Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 2 - Evidence - Meeting of May 17, 2006
OTTAWA, Wednesday, May 17, 2006
The Standing Senate Committee on Banking, Trade and Commerce met this day at 4:05 p.m. to review the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (S.C. 2000, c. 17) pursuant to section 72 of the said act.
Senator W. David Angus (Deputy Chairman) in the chair.
[English]
The Deputy Chairman: Good afternoon and welcome. I am Senator David Angus, from Quebec, Deputy Chair of the Standing Senate Committee on Banking, Trade and Commerce. The Chair of the Committee, Senator Grafstein, is absent from the country on important business.
The committee has been mandated by the Senate to undertake a review of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, which is found in the Statutes of Canada 2000, chapter 17 pursuant to section 72 of the act. It is necessary to conduct a parliamentary review of the administration and operation of the statute five years after the coming into force of the said section 72. The predecessor legislation, Proceeds of Crime (Money Laundering) Act, was examined by the Senate Banking committee in 2000 and so it is time for Parliament to proceed with the prescribed five-year review.
This committee has a long history of supporting parliamentary review of financial services sector legislation. We are legislators and so it is vitally important that we ensure that legislation is operating and functioning in the way that Parliament intended and envisaged. Canada works as a global partner in making the world a safer place, and so it is important that we ensure that Canada's anti-money laundering and anti-terrorist financing regime is meeting not only our national needs but also the needs of our international partners.
The committee's review will begin with testimony from officials at the Department of Finance Canada and from Financial Transactions and Reports Analysis Centre of Canada, FINTRAC. We will hear from Ms. Diane Lafleur, Ms. Lynn Hemmings, Mr. Dan Hermosa and Mr. Yvon Carrière.
Ms. Lafleur, please proceed with your comments.
Diane Lafleur, Director, Policy Sector Policy Branch, Department of Finance Canada: It is always a pleasure to appear before this committee. We welcome the timely opportunity to be here on such an important issue.
I trust that senators received a copy of the deck that we brought with us, for which I have prepared comments. Mr. Chairman, I am in your hands as how you want to proceed. I have some comments or I could take your questions right away.
The Deputy Chairman: Ms. Lafleur, I have read a summary of the consultation paper. If you could place that in context for the committee it would be helpful not only to the senators but also to those watching the proceedings today. In that way, we will be aware of the highlights, and of the things that either went well or did not under the terms of the act and what the consultation study showed.
Ms. Lafleur: The purpose of my presentation is to give you background on Canada's anti-money laundering and anti-terrorist financing initiative, which is governed by the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. I hope this presentation will serve to inform your deliberations as you go forward.
Although it is difficult to measure the exact cost of the crimes that underlie money laundering, such as fraud, embezzlement, drug trafficking and arms trade, there is much anecdotal evidence as to the harmful impact of these crimes. More obvious is the tremendous loss of life and destruction caused by terrorist acts. Not combating the financing of terrorism and money laundering can impose serious economic and social costs on a country and on the country's international reputation. The financial system is especially susceptible to being used by criminals as a vehicle to hide these crimes.
Individual financial institutions face a number of potential risks such as reputation risks, in terms of adverse publicity regarding their business practices and associations; operational risks, in terms of potential for failed internal processes and systems; and legal risks, in terms of potential lawsuits.
[Translation]
The Financial Action Task Force is an international body the aim of which is to develop and promote national and international anti-money laundering and anti-terrorist financing standards. Established in 1989, the FATF endeavors to generate the necessary political will to reform laws and regulations in its particular areas of expertise.
With a view to achieving this objective, the FATF issued a series of 40 recommendations respecting money laundering and nine special recommendations on anti-terrorist financing. These recommendations were reviewed in 2003.
The FATF works closely with regional organizations like the Caribbean Financial Action Task Force to promote worldwide standards implementation.
To that end, it relies on a mutual evaluation process by member countries. The Canadian regime will again be assessed against the revised standards during the first half of 2007.
[English]
Canada was a founding member of the Financial Action Task Force, FATF, and has played a key role in the development of international standards. Canada will assume the presidency of the FATF for a 12-month period beginning July 2006.
Canada's regime is based on a horizontal initiative that involves multiple departments and agencies the result of which is a cohesive framework. The core elements Canada's regime was originally set out in the Proceeds of Crime (Money Laundering) Act. In December 2001, following the events of September 11, 2001, the act was amended to include terrorist activity financing. Among other things, the act requires financial institutions and other financial intermediaries to meet customer identification and record-keeping standards and to report suspicious transactions, large cash transactions and large international wire transfers. Any exportation or importation of currency over $10,000 is reported to customs authorities.
The act established the Financial Transactions and Reports Analysis Centre of Canada. FINTRAC is Canada's financial intelligence unit, FIU. FINTRAC receives reports made under the legislation, analyze reports for information relevant to money laundering and terrorist financing, provides key identifying information to Canadian law enforcement agencies, and ensures compliance with the act.
[Translation]
I understand that my colleagues from FINTRAC will be here tomorrow to answer your questions. Therefore, I will not belabor this particular point.
FINTRAC currently receives transaction reports from a broad range of financial institutions and intermediaries, including banks, credit unions and caisses populaires, trust and loan companies, securities brokers, accountants and accounting firms, money services businesses, foreign exchange dealers and casinos.
[English]
Canada's regime has been subject to various audits and evaluations over the past two years. The Auditor General conducted a value-for-money audit in 2004 and EKOS Research Associates conducted a five-year Treasury Board mandated evaluation in the same year. The results of the two evaluations were similar and concluded that the activities undertaken under the initiative are consistent with international standards and are well aligned with federal government priorities, particularly in respect of safeguarding personal privacy and protecting Canada's financial system.
The evaluations noted that it is too early for conclusive results, particularly given the long-term nature of building a case from a FINTRAC disclosure to investigation to prosecution. It was found that the kind type of information FINTRAC might include in its disclosures to law enforcement and intelligence agencies can, at times, limit their usefulness. EKOS recommended the improvement of the coordination among federal departments and agencies and the strengthening of the performance measurement for the overall initiative. Some funding pressures were noted in the EKOS report.
[Translation]
In June of 2005, the government released a consultation paper outlining the government's proposals with a view to updating the regime. The paper attempts to address several major requirements, including the need for Canada to meet its international obligations under the FATF and to take into account the concerns and recommendations of the Auditor General, as well as the concerns of various stakeholders.
[English]
Approximately 50 submissions have been received, most of which are available on the Department of Finance website. In general, stakeholders have expressed support for the overall spirit of the proposals in the paper. For example, proposals to establish a registration scheme for money service businesses and the creation of an advisory committee have been viewed as positive developments by the industry. However, it has been noted that there will be implementation challenges related to some of the proposals. The department has been working closely with industry to address these issues and to minimize the compliance burden as much as possible.
Canada's regime is facing a mutual evaluation by the Financial Action Task Force in early 2007 as per the new, revised 2003 standards. It is critical that we have new legislation and regulations in place before that evaluation process can begin to reflect these new standards. As such, we look forward to receiving the committee's recommendations as we move forward with our work.
[Translation]
Thank you, Mr. Chairman. I will now be happy to answer any questions you may have for me.
[English]
The Deputy Chairman: Thank you, Ms. Lafleur. I call on Senator Moore, from Halifax, to open the questions.
Senator Moore: Where is the Financial Action Task Force located?
Ms. Lafleur: Its home base is in Paris. It shares office space with the OECD.
Senator Moore: You say that Canada belongs to FINTRAC.
Ms. Lafleur: We were a founding member. It was established by the G-7 in 1989. Canada was a founding member of FATF.
Senator Moore: Ms. Lafleur, you mentioned a recommendation to establish a registration scheme for money service businesses and primarily the pay-day loan sector. Is that contemplated in the act?
Ms. Lafleur: Senator, many money services businesses are included. For example, Western Union is considered a money service business because it transfers money inside and outside Canada. The recommendation is much broader than just pay-day loan businesses.
Senator Moore: There is legislation in place, as I understand it, whereby the provinces have a licensing system for those types of businesses. How does that mesh with the recommendations?
Ms. Lafleur: There are two set of requirements. I can speak comfortably with respect to the requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. Under the act, money services businesses must report suspicious cash transactions to FINTRAC. The provincial scheme is in respect of consumer protection measures and is quite separate from the federal act.
Senator Moore: One part of the report talks about strengthening the ability of the Financial Transactions and Reports Analysis Centre of Canada, to the effect that international experience suggests that other financial intelligence units worldwide generally provide more information on suspected financial transactions to their law enforcement and intelligence agencies. Could you tell us something about that and where Canada stacks up? What additional information should we be getting and can we get that information, given our laws?
