Proceedings of the Special Senate Committee on
Anti-terrorism
Issue 12 - Evidence
OTTAWA, Monday, February 7, 2011
The Special Senate Committee on Anti-terrorism met this day at 1 p.m. to examine matters relating to anti- terrorism.
Senator Hugh Segal (Chair) in the chair.
[English]
The Chair: Honourable senators, today, as we await legislation from the House of Commons, the Special Senate Committee on Anti-terrorism is hearing from the senior management at FINTRAC, the financial transaction agency that is responsible for assessing the movement of cash flows between different organizations, and looking for patterns that might suggest inappropriate activity.
[Translation]
Allow me to introduce the members of the Financial Transactions and Reports Analysis of Canada whom we are welcoming today. Denis Meunier, Assistant Director, Financial Analysis and Disclosures. Mr. Meunier spent the majority of his career in the Canada Revenue Agency where he held several senior positions. Mr. Meunier also spent several years heading up FINTRAC's Regional Operations and Compliance Unit before moving over to the Financial Analysis Disclosures Unit. He is an expert on money laundering and compliance enforcement.
[English]
Gina Jelmini, Manager, Terrorist Financing Analysis, is also with us today. Ms. Jelmini is trained at law and is a former Royal Canadian Mounted Police officer. She oversees the production of case disclosures on terrorist activity financing. Ms. Jelmini has also developed and participated in numerous training sessions for anti-money-laundering units around the world.
[Translation]
Yvon Carrière, Senior Counsel, Legal Services. Mr. Carrière joined the Department of Justice in 1988 as a member of the Tax Counsel Division. In 1999, he joined the legal team helping develop the proposed new Financial Transactions and Reports Analysis Centre of Canada. Upon the creation of FINTRAC, he became a member of the legal services unit as senior counsel, where he continues to occupy that position.
[English]
We are very grateful that you would make time in your very difficult and demanding responsibilities to provide us with some perspective and analysis of your work. We are delighted to have Mr. Meunier take the floor.
Denis Meunier, Assistant Director, Financial Analysis and Disclosures, Financial Transactions and Reports Analysis Centre of Canada: I would first like to thank honourable senators of the special committee for inviting FINTRAC to testify here today to explain what we do and how that contributes to public safety in Canada, and specifically to Canadian law enforcement and security intelligence efforts.
With me today is Gina Jelmini, Manager, Terrorist Financing Analysis in my directorate; and Yvon Carrière, Senior Counsel, Legal Services.
I would like to make brief opening remarks about our mandate and what we do. The legislation adopted by Parliament in 2000, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, created FINTRAC as an independent agency, reporting to the Minister of Finance, with a mandate to detect, deter and prevent money laundering. In 2001, post-9/11, the Anti-terrorism Act added terrorist activity financing to our mandate, and I believe this area is of the most interest to this committee.
FINTRAC is Canada's financial intelligence unit, or FIU. We have a staff of slightly over 300, and we have three regional offices in addition to our headquarters. We are a unique agency in Canada, as our mandate is to analyze financial transaction information and disclose certain information to investigators within the thresholds our act provides.
While over 130 nations have a financial intelligence unit of some sort or another, there are very few that receive the range of reports we receive, perform analyses, and then produce such detailed case disclosures. We also are one of the very few to receive virtually all reports electronically.
The Minister of Finance is responsible to Parliament for our legislation, and developing any proposals for changes to it or the attendant regulations. However, as an operational agency, we would be expected to advise him from that perspective on the operations of the act.
To give you the most accurate picture of our agency, I will also underline what FINTRAC is not. We are not an investigative body and we do not have powers to gather evidence, lay charges, seize and freeze assets or create watch lists of suspected terrorist financiers. FINTRAC does not investigate or prosecute suspected offences. Rather, we are an analytic body that produces financial intelligence to be disclosed, if appropriate, to help further investigations conducted by law enforcement and security agencies.
Shortly, Ms. Jelmini will take you through the process whereby we build a case for disclosure, in this instance a case of suspected terrorist activity financing.
[Translation]
The act was drafted quite carefully and deliberately to be very specific and clear on what information we receive and what information we disclose. It stipulates that we can only release information where we have reasonable grounds to suspect that the information would be relevant to an investigation or prosecution of money laundering offence or a terrorist activity financing offence. Furthermore, the act requires that, once FINTRAC has reached that "reasonable grounds to suspect'' threshold, it must disclose that information. In the same way, once FINTRAC has reasonable grounds to suspect that certain information would be relevant to threats to the security of Canada, the act stipulates it must disclose that information to the Canadian Security Intelligence Service.
Our job, in brief, is to provide financial intelligence leads to law enforcement, and national security and intelligence agencies. We are a resource for every police department in Canada, with a unique ability to follow the criminal money trail across the country and around the world. We also disclose information to the Canada Revenue Agency, the Canada Border Services Agency and the Communications Security Establishment when specific statutory tests in relation to disclosure to these agencies are met. Finally, we may disclose information to foreign financial intelligence units as well.
Our work begins with the daily intake of thousands of reports on several kinds of financial transactions from a variety of businesses, which we call reporting entities. The most prominent of these entities are banks, however we also receive reports from casinos, credit unions, life insurance companies and money services businesses, not to give you an exhaustive list, but all of whom are obligated by the act to send reports to us.
[English]
We receive several categories of reports. We are authorized by law to receive terrorist property reports, suspicious transaction reports, or STRs, and reports of attempted suspicious transactions. We receive large cash transaction reports of $10,000 or more, or LCTRs. We receive casino disbursement reports and reports of international electronic fund transfers, or EFTs, of $10,000 or more. As you will hear later, the EFT reports are very significant when it comes to tracking terrorist financing activity.
Over the years, we have built a large database of these different types of transaction reports. Through sophisticated computer programs, and the skills of highly trained and experienced analysts, we can analyze this data in combination with information from other sources such as law enforcement databases, commercially or publicly available databases, and, sometimes, information from foreign financial intelligence units.
Simply put, we take in financial transaction data, combine it with other information to which we have access, analyze all this and disclose our analytical product in the form of a case disclosure. We take in raw data and turn it into financial intelligence.
We look specifically for financial transactions and patterns that make us suspect money laundering or terrorist activity financing. As you can imagine, the movement of illicit funds is often a well-hidden and complex affair, involving hundreds and sometimes thousands of transactions, as well as dozens of individuals and companies. Sometimes crime organizations will use over a dozen different financial institutions across the country and around the world to launder their profits. As you can see, this is far beyond the resources of any single police force to track; hence, the need for FINTRAC.
It took some time for us to work our way into the terrorist financing analysis role. However, in recent years, we have hit our stride and our product is now in much demand from CSIS and other partners. Following both the money trail and the financial intelligence this produces has become an important part of security intelligence investigation in Canada. The feedback we have received tells us that we are considered strong contributors to investigations.
We firmly believe it is important to always consider financial intelligence along with traditional intelligence such as signals intelligence and human intelligence. Financial intelligence sheds light on the transactions that are sometimes related to terrorist financing. It can assist investigators in making decisions about where to seek evidence and who to include or exclude as part of the investigation. It can also show how the targets are connected and where the financing is going. Sometimes it sheds light or provides leads on the organizational structure of terrorist groups, the means and extent of their support and possibly their operations. We are always conscious of the fact that our role is to feed into security intelligence investigations in a support and complementary capacity.
[Translation]
Now, as indicated in our latest annual report, last fiscal year we produced 73 case disclosures concerning suspected terrorist financing activity and threats to the security of Canada. However, a further 36 case disclosures were a mix of suspected money laundering, terrorist financing and threats to the security of Canada.
There is also increasing demand for strategic intelligence and as we have matured and gained experience, we have been able to expand our capability to do strategic analysis. By explaining trends in money laundering, looking at the big picture, we can inform our reporting entities so that they are positioned to provide the best frontline detection and deterrents. One example is a recent report we did on the casino sector.
