THE STANDING SENATE COMMITTEE ON FOREIGN AFFAIRS AND INTERNATIONAL TRADE
EVIDENCE
OTTAWA, Thursday, May 13, 2021
The Standing Senate Committee on Foreign Affairs and International Trade met by videoconference this day at 11:30 a.m. [ET] to study the subject matter of those elements contained in Divisions 6 and 20 of Part 4 of Bill C-30, An Act to implement certain provisions of the budget tabled in Parliament on April 19, 2021 and other measures.
Senator Peter M. Boehm (Chair) in the chair.
[English]
The Chair: Welcome honourable senators, witnesses, Senate staff and viewers across the country to the first meeting in 2021 of the Standing Senate Committee on Foreign Affairs and International Trade. My name is Peter Boehm, senator from Ontario, and I’m the chair of the committee.
[Translation]
Before we begin, I wish to introduce committee members participating in today’s meeting: Senator Douglas Black from Alberta, Senator Mary Coyle from Nova Scotia, Senator Marty Deacon from Ontario, Senator Tony Dean from Ontario, Senator Stephen Greene from Nova Scotia, Senator Peter Harder, deputy chair of the committee, from Ontario, Senator Thanh Hai Ngo, deputy chair of the committee, from Ontario, Senator Mohamed-Iqbal Ravalia from Newfoundland and Labrador, and Senator Raymonde Saint-Germain from Quebec.
[English]
I don’t see any other members of the Senate — Senator Housakos, has just joined us. Welcome, Senator Housakos from Quebec.
Colleagues, as we are conducting a virtual meeting today, I wish to remind members to please keep your microphones muted at all times unless recognized by name by the chair. I ask you to please use the raise hand function on your Zoom screen to be recognized. Should any technical problems arise, particularly regarding interpretation, please signal this to me or to the clerk and we will work to resolve the issue. Our clerk is Ms. Gaëtane Lemay, also on the screen. If you experience other technical challenges, please contact the ISD service desk for assistance. Some of us are used to doing that, unfortunately.
Today the committee is examining two specific divisions of Bill C-30, the budget implementation act, 2021, no. 1. While the entire bill was referred to the Standing Senate Committee on National Finance for pre-study, Divisions 6 and 20 of Part 4 were referred to our committee by the Senate on May 4, 2021.
Division 6 of Part 4 proposes changes to the Justice for Victims of Corrupt Foreign Officials Act, sometimes referred to as the Sergei Magnitsky Law. Division 20 of Part 4 aims to amend section 16 of the Canada-United States-Mexico Agreement Implementation Act.
Hence, appearing before the committee today to answer questions are officials from the Department of Finance and from Global Affairs Canada. First, from Finance Canada, we welcome Justin Brown, Acting Director General, Financial Crimes and Security Division, Financial Sector Policy Branch and Marie-Hélène Cantin, Senior Economist, International Trade Policy Division, International Trade and Finance Branch.
Welcome to both of you. Thank you for being here. Joining Mr. Brown and Ms. Cantin are six other officials from the Department of Finance and from Global Affairs Canada. I would ask these officials to please introduce themselves in the first instance if they are responding to a question.
[Translation]
First, we will hear from Mr. Brown on Division 6. We will then move immediately to Ms. Cantin on Division 20. I will then open the floor to questions from senators, who may ask questions on either or both divisions.
Mr. Brown, the floor is yours.
[English]
Justin Brown, Acting Director General, Financial Crimes and Security Division, Financial Sector Policy Branch, Department of Finance Canada: Thank you for having us today. The government is committed to a comprehensive approach to combatting money laundering, terrorist financing and imposing financial sanctions. This promotes the integrity of the financial system and the safety and security of Canadians. The government balances these objectives with the administrative burden placed on financial institutions.
Division 6 of Part 4 of the budget implementation act proposes amendments to the Justice for Victims of Corrupt Foreign Officials Act or the Sergei Magnitsky Law. The amendments would reduce the reporting burden for financial institutions by removing the monthly “nil” reporting requirement to confirm they were not in possession of assets associated with sanctioned entities or individuals and by requiring that financial institutions disclose, without delay and once every three months after that, if they determine they are in possession of assets associated with sanctioned entities or individuals.