Ms. Lafleur: The Auditor General found that because FINTRAC is limited in the kind of information it can disclose to law enforcement because of privacy issues that limited information may not be enough for law enforcement to make a determination as to whether they will follow that lead or not.
In our consultation paper, we propose to expand the list of information that FINTRAC would be able to disclose. For example, we could look at disclosing telephone numbers, anecdotal evidence from open sources, such as media reports, or we could look at disclosing information about relationships between different parties through financial transactions.
We have made a number of suggestions that might be of use to law enforcement in making a determination about pursuing a lead. We are studying that feedback right now as to what we could and could not do, ensuring we at all times protect the privacy rights of Canadians.
Senator Moore: Given international experience, are we 85 per cent of the way there, 90 per cent or 95 per cent? Is the amount of information that you do not get significant?
Ms. Lafleur: Law enforcement — and I understand the RCMP will be testifying—will be able to say what is and is not of use to them. We are working collaboratively as members of the initiative to make necessary changes to make the regime more effective.
I do not think it is a question of being 85 per cent or 90 per cent there. The FATF standards do not specify exactly what should and should not go into a disclosure from a financial intelligence unit to law enforcement. It is not that specific. It does say the financial intelligence unit should gather the information, analyze it, and disclose it as needed.
Senator Goldstein: The limited information that you are permitted to provide, you are permitted to provide statutorily. You are permitted, following a court order — that is, if a law enforcement agency gets one — to provide additional information.
Ms. Lafleur: I will let Mr. Carrière go into the details of a production order.
Senator Goldstein: I will wait because my question revolves around that because of Senator Moore's question.
Senator Meighen: In slide 10, I noted the implementation challenges related to some of the proposals and that you are working with the applicable stakeholders to minimize the compliance burden. Can you give us some idea of the proposals that are causing the problems? In what period do you anticipate a resolution?
Ms. Lafleur: Any time that you are asking institutions either to change or to add to a business practice, there is an implementation challenge. We try to work with the sectors covered by the regime, see where we can piggyback on to existing practices, and use what they would normally do in the course of their business as a vehicle for adding something else.
For example, the standards state that in addition to doing due diligence knowing your client, you should do that on an ongoing basis and regularly update your files so that you are sure you are still dealing with the same person and you know that person.
We ask the institutions if in the natural course of their business, they are either seeking informing from their customers or doing a regular mailing that could add something on to that mailing to minimize their cost. That is, instead of doing a separate mailing, use what is already being done.
Senator Meighen: This is an ongoing process and not probably a deal breaker.
Ms. Lafleur: It is a collaborative, ongoing process as well. The sectors that report under the legislation are the experts in their own domain; we are not. We have to use their accumulated wisdom and experience, learn from them and try to adapt the standards and the requirements in a way that makes sense for them. You do not want to end up putting standards in place that the sector cannot administer. It is important that we understand the business and work with them to implement the standards.
Senator Meighen: How do you measure progress? That is, is this legislation doing the job it was intended to do?
Ms. Lafleur: It is very difficult to have concrete measures. One way to measure it is to look at things such as prosecutions, the number of charges that have been laid, and look at the numbers of FINTRAC disclosures.
You also have to look at Canada's standing in the world and in the global fight against money laundering and terrorist financing. Our international reputation speaks for itself, and the fact that we are taking on the presidency of the FATF this July is testament to our leadership role in the fight against money laundering and terrorist financing.
Money is very mobile, and it will go to the point of least resistance, so the objective is to make the Canadian system as hostile an environment as possible.
Senator Meighen: Is it important to make the Canadian system as hostile as possible and consistent with the systems in place in other countries?
Ms. Lafleur: Absolutely. That is why the FATF works with a number of regional bodies to try to ensure that the same standards are applied globally. Only 39 countries belong to FATF, but through these regional bodies, we try to ensure a global and consistent application of the standards.
Senator Meighen: How are we doing in that regard?
Ms. Lafleur: The mutual evaluation process started about two years ago, and during that time, seven or eight countries have gone through the evaluation. A number of countries are going through the same kind of evaluation in the regional bodies, and most of those reports, or summaries of those reports, become public. It is very much a reputation issue for countries to ensure that they meet the standards. All countries are rated against the 49 recommendations and there is a graduated scale of compliance with standards. Everybody wants to get that fully compliant marking.
Senator Meighen: Were any foreign authorities consulted with respect to this consultation paper? Were they asked for their comments?
Ms. Lafleur: The document was on the website, but I do not believe we received any comments from a foreign authority.
Senator Meighen: If a foreign agency had wished to say, ``Gosh, if you do that, that will cause problems with us because we do it a different way,'' they had access through the website?
Ms. Lafleur: Yes.
Senator Meighen: Had they wished to make comment, they could have.
Ms. Lafleur: Yes, and we would have considered their comments.
[Translation]
Senator Massicotte: I would like to pick up where Senator Meighen left off, although I may play the devil's advocate somewhat more.
Our approach to dealing with terrorism activities and money laundering is critically important to the credibility of our business and financial systems. All types of transactions are impacted. It is important that we do our job well.
Perhaps I am being somewhat negative. My sense is that Canadians are meek and docile and that this attitude helps to minimize these transactions. As a business person who has seen a number of questionable transactions, I am far from convinced that we intercept a high percentage of them.
How can we be certain that we are doing our job? We come across many unprofitable companies that stay in business for years. Clearly, something is not quite right. How do you respond to that observation?
Recently, the RCMP admitted that it did not have the resources, financial capability or manpower needed to fight the mafia and money laundering operations.
I have the impression that much time is spent drafting legislation. Many people are put to work drafting legislation, but I do not have the feeling that we are winning the actual battle.
Ms. Lafleur: One has to remember that the regime is based on risk assessment, that is to say on identifying those sectors and industries where the risk is greatest.
When standards were raised in 2003, new risks were identified. When one door closes, another one opens. One of the proposals in the consultation paper called for expanding the regime to cover new sectors.
Examples of these new sectors include the jewelry and gemstone and accounting industries that sometimes serve as financial intermediaries and participate in transactions. New sectors will now be covered under the regime and the existing loopholes will be closed. It is important to observe those areas which present the greatest risk and to focus on our greatest vulnerabilities.
In terms of financial resources, I noted in the budget tabled several weeks ago that the government was allocating $64 million over two years to enhance its resources in this area. Some of the new money is earmarked for the RCMP.
Senator Massicotte: Is it enough to meet our objectives?
Ms. Lafleur: We think it is, for now. I cannot speak for the RCMP, because I know officials are slated to testify before your committee. However, because of the pressure brought to bear in the past, the audits done by the Auditor General, and the Ekos evaluations, we are focusing on existing financial pressures.
Senator Massicotte: However, it is important at the outset to know one's client, as you stated earlier. If the banker and the accountant know their client, then hopefully, the number of such transactions can be kept to a minimum.
However, this scenario is extremely hypothetical because even your report refers to transactions with other countries. For example, banks are asked to verify whether their system designed to familiarize them with clients in other countries is accurate and credible. There may be situations where individuals fronting for the mafia own profitable, prominent businesses. I am certain the bank is aware of the situation, but may not know the firm's history. Therefore, this is not a very reliable starting point.
Ms. Lafleur: According to the standards, if a banker knows his client and knows the latter's legitimate source of revenue and feels that something does not quite add up, normally, he should further his investigation into the source of that client's revenues. At the very least, if a particular transaction appears rather questionable, it should be reported to FINTRAC.
Senator Massicotte: Regarding this report, I wish to draw your attention to two comments in particular. In the current legislation, accountants, bankers, insurance brokers and so forth are identified. However, no mention is made of lawyers. I know this matter has been discussed in the newspapers in the past year or two, and I know that one of the recommendations put forward is to include lawyers in the scope of the legislation.
As a business person, I have to say that when transactions are made, a client is more often represented by his lawyer than by an accountant or insurance broker. This is a major problem, in my opinion.
However, I note that the risk is much higher in the case politically savvy persons. That may be a very valid point in other countries where corruption is clearly more rampant than it is in Canada — and we can rightfully be proud of our country on that score — but would you care to comment on these two exceptions and two viewpoints? Would you include, or exclude, these two categories of individuals from your risk assessment?
[English]
The Deputy Chairman: I think you will find that lawyers were covered in the original bill. We heard evidence in this committee that there was a risk of interference with solicitor-client privilege, but the government of the day insisted on going ahead with the law as drafted. I am sure the witness will be happy to tell us what happened.