[English]
I would like to turn to a key issue for us: the protection of privacy. Our act was carefully crafted to provide the highest possible protection for personal information while also making it possible for some information to be disclosed to law enforcement. We are the only federal agency whose mandate specifically includes an obligation to ensure the protection of personal information under its control. We are entrusted with a considerable amount of personal information and protecting it is a responsibility that we take very seriously. Our security measures are rigorous and thorough, as a recent audit by the Office of the Privacy Commissioner found. No outside body can access our databanks, and the act provides for serious criminal penalties to be applied to the unauthorized disclosure of information.
Finally, at the end of the copy of my statement you will see a chart that illustrates our business process. I realize that it will take up too much of the committee's time today to go through it, but it does give a good overview of how we work.
We would now be pleased to take you through the building of a disclosure on terrorist financing activity.
Thank you. Mr. Chair, if I may ask —
The Chair: No, you cannot because I will not let Ms. Jelmini speak until I distribute the chart. Give us a moment, please
Barbara Reynolds, Clerk of the Committee: There was a chart at the end of Mr. Meunier's statement that was not included in the statement that went to the senators.
The Chair: I understand that, but what about the chart that Ms. Jelmini is about to speak to? Is that the one that we are now distributing?
Ms. Reynolds: Yes. We need a motion to append it.
The Chair: Might I ask for a motion that this chart be appended?
Senator Wallin: I so move.
The Chair: Thank you very much. We now have the chart and are in your hands.
Gina Jelmini, Manager, Terrorist Financing Analysis, Financial Transactions and Reports Analysis Centre of Canada: Honourable senators should have the chart that depicts the sanitized version of a case that FINTRAC disclosed to a law enforcement and intelligence agency, once we reached our legal threshold for suspecting the information would be relevant to an investigation or prosecution of a terrorist activity financing offence.
Using the chart, I will explain the vary steps involved in our analytical process, including the various types of information we receive and analyze. I will take you through the four main boxes that are on the chart and will explain how the boxes are connected to each other with the transactions and the individuals. They are identified on the chart and boxes A, B, C and D.
A number of triggers will initiate the analysis of our cases, including from a suspicious transaction report, from a suspicious pattern of financial activity, and information from open sources or from voluntary information records, or VIRs, as I will refer to them throughout my presentation.
VIRs are voluntary information records that are provided to FINTRAC by law enforcement and intelligence agencies or from the public on suspicions of money laundering or terrorist financing. FINTRAC proceeds with an independent analysis of the VIR and other information that it receives or collects and, where FINTRAC reaches the legal threshold to disclose specifically designated information, this information is provided to the appropriate law enforcement or intelligence agency.
The Chair: When you say "legal threshold,'' do you mean by quantum or by virtue of the factors that have been arrayed before you to suggest that further pursuit of the matter is suggested?
Ms. Jelmini: The legal threshold as set out in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, PCMLTFA, states, "reasonable grounds to suspect it would be relevant.''
The Chair: Do you have a definition of "reasonable grounds?''
Yvon Carrière, Senior Counsel, Legal Services, Financial Transactions and Reports Analysis Centre of Canada: It is a case-by-case analysis and the facts are different in each case. There are legal precedents to indicate what constitutes "reasonable grounds to suspect.'' That would be a lower threshold than "reasonable grounds to believe,'' but it would be more than simply a gut feeling or a hunch. It would have to be a reason that can be articulated.
Again, in each case, we ensure that we have reached those reasonable grounds to suspect that the information would be relevant to a money laundering or terrorist financing investigation or prosecution.
The Chair: That would be a process done by more than one person, I assume; that is, by whatever team is focused on this kind of proposition. Is that correct?
Mr. Meunier: Yes, our analysts understand the law with respect to meeting the threshold. It is reviewed by the managers and, ultimately, I sign these off on behalf of the director.
Ms. Jelmini: In this particular case, we receive voluntary information from the law enforcement agency describing an ongoing terrorist activity financing investigation.
I would like to draw your attention to box A, which displays the information we receive from the law enforcement agency. The VIR indicated that two subjects were suspected of providing financial support to a terrorist group. The voluntary information pointed out that the subjects owned a number of businesses, and that they were suspected the raising funds for a terrorist organization through legal and illegal activities. In box A, you will see individuals 1 and 2 and the businesses with which they are associated.
The first step in our analysis, after assessing the VIR, is to search the FINTRAC database for financial transactions. Once we completed the analysis of this case, FINTRAC had identified over 700 transaction reports, totalling over Can. $11 million. The transaction reports included over 680 large cash transaction reports, 12 international electronic funds transfer reports, and eight suspicious transaction reports.
The $11 million in transactions that we disclosed reflect transactions that FINTRAC suspects would be relevant to the investigation or prosecution of a terrorist activity financing offence. With these financial transaction leads, law enforcement and intelligence agencies can investigate further to determine if some of the funds were used to fund a terrorist group.
Focusing back on the financial activities of the individuals and businesses in box A, we see that individual 1 had made many cash deposits to a number of accounts, including accounts that were held by his businesses and to the business accounts of individual 2. Upon further analysis of these transactions, we found that EFTs had been received in two of these accounts from individuals located in country B, which you can see at the top of the chart above box A, and identified as individual 24.
One EFT, or electronic funds transfer, had also been ordered from one of the business accounts to the benefit of a different individual in country B, individual 23 at the top of the chart. Country B is a country where the terrorist group mentioned in the VIR is reported to be active.
You will notice that other transactions associated to these individuals 1 and 2 link up to the other boxes in the chart. I will now take you through our analysis of the transactions in box B.
This box identifies a number of individuals that FINTRAC was able to link through its analysis of open-source information, such as information from corporate registries and from other reports received by FINTRAC.
Through corporate databases, we determined that individual 3 was linked to individual 2's business. This business is referred to as numbered company 3 in box B. You will see it to the left of individual 3. Individual 3 had also made cash deposits to the business that was associated to individual 2, depicted with a purple line above individual 3. FINTRAC was also able to identify a number of other subjects linked through a common address with individual 3. These individuals are identified as individuals 4, 5 and 6 in the box. They are to the right of individual 3.
We proceeded with identifying and analyzing the transactions conducted by these additional individuals and found that they had all purchased wire transfers with cash at a particular branch of a money service business, which was associated to individual 6. This business is numbered company 5 in box B, just below individual 5.
The purchase of the wire transfers were reported on suspicious transaction reports because the reporting entity suspected that the individuals were trying to structure the transactions to avoid the $10,000 threshold for reporting electronic funds transfers to FINTRAC. The wire transfers were ordered to the benefit of a number of individuals, also located in country B, which, as I mentioned earlier, was a location of specific concern for the operations of the terrorist group.
Box B is linked to box C through the transactions we identified for individuals 4, 5 and 6. If you focus on individual 4, in box B, you will see that he ordered an electronic funds transfer to individual 17 in country C, in box C. This transaction is depicted with the orange line above individual 4. The beneficiary of this EFT, individual 17, was also the beneficiary of EFTs ordered by other individuals that FINTRAC had previously linked to an investigation on the same terrorist group. In addition, individual 4, and a business he owned, had issued a number of bank drafts to individuals who were also the subject of the other investigation into the same terrorist group.
These transactions were deemed to be suspicious by the reporting entity. Our analysis of the transactions of the beneficiary of the drafts revealed that individuals 5 and 6 — box B on the far right — had also issued a number of bank drafts to the same individuals linked to the other terrorist investigation in box C.
I will now show you the link to the individuals and financial activities in box D, at the bottom of the chart. If we focus once again on the financial transactions of individual 6 in box B, at the far right of the box, we see that this individual and a numbered company 5, hold accounts 16 and 17, located in box D, directly beneath the box. Suspicious transaction reports were reported on the financial activity in these as well as other accounts in box D.
One reporting entity indicated that individual 2 — who I will remind you was the subject of the initial investigation in box A — had deposited a number of cheques within one week to account 14 in box D and that bank drafts were then issued from the account. The cheques that were originally deposited were then returned non-sufficient funds after the bank drafts had been issued.
