Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 2 - Evidence - Meeting of May 18, 2006
OTTAWA, Thursday May 18, 2006
The Standing Senate Committee on Banking, Trade and Commerce met this day at 10:45 a.m. to examine the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (S.C. Chapter 17), pursuant to section 72 of the act.
Senator W. David Angus (Deputy Chairman) presiding.
[Translation]
The Deputy Chairman: I would like to welcome all of you to the Standing Senate Committee on Banking, Trade and Commerce.
[English]
My name is David Angus and I am from Montreal. I am the Deputy Chairman of the Standing Senate Committee on Banking, Trade and Commerce. Our chairman, Senator Grafstein, is abroad this week and we are muddling through as best we can in his absence.
Our committee has been mandated by the Senate to undertake a review of the Proceeds of Crime (Money Laundering) Act and Terrorist Financing Act (S.C. 2000, c.17), pursuant to section 72 of that act, which provides for a five-year review.
Yesterday we commenced our hearings. We heard representatives from the Department of Finance and Mr. Carrière from FINTRAC, who is also with us this morning.
[Translation]
The internal act, the Proceeds of Crime (Money Laundering) Act, was last examined by this committee in June 2000. Therefore, the time has come for Parliament to once again review the legislation. Today marks our second day of hearings on the Act.
[English]
The committee is being filmed by CPAC and is being webcast. Senators from all parts of Canada are participating in this review.
The Banking Committee has a long history of parliamentary review of legislation. As legislators, it is vitally important that we ensure that legislation is operating in the way envisaged by legislators when it was enacted. Given that Canada works as a global partner in making our world a safer and more secure place, it is important to ensure that our anti-money laundering and anti-terrorist financing regime meets our needs and those of our international trading partners and other partners fighting for a free and safe world.
We are pleased to have as witnesses this morning officials from the Office of the Superintendent of Financial Institutions — Nick Burbidge, Senior Director; Keith Martin, Director; and Alain Prévost, General Counsel.
We have witnesses, as well, from FINTRAC, the Financial Transactions and Reports Analysis Centre of Canada, a body that was set up under the original legislation to receive all the declarations and statutory information pursuant to that legislation. It is a very important organization. From FINTRAC we will hear from Sandra Wing, Senior Deputy Director; and Yvon Carrière, Senior Counsel.
Following that, we will hear a panel of witnesses from the Royal Canadian Mounted Police.
I understand that FINTRAC will speak first. I hope that you will feel free to tell us about any areas in which the act is deficient or where you do not have sufficient resources to do your job as prescribed by the law. This is your opportunity to inform us. We will be very attentive and will do our best to help.
[Translation]
Sandra Wing, Senior Deputy Director, Financial Transactions and Reports Analysis Centre of Canada: Mr. Deputy Chairman, I am delighted to have this opportunity to address the members of the committee and to speak to you about FINTRAC and the work the Centre is doing.
[English]
I understand the Department of Finance appeared before you yesterday and provided members with an overview of Canada's broader money laundering and anti-terrorist financing regime. Today, I will focus on FINTRAC. I will tell you who we are, what we do and about some of our challenges and opportunities.
FINTRAC's mandate is to assist in the detection and deterrence of money laundering and terrorist activity financing in Canada and around the world. It is but one of many key partners in Canada's broad anti-money laundering, anti-terrorist financing regime.
In addition to our federal partners, there are many provincial, municipal and private industry players, all of whom play a critical role. We are Canada's financial intelligence unit. We receive and analyze financial transaction and other information, and provide financial intelligence to law enforcement and investigative agencies, as well as foreign financial intelligence units.
We operate at arm's length from those agencies to which we disclose financial intelligence. This independence ensures balance between the need to safeguard the privacy of personal financial information and the investigative needs of law enforcement and security agencies.
Our legislation places obligations on deposit-taking institutions, accountants, casinos, money services businesses and foreign exchange dealers, securities dealers, life insurance companies, and real estate brokers and agents. These entities must report to FINTRAC suspicious transactions regardless of their dollar value, cash deposits of $10,000 or more, wire transfers into or out of Canada of $10,000 or more, and terrorist property holdings.
In addition, anyone crossing the border must report to the Canada Border Services Agency movements of cash or monetary instruments of $10,000 or more into or out of Canada. All such reports are sent to FINTRAC by the CBSA, and FINTRAC also receives from them reports of any currency seizures.
We are required to analyze all of this information. FINTRAC receives about 1 million financial transaction reports per month. More than 99 per cent of these reports are received electronically. FINTRAC's analysis of these transactions can be initiated in a variety of ways, but whatever the starting point, analysts search through the centre's database using specially designed technological tools to uncover patterns of suspect transactions. When, as a result of the analysis, FINTRAC has reasonable grounds to suspect that the information would be relevant to the investigation or prosecution of a money laundering or terrorist activity financing offence, the centre must make a disclosure to the appropriate police force.
In cases where there are reasonable grounds to suspect a threat to the security of Canada, including terrorist activity financing, FINTRAC must disclose to the Canadian Security Intelligence Service. In some cases, we must also disclose to the Canada Revenue Agency and the Canada Border Services Agency. However, in these instances we must meet a dual test.
FINTRAC has also entered into information-sharing agreements with 30 foreign financial intelligence units. The information contained in our financial intelligence disclosures includes details about the financial transactions — when and where they took place, the individuals conducting the transactions, and any accounts, businesses or other entities involved.
I will speak briefly about our results in relation to the detection side of our mandate. As of March 31, 2005, FINTRAC has made more than 442 case disclosures to enforcement and security agencies identifying thousands of individuals and businesses and tens of thousands of suspect financial transactions. The total dollar value of the financial transactions disclosed was $3.2 billion. While results for the fiscal year just ended March 31 are still being gathered and verified, I can tell committee members that the number of case disclosures is up and the dollar value of those transactions disclosed has increased significantly over the previous year.
I will turn now to FINTRAC's compliance function. This is our deterrence mandate. We are mandated to ensure that reporting entities comply with their client identification, record-keeping and transaction-reporting requirements. In order to fulfil this task, we have established a modern and comprehensive compliance program. FINTRAC has been very active in promoting awareness among reporting entities. We made close to 600 presentations last year with reporting entities and associations, reaching close to 15,000 individuals. We have conducted close to 400 compliance examinations to date.
I am pleased to say that the vast majority of reporting entities examined demonstrate a willingness to comply with their obligations and to take action when deficiencies are brought to their attention by FINTRAC. Only a small number have been referred to law enforcement for investigation and prosecution.
In order to minimize the regulatory burden on our reporting entities, FINTRAC has established partnerships with 15 regulators including OSFI.
FINTRAC's positive results are shared successes. The combined efforts of financial institutions and intermediaries, regulators, the law enforcement community, CSIS and other domestic partners is making it increasingly more difficult to launder money in Canada than it was prior to 2000.
While we have achieved many things over the last five years, there is still room for improvement. I believe the Department of Finance addressed many of these yesterday, but I would like to highlight a few proposed changes of particular importance to FINTRAC.
These proposed changes are as follows: enhancing the requirements for customer due diligence; expanding the list of designated information contained in FINTRAC's financial intelligence disclosures; allowing the use of administrative monetary penalties to encourage compliance; requiring the registration of money services businesses; and covering real estate developers and dealers in diamonds and precious metals.
The consultation paper released last year addresses a number of current money laundering and terrorist financing issues, but it will not end there. The methods used to conceal and move illicit funds will evolve. Financial services themselves will evolve, and we will need to keep pace. We must be vigilant in exploring emerging issues that will demand new solutions.
Some issues on the horizon that we are closely following include the use of ``white label'' ATMs and Internet banking. There are concerns that criminals are making international electronic funds transfers below the current thresholds that trigger a transaction report to FINTRAC.
We also need to assess the degree to which domestic electronic funds transfers are figuring into money laundering and terrorist financing schemes. Many issues will require further elaboration to ensure that any new measures to address them are effective and feasible. The current legislative and regulatory proposals, however, provide Canada with a measured approach that can be reasonably achieved over the next few years.
I will conclude my presentation here. I hope that you have found it to be useful, and I will turn it over to Mr. Burbidge.
The Deputy Chairman: Thank you very much, Ms. Wing. Your presentation sets the groundwork very nicely for the questions that will be held back until after Mr. Burbidge has completed presentation.
Nick Burbidge, Senior Director, Compliance Division, Office of the Superintendent of Financial Institutions Canada: Mr. Chairman, I am the head of the group at OSFI responsible for our anti-money laundering and anti-terrorist assessment program.
OSFI does not have a legislated role with respect to the Proceeds of Crime (Money Laundering) Act and Terrorist Financing Act. However, OSFI, like other major financial regulators around the world, is a member of the Basel Committee on Banking Supervision, as well as the International Association of Insurance Supervisors. As such, we subscribe to core principles for supervision of deposit takers and insurance companies. These principles require us to determine whether banks and insurance companies have adequate policies, practices and procedures in place, including strict know-your-customer rules that promote high ethical and professional standards in the financial sector and prevent banks from being used by criminal elements. A similar standard, as I said, applies to the life insurance sector.
We share with FINTRAC the results of our AML — anti-money laundering — assessments on all federally regulated financial institutions subject to this legislation. Our assessments focus on three key areas: first, whether the institution has implemented the requisite policies and procedures to be in compliance with the act; second, whether it has the required framework of controls in place to report designated transactions to FINTRAC; and third — and this speaks to our role as a prudential supervisor — whether the quality of these controls and the supporting risk management processes are adequate.
Canada's banks and other federally regulated financial institutions are allocating significant dollar and people resources to the fight against money laundering and terrorist financing. Most of the financial institutions we have assessed thus far have assigned a very high level of importance to getting anti-money laundering and anti-terrorist financing implementation right. A few, mostly smaller financial institutions, have needed more specific guidance. We have been proactive — I would like to suggest very proactive — in providing this guidance, both by intervention at specific individual financial institutions, and also by undertaking numerous speaking engagements and organizing our own anti-money laundering and anti-terrorist financing information sessions to communicate our expectations in this area.
We work very closely with FINTRAC. We have an MOU with FINTRAC, which was put in place two years ago, but we started our assessment program before that time.
By assessing our regulated institutions on FINTRAC's behalf, we bring our long-standing experience as a bank regulator to this important area of risk management, as well as allowing FINTRAC to focus its resources in other sectors.
