THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Wednesday, October 18, 2023
The Standing Senate Committee on Banking, Commerce and the Economy met with videoconference this day at 4:15 p.m. [ET] for the consideration of Bill C-42, An Act to amend the Canada Business Corporations Act and to make consequential and related amendments to other Acts; and, in camera, to discuss a draft agenda (future business).
Senator Pamela Wallin (Chair) in the chair.
[English]
The Chair: Welcome to this meeting of the Standing Senate Committee on Banking, Commerce and the Economy. My name is Pamela Wallin, and I serve as the chair of this committee. I would like to introduce the members of this committee: our deputy chair, Senator Loffreda; Senator Bellemare; Senator Deacon from Nova Scotia; Senator Gignac; Senator Marshall; Senator Miville-Dechêne; Senator Petten; Senator Ringuette; and Senator Yussuff.
Just a note that at 5:45 p.m., we will go in camera for a brief meeting on future business. Before that, we will officially begin our examination of Bill C-42, An Act to amend the Canada Business Corporations Act and to make consequential and related amendments to other Acts.
Today, we have the pleasure of welcoming, in person, Sasha Caldera, Beneficial Ownership Transparency Campaign Manager at Publish What You Pay Canada; and Dr. DT Cochrane, Economist at Canadians for Tax Fairness. And joining us remotely today is Jon Allen, former board director at Transparency International Canada.
Thank you for joining us today. We will begin with your opening statements, and we will begin with Mr. Caldera.
Sasha Caldera, Campaign Manager, Beneficial Ownership Transparency, Publish What You Pay Canada: Thank you, Madam Chair and committee members, for inviting me to speak today. Publish What You Pay Canada is part of the global Publish What You Pay movement of civil society organizations working to make oil, gas and mineral governance open, accountable and responsive to all people. For the past six years, I’ve been leading a coalition of three civil society organizations to advocate for a public beneficial ownership registry with our partners, Transparency International Canada and Canadians for Tax Fairness.
Bill C-42 will deliver a critical blow to criminals who desire to take advantage of corporations governed under the Canada Business Corporations Act, or CBCA. We applaud Minister Champagne’s commitment to ensuring that Canada’s beneficial ownership registry is publicly accessible, free of cost, searchable and scalable with the provinces and territories.
As someone who was raised in Richmond, British Columbia, this registry will mean a lot for my hometown and the province of B.C. Richmond is one of the entry points for money laundering in Canada, and the harm to the province has been well documented in the B.C. Cullen Commission. From the fentanyl crisis, increased gang violence in broad daylight, underground casinos and artificially inflated real estate, my hometown has changed. Canada’s proposed publicly accessible registry is in line with the G20 and Five Eyes countries who are deploying these tools as part of national security strategies to prevent corrupt foreign officials from hiding dirty money in liberal democracies.
Bill C-42 is a positive step, and we recommend the following legislative amendments to strengthen the deterrence capability of Canada’s registry: first, include country of residence and the name of the corporation as publicly listed fields; second, ensure that all publicly accessible data fields are searchable; third, add indictable offences or hybrid offences for section 21.1(1) or section 21.31(1) of the CBCA; and, finally, require beneficial owners to submit non-expired government-issued photo ID numbers to corporations for safekeeping and future ID verification.
We are pleased to hear that Minister Champagne and Minister Freeland are reaching out to the provinces and territories on this matter. To bring the provinces on board, we recommend that the federal government strike an agreement with the provinces and territories that can allow provincially registered corporations to send beneficial ownership information directly into the federal registry. Provinces would need to pass legislation in their own business acts, yet this harmonization approach was used during the first beneficial ownership agreement in 2017. As a flexible approach, the federal government can also suggest that the provinces may choose to implement their own beneficial ownership registries, and use an open data standard to make sure they’re interoperable with the federal registry.
The impact of Bill C-42 will be felt beyond Canada’s borders. Should Canada pass this legislation, this registry will be a game changer in the global fight against tax evasion, organized crime, corruption, bribery and terrorist financing. I’m proud to see Canada take this decisive step today. Thank you so much for your time. I am happy to take your questions.