Our analysis of the beneficiaries of the bank drafts revealed that one was issued to the account of individual 6 in box B and to individuals 15 and 16 in box D at the far right. Through the analysis of their financial transactions, we discovered that these individuals had also made cash deposits to the business account of individual 2. Again, individual 2 was the subject of the original VIR information.
The suspicious transaction reports, or STRs, reported on the accounts in box D indicated that the activities in these accounts were consistent with bust-out schemes. A bust-out scheme occurs when a cardholder uses, or attempts to use, a fraudulent or insufficient cheque to make a payment on a credit card or other accounts, to inflate its available limit, to conduct purchases or cash advances, knowing that the cheque will eventually be returned non-sufficient funds. Bust- out schemes have been suspected of being used in terrorist financing, as well as other criminal activities.
Finally, as part of our analysis, we also compared the financial transactions with FINTRAC indicators and internationally recognized indicators of money laundering and terrorist financing, and found that the following indicators were applicable in this case. There were different entities and individuals operating from the same address and multiple reporting entities reporting suspicions. There was a preference on the part of the customer for transactions below the threshold amount, presumably to avoid reporting and wire transfers in small amounts benefiting the same individuals. The reporting entity indicated possible links to criminal activity and finally, methods or patterns of transactions were similar to that of a terrorist entity or group.
The result of this analysis was that we were able to provide financial intelligence to the police related to the subjects of their investigation, as well as on new individuals and accounts that we uncovered. FINTRAC disclosures usually include an i2 chart, such as the chart before you, which, as you can see in this case, helps us explain how the subjects are linked to each other and show how the money is moved into and between accounts domestically and, depending on the case, to accounts overseas. The majority of our terrorist financing cases will include international electronic funds transfers, which can provide investigative leads on potential new targets and associates in foreign jurisdictions.
You can see in the chart that from the information provided by law enforcement in box A, we were able to identify a number of individuals, accounts and businesses associated to the subjects of the investigation, and we were able to link some of these individuals to other seemingly unconnected terrorist financing investigations.
This is a key advantage of financial transaction analysis to money laundering or terrorist financing investigation. Money leaves a trail and can demonstrate who is involved, the extent of his or her involvement, and often points to the possible ultimate destination of the funds. Following the money trail brings a unique perspective that is not available with other sources of information.
[Translation]
I would be pleased to answer any questions you may have.
[English]
Senator Furey: On a point of information, what would be the size of the EFTs or the cash deposits, as well as the other transfers? Are they of any particular size?
Ms. Jelmini: Yes, LCTRs, the large cash transaction reports, must be $10,000 or more in cash. On average, there were quite a few cash deposits in these accounts. It was a cash-intensive business.
Senator Furey: Once you get your voluntary information, you act on smaller amounts, of course. Is that right?
Ms. Jelmini: The smaller amounts are reported in suspicious transaction reports. The wire transfers, the electronic fund transfers that FINTRAC receives are $10,000 or more. We receive anything below $10,000 in suspicious transaction reports only. In this particular case, the wire transfers that were purchased, that were structured, were under the $10,000 threshold, presumably, as I mentioned, to avoid the reporting requirements for FINTRAC. There were a variety of transactions in this disclosure. Some were under $10,000 in smaller amounts and the EFTs tended to be, obviously, above $10,000 in different amounts.
Senator Furey: Most of the cash in the bank drafts are less but the EFTs are larger.
Ms. Jelmini: They are over $10,000, yes.
[Translation]
Senator Joyal: My first question is linked to the legal framework governing your operations. Since the adoption of the act in 2001, have you noted any aspects that should be amended to enable you to meet your objectives, or are you completely satisfied with the current legislative framework?
Mr. Meunier: Since 2001, legislative changes have indeed been made and implemented by the government. In 2006, the adoption of Bill C-25 led to beneficial changes for our organization and the system as such.
Every five years, a statutory review is planned. We are nearing that date. Not only that review, but also reviews conducted by the Auditor General have always been very helpful. Moreover, the Standing Senate Committee on Banking and Trade made recommendations which were adopted and helped us a great deal legislatively. The changes made included broadening the data that we could disclose as well as increasing the number of reporting entities required to report or comply with the act. These amendments primarily targeted notaries in British Columbia, gemstone retailers, as well as people involved in developing homes.
Senator Joyal: Real estate developers?
Mr. Meunier: Yes. These changes have enabled us to increase the efficiency, usefulness and number of disclosures we have made since the act came into force in 2001. A new type of report was also added: casino disbursement reports. These new measures have enabled us to be more effective and to provide more detailed information to police forces for their investigations.
Senator Joyal: So you have no recommendations or amendments to propose for the five-year review of the act?
Mr. Meunier: We will consult the Department of Finance and begin our review shortly to identify possible improvements to the act.
Senator Joyal: Mr. Carrière, earlier you mentioned — and I am using the actually wording of the act — "reasonable grounds to suspect''. Under criminal law, reasonable doubt is all that is required for charges against an accused to be dropped.
In the specific case of your operations, who determines if there are reasonable grounds to suspect? In other words, what authority supervises you regarding the conclusion that you have drawn, in a specific case, that there are reasonable grounds to suspect?
Mr. Carrière: Clearly, expertise is produced within FINTRAC to determine if we have reached the legal threshold, and legal advice is provided as required. FINTRAC is also subject to an examination, every two years, by the Privacy Commissioner on the use of information under its control. The Auditor General can also audit FINTRAC, and has already done so. In both cases, the reports clearly indicated that FINTRAC had respected its statutory obligations.
Senator Joyal: Let's take the example of a person who finds out he is the subject of one of your analyses. He believes he is perfectly honest and that there are no suspicious grounds behind the transactions he is involved in. Despite this, he is suspect. Which legal authority can this person turn to ask that you put a stop to your evaluation?
Mr. Meunier: The information we disclose are suspicions, not evidence. In some cases people are the subject of access to information requests. Sometimes, in the case of reports on cross-border transactions in cash, it is possible to know whether the transaction was indeed reported to FINTRAC. However, the individual cannot find out whether we have disclosed this information to police forces or not. For the time being, the applicant can turn to no one, as we are not authorized to disclose this information to individuals. Am I mistaken?
Mr. Carrière: The information disclosed by FINTRAC to police forces allows them to investigate where appropriate. In fact, it would be up to police forces to determine whether or not the intelligence FINTRAC has provided them with amounts to evidence of criminal activity.
Senator Joyal: So, an individual cannot put a stop to an evaluation of his transactions when he senses a breach of his privacy, even though he is beyond reproach, if you yourselves consider him suspect. Therefore, the act does not provide that person with the option to seek judicial authority to stay your assessment of the specified transactions?
Mr. Carrière: Measures are provided under the act to guarantee the protection of the information FINTRAC has.
Let us assume that the reporting entity reported on a suspicious transaction I am purportedly involved in to FINTRAC. As a citizen, I would be unaware of this report. Unless this information is disclosed, once the legal threshold is reached, and unless police officers investigate and lay charges, this procedure will not have a great impact on me. I would be unaware of anything, the intelligence remains protected within FINTRAC and will not be shared with anyone.
Senator Joyal: Should you not address this issue when the act is under review as it will be over the coming months?
Mr. Meunier: The Minister of Finance is responsible for our act and we will submit that question to him.
Senator Joyal: Because if I quote from the act establishing FINTRAC, which you refer to in a paragraph on page 2 of your presentation:
The act stipulates that we can only release information where we have reasonable grounds to suspect that the information would be relevant to an investigation or prosecution of. . .
So, a money laundering offence in a potential organized crime group, like a biker gang Ð
. . .or a terrorist activity financing offence.
So, a terrorist organization deemed as such within the meaning of the Anti-Terrorism Act in Canada.
So you cover two areas, on the one hand anti-terrorism, the organizations designed to receive funds probably for terrorist financing, and also crime investigations in general. Again, this is very general.
What proportion of your investigative activities focus on proceeds of crime versus terrorist organization financing?
