Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue No. 49 - Evidence - November 22, 2018
OTTAWA, Thursday, November 22, 2018
The Standing Senate Committee on Banking, Trade and Commerce met in camera this day at 10:31 a.m. to study the present state of the domestic and international financial system (topic: the collection of financial information by Statistics Canada — consideration of a draft report); and to examine the subject matter of those elements contained in Divisions 3, 4, 6, 7 and 10 of Part 4 of Bill C-86, A second Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018 and other measures.
Senator Douglas Black (Chair) in the chair.
(The committee continued in camera.)
(The committee resumed in public.)
The Chair: Welcome to those attending these meetings of the Standing Senate Committee on Banking, Trade and Commerce, either here in the room or listening via the web. My name is Doug Black. I’m a senator from Alberta and I chair this committee. I’m going to ask if my colleagues would introduce themselves to the panellists, please, starting with Senator Wallin.
Senator Wallin: Pamela Wallin from Saskatchewan.
Senator C. Deacon: Colin Deacon from Nova Scotia.
Senator Tannas: Scott Tannas from Alberta.
Senator Wetston: Howard Wetston, Ontario.
Senator Tkachuk: David Tkachuk, Saskatchewan.
Senator Stewart Olsen: Carolyn Stewart Olsen, New Brunswick.
Senator Klyne: Good morning. Marty Klyne, Saskatchewan.
The Chair: Today we’re continuing our subject matter examination of various elements of Part 4 of Bill C-86, Budget Implementation Act 2018, No. 2. In the first part of our meeting today, we’ll focus on Division 3 of Part 4, which deals with the financial sector.
I’m very pleased to welcome a distinguished panel of witnesses, a number of which we have seen here before. I recognize some familiar and friendly faces. I’m happy to introduce, from the Department of Finance Canada, Justin Brown, Director, Financial Stability, Capital Markets Division, Financial Sector Policy Branch; and Manuel Dussault, Senior Director, Framework Policy, Financial Sector Policy Branch. I believe we have a replacement for Yuki Bourdeau, and perhaps you could introduce yourself, sir.
Olivier Paradis-Béland, Senior Economist, Framework Policy, Financial Institutions Division, Financial Sector Policy Branch, Department of Finance Canada: Olivier Paradis-Béland from Finance Canada, Senior Economist.
The Chair: Thank you very much.
From the Office of the Superintendent of Financial Institutions Canada, we have Theresa Hinz, Managing Director, Legislative Policy, Interpretations and Compliance, Regulatory Affairs Division. From the Canada Deposit Insurance Corporation, we have Gregory Cowper, Managing Director, Policy, Insurance and Emerging Risks.
Thank you all very much for being with us today. We are going to start, as you all know, with opening remarks, beginning with the Department of Finance.
Manuel Dussault, Senior Director, Framework Policy, Financial Sector Policy Branch, Department of Finance Canada: I will begin with subdivision A and will then yield the floor to my colleague Justin Brown, who will talk about the subsequent subdivisions.
Subdivision A proposes four amendments to financial institutions statutes. The first two are substantial, but targeted, and the last two concern corrections.
The first set of amendments, clauses 130 to 134, would reduce unnecessary administrative burden for the Office of the Superintendent of Financial Institutions and for financial institutions.
Superintendent approval is required for substantial investments in entities that engage in financial intermediation activities that expose them to market or credit risk, for example, an unregulated lender. In practice, because the OSFI supervisory framework focuses on material risk, superintendent approval is granted as a matter of course when investments are relatively small.
The proposed amendments would exempt financial institutions from seeking superintendent approval when the value of a proposed investment relative to the value of the acquiring institution is below a materiality threshold. For large financial institutions, the threshold would be 1 per cent for the acquisition of control and 0.5 per cent for non-controlling substantial investments. Corresponding thresholds for small- and mid-sized institutions would be twice as large. The objective of the lower threshold and stricter thresholds for large financial institutions is to ensure that sizable investments made by large institutions remain subject to prudential approval by the superintendent.
The second set of amendments, clauses 135 to 151, would allow financial institutions to indefinitely hold a substantial investment in the Canadian Business Growth Fund.
The fund was established by Canada’s largest financial institutions following a recommendation of the Advisory Council on Economic Growth. The fund will make long-term patient minority investments in SMEs that have an established customer base and a compelling growth potential. The financial institution statutes generally prohibit financial institutions from acquiring substantial investment in commercial, non-financial entities. The amendments would create an exception from this general prohibition.
Amendments would include a number of restrictions to ensure that this new flexibility is circumscribed. First, to avoid crowding out capital from other sources, the amount of capital that each financial institution is authorized to invest will be limited to 200 million. Second, to be consistent with existing venture capital rules and to maintain the commercial financial distinction, financial institutions will not be allowed to invest through the fund in regulated financial institutions and in entities that are primarily engaged in leasing or acting as insurance brokers or agents. Third, to ensure the fund remains focused on SMEs, the total exposure to a single business will be limited to 100 million. These restrictions are consistent with the fund’s business plan.
The third set of proposed amendments, technical amendments, clauses 152 to 154, would align the legislation with the policy intent of enabling financial institutions to provide information to customers or shareholders electronically. Amendments would make it explicit that customers or shareholders may provide consent electronically.
Finally, the fourth set of amendments, clauses 155 and 156, would fix an incorrect cross-reference in the English version of the previous Budget Implementation Act.
The Chair: Could you repeat the last point. What did you say?
Mr. Dussault: The fourth set of amendments would just fix an incorrect cross-reference in the English version of the previous budget implementation.
The Chair: Thank you very much.
Justin Brown, Director, Financial Stability, Capital Markets Division, Financial Sector Policy Branch, Department of Finance Canada: Thanks, Manuel. I’m here to speak to Part 4, Division 3, subdivision B and C. I’ll give an overview of each and then, of course, welcome questions and comments.
Subdivision B relates to amendments to the Canada Deposit Insurance Corporation Act, or CDIC Act. There are three different types of changes. I’ll go one by one.
The first changes are technical amendments. For these, the government is proposing technical amendments to the CDIC Act to clarify ambiguous language and ensure that the statute remains clear and reflects its underlying policy intent. Clause 163 proposes a change to clarify the provision for the calculation of insured deposits by limiting it to a calculation methodology approved for the use of that premium year. Clauses 157, 162 and 164 repeal outdated references to the deposit insurance fund and accumulated net earnings, as these references reflect outdated accounting practices. Clauses 165 to 166 repeal amendments not in force relating to the minimum annual premium payable by CDIC member institutions. Finally, clauses 159 to 160 would clarify rules for extended deposit insurance coverage following the amalgamation of two or more CDIC members or the establishment of a federal credit union. Those are the first type of CDIC amendments.