We also work closely with the Department of Finance and other key government departments on anti-money laundering and anti-terrorist financing developments and issues. Finally, we participate in the work of the Financial Action Task Force, which you heard about yesterday. It is the international standard-setter in this area.
That concludes my opening statement, and my colleagues and I would be pleased to respond to any questions the committee may have.
Senator Tkachuk: The FINTRAC annual report of 2005 states, ``Our communications will now focus more on promoting awareness among high-risk reporting entities`` as the agency seeks to improve its effectiveness. Who are the high-risk reporting entities and how are they currently governed through legislation?
Ms. Wing: I am trying to recall the details of the 2005 annual report. We have a risk-based compliance program. We do risk assessments for all sectors covered by our act and legislation. The highest risk would occur in the unregulated sectors.
Senator Tkachuk: Could you provide examples?
Ms. Wing: It would be the MSB, or money service business, and foreign exchange sectors.
Senator Tkachuk: In the annual report of FINTRAC, there is a quote in the appendix with regard to suspected terrorist fundraising activities:
FINTRAC received reports on suspicious transactions that ultimately connected a number of individuals, their businesses, and a non-profit community organization. According to open source intelligence, the individuals and entities were supporters of a known radical terrorist organization. Some of the individuals also supported a known terrorist.
Analysis revealed that, over the course of two years, these individuals and their businesses were involved in transactions valued at many millions of dollars.
Further analysis revealed that through their corporate and personal accounts, these individuals were wiring money out of Canada to locations of concern in the Middle East and Eastern Europe. They were also making large cash deposits to the non-profit community organization's bank account that were followed by large wire transfers to entities and locations of concern.
Could you expand on that quote? Was this group that you talked about one that the government saw the need to put on the terrorist list, or were there prosecutions resulting from this? What happened?
Ms. Wing: Under our legislation, we are prohibited from discussing the details of the case disclosures that we prepare. Those questions would probably be more appropriately addressed by the security agencies to whom we disclose.
I can explain to you our process and how we analyzed the information to arrive at those conclusions. I do not know if that would be helpful.
For the purposes of the annual report, we provided examples of cases that we disclosed and sanitized in order to allow reporting entities and others to look at the topologies and patterns that we see.
Senator Tkachuk: I am not quite sure what that means. When you talk about accumulating the information and your record of accumulating the information, what does that mean? Do you match that against prosecutions, bad guys caught and terrorists captured? What is the point of accumulating information? That, to me, has nothing to do with the success of the operation as compared to whether people were actually prosecuted and it had an effect on the system. I have no idea whether money laundering has increased or not. First, I would like to know how you would know; and, second, how would you measure it against prosecutions that put bad guys away?
Ms. Wing: We make case disclosures similar to examples that we provided in our annual report. They would go to law enforcement and security agencies. In an effort to track the progress of that financial intelligence product through the system, about a year ago we included feedback forms in the disclosure packages we give to all security agencies. These forms provide us with feedback about the usefulness of this intelligence product. For example, has it provided new leads? Has it resulted in charges being laid, if we are speaking to law enforcement? Will it lead to prosecutions?
We put that mechanism in place partly in response to concerns raised by the Auditor General more than two years ago. We have not collected all of the feedback from the law enforcement and security agencies on the value of our security product. We have received half of the responses on the case disclosures we made last year, although we are hoping to report all of them in our annual report this fall.
However, to get to your question of trying to measure the effectiveness, we have found to date that 74 per cent of our disclosures have related to persons or entities of interest to law enforcement or security agencies, and that 60 per cent of them have provided names or leads on previously unknown individuals. We are aware that several have resulted in criminal charges and prosecutions.
Senator Tkachuk: Would that be two or three?
Ms. Wing: I would say a dozen. Those questions are more accurately answered by law enforcement and security agencies.
Senator Tkachuk: Someone had to write this report and send it over to CSIS or the police or whomever. One month later does someone not ask what happened here? Did someone ask whether the report was useful? These are a couple of pretty damning paragraphs. Is no one interested in following up to find out whether these people that you are talking about are actually dealt with?
You said a dozen. How do you know that they would not have been caught without FINTRAC? It does not seem like a lot. It is obviously not rampant.
Ms. Wing: Another contextual piece is that we have noted it takes a long time from the issuance of an intelligence product to the actual investigation and through to the criminal prosecution phase. As I mentioned, I am prohibited from revealing the details of a case disclosure, but we have noticed that the cases being investigated and prosecuted are some of the older cases. They date back a couple of years, which is a reflection of the length of time it takes to move from saying ``I have intelligence'' to saying ``I have concluded my investigation'' to saying ``I have moved through the prosecution process.'' It will take time to collect adequate feedback on the value of the case disclosures, but we are trying.
Senator Tkachuk: Legislators would find it helpful if information like this were made available. As to the idea of spending all this money gathering information universally and turning it over to CSIS, we could put a webcam in every house in Canada and watch them to ensure that we catch bad people, but we would find that unacceptable. Legislators in this committee are concerned about all this information being accumulated and whether it is an invasion of privacy versus something that results in prosecutions or is of some help to the police.
You say that you have about a dozen, but it seems to me that you would keep statistics so that we could measure the effectiveness of FINTRAC. Otherwise, you are gathering information that seems rather unimportant because, frankly, it is none of the government's business unless the information relates to criminals.
Ms. Wing: Law enforcement and security agencies have told us that they have found our product useful. There are various forms of intelligence — for example, human, signals and financial. It is a piece of the puzzle and helps to put together the picture.
On the privacy issue, we at FINTRAC take the protection of personal financial information extremely seriously. We have put in place physical security to ensure that this information is protected, and we operate in a way to ensure that there is no unauthorized disclosure of that information.
Senator Tkachuk: Do you get rid of it?
Ms. Wing: There are provisions in our legislation, and I will let Mr. Carrière answer specifically.
Yvon Carrière, Senior Counsel, Financial Transactions and Reports Analysis Centre of Canada (FINTRAC): That was the answer I alluded to yesterday. The act provides that all information and reports collected by FINTRAC have to be destroyed after five years. If they have been disclosed to law enforcement, that period is eight years.
The Deputy Chairman: I think the witness is constrained somewhat by the statutory interdiction against giving details of the cases. She referred us to the agencies.
I want you to know, Ms. Wing, that we have invited representatives from CSIS to appear before our committee, but they said that they cannot come. They cannot show their face on TV; it is too secret.
I want to make clear that it would help us if we had some details. You referred to the other law enforcement agencies — and we will have a go at the RCMP later today — but that is a frustration for Senator Tkachuk and the rest of our colleagues. I understand your problem, but I am just pointing out that referring us to CSIS just sends us down a black alley.
[Translation]
Senator Massicotte: Is our legislation effective? I did some research on the Internet to gauge the extent of the problem associated with criminal activity and money laundering operations. Obviously, there are no accurate statistics on the dollar amounts involved, but according to the experts, we are talking anywhere from $20 billion to $30 billion.
However, when I consider the amounts involved and when I see that in the past 12 months, we have been able to recover a mere $27 million in assets as a result of the legislation, my immediate reaction is that while we are doing a good job, much more remains to be done to control crime and money laundering operations.
I realize that I am tallying transactions and assets. Does that mean that we are drawing very little distinction between money laundering and crime?
[English]
The Deputy Chairman: That did not sound like a supplementary question to me.
Ms. Wing, if you are having a problem responding, please say so. Otherwise, please give him a crisp answer.
Ms. Wing: Do we make a distinction between money laundering and the proceeds of crime?
Senator Massicotte: Basically, you are seizing $27 million, as we heard yesterday, but there are billions of dollars of criminal activity or money laundering annually. How good is this law? How effective are we? We appear to be making only a dent when we compare $27 million to the billions of dollars annually being laundered or related to criminal activity.
The Deputy Chairman: Yesterday, Senator Massicotte questioned officials from the Department of Justice, the actual enforcers, and they would not put a number on the order of magnitude of this problem. My staff did a little research into our earlier hearings, and the RCMP did tell this committee a year or so ago that there was a big range but that it was between $5 billion and $27 billion.
Senator Massicotte: Let us say the low number is $5 billion versus $27 million. That seems to be a huge difference.
Ms. Wing: I can speak on behalf of FINTRAC. We produce financial intelligence on suspected money laundering. We do not make a distinction. The proceeds of crime are what is in fact laundered. Our detection processes are very effective in helping to provide law enforcement the information they need to address that problem. They have told us that. However, there is a whole side to the regime that may be overlooked sometimes, and it relates to deterrence.
Over the course of the last five years, financial institutions and financial services have put in place compliance programs. They have put in place mandatory reporting of suspicious transactions. All of that information is provided to us so that we can analyze it and provide that analysis to law enforcement to help them deal with the issue.
It is amazing that five years ago there were no requirements. Someone could make millions of dollars of cash deposits into the financial system, and there was no requirement for anyone to look at the source of those funds.
The Deputy Chairman: I turn now to Senator Di Nino, from Toronto, who has substantial experience in the financial services industry.
Senator Di Nino: Having some background in the financial services sector, and in reading and learning about this issue, my experience is that we are dealing with white collar criminals who are usually very intelligent. In some cases, they are called geniuses. We are not dealing with the average crook who does not know his way around.
We are part of a global initiative. Do all countries participate, or are there countries that do not participate?
Ms. Wing: There are over 100 financial intelligence units in the world today.
Senator Di Nino: In other words, probably 100 countries are not covered or do not participate in this program; is that correct?
Ms. Wing: I am not sure how many countries there are in the world. I do know that there are over 100 financial intelligence units and more are being created.
Senator Di Nino: The other issue to arise from this discussion concerns unregulated entities. I am speaking of the exchange agencies operating across this country. At the present time, they are not covered by this legislation; is that correct?
Ms. Wing: They are covered by our legislation but are unregulated; therefore, they are more difficult for us to find and to keep track of.
Senator Di Nino: I am not sure I like the answer to that question. I do not mean that you gave me the wrong answer. You are saying, in effect, that there are many money exchange characters out there, some of whom in the past have been accused of making transfers that would be considered illegal under our rules. In some cases, I understand they are very large. We do not know who they are or we do not know how to get to them. What is the problem?