The proposed amendments are aligned with similar amendments for regulations made under the Special Economic Measures Act in April 2019.
[Translation]
Marie-Hélène Cantin, Senior Economist, International Trade Policy Division, International Trade and Finance Branch, Department of Finance Canada: Good morning, everyone. The proposed amendments in Division 20 represent a technical and administrative clarification to maintain Canada’s long-standing approach to the selection of lists, panels and committees for anti-dumping and countervailing duty disputes under the North American Free Trade Agreement, or NAFTA, and the Canada-United States-Mexico Agreement, or CUSMA.
Chapter 19 of NAFTA created an anti-dumping and countervailing duty dispute settlement mechanism that was used as an alternative to internal judicial review.
Chapter 10 of CUSMA maintains this mechanism as is, fulfilling a key Canadian objective in the negotiations.
Under Chapter 19 of NAFTA, the responsibility for selecting individuals for lists, panels and committees was shared between the Minister of International Trade and the Minister of Finance. This shared responsibility was consistent, since the Minister of Finance is responsible for Canada’s anti-dumping and countervailing duty system, pursuant to the Special Import Measures Act, and the Minister of International Trade is responsible for defending Canadian interests against American or Mexican investigations into dumping or subsidizing.
Bill C-30 proposes amendments to the Canada-United States-Mexico Agreement Implementation Act to restore the requirement that the minister responsible for international trade must obtain the consent of the Minister of Finance to appoint panellists and committee members or propose the names of individuals for rosters under Chapter 10 of CUSMA.
My colleagues from Global Affairs Canada, John Layton and Raahool Watchmaker, are with me to answer your questions.
The Chair: Thank you, Ms. Cantin and Mr. Brown.
[English]
Before I open the floor to questions, I would like to remind members to use the raise hand function to be added to the list of questioners, which the clerk will manage. I also wish to inform members that for this meeting, you will each have a maximum of five minutes for the first round. I would encourage both the members of the committee and the witnesses to be as concise as possible with your questions, with your preamble and, of course, with the answers as well.
The clerk will make a hand signal to indicate that time is up. To the witnesses, I ask that you please identify yourself when answering a question — other than our two main speakers who have just spoken. We’ll begin the questioning round.
Senator D. Black: My question is for Mr. Brown respecting Division 6, but let me first of all say thanks to all the officials for being here today and thank you for the work that you continue to do on our behalf.
I think my question is very straightforward. Mr. Brown, would the proposed changes that you are making be consistent with our allies who are also involved in sanctions similar to what we’re involved with here?
Mr. Brown: Thank you. I’m very happy to also have colleagues testifying here from Global Affairs Canada. I’ll turn it over to either Cory or Neelu, if you would like to respond to the question, please.
Cory Anderson, Director, Sanctions Policy and Operations Coordination Division, Global Affairs Canada: My name is Cory Anderson. I am the Director of Sanctions Policy and Operations at Global Affairs Canada. It’s a pleasure to be here.
To answer your question, there are different regimes in place with each of our like-minded partners, most notably the U.S., U.K., EU and Australia. We do have similar regimes when it comes to the responsibilities of financial institutions to report. They’re all a little different, but broad-based I can say that there are similar approaches taken by all of us.
Senator D. Black: Thank you very much for that. Based on that, what drove you to this decision at this time?
Mr. Anderson: The primary motivator for this was the fact that we did make amendments to the regulations under the Special Economic Measures Act a couple of years ago where this “nil” reporting was part of that. We’re in constant contact and have a lot of discussions with financial institutions and stakeholders who raised the idea that a similar provision could be imposed through this mechanism.
Given the fact that we strive to be consistent across our sanctions regime, we took the opportunity with the budget implementation act to make this minor technical amendment.
Senator D. Black: Sure. I appreciate this; it’s helpful to me. Standing back, what we have is a situation where rather than HSBC reporting monthly that “No, we have no accounts for any of the folks on the list,” they now report basically quarterly.
Mr. Anderson: Yes. They will always have to report without delay if they do come with funds and then that amount of property or money would be included in their quarterly reports going forward.