The Chair: Thank you very much, Mr. Caldera.
DT Cochrane, Economist, Canadians for Tax Fairness: Good afternoon. Thank you for inviting me to speak about Bill C-42 on behalf of Canadians for Tax Fairness, or C4TF. I was an economist with the organization for almost three years. During that time, I experienced a meaningful shift by the government on implementation of a publicly accessible beneficial ownership registry. C4TF has long advocated for such a registry, and we are grateful that our efforts alongside others, including our coalition partners, have helped facilitate cross‑partisan support and propel legislation forward.
While there are many benefits from making corporate ownership more transparent, I will largely focus on how it can contribute to greater transnational tax fairness by reducing illegitimate tax avoidance, which deprives governments of revenue and worsens inequality.
We can think of tax avoidance along a spectrum. At one end of the spectrum, there is tax evasion. This is non-payment of taxes owed by failure to remit, failure to report taxable income, wilful misuse of a tax mechanism and other means. Tax evasion is, of course, illegal. At the other end, there is legitimate use of tax mechanisms designed to achieve some policy aim, such as investment tax credits or deductions for RRSP contributions, which is obviously legal.
However, between these two extremes, there is a large grey area, which involves the innovative use of our laws — in ways not intended by the government — to avoid taxes. When these innovations operate at the margins — where they may adhere to the letter of the law, but violate the spirit — this is known as aggressive tax planning.
A publicly accessible beneficial ownership registry will help tax authorities around the world identify aggressive tax planning schemes that cross the line and violate the law. We have seen examples where complex corporate ownership structures were used to help lower tax bills, but those are just the tip of the iceberg. Opaque ownership is used to facilitate and hide aggressive tax planning.
In 2019, the Office of the Parliamentary Budget Officer, or PBO, estimated that international tax avoidance cost the Canadian government approximately $25 billion a year. Contrast that with the PBO’s recent estimate of the annual cost of a single-payer pharmacare program at $11 billion to $13 billion. I am not suggesting that all of this lost revenue will be regained following implementation of the beneficial ownership registry — rather it will provide an essential tool in the fight against aggressive tax avoidance, although others are needed.
Greater ownership transparency will help not just tax authorities, but also civil society actors around the globe to parse between legitimate and illegitimate ownership schemes as part of reducing tax avoidance. Thank you in advance for helping to move Canada closer to ownership transparency and improved tax fairness here and abroad.
The Chair: Thank you very much, Dr. Cochrane.
Jon Allen, Former Board Director, Transparency International Canada, as an individual: Nice to see you again, Madam Chair. I’m speaking to you — the committee — as a former member of the board of Transparency International Canada, and a former Canadian ambassador who has witnessed various forms of corruption in a variety of places, from Mexico to Spain to India to Washington. I saw how it eroded trust in government, exacerbated inequality and robbed governments of taxes that should have been used for health, education and social services. Instead, this money found its way into the hands of drug dealers, human traffickers and wealthy tax evaders who took advantage of poor enforcement, secrecy and sophisticated enablers to money launder their ill-gotten gains.
When I returned to Canada, I became aware that we had our own problems with corruption: skyrocketing house prices caused in part by multiple condos purchased with laundered funds; hockey bags of money in B.C. casinos; and revelations in the Panama Papers of so-called reputable Canadians hiding their substantial income in tax havens in the Caribbean. That prompted me to join the board of Transparency International Canada.
Until 2018, when some minor reforms were legislated to require corporations to keep a record in-house of their beneficial owners, the best description of the state of beneficial ownership transparency in Canada came from The Economist. It noted that it was easier to register a company in Canada than it was to get a library card in the city of Toronto, and I can verify that.
While those reforms mentioned were welcome, they didn’t fully solve the problem. The required information is not searchable, nor is it readily accessible to businesses. It also offers little deterrence to criminals who are prepared to enter false information. As a result, it is nearly impossible to know how many numbered companies an individual might control, what the purpose of those entities might be or where the individual might be hiding their illegal funds.