Ms. Lafleur: The legal profession did successfully get an injunction, and we as a government decided, for the moment, to carve the legal profession out of the regime and to enter into negotiations with the legal profession on a mutually acceptable replacement regime. Those negotiations are still going on. Some things have been put in place by the legal profession on a voluntary basis, but in our estimation they fall short of the international standards which require, for example, that there be client identification and recordkeeping requirements in legislation or regulations within each member jurisdiction. Of course, there are requirements in respect of large cash transactions, et cetera.
As I said, those discussions are still going on with the legal profession. We understand it is a serious gap in our regime. Certainly the Auditor General has identified it and reinforced that point. There is plenty of anecdotal evidence through media reports and as well as through typologies done by the FATF to suggest that the legal profession can be vulnerable to abuse.
Concerning politically exposed persons, we are dealing with two standards. There is the FATF standard that says we must have enhanced due diligence for foreign politically exposed persons. The UN Convention against Corruption that says we should be vigilant in terms of both foreign and domestic politically exposed persons. That is a tough recommendation for member countries to deal with and apply. We are working closely with the industry to try to come up with a solution that is workable and not overly burdensome. We hope to give guidance so everyone knows the rules while meeting our international obligations.
Senator Tkachuk: The Department of Finance consultation paper identified gaps in the anti-money laundering and anti-terrorist financing framework. The Department of Finance's objectives include increasing compliance, monitoring, and enforcement.
Can you give us an example of a gap? How can the acknowledgment of such a gap be addressed before changes are made to the legislation?
Ms. Lafleur: Are you referring to a specific proposal in the consultation paper?
Senator Tkachuk: They identified a gap, but what do you mean by a gap?
Ms. Lafleur: Lawyers are a gap in the regime. That is what we consider a gap.
Senator Tkachuk: Is that the only one?
Ms. Lafleur: The FATF requires that money service businesses, for example, the Western Unions of the world, either be registered or licensed. We are moving to put in place a registration system for money service businesses.
Another area was the reporting of suspicious attempted transactions, where a transaction was initiated but, for whatever reason, it was not completed and looked suspicious. We are saying those transactions should be reported as well.
Senator Tkachuk: We had a lot of concerns about privacy when we discussed the initial legislation in committee. What do you mean by ``attempted suspicious transaction?'' Take us through what would happen and how it would be reported.
Ms. Lafleur: An individual could go to a financial institution and ask to wire money to an offshore account. The person at the financial institution responds that in order to make the transaction he or she will have to provide certain personal information. The person could get nervous and not want to provide identification, for example, and choose not to go ahead with the transaction. That might be viewed as suspicious by the person in the financial institution. Why did that person not want to provide basic ID information? The person in the financial institution may choose to use his or her discretion to report that incomplete transaction.
Senator Tkachuk: How do you protect the person who has not done anything wrong, even if he or she may have thought about it? What evidence would there be? Nowadays, when everybody asks for social insurance numbers, citizens — I have been one of them — are very concerned about handing over all this information that everybody is asking for because that in itself is a dangerous thing.
A person may refuse to give that information. In that case, do you report that person?
Ms. Lafleur: In that case, very little information has been provided to the financial institution. The report would not contain information that has not been given because it has not been provided.
The fact of a report being filed from a reporting entity to FINTRAC does not necessarily mean that something criminal has taken place. It simply means it meets the prescribed requirements of something that should be reported.
It is the same thing with large cash transactions. The mere fact of depositing $10,000 in a financial institution does not mean you have engaged in criminal activity, but it is the threshold that has been set for filing reports. It does not necessarily mean you will be investigated. It will feed into FINTRAC's analysis and it will make a determination as to whether there are grounds to suspect money laundering or terrorist financing.
Senator Eyton: I am curious about the list keeping. Does that mean that within your organization and comparable international organizations, you share information and you have what amounts to red flag lists of institutions or individuals? Does somebody keep that type of list?
Ms. Lafleur: I should clarify that the Department of Finance has access to none of the information. The information goes to FINTRAC.
Senator Eyton: There must be a list of some sort. Is that correct? Once on it, how do you get off it? I am nervous for my friend over here.
Yvon Carrière, Senior Counsel, Financial Transactions and Reports Analysis Centre of Canada, Department of Finance Canada: I would like to say that representatives from FINTRAC will appear as witnesses tomorrow. They will be able to produce more information on the subject.
FINTRAC does not keep a list of suspicious persons or entities. FINTRAC receives these reports from various sources, for example, voluntary information from law enforcement and from different intelligence organizations. They have access to databases maintained for law enforcement purposes and national security purposes, and they analyze these reports against all of the data sources to determine whether there are reasonable grounds to suspect that information is relevant to the investigation or the prosecution of a money laundering offence.
If they come to that conclusion, they disclose designated information, which is key identifying information with respect to the transaction — where it occurred, who conducted the transaction — to the relevant law enforcement agency, police force or, if it relates to threats, to CSIS.
There is not a list against which we run transactions to see if they are linked to a terrorist group. Financial entities such as banks, trust companies and so forth, have the terrorist list created under the Criminal Code and under the UN Suppression of Terrorism Regulations. The reporting entities can check their clients against this list. The Criminal Code requires that they make a report based on that list.
FINTRAC does not have a specific list of entities against which it makes reports if one of the transactions is a hit.
Senator Massicotte: Should they not do computer searches to say this name has come up ten times last week? It seems to me that is a form of a list.
Mr. Carrière: Do you mean if there are financial reports from various entities?
Senator Massicotte: I mean from one individual or one entity.
Mr. Carrière: If an individual makes transactions that seem suspicious, the people at the financial institutions report that person to FINTRAC.
Senator Massicotte: Do they make a report saying this has happened several times?
Mr. Carrière: Yes.
Senator Massicotte: It is not a permanent black list, but the computer can easily accumulate the number of transactions per individual or entity.
Mr. Carrière: FINTRAC does not rely on suspicious transaction reports but looks at large cash transaction reports, electronic funds transfer reports, databases maintained for law enforcement purposes and commercial databases. Based on the evidence found in the various locations FINTRAC concludes whether or not there is a suspicion of money laundering.
Senator Massicotte: All Canadians except lawyers.
Mr. Carrière: Reporting entities can report transactions that lawyer has carried out. The lawyers themselves would not report under the present regime.
Senator Tkachuk: When you talk about the attempted suspicious transaction, it says that you would simply have to amend the regulations. Will it not require an actual amendment to the act?
Ms. Lafleur: A number of proposals could be implemented because the regulation-making authority already exists.
Lynn Hemmings, Senior Project Leader, Financial Crimes — Domestic, Department of Finance Canada: This one would require a legislative change.
Senator Tkachuk: It would not be a breach of the privacy laws to include attempted transactions.
Ms. Lafleur: We work closely with our colleagues from the Department of Justice to ensure we are in breach of any privacy laws. They can answer that question in a more knowledgeable fashion than I can.
Senator Tkachuk: What happens to these lists? Are they destroyed every year or every two years?
Ms. Lafleur: I do not feel qualified to answer anything to do with FINTRAC operations. I think it is better for my colleagues from FINTRAC to answer that tomorrow.
Senator Tkachuk: To whom does FINTRAC report?
Ms. Lafleur: FINTRAC reports to Parliament via the minister of finance. It is an arm's length organization. We do not get involved in the day-to-day operations of FINTRAC and we do not have access to the information they have access to.
Mr. Carrière: The act, as it stands now, requires FINTRAC to destroy any report five years after the date they have received it. That also applies to any information FINTRAC has collected. The act goes on to say that if anything has been disclosed to law enforcement, because FINTRAC concluded that there were reasonable grounds to suspect the information might be useful in an investigation or prosecution, it must destroy that information after eight years. The act provides for the destruction of reports and information collected by FINTRAC.
Senator Tkachuk: That same Department of Finance consultation paper discusses money-service businesses as a gap, but there are also foreign exchange dealers. What are the challenges in dealing with these groups? They are not governed by the Bank Act. What authority do you have over these groups? Would it require an amendment or a law stating they must report? Are they under provincial jurisdiction?
Ms. Lafleur: They are covered by the Proceeds of Crime (Money Laundering) and Terrorist Financing Act in the money laundering provisions, yes. They are covered by the act already, and they should be reporting.
They are, essentially, an unregulated sector, and in some cases, national associations do not represent them. It is a challenge to impress upon them their obligations under the act and make them understand the consequences of not reporting.
For the most part, they understand their obligations and they want to be willing participants in the system. Of course, those who are not above board may choose to drive some of their operations underground rather than become part of the system.