Ms. Wing: It is an unregulated sector, so there are no formal associations and there is no easy way for us to determine the number of money services businesses. That being said, we know that many of them provide useful and valuable financial services, and they are complying with their reporting and record-keeping obligations. Given that they are unregulated and are not a formal sector such as the banking sector, less information is available. We have a harder time assuring ourselves that we know who they are, that we know all of them and that we have made visits and they are reporting. This is one of the reasons we support money services businesses registration.
Senator Di Nino: In the same general vein, I would imagine that you would get some public participation in this process, particularly with respect to these types of unregulated entities. Am I correct in making that assumption? Do you have people phoning up and saying, ``We think there is something wrong here and you should look into it?''
Ms. Wing: We do receive voluntary information reports from the reporting entity sectors themselves. I do not want to leave anyone with the impression that all money services businesses and foreign exchange services are undertaking criminal activity. They are not. In fact, some of the money services businesses and foreign exchange dealers, particularly the larger ones, want to have some sort of registration system. They want a level playing field.
Senator Di Nino: I understand that. From my own personal experience, I agree that the vast majority of them are law-abiding groups. We may not know some of them and may not be able to apply force to them because they are unregulated, which leads me to my next question: Should we change the legislation? Is there anything we should be doing to help bring these folks under regulation so that you would have more power?
Ms. Wing: One of the proposals in the Department of Finance consultation paper deals with the registration of money services business. We think that would be very helpful.
Senator Di Nino: If individuals do come to you with information, do we have a system to protect their identity?
Ms. Wing: FINTRAC would certainly protect that information.
The Deputy Chairman: Senator Goldstein, from Montreal, is a prominent attorney who also has a lot of experience with financial institutions, and he has a few questions for you.
Senator Goldstein: I have a number of unrelated questions that arise partially from what each of you has said.
The Deputy Chairman: Let us say three.
Senator Goldstein: Is that a limitation imposed on Liberal senators and not on Conservative ones, Mr. Chairman?
The Deputy Chairman: This is res ipsa loquitur.
Senator Goldstein: There was some discussion yesterday concerning lawyers and the extent to which they are or are not required to divulge what you call ``suspicious transactions.'' We were told that there had been discussions between the Federation of Law Societies and a variety of others. We were also told that the U.K. does require that lawyers divulge. We were not told yesterday that this requirement is limited by professional privilege and where there is professional privilege involved they are not required to divulge. Are you prepared to accept the U.K. model, because that has not been my understanding?
Mr. Carrière: A section of the act states that nothing in the act requires the client-solicitor privilege to be breached. From the beginning this was the government's position and it was clearly stated in the act.
I am absolutely certain that the government never had the intention in its negotiations to require clients to breach client-solicitor privilege. I am absolutely certain that whatever solution the government comes up with will be consistent with the protection of that privilege.
Senator Goldstein: That is comforting.
In previous hearings we expressed concern about the extent to which the privacy of Canadians and all residents of Canada was being be protected and preserved. To what extent does that principle form part of your departmental culture? What efforts are being brought to bear to ensure that there is a balance between the requirements of disclosure and security on the one hand and protection of individual rights on the other?
Ms. Wing: We take protection and privacy extremely seriously within FINTRAC. We have to. We want to, but also we have to. Our legislation requires us to ensure that the information we collect is protected. Our independence from law enforcement also adds to that balance of protecting financial information. There are criminal penalties in our legislation for any employee who discloses unauthorized information.
The way we balance the needs of law enforcement, the production of our disclosures, is that we have to reach our threshold. We have to have reasonable grounds to suspect that the information would be relevant to an investigation or prosecution of a money laundering offence. We work diligently to reach that threshold, and once we have reached it, we disclose.
All other information is protected. All of our staff is cleared or eligible for ``top secret'' clearance. We have very strong safeguards on our IT systems and very robust physical security in our offices.
Senator Goldstein: Have you addressed internally the subject of state-financed terrorist funding that comes through Canada as opposed to individuals or organizations?
Ms. Wing: Again, the law prohibits me from discussing the details of individual case disclosures we may have made.
Senator Goldstein: That is not individual, that is generic.
Ms. Wing: It prohibits me from indicating that I have made a disclosure in relation to state-sponsored terrorism.
Senator Moore: Ms. Wing, I would like to explore the idea of correspondent banking. As I understand the process, it is the provision of banking services by one bank to another, enabling overseas banks to conduct business and provide services for their customers in jurisdictions where the bank has no physical presence. A bank that is licensed in a foreign country and has no office in Canada could use correspondent banking to attract and retain wealthy criminals or corrupt clients interested in laundering money in Canada. Instead of exposing itself to Canadian controls and incurring the high costs of locating in Canada, the bank would open a correspondent bank account with an existing Canadian bank.
Are you familiar with transactions of that type? Do they exist? Chartered banks are institutions that have to report to FINTRAC. When they report to you, how do you ensure and satisfy yourselves that a Canadian chartered bank is not being duped by a properly licensed foreign bank that may be funnelling the proceeds of crime?
Ms. Wing: A number of us could answer that question because it deals with the specifics of some of the proposals in the white paper.
Mr. Burbidge: The expectation is that banks in Canada which operate a correspondent banking relationship with a bank outside Canada satisfy themselves as to the bona fides of that foreign bank. For example, they would be expected to know and satisfy themselves that the bank was properly supervised and regulated by an organization roughly equivalent to OSFI; that the anti-money laundering and anti-terrorist financing regime in that country was roughly comparable to ours or that they understood how it worked; and that the bank's internal processes in that foreign country were understood with respect to how well that bank identifies its customers. We are looking for a framework where the banks are reasonably assured that they are dealing with an organization that has standards and works in an environment broadly similar to their own.
The banks understand that correspondent banking is, generally speaking, looked upon as a high risk activity because it involves transferring substantial funds around the world electronically. We have found in our experience that they are paying a lot of attention to the risks in this area.
As to the specifics in the scenario that you just painted for us, my colleague Keith Martin spent a long time in the financial sector and has a little more experience in this area than I. We both come from the private sector, but he has had more experience.
Keith Martin, Director, Compliance Division, Office of the Superintendent of Financial Institutions Canada: Correspondent banking refers to a situation where a foreign bank does not have a banking establishment in Canada, physically, and conversely, when a Canadian bank does not have a physical establishment in the foreign country. Correspondent banking is meant to facilitate the customers of each of those banks being able to do business in the other country.
What is the possibility of a foreign bank laundering the proceeds of crime from a Canadian source or vice versa? That is possible, but the way in which it would have to work — and let us take the Canadian side first — is that the Canadians would have to put those funds into a Canadian bank. Therefore, right up front, they would be subject to measures intended to detect and deter transactions that might be connected with criminal activity.
Senator Moore: They would be subject to our controls.
Mr. Martin: Yes.
Let us assume that there was no detection of criminal activity. The Canadian bank would then transfer that money to the correspondent bank in whichever country, and then it is up to the correspondent bank.
By the way, we expect our banks to be able to give reasonable assurances as to the AML — the anti-money laundering and anti-terrorist financing — processes that the correspondents have in place. Our banks are expected to know the standards of their correspondents.
Senator Moore: They would have to know that the correspondent bank is subject to an organization similar to OSFI, to FINTRAC-type of supervision.
Mr. Martin: Exactly. If they are not, then we would expect them to do what we call enhanced due diligence. We cannot say to the banks that they cannot deal in countries around the world to serve their customers. We do say that they should carry out enhanced due diligence if a similar regime is not in place.
The flip side is the foreign customer who wants to put money into Canada. That transaction goes through the opposite process. It will be screened by the foreign bank. When it hits Canada, Canada would also run it through its various screening processes. Either way, if it goes through a Canadian financial institution, it will be subjected to the Canadian anti-money laundering and anti-terrorist financing process.
Senator Moore: Without revealing any secrets, Ms. Wing, have we come across any such cases since FINTRAC has been functioning?
Ms. Wing: Without naming names, yes.
An Hon. Senator: Many, many, many of them?
Ms. Wing: I knew that would happen.
Senator Moore: How many is many?
Ms. Wing: I will just answer yes.
Senator Moore: Is that type of caseload more prevalent or declining?
Ms. Wing: It is always difficult for us to address trends because we are so new. Year over year, we have maybe three years. In the third year, we have not yet had a chance to collect, collate and compare to the previous years, so it would be difficult for me to answer that question.
Mr. Burbidge: You should keep in mind that prior to this legislation coming into effect, banks were already engaged in a voluntary disclosure system directly to the RCMP on certain kinds of transactions. This legislation goes a lot further than that system, but the banks have had a lot of experience in these issues. They are well aware that this kind of activity could be fraught with risk unless they take the appropriate measures.
We have been looking at these systems that the banks have in place now for a few years. I am not going to say that we have not found the odd process situation that could be improved. In addition, as you probably know by looking at the background research material, emerging FATF standards will require banks in all FATF countries and other countries to send full customer information with each wire transfer. Some banks just act as post offices and move the money on to their correspondent. Through that new process, all of the customer information which the originating or the ordering bank puts into the transfer is sent with it. In that way, each bank in the process can satisfy itself that full or at least appropriate customer due diligence was carried out at all times through the transaction.
Ms. Wing: I would add that the Department of Finance is consulting on proposals contained in the white paper from last summer to strengthen provisions around correspondent banking.
Senator Moore: Are Canadian chartered banks permitted to transact with foreign banks that only have FATF standards? Do our banks have to comply with any sort of international rule?
Mr. Burbidge: So far as I am aware, there are no absolute prohibitions, other than specific legal provisions that might affect a particular sanctioned country or individual. Banks generally are aware that some countries tend to pose higher risks in certain cases than other countries.
There is an FATF standard that permits a general level of comfort on other FATF membership countries. I am not an expert on how that weaves into our own legislation; but, generally speaking, they are expected to have a fairly high level of due diligence and knowledge comfort on any foreign bank that they are dealing with, whether they are in an FATF country or not.
The Deputy Chairman: To clarify Senator Moore's questions on correspondent banks, if one of Senator Moore's constituents from Halifax was buying a home in Florida for $300,000 or $400,000 and asked his Canadian bank to transfer the money to his bank in Tampa, would that law-abiding citizen be subject to the transaction being disclosed through the FINTRAC process?
Ms. Wing: The report would be filed with FINTRAC if the transaction was over $10,000. However, the way our analysis would work is that unless there was something suspicious and we also received a suspicious transaction report in relation to that transaction, or they were connected in some way to a network of money laundering, we would never see it. It would be in our information holdings, but we would never see it.