We remain open to a scenario where a criminal gang establishes 5 or 10 numbered companies here, uses them to move illicit cash from abroad to Canada where it’s laundered and then sends it to tax havens in the Caribbean. The money is virtually untraceable. The RCMP and the Canada Revenue Agency, or CRA, have neither the resources nor the tools to go after those responsible. This is a secret and very complicated business that uses the best minds of lawyers, accountants and consultants to construct these illegal networks.
To give you a sense of the scale of the problem, our best estimates are that between $40 billion to $100 billion a year is being money laundered in Canada. Abroad, at the Organisation for Economic Co-operation and Development, or OECD, as well as among anti-corruption organizations and, most importantly, among enablers and criminals, Canada is known as the country of snow washing, where dirty money can be easily cleaned and repurposed, and where — if you get caught — you’re likely to get off scot-free. Why? It’s because we have a combination of poor enforcement and the strong application of the rule of law. As a result, it’s easier to cheat the system and difficult to be successfully prosecuted.
The legislation before your committee is a first step and an important tool to begin to attack this disease. While it is not a panacea, we are strongly supportive of Bill C-42. I hope you and your committee will soon consider further measures like increasing the resources of the CRA, the Financial Transactions and Reports Analysis Centre of Canada, or FINTRAC, and law enforcement so that they have the necessary tools to fight the scourge of money laundering and tax evasion. Thank you for your time.
The Chair: Thank you very much, Mr. Allen.
We will now open the floor to questions, reminding members to keep questions concise if you possibly can, and kindly reminding our witnesses to keep answers concise and as focused as possible. We will begin, as we do, with our deputy chair, Senator Loffreda.
Senator Loffreda: Thank you to our witnesses for being here. I will ask my question and short supplementary, and give you some time to respond and think about it.
In your opinion, do you feel that the 25% threshold proposed in the bill that applies to the phrase “significant number of shares” — or “significant influence” — is sufficient? Do you believe this is the appropriate number, or should that threshold be incrementally reduced to capture more business owners?
I know, for instance, that the Financial Action Task Force has found the 25% of control to be acceptable. Do you agree? Does 25% give Canada the adequate capabilities to fight money laundering, and are there any international jurisdictions that have a lower threshold?
And this is my supplementary question: Is money laundering occurring on a greater scale only when significant influence is held, and what happens to the individuals holding less than 25%? How are they covered, if so?
Thank you.
Mr. Caldera: Thank you, senator, for those questions.
With respect to the 25% threshold, it’s important to remember that this threshold isn’t necessarily a global standard, but rather a starting point, particularly for identifying individuals of significant control. It’s our recommendation that Canada should proactively lower that threshold. Canada would need to assess the burden on business in disclosing significant shares, but we think this is the way that the world will be moving very soon.
Similar legislation is already under consideration in the European Union, and other jurisdictions, particularly Latin America, are also moving toward the significant share threshold of under 25%. I would say that 10% is likely going to be the next threshold.
Maybe I’ll just pause there and let my colleagues comment as well.
Mr. Allen: I have nothing further to add to Mr. Caldera’s remarks. Thank you.
Mr. Cochrane: I’ll also just echo Mr. Caldera and say that 10% is what I think we should be aiming toward.
[Translation]
Senator Bellemare: Thank you for joining us. My question is quite simple, and I’d like to get a somewhat pragmatic answer. The Minister of Innovation, Science and Industry has stated that the registry will counter money laundering in this country; at the same time, we know that similar agreements must be reached with the provinces.
How would this registry help reduce money laundering in Canada? In concrete terms, how is this possible?
[English]
Mr. Caldera: I’m happy to give the first response, senator.
With respect to the provinces and territories, this will be a crucial next step for Canada to make sure that this registry fully covers the country. We are recommending for Minister Freeland and Minister Champagne to reach an agreement with the provinces and territories for a pan-Canadian registry, and the way to do this is the provinces can be given a choice. They can opt in to the federal registry that is already being designed. The good news is that this federal registry, as far as I understand, is set up to hold the capacity of incorporations from other provinces.