Senator Tkachuk: Would an attempted transaction go beyond what the FATF lays out as an obligation?
Ms. Lafleur: No, the FATF recommends the reporting of all suspicious attempted transactions.
Senator Tkachuk: How are the other countries handling this reporting?
Ms. Lafleur: I believe most of the countries require this reporting. Not everybody has been through the mutual evaluation process, but this is one of the implementations. I am not sure if it is viewed as one of the more challenging implementations. It is a judgment call.
The Deputy Chairman: Senators, just for your information, we are going to go another 15 minutes with these witnesses.
Senator Goldstein: Good afternoon and thank you for the part of the presentation I heard, which was excellent.
You have gathered that there is a concern between the needs of your organization and the needs of the population to try to trace, protect and avoid freedom of movement of funds coming from drugs to terrorist organizations. That is a societal value I think we all share.
There is a concern about the extent to which that concern comes into conflict with the privacy rights of Canadians. Your answers to some of the questions indicate that you have a bias and correctly so. I use the word ``bias'' in a neutral and non-pejorative sense. There is a bias towards the enforcement of that with which you are charged to enforce.
Is there any constituency or ombudsman or any part of your corporate culture, in the broad sense, that weighs, from time to time, the privacy rights of Canadians against what you are trying to do and the extent to which the two clash?
Ms. Lafleur: Absolutely. In fact, I am not sure I would buy onto the proposition as you have stated it.
The regime was carefully designed to respect the privacy rights of Canadians. There are a number of safeguards built into the act to ensure the protection of those rights. As we move forward to make amendments to the legislation and the regulations, we work very closely with our colleagues in other department, including the Department of Justice, to ensure we are not proposing to make amendments that would be in breach of Canadians' privacy rights. It is a collaborative effort that we move these amendments forward. We ensure we can all support them and we are not tilting the balance one way or another.
Senator Goldstein: Let me give an example to make a point. The regulations provide the nature of the information that you are permitted to provide, and any attempt on the part of a law enforcement agency to seek and obtain more requires a court order. I think most Canadians, if not all, have some confidence in the justice system and have some comfort when looking at legislation of this nature. They are able to determine that the nature of the information being given is limited, and any additional information required by law enforcement people requires the consent of the court.
However, one of your papers speaks to the proposition that you are now seeking an amendment that will allow you to give more information without a court order. You were telling us earlier that the initial statute was a rather delicate balance between the needs of law enforcement, with which we all agree, and privacy rights.
Do you not see a change or a diminution of the equilibrium in taking away from the courts the ability to agree to greater quantities of information and making those the provision of those quantities of information virtually automatic?
Ms. Lafleur: The nature of the information that we propose to make available is from open sources, such as media reports and telephone numbers that are obtainable in phone books. It is difficult to understand how that could be considered a breach of privacy when it is essentially public information.
We have tabled the idea that law enforcement obtains access to some portion of FINTRAC's analyses. Why did they reach the conclusion that there were grounds to suspect? Again, that is not necessarily someone's personal or private information. The issue is trying to maintain that balance in a way that makes sense. We do our due diligence in terms of seeking legal opinions in this area and we work with privacy experts to ensure that we maintain the balance.
Senator Goldstein: Many Canadians find it invasive to have to provide two pieces of photo identification when opening a bank account. I can understand such a request when the financial institution is unfamiliar with the individual. My experience and that of my former law partners, is that financial institutions, even those that we represent, call upon us when we open an account as an executor of an estate, to appear personally to provide two pieces of identification and sign all kinds of documentation, which somehow seems to be superfluous. Is that a requirement of your agency or is it an interpretation, and I would suggest an excessive one at that, of the bank?
Ms. Lafleur: That area is most interesting and is a challenge for policy makers. Governments have tried to meet two policy objectives. One, is ensuring the safety and soundness of the financial system and preventing abuses, and that requires institutions to know their customers. The second objective is that all Canadians have access to basic banking services. The question is how to reconcile those two objectives.
Via the regulations pursuant to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and the Access to Basic Banking Services Regulations, we have found an intersection in those two policy objectives. Provided Canadians provide two pieces of basic identification, one government issued and one from a long list of acceptable IDs, they can open accounts with a Canadian financial institution. That is the law, and it is probably far ahead of many jurisdictions.
You are correct in that it has been a challenge in terms of finding the middle ground between the two policy objectives. We have done a good job of finding that common ground.
The Deputy Chairman: That was a good question.
Senator Moore: In Senator Goldstein's example, who would tell his bank about the new ID requirements for opening an account?
Ms. Lafleur: The identification requirements are contained in the Access to Basic Banking Regulations enacted pursuant to Bill C-8, I believe, just after 2001-02. Those are the legislative requirements of banks and they are fully aware of them. Banks are responsible for training their staff on the front line to follow the ID requirements. We work with the institutions to ensure that happens.
Senator Moore: I went through a similar experience recently. I do not think it has been a regulation for years because it seems that it was implemented only in the last few months.
Ms. Lafleur: No, senator, previously, there was a voluntary disclosure.
Senator Moore: Some banks require you to appear personally with a fellow director in the case of a not-for-profit organization, while other banks do not require a personal appearance. I do not understand. Who tells that bank to require that personal appearance?
Ms. Lafleur: Are you referring to a personal or corporate account?
Senator Moore: It is a volunteer not-for-profit account.
Ms. Lafleur: As I said, regulations that support the proceeds of crime act state that certain ID must be provided. We believe that we have found a logical intersection with the two objectives I mentioned earlier in providing access to as many Canadians as possible. Those requirements are likely found in the legislation.
Ms. Hemmings: I would add something, if I may. The proceeds of crime regulations set out a minimum requirement of one piece of government-issued ID.
Senator Moore: Does it matter whether it is provincial or federal identification?
Ms. Hemmings: It could be a driver's licence, a passport, a health insurance card or a SIN card.
Senator Harb: A few days ago, USA Today had a report on a database of the National Security Agency that supposedly contains phone numbers of millions of Americans. They manage that database for anti-terrorist measures. It was revealed at one time that computer systems have the ability to monitor the movement of phone calls from one area to another area, thereby helping the agency to assess whether there is a risk. If there is a risk of potential terrorist activity, the agency can obtain a court order to identify the people involved.
The question was asked of the agency whether that constitutes an invasion of privacy and the answer was, no, because the companies have provided only the phone numbers to the agency and not the names. Are you aware that a similar system exists in Canada, at least a system that might have the ability to achieve the same objectives?
Ms. Lafleur: I am not aware of a similar system. The question is probably best posed to CSIS or to law enforcement. I have no personal knowledge of such a system.
Senator Harb: We talk about suspicious transactions, which is an important element in fighting money laundering and terrorist financing. However, a tourist might come to Canada and go to a financial institution to do a transaction of sorts but the financing institution might suspect a problem and the institution might report it to the agency. What would happen in that situation? Would the information — passport number, name, place of origin, et cetera — on this person be forwarded to the centre in Canada or would it be transmitted to a third party in the individual's home country where they have a similar mandate?
Ms. Lafleur: I believe I am correct in saying that Canadian financial institutions can only disclose to FINTRAC. FINTRAC has the ability to share information with other financial intelligence units if it has entered into a memorandum of understanding as to how that information will be used.
Senator Harb: Do you have access to other databases? For example, an international database could be located in France, and you have your database here in Canada. Do you communicate electronically through some sort of joint code?
Mr. Carrière: No, there is no interchange of databases but as Ms. Lafleur explained, in certain cases, FINTRAC can provide information on certain financial transactions and a foreign financial intelligence unit, FIU, can provide FINTRAC with information about financial transactions when we have a memorandum of understanding with that country.
The Deputy Chairman: I thank all of you. I am learning that one of the ways to muzzle me and my list of questions is to put me in the chair. I did pick up on one thing you said, Ms. Lafleur. A Canadian will become the president of FATF in July. Where is FATF based? How does it work, and who will be the president?
Ms. Lafleur: The Financial Action Task Force's home base is in Paris, at the OECD, but the president country traditionally hosts one plenary meeting every year. The plenary of the FATF meets three times per year, so Canada will be hosting a plenary meeting in October.
The Deputy Chairman: Here in Ottawa?
Ms. Lafleur: No, senator, the meeting will be held in Vancouver. Mr. Frank Swedlove, whom I think you know, will be the Canadian president.
The Deputy Chairman: Is he in the Department of Finance?
Ms. Lafleur: He has just retired from the Department of Finance.
