill
C-22, what is the status of the centre as a government agency?
Ms Smith: We are set up in the law as an independent agency at arm's
length from law enforcement agencies.
Senator Poulin: What is your relationship with the RCMP?
Ms Smith: We are at arm's length. It is very clear in the legislation
that we are at arm's length from all law enforcement agencies. I could give some
specifics as to what that means.
Senator Poulin: No, I understand. What is the relationship, therefore,
between the agency and the Department of Finance?
Ms Smith: That is a bit more complicated.
Mr. Lalonde: The agency reports to Parliament through the Minister of
Finance. Hence, the Minister of Finance has oversight responsibilities. The
legislation spells out the kind of oversight responsibilities the Minister of
Finance has and the kinds of information the minister is entitled, to exercise
that responsibility. It is very clear in the legislation that the minister does
not have access to any personal identifying information.
Senator Poulin: Will the agency table an annual report to the House?
Mr. Lalonde: Yes.
Senator Poulin: On the issue of privacy, you said that any transaction
of more than $10,000 must be reported, even if, for example, I am giving money
to my daughter who lives abroad. Is that right?
Mr. Lalonde: The payment bill stipulates that all transactions must be
reported. Any cash deposit of $10,000 or more must be automatically reported by
the bank to the new agency.
Senator Poulin: If I ask my Canadian bank to transfer $15,000 to an
American bank for my daughter who lives in a different city, is the Canadian
bank required to report this transaction?
Mr. Lalonde: As things stand now, the payment bill requires any
transfers of $10,000 to be reported.
Senator Tkachuk: To follow up on that, just so I understand this
electronic transfer, because we are talking about cash here when talking about
illegal transactions, right? You do not usually pay by credit card if you are
doing something illegal; the transaction is usually done in cash. I could
understand perhaps an international transfer of money, from here to Bermuda or
the United States, or vice versa.
However, to clarify this, say that there is a transaction between two
Canadian bank accounts. Let us say that Senator Kolber transfers $12,000 to my
account in Saskatoon.
The Chairman: That is highly unlikely.
Senator Tkachuk: Would there be a requirement to report on that?
Ms Smith: No, there is no requirement in the regulations.
Senator Tkachuk: Therefore, domestically there is no requirement.
Ms Smith: No, internationally the requirement is over $10,000.
Senator Setlakwe: I wanted to ask if it were international or
The Chairman: My initial understanding was that it applied to any wire
transfer, but Ms Smith has just said that it is only international.
Mr. Lalonde: The current draft regulations only concern international
The Chairman: That was not expressed clearly before.
The committee fully understands that we are out to get the "bad
guys" and not out to abuse the "good guys" -- not to be
simplistic about it. Almost all of the questions had to do with compliance. We
have not heard much, if anything, about what should be done when we have those
voluminous reports. We all appreciate that these are early times and that the
waters are being tested as we proceed.
The challenge is huge and it is not patently clear how this is to be
resolved. One of the suggestions that I would make to this committee is that we
make a reference to the Senate to have a review one year from now. That way, the
appropriate officials will be able to outline their experience on this issue to
that date. I urge the committee to consider inviting the witnesses back in one
year or so for an update. Perhaps by that time there will be some anecdotal
evidence, if nothings else, about who has been abused in such cases and who has
not. The witnesses could also tell us whether any "bad guys" have been
caught and whether the system has worked.
With that in mind, I thank all the witnesses for their participation today.
We, as a committee, will do our best to see this matter through.