Mr. Meunier: I would say approximately 80 per cent of the disclosures have to do with money laundering, and about 20 per cent deal with suspected terrorist activity.
Senator Joyal: So a large part of your activities, of your monitoring of financial transfers — because essentially here we are talking about financial transfers — is mainly related to money laundering activities which may be related to organized crime?
Mr. Meunier: That is correct.
Senator Joyal: You mention, on page 1 of your report:
While well over 130 nations have a financial intelligence unit of some sort or another. . .
Do you have agreements regarding intelligence transfer with a number of countries? And are these agreements governed in some way by international conventions, or are they negotiated through mutual agreement between the various countries involved? And how many of these agreements do you have?
Mr. Meunier: We have 71 memorandums of understanding to date, with foreign units. The act specifically provides that we cannot exchange financial intelligence with foreign peers without an MOU. Perhaps Mr. Carrière could explain this system.
Mr. Carrière: The act requires the MOU to specify the purposes for which the intelligence will be used. It must be for the purpose of investigations or prosecutions regarding a money laundering offence or a terrorist activity financing offence or any similar offence. The MOU must also provide for the intelligence to be treated confidentially by the country which receives it. And unlike disclosures made by FINTRAC to police forces, in this case, the act specifies that we have the choice to disclose or not. However, under the act we can only exchange designated intelligence with these countries. So, this does not cover any and all intelligence at FINTRAC, but only that which is designated as defined by the act and regulations.
Senator Joyal: Let us take the case of two specific countries, Tunisia and Egypt, two countries that are very much in the news today. Do you have information exchange agreements with these two countries?
Mr. Meunier: We do have an agreement with Egypt but not with Tunisia.
Senator Joyal: Not with Tunisia. Therefore, in the context of this public debate on the source or acquisition of funds alleged to belong to the rulers or families of the rulers of those countries, can you say whether in the context of international attention and the situation currently in these countries, you can track the funds which may be transferred between various financial entities or individuals?
Mr. Meunier: The act prevents us from referring to any specific cases, particular those everyone is aware of. However, I must tell you that in general, even with those countries with whom we do not have an agreement, we cannot issue information requests, but it is however possible that we may receive information freely offered by these countries.
I would also like to add that it does not prevent us from receiving information from reporting entities. Specifically in the case of international electronic fund transfers, financial institutions give us this information. So, we know exactly whether or not funds are transferred from another country to Canada or from Canada to other countries. So, we do have this information.
Moreover, when it comes to the disclosure of information, police forces may voluntarily provide us with information through their own networks. So, through this network, they may obtain information on transfers and hand it over to us voluntarily.
[English]
Senator Wallin: I have a slightly different philosophical point of view. My concern is that you might not have enough power to do what you are doing. I am concerned that there may be a few too many restrictions when I read a sentence that says, "We are not an investigative body and we do not have powers to gather evidence. . .'' I understand that seizing and freezing funds and laying charges are legal acts, but are you saying "evidence'' in a strictly legal term? Obviously, you are collecting information.
Mr. Meunier: That is correct. We mean it in the legal sense. We receive and analyze information, but because of the threshold that we are meeting, which is one of reasonable grounds to suspect, we provide those leads to police and it gives them an opportunity to go out and get the evidence through the tools available in the Criminal Code. We are saying that we are not gatherers of evidence. If you wish, we are gatherers of information that we turn into intelligence.
Senator Wallin: You then analyze.
Mr. Meunier: We analyze.
Senator Wallin: However, if you see something troubling, how much authority do you then have to go back to the original supplier, whether it is a bank or whatever it is, and say, "Look, this is sending off some really bad signals to us. Where can we go? Can you help us connect dots?'' Do you have any ability to do that?
Mr. Meunier: We do not have the ability to go back to a reporting entity and request additional information. The law is explicit and it is understood that this would potentially be a breach of people's Charter rights, such as unreasonable search and seizure.
We receive the information, and because of the kind of agency we are and what we are able to receive from many reporting entities, we are able to provide a good picture of the transactions. When we provide this information to police, it gives them that authority to, if they wish, pursue the investigation and produce affidavits of information.
The Chair: So I am clear, in support of Senator Wallin's question, you gather up the data, you have it. The data came to you through the normal reporting system, which is not quite passive but it is normative — it goes on all the time now under the law — or you are doing it because an agency has asked you to pursue matters that were reflected competently by Ms. Jelmini in the chart.
When you get the information, you do not get a warrant to go further, but the police organization — or CSIS or whomever — has every right to seek a warrant and use the information you have provided as part of the rationale for seeking a warrant. Once a warrant has been obtained, the police organization has the judicial capacity to proceed for further investigations of the kind I believe Senator Wallin is suggesting. Do I have that process right?
Mr. Meunier: Yes, you do.
The Chair: Is that a fair assessment of how it works?
Mr. Carrière: FINTRAC has compliance powers, so if a reporting entity failed to provide the required information, FINTRAC could certainly use its compliance powers to ensure the proper information is passed on to FINTRAC.
Senator Wallin: I will come back to Senator Joyal's question and try it again. Is there one thing, if you had the ability to do it that would make your life easier and faster? Is there one thing that would help you to have more effective access to information?
The Chair: Other than making your law notwithstanding the Charter of Rights and Freedoms, which you would not be considering as a recommendation.
Senator Joyal: I would not support it anyway.
The Chair: I am encouraged to hear that.
Mr. Meunier: In the last review, we put together quite a team in FINTRAC to look at all aspects. The suggestions that we make are looked at by the Department of Finance to look at all the possible pluses, minuses and cons. If you were to ask any intelligence agency, it would say, "Give me more.'' For any intelligence agency, the critical element is analysis. The more information you get, the greater the cost in analysis and dissemination. As we are concerned with privacy as well, that is a big factor.
In general, if I were to say more information is certainly better, the fact is that it has to be weighed against the privacy considerations, the costs to businesses, and the cost of analyzing it.
Senator Wallin: You say in your highlights that the Office of the Privacy Commissioner has praised you for your work. Obviously, you are being mindful of that.
Can you assess whether there is a best practice or two that other organizations or other bodies could extract? In a related committee, we are looking at Bill S-13, the Shiprider situation, and there are some concerns about whether we should be sharing information with the Americans. We heard this again in the wake of the secure-perimeter agreement between President Obama and the Prime Minister Harper on Friday. Are there lessons learned in your system on how to protect that while getting the job done?
Mr. Meunier: That is a tough question.
Senator Wallin: The lawyer has an answer.
Mr. Carrière: As a lawyer, I am happy that the act and regulations set out in great detail what we are allowed to do, what we are required to do, what we are required to collect and what we are allowed to collect. That does not solve all the problems, but it certainly provides us with good guidelines, at least, as to what we should do.
Mr. Meunier: If I may, and it is not necessarily just in the privacy area. What is almost unique to FINTRAC is that very few organizations in the world do what we do the way we do it, particularly with respect to electronic funds transfer. Very few organizations like ours receive this information electronically and EFTs over $10,000. That is very useful not only in money laundering cases that we analyze but also in terrorist financing. If there is a best practice worldwide, we have it here.
There is some discussion in the U.S. now about adopting a similar approach with FinCEN, which is an organization similar to ours. Australia has it, but there are few in the world that do that. If we are to move forward in the terrorist financing issue, that is a staple piece of information. We and our partners in the police notice how useful it.
It is not in the privacy area, but it is certainly a barrier we have crossed here in Canada.
Senator Wallin: That is a good answer, thank you.
Why do you have regional offices? What is the rationale for that?
Mr. Meunier: Regional offices are located in Montreal, Vancouver and Toronto, and they cover each section of the country. They are involved mainly in compliance work, and they work with all the reporting entities, such as banks, casinos, money services, businesses and real estate to provide policy interpretation and assistance and to examine and ensure that they comply with the law.
Senator Wallin: Are there huge provincial differences in terms of the rules?
Mr. Meunier: No, but there might be in some cases about the kind of identification you need to provide. Some provinces do not allow, for instance, the use of health cards as a government ID, but they are minor differences. The law is applied.