The other choice it can give to the provinces is to suggest that each province can create their own beneficial ownership registry, but the design parameters need to mirror what’s already at the federal level, and then that way, there is interoperability.
So far, British Columbia has recently passed legislation this summer where they are going to create their own provincial beneficial ownership registry for corporations. The Province of Quebec was an early adopter in our country, and their beneficial ownership registry has already been implemented. We’re hoping that one of the larger provinces — specifically Ontario — can be next and take a leadership role.
Without a pan-Canadian registry system, there are gaps that exist because I think — as committee members are aware — you can register a corporation at the federal level, or you can register a corporation within one of the many provinces in our country.
I’ll pause there to hand it off to my colleagues.
Mr. Cochrane: I was just going to add that if we don’t get the pan-Canadian registry, there is a chance that we could have a province that essentially decides that it will benefit from being the Delaware of Canada — that’s the last thing that we want and, I think, the last thing that legitimate businesses in any of those provinces want. If you’re a legitimate business operating out of a jurisdiction that is widely considered to be a haven for all of the harms associated with opaque ownership, then that will cast a pall on your legitimate business.
We think it is absolutely in every province’s interest. There may be some desire or thought that “Oh, this could be beneficial to us,” but, ultimately, we don’t think that will be the case, and we want to ensure that we don’t get our own Delaware.
Mr. Allen: I would just add that the importance of the system that Mr. Caldera outlined is that it allows the smaller provinces — who might have difficulty, and for whom it might be very expensive — to link into the federal plan and take advantage of that. You would have a strong degree of uniformity, and as long as Quebec and B.C. were largely uniform, as my two colleagues said, you would cover the bases and eliminate the gaps.
However, I do reiterate that we need a countrywide system to avoid what we’ve seen in Europe, where countries like Ireland choose low tax rates in order to attract investment, and then it ends up throwing the system out of whack. It’s a different issue but the same problem. Avoid the Delawares, and get everybody on board so that one small province doesn’t end up attracting all this dirty money.
Thank you.
Senator Bellemare: Does this legislation include some incentive for a pan-Canadian system or not?
Mr. Caldera: Right now, I think the incentives are in how the registry will be set up. This crucial next step on implementation is something that our coalition is going to be monitoring. We were encouraged by this government because they specifically mentioned they will be using an international open data standard called the Beneficial Ownership Data Standard. This standard makes it easy to interchange information between one subnational jurisdiction and another, and it’s a format which other countries are using.
We are encouraged by this; however, we are going to monitor implementation as work progresses on this file.
The Chair: I have a follow-up on that to Mr. Allen, and then perhaps to Mr. Caldera as well: There is the cost of the implementation of this — the technology that you’d find provincially in the data collection and the oversight, some bureaucracy, et cetera — but the true cost is in enforcement.
Is there any way for the provinces to be subsidized for that or incentivized for that?
Mr. Caldera: Oh, absolutely. In fact, one way to do it is to set up a penalty structure with the provinces. For instance, if it is determined that a provincial corporation is non-compliant, then the province can receive the lion’s share of the penalties. It doesn’t need to all go to the federal government. There are incentives that could be built into an agreement between the provinces and territories.
And, as Mr. Allen mentioned, for the smaller provinces — particularly in the Maritimes — they certainly would find it cost prohibitive to develop their own provincial beneficial ownership registries and have it staffed.
That’s why, if anything, the federal model can help serve as a magnet to reduce costs for the smaller provinces. The larger provinces — which have significant numbers of corporations — can develop their own as long as the standards are harmonized.
We are seeing some late adopters and laggards in the Prairie provinces. It is our hope that they will join in this pan-Canadian agreement, so long as it has a flexible structure.
Madam Chair, to answer your question, yes, there can be incentives built in that can be helpful for the provinces.
The Chair: Mr. Allen, do you have anything to add?
Mr. Allen: I have nothing else to add. Thank you, Madam Chair.
Senator Gignac: Welcome to our witnesses. In Europe, a similar effort had been put in place by Luxembourg in 2019, but, ultimately, the law was struck down by the European Court of Justice in 2022 — reflecting the decision that public access to information on beneficial ownership constitutes a serious interference with the fundamental right to respect private life and protect personal data.