The Deputy Chairman: I think that is the point Senator Moore was getting at.
Senator Moore: In that case, reporting a legitimate house purchase to FINTRAC, would those records remain in the five and eight year categories that Mr. Carrière mentioned?
Ms. Wing: The records are held for five years. Other financial intelligence units around the world use the same methodology we do, where they collect wire transfer information, but not all do. It is an objective reporting requirement, which is why our privacy standards are so high. The reports come in and they are available for analysis. What you catch in that net of $10,000 and above and what you actually are interested in — what you look at, what you pick up — are those related to money laundering.
The Deputy Chairman: As part of the body of regulation and law that was passed to fight so-called money laundering — and I suggested yesterday there might have been another reason — was a requirement related to filing income tax returns. One now has to declare foreign-owned property. Law-abiding people might own a house in Florida or Colorado worth a few hundred thousand dollars, but they may forget to mention it. If they had to send money down there to pay for it, the transaction is registered by FINTRAC. They in turn inform the CRA, and the person perhaps gets caught for not declaring it on his tax return. When I made the comment yesterday about cynics suggesting that the real reason for all this law is to catch tax evaders, this is the type of example that underlies their cynicism.
Ms. Wing: I will try to address that concern. FINTRAC's mandate is the detection and deterrence of money laundering, terrorist financing and other threats to the security of Canada. That is our job and that is what we do. We can disclose to the Canada Revenue Agency, but first we must have reasonable grounds to suspect money laundering.
The Deputy Chairman: Whatever that may be.
Ms. Wing: It is not tax evasion.
Senator Tkachuk: How would you know whether someone was simply buying another house in Florida or laundering money? What would the analyst say?
Ms. Wing: In reality, the analyst would never pick up that transaction.
Senator Massicotte: If such a transaction would not be picked up by the analyst unless it seemed suspicious and related to criminal activity, then there must be a list of those people because you would need a reference point in order to say ``unless related to some type of people.'' I presume that FINTRAC has a ``black list'' of people or an accumulated list of suspicious transactions by certain persons. If one's name is on that list, how does one have it removed?
Ms. Wing: We do not have lists. I will take a minute to explain how our process works.
We collect suspicious transactions, such as international wire transfers over $10,000 and large cash transaction reports over $10,000. We also receive voluntary information, which can be provided by anyone. We receive large amounts of voluntary information from law enforcement. I will focus on money laundering in using the example.
We have millions of transaction reports in our database. Our systems sift through those reports and link suspicious ones with large cash transaction reports and wire transfers. We could initiate a case by handing information to an analyst to take a closer look at, possibly because the transaction reports demand that we do so. An example of that would be multiple reporting entities reporting suspicions of the same individuals or groups of transactions. That would cause us to take a closer look. Our database systems would pull the related transactions together. As well, we could initiate a case because law enforcement has voluntarily provided FINTRAC with information on an investigation. Again, we would look to see what related transactions we have in our database.
The Deputy Chairman: It is not unlike doing a Google search. You simply enter a name and the computer will provide the rest of the information.
Senator Massicotte: If I were to write you a letter about an individual's transactions, you would follow up on those.
Ms. Wing: I know that FINTRAC is new and the analytical process might seem something of a mystery, but we would be happy to appear again to provide a presentation on how we do our analyses.
The Deputy Chairman: We would be very interested in that. I would ask Ms. Gravel, our committee clerk, to make a note.
Senator Baker: In looking at any new piece of legislation during the five-year review, we necessarily go to the reporting agencies on cases that pertain to the act. I presume that FINTRAC, from time to time, would look at the cases tried under this act as they relate to your department; Is that right?
Ms. Wing: We try to keep track.
Senator Baker: Apart from the reported cases and, as Senator Goldstein pointed out, the Law Societies of Canada on behalf of individual provinces — Saskatchewan, Ontario and British Columbia — six cases have gone to trial. In each case, an interim exemption has been provided in that province for lawyers in dealing with their clients. Senator Goldstein is right about that restricted area of solicitor-client privilege.
Apart from that, the majority of cases involving this act have to do with the question of someone who has had their money seized and that person is trying to get it back. The amounts vary, as Ms. Wing pointed out, because it can be any amount of $10,000 or more. Most of the cases have to do with non-reporting in crossing the border. In many of these cases, it appears that a reverse onus is created under the act whereby it is incumbent upon the holder of the money in question to prove that the money is legitimate. The act provides for appeal to the Federal Court on a seizure and forfeiture by the minister. When requested, FINTRAC provides the information for a determination by the minister as whether there is any wrongdoing vis-à-vis the act. Part of your mandate is to provide that information. The minister does not sit down and say, ``Here are the facts.'' The minister relies on information that FINTRAC provides.
I have listened carefully to your words today and I understand that there is a requirement ``to suspect,'' not ``to believe.'' As you know, in law, ``to suspect'' is a much lesser requirement.
The Federal Court has judged in several cases that this act is very unfair to people who are trying to get their money back. For those who are interested, I will quote what has been said in more than one case: In the 2006 Hoang decision, the judge said that ``the appeal procedure is both awkward and inconvenient,'' and according to another judge in Dokaj, it is ``unfair.''
The minister's determination, based on FINTRAC's suspicion, can only be overturned by a reverse onus such that holder of the money must prove that the funds were obtained legitimately, although no charges are ever laid and it has not been proven that the person had a mal intent, or mens rea. Do you have any suggestions concerning this quandary that many people find themselves in?
Ms. Wing: I will begin by saying that you are referring to the seizures of cash by the Canada Border Services Agency, in which we are not involved at all. We do not provide information to the minister in his determination. I would ask Mr. Carrière to explain. It is a confusing piece of Part 2 of the act.
Senator Baker: With your determination, you provide information to the Minister of National Revenue.
Ms. Wing: No, we do not do that.
Senator Baker: You do not have any contact with the Department of Justice or the Solicitor General.
Ms. Wing: We can only disclose to law enforcement, CSIS and foreign financial intelligence units, FIUs, but not to the Solicitor General.
Mr. Carrière: To be clear, we can give information to CRA when we suspect money laundering. That information would be relevant to investigating and prosecuting money laundering, and we determine that it is relevant to the offence of tax evasion.
The main point is that FINTRAC does not seize money. FINTRAC is not responsible for the administration of Part 2 of the act, which deals with cross-border reporting the seizure of money at the border. All of this is administered by the Canada Border Services Agency.
The act specifically prohibits FINTRAC from providing the Minister of Finance with information about anyone who has been the subject of a report or who has reported. Certainly, that provision would apply to the Minister of National Revenue. I understand that the CBSA may appear before the committee at some point. Perhaps they would have more information on Part 2 of the act.
The Deputy Chairman: Our next questioner is one of our newer senators, Senator Campbell, who has had a distinguished career in British Columbia as mayor of Vancouver.
Senator Campbell: Before I was Mayor of Vancouver, I was involved in law enforcement, so I have kept abreast of intelligence gathering.
Would it not be helpful to you to keep statistics on the number of cases in your system and the number of cases that have been concluded? I recognize that a case can go on for two or three years, but at the end of the day, it would give you some idea of where you are with regard to your work processes.
Ms. Wing: It would be very valuable. The reason we started including the feedback form in our case disclosures last fall was to collect that very information. Many partners are involved. We not only deal with the RCMP and the Department of Justice federally, but we also disclose to all of the provincial and municipal law enforcement agencies.
We produce the feedback form and include it in our case disclosures. We are starting to collect statistics that will enable us to provide you, others and ourselves, for operational purposes, with statistics to establish whether our disclosures are useful and lead to charges. The prosecution will have to work with the Department of Justice in order to follow it through to the end.
Senator Campbell: It would be beneficial to you.
Ms. Wing: Yes.
Senator Campbell: We have been discussing the magnitude of money laundering. British Columbia has the distinction of having a $7-billion-a-year agricultural industry called ``grow ops,'' which, for the most part, is controlled by gangs.
I would not be worried about buying a house in Florida. However, let us assume that I then buy a second house, a third house and a fourth house. Do those purchases come up on your radar under my name?
Ms. Wing: FINTRAC would see the international wire transfers in support of those purchases. If such transactions were continual and large enough, we might pick them up.
Senator Campbell: That is not very definitive.
Ms. Wing: I would like to say that we would pick them up. The pattern of the transactions is what speaks to us. If hundreds of thousands of dollars were moving, we would notice. It would catch our attention.
Senator Campbell: Do you have any way of grouping people? If I say, ``Here is a bunch of names,'' do you have any way to say, ``Oh, this is Hell's Kitchen,'' for instance?
I understand your need for security, but I am trying to understand how something is triggered. For instance, if I am on a drug squad and see a man with an $800,000 house who is driving a Porsche and owns a boat and an airplane, and I also know that he has never made more than $35,000 a year legitimately, how do I go about tapping into your data bank?
Ms. Wing: Law enforcement provides us with voluntary information. If they were conducting an investigation on an individual and wanted to voluntarily provide FINTRAC information on that investigation, we could look to see if we had transactions that we suspected could be related to that money laundering investigation.
Senator Campbell: Would you tell me that?
Ms. Wing: We would tell the law enforcement agency.
Senator Campbell: There is this idea that we catch the transaction when money is deposited in a Canadian bank. However, let us assume that I am a drug smuggler and do not put my cash in a Canadian bank. I smuggle it to Europe and put it in a Swiss bank, and then I reverse it and I come back. How do you catch that?
Ms. Wing: I will use an example that you actually raised yourself, and it has to do with marijuana grow operations, which are not exclusive to B.C. Typically, we would pick up on the transactions themselves because there would be an awful lot of reporting of high dollar currency exchanges. We can assume that a lot of the product is being sold in the U.S. and converted in foreign exchange offices here in Canada.
To answer your question, if those individuals then placed that money somewhere — and they would have to put it in a deposit-taking institution — we would likely pick it up because large amounts of dollar-value cash would be deposited. Transactions such as those are also reported to us. Then, if those people were to transfer the money out of the country, we would pick up the large wire transfers.
Senator Campbell: But only if I were to go to one of your 100 countries.
Mr. Burbidge: Not only would the drug dealer have to get the cash into the banking system in Canada in order to start moving it to Switzerland, but when that —
Senator Campbell: I could take it in cash to Switzerland.