Senator D. Black: If someone who was on your list was identified putting funds in HSBC in Calgary, then I understand they must report immediately and then report monthly.
Mr. Anderson: No. They would report immediately and then they would report every three months after that as part of their regular reporting.
Senator D. Black: So everything has gone to quarterly?
Mr. Anderson: Yes, except when they come in contact with finances of a sanctioned individual. Then they must report immediately.
Senator D. Black: That’s very helpful. Thank you very much.
Senator M. Deacon: Good afternoon. Thank you all very much for being here today. It’s a very important conversation.
In the budget implementation act, Division 6 amends the reporting mechanism by moving the monthly no report for financial institutions, which means they do not have to report the fact that they do not have in their possession or control any property of a foreign national who is the subject of these sanctions. I understand that this amendment is meant to ease the administrative burden, but if it is proving so challenging and perhaps so onerous for these entities to go through the books, does that mean that this law is working as intended?
That’s the first part of my question, if you don’t mind, Mr. Brown. Thank you.
Mr. Brown: I would go with Mr. Anderson again, if that works for you, Cory.
Mr. Anderson: You are correct that we have a very robust sanctions regime and the fact that we have regular discussions with financial institutions. I would argue that there are measures in place to monitor that type of transaction.
This transaction simply eliminates their obligation to report “nil” on a monthly basis, but that doesn’t undermine or change their reporting requirements with respect to property of sanctioned individuals that they have under their control.
Senator M. Deacon: Thank you. How do the proposed changes to the reporting obligations in the Magnitsky Law in the budget implementationact compare to the reporting obligations set out in this Special Economic Measures Act?
Mr. Anderson: As I noted earlier, we’ve taken this opportunity to try and streamline the two because we are dealing with the same financial institutions. Given the fact that there were amendments to the regulations to the Special Economic Measures Act, or SEMA, in 2019, we found this was an opportunity to try to make it as coherent as possible for them.
Senator M. Deacon: Regarding the Magnitsky Law, about a month ago the Canadian government imposed a number of sanctions against Russian and Chinese officials in light of a variety of human rights violations. These sanctions were imposed under the Special Economic Measures Act, not the Magnitsky Law. Are you able to give any insight as to why we chose to go with SEMA when it seems that the Magnitsky Law was created for this type of purpose, and if you could elaborate some of the major differences between SEMA and Magnitsky? Thank you very much.
Mr. Anderson: Sure. I understand that I’m here to speak more specifically to this amendment, but I can say that our autonomous sanctions regime has a robust mechanism within it and we are very judicious and targeted and look at each case on a case-by-case basis. You may recall that when the Justice for Victims of Corrupt Foreign Officials Act was passed by Parliament, it also established the human rights mechanism within SEMA. That was not part of that sanctions act prior to that. Given that, we look at the role of the state and different criteria that we analyze in determining what might be the best mechanism to move forward with sanctions.
Senator M. Deacon: Thank you.
[Translation]
Senator Saint-Germain: I join my colleagues in welcoming and thanking the officials who are with us today.
My question was partly asked by my colleagues Senator Black and Senator Deacon, but I’d like to go further. I fully understand the importance of reducing the measures mentioned in the division of Part 4 of Bill C-30 that deals with the disclosure of assets that are present or known to the entities. At the same time, for the implementation of such legislation to be effective, disclosure is very important.
My question is how will the federal government and oversight agencies compensate for this reduction? Will there be some form of increased oversight, or is it going to be based solely on the good faith of the entities? That’s the essence of my question.
The Chair: Mr. Anderson, please.
[English]
Mr. Anderson: Thank you very much for the question. I would highlight the fact that, by law, financial institutions are required to report when they have assets under their control of individuals subject to Canadian sanctions. I can say with quite strong assurance that they take that responsibility very seriously. We work and have very open lines of communication with them, which is the result of the decision to try to move forward with this amendment today.
The fact that there is a policy and operations division within Global Affairs that can conduct those types of discussions and have those types of ongoing relationships with the financial institutions, the regulators and other key stakeholders, we feel there’s sufficient scope for oversight.