The Chair: I respect your inability to discuss specific cases. However, would it be fair for a citizen to conclude, when one of our national networks decides to report on huge transactions at casinos that appear to be beyond the $10,000 point of interest threshold that your systems analyze that type of transaction? Is it fair to conclude that if anything drew your attention, you could pursue it, should you determine that was appropriate, based on provisions of your laws? Is that a fair conclusion for a citizen to reach?
Mr. Meunier: It would be fair to make that conclusion. However, we do have computer programs that analyze those kinds of things, and they do not represent the vast majority of the cases. As we mentioned, volunteer information records provide an important trigger for us. However, we do have programs that look at certain types of transactions in particular areas, and our analysts work with the results of those computer searches to detect patterns.
The Chair: Someone who walked into a casino in Canada and bought $100,000 worth of chips at one time, is that the type of normative transaction that would show up in your system?
Mr. Meunier: For operational reasons, I would not say that necessarily that transaction would appear, but there are combinations of rules that we have set that identify types of transactions, frequency of transactions, locations, et cetera. It would not necessarily be one criterion but a series of criteria.
Senator Marshall: Earlier you were talking about the different organizations or individuals that have to report, and you were talking about the banks, casinos and financial institutions. How do you know you have identified everyone? Not only are there banks, which you can identify, but there are also individuals, such as accountants. How do you know you have your total population of people who have to report?
Mr. Meunier: Well, I will try to answer in two ways. The law specifies which sectors have been deemed vulnerable, not just in Canada, but an international body has also identified certain sectors of the economy where money laundering and terrorist financing risk is higher. They include accountants, real estate brokers, agents, et cetera. The Department of Finance has, in conjunction with the private sector and law enforcement, determined the broad sectoral areas where there is risk. Within each group, for instance, we do not require registration of accountants or real estate agents, et cetera, but we do require registration of the money services business. That has been deemed to be a sector of the economy that is more at risk for these types of activities, whether it is money laundering or terrorist financing. Our law has developed, and regulations cover those areas.
Senator Marshall: Has your organization identified individuals or organizations that have not reported but should have reported? Is it possible that different organizations or individuals might slip through the cracks? We are talking, I would think, about thousands of individuals and organizations. Are you sure you are getting everyone? Once you get everyone, are you certain that you are getting all the transactions?
Mr. Meunier: The regional compliance officers are tasked with identifying compliance with the regulations. We have estimated, and it is a very rough estimate, that there are about 300,000 reporting entities in Canada. Our compliance program is risk based. Basically, it targets those sectors and those individuals within the sectors where they think they are at higher risk of non-complying, either because they may not be reporting adequately, may not be identifying clients appropriately or may not be recording, because there are record keeping obligations. There are also compliance regime obligations, and there is risk identification. Each reporting entity has to adapt its own compliance regime to the risk of its clientele. They examine those; there is a random component and a targeted component. Our compliance folks have identified a number of reporting entities that are not complying, and, in many cases, fines have been issued and/or referrals to law enforcement where there is an indication that there may be serious indications of wrongdoing.
Mr. Carrière: The act authorizes FINTRAC to enter into information exchange agreements with industry regulators and supervisors, and FINTRAC works with the industry associations. Any industry association is usually pretty well aware of their membership.
The Chair: I think your director expressed concern in a speech in Halifax in July of 2009, about not being comfortable with the relationship with the gaming industry, indicating that it was not quite as robust on a reporting basis as would make her happy. To her credit, she talked about initiating a pilot project with the Ontario gaming authority.
In answering the questions put by my colleague, can you share with us any perspective that either that pilot project or work since July of 2009 has given you about the dimensions of that problem?
Mr. Meunier: You are correct. Our director did make that speech in Halifax. Unfortunately, I do not have the latest progress reports in terms of the partnership or the pilot project.
The Chair: Could you, at your convenience, agree to share whatever you can find with the committee?
Mr. Meunier: Yes.
Senator Marshall: Certain information has to be provided to you under your legislation. Is there ever an issue with regard to whether you are getting all the information to which you are legally entitled? Earlier, you said you receive information, but you cannot go back looking for additional information or clarification. Is there an issue with regard to you receiving all the information that you are entitled to under your legislation?
Mr. Meunier: We do have a quality assurance component in FINTRAC, and, when reports are received that do not meet fully all of the requirements in terms of completeness, et cetera, reports will be rejected, so they do not even enter the door if there are some major gaps.
We may notice mundane items such as computer glitches from a financial institution. In this instance, the financial institution might send us incomplete information. In this case, we will go back to them, because obviously we are talking hundreds of reports. We have that ability within the context of a technical glitch or something similar to that example.
When our compliance people perform their examinations, they have the opportunity to examine the reports that we receive and they can bring attention to that information and/or ensure compliance.
Senator Marshall: How do your analysts process the data? You receive data from 30,000 or 40,000 individuals or organizations, and historically it seems like you were doing certain processes, but you have refined it over last few years so you have a good product now. Could you talk about the analysts? Who does your programming? Is that done in- house? Please discuss the privacy aspect. What happens to the data? Your organization accumulates a significant amount of data.
Mr. Meunier: We receive about 65,000 reports a day. As you can imagine, the IT component is extremely critical. We receive perhaps about 200 suspicious transactions a day, and they are real triggers for us because there is a narrative at times that we request in the report. The narrative is basically the reasonable grounds to suspect. That is a key piece of information.
Ms. Jelmini: The reports are 99 per cent filed electronically, and we use the tools that were developed in-house. Some matching occurs within the system with respect to the reports that come in, so on name, date of birth. Other types of reports will match on to a suspicious transaction report. Then an assessment is done by a team leader or a manager to determine if the case will be provided to an analyst for further analysis to see if it will become a case or not. The tools we have are quite powerful in terms of matching the information that we need to be able to make a preliminary assessment on whether the case should be initiated.
Senator Marshall: Has your organization ever had a security review? I am thinking about privacy again. Are there ongoing reviews?
Mr. Meunier: The Privacy Commissioner is required to do a review every two years. Her last audit gave us very high marks, not that there were not some things we could improve, but with respect to our security infrastructure, she was highly complementary and talked about our implementation of some of the best practices. In that regard, I think we came out strong.
Senator Marshall: You have MOUs with other countries. Is data flowing back and forth, or is it more on an ad hoc basis as opposed to you getting information regularly?
Ms. Jelmini: It is on a case-by-case basis where the case dictates there are transactions with a specific country we may want to query, or we will receive queries from different countries concerning their ongoing investigations. It falls within the provision of designated information in terms of what we can provide another country as well. We cannot provide a FIU with other information than what is specifically designated in the legislation. As the analyst works on a case, a determination is made that we would like to query country X. We draft a query to that country explaining the investigation and request the information based on our suspicions. This is how the MOUs are implemented with other countries. As well, they also send queries along that nature to us.
Senator Joyal: When you receive a request for information from a foreign state, are you in a position to evaluate the reasonable grounds? Do you evaluate the principle or criteria that the foreign country might have to suspect the followed transaction? Do you take it at face value, based on the name and the number of the account, and the abstract information that you need to follow up?
[Translation]
Do you assess the relevancy of such a request according to your governing criteria, which are based on reasonable grounds?
[English]
Ms. Jelmini: When we receive a foreign FIU query, we make an assessment. First of all, we have to have an MOU in order to be able to exchange information that is designated, if we reach our threshold.
The first thing we look at is if we have an MOU with a country, then we assess the quality of the query that we received from the financial intelligence unit: Who is under investigation, what is the suspicious activity, what is the link to Canada. From there, we proceed with an analysis, as we would with any other case, of the information we have. That is where our disclosure threshold will come in. Once again, we assess if the information we have would be relevant to that foreign investigation.
The threshold to disclose is at the disclosure end. At the receiving end, we assess the information, as we would a voluntary information record from law enforcement or the public, with respect to the information that is provided to us.
The FIUs are to undertake money laundering and terrorist financing investigations as part of their mandate, so where we are informed that there is an ongoing money laundering investigation in a specific country, the details are provided to us, we do our independent analysis, and the threshold comes into play before we can disclose the information back to the FIU.