The second type is set off. The proposed amendments to the CDIC Act seek to specify that the liquidator of a CDIC member institution may not apply the law of set-off or compensation to a claim related to insured deposits. This amendment would protect the CDIC by ensuring that it can claim the full payment of insured deposits made to depositors, and that is clause 161.
The last type of change under Subdivision B is clause 158, and it relates to CDIC borrowing authority. The proposed amendments to the CDIC Act seek to exempt borrowing by the CDIC under section 60.2 of the Financial Administration Act in the calculation of its borrowing limit. This amendment would support the government’s ability to loan money to CDIC in a timely manner to promote financial stability and efficiency.
Last for me is Part 4, Division 3, Subdivision C. These changes are clauses 167 to 173, and they relate to legally privileged information provided to the Office of the Superintendent of Financial Institutions, or OSFI. The proposed amendments to the financial sector statutes — I’m happy to list them, if you would like — would clarify that where a financial institution provides privileged information to OSFI, it does not waive any privilege with respect to this information. These amendments would support continued access to financial institution information by OSFI, which is important for OSFI to be able to fulfill its supervisory mandate.
Theresa Hinz, Managing Director, Legislative Policy, Interpretations and Compliance, Regulatory Affairs Division, Office of the Superintendent of Financial Institutions Canada: Good morning, everyone. Bonjour. Thank you, Mr. Chair, for inviting OSFI to appear before the committee today. My name is Theresa Hinz, Managing Director of the Legislative Policy, Interpretations and Compliance team. My colleague Ryan Cassidy joins me today. He is the senior manager of legislative interpretations.
As you know, our organization is charged with supporting the safety and soundness of banks and federally regulated trust, loan, and insurance companies through regulation and supervision of those institutions.
At his recent appearance here, the superintendent focused on regulators needs to guard against complacency. We need to continue to find the balance between protecting depositors, policy holders, other creditors of financial institutions and allowing institutions to compete and take reasonable risks.
The amendments proposed to the federal financial institutions legislation in the sections of the bill being studied here today were developed with due consideration of that balance.
OSFI believes regular review of the federal financial institutions legislation is very valuable. Such reviews enable OSFI to propose changes that will strengthen our ability to regulate and supervise institutions. They also ensure the legislation remains relevant in a rapidly changing environment.
The proposals before you today are worthy of consideration. With that, I am happy to answer your questions.
Gregory Cowper, Managing Director, Policy, Insurance and Emerging Risks, Canada Deposit Insurance Corporation: Mr. Chairman, we are pleased to appear here today. Overall, we support the proposed amendments to the CDIC Act that provide us with greater flexibility, speed and scalability, and improve our ability to carry out our mandate and protect Canadian depositors.
As it stands, CDIC has accumulated a pre-fund of more than $4 billion that stands ready to help us address member failures without having to borrow money. In addition, we currently have the ability to borrow approximately $23 billion from markets or the government, which we expect would be sufficient to meet the financial demands of resolving small- or medium-sized member financial institutions.
The proposed amendments would allow CDIC, as the resolution authority for Canada, to have access to timely and sufficient funds to support financial stability in extraordinary circumstances, such as the failure of several small- and medium-sized members at once or the resolution of a systemic bank. This would allow CDIC to more effectively carry out its mandate to protect financial stability.
The changes also help ensure that the cost of bank failures is paid for by the Canadian banking industry, not taxpayers, since we do recoup our costs and losses through future premiums. The proposed legislation also contains important amendments related to the protection of CDIC’s ability to recoup amounts from the estate of a failed member institution. There are also several housekeeping measures that we consider important for our normal operations.
Thank you very much.
The Chair: Thank you very much. We are going to move to questions.
Senator Wetston: I have just two quick questions.
Mr. Dussault, it’s really the issue of the size. I realize there is a lot of information in the amendments regarding the efforts to try and reduce the need for OSFI to review transactions of a certain size but continue to review transactions of another size. I know you have this in the amendments. It seems to me that your entire approach is quantitative. It’s a number. It doesn’t really address any impact. The failure or acquisition of an institution that might have issues of credit, leverage, liquidity or whatever would not then come within the scope of an OSFI review. That could lead to issues because those institutions will have customers and clients, and the result of that impact could be fairly significant for that group. I realize it’s an acquisition, but acquisitions can lead to issues obviously. You frame this in a materiality standard. I don’t know how you define a materiality standard except by size. Normally, in financial markets, materiality standards are determined on impact, the best being changed circumstances associated with price or other conditions in markets. I’m not suggesting this is in any way inappropriate. I just don’t completely understand the approach other than a number.
Mr. Dussault: Thank you, Senator Wetston, for your question. This measure was developed in collaboration with OSFI. OSFI has been applying similar measures for transactions that don’t necessarily require approval, so it’s been road tested from that perspective. Maybe I can turn to my colleagues from OSFI to explain that approach.
Senator Wetston: I may just be missing information.
Ms. Hinz: I would add that it’s numerical and empirical in terms of assessing whether or not the acquisition is material. What would then happen is because of our supervisory regime and our ability to regulate, once the investment is actually part of the institution, then it would be examined to determine if anything else would need to be done in terms of the regulation framework and any other measures that the financial institution might need to take.
Senator Wetston: So you are saying that continued prudential oversight would continue.
Ms. Hinz: Exactly.
Senator Wetston: It’s hard to unscramble the eggs, though.
With respect to CDIC, I understand your approach and the $4 billion that you addressed. You consider yourselves to be a resolution authority, which is obviously necessary. How do you deal with the Bank of Canada, which invariably is the lender of last resort in certain unfortunate circumstances? You appear to be taking on that role in other circumstances. I recognize you want to avoid moral hazard as much as possible, which I think is a laudable goal, but how you address your role with the Bank of Canada role in those kinds of circumstances, should that occur?
Mr. Cowper: We do have distinct mandates. The Bank of Canada has a role in providing emergency liquidity assistance, and we have the authority and the ability to provide liquidity as well in certain circumstances. The Governor of the Bank of Canada sits on our board of directors, as does a deputy governor, so our operations and our views are very well coordinated right at the top of the house at the Bank of Canada. We also sit at FISC, along with the heads of the other safety-net agencies. Similar to our relationship with the folks at OSFI and the Department of Finance, we have a well-coordinated system based on the standing permanent committees. This system ensures that decisions that are taken are made in the best interests of the financial system and in a way that leads to the most efficient and effective results.
Senator Wetston: I wanted to understand when you might act and when the bank might act.
Mr. Cowper: The use of, for example, ELA for a small- or medium-sized bank would be in extraordinary circumstances and under particular conditions, and the Bank of Canada has a policy around that. In our circumstances, when would we act? It would be related to the resolution of a particular financial institution. The resolution would have to lead to a result that minimizes our exposure to loss, protects depositors and maintains financial stability. We each have the authorities, and the decisions would have to be made at the right time.