The Deputy Chairman: Would any of you like to make a closing comment before we move to our next panel? Is there one pressing thing that you feel needs to be changed in this law such that you will be unhappy if it does not take place?
Ms. Lafleur: That is a tough question. We would like to get your input as to what you think needs to be changed, and we welcome having that in a timely fashion. As I said, Canada's regime will be assessed starting at the end of 2006, so we want to ensure that we measure up well against international standards. We appreciate the opportunity to be here today.
The Deputy Chairman: You mentioned in your documents and in your testimony that discussions are taking place with the legal profession, with the bar associations, et cetera. Is FINTRAC conducting those discussions?
Ms. Lafleur: The Department of Finance has been involved in the negotiations with the Federation of Law Societies of Canada.
The Deputy Chairman: Bill C-22 as still drafted covers the lawyers. As I understood it, the courts issued the injunction based on the allegation that it was unconstitutional and violated the solicitor-client privilege, as some members of this committee predicted it would. I would like to know if there is a solution in sight. If so, what is it?
Ms. Lafleur: We made some regulatory amendments back in 2003, the effect of which was to take the legal profession completely out of the regime. Notwithstanding what is in the law, the regulations have taken them out of the regime.
Is there a solution in sight? I must admit that negotiations have not progressed as well as we had hoped. We are now at a stage where we have to look at what potential legislative amendments could be included in the proposals that will be brought forward to ensure that we comply with our international obligations.
The Deputy Chairman: That leads me to the final point. In order for this to be effective legislation, it has to be uniform with the other countries and there has to be a degree of collaboration. What have our trading partners done with the lawyers?
Ms. Lafleur: Most of them cover the legal profession. I believe the U.K. covers the lawyers.
Ms. Hemmings: The U.K. does. The U.S. covers the legal profession for reporting cash but not suspicious transactions.
The Deputy Chairman: Does the legal profession accept that regulation?
Ms. Lafleur: I cannot speak for them, sorry.
The Deputy Chairman: Given the facts, it is res ipsa loquitur.
Continuing with our study of the five-year statutory review of the Proceeds of Crime (Money Laundering) and Terrorist Financing Acts, we are now fortunate to have as witnesses a group from the Department of Justice and from Public Safety and Emergency Preparedness Canada. I understand that we will start with Ms. Miles, who has a preliminary statement to make.
Christine Miles, Director General, Law Enforcement and Border Strategy, Public Safety and Emergency Preparedness Canada (PSEPC): My remarks will put in context the role of the Department of Public Safety in this particular initiative. My branch and the branch of my colleague, Jamie Deacon, are non-funded partners of the National Initiative to Combat Money Laundering, NICML. Simply put, the money laundering initiative is important to us because FINTRAC's work in providing quality information to the law enforcement and intelligence communities assists the portfolio of the Department of Public Safety and its partners to combat organized crime and terrorism.
With respect to organized crime, my area of responsibility, the department's primary role is of policy development and coordination.
Our work is guided by the National Agenda to Combat Organized Crime, which was developed and approved by FPT Ministers Responsible for Justice, as well as law enforcement partners in the year 2002.
The FPT National Coordinating Committee on Organized Crime, NCC, is a body composed of federal provincial and territorial government officials, prosecutors and representatives from the law enforcement communities. The NCC unifies strategies and develops policies to address key organized crime priorities.
Money laundering is identified under the national agenda as a priority issue to be addressed because it is through laundering money that drug dealers, arms dealers and other criminals, organized or not, are able to operate and expand their criminal empires and otherwise benefit from the proceeds of criminal activity.
By tracing the flow of money, law enforcement is able to identify, dismantle and disrupt organized criminal groups thereby reducing serious harm to our community. It is a key tool for us.
To succeed in this task, we need a strong partnership between FINTRAC and law enforcement and, within the extent of the law, a timely two-way exchange of information that furthers the investigational needs of law enforcement and allows feedback to FINTRAC to refine the value of its intelligence.
The relationship between FINTRAC and law enforcement partners in Canada has been reinforced in the last few years through the NCC.
It was during these meetings that a series of issues concerning the role of FINTRAC were raised. In order to better understand the role of FINTRAC and to make better use of the information going to and coming from it, the NCC asked FINTRAC to lead a working group to consider options for tracking FINTRAC disclosures, and to develop the use of voluntary information reports provided by law enforcement to FINTRAC.
The working group will be completing its mandate shortly. This work will result in a best practices document for the provision of voluntary information from law enforcement to FINTRAC, and new procedures for police to provide feedback on FINTRAC case disclosures. A further result will be the proper tracking of disclosures.
The exercise will enhance FINTRAC's understanding of law enforcement's use of its intelligence products and, where appropriate, the agency will initiate steps to strengthen the disclosure process or its products. Second, FINTRAC will now be in a position to report publicly on the results of its disclosure to law enforcement as a performance measurement, which was one of the concerns expressed by the Auditor General in Chapter 3 of her 2004 report, ``Canada's Strategy to Combat Money Laundering.''
With respect to counterterrorism, Canada and the international community has taken a number of significant steps towards fighting terrorism and ending terrorists' opportunities for financing.
In Canada, we have ratified the United Nations International Convention for the Suppression of the Financing of Terrorism, which relates to the freezing of terrorist property and criminalizing the financing of terrorism. Changes to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act fulfill Canada's obligations under this convention and enable us to assist in the detection and deterrence of terrorist activity financing and to disclose this information to the Canadian Security Intelligence Service, CSIS, and law enforcement agencies.
The ATA enacted the Charities Registration (Security Information) Act to demonstrate Canada's commitment to participating in concerted international efforts to deny support to those who engage in terrorist activities. The act protects the integrity of the registration system for charities under the Income Tax Act, and maintains the confidence of Canadian taxpayers that the benefits of charitable registration are made available only to organizations that operate exclusively for charitable purposes.
In conclusion, we fully support the current efforts to enhance our national money-laundering regime to ensure that it is in line with international standards, and continues to maintain high national standards, particularly in respect of the balance between the need to preserve the personal privacy of our citizens and law enforcement needs. We support the effort to meet law enforcement needs by including more useful and relevant information in FINTRAC disclosures. We support the efforts as they address conclusions of the Auditor General.
Our colleagues from the RCMP and the CBSA will appear before this committee tomorrow to provide you with their operational perspectives.
The Deputy Chairman: Just for clarification, is the correct name of your department the Department of Public Safety, or is it the Department of Public Safety and Emergency Preparedness?
Ms. Miles: It is the Department of Public Safety and Emergency Preparedness Canada. We are also now known as the Department of Public Safety.
The Deputy Chairman: That is a separate department of government?
Ms. Miles: Yes, it is.
The Deputy Chairman: When was it established?
Ms. Miles: It was established in December 2003.
The Deputy Chairman: Would it be analogous, for example, to the department of our neighbours to the south, namely, the Department of Homeland Security?
Ms. Miles: It is that type of department. We primarily house the functions of law enforcement and intelligence, and we also do emergency preparedness.
The Deputy Chairman: We learned today that you have something to do with gun control.
Ms. Miles: Yes, we do.
The Deputy Chairman: I have a list, which is short at the moment. I will start with Senator Massicotte.
[Translation]
Senator Massicotte: I would like to hear your views on the subject and follow up on Senator Meighen's question. Operating as we do somewhat outside the Agency, are we meeting the objectives that have been set? I know we comply with the regulations and procedures in place. However, in terms of actual results, do you think that we are on the right course? Are we managing to stop 80 per cent of all money laundering activities? If so, are our efforts proving successful? Can you give us your assurances that we are making good progress and that we are moving in the right direction?
[English]
Ms. Miles: I can only speak to the issue of organized crime. We can say that money laundering and IPOC, the Integrated Proceeds of Crime initiatives, are important because we need to trace the money. Our purpose is to identify organized crime groups and figure out their activities through the investigations. We structure the investigations and the prosecutions so that we not only get the commodities that they are involved in — whether they involve drugs, fraud, human trafficking or smuggling — but that we also get the organization itself, take it down and then draw the proceeds of crime away from that organization.
That is the only way that we will get a handle on organized crime in Canada.
I think it is fair to say that we have good evaluations on the money laundering efforts and the other initiative we have in IPOC. They are good tools in order to meet our objectives on organized crime. We know we are doing a lot to combat organized crime. Can we do more? Yes, we can do more. This is a very strong tool for us.
[Translation]
Senator Massicotte: Let me be more specific. I really have the impression that we are working very hard. We have several pieces of wonderful legislation. However, I am far from convinced that we our doing our share or that we are winning the fight against organized crime.