Senator Joyal: In other words, you impose the same criteria to a foreign request that you would apply if it were in Canada only?
Ms. Jelmini: That is correct.
Mr. Meunier: I may add that we may disclose, but we are not obligated to disclose. It does happen where we may have signed an agreement with a particular country, and the political or security situation may have changed. We may decide, for those reasons, that the assessment that we made at the time we signed it suddenly needs a re-evaluation. Therefore, we may decide not to provide the information.
Senator Joyal: In some countries, as you know, the political power of the day may try to use that power to go after some of their own citizens. I have some examples in mind, but I do not want to throw them at you because I do not want to embarrass you.
Mr. Meunier: I appreciate that.
Senator Joyal: I think it could be common practice in many instances.
Senator Furey: Thank you for coming today. Mr. Meunier, when you talk about your agency being an analytic body that gathers intelligence and then shares it with investigative agencies, are you permitted to share any of your analysis and, if so, how much do you typically share, if any?
Mr. Meunier: We do not share the analytical report that we provide. I must say that we do sever information, because sometimes we do have information not designated. The law prescribes we must only disclose, and sometimes in the reports that we may receive from reporting entities there may be some additional information that does not fit the criteria, so we will not share that information.
Senator Furey: Would it be more helpful to investigative agencies if your act permitted you to share all of your analysis as well?
Mr. Meunier: Law enforcement has access to what we call a production order, and they can get judicial authorization if they feel there would be more information available to us than we have provided to them.
I can say, though, that over the last five years there has been quite a bit of change in the way that we handle disclosures. We have increased by over 244 per cent. The number of disclosures has sky-rocketed since 2005-06, and this is due to expertise, additional resources, changes in processes, and better tools for us to conduct our analyses. The legislative changes have allowed us to make our product even more effective. We are getting feedback from our police forces and other law enforcement agencies, and they are very happy with the quality, the number of people who are new accounts being divulged, new people associated, et cetera.
I think that, over all, with this particular change, we have not had any production orders. I cannot count them, but I can only recall two or three, or something of that nature.
Mr. Carrière: Not much more than that.
Mr. Meunier: Originally police were questioning whether we had a lot more to give. I think now, because of the timeliness, on particularly important cases we can turn them around in 24 hours, particularly with respect to terrorist financing. That is our priority, and we will put every resource available to assist in such a case.
However, I must say that the turnaround time from maybe about three years ago was about 134 day average for money laundering and terrorist financing. I have to say the terrorist financing is a lot shorter. Today we are looking at about 60 days, and this is an average. That does not mean that if we get something from CSIS on a Friday, that we will be working the weekend to assist.
Senator Furey: In your 2010 report it indicated that there was somewhere in the range of 60 to 70 reports related to terrorist activities. Do you know how many of those would have led to actual charges, or are most still ongoing in terms of investigative activities?
Ms. Jelmini: I do not have a specific number in terms of how many resulted in charges. We ask for feedback from our partners when we provide disclosures, to inform us specifically of that. We do track media as well internally, to see if there is something in the media where we would have contributed specific information.
I do not have exact statistics, but we know we contribute to a large number of cases, that do end up in the media, where charges are laid.
Senator Furey: Ms. Jelmini, thank you for this chart. It is comprehensive and quite complicated. In box D you talk about grounds for suspicion in terms of cheques being deposited, drafts being issued and then NSFs being returned. Can you explain that? I do not understand, for example, if you are depositing a cheque to a bank then drawing a draft on it, why a bank would allow it to go through before the cheque cleared. I am a little confused.
Ms. Jelmini: Often these schemes, as I mentioned, are bust-out schemes. The individual will use either his or her own identity or a false identity, and the purpose is to build up good credit. Therefore, where there is a time lapse between the depositing of cheques, where the account is credited, other drafts are issued. It is a vulnerability in the system, but they do detect the various patterns. That is essentially the bust-out scheme.
The person, at the end, will disappear or claim bankruptcy. The person does it with the purpose, ultimately, of making quick money.
Senator Furey: There is a lot more activity going on there than one deposit and one withdrawal.
Ms. Jelmini: Exactly. In box D there are a number of STRs that were reported on this type of activity. I tried to minimize the activity in the boxes.
The Chair: Before we go to round two, I want to take a look at the chart with Ms. Jelmini. I understand very clearly from the chart that if one of our law enforcement or intelligence agencies seeks your analysis, you go forward, you go to your data sets, you try to find information that may respond to their request and you disclose it to them once you have decided you have sufficient, justified disclosure. I am not troubled by that part of the proposition at all.
I want to understand what happens when without a VIR, without any specific request from a national security agency or police agency, your normal data inflow produces two or three transactions that strike you as being of interest and justify further pursuit. They justify this pursuit because of either a threshold or some other part of the pattern, and you decide the information should be disclosed.
How do you decide, not knowing if the transaction is about tax evasion, money laundering, contraband cigarettes, or the movement of cash to support various terrorist groups in Central America? How do you know to whom you should give the information? Do you make that decision internally? Do you decide that you will share the information because you decide that is the issue at hand? I am interested in the process by which that decision is determined.
Ms. Jelmini: These proactive cases are generated on a suspicious pattern of financial activity, so we assess that information. We have access to a variety of databases. We try to link it from open source information if the individuals are known or if they have been in media review. We also access law enforcement and national security databases as part of the analysis. That information assists us in determining if it is potentially linked to a terrorist financing investigation, a threats investigation or a money laundering investigation, or if the subjects have been under investigation either by a law enforcement agency or by another foreign agency; that is, if it is in the media. We consult a variety of sources in building a case. This information assists us in making the determination if it is money laundering or terrorist financing. We must have a connection to terrorist financing other than possible location of concern. Ultimately, a number of elements will factor in to make that determination.
In terms of disclosing to CRA and to CBSA, there is a dual threshold within the legislation where we first must determine it is relevant either to money laundering or to terrorist financing. We then must determine if it is relevant to the other agency's mandate. We also determine if it is relevant to tax evasion. Again, this is done with indicators. We work with our partners to determine our potential indicators of tax evasion. As part of our analysis, we look at these indicators to determine if it fits the case. Where we meet that secondary threshold, we include a recommendation to disclose to CRA as well.
The Chair: Are those indicators part of a software program that assists you to reach these decisions as quickly as possible because of the vast amount of information that you receive on a daily basis, or is it all best-case analysis performed by thoughtful analysts trying to do their job as best they can and as quickly as possible?
Ms. Jelmini: Exactly, the front end includes the rules and the system that may flag certain suspicious transactions. As we proceed with the case analysis, we observe the indicators that I referred to in my presentation. These indicators come up from internationally recognized indicators from the FATF, working groups on typology and from the Egmont Group of Financial Intelligence Units. CRA, as well, will come up with its own indicators of potential money laundering. These indicators are the result of typologies from various experts in the field. We then look at the transactions and see if the indicators apply.
The Chair: Recently, another committee had a cordial exchange with a parliamentary delegation from a petro state in the Gulf region. One of our colleagues from Prince Edward Island asked a question about donations made by that country to schools in Canada for various purposes. The delegation was thoughtful and moderate and said, "Of course we make charitable organizations to schools in Canada. We do so because they are approved by the Crown.'' I think they may be confusing a tax receipt with approval; nevertheless, it was a well-intentioned response.
If someone made a $250,000 donation to a school or a community centre, which then produced either a cheque coming out of a Canadian bank for that amount or a deposit being made in a pattern not unrelated to the one on your chart by that particular school or community centre, would your system catch that transaction?
Ms. Jelmini: We receive large cash transaction reports. Whenever there is cash deposited in excess of $10,000, we must receive the report from a reporting entity. If the transaction is deemed suspicious by the financial institution receiving the cash, they submit a suspicious transaction report to FINTRAC indicating they are suspicious for reasons A, B and C. Those are the instances where we would receive that information.