Senator C. Deacon: I’m going to ask about the business growth fund. This is all bank investment. There’s no government investment going along with it, as I understand it. You are enabling bank investment. I have struggled with understanding why this is viewed as a priority for the banks to be investing at the later-stage end of the market because, over the last few years in Canada, that end of VC investment has been growing substantively where the seed and pre-seed levels have been dropping, in absolute terms. You need that feedstock of good investments. Our later stage investments attract investors from all over the world, which is what we want to do. We want to have that globally competitive investment level. I’m just wondering why this was viewed as a priority. Help me a little bit on it. The genesis of it has puzzled me.
Mr. Dussault: The amendments come at the back end of the establishment of the business growth fund. The business growth fund was established following the recommendation of the grow council. The stakeholders came to us and indicated that there are limitations and financial institution statutes that limit the banks’ ability to invest long-term. We do have the ability for financial institutions to invest for 13 years in commercial ventures, but that limit is 13 years. The need was for capital to company SMEs for their long-term investment and growth. That 13 years was seen as being too limited for the intent of the business growth fund and for their niche in the market.
Senator C. Deacon: I understand you are proposing legislative changes to enable this to function, so I get that. However, I am still struggling with where the focus is and why the focus was put on this at the late stage of investment, because that is not a part of the investment cycle where there is a big gap at this stage in Canada, and why we are not enabling more early-stage investment and focused on that. The pre-seed and seed are the ones that will ultimately require this. The minimum investment sizes and the size of the companies requires this. This is late-stage investment. Perhaps you are unable to answer that question. I understand that.
Senator Tannas: I want to ask Mr. Dussault something. I am looking through the materiality threshold calculation. For institutions larger than $12 billion of shareholders’ equity, it is half of 1 per cent. Royal Bank has assets of about $1.4 trillion, so we would be talking about a $700 million threshold. But I thought I heard you say that there is a ceiling of $100 million. Did I misunderstand that?
Mr. Dussault: It was a bit different. The ceiling of $100 million was with respect to the business growth fund. It is the ability to invest in one SME. It is a limit on total investment of the business growth fund in one SME.
Senator Tannas: But not in terms of acquisition. RBC could pay $700 million for something that is a permitted entity without requiring any approvals from the regulator. Is that right?
Mr. Dussault: The amendments are really about superintendent’s approval. There are still ministerial approval required for acquisition of a financial institution, for example.
Senator Tannas: I am talking about if they buy a fin-tech. You could buy a snazzy fin-tech in Canada for $700 million today — to Senator Wetston’s point — that could reshape and have a huge impact on financial services in Canada. Is that fair to say, do you think?
Mr. Dussault: It is a sizeable investment. That is why the amendment has a lower threshold for large financial institutions. As my colleague from OSFI said, there are other supervisory tools, of course.
Senator Tannas: This goes to the climate that Canada has benefited from but the institutions have benefited from as well. There are five or six very large guys, and they can wipe the slate clean in certain segments if they want. We have seen it over the years with trust companies, investment banks and so on. Does this somehow create a situation where an entire sector at an early stage could be swept up quickly by two or three banks working to buy it up? Is that not something that you would at least want to have a look at before you said yes?
Mr. Dussault: The approvals that these amendments change are superintendent approvals, which are really safety and soundness approvals. That is what the mandate of the superintendent is.
Senator Tannas: The Competition Bureau?
Mr. Dussault: Yes.
Senator Tannas: I get you. Thank you.
Ms. Hinz: Also, if it were a control, if they were purchasing it to control it, then there would be a ministerial approval. It would only be for the superintendent if there were certain types of risks. I would say there is still a framework to monitor and understand what the investments are.
Senator Tannas: Fair enough. Good. Thank you.
The Chair: Very interesting.
Senator Stewart Olsen: I, too, may have misunderstood, Mr. Brown, your presentation. You said there was a housekeeping technical amendment for the CDIC and the ability of the government to loan money. Are you increasing that threshold? What was that amendment? I probably missed what you said.
Mr. Brown: No problem. We weren’t necessarily classifying this as a housekeeping or technical amendment.
Senator Stewart Olsen: It was in your presentation.
Mr. Brown: It was. To be clear, it is important in terms of the government having the ability to loan CDIC money. It won’t be changed with this proposal. CDIC’s borrowing limit is capped under the CDIC Act. It’s indexed to the amount of insured deposits. Right now, it is about $23 billion, as Greg said.
The minister also has the ability under the Financial Administration Act, section 60.2, to loan money in order to promote financial stability or maintain the efficiency of the financial sector.
Senator Stewart Olsen: Yes.
Mr. Brown: Under those extraordinary circumstances, the amendments would allow the government to lend money to CDIC, and the changes in that money would not count toward CDIC’s borrowing limit.
As Greg mentioned, under most foreseeable circumstances, they have sufficient funding. The other authorities within the financial sector set framework have sufficient funding, powers and tools to manage likely scenarios. In an extreme scenario, CDIC might have multiple payouts, or there may be a large bank in trouble, and needs may exceed that $23 billion limit. This would allow the government in a timely and efficient way to lend additional funds to CDIC.
Senator Stewart Olsen: I find this strange. We went through many years of global recession and managed to keep to the $23 billion, which is that cap. Why is the government envisioning a necessity to have this extra amount of money that seemingly is not required right now?
Mr. Brown: I would agree it is not required right now. We do a lot of thinking about worst-case scenarios and being prepared for those worst-case scenarios.
Senator Stewart Olsen: I will stop you there. Are you envisioning now a worst-case scenario? Obviously, you must if this is coming out. I would flag this, actually. It came in your presentation under “housekeeping” or “technical changes,” and it isn’t. It is a very large change in anticipation of, perhaps, a scenario that we are maybe not seeing right now. I am fine with your explanation. I had heard it correctly, but I wanted to make sure. Thank you.
Senator Klyne: My first question has two parts. The changes to the materiality threshold make sense. I have a question about why now. What are the expected outcomes for the banking sector as a result of this? The threshold makes sense, but why now and what is the impact for the outcome for the banks?
Mr. Dussault: Why now? It is part of the 2019 review of financial institutions, which we do every five years or so. It is the second phase of amendments. It is a proposal that was identified as a priority by our stakeholders, and that is why now.
Senator Klyne: To get to the other part of that and to try to understand the scope here, how much would have fallen below these proposed thresholds?
Mr. Dussault: OSFI went back through their previous cases to see how many would fall below the threshold. I will turn to my colleague from OSFI.
Ms. Hinz: Yes, I can take that. We have the statistics.