Is it important that this registry be available for the public, and why not limit it, for example, to law enforcement agencies who are responsible for financial crimes?
Mr. Caldera: I am happy to respond to that question, senator.
This issue that you just described in Europe is very important. It is important for the tax justice movement and for anti-money laundering efforts.
Fortunately, Canada’s privacy statutes are quite different from what exists in the European Union. The threshold for privacy and data protection in the European Union is much higher than it is in Canada.
Second, when you look at the fields that are going to be publicly accessible in the legislation, they are deemed as proportionate or onside with Canada’s privacy laws. They are also proportionate to the objective of the registry, which is to combat money laundering, tax evasion and terrorist financing.
Your next question was this: What is the value of making this information publicly accessible and searchable to everyone? The value addition is deterrence. If this information were only kept for access to competent authorities, you can still have a criminal who will take a risk. These are criminals who have access to lawyers, accountants and intermediaries. They are laundering $50 million or $100 million. They will certainly take the chance and incorporate anonymously.
If this information is publicly accessible, then their chance of remaining anonymous is almost zero because other countries, for instance, can look up this information in the publicly accessible registry. Any business that happens to have due diligence obligations can also access this information. Groups like ours — civil society — can access this information for free and carry out forensic analyses.
Mr. Cochrane: In the European context, part of the reason it was struck down was the implementation of the registry was solely on the basis of money laundering. This is a way to combat money laundering, so the European Court of Justice found that it did not need to be publicly accessible for that purpose. In Canada, we’re stating other purposes, as Mr. Caldera mentioned, such as due diligence.
It will also make it easier for other tax authorities in other countries. While they can access information through appeal and coordination with our tax authorities, that is the type of process that builds delays into trying to conduct investigations, and it can create openings where leaks can come out — and the people that they are pursuing can now act on this pursuit and move out of the way.
By having it publicly accessible, it will make it much easier for tax authorities elsewhere to make use of it.
Let’s also recall that it has been journalists who have done a lot of the work exposing the Panama Papers and the Paradise Papers. We want to ensure that journalists have access to these incredibly valuable resources.
As someone who does research that would use this kind of information, this could really help expose networks of ownership that are lending themselves to tax avoidance that maybe we’re not realizing.
Mr. Allen: I would concur with what I have heard.
We do not think that the information being provided is a serious threat to privacy.
There’s always a balance to be drawn between the threat to privacy and the need and the purpose of the legislation. In this case, we’re very clear that this information will not be a serious threat to the individual.
I concur that it has to be public — not only for the press who do a significant amount of investigation, but also for groups like Transparency International and Publish What You Pay who are watchdogs on behalf of the public in this regard.
Finally, as I mentioned in my remarks, in law enforcement, our white-collar crime divisions are not funded sufficiently to be able to keep track of all of this.
They actually need and rely on the help of the press and others to look into these matters, and then they can follow up once they have that information.
Senator Marshall: I am going to direct my question to Mr. Allen because he said something that I agreed with, but I would like the views of Mr. Caldera and Mr. Cochrane too.
Mr. Allen, you said that the legislation is a first step; I agree with that. We haven’t seen the registry yet. We don’t know how it is going to work. Everybody is using words like “searchable,” “scalable,” “publicly accessible” and “readily accessible.”
We don’t know how people are going to be able to access the information. There is a section in the legislation in the bill where part of it appears to be paper-based. I do not know if anybody noticed that.
The bill also outlines a significant role for the director and his or her discretion. I would be interested in any comments on that.
I would like to know, Mr. Allen, why you said it is a first step. Then, I would like everybody’s views on the bill itself, knowing that it is a first step and simply the foundation for the registry that we’re all anticipating.
Mr. Allen: Thank you, senator. I said it is a first step because it doesn’t deal with every issue out there. I said that I hoped there would be more money for law enforcement, et cetera.
We also talked about reducing the 25%. Once we see how this operates, perhaps we can move to the other standards that are being developed, and get it down to 10%.