Senator Joyal: I would like to return to the answer that you gave to Senator Furey on the number of open cases following the transfer of information. I am surprised that you do not have a consolidation of those cases. That is the only real way to measure your agency's efficiency. You can acquire information, but it must be processed somewhere — either by CSIS, CRA, the RCMP or any other police agency, et cetera.
It is difficult to believe — that is, unless you do not want to disclose that information — that you do not have those statistics. That is the only way to measure your efficiency, in my opinion.
Mr. Meunier: I apologize; I am not exactly sure of the question you are asking, senator. You talked about open cases. I could attempt an answer.
[Translation]
Senator Joyal: I find it difficult to understand that you have no statistics on the number of investigations that have been launched either by CSIS, the RCMP, provincial or municipal police services or any other agency that deals with the information that you gather. That would help determine whether your evaluation of the "reasonable grounds to suspect'' is accurate in most cases, whether you are following the right leads. Ultimately, that would lead to charges in cases of terrorism and terrorist organization financing, which are prohibited by law, as well as tax evasion and other crimes that are investigated by the Department of Revenue.
I have a hard time understanding that, given all of your computer resources, you do not monitor cases, only relying on what is in the newspapers. You open the newspaper on Monday morning and are pleased to read about an arrest.
With all due respect, I find that answer a little rich, especially given the millions of dollars of Canadian taxpayers' money that you spend and the 300 people working for you.
Mr. Meunier: I will try to answer your question. First, we have voluntary information records, or VIR. In almost all cases, we receive VIR when an investigation is underway. We know that there is a connection or grounds when we receive information voluntarily. That occurs in 80 per cent of our cases. Therefore, when we receive a VIR and have little or no information or cannot reach the threshold to disclose, then our investigation comes to an end.
Provinces are also conducting investigations, particularly on money laundering. There has to be some coordination with the provincial Crowns and other bodies in order to monitor all those files. Ideally, we would build a system that could provide us with all that information.
However, our role is not necessarily to collect all that information but rather to provide police forces with useful intelligence. And that is something we have been measuring for some years. In the past two years, we have produced questionnaires that are distributed to police forces in order to gather their feedback within 30 days following reception of our disclosure as well as at the end of their investigations, in order to give us a status report. As you well know, criminal investigations can take a number of years. We are now starting to receive information on cases that we disclosed two years ago with the new questionnaire. Within a few years, I expect that we will have a better database that will help us identify cases in which we made disclosures, as well as their outcomes.
That is a program we implemented some years ago. In response to recommendations from the Auditor General and Privacy Commissioner, we should obtain information on our performance, which will gradually improve.
Senator Joyal: That is the point I wanted to raise. I suppose that madam Fraser's team at the Auditor General's Office simply used the value for money principle, i.e., given that so much is spent within the agency, what are the actual benefits or how is the information that is gathered by the agency put to practical use.
Mr. Meunier: Feedback from the police departments is also very good. We measure satisfaction. We ourselves cannot pass judgement on the activities and resources available to the police departments. They have their own priorities and, even though we do provide them with leads, they have limited resources. Accordingly, we cannot expect all cases to be concluded the same way.
We have seen cases where disclosures have been made separately; two or three disclosures have been made and there is a realization that they pertain to one network in particular. They then have to decide whether to focus on 50 individuals or three or four. We may have released ten or so disclosures and the information is used only to investigate two or three of the more important individuals in question. It is difficult to use this as a performance measurement tool. We are doing what we can with a new questionnaire in order to gauge the police departments' evaluation of the quality of information we provide to them.
Senator Joyal: You said that you have had this program running for two years and that it will help you assess your effectiveness and your work objectives.
With all of the third party agreements that you have on the exchange of information, have you already come up against banking secrecy in some countries, such as Switzerland?
Ms. Jelmini: We do not currently have a memorandum of understanding with Switzerland. We have not managed to reach an agreement with this country and therefore we do not have any exchanges with it. Of course some countries have different rules and do not necessarily have available information. That being said, exchanges usually proceed very well with those countries with whom we have a memorandum of understanding.
Senator Joyal: I will be even more specific: have you agreements with countries recognized as being tax havens?
Mr. Meunier: Yes, we have agreements with the Bahamas, Barbados, Bermuda, the Virgin Islands and the Cayman Islands. We have memoranda of understanding with the countries which, according to the OECD, have already been identified in the past as being tax havens.
Senator Joyal: I would like some clarification about the G8 negotiations regarding the openness of countries that impose bank secrecy. Of the objectives that have been defined, would the one pertaining to a relaxation of bank secrecy — which is being sought by the G20 and, in particular, by the European Union — make your job easier?
Mr. Meunier: This is a question for the Minister of Finance; FINTRAC does not deal with tax treaties. We do business with our peers who are foreign financial intelligence units. When we exchange information, we do not normally focus on tax evasion but rather on money laundering or the funding of terrorist activities. As far as we are concerned, we exchange information with our foreign peers and it is up to them to make the decision. Our requests for information pertain to money laundering.
Ms. Jelmini: Information is exchanged with certain countries that Mr. Meunier defined clearly. There is an exchange of information with respect to the financial intelligence cell.
Mr. Meunier: This is intelligence that pertains specifically to money laundering and the funding of terrorist activities. I was under the impression that you were perhaps referring to tax evasion.
Senator Joyal: I was talking about three components since tax evasion is nonetheless a crime all the same.
Mr. Meunier: True, except that tax evasion is an underlying offence to money laundering since July of this year, if I am not mistaken.
Senator Joyal: However, in the case of money laundering, we are talking about a major activity. We are well aware of how Switzerland has been used by numerous dictators and many criminal organizations around the world as a place to launder money, in order to give the operation legitimacy. It appears to be an extremely important aspect of the effectiveness of your activities, when you are up against a country like that, that ultimately does not help countries like Canada and others fight against money laundering and the funding of terrorist activities.
Mr. Meunier: Be it that country or other tax havens, what draws our attention, our analysis, are the following transactions — I was going to say money laundering trends — that fit money laundering or terrorist activity criteria. This does not, however, prevent us from identifying potential instances of tax evasion, but I must say that our mandate keeps us focused on transactions that do not necessarily appear to be about tax evasion but rather money laundering. In some cases, the criteria are similar. I do not mean that we ignore instances where transactions originate in tax havens. On the contrary, we deal with them. But our attention is focused on financial transaction trends that appear to the instances of money laundering.
Mr. Carrière: It is important to make the distinction between money laundering and the underlying offence. For example, if I sell drugs, it is a crime; but I have not necessarily laundered money because I sold drugs. If I am a user, I can easily use all my profits and not launder any money whatsoever. The same is true for many other offences. FINTRAC really looks at the laundering aspect and not at the offences underlying money laundering, so not at the offence used to produce the proceeds of crime.
[English]
Senator Wallin: I share your concern about releasing numbers when you have an automatic trigger that launches your activity and no control over whether prosecutions are carried out by another country or domestic activity here.
You talk about these numbers, and we mentioned here today that many of the issues seem to be related to money laundering as opposed to terrorist activity. It makes sense; obviously, it is more difficult to track and confirm the terrorist activity.
How much more difficult is that made by the lack of access or the restrictions that you have in terms of dealing with non-profits, charities or pseudo-religious organizations? We have seen a lot of that stateside, and I assume the issue is the same here in Canada.
Ms. Jelmini: With respect to the charitable sector, about one third of FINTRAC disclosures include some charities. We have access to a large amount of information from the CRA website. When we see that a charitable organization may be involved in the transaction, we can take quite a bit of information from the publicly available CRA Charities Directorate. CRA Charities Directorate is also a recipient of FINTRAC disclosures. We provide relevant information to that directorate.
Senator Wallin: The problem is if they are not. I refer to a charity or a not-for-profit without official status.
Mr. Meunier: This is where the role of the private sector or the reporting entities is crucial. We provide guidelines to them with respect to the identification of suspicious transaction reports. Obviously, they can monitor EFTs and provide suspicious transaction reports on the EFTs or sometimes just small deposits. They detect patterns and send us information concerning activities that can include deposits made by an account holder with many accounts with the funds collected elsewhere. They detect these patterns and send us information in that regard. Those STRs can be very useful to us.