Based on if the proposals went through, between 2015 and 2016, it would mean that 40 per cent of the transactions that came to OSFI for approval of this type would not need to come to OSFI. That would be 13 out of 31 relevant investments.
The other piece in this that is important in terms of the burden reduction is that to come in for an approval takes time. Although once an application is complete it takes only four to six weeks, it is the run-up time to compile the application that can take sometimes three, six, seven months to have all the information. If an institution is in an investment situation where time is of the essence, that can be a long runway. There is a considerable burden reduction on financial institutions with respect to these thresholds, as well as OSFI, because that permits us to take those resources and deploy them in areas requiring our attention that may have more material risk.
Senator Klyne: I understand the objective there around the administrative burden. Can you put a dollar amount to that 40 per cent, or 13 of 31?
Ms. Hinz: I would have to come back to you on that.
Senator Klyne: That is a big number.
Ms. Hinz: We didn’t look at it in terms of a dollar amount, but if you’d like that information, I can see if we could calculate that.
Senator Klyne: Yes. I’m curious.
I think Senator Deacon’s point around coming in for the later stages versus not being there at the pre-stage, where it is really required, is an important observation.
What role did the federal government play in establishing the Canadian Business Growth Fund? What was the involvement for establishing that?
Mr. Dussault: I can only speak to my role, and it is really looking at financial institutions, so I am unable to answer your question today.
Senator Klyne: Are there any plans for the federal government to support the Canadian Business Growth Fund going forward?
Mr. Dussault: My involvement stops at these amendments. From our perspective, it is being driven by financial institutions’ investments.
Senator Klyne: Thank you.
The Chair: Panel, thank you very much not only for being here today but for the work that you do for us. Obviously, we are lucky to have people of your intelligence serving the country. Thank you very much.
We are continuing our subject matter study of Bill C-86, the Budget Implementation Act 2018, No. 2, and in particular, Division 4 of Part 4, which deals with the proceeds of crime.
For our next panel, I am pleased to welcome witnesses from the Department of Finance Canada: Lynn Hemmings, Acting Director General, Financial Systems Division, Financial Sector Policy Branch; and Maxime Beaupré, Director, Financial Crimes Policy, Financial Systems Division, Financial Sector Policy Branch. Welcome to you both. Opening statements, please.
Lynn Hemmings, Acting Director General, Financial Systems Division, Financial Sector Policy Branch, Department of Finance Canada: Thank you. Part 2, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, PCMLTFA, is administered by the Canada Border Services Agency, CBSA. It requires persons to report the importation of currency or monetary instruments — by that, we are talking about stocks, bonds, bank drafts, money orders — with a value of $10,000 or more. Part 2 also enables the CBSA to perform searches where there are reasonable grounds to suspect that a person or entity is carrying unreported currency or monetary instruments.
Where there are reasonable grounds to suspect they are proceeds of crime or funds for terrorist financing, the funds may be seized by or forfeited to the CBSA. Cross-border currency reports, as well as reports of cross-border seizures and forfeitures are collected by the CBSA and sent to the Financial Transactions and Report Analysis Centre of Canada, FINTRAC.
It is proposed to repeal a provision in Part 2 that pertains to the ability to withdraw the importation or exportation of currency. This provision regarding the declaration of currency is not aligned with similar provisions in the Customs Act regarding the declaration of goods. The operational experience in the application of this provision has shown that this could be a gap that could impede the ability of Border Services officers to seize funds crossing the border that they believe are linked to illicit activities.
It was found that the way the law was written created an unintended gap that would allow individuals or entities not to proceed to cross the border with currency when there was a possibility that currency could be forfeited pursuant to the legislation. This is inconsistent with how the cross-border movement of goods is treated under the law. This gap is problematic for the integrity of Canada’s anti-money laundering, anti-terrorist financing regime.
A strong and effective cross-border currency reporting framework is essential to support Canada’s commitment to the fight against transnational crime and terrorism and to contribute to the safety and security of Canadians. Thank you.
The Chair: Thank you very much. We will move to questions.
Senator Tkachuk: Welcome to both of you. There has been a lot of talk about money laundering in Canada. We have had a number of newspaper articles about the casino in Vancouver. There has been a C.D. Howe study, I think, on this very question. Why does there seem to be a suspicion that we are a real haven for money laundering in the world?
Ms. Hemmings: Criminals are extremely sophisticated. They are constantly innovating and finding new ways to undertake their illicit activities. We are always challenged and looking for ways to improve the integrity of the regime. It is an ongoing fight in combating money laundering and terrorist financing.
Senator Tkachuk: It was the C.D. Howe Institute, Hidden Beneficial Ownership and Control: Canada as a Pawn in the Global Game of Money Laundering.
I know we have this reporting system for the banks of $10,000, but every time we have had the officials testify before us on this, we always got the impression that there was a lot of information, but there was nothing really done about it. Prosecutions are rare; no one ever goes to jail. It seems like a waste of time, actually.
What the banks do, instead of using their own common sense and reporting when they see something suspicious, everything just runs through. Whenever they have a certain amount of money, they don’t even think about it. They run through because they are required to do so.
I really believe that we have a problem in this country. I would like to know if we are looking at any new ways to stop it.
Ms. Hemmings: The house Finance Committee launched a review. The administration of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act is subject to a five-year review. They released their report just recently with a series of recommendations, which we are considering, and we will be going forward with further changes to the regime.
Senator Tkachuk: Give me a clue as to what you might be looking at. Does anyone in the government say, “Hey, there’s a problem in Vancouver”? Vancouver’s big industry is Starbucks, yet homes cost $2 million for a couple hundred square feet in downtown Vancouver. Doesn’t anyone say, “I think there is a problem here?” Who is buying these homes? Why is this happening in a city that size?
Ms. Hemmings: There is a housing group looking at what is happening in the market, the affordability issue. A working group jointly with B.C. was recently announced to work on the real estate sector in B.C. to identify the trends and what type of measures governments can take to address the risks.
Senator Tkachuk: I think we should do this in the Banking Committee, actually. That is just a suggestion.
The Chair: We have done it before. Maybe it is time to refresh.
Senator Wetston: I think this is the matter of beneficial ownership that we have talked about initiating in the Banking Committee. I currently have an inquiry presently in the Senate on this very matter, dealing with beneficial ownership. There are amendments in the budget bill, in part dealing with beneficial ownership, which I am happy to see. I think we will have officials come and speak to that matter.
Ms. Hemmings: Yes.
Senator Wetston: Picking up on Senator Tkachuk’s question, how does this relate to FINTRAC’s responsibilities? Of course, I realize we are talking about institutions and not what you are addressing here directly, but is there any relationship?