[English]
Ms. Miles: Can I just tell you exactly how we have made major inroads on organized crime?
[Translation]
Senator Massicotte: Are you personally convinced that we are doing a good job and that we will be able to control or keep these types of transactions to a minimum?
[English]
Ms. Miles: We have made significant inroads. We have been targeting some of the strongest organized crime groups. The RCMP, who will be here tomorrow, will be able to give you more details.
We are able to identify the groups and reduce their impact in several areas in Canada. They have such tremendous links now, however, whether in Canada or the U.S., that as soon as we go after these groups in one area of Canada, they morph quickly and get into other illegal operations to generate more profits. It is almost a never ending circle to get at these organizations.
Jamie Deacon, Director General, National Security Policy, Public Safety and Emergency Preparedness Canada (PSEPC): I have one comment with respect to the issue of measurement. I would like to point out, whether with respect to diverse financing or money laundering or many other kinds of criminal activity, it is difficult, with any precision, to provide a percentage estimate because they are, by their nature, underground activities. Getting a fix on what the baseline is tough to do. Having said that, there are a number of initiatives in the law enforcement area as well as the anti-terrorist financing area that are important in terms of tools and resources for police to deal with the problem.
[Translation]
Senator Massicotte: Money laundering operations and organized crime are closely linked. The latter is perhaps a bigger problem. Consider the fact that today in Montreal, the Hell's Angels are meeting to discuss the illegal practice of Internet gambling. We really have to wonder if we are in fact winning the battle. Our sense is that these organizations are highly advanced from a technological standpoint and highly motivated by profit. Maybe I am covering the same ground, but I am happy to see that you are confident about the progress that is being made.
[English]
The Deputy Chairman: The senator has been watching a lot of crime movies. I wanted to give him a full chance. I forgot to ask the Department of Justice if they wanted to make their initial statements so when you complete your questioning, senator, you would have the benefit of the department's input.
Ms. Miles: I am going to agree that organized crime and biker gang groups are sophisticated, particularly in the movement of their criminal proceeds. In order to combat them, we need to have, within the law enforcement community, the equal amount of very sophisticated tools to know exactly what they are doing. This is why the money laundering initiative is important; it's also linked to integrated proceeds of crime. It combines not only the intelligence information we have, but also has a wide range of law enforcement response: federal, provincial and international. It involves our colleagues from the Department of Justice and the prosecutors. We get the benefit of their knowledge up front and the back end of it, in terms of the prosecution, when we have the offence.
You are right, they are very sophisticated, and we need these sophisticated tools in order to combat their criminal activities.
Paul Saint-Denis, Senior Counsel, Criminal Law Policy Section, Department of Justice Canada: In keeping with our admonition for trying to keep the proceedings short, we do not have a statement to make. We will be happy to respond to any and all of your questions.
The Deputy Chairman: If the Department of Justice has specific critiques or suggestions to this committee as to what fault we may find with the legislation in terms of the report we plan to issue to guide the government in any necessary amendments pursuant to this review, I take it you do not have a shopping list of recommendations? Do you want us to elicit them one by one?
Mr. Saint-Denis: My colleagues and I do not have a list of critiques to make. However, there are issues that may come up in our responses that you may want to consider.
The Deputy Chairman: Honourable senators, as I go around, we not only have our public safety panel that have an interesting mandate, but also our experts from the Department of Justice.
Senator Baker: As Senator Angus has pointed out, this committee has suggested that when the bill passed originally, it would violate solicitor-client privilege as it relates to the requirements of lawyers to report certain activities of their clients. Of course, the committee has been proven absolutely correct.
I would have thought, although it was not the case, that this would have been declared a violation of section 7 of the Charter of Rights and Freedoms of fundamental justice. It does not appear to have happened that way. In fact, the courts in reading the judgment said that this simply violates solicitor-client privilege and, therefore, lawyers will, under the regulations, be excluded from the requirements under the act.
Let me ask you if any other section of the act, including section 12(2), has been declared contrary to the Charter of Rights and Freedoms and required a determination that it was saved by section 1 of the Charter.
I am looking at Mr. Cohen because he has written about this subject extensively.
Stanley Cohen, Senior General Counsel, Human Rights Law Section, Department of Justice Canada: I am unaware that any other provision of the Charter has received this kind of sustained attention that the lawyer-reporting requirement has received.
To say that the courts have decided the issue about solicitor-client privilege definitively may be going too far because that issue is decided at the level of an injunction. Everyone decided to take a step back at that point. It is not that we were unaware that lawyer-reporting requirements might indeed be the subject of Charter challenges. Our function is, indeed, to advise as to the potential for challenge.
The determination was made that this was a matter capable of credible argumentation based upon comparative examples. You have been referred, in your previous session, to experiences around the world. There are a host of different approaches in different countries to lawyer reporting. You have been referred to large transaction reporting in the United States. The U.K. has a different approach. Belgium and other members of the European Union have more direct reporting requirements. All of this is important to the courts when they examine these questions to determine whether the Canadian standards are consistent with those in other free and democratic societies.
That is, perhaps, a long-winded way of suggesting that even in the area of lawyer reporting, we do not know the final shape of the answer to that question about whether imposing obligations on lawyers would fundamentally violate the right to counsel, solicitor-client privilege or even fundamental justice.
Senator Baker: You have to admit that our superior courts, starting with Nova Scotia, have declared that this is a clear violation of solicitor-client privilege. That not being appealed to a Court of Appeal, would you not say in your vast experience that settles the matter?
Mr. Cohen: In this matter, negotiations were entered into between the Federation of Law Societies and the Government of Canada, the Department of Justice being the lawyers representing the Government of Canada. Matters were put on hold with the opportunity held in reserve for the federation to renew any challenges that it might have in the future with respect to this matter if the government decided to proceed with the initiative that it had in place or to replace it with something that was not the subject of a consensus between the federation and the government.
Senator Baker: I will move on because time is short. I believe it is section 12(1) of the act that demands a disclosure of monies in excess of $10,000 from Canada. Are you familiar with that section? Some case law has built up around this section, under which seizures of money in excess of $10,000 have been made by customs officers at border crossings. The next step would involve the minister. Would that be the Solicitor General?
Mr. Cohen: The Minister of Finance administers the act. When the legislation was in its early stages, it was contemplated that it would be the Solicitor General, but ultimately it was brought forward under the aegis of the Minister of Finance.
Senator Baker: At that point, the monies could result in forfeiture. Barring a Charter challenge, could the minister's decision be the subject of a judicial appeal?
Daniel Murphy, Senior Counsel, Strategic Operations Section, Department of Justice Canada: The appeal from the border seizure, I believe, is from the Minister of National Revenue, similar to any other customs border seizure. The minister responsible for that act determines whether the seizure will be upheld or rejected. The individual whose money was seized has a right to appeal the decision of the minister to the courts, and there have been such appeals.
Senator Baker: I think the courts have decided, but correct me if I am wrong, that the appeal is to the actual declaration of whether the money has been declared. You said that there have been court determinations concerning forfeiture.
Mr. Murphy: It is not an area of law that I practice on a regular basis but I can advise you that the matter is litigated and can be litigated up to and including the Federal Court and Supreme Court of Canada. There will be experts on that issue from the Canada Border Services Agency tomorrow. They will be better situated to respond to the question. The provision for an appeal is built directly into the act, in section 30 or thereabouts.
Senator Baker: Yes, it is. I am reading a determination by the Federal Court 2006 involving the Minister of Public Safety Canada that stated the forfeiture was not appealable unless it was a Charter violation. The determination as to whether the person had declared the money and had violated section 12(1) was open to appeal before the court. I will pursue that with further witnesses.
My final question relates to a statement made by Ms. Miles who said that extraordinary measures have to be taken because these are sophisticated, organized crimes. Do we have any background, Mr. Cohen, in respect of the use of tapping emails via the internet internationally? Has a determination been made that it requires a warrant to do so as a violation of section 8 of the Charter? Is such a thing fair game and not considered extremely private and therefore come under protection of the Charter?
Mr. Cohen: I am not certain that I understand the question completely. There is provision for the interception of electronic communications, whether they are email or otherwise, under the Criminal Code with respect to domestic matters.
In the Anti-terrorism Act, with the statutory creation of CSE, which had existed before, there was an acknowledgment of the ability of the CSE to be involved in the interception of single- and foreign-based communications coming into Canada. I believe that is a ministerial authorization regime.
You have framed it in terms of internet communication. I am not certain about international internet communications that originate outside the country. However, I believe Part VI of the Criminal Code with respect to the warrant authorization regime could cover it.