A similar registry has operated in the U.K. We watched it. We saw some of the benefits. We saw some of the problems with it. In our recommendations, we have tried to resolve some of those problems. Undoubtedly, there will be problems in standing it up here. We will have to see how it plays out. It is a necessary first step. It is, I think, a truly important one.
Senator Marshall: I would be interested in knowing this: We have not seen the actual system. We do not know how it is going to work. Are you anticipating a system similar to other jurisdictions?
Mr. Allen: I will let Mr. Caldera handle that one. He is the technical expert.
Senator Marshall: Thank you.
Mr. Caldera: Thank you, Mr. Allen.
With respect to this system, we have yet to see the details because it is our understanding that some conceptual work has gone into the implementation. Yet, we are hoping — should this legislation pass — to understand what the registry architecture will ultimately look like. I think it is going to be very important to get the architecture right so that the registry is effective.
I also believe that it is a terrific learning opportunity for Innovation, Science and Economic Development Canada public servants to become familiar with these interoperable registry systems, and to design a registry that uses an open data standard.
Currently, with Canada’s existing corporate registries, many were conceptualized nearly a century ago. Some of the paper systems that, I think, are in the legislation could be remnants of how registry systems were initially conceptualized.
What is encouraging for us is that a lot of these registry systems are becoming digital, and for a beneficial ownership registry, the primary focus is for anti-money laundering, due diligence and tax evasion. It absolutely must be interoperable and easily searchable in ways that these earlier registry systems did not have. They did not have that kind of foresight.
We are still awaiting details, but we are going to be monitoring this.
[Translation]
Senator Miville-Dechêne: As a former journalist, I’m a great admirer of transparency laws. However, I understand that, until now, there has been little or nothing of the kind in Canada; a business license could be obtained as easily as a library license.
With this legislation, how does Canada compare with the other major countries of the Organisation for Economic Co-operation and Development, the OECD? Are we still lagging behind? Are we catching up with the herd or not really?
[English]
Mr. Caldera: Thank you for your question, senator. This legislation — the way we see it — is part two of what was already passed in 2018.
Prior to 2018, one could register a company in Canada and provide very little information — in fact, no information — about beneficial owners or individuals of significant control. In 2018, legislation was passed where all CBCA corporations must hold an internal record of individuals of significant control. This record must be made available to the RCMP or any other competent authorities, should they request to do so.
Where we are today is that this information will be put into a centralized registry, and made searchable and interoperable with the provinces and territories. This is a leap forward for Canada. There is still more work that needs to be done. Particularly, some of this information, in our opinion, needs to be worked on in terms of ensuring that the data is valid and also verified so that an individual of significant control cannot lie as they register.
We are working with public servants. This has been one of our biggest advocacy points because once this registry is set up, if it is interoperable with the provinces, we have to work with Canada to make sure that there is a strong validation and verification mechanism that is a part of the registry.
Senator Miville-Dechêne: Where does this put us in the world in terms of such laws? Are we still behind? Who has these laws? Is it the majority? Are we behind? Where are we in terms of our world position?
Mr. Caldera: This is quite encouraging. If Canada successfully passes this legislation, we will leap almost to the head of the class globally with respect to beneficial ownership legislation. The setback in Europe as a result of the European Court of Justice ruling has put many European jurisdictions on pause, and they are now rethinking access privileges to their own registries.
Should Canada pass this legislation, it would be moving significantly forward. It would be one of the more progressive G7 countries to do so. Of the Five Eyes countries, this registry would put Canada on par with the U.K. and New Zealand, for instance, which are going ahead with public registries. Australia is also committing to a publicly accessible registry. The United States has decided to go with a private registry.
Senator Miville-Dechêne: “Private” meaning not accessible to the public at large.
Mr. Caldera: That’s correct — not accessible to the public, and, in fact, only accessible to banks and competent authorities.
The Chair: Mr. Allen, do you have any comments on this?
Mr. Allen: I just want to say, Madam Chair, that the problem is massive, and this is just one tool. We have a lot more to do, and more that could be done. It is very important that we do move to the top of the line on this one. Thank you.