[Translation]
Senator Saint-Germain: I have a sub-question. Aren’t you concerned that this reduction will interfere with the implementation of the legislation? Are you sure that this reduction is desirable and won’t have a negative impact?
[English]
Mr. Anderson: The fact that it’s just removing the monthly “nil” reporting requirement does not have any impact on the reporting requirements that financial institutions are obligated to report with respect to property or finances that are under their control with respect to sanctioned individuals, so no.
Senator Saint-Germain: Thank you.
Senator Dean: Thank you to everyone for joining us today. I have a general question on background. I understand the intent of the changes and I support them.
On the question of reporting, could you give us some general sense of the quantum of activity that derives from the reporting of these institutions? How much traffic is there? How busy are you, just in general terms?
Mr. Anderson: Sure. We’re very busy because we manage our broader sanctions policy and sanctions regime. I can’t really speak to specifics, based on legal constraints and privacy concerns. The financial institutions are aware of their obligations when it comes to sanctioned individuals and any kind of property or resources that they have under their control. They will continue to be expected to report when they have those types of property and control under their auspices. It really varies. Canada has a broad sanctions regime, an autonomous regime, that includes both the Special Economic Measures Act and the Justice for Victims of Corrupt Foreign Officials Act. There are obligations to ensure that if there are funds within the control of Canadian financial institutions that those properties or funds are frozen.
Senator Dean: I have a quick follow-up question. On Magnitsky, are we talking about, ballpark, hundreds of positive reports or thousands?
Mr. Anderson: Again, apologies, senator. I don’t have the specific details. There are privacy concerns that I’m obligated to adhere to. I would take the opportunity to assure the group that the financial institutions are taking this responsibility seriously. We maintain very robust and consistent communications with them.
Senator Dean: Thank you.
Senator Coyle: Thank you to our witnesses and all the officials here helping us with this bill. Most of the questions have been asked, but there are a couple that I would like to pose. I know that this change with regard to the Magnitsky Law has come into effect because of requests from stakeholders. Are there other changes that stakeholders have raised or is this really the only area that they have drawn to your attention?
Mr. Anderson: Thank you very much, senator. There are so many different types of stakeholders involved in Canada’s sanctions regime. We have ongoing discussions with all of them. My team and I have engaged with civil society, financial institutions, like-minded countries, diaspora groups and others. We take that responsibility very seriously as well because we want to make sure our sanctions regime is consistent with the values and the approaches that we are trying to achieve through our foreign policy objectives.
I would say this is one minor amendment as a result of some discussions with stakeholders and we’re always looking for ways to improve the efficiency and the effectiveness of our sanctions regime. We ensure that we try to do that through our own due diligence and ongoing discussions with all stakeholders.
Mr. Brown: If I may add a little more specificity to what Cory said, there’s one remaining piece of legislation, the Criminal Code, that also is part of the sanctions regime. We have heard from stakeholders that there’s a desire to look at similar reporting provisions in the Criminal Code. We are working with our colleagues at the Department of Justice to also consider that request.
This may be anecdotal, but we have informally heard from our provincial securities regulators that they have received over 2,800 reports per month in terms of “nil” responses. I do not have the numbers and probably would not be able to share the numbers in terms of positive reports. In terms of no reports, anecdotally, we’ve heard about 2,800 per month coming in from financial institutions to securities regulators under pieces of legislation. There is quite a bit of “nil” reporting and hopefully that adds a little to the context in terms of why this would reduce the administrative burden on financial institutions.
Senator Ngo: Thank you to our witnesses for being here today. I want to follow up; has any concern been expressed that this change could create a gap that sanctioned individuals might use or is there universal agreement with respect to this change?
Mr. Anderson: I can certainly take that. We’re not aware of any concerns related to “nil” reporting because, as I’ve stated earlier, if there are any funds or property that are under the control of a Canadian financial institution, they are obligated to report on that immediately and then subsequently report every three months on that property or funds. This, in my view or in the view of the department, would not create a gap.
Senator Ngo: How about the sanctioned individual that can take advantage of?