Senator Baker: Through recent enactments, there is international access to tap into emails that originate from, or are sent to, areas outside Canada.
Is the law different in the U.S.? What the President of the United States got into so much trouble about is not unusual under the legislation that we have in Canada, is it?
Mr. Cohen: As I understand the American situation, the controversy that arose there had to do with the fact that the National Security Agency was intercepting without using the rubric statutory authority that was set out under their Foreign Intelligence Surveillance Act. I am not an expert but their statute might resemble the Canadian authorities that CSE or others operate under. There was a practice, presumably pursuant to presidential authority, going on outside the statutory umbrella and under a different punitive arrangement based upon presidential or executive authority.
I am not an expert on American law, in that sense.
Senator Baker: Similar authority is given to the minister in cases of the terrorism act in Canada.
Mr. Cohen: Yes, under CSE statute, if they are engaged in that kind of thing, it would be given.
Senator Moore: Provided they have reasonable grounds to believe so.
The Deputy Chairman: What is the CSE statute to which you referred?
Mr. Cohen: I am referring to the Canadian Security Establishment. Pursuant to the Anti-terrorism Act, that particular entity was placed on a statutory foundation in Canada.
Senator Baker: It covers emails.
Mr. Cohen: I am not purporting to answer in that way.
Senator Massicotte: Just for all of us, could you summarize your right to intercept phone calls, emails or mail, nationally and internationally, without court order?
Mr. Cohen: My expertise is in the area of the application of the Charter to criminal law.
Senator Massicotte: A layman's summary for the public would be beneficial.
Mr. Cohen: Our criminal statutes place the requirement on the authorities, whether in national security matters or otherwise, to have prior authorization, whether by way of warrant or by way of an authorization under wiretapping statutes, before they can go about intercepting any form of electronic communication.
The exception I have referred to deals with activities that cover a much narrower band of CSE with respect to particular forms of international communications. A form of ministerial authorization authorizes those activities.
Senator Massicotte: If somebody from Canada calls England or France or the Cayman Islands, there is no or nominal risk that he is being intercepted and heard by some Canadian or foreign government.
Mr. Cohen: I have not said that. It would depend on whether there had been an authorization obtained in Canada.
Senator Massicotte: The Canadian government cannot intercept compared to some other countries, I gather.
Mr. Murphy: Under Part VI of the Criminal Code, section 184, it is a criminal offence to intercept a private communication where there is a reasonable expectation of privacy. If that communication is by any electronic or acoustical means of private communication, if you intercept it without a judicial authorization, you have committed a criminal act.
Senator Massicotte: Is it a criminal act even if the communication is intercepted in international air or waters?
Mr. Murphy: If you have intercepted it in Canada by any other means other than through a judicial authorization, you have committed a criminal act.
Senator Massicotte: Is our Canadian government involved in intercepting phone calls off Canadian soil?
Mr. Murphy: I do not know.
The Deputy Chairman: Do you still have a place in the Cayman Islands, senator?
Senator Meighen: I have only one area upon which I would like more information. I am wading through the acronyms, which put the military to shame. I confess that I am getting a little lost.
Ms. Miles, one of the problems going back to post 9/11 days was the left hand and right hand not communicating in the United States. They acknowledge that problem.
I am wondering here whether we have too many cooks in this broth, whether you have the right cooks in the broth, and whether, even with the NCC, you are satisfied that the flow of information from one group to another is not only unimpeded but encouraged. If it is not, each group will go around in circles and we will not achieve the ultimate end that we all desire, which is to prohibit these activities, always within the extent permitted by law. Would you elaborate a bit on what you said in your opening statement?
Ms. Miles: I will only speak to the area I know. When we work in the NCC, we bring together prosecutors and law enforcement, and our colleagues the Department of Justice are there as well. When we look at this particular mandate, we ask what we can do at a policy level to strengthen our tools against organized crime. We recognized that we have to have stronger partnerships, the will to understand one another, and we have to have the culture to share what information we do have within the limits of the law.
The particular working group that I refer to does exactly that. With FINTRAC working with law enforcement, the RCMP and other law enforcement partners, it can better explain what it is doing, law enforcement can better explain what it is doing, and then they can get down to practical levels and work within the limits of the law to exchange important information. For instance, the RCMP can tell them how to put together specific information in a strategic way that will produce leads in terms of specific investigations.
It may be a small thing, but we are making progress by encouraging the groups to get together and talk and to think about how they can work together within the limits of the law.
Senator Meighen: I take your caution that it must be within the limits of the law. Whose responsibility would it then be, and to whom would they go, if there aspects of the law they felt were preventing them from accomplishing the assigned tasks? It may or may not be that the authority would agree to propose to change the law. I think back to the consultation paper of the Department of Finance, which suggested the ability of the Canada Border Services Agency to share seizure information with Canada Revenue Agency must be improved. I am not sure whether that is cultural or legal, but sticking with the legal aspect, whose job is it to say, ``Look, there is a legal impediment here that makes the sharing of information and the accomplishment of our task extremely difficult. Can we do something about it?''
Ms. Miles: I will tell you that the Department of Finance very ably leads an ADM committee that looks at this act and all aspects of this act, including the sharing of information. Finance has had extensive consultations, in addition to this consultation paper, with law enforcement across the country. Law enforcement does bring to them their ideas about how we can better work together under the existing law and perhaps areas where they believe the law could be strengthened or expanded. A governance group looks at these issues.
Senator Meighen: Do they do that proactively or reactively? Since it is the Department Finance, I presume that once they get a consensus, they have to go to the Department of Justice, and on it goes.
Mr. Saint-Denis: It is a bit of both. If you are talking about this specific legislation, the initial point of contact is the Department of Finance. The Minister of Finance is noted as the authority responsible for the act. After that, there is a process whereby if the Department of Finance has identified by law enforcement a particular problem, it would look at possible solutions. If the process involves amendments to the act, they may deal with the Department of Justice, depending on the nature of the amendments they are seeking. Are they in the area of criminal law, for instance? Do they involve Charter implications, or are they strictly things for which the Department of Finance has sole responsibility and management?
In the end, depending on the issue and depending on who has raised the problem and so on, either it will be strictly a Department of Finance show, if you wish, or else it will be a group problem where the Department of Finance will consult with the Department of Justice, the RCMP or whomever. Eventually, you will end up with a solution to the problem. As I say, it will be an amendment or something else.
Senator Meighen: I cannot help but wonder whether it would not have been better for the Public Safety and Emergency Preparedness Canada to take the lead on this rather than the Department of Finance, but that is not for us to decide.
The Deputy Chairman: Senator Meighen, it needs to be said how grateful we are to you for the question and for raising it the way you did. It should be said to the witnesses and the other folks in the room. Through committees that senators sit on, such as Standing Senate Committee on National Security and Defence, the Standing Senate Committee on Energy, Environment and Natural Resources and other committees, such as this one, we are finding that Canada has the tools to do things. There is a multiplicity of laws on our books, and we are finding in our sober second thought roles that things that were intended to be done by all these laws are not being done.
It flows naturally from what Senator Meighen said because we are finding gaps in the report on the statute under review tonight, in our review of CEPA, which is the framework environment protection law, and in some of the initiatives about border safety that are under examination by the Standing Senate Committee on National Security and Defence. We are finding that there are big gaps everywhere. It is not because we do not have the legislative authority to fill those gaps. By the time people get together to make a decision about who is responsible to act in a particular case, the crooks have slipped through the net.
I am not expecting an answer, but I think I fairly reflect the view of senators on both sides of the chamber. It is a concern that is developing. You might want to keep that in mind as we go forward, and I know the chairman and I have been discussing how we might treat this in our report.
Senator Baker, you are not a regular member of this committee, but you are active and an astute member of other committees. Do you agree?
Senator Baker: I agree with Senator Meighen that there does not appear to be good communications with the Canada Revenue Agency.
When a judgment is made that there are proceeds of crime in any amount of money, would the Canada Revenue Agency take that report and decide that the person owes income tax based on that charged amount of money? Does the CRA do that or wait until after a determination is made by the court?
Mr. Saint-Denis: I cannot speak for the Canada Revenue Agency. However, if a court concludes that X amount of money is proceeds of crime, we have the provisions under the Criminal Code to have that property forfeited to the provincial or federal Crown.
The Canada Revenue Agency may or may not take note of that, depending on the situation, and may or may not take action against the individual who might have failed to report the revenues. Perhaps you will have a chance to ask the Canada Revenue Agency. I understand that representatives will be here tomorrow.