Senator C. Deacon: Thank you to our witnesses. This is such an important meeting, and your advice is very important to us.
I want to look forward a little bit, given the agility of criminal organizations to find new ways to get around old laws, as well as the rate of technological innovation and the need for us to continue to streamline the administrative burden associated so that we get higher levels of compliance, while also becoming increasingly innovative in how we fight back. That is the problem I want to focus on looking forward.
Do you think that this legislation as currently drafted has the capacity to secure, authenticate and verify identity in our increasingly digital world in a way that we can be really confident in the identity of individuals? Private data sharing between financial institutions is crucial, as we’ve heard, and if a bad guy sniffs that his financial institution, or FI, is catching up, he just gets a restart by changing FIs right now. It is pretty easy to get a clean slate and start over again.
We understand that the review of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, or PCMLTFA, will look to strengthen and enable that, and it looks like there is agreement, or growing agreement, under Bill C-27 that there needs to be private organization to private organization data sharing in that.
The last thing is the promise of the transactional data that will come with the growing implementation of ISO 20022, and the data packets that will be involved in every transaction.
Those are three different areas where I see potential opportunity for us going forward, but there may be others — and there’s also the ability to try to start keeping up with these criminal organizations. What are your thoughts on that? I am trying to look over the hill.
Mr. Caldera: Thank you, senator, for those questions. That foresight is very important.
Let’s look at data validation and data verification. Right now, in the current legislation, we think that there is work that needs to be done on the data validation and verification component. One of our suggestions — and this was sent in a brief to all senators this morning — was to require CBCA corporations to hold an ID number from a valid, non-expired government-issued photo identity document for all individuals of significant control, or at least some sort of an ID number or a means to verify identification held at the corporate level. That would greatly assist the RCMP or any competent authorities to verify IDs, should they decide to audit one of these corporations.
In the future, we’re hoping — and many sectors of Canada’s economy have already rolled out this technology — for a digital ID verification. We’re hoping that can be built onto the registry system where it will be very easy for corporations to hold hard copies at the firm level, yet simply transmit some of that sensitive information through a secure digital ID verification portal. Those are our thoughts on the ID verification.
You had two other questions?
Senator C. Deacon: It was about the necessity of the changes to Bill C-27 to ensure that it enables FI to FI data sharing under the PCMLTFA. Without that, we are still behind the eight ball. This information will be very helpful in observing the behaviour that we need to catch through those changes.
Mr. Caldera: I completely agree. It is my understanding that, currently, financial institutions in Canada do have the capability of sharing client information in the instance of suspicious transactions or suspicious clients, but there are roadblocks, and it is seldom used. Our organizations are fully supportive of any amendments to the PCMLTFA that strengthen the sharing of information between FIs in Canada.
Senator C. Deacon: The last question was about the ISO standard that is emerging in real-time payments. I gather that ISO 20022 is associating data around the transaction that is going to be transferred rather than just the funds. There is going to be a lot of data included. Am I correct in my understanding of that?
Mr. Caldera: I’m actually unfamiliar with that specific ISO standard. That is something we can undertake to review.
I can also turn it over to my colleagues if they have a perspective on that.
Mr. Cochrane: I don’t have specific knowledge of that.
To your general concern of looking forward, I think we’re in a process of playing significant catch-up. We didn’t anticipate just how much the rapid, massive globalization of finance was going to facilitate all the deleterious practices we’ve been talking about. We’ve just been caught on the back foot — a little bit unsure how to proceed. Now these many pieces are being put into place to try to get to where we need to go, or at least to get within shouting distance of where we need to go. The hope is that when we get these different pieces in place, which you’ve identified, we’ll see what we are still missing, and what else we’ll need. We’re certainly not claiming this will be the panacea for all of these issues, but by bringing some sunlight into the opaque ownership — in which Canada is currently a leader in providing that opaque ownership — it will be a big step forward, and help prevent a lot of the practices that we’re currently not catching.
The Chair: Mr. Allen, I’m sure you want to answer the highly technical questions.