It is complex and difficult. I would say that 95 per cent of our disclosures include reports coming from banks; 50 per cent of the transactions come from MSBs and about 5 per cent from casinos. When we put a case together, we are getting information from many reporting entities. The reporting entities — in particular, the banks and MSBs — have been useful in identifying suspicious transactions, particularly related to TF.
Senator Wallin: We have heard stories about the outpouring of money for Haiti and even activity about money going to Egypt. It is difficult to assess where that money goes and for what purpose it is used.
Mr. Meunier: In some cases, we rely on the police and CSIS.
Senator Wallin: That is at the other end.
Mr. Meunier: They operate internationally in the sense that they have liaison officers and colleagues in other police forces, other security agencies. If there is a suspicion of terrorist financing wherever the money may land, they will provide that information to us or at least we count on them to provide it to us. We have always had a good relationship with them, but that relationship has intensified over the last several years and they involve us very early in their investigations. That is the best I can do to answer the question.
Senator Wallin: That is reassuring.
Senator Joyal: My question is about the security of your computer system. How impenetrable is it? We read today that one financial institution has had its confidential system bugged and the information was leaked. They presumed they were operating under the toughest security rules.
[Translation]
To what extent is your system secure?
Mr. Meunier: We believe that our system is extremely secure. No outsiders have access to our data. To this end, I can refer you to the Privacy Commissioner who, in fact, looked at the security of our IT systems and concluded that they were quite secure.
I do not know whether my colleagues have anything to add to this. We have confidence in the security of our systems. No outsiders have access to them. When we hire staff, candidates are subjected to security checks. Each FINTRAC employee must have secret clearance and must meet the conditions for top secret clearance.
So, in terms of national security, we have a great deal of confidence in our staff. As I mentioned, no one from outside has access to our systems.
Senator Joyal: That will be true as long as you are not victim of an entity like Wikileaks, as we have seen in recent months. You work with the more sensitive organizations within Canadian government, the police and the Royal Canadian Mounted Police. You are tied directly to national security. I think that you have the duty to be responsible for the security of your systems, which seem exceptional to me, given the information that you have on individuals and governments.
Mr. Meunier: You are right, and we take this responsibility very seriously. Our partners are from CSIS and from various security communities in Canada. Let me assure you that they would not share their information with us if they did not trust us.
Our security and infrastructure are verified by the Communications Security Establishment (CSE). We are satisfied and confident in the security of our infrastructure and of our personnel. Fortunately, up to this day, we have not had any problems of that nature. Obviously, we hope that things will continue like this. However, we take these responsibilities very seriously.
This week, our personnel will be taking part in an annual campaign when we review our security rules. We follow government policy in security matters in an almost exemplary fashion, as the Privacy Commissioner said. We believe that we are in a good position, and we take our responsibilities very seriously.
[English]
Senator Marshall: Are you aware of a security breach?
Mr. Meunier: I am unaware of any security breaches, although we have had infractions.
Senator Marshall: That would be such as leaving a briefcase in a car?
Mr. Meunier: No, something on your desk; we have a clean desk policy. People cannot walk into our offices from the street. Our security staff performs regular security inspections.
Senator Marshall: Have you had any indications that your system has been breached?
Mr. Meunier: Absolutely not. We are very conscious of security.
[Translation]
Senator Joyal: Mr. Meunier, I imagine that, like every Canadian, you are watching the developments abroad. When you learn that a country is in a very sensitive political situation and that the public figures in that country have known assets in Canada, does it trigger any thoughts or any actions on your part?
Mr. Meunier: We read the newspapers daily. A service informs us about the issues that we are concerned with. Be it money laundering or funding of terrorist activities, we are informed on a daily basis. When we deem it appropriate, we follow up on the open sources available to us to see if we should go ahead with an analysis.
Senator Joyal: Your criterion of "reasonable grounds to suspect'' is not as strict as the standard of criminal law. Your sensitivity must therefore be more acute and your antenna must have a wider scope in order to tune in to situations which, at first sight, may raise reasonable doubts.
Mr. Meunier: We are carrying on with our reading and research among open sources in the sectors that concern us or that concern police forces or security services.
We do not need to have a reasonable doubt in order to launch a procedure or to read newspapers. We must meet the standard at the time of disclosure. We keep a close watch on world developments.
Senator Joyal: Thus, we can send you some newspaper articles.
Mr. Meunier: We have a very efficient service that serves us very well.
Senator Joyal: Do you often work on the basis of anonymous whistleblowing?
Mr. Meunier: Not often, but we do receive information volunteered by the public. Most of it does not contain enough information and many disclosures are anonymous. However, in some cases we have pursued our inquiries and we have been able to supply information to police forces or to other agencies.
Mr. Carrière: I would like to note that FINTRAC has the legal right to receive information from the public only if the information points to suspected activities of money laundering or funding terrorist groups. Therefore, this is not whistleblowing in the general sense of the word.
Senator Joyal: So these are not cases where somebody has a grievance against somebody else and gives that person's name simply to harass him by launching an investigation into his banking or financial operations. However, in current practice, based on your professional ethics, I would be interested in knowing how you can get beyond the mere manipulation of computerized systems, when an additional $10,000 suddenly appears in some person's account. What other information do you receive that would trigger a specific assessment of a situation?
Ms. Jelmini: There are many ways to open new files by following up on suspect operational patterns or from sources in the media. We also have classified information that could lead us to decide to open a case regarding a given entity. There are a variety of sources of information that may trigger an analysis and ultimately lead us to provide information about a case to an appropriate service such as an intelligence service, et cetera.
Senator Joyal: A police force can make an arrest and as they interrogate the suspect they can discover new information that calls for a more advanced investigation concerning, for instance, money laundering or even a terrorist activity. A presumed terrorist can give out information during an investigation that specifically requires that you launch an investigation as well.
Mr. Meunier: This information could be provided to us voluntarily by the police at any time, be it at the outset of the investigation or later on, in accordance with the facts that they discover. We could help them out at that point.
Senator Joyal: Very well, thank you.
[English]
The Chair: As a final matter, do you have an update you might want to share with us further to the report that came out in 2009, Money Laundering and Terrorist Financing Typologies and Trends in Canadian Banking? Has there been a change in the pattern since that report was published? Has there been any change in the pattern that has occurred in a way that you and your colleagues have noticed that would suggest that there is some specific advice or reflection we as a committee that is supposed to give advice on anti-terrorist measures might offer and that would be constructive in that respect?
Mr. Meunier: I do not think anything substantial has changed since then. We have observed over time, particularly with respect to TF and TH, three or four key points. There continues to be a prevalence of electronic funds transfers. That is not a change, but it continues. We are finding that there is a continued use of business and corporations as a means to either commingle or disguise funds. In fact, I think there might have been a slight increase in their use. There continues to be a use of NPOs and charitable organizations. Those are staples, and they have not changed that much.
One thing that may have changed slightly over the last four or five years is an increase, and this should be interpreted very carefully, in our detection. That does not mean this is what is happening beyond the detection aspect. We are connecting more money laundering and terrorist financing and threats to the security of Canada. We are noticing more transactions that look like money laundering. Four or five years ago, perhaps 19 per cent of our cases would have a money laundering component to them — I am talking about threats to the security of Canada and terrorist financing cases — and today that has increased to about 33 per cent of our cases. That has changed, but apart from what you have said, those other key elements have remained the same.
The Chair: I know I speak for all of my colleagues on the committee when I express our profound thanks, not only for your presence today but for the tremendous work you do on behalf of Canadians and national security and the integrity of our financial system. We thank you for sharing the information with us, and we wish you well in your future endeavours.
For those watching these proceedings and for member of the committee, we will next meet on February 14 at 8 p.m. We will meet at that time so that we can have teleconference proceedings with Dr. Renwick and Dr. Syrota in Australia.
(The committee adjourned.)