Secondly, I think what Senator Tkachuk is getting at is a very serious issue that has been addressed and is difficult. I would like to direct my question to the following: We are talking organized crime here. We are talking sophisticated individuals who use private corporations and other tools and vehicles to be able to launder money. What you are getting at here is someone crossing over and saying, “I have $10,000 in my pocket.” That will not happen. You will not get at the real source of the problem here with this. Maybe it is a worthwhile amendment. It seems to me it will be useful for statistical purposes but not from the point of view of fighting crime. Perhaps you can help me with that.
Maxime Beaupré, Director, Financial Crimes Policy, Financial Systems Division, Financial Sector Policy Branch, Department of Finance Canada: Thank you for your questions. On the issue of how it relates to FINTRAC’s authority, we are not affecting the authority of FINTRAC with this small amendment. The reports are collected by the CBSA when travellers do declare currency or other monetary instruments they are carrying. These reports are submitted to FINTRAC, and they contribute to the analytical work FINTRAC does to develop a financial intelligence that can get disclosed to law enforcement when they suspect money laundering or terrorism financing offences are being committed. I can go more into that if you require.
On the other point, you are right. Organized criminal groups are very sophisticated, transnational organized crime in particular. One clear typology for money laundering is the movement of cash across borders. It facilitates the life of criminals when money crosses jurisdictions because it is more complicated for law enforcement to investigate and obtain warrants. It is typical that cash would cross borders from an illicit nature as part of the money-laundering process. For both deterrence and detection reasons, it is very important to have a strong cross-border currency regime, but it is obviously not the silver bullet to address this problem. It is only one tool in the tool kit.
The Chair: I want to follow up on that. I read recently — perhaps it was in The Economist, but I don’t recall — that if you are a bad guy, no problem. If you are moving money around, if you are a terrorist or you are laundering money, involved in crime, then Canada is considered a very desirable place to move money through. I actually believe I saw a table. I wish I could remember where, but I don’t. Did you see that? Would you agree with that statement?
Mr. Beaupre: It is true that Canada is vulnerable to money laundering, like many other advanced economies. We have a stable, growing economy, strong financial institutions and an open political and lively economic and social life. All of these characteristics that we value as a society are actually aspects that can be exploited by criminals for laundering money.
To be honest, criminals are also interested because their money is safe. That fact that we have a sound and resilient financial system is something that they are looking to exploit as well. For that reason, Canada, among many other advanced economies, is vulnerable to money laundering. This is why we need to have a robust system in place to both deter it and detect it when it happens.
The Chair: Thank you very much for that.
Senator Dagenais: I have two questions. First, how many people have tried to cross the border with more than $10,000 and were then criminally charged? And in how many cases can you say those individuals were connected to criminal or terrorist groups?
Mr. Beaupré: Thank you for the question. We have those statistics and could provide them to you. We also have the data on individuals who have tried to cross the border and were intercepted by the Canada Border Services Agency for failing to declare the money they had. We could certainly provide you with information on that.
Senator Dagenais: I would like to come back to what Senator Tkachuk said about certain foreign entities that sometimes make “questionable” real estate acquisitions. Do you have the same concerns about money that arrives in Canada, but through traditional banking channels?
Mr. Beaupré: I’m not sure I understand your question.
Senator Dagenais: Correct me if I am wrong. Let’s say I have a bank account, and I suddenly deposit $450,000 in it. Would that get your attention?
Mr. Beaupré: You talked about the issue of cross-border payments that come through the traditional banking system. Among the obligations established in the Proceeds of Crime (Money Laundering) and Terrorists Financing Act, are those financial institutions must fulfill when they receive an international electronic transfer of over $10,000. Any electronic cross-border transaction in excess of $10,000, whether it is coming in or going out, must be reported to the Financial Transactions and Reports Analysis Centre of Canada, FINTRAC. That is not because the transaction raises doubts. Any transaction that exceeds that threshold must be reported to the agency.
You mentioned the case of a deposit in your bank account, but not internationally. If there was a cash deposit of $450,000, that would also lead to an automatic report to FINTRAC. That transaction is done electronically, but at the national level. Financial institutions are not required to report unless suspicion is involved. The institution must do that analysis, and the transaction could be reported to FINTRAC.
Senator Dagenais: Thank you very much.
The Chair: Thank you very much, panellists. You have given us food for thought. We’ll move to the next panel.
We are continuing our subject matter study of Bill C-86, the Budget Implementation Act 2018, No. 2, and in particular, Division 6 of Part 4, which deals with beneficial ownership.
I’m pleased to welcome the witnesses in our third panel, again from the Department of Finance Canada, Lynn Hemmings, Acting Director General, Financial Systems Division, Financial Sector Policy; as well as Safeena Alarakhia, Senior Adviser, Financial Systems Division, Financial Sector Policy Branch; and again today, from Innovation, Science and Economic Development, Mark Schaan, Director General, Marketplace Framework Policy Branch, Strategy and Innovation Policy Sector. Thank you all for being with us. Opening statements, please.
Mark Schaan, Director General, Marketplace Framework Policy Branch, Strategy and Innovation Policy Sector, Innovation, Science and Economic Development Canada: Good afternoon. As you have noted, my name is Mark Schaan and I serve as the Director General of Marketplace Framework Policy Branch at the Department of Innovation, Science and Economic Development Canada. My branch’s responsibilities, amongst many, include the stewardship of the Canada Business Corporations Act, or CBCA.
In almost all cases, corporations serve the legitimate commercial purposes of their owners and our economy, in particular the free flow of commerce, innovation, employment and prosperity.
Unfortunately, corporate sectors can also be abused for illicit ends. Recent international and domestic reports have highlighted the need for greater transparency with respect to who ultimately owns or controls companies in Canada. This is known as beneficial ownership. Such information can help counter international tax evasion and avoidance, money laundering and other criminal activities perpetuated through the misuse of corporate vehicles.
Any abuse of this sort harms our country’s reputation as a safe, fair and competitive place for doing business, and casts the far greater number of legitimate Canadian businesses in an unjust light.
The CBCA, the Canada Business Corporations Act, covers approximately 10 per cent of Canadian corporations, while the remainder are incorporated under provincial or territorial statutes. At present, none of these statutes require that corporations gather or maintain information about their beneficial owners. The 2017 budget addressed this, calling for collaboration between the levels of government to devise a national strategy to correct the shortcoming. A federal-provincial-territorial working group made recommendations that culminated in a December 2017 agreement in principle among all of Canada’s finance ministers to pursue amendments to corporate laws by the summer of 2019.
Bill C-86 implements key elements of this commitment at the federal level. It requires privately held CBCA corporations to take reasonable steps to gather pertinent information about those individuals who exercise significant control over their company and maintain this information in a register that will be updated at least annually. The bill sets out criteria for who counts as an individual with significant control, chiefly by way of thresholds as to how many and what kinds of shares they control. Shareholders will be obliged to operate to the best of their ability when asked for information to help populate the register. Corporations will store this information, including both demographics and details as to how control is exercised, in their corporate books. They will be available to duly authorized investigative authorities, strengthening our ability to combat illegal activities such as those I mentioned earlier.