Senator Baker: Insofar as the forensic accounting that is done under this act as it relates to proceeds of crime, I presume there is communication with the other departments on the result of the forensic auditing done in each particular case?
Mr. Murphy: There is an obvious consultation process between law enforcement and CRA in appropriate cases.
The provisions of the act are designed to become a tool to combat money laundering. The combatting of money laundering then brings you to the Criminal Code. The Criminal Code creates the principal money laundering offences. Those money laundering offences are in turn investigated by law enforcement, leading to charges that are in turn prosecuted. For example, since April 1, 2002, the federal prosecution service has been involved in 567 money laundering prosecutions in Canada. Those prosecutions may or may not lead to convictions. Everything depends upon the evidence presented to court. The prosecution itself, obviously, has a disruptive impact upon the person investigated and subject to the prosecution.
The prosecution, if it is successful, could lead to a forfeiture order against the proceeds of crime or against the property related to the crime. That property is then forfeited to the Government of Canada. The Canada Revenue Agency has every right to go after the taxes that may or may not have been paid. That is a separate issue quite distinct and separate from the issue of money laundering and the goal of removing the profits from crime.
In addition to the Criminal Code and the profits of crime through forfeiture under the Criminal Code, five of the provinces have civil forfeiture provisions that can be used effectively in appropriate cases to go after assets, instruments and other activity that is gained from unlawful activities.
It is not just the Proceeds of Crime (Money Laundering) and Terrorist Financing Act alone. It is that act in consultation and association with a number of other acts that allows the state to go after the profits from criminal activity.
Mr. Paul Saint-Denis: Ms. Miles in her presentation referred to Integrated Proceeds of Crime Units, which may be of some interest to you. They are units that are comprised of law enforcement representatives from different agencies, including the Canada Revenue Agency. If they come across a major case that has CRA implications, it is possible for CRA to be informed of the situation and to take appropriate action either after or in parallel with whatever investigation and prosecution occurs.
Senator Baker: When the proceeds of crime are part of your charge, normally a forensic audit takes place, and the CRA sends the person a bill before prosecution, not after prosecution. That is the normal way that the Criminal Code operates in the specific cases.
Under this particular act, when money is seized at the border, as I imagine in the majority of cases where a customs officer seizes money, the law says $10,000, the seizure is made, and then a determination is made as to whether or not it could be connected with proceeds of crime. I suppose that would have to wait for charges being laid in order for the person to claim back any of that money. If no charges are laid, would the person automatically get back his or her money?
Mr. Murphy: On a cross-border seizure, under Part 2 of the Proceeds of Crime, (Money Laundering) and Terrorist Financing Act, the person has a right to apply to get back his or her money at all times and has a right to go to court if he or she is unsuccessful. That is separate and distinct from a criminal investigation that might ensue that might lead to law enforcement going after the same money, freezing or restraining the same money and preventing the individual from accessing and dissipating his or her money for the purposes of the criminal investigation. Then you get into some fairly technical provisions under Part XII.2 of the Criminal Code, specifically, section 462.34 that does give the person whose money has been seized or restrained a right to apply to court to get his or her money for business, personal and living expenses until forfeiture.
Senator Baker: It includes legal expenses.
The Deputy Chairman: It is interesting to note that when this legislation was moving through the parliamentary process some cynics suggested that the real goal was not to stop money laundering and terrorism but, rather, tax evasion.
Senator Moore: Ms. Miles, you are the Director General responsible for law enforcement and border strategies, and Mr. Deacon is Director General for the national security policy directorate. You said that your two branches are non- funded partners. What does that mean?
Ms. Miles: It means that we do not get our resources from this particular initiative, but because of our interest, particularly in organized crime and anti-terrorism, we participate as partners in this initiative. We bring the Department of Public Safety perspective to this overall initiative, but we receive no funding from it.
Senator Moore: You do not receive funding from the initiative.
Ms. Miles: To be more specific, in the portfolio of public safety two major agencies receive funding in order to further the aims of this act, the Canada Border Services Agency and the RCMP, both of whom will speak to you tomorrow.
Senator Moore: The National Initiative to Combat Money Laundering is comprised of your two directorates plus the two you just mentioned that we will hear from tomorrow?
Ms. Miles: The agency that deals with seizures of laundered money along the border is the Canada Border Services Agency, which is part of the portfolio of Public Safety. The RCMP, our major federal law enforcement agency, is also part of Public Safety and Mr. Deacon and I are part of the Department of Public Safety. Our department has a major coordination role among the agencies, and we serve the Minister of Public Safety.
We have what we call a large portfolio comprised of a department and many different agencies.
Senator Moore: Thank you.
[Translation]
Senator Massicotte: I do not know which one of you will be able to answer my question. It is no secret to any one of us that billions of dollars associated with organized crime are laundered every year. Under the current legislation, any property or assets tied to organized crime or money laundering operations can be confiscated if this can be proven in court. Out of curiosity, can you give me an idea of the overall value, within $10 million or $100 million, of the property or assets seized over the past 12 months, pursuant to the provisions of the existing legislation?
[English]
Mr. Murphy: It is extremely difficult to give a dollar value, even grosso modo, because we have dual jurisdiction in Canada. I described 567 cases of money laundering that the Attorney General of Canada's federal prosecution service prosecuted. There are 10 prosecution services in Canada in the provinces.
Senator Massicotte: How many are done by the federal government?
Mr. Murphy: I can speak about the net amount available for sharing after all prosecutions. I believe it is approximately $25 million.
Senator Massicotte: Is that a lot?
Mr. Murphy: That is a significant amount money because it is after all costs are paid — all costs to manage the property, all costs of returning assets to individuals for business, and living and legal expenses, and it does not reflect or bear any relation to the cost of property that is under existing management for existing cases. When 500 cases are being prosecuted, they are not prosecuted within six months.
[Translation]
Senator Massicotte: In terms of the cases handled in 2005, you peg the overall value of seized assets between $25 million and $29 million, excluding legal costs. Is that correct? Oddly enough, I would have estimated the value of organized criminal activity in Canada in the hundreds of millions, perhaps even at one or two billion. Do we have any idea of the dollar value associated with organized crime? I would have thought it was around $1 billion.
[English]
Mr. Murphy: I attempt to avoid estimating the amount of money being laundered. I recently filled out my census form and my income tax return, and I did not lie. Criminals have a habit of not telling people what they are doing.
In my opinion, it is wrong to attempt to estimate the amount of money criminals are making and laundering. People are committing crimes for money. The goal of Part XII.2 of the Criminal Code is to go after that money, disrupt the criminals, if possible, and, if successful, forfeit as much of that money as possible.
Ms. Miles: We do not have the numbers with us today, but we could provide in written format the information that we have, particularly with respect to integrated proceeds of crime, that is, the amount of assets that we draw from law enforcement and prosecution actions.
The Deputy Chairman: If you could send it to our clerk, that would be appreciated.
Today's hearing illustrates that this subject is difficult to deal with in two short hearings. I would request the gentlemen from the Department of Justice to provide us with an overview of how the act is working and any points that you think are relevant. We could have gone on questioning you for four hours tonight based on our research documents. It is very helpful to have your advice.
Mr. Murphy, your last comment was very telling. Those of us who are lawyers can empathize with what you said, but we have a duty to make this review a useful one in order that we can help the people from the Department of Finance come up with better and more streamlined legislation that might address some of the overlapping problems as well as the other obvious ones such as how to get lawyers into the net and how to be more consistent with our trading partners in our various activities.
You do not have to do this, but I am offering you the opportunity to give you the benefit of a document that would synthesize the views of the Department of Justice on this act.
Mr. Saint-Denis: We are involved in this act from the tail-end perspective. We will prosecute money launderers after they have been identified, either through the operations of FINTRAC or through police investigations independent of information from FINTRAC.
The operation of this legislation is not directly our concern. Obviously, the question of how lawyers should be covered is of some interest to us in terms of Charter concerns and the like. However, for the overall operation for this legislation I think you have to look to the Department Finance, FINTRAC, and perhaps to the RCMP, those who are responsible for the day-to-day operation and use of this legislation. I am not sure that we would be able to provide you with meaningful commentary on this legislation beyond that.
The Deputy Chairman: I thought you might say that. I simply wanted to make that offer to you because at the tail- end of the chain of events that leads to prosecutions you still need to have the necessary legislative tools. If you simply resort to the offences as delineated in the Criminal Code, the Income Tax Act or wherever the offences are defined, and you have no problems conducting the prosecutions, that is fine. We will assume that from your point of view everything is just fine. If it is not, your input would be helpful.
The committee adjourned.