Mr. Anderson: I don’t believe that would be the case simply because if there were funds or property from a sanctioned individual within a Canadian financial institution, then that institution would be obligated to report upon it immediately. This is simply removing their obligation to no report on a monthly basis.
Senator M. Deacon: My question is coming in the direction of the Canada-United States-Mexico Agreement Implementation Act, or CUSMA. I know it’s a general question, but CUSMA came into force at a very strange time in trade between our three countries, to put it mildly. To the officials here from Global Affairs Canada, have you had a chance to assess the trade agreement in the last year, how it’s performed, areas we can look to improve upon when we come up to the mandated review? Or do we need to, at the same time, wait for the new normal — to use a well-worn term — to really get a chance to assess the strengths and weaknesses of CUSMA and/or the intent of CUSMA?
[Translation]
Ms. Cantin: I think the question was directed to my colleagues from Global Affairs Canada, so I’ll leave it to Mr. Layton to answer.
[English]
John Layton, Executive Director, Trade Remedies Division, Global Affairs Canada: My position is very focused on issues of trade remedies and disputes between Canada, the United States and Mexico. I think we would have to perhaps go back to our other officials who have the broader responsibility for the CUSMA. It’s something we continually do, assess the performance of our trade agreements and look at whether there can be improvements. We could provide a response to that question in writing.
Senator M. Deacon: Thank you very much. Perhaps, even more straightforward, when we look at the amendments made to the Canada-United States-Mexico Agreement, there is a specification there that the Minister of Finance may concur. I wanted to understand if this was copying a similar policy arrangement that the U.S. and Mexico have and that’s why it’s there or if there is any insight that could be shared on this today?
Mr. Layton: Certainly. Basically, this is something that we had in the old North American Free Trade Agreement, or NAFTA, legislation. It was a shared responsibility of the Minister of Finance and the minister responsible for trade. That’s because the Minister of Finance is responsible for import policy in Canada, including Canada’s trade remedy regime, and the Minister of Trade is responsible for trade remedy cases taken against Canada. So there’s really a shared responsibility. We just wanted the Canada-United States-Mexico Agreement to reflect the same procedures that we had in the old NAFTA.
The United States and Mexico have similar processes for appointing panellists, but we set up and established our process based on the way that our trade remedy system works in Canada and the division of responsibilities between the two ministers. That’s really the main focus of this amendment.
Senator M. Deacon: Thank you.
The Chair: Mr. Layton, regarding the first part of Senator M. Deacon’s question, we would like the response in writing. If you could send that to the clerk of the committee, Ms. Lemay, no later than Thursday, May 20, because we wish to complete our draft report in time for our next meeting on May 27. If you could do that, I’m sure the committee would be very grateful.
Mr. Layton: Absolutely.
The Chair: Thank you.
As there are no other questions, we’ve come to the end of our time with officials today. I want to thank our witnesses for joining us and for answering our questions. This will end the broadcast portion of the meeting. I would like to ask members of the committee to stay on. We have one more housekeeping item I would like to discuss with you before we adjourn.
Thank you to our witnesses. You may leave.
The Chair: Colleagues, I remind you that we are still in public mode.
I see the gavel sign so we can proceed.
We anticipate our next meeting planned for May 27 will be to consider our draft report and will thus be held in camera. I would want to deal now with the motion to allow one designated staff member of each committee member to access virtual in camera meetings. If we do this now, it will mean a quicker start to our next meeting.
I want to tell you that your steering committee did look at this and we considered this the most flexible and inclusive option. This motion would then cover any and all future in camera virtual meetings for the rest of the session. If we adopt it, it means that even a designated staffer of a senator replaced for a specific meeting will still be permitted to attend.
Therefore, do you agree, honourable senators, that for the duration of the session one staff member designated by each member of the committee or by any senator replaced on the committee for a specific meeting be allowed access to in camera meetings held by video conference?
Hon. Senators: Agreed.
The Chair: Carried. Momentous. Good.
If there are no other items, colleagues, we will adjourn the meeting. If everything goes according to plan, our next meeting will be held on Thursday, May 27, at 11:30 a.m. EST.
Thank you for your participation. The meeting is now adjourned.
(The committee adjourned.)