Mr. Burbidge: In that case, to start with, there is the issue of taking it across the Canadian border.
Senator Campbell: Sir, I am a drug trafficker. If I am smuggling hundreds of tonnes of marijuana, I think I can take a suitcase full of money to Switzerland.
Mr. Burbidge: The Swiss rules are roughly comparable to ours. In other words, once the cash reaches Switzerland, you have the same issue.
Senator Campbell: Instead of using Switzerland as an example, let us take a smaller country. I could walk into a bank with $1 million and ask to open an account. They could say, ``Fine, thank you,'' and you never hear about it. Subsequently, I bring the money back into Canada by buying land, paying by way of cheque from a bank in God knows where. How do we ever catch it?
Mr. Burbidge: This came up yesterday. This question is important because it illustrates why everyone should be moving to the same standards. It is true that some countries are not yet there in terms of AML standards.
That is why the FATF and the other organizations related to the FATF exist. They work in a number of developing and underdeveloped countries. Yes, the scenario you painted is possible. That is why it is very important that we move as many countries to an FATF standard as soon as we can.
Mr. Martin: At some point, if that money comes into a regulated environment — that is, Canada or the United States — then it will hit all of the detection and deterrence systems that are in place. Ultimately, it will come under scrutiny. With regard to the outgoing, you are right.
Senator Campbell: When I had my choice of committee assignments, I did not choose the Banking Committee because I thought it would be pretty dry, but I am learning. I may have to give up one of my other committees.
The Deputy Chair: I would like to thank our witnesses. This is vast subject, as is becoming more clear to the committee.
I find it profound that a member of Canada's judiciary has said that this law is unfair, awkward and inappropriate. Would you comment on that? That goes to the heart of our job here.
Ms. Wing: I think there is an appropriate balance between the Charter, rights of individuals, privacy protection and the need to ensure that our financial services cannot be taken over by the criminal element.
Mr. Burbidge: I can best summarize our thinking on that matter by using an analogy of which our superintendent is fond. A money launderer can be compared to a burglar who is casing a number of houses on a street. Which house will he burgle? He will choose the house that has the weakest controls, the one with the poorest or no alarm system and where no one is home. Our challenge is to get our financial institutions to a level where they are as burglar-proof as reasonably possible and to work with our foreign partners to achieve a standard across the world to present as close to the same hostility to the criminal element as possible.
The Deputy Chairman: Does that answer the question of whether this act is fair, inappropriate and out of line?
Mr. Burbidge: I am not responsible for this legislation, Mr. Chairman. I am sure that, as with any legislation, there are sometimes difficulties with the administration of it. We are not involved at all in the area that Senator Baker mentioned. I would be optimistic in saying that ways can be found to improve the legislation to reduce difficulties, but I would not presume to be an expert. I will not go there.
The Deputy Chairman: I think the judiciary would be proud of you. Thank you for that.
We will look forward to receiving the analysis that you promised, Ms. Wing. If anyone has further thoughts for us, please provide them to us by any means at your disposal, recognizing our time constraints.
Our next witnesses are Maureen Tracy from the Canada Border Services Agency and Pierre-Yves Bourduas of the Royal Canadian Mounted Police.
Welcome to you both.
These are the fairly early days of the legislation and many suggestions have been made. Two of our tribunals have suggested it might not be fair while others have said it is perfectly fair. Our job is to ferret out what is not working in the legislation, what can be done for improvement or say it is working fine. That is what this review deals with.
We look forward to your candid remarks and are interested in what you do. We are very proud of you and your two agencies. Please proceed.
Pierre-Yves Bourduas, Deputy Commissioner, Federal Services and Central Region, Royal Canadian Mounted Police: I will start by talking about Canada's anti-money laundering and anti-terrorist financing regime, which impacts on two separate branches of the RCMP. The RCMP Proceeds of Crime Branch is the authority that oversees the AML regime, and the National Security Operations Branch is the authority reporting on the ATF regime.
The RCMP was provided with 34 positions in total that were assigned to money laundering units across Canada and to RCMP Headquarters. Their responsibilities include assessing money laundering intelligence received from the Financial Transactions and Reports Analysis Centre of Canada, or FINTRAC, the Canada Border Services Agency and others. Originally, the RCMP did not any receive resources under the initiatives to address ATF issues.
One of the key areas that must be addressed in this legislative review is the expansion of the current list of designated information that FINTRAC is legislated to disclose to law enforcement and intelligence agencies.
As stated in the consultation paper, the 2004 Report of the Auditor General of Canada and the Year Five Evaluation of the National Initiatives to Combat Money Laundering and Interim Evaluation of Measures to Combat Terrorist Financing, the effectiveness of FINTRAC disclosures are limited by legislative restrictions that constraint the information that can be disclosed.
The most valuable addition would be a narrative underlying the rationale for disclosing and, more specifically, the reason for suspicion. This information, if provided, would improve the value of FINTRAC disclosures, eliminate duplication of effort and ultimately enhance Canada's AML and ATF regimes.
Many private businesses under the protection of section 462.47 of the Criminal Code of Canada continue to make direct voluntary disclosures to the RCMP, and most of these disclosures contain more information than what is actually received from FINTRAC. Although some are voluminous, they are accompanied by a brief explanation of why the institution considers the transaction suspicious. This narrative can save investigators considerable time and analytical effort.
It should be stressed that Canadian law enforcement is not seeking direct access to FINTRAC information. Although unique internationally, the RCMP continues to respect its arm's-length relationship with FINTRAC and the need to ensure personal information under its control is protected. However, once this independent agency has reasonable grounds to suspect that their information would be relevant to investigating or prosecuting a money laundering offence, this information should be made more readily available to Canadian law enforcement agencies at large.
Further, the RCMP believes consideration should be given to lowering the threshold for obtaining production orders from ``reasonable grounds to believe'' to ``reasonable grounds to suspect'' on the balance of probabilities. This would result in a more efficient and effective system and would ultimately strengthen our ability to deal with the money laundering issue.
The RCMP is keenly interested in the Department of Finance's continuing negotiation with the legal profession to develop a new legislative and regulatory regime that better takes into account the duties of legal counsel. The RCMP agrees with parliamentarians, the Auditor General and the media that the exclusion of the legal profession poses a significant gap in Canada's regime.
It is clear that due to the special privileges the legal profession is granted, this is a sensitive area. It is also the reason why the Interpretative Notes of the Forty Recommendations allow for flexibility, including allowing professions such as the legal profession to send their Suspicious Transaction Reports to their appropriate self-regulatory organization, provided that there are appropriate forms of cooperation between these organizations and the financial intelligence unit.
Anyone, including lawyers, who act as a financial intermediary must accept responsibility to ensure they are not moving criminal or terrorist proceeds. Failure to have any segment of society accept this responsibility makes them the weak link and a potential target. The FATF recommendations clearly do not impede access to legal counsel and serve the interests of society without impacting solicitor-client privilege.
The RCMP supports the inclusion of diamond, precious metals and stones as a reporting entity under the act. This would require the reporting of large cash and suspicious transactions and a range of client identification and record- keeping requirements by the industry.
As stricter regulations are imposed on businesses in the financial services industry, criminals are seeking alternative methods of laundering the money accumulated from criminal activity. Various characteristics of the industry make it highly vulnerable to criminal activity.
The RCMP fully supports the government's proposal to amend the act and its regulations to establish a registration regime for money services businesses and foreign exchange dealers for the purpose of anti-money laundering and anti- terrorist financing measures.
Recent investigations across Canada clearly exemplify how the absence of licensing or registration in Canada makes this sector highly attractive to money laundering criminals looking for alternatives to the regulated banking sector. This sector continues to grow as they continue to be found in convenience stores, clothing stores, restaurants, book stores, video stores, nail polishing stores, wireless communication stores, jewellery stores and travel agencies.
The ``white label'' ATMs are non-bank ATMs owned and operated by independent service operators and without any known financial institution logo. They are mentioned briefly in the Department of Finance's discussion paper as an area the government will be reviewing in the future. The RCMP encourages this review as investigations continue to indicate that these machines represent an ideal method to launder significant amounts of money.
The RCMP is part of an initiative led by the Department of Finance that sought additional resources for consideration in the 2006 federal budget. It appears the RCMP will enhance its resource level under the National Initiative to Combat Money Laundering, NICML, both within our Proceeds of Crime Branch and our National Security Operations Branch. The latter is expected to receive 12 additional resources, which will be allocated to the operational divisions. These new investigators will help build up capacity in the three major financial centres where the majority of information is received from FINTRAC. The addition of new resources to the program will still require prioritization of activities; however, it will allow for a more balanced approach and ultimately allow law enforcement to truly test the ``value added'' of the Canadian money laundering strategy.
Maureen Tracy, Director General, Enforcement Programs Directorate, Enforcement Branch, Canada Border Services Agency (CBSA): Before I begin, on behalf of the Canada Border Services Agency, I would like to thank the deputy chairman for his kind words in introducing us. As a very new agency with a broad mandate and many expectations placed on us, it is very good to hear the support that comes from the Senate and others.
I would like to thank you very much for the invitation to come and speak. Our administration of Part 2 of the proceeds of crime legislation is a major component of our enforcement program, and we are quite proud of the results we have achieved over the last few years.
I would like to give you a brief overview of the role of the Canada Border Services Agency as it relates to the National Initiative to Combat Money Laundering, or NICML, and the international fight against money laundering and terrorist financing in general. I will also provide information on how we have organized ourselves to deliver this program in the field and the successes we have had to date.
As you are aware, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, which received Royal Assent in June 2000, was introduced to remedy shortcomings in Canada's anti-money laundering legislation. The act was aimed at implementing specific measures to combat money laundering, including the requirement to report cross- border movements of currency and monetary instruments equal to or greater than a prescribed amount to the Financial Transactions and Reports Analysis Centre of Canada, FINTRAC.
Bill C-36, the anti-terrorist omnibus bill, expanded the scope of the legislation to also combat terrorism. The name was changed to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, PCMLTFA.
The Canada Border Services Agency is responsible for the administration and enforcement of Part 2 of the act, which requires every person or entity to report to a CBSA border officer the importation or exportation of currency or monetary instruments valued at $10,000 Canadian or greater. The reporting requirements under the legislation encompass all modes of travel, including air, highway, rail and marine, and all methods of importation and exportation, that is, personal travellers, vehicles, commercial cargo, courier and postal.