In closing, I note that the department has read with interest the Standing Committee on Finance’s report Confronting Money Laundering and Terrorist Financing: Moving Canada Forward, and have taken specific note of its beneficial ownership and corporate transparency recommendations. We will continue to explore further means of protecting the Canadian corporate landscape against abuse, but we are confident that these initial changes will improve corporate transparency and help to enhance Canada’s reputation.
Senator Wetston: I want to thank the government and you, Mr. Schaan, for your work on this important matter. I think it begins the process of recognizing the fact that private companies in particular can be used as vehicles for money laundering and terrorism financing. I think this is a very positive step forward. Once again, I congratulate you, and the minister and government, for going ahead with this.
I know that you indicated in here that you represent, through the CBCA, about 10 per cent of incorporated companies across Canada. Does that include trusts as well?
Mr. Schaan: Trust-like structures are provincial beings. Of the corporations, we roughly suggest that we are about 10 per cent.
Senator Wetston: What number would that be? Do you have any sense of private companies?
Mr. Schaan: The CBCA has roughly something greater than 400,000 incorporated entities under the CBCA of which, in terms of publicly traded companies, I think there are fewer than 2,000. I’m going by memory here, so my numbers may be fuzzy. The vast majority are privately held corporations. We represent about 10 per cent, so there is roughly 4 million corporations in Canada across all jurisdictions.
Senator Wetston: Just to update where you are, I know that you have been working, and the government has been working, with the provinces. Do you have any sense of where the provinces are with respect to their commitment to dealing with beneficial ownership?
Mr. Schaan: You are only as strong as your weakest link. It was important on beneficial ownership that we not create new obligations under the CBCA that would not be replicated in provincial corporate law because it would just encourage people to be able to incorporate provincially, where they could potentially evade detection. That’s why we struck the federal-provincial-territorial group and sought their consensus before moving forward.
That 2017 agreement in December of finance ministers holds. It has already begun the process in the Province of British Columbia, who has a significant interest in this issue of beneficial ownership. We would be the first mover at the federal level in terms of enacting these requirements on the corporate book side. We are very hopeful that provinces will live up to their commitment to doing so by 2019. There has been some changeover at the provincial level, but we’ll have a good sense at the finance ministers’ meeting in the coming weeks to reaffirm the work on this important issue.
Senator Wetston: Well, all beginnings are difficult.
It was the U.K., I think, that began the process of developing a registry. Can you comment on how you view the success or failure in the U.K.? I noted in your opening remarks that, in the beginning, you are not intending to make this information available to the public, whereas in the U.K., as I understand it, they started that way and then decided it was not the best way to proceed. They make their information public and they get billions, as I understand it, of — help me with the word.
Mr. Schaan: Filings.
Senator Wetston: Yes, filings. Thank you. Can you tell us about that and how you see what you are doing here for Canada with respect to that experience?
Mr. Schaan: The work in the provinces and territories was in two phases. The first phase was to require all corporations to hold this information for shareholders that possess 25 per cent of a company or significant control, in fact. The second phase is who has access to it. We are beginning that policy work now already with our provincial and territorial colleagues to try and examine both the policy issues and some of the technical issues. We are obviously both informed by and learning from our international colleagues across the globe, who are taking various initiatives in this area.
The U.K. corporate registry is an interesting one. They similarly require holders to identify the owner in their corporate books, but then also in a publicly available corporate registry. They are not required to identify the natural person at the end of the line, which our requirements will. In the case of Britain, you can actually identify the parent corporation that is the holder of the 25 per cent, and then that corporation, on its corporate books, will indicate the parent corporation that holds the 25 per cent of theirs. You may find yourself fishing for quite a long time before you get to the natural person at the end of the line. Our requirements correct that challenge by requiring them to identify the natural person who is the ultimate controller of the share and not just the legal entity.
There has been some discussion both pro and con on the U.K. example, as with other initiatives. There is a lot of support for enhanced transparency, obviously, but challenges around things like verification, which remains a significant challenge and is something we are very mindful of in the Canadian context. With four million corporations and a lot of shareholders, that’s a lot of information to make sure you are getting accurate.
My last comment would be that this is one tool amongst many in terms of the government’s efforts. There has also been enhanced funding for the CRA on the tax side and, as my colleagues indicated, on the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, on the financial institution side. We are hoping to be able to create a number of levers by which you can potentially get at this issue.
Senator C. Deacon: I actually had some first-hand experience with this as a European institutional investor and the requirements they had to know the beneficial owners of a company I have an interest in and the source of the funds. They went to tremendous lengths. It causes me to ask where we fit.
We have heard a lot in this committee between illicit and innovative activities and making sure that innovative activities that are adding value to our economy are not compromised but, as well, that we don’t compromise ourselves by allowing illicit activities that are undermining value creation in our economy.
If you could, speak more to the European and other efforts. I saw there were great lengths that they were going to, and I was impressed, personally, and frustrated. It would be easier to not have to do it. You had to declare and be willing to provide evidence where requested, and that was part of the commitment you made.
Mr. Schaan: At this point, changes to the CBCA will require corporations to hold the information in their corporate books, to make best efforts to seek it at least on an annual basis and to identify the natural person at the end of the line. That will be required for anyone who controls 25 per cent of the private corporation or control in fact, which is a relatively well-adjudicated jurisprudential term about trying to make sure we’re not having folks who, in theory, own 1 per cent but actually have all of the leverage over the actual entity.
The amount of information being requested is significant enough to be able to aid our enforcement agencies and competent authorities, but was also struck at a way of trying to ensure that it wasn’t unduly and administratively burdensome.
The vast majority of the small- and medium-sized enterprises incorporated under our statute have very simple share structures. For those non-publicly traded entities, they are everything from a mechanic to a home-cleaning service where the share structure is literally one proprietor or sole entity.
For those with more complicated structures, some of those are innovative on purpose, and we cast no aspersion through this reporting requirement as to what they are. All we indicated is you need to record who it is that is the end of the line for the control of the corporation.
We have tried to ensure that we have struck that balance: that we have asked for people to be rigorous and complete and have penalties for anybody who chooses to willfully evade the system, but also not casting aspersion on a particular type of corporate structure.
Senator Tkachuk: I’d also like to congratulate the government on the efforts they are making on this matter. My first question was actually Senator Wetston’s second question. I’m going to just ask for a few clarifications. I gather that nine provinces have not taken action and only one has, and that’s the province of B.C.?
Mr. Schaan: That’s correct, to date.
Senator Tkachuk: Do the federal numbers include the territories?
Mr. Schaan: The territories have their own corporate registries. They are also joined to this effort.
Senator Tkachuk: So there are nine plus the territories, okay. I’m not sure if there are penalties, but what happens if nobody does anything over the next number of years?
Mr. Schaan: They have until July of 2019. It was a best efforts commitment on the part of provinces and territories. Obviously, we have no authority over their incorporation system. It was an agreement communicated through a communique of all provincial territorial ministers. It is publicly communicated, so they will be able to be held to account by the public. As the federal government, we can only help gain consensus and show leadership on our side.
Senator Tkachuk: It’s good to get all of this on the record, and it’s on the record that 12 have not.
Mr. Schaan: To date.
Senator Tkachuk: So maybe some public pressure on this matter from business people and others to their own provincial governments will get this moving, because 2019 is not that far away.
Mr. Schaan: As is often the case with incorporation statutes, one party potentially invokes new requirements. In this case, it’s the CBCA, which is often the case. It then proves it’s not that administratively burdensome and that it’s workable, and for those corporations that are registered in other jurisdictions, it becomes a matter of course, which is what we’d like it to become.
Senator Tkachuk: I hope you are right, Mr. Schaan.
Senator Dagenais: My question is for Mr. Schaan. In your presentation, you say that corporate structures sometimes use means for illicit ends. A bit further, you talk about the need to promote greater transparency regarding the entity that controls companies’ accounts in Canada.
Could you give us one or two examples of ways to promote greater transparency to help us understand what those corporations are doing with their money?
Mr. Schaan: In the case of private businesses, it is their responsibility to incorporate by disclosing their objectives and informing their investors of them. It is necessary to promote the objectives, for example, in businesses’ incorporation documents.
I think what we are now doing is saying you need to let us know who owns you. In many cases, the vast majority of corporations have simple corporate structures where it’s very clear what you are up to, even if you are a numbered company, like 495468 Canada Inc. and your corporate objects say you are a holding company that makes investments in food processing. It’s very clear what you are up to.
Right now, the shareholder of note may be someone’s lawyer, someone’s lawyer’s lawyer or someone’s lawyer’s lawyer’s lawyer, who may very well be shielding the ultimate investor and, actually, once one starts to dig and looks through tax records and other measures, they indicate that individual has garnered the funds to be able to make said investments through illicit or other activities and is now finding useful vehicles to be able to hide that money. Transparency allows us to connect those dots. The hope of this initiative is that the competent authorities will be able to maximize this new information with other sources to be able to get to the bad behaviour.
Senator Dagenais: Thank you, Mr. Schaan.
The Chair: Panelists, thank you very much for your contribution. This has been interesting and helpful to us. We’ll see you all again.
Senators, we are continuing our subject matter study of Bill C-86, the Budget Implementation Act, 2018, No. 2, and in particular, Division 6 of Part 4, which deals with beneficial ownership.
We have, from Transparency International Canada, James Cohen, Executive Director. We are expecting, appearing as an individual, Mora Johnson, Barrister and Solicitor. I am told that Ms. Johnson is in a cab on her way, but we’re going to move ahead. We all agree to do so, and I understand Ms. Johnson understands that as well. Let’s go ahead with your opening remarks, Mr. Cohen, and then if there are questions, we will get to them.
James Cohen, Executive Director, Transparency International Canada: Thank you. Good afternoon, Mr. Chairman and members of the committee. Thank you for the opportunity to participate in today’s meeting.
TI Canada is a member of the world’s leading anti-corruption organization, with more than 100 chapters worldwide and an international secretariat in Berlin. TI Canada works with civil society, the private sector and government to advance Canada’s anti-corruption and transparency agenda.
TI Canada welcomes the amendments to the CBCA in Bill C-86, which would require corporations to establish a registry of significant owners. However, we recommend additional amendments through Bill C-86 to the CBCA so that the information contained in these corporate registries can appropriately be used in a pan-Canadian beneficial ownership registry that the House of Commons Standing Committee on Finance just recommended in their recent report Confronting Money Laundering and Terrorist Financing: Moving Canada Forward.
I provided specific amendments to the clerk that are based on consultations with experts from the financial services industry, experts in financial crimes investigations and lawyers. If they are not yet available, I’ll work with the clerk to circulate them to the committee.
The Chair: We have them.
Mr. Cohen: Great. The overall themes I would like to highlight today are that the amendments need to establish better systems of information verification, grant greater access to authorities to beneficial ownership information and increase deterrence to falsify information.
As the amendments in Bill C-86 stand, there is no verification procedure to ensure that shareholders and beneficials are who they say they are. While there are promising signs down the road on digital verification systems, we currently recommend beneficial owners provide an affidavit signed by the beneficial owner. Additionally, shareholders need to respond to corporate requests for information far earlier than currently recommended. We recommend 15 days.
Next, the amendments need to allow access to corporate beneficial ownership to law enforcement. For this reason, TI Canada recommends including an additional amendment to make it very clear that the information in corporate registries can be shared with other organizations, including authorized reporting entities, law enforcement authorities and public agencies, as prescribed by regulation.
Finally, as it stands, we do not feel that the penalties proposed would deter those criminals still determined to try to take their chances in gaming the system. For this reason, we have proposed a potential conviction on indictment of up to $500,000.
The information contained in these individual corporate registries will be the building blocks for a pan-Canadian beneficial ownership registry, and so it is essential that it be reliable and high-quality information. The federal government’s actions in this area will provide a model for provinces and territories to follow.
TI Canada hopes that the committee members can agree to these improvements to this legislation so that the information collected is of use to a pan-Canadian beneficial ownership registry.
Thank you, Mr. Chair. I will be happy to answer questions you or your colleagues have.
The Chair: Thank you very much.
Senator Dagenais: Thank you, Mr. Cohen. In your presentation, you say that requirements related to verification methods concerning corporations must be strengthened. You say that it may be a good idea to create a registry. Can you elaborate on the creation of a registry and on verification methods? Could you provide an example?
Mr. Cohen: The pan-Canadian registry?
Senator Dagenais: Yes.
Mr. Cohen: In the Finance Committee’s recommendations, they put forward the idea of having a pan-Canadian registry that would be private and accessible by law enforcement and required reporting agencies. Most of the recommendations TI Canada applauds within than report.
Where we would see it needing to go further is in a public registry, such as the U.K. has and is recommended within Anti-Money Laundering Directive 5 in the European Union. By having a public registry, it fills in the gaps where law enforcement may not have the resources to follow up on looking through a registry. It opens it up to organizations like ours and investigative journalists.