From an administrative perspective, the CBSA collects cross-border currency reports from travellers and commercial entities. Officers also assist travellers and businesses in complying with the currency reporting forms. In other words, we have a service provision responsibility in this regard as well. The completed reports are transmitted to FINTRAC for analysis.
From an enforcement perspective, the CBSA has the authority to search and seize non-reported currency and monetary instruments greater than $10,000 Canadian or equivalent. Information relating to seizure actions is also transmitted to FINTRAC. All seizures are subject to appeal to the Minister of Public Safety and, ultimately, to the Federal Court of Canada.
The cross-border currency reporting program of the CBSA was allocated approximately $3.2 million per year to enforce the legislation. This funding was dedicated to processing and communicating reports to the field, headquarters coordination, and compliance verification and enforcement. The bulk of the resources were devoted to the administration, receiving and processing of reports and to the enforcement and compliance verification activities that proceed from that.
The dedicated resources were placed at high risk ports of entry, covering both the air and highway modes. There are also currency enforcement teams as well as currency dog teams in place at key locations.
The CBSA has also invested in a variety of detection tools, including mobile X-ray units and other detection tools such as video scopes. We have at our disposal a wide range of other technologies that assist in the non-intrusive examination of goods.
Since the commencement of the cross-border currency reporting program in January 2003, over 100,000 import and export cross-border currency reports have been received by the CBSA.
Enforcement of the legislation by the agency from inception to April 30, 2006, has resulted in over 5,100 enforcement actions, involving more than $132 million. Of the over 5,000 seizures that have been undertaken since the inception of the program, just under 600 have been appealed to the minister. Of those, 321 were maintained as assessed, 111 were mitigated and 49 were cancelled. There are currently 37 active cases before the courts.
In closing, we believe at the Canada Border Services Agency that with the implementation of this program our agency has been very successful in increasing its contribution to the international fight against transborder crime, specifically money laundering and terrorist financing. As a direct result of the program, more than $34 million in suspect proceeds of crime were forfeited and thus taken out of circulation.
[Translation]
Senator Massicotte: In your report, Mr. Bourduas, you mention the role that lawyers play. This legislation contains an important exception for lawyers, in so far as client-attorney privilege is concerned. Every citizen is entitled to legal representation. At the same time, this right impacts our objective of addressing the money laundering issue.
If a lawyer deposits funds in a Canadian bank, does the bank have an obligation to ask more questions about the origins of these funds? If the bank is acquainted with the lawyer and deems him to be a credible, serious individual, does the questioning end there? What rules of disclosure apply in the case of such funds? Is it the responsibility of the lawyer or of the client to disclose the source of these funds?
Mr. Bourduas: There are two parts to that question, the first involving a lawyer's obligation toward his client. On looking at the provisions of the act, we believe that a lawyer also has a responsibility toward society in general to see to it that any funds a law firm is asked to handle for its client were not obtained through unlawful means.
The purpose of these amendments is to ensure that lawyers adopt the same procedures as financial institutions, that is that they know their client, record the origin of the funds as such and invest these funds.
We recognize the importance of attorney-client privilege. A clear framework must be in place to prevent money laundering operations, since the first step is the actual investment of the funds.
We want to avoid a situation where law enforcement officials arrive with a warrant to search the offices of law firm. A substantial percentage of our investigations eventually lead us to law firms that have been involved in certain questionable transactions.
Senator Massicotte: I want to be clear about this. I understand your interpretation of the provision, but are lawyers completely exempted at this point in time, or only with respect to some of the transactions handled by their firm? Accountants and insurance brokers are not excluded.
Mr. Bourduas: The exclusion applies to transactions that bring in substantial sums of money to the firm. Most lawyers claim to have this kind of privileged relationship with their client and are not necessarily required to disclose the origins of these funds.
Senator Massicotte: Take the case of a lawyer who makes a deposit. He represents a client who is not exactly on the up and up. He takes receipt of a large sum of money which he then deposits in a Canadian bank. What obligation does the Canadian bank have in this case? It knows the lawyer and his firm has some major accounts with this financial institution. Does the bank's responsibility end there? Should the bank ask questions about the origin of all funds that it handles? Does it have an obligation to question the client?
Mr. Bourduas: One of the first rules is ``know your customer.''
Senator Massicotte: In this case, the customer is the lawyer. Correct?
Mr. Bourduas: That is right.
[English]
Therefore, it is ``know your customer'' and not ``know the customer of your customer.''
[Translation]
Senator Massicotte: The obligation ends with the lawyer.
Mr. Bourduas: Correct. If, for example, the firm is a serious business that handles large sums of money, then the bank has already met its obligations up to a point.
The purpose of the proposed amendment to the act is to make law firms accountable. They need to know the exact origin of the funds that they handle so as to avoid having people take advantage of their credibility and so that they do not become the intermediary through which funds are channeled to financial institutions.
Senator Massicotte: There are a number of lawyers, all of whom are very honourable, seated here at this table. However, occasionally we encounter some who are not so honest. The legislation gives them an opening to take advantage of the situation and possibly to launder substantial sums of money.
Mr. Bourduas: You have raised a very important point. It is generally accepted that lawyers are honest individuals. This legislation seeks to protect lawyers or the legal profession per se by making lawyers legally required to declare these funds. The lawyer, therefore, has an obligation to tell his client that he must report and hence disclose the origin of any funds handed over to the firm. This obligation makes the lawyer's position that much more comfortable in that he has a duty to manage his client. The burden of ensuring that the transaction is legitimate is thus shifted to the lawyer and eventually, to the financial institution which will not ask question because the lawyer's credibility is already well established.
Senator Massicotte: My second question is for Ms. Tracy. Recently I was in Hong Kong and visited the port, one of the busiest in the world, if the volume of container traffic is any indication.
Ms. Tracy: To which port are you referring?
Senator Massicotte: I am talking about the port of Hong Kong, and about the port of Singapore as well. I observed that all of the trucks and people accessing the port must go through a control post where they are scanned to ensure that nothing suspicious finds its way into one of the containers.
Two or three weeks ago, I read in a Canadian Press article that no such procedure was followed in Canada. However, no explanation was given for this oversight. Yet, Canada is a fairly wealthy country, when compared to Hong Kong or Singapore. We constantly hear how a wide variety of goods are handled at Canadian ports. Why are such procedures not in place in Canada?
[English]
Ms. Tracy: Could it be that the equipment you are referring to is radiation detection equipment?
Senator Massicotte: It could be.
Ms. Tracy: There is good news from the CBSA on that front. We spent the better part of 18 months researching radiation detection equipment. We have selected equipment that, for the moment, based on the technology that is out there, is the best fix for us. I am referring to portal equipment where the trucks will drive through two posts and be scanned for radiation.
To get the bugs out, on a pilot basis we installed the equipment at a small container port in New Brunswick, but by the end of the 2006 calendar year, we are very optimistic that we will have it in Halifax, Montreal and Vancouver. That will mean that as close as we can get to 100 per cent of containers will be scanned for radiation.
In addition to that equipment, we have gamma ray technology in the form of 11 or so mobile VACIS. You pass a container through it and, in about 30 seconds, you see an image of the inside of that container and can determine whether the declaration is actually accurate or whether the container contains contraband.
[Translation]
Senator Massicotte: Why is this done only at ports and not at border points in general or at other major points of entry?
[English]
Ms. Tracy: The ports are the first element of our strategy. I am aware that the United States has radiation detection at their land borders. There are no plans at this time for Canada to put radiation detection at our land border. We believe we have targeted the equipment to the highest risk area. In the security and prosperity partnership with Mexico and the United States, we have committed to looking at expanding the radiation detection program in concert with the United States, and that would be both for research and additional deployment, but at this point there are no plans to put it at our land border.
Senator Goldstein: I wish to pursue a question that was asked by Senator Massicotte. Lawyers handle all kinds of transactions. It is certainly true that there are very honest lawyers and less honest lawyers in existence. That is true of every profession. How would you address the concerns that lawyers have expressed to you? Independent of professional privilege, where a transaction is not privileged — that is, where a financial transaction takes place between two parties — both parties know that it is financed by money that may be coming from the U.K., entirely legitimately, or from any other source. The lawyer has to then make a judgment call as to whether he or she should divulge or not divulge. You have given us the beginning of an answer, which is that lawyers who are known to be honest will not be considered to be involved in suspicious transactions, whereas lawyers who are known by their own institutions to be perhaps less perfectly honest will be. That necessarily requires arbitrary judgments because there are no objective criteria for them. How does one justify making those judgments when one is aware of the Charter obligation to not make those judgments?
Mr. Bourduas: We recognize that there are governing bodies within the legal profession, and our position here speaks to this point exactly. The lawyers, through their governing bodies, would report to FINTRAC all transactions in excess of $10,000.
As Senator Massicotte mentioned, a huge gap needs to be addressed. ``Know your client'' is a slippery slope when you start leaving it to the good judgment of a particular individual who might not be seized with all of the surrounding circumstances that brought this amount of cash to the lawyer's office. We are saying, let us take this burden of good judgment and use regulations to simply transfer it to an independent body like FINTRAC, for instance. They would be in a position to look at the transaction involving this individual and then look at their overall data bank to ensure that this person has not used this particular law office for a single transaction that would link with other suspicious transactions. That would paint a much larger picture. It does not influence or affect the good judgment of this particular lawyer. We are simply saying that we should put a system in place that would allow for a much broader picture to be painted about specific transactions.
Senator Goldstein: I am not sure that your answer really responds to the concern that I am trying to express. You have suggested that, in the upcoming amendment process, the criterion for being able to go to court should be changed from ``reasonable grounds to believe'' to ``reasonable grounds to suspect.'' That is a long dimension of arbitrary judgment.
Mr. Bourduas: I would like to set the record straight. I did not talk about going to court. I am simply talking about a production order. We are asking for a production order when we have ``reasonable suspicion'' as opposed to ``beyond a reasonable doubt.''
Senator Goldstein: From whom would you ask for that production order?
Mr. Bourduas: We would ask FINTRAC for that. We are not talking about going to court. It is important to realize that our main focus is to address the weakest link possible when we talk about the money laundering process. The weak links are these hockey bags filled with money. I know this from professional and personal experience, having been the manager of a major money laundering case in Montreal from 1990 to 1994, where we laundered $162 million over a four-year period with four undercover agents from the RCMP. We had people coming in with hockey bags full of money they wanted to place, and this is the reason we have to focus corporately and collectively at this stage. We have to make it a little harder for these people to place this large amount of cash.