That has been useful in the U.K. It has been civil society that has been able to look at the U.K. registry and identify early problems, such as the fact that there is not a drop box for nationality, so people fill in U.K., U.K. Cornish, British. It was civil society who pointed that out. Just the fact that more eyes are on the system creates a deterrent.
As an extra example, when we look back at the Panama Papers and the fact that it was shared to journalists worldwide, international journalists couldn’t figure out the numbers themselves, but when you bring it down to a local context, people can match the numbers and the names. This is where it is important to have civil society and investigative journalists have access.
Senator Dagenais: Am I to understand that there is currently a registry, but law enforcement has no access to it?
Mr. Cohen: Currently, there is not a pan-Canadian registry. That is what is being recommended by the Finance Committee.
Senator Dagenais: Thank you, Mr. Cohen.
The Chair: Mr. Cohen, I’m sure I misunderstood you, but did you suggest that an additional requirement that you think would be helpful is that the ultimate beneficial owner of an organization would do an affidavit to attest that that person is the person who that person represents that person to be? Is that what you were saying?
Mr. Cohen: It’s for the ultimate beneficial owner to sign that affidavit, such as you would have in your tax receipts when you sign an affidavit that everything that you submit is accurate.
The Chair: What if I were endeavouring to launder money or avoid detection? What good would an affidavit do?
Mr. Cohen: An affidavit does create responsibility for the person who is managing to sign that and creates penalties for them and deterrence for anyone who would want to mask the natural beneficial owner.
The Chair: I’ve obviously missed something there.
Senator Tkachuk: It might prevent you from doing it because you would have to make yourself public.
Senator Wallin: Or if it is covered.
The Chair: Great. We remain hopeful.
Senator Tkachuk: I agree with what you say. A private corporation is not for hiding information about who you are as a shareholder. It is for limited liability and an ability to market yourself as a separate corporation for the purpose of business and everything else.
I don’t know how many amendments we could actually suggest, but I didn’t get the impression that it was as closed a shop from the previous witnesses that I get from you, so I appreciate that.
Senator C. Deacon: Everything you have said gives me comfort and makes me feel good. I like the direction, et cetera. There is the practicality of the willingness to accept amendments.
Help us to understand the receptivity, or lack thereof, from your standpoint, as it relates to these suggested amendments, because we have to be cognizant of what we can actually do. You are more aware of the temperature of the waters, I think, than perhaps some of us — certainly me.
Mr. Cohen: As a civil society organization pushing for the best for Canada on transparency, we will put as much forward as we can, obviously recognizing that amendments need to go through and we need to engage with stakeholders as to what is amenable. We don’t seek to put burden on anybody for burden’s sake. We seek to create verifiable, reliable transparent information.
In this case, some of the amendments we propose would be rather straightforward. Some of it is wording such as accessibility. As for the amendments on making this information available to law enforcement and reporting agencies, I would definitely see law enforcement wanting this capability, and I would see that as a necessity. Otherwise, as I said, we are creating the building block for a pan-Canadian registry and we’ve already created a hurdle.
Senator C. Deacon: We are not getting ready to use it, if it isn’t available.
Mr. Cohen: Yes. We measured, when we made these amendments, what would be feasible within this current amendments period. We had a number of other recommendations that were potentially heavier, such as our recommendation that significant ownership should be brought down to 10 per cent. We realize that is a larger debate. We don’t know if that will go through this time around. We are still suggesting that the Senate consider it. As for the other amendments that we have proposed, I think that the waters will hold them.
The Chair: Thank you very much, Mr. Cohen, and thank you for what you do. That is important work.
Welcome, Ms. Johnson. Thank you very much. Breathless?
Mora Johnson, Barrister and Solicitor, as an individual: Yes. Sorry to keep you waiting.
The Chair: You didn’t, actually. You would actually think we were organized here. It worked perfectly, and we look forward to your opening statement and then questions.
Ms. Johnson: I regret that I didn’t get the benefit of James’ excellent opening statement.
My name is Mora Johnson. I am a lawyer working in the fields of anti-corruption and anti-money laundering. I authored certain reports on beneficial ownership transparency. I will provide these to the clerk and researchers.
The Chair: Thank you.
Ms. Johnson: To begin, I wanted to welcome these proposed amendments. It is very important that the government is moving forward with this.
As well, I wanted to commend the thoroughly researched report presented to Parliament by the Finance Committee on the other side, relating to amendments to the Proceeds of Crime (Money Laundering) Act, which include 32 wide-ranging recommendations. I recognize that the government didn’t have the benefit of that study when it drafted this bill.
I have two short comments pertaining to Bill C-86. First, new section 21.3(2) — and it is possible that I replicate, and I apologize — restricts access of a company’s register of beneficial ownership to shareholders and creditors upon provision of an affidavit, as set out in subsection 3. While these restrictions largely echo other corporate law provisions, it is worth asking why this access should be so restricted. What is the rationale for protecting shareholder registries and beneficial ownership registries of privately held corporations?
Federal corporations are a creature of statute; they are a creature of the CBCA. They fundamentally distort the free marketplace, and we allocate risk from shareholders and owners onto others in the economy. Why should beneficial owners benefit from first limited liability, for which there are good reasons, but then shift risk onto other actors in the economy, and then, additionally, remain anonymous to all of these to whom risk is shifted?
Agencies and organizations that would benefit from access to beneficial ownership registers is quite large. I published a blog this morning, but I will give you a few examples of who might enjoy and appreciate access.
Federal and provincial elections officials might wish to verify beneficial ownership to ensure individuals are not circumventing donation limits by using anonymous shell corporations. Consumer protection agencies might wish to know who is behind companies with a higher number of complaints. Procurement officers in governments, colleges or hospitals may want to ensure that convicted fraudsters, people with corruption convictions, are not bidding on contracts behind a privately held company in violation of procurement rules. Canadian businesses may wish to conduct due diligence on prospective clients or suppliers before becoming creditors as to manage their risks. As I mentioned earlier, risk is largely shifted onto other businesses and with limited liability.
My second comment relates to the creation of new offences in new section 21.4, knowingly recording or providing false or misleading information. As drafted, I notice these offences only apply to officers and directors of the corporation. However, given that individuals who are not officers and directors may be involved in perpetrating fraud for money laundering purposes, including beneficial owners, perhaps employees of the corporation that are not officers or directors, or service providers like lawyers, companies or notaries public, why restrict these offences just to directors and officers?
Those are my two comments. Thank you very much for your time.
The Chair: Thank you very much.
Senator Tkachuk: I agree with everything she says, as I pointed out in my previous statement. You are right. She is smart.
The Chair: I will thank you very much. You were succinct, to the point. We understand exactly what you have said. I think there is some feeling that these considerations need to be taken seriously.
Ms. Johnson: Excellent.
The Chair: Thank you very much to you both.
(The committee adjourned.)