Senator Goldstein: You told us, Ms. Tracy, that machinery and equipment are in place in specific parts of the country for a variety of purposes, including the intention to create radiation screens throughout the country. If I were seeking to bring something into Canada, knowing what you just told us, I could simply cross into Canada elsewhere.
Ms. Tracy: That is a fair comment. The Canada Border Services Agency needs to deploy equipment to the areas that we have assessed as presenting a high risk. We have to acknowledge that there are many ways an individual can bring things into the country. We are doing our best in our risk assessment process to plug those gaps. We are continuing with our assessment of those risks and with our research and development into new technology.
I think the inventory of equipment that is out there now — and I am probably going to get this wrong but not too wrong — is in the neighbourhood of $68 million. In 2000 it was something like $1.5 million, so the investment has been made.
In addition, the type of equipment we have out there is much more sophisticated than we had just four or five years ago. As I mentioned, we have entered the field of radiation detection. We have much stronger gamma ray systems that provide for better screening and for the screening of more cargo.
Yes, you are right that it is an uphill battle when you consider we have such a large country with so many possibilities and ways for someone to enter. However, we are working on the basis of risk and will continue to deploy equipment to the areas that we see are vulnerable.
Senator Goldstein: Mr. Bourduas, what kind of training do your 34 analysts, and the ones you are asking for now, receive so that they can be certain to understand the balance between investigative requirements and Charter requirements?
Mr. Bourduas: When looking at the proceeds of crime, our analysts also have to be versed in what type of criminality we are investigating. Our investigators have field experience and have gone to court with regard to substantive offences. They have operated for a number of years with the reality of the Charter and have been brought into the fold to look at the proceeds of crime legislation and ways to develop a clearer picture of the challenges we face and how we can strategically deploy our limited resources to address those challenges.
Senator Tkachuk: Mr. Bourduas, page 3 of your brief states:
...the RCMP continues to respect its arm's length relationship with FINTRAC.... However, once this independent agency has reasonable grounds to suspect that their information would be relevant to investigating or prosecuting a money laundering offence, this information should made more readily available to Canadian law enforcement agencies.
This implies that you are not satisfied with the information you are getting and its availability to you. Perhaps you could expand on that one sentence.
Mr. Bourduas: With regard to FINTRAC, we are of the opinion that the current legislation talks about what should constitute ``designated information.'' We also believe that the legal interpretation given to ``designated information'' is a little too narrow in scope. We would like to seek a broadening of this information and the definition of ``designated information'' so we can access additional information from FINTRAC in relation to what constitutes their reasonable grounds to believe that a transaction is labelled suspicious. We are asking for reasons to justify this referral and additional information that would allow our investigators to better focus our investigation into a given area.
We are satisfied with the relationship we have with FINTRAC, but we are seeking is a much broader definition or interpretation of the definition of ``designated information.''
Senator Tkachuk: You would prefer it to be less onerous on their part so you would receive more information; correct? Is it the quality or you just want more?
Mr. Bourduas: It is both the information and also the qualifier of the particular information that we are seeking.
Senator Tkachuk: Would this require amendments to the act to expand the amount of information that would be turned over to the RCMP?
Mr. Bourduas: Currently, subsection 55(7) of the act deals with designated information and talks about names and addresses, the amount and type of currency, the type of transaction, the account number, and then, at subparagraph (e), makes reference to ``any other identifying information that may be prescribed.'' That has been ruled to be very much in line with the previous four items, without broadening the definition to at least allow investigators to know why FINTRAC has labelled particular information ``suspicious.'' We are seeking a broadening of the definition so that investigators can have a better idea as to why some of these transactions have been labelled ``suspicious.''
Senator Tkachuk: When we discussed the issue of privacy with officials from FINTRAC, they said that a number of measures were in place to protect the privacy of the information. They also said that at the end of five years they would get rid of it unless it was sent to the police; then it was eight years. What do you do with it? If you expand the amount of information that they are sending over to you, then the police are getting more information, which is simply information. We do not know if a particular person has done anything wrong; it is just information. Do you get rid of your information after a certain number of years or does it stay in that file forever?
Mr. Bourduas: We would like to do something with the information, of course, and that is the main thrust behind what we are seeking. We want additional information to get a much clearer picture as to what certain groups or individuals are doing in relation to financial transactions. By obtaining additional information, we would be in a better position to focus our limited resources on a particular file or referral as opposed to simply placing the referral in a queue. We have limited resources, so we also have to manage risk and prioritize.
Senator Tkachuk: I understand that, but let us say they could provide you with more extensive information. What happens if this additional information leads you nowhere? What would you do with it in the end? Would it be discarded or would that information stay with you forever? Let us say that the information is just a name with a whole bunch of financial details and it sits in a file at the RCMP and leads nowhere. Would you get rid of it after a while?
Mr. Bourduas: When it is just a name with limited information, we set it aside. We also have rules and regulations internally in relation to how long we keep certain information on file. Like any other organization, at one point the information is simply discarded.
Senator Tkachuk: Is it destroyed or is it moved to another building?
Mr. Bourduas: At some point we run out of buildings, senator; that is our reality.
Senator Tkachuk: The task force on money laundering made a number of recommendations in 2003-04. One of them involved casinos not being licensed, a more regulatory and supervisory regime for casinos and also ownership requirements. I think those are all provincial matters. Are the provinces that the RCMP is serving — like Saskatchewan, for example, where the RCMP is our police force — not licensing properly? Do you feel the regulations are sufficient to prevent money laundering in provinces that have casinos?
Mr. Bourduas: In my former life as a commanding officer in Quebec, I had to deal with investigations that brought us to casinos in that province. Rest assured that these institutions, very much like other institutions, want to avoid, like the plague, criminal organizations using their institutions to launder money. They are very much regulated and they do cooperate with police authorities — be it the provincial police or the RCMP — because they are cognisant of the fact that their institution might be used for exactly this purpose. They closely monitor their transactions and make unsolicited reports to police agencies when they see a suspicious transaction. Under the auspices of the Criminal Code, they will provide us with more information than we would normally get from an institution like FINTRAC. They want to ensure they provide us with all the information and all the related circumstances to allow the investigators to put the information into perspective.
Senator Tkachuk: Considering that gambling used to be a criminal activity, they might have more knowledge about it than a bank or a credit union.
Mr. Bourduas: Obviously, it is legal now. Rest assured that the provincial government wants to keep these types of activities from being infiltrated by organized crime because it used to be managed more or less by organized crime.
Senator Tkachuk: In that recommendation, the task force stated that necessary legal or regulatory measures be taken to prevent criminals or their associates from holding or being the beneficial owners of a significant or controlling interest or holding a management function or being the operator. Is there reason to suspect that casinos in Canada are infiltrated by criminals or people interested in money laundering?
The Deputy Chairman: Do you mean the ownership?
Senator Tkachuk: Or the management.
Mr. Bourduas: Or the board of directors.
Senator Tkachuk: Yes.
Mr. Bourduas: Once again, police organizations are working closely with casinos. The majority of security forces for casinos are constituted by former police officers and are doing background checks on anyone who deals with the management of the casinos to ensure everything is above board in relation to their operation. They all know what the consequences might be if anyone associated with organized crime were to have a major role in the operation of any casinos or board of directors, for that matter.
Senator Campbell: When the RCMP receives information from FINTRAC, where does it go from there? Who do you pass it on to?
Mr. Bourduas: As a result of Bill C-22, we formed a group of specialized investigators that are seized with the information they receive either from FINTRAC or from CBSA. These people try to put the information into context so they can dispatch it to our proceeds of crime units that are deployed across the country.
Senator Campbell: Would you pass this information on to Canada Revenue Agency?
Mr. Bourduas: Our investigators are focused on the criminal aspect of what constitutes a potential violation of the Criminal Code. Therefore, as I indicated, they would dispatch this particular information to some of our investigators who are dealing with proceeds of crime.
Once the investigation has started and the piece of information that we received from FINTRAC were to help us paint a clearer picture, we would give priority this investigation over others. We would deal with the individuals, the organization, the substantive offence and the proceeds aspect of the investigation and would bring these individuals or the organization before the court. We also have a liaison officer who deals with the Canada Revenue Agency, and some of the financial information might be passed on to the CRA.
Senator Campbell: How about other police forces?
Mr. Bourduas: Other police forces are part of our Combined Forces Special Enforcement Units, or CFSEUs. These units are scattered all over the country. Our ultimate goal is to put these criminals out of business.
That is the reason we are striving to gain access to additional information. We need more context than a name and an amount of money. We would then be in a better position to actually channel this information through our CFSEUs to our proceeds of crime unit and also to other police forces, if need be.
Senator Campbell: Clearly I am pro police, but there is a question of trust. I do not mind the information being there. It is okay if the information goes to a particular organization, but my worry is that it might then go to a separate organization, which might then send it to all sorts of other organizations. Along the way, the public must be absolutely certain that the information is always used for the reason for which it was gathered. The difficulty is that every organization has a different reason for looking at that information. That, to me, is the worry. Where is the tipping point? We all want to catch the bad guys and put them in jail; we all want to fight terrorism. At what point do we tip over? I suppose that is the question we are really looking at here.
Also, I know you have regulations stipulating that this information must be kept for a certain amount of time, but we are not talking about a warehouse; we are talking about an infinite hard drive. What is the minimum amount of time you are required to hold on to files before you get them out of the system?
Mr. Bourduas: Bear in mind that when we investigate proceeds of crime files, some of the information that relates to a particular individual must be kept for a certain amount of time. In fact, we ran into problems when we discarded some information and then 10, 15 or 20 years down the road needed additional information to substantiate before the court that an individual had been involved in crime for so many years. That is why we looked at a policy dealing with the disclosure of information. As I indicated, most of the time this information is put in context and we will keep it for the duration of the file. At other times, we will keep the information if the individual is the subject of interest in any other file within the organization.
Senator Campbell: If I had been involved in crime 30 years ago, I would have a record and you would have it. It would never be gone; is that correct?
Mr. Bourduas: It would depend on the record. If you were to have records in your personal notebook —
Senator Campbell: I am not talking about me, Larry Campbell. I have not been a criminal for 30 years. I am speaking hypothetically. You were saying that you lost all of this information because you did not have the criminal records of the person involved. However, if I were involved in criminal activity and were convicted, then I would have a criminal record that should be on the files. You are talking about someone who was involved in an activity and may or may not be a criminal — you do not know — and now you want to find out more about them. That creates a problem. There is a statute of limitations on most things. What we are doing here is saying, ``Let's extend this.''
When I worked in the business, we could never have enough intelligence. It is a matter of bringing it all in and shifting through it. I am really having difficulty with this.
Mr. Bourduas: As well, we need to give context to the intelligence, sir; you are absolutely right. Our organization keeps a piece of information to ensure that it fits in some puzzle somewhere so that we can complete the picture of the individual with whom we are dealing. It is important, however, that we provide some context. If the information is not relevant to any ongoing investigation or any files or the subject is of no interest to us, then we have plenty of other organizations and individuals to look at.
Senator Campbell: I will go back to what you said before. Let us assume there is information on Larry Campbell, but nothing of relevance. That kind of information does not go away. Twenty years from now, you want to be able to put my name into the system, my date of birth if you have it, and have the information appear. As you said, you lost that information, so there is no way of tying Larry Campbell to activities that took place 20 years ago. Suddenly, however, there is a new investigation and my name pops up. That is my problem.
Senator Tkachuk: I have a supplementary. I was not sure that I got my answer when I asked a similar question.
Senator Campbell and I are both concerned. When you receive a name that has been investigated, a lot of evidence has been accumulated that has nothing to do with any criminal activity. It might simply be personal information unearthed by your investigator who has talked to friends, bankers, employers, et cetera. Nothing happens with the accumulated information because there is no evidence of any criminal wrongdoing. What happens to that file? My belief is that the file is never closed and just sits there. I believe that you never get rid of that file.
Mr. Bourduas: As I indicated, we have retention dates on files because at one point it would become ridiculous to keep all of these files open.
Senator Tkachuk: It is possible to store all of that information on computers today. Would you destroy such a file?
Mr. Bourduas: All the information is disposed of after a certain length of time. The organization has parameters on discarding certain files. For example, our files on individuals involved with break and enters are destroyed after a period of time, whereas the files on more serious crimes such as murder are kept forever. There are different thresholds.
I am a stickler for numbers, so I will share with you some of the statistics on disclosures from FINTRAC. We received a total of 382 disclosures from FINTRAC. Nine per cent identified new or unknown individuals. This does not mean we started investigations in relation to these individuals but rather that they were new or unknown to us. Fourteen per cent provided additional information to ongoing investigations. Twenty-five per cent were the direct result of previous voluntary reports received from the RCMP. Sixteen per cent have been forwarded to other agencies. Twenty-nine per cent of the disclosures were associated with investigations that have been concluded by the RCMP having sufficient resources to conduct investigations. Sixteen per cent contained insufficient information to proceed with an investigation. Fifty-three per cent of the disclosures were concluded for the following reasons: no criminality was detected, insufficient information, no predicted offence, and dated information or lack of resources. That is basically what is happening with these files.
Senator Baker: Unfortunately, I do not have time to ask a question of the RCMP officer who was the commanding officer for the largest cocaine seizure in Canadian history, in Eastern Canada, which was called ``operation jewels,'' I believe.
Mr. Bourduas: You are well informed, senator, yes.
Senator Baker: He was also the investigating officer into a particular biker gang operation, the substance of which has gone to trial in many cases. He is a well-versed individual on search warrants and the relevant requirements, particularly in lawyers' offices.
I remind you, Mr. Bourduas, that section 488 of the Criminal Code on searches of lawyers' officers has been struck down by the Supreme Court of Canada and replaced with a set of rules. I suspect that you are telling us within that context and your operations in the past that you want to obtain additional information without a search warrant, whereas you would need one normally. In your recommendations to this committee, you want greater authority to obtain information without going to the trouble of search warrants.
Ms. Tracy, my question has to do with concerns about the act and criticism levied by the courts against subsection 12(1) of Part 2, which you administer. Myriad cases have been judged before the courts in Canada in which people have been trying to get back money that was seized at the border. The criticism of the courts relates to the question that the RCMP officer mentioned a moment ago — the difference between suspicion and belief. If CBSA officers suspect something, they can seize monies crossing the border. The minister then makes a determination as to whether that money should be forfeited to the Crown.
The criticism levied by the courts against this procedure is that nothing under the act enables someone to get their money out of forfeiture unless they can prove definitively that the money is legitimate. There is a reverse onus on the person, and no there is procedure under the act that allows them to get their money back, except to question the border guard on the seizure.
Ms. Tracy: The question is precisely the issue of reasonable suspicion. I was made aware this morning of the committee's interest based on testimony yesterday. I began this morning to inform myself on the judgments that have been rendered to date and what is currently before the courts.
I would not pretend to be able to answer, particularly now that I am informed you are a lawyer. I will not go into a great deal of detail, but I will offer to provide more detailed information to the committee from the CBSA on this matter.
The one thing I will say, though, is that I have not been involved with this act for the whole time that it has been implemented, but I was, in a former job, responsible for some of the design of the legislation — Part 2, obviously, because I have a customs background. One of the things that was very important to the drafters, and to us as well, was that we did not want to trap individuals who had simply made a mistake or who did not know or who were nervous about telling people because they might be robbed. We built our program on that basis.
Yes, the standard is reasonable suspicion, and I have some statistics. Of 5,000 enforcement actions, 595 were forfeitures. This is very different. Of those remaining that were not forfeited, they were believed to be related to issues of carelessness and perhaps deliberate non-reporting for whatever reason, but there was no suspicion of proceeds of crime. Our officers have been given very clear guidelines as to how to judge a level 4 seizure, which is forfeiture.
My point is that we are aware. The Canada Border Services Agency wears two hats. The first is that we are most definitely as an enforcement organization, but the other is that we are very conscious of how we affect the lives of the public and business in relation to imports and exports. In the design of this program, and I believe I can say that in the administration of this program, we are aware of that. Obviously, if there are errors we will correct them, but we have taken safeguards and are comfortable and hopeful that the 37 cases before the courts right now will be ruled on in favour of the legislation and in favour of the agency.
Senator Goldstein: How inhibiting would it be to the success of your work to have legislation stating that if no prosecution results, you must destroy records within a predetermined period of time rather than relying on your internal criteria?
Mr. Bourduas: We keep the records because a different set of circumstances is attached to each name. Fifty-three per cent of these disclosures did not lead anywhere. Therefore, we pass on if there is insufficient information. If we can just put context to this, ultimately the file is destroyed, and it is internally that we can manage this.
The Deputy Chairman: The answer was very prejudicial.
[Translation]
Senator Massicotte: Mr. Bourduas, your summary notes that in the last five or six years, 80 or so suspicious transactions have been reported to the RCMP. My impression is that those involved in organized crime are extremely creative. They can afford to be creative, given the lucrative nature of their activities. Senator Campbell, the former mayor of Vancouver, told us that marijuana trafficking alone generated revenues of $7 billion in British Columbia. That is only one small component of organized crime. My guess is that we are talking about transactions worth $30 billion to $40 billion, and yet, only 10 or so transactions were reported annually by FINTRAC. Only $35 million is assets were seized. To my way of thinking, that is only a very small percentage of all revenues associated with criminal activity and money laundering operations.
Mr. Bourduas: That is consistent with my findings. Only by working together will we be able to acquire the legislative means that will allow law enforcement agencies and border service officers to make a dent in organized crime. Existing legislation has produced some results, qualified or not, but armed with more effective tools, we will be able to achieve even better results.
The government has already made some strides, but it is simply a matter of tightening up some of the legislative provisions in place to ensure that our investigators have the authority to do the job that they are paid to do.
Senator Massicotte: Am I wrong to think that our legislation has very little impact on the various kinds of criminal activity in Canada?
Mr. Bourduas: No, but it is having an impact of some kind when we compare ourselves to the rest of the world, and when we take into account our resources. Our people are doing an impressive job, but we need to shore up our resources.
Senator Massicotte: How effective would you say we are? Are we 20, 30, 80 or 90 per cent effective?
Mr. Bourduas: Our Commissioner has said that our operations impact 25 per cent of the 600 criminal organizations in all. There is nonetheless one important element that we are completely overlooking. My proposals are aimed at bringing in more stringent legislation that would give our investigators the tools to target organized crime where it hurts most, namely their financial operations.
[English]
The Deputy Chairman: Honourable senators, our next two meetings will be on May 31 and June 1, when we will deal with two reports that have been sent to your offices. One concerns the demographic study, which we will deal with on June 1. The other relates to a revised consumer report.
[Translation]
Thank you very much, Deputy Commissioner.
[English]
Ms. Tracy, thank you for coming. It flowed from the testimony you both gave that you would be willing to provide further information, particularly Ms. Tracy on the issue of jurisprudence.
Given the importance of what we are doing in terms of our collective security, this has not been enough time. The steering committee will consider conducting further hearings on this subject. If you feel that would like to come back or have further information, either from the point of view of the RCMP or your agency, I would invite you to do so.
Mr. Bourduas: The point that needs clarification is the elimination of some of these records from our files, and it is obviously a concern around this forum.
I will endeavour to provide a reply in writing as to our policies in relation to retention dates. If you are not satisfied with the reply, I would be more than willing to come back and answer your questions.
The Deputy Chairman: That would be fine.
You made a point regarding lawyers. Originally, I recall that lawyers were well covered in the legislation, but they raised issues of professional solicitor-client privilege, what some might call a moratorium on enforcement against lawyers. I can tell you from personal experience that some law firms actually act as if they are bound by the law. They comply and do the declarations, and everything is fine. However, there is a cadre of one, two and three person practices, and I think those would be the ones that concern you more. We have been informed by some of the evidence that there are discussions.
[Translation]
Discussions are under way between officials and lawyers.
[English]
What is the tenor of these discussions? We are told that in the United States, in the United Kingdom and other jurisdictions, which all have the same justice system as we do and the same legal ethics and codes of conduct for lawyers, they do not have this problem that we have encountered in Canada.
This committee would like to find a solution. As I understood your evidence, it is one of the biggest lacunas in legislation. If you could enlighten us as to where it is headed, that would be helpful.
Mr. Bourduas: I certainly will.
The committee adjourned.