Mr. Allen: I won’t answer that one, senator, but I will say that beyond the technical, if you want to look at something that we should be looking at going forward, it’s the question of the enablers. What you have is a system of lawyers, accountants and consultants who know exactly what they’re doing. In regard to this range between tax avoidance and tax evasion — that my colleague talked about — they slide along that range; they get very close to tax evasion, and sometimes they go over it, and sometimes not.
We ran into a difficulty because the Supreme Court ruled that there were lawyer-client privilege issues, and we really believe that this should be looked at by the law societies. They should not be condoning, by the use of that privilege, illegal activity within the offices of lawyers, accountants, et cetera. If we want to look forward, I think that’s another place we should begin to think about.
Thank you.
The Chair: Yes, excellent point there.
Senator Yussuff: Thank you, witnesses, for being here. I have a couple of questions.
Of course, it has been quite some time for the campaign to get this off the ground. I’m getting old — to put that into perspective. The bigger challenge we have in this country is — because it’s a federation — we really need the provinces to play ball with the federal government. Ontario being the largest province in the country — on scale — the registration of corporations is unbelievable in terms of size. And given the noise in Ontario, we’re not hearing as much as we would like. We would like to see their commitment to similarly track and put forward legislation.
Given the social movement took a long time to get this forward, I guess the big challenge is the need to accelerate at the provincial level to get them onside. Maybe I’ll just put that out there. I have a couple of questions in regard to the penalties — because that will be the deterrent, ultimately — for not complying with the legislation. If you don’t have the right penalties, then why would anybody do anything? Just pay the fine.
The last question is a review because this legislation is of paramount importance to give some continuity to the tax system of this country. We know we’re going to have to review it. There is no built-in mechanism for a review, and how we should do that within a timely manner — knowing the operations, what we can learn, what we can fix and how we do that. Perhaps I’ll allow you to comment on that and give us some guidance.
Mr. Caldera: Thank you so much for your question, senator.
Perhaps let’s talk about the provinces. We need Ontario to come on board. They are the largest province in Canada by GDP; I think everybody understands that. But they also have the largest number of corporations which are based in the country. Currently, Ontario has committed to phase one of the beneficial ownership legislative framework that was put in place in 2018 and spearheaded by former finance minister Bill Morneau. They have required all Ontario business corporations to hold beneficial ownership information internally at the firm level. It is our hope that once this legislation at the federal level passes, it will send a signal to all provinces and territories that they should also upgrade their own legislative frameworks. We strongly believe that a second pan-Canadian agreement that builds on the 2018 pan-Canadian agreement needs to be put into place. This can be agreed upon by the finance ministers of all provinces, as they meet twice a year, I believe.
We think this is really doable. If Ontario comes on board, that would further incentivize other provinces to join such a framework because, at that point, you’ll have three of the largest provinces — British Columbia, Quebec and Ontario — be the early adopters in this pan-Canadian framework.
With respect to penalties, we were quite pleased to see that the offences were increased during the clause-by-clause consideration in the House. The penalty for some of the summary convictions were increased substantially. We do note one area that will need attention from this committee, and it is the offences in contravention of section 21.1(1) or section 21.31(1) of the CBCA. These are some offences where directors knowingly acquiesce the contravention of these sections, or are knowingly non-compliant. Right now, the language is for a summary conviction of $1 million and five years of imprisonment. That should actually be changed to a conviction on indictment just because under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, summary convictions do not normally exceed a two-year imprisonment. If this legislation goes through, it would need that revision. When the committee goes into clause-by-clause consideration, we hope that correction will be made.
I think in terms of the offences, the right formula exists. We would recommend that the individual of significant control be specifically mentioned in section 21.1(1) or section 21.31(1) just to make it clear that it’s every director, individual of significant control, or officer who is knowingly non-compliant with these arrays of offences. This is included in the briefing note that I sent, and I’m happy to discuss that further.
Senator Ringuette: First, I have a quick question: For the Quebec registry, what’s the threshold?
Mr. Caldera: I believe the Quebec registry is lower than the federal registry. It has been some time since I looked at it, so I do need to double-check that.
Senator Ringuette: Could you find it for us, please?
Mr. Caldera: I could look it up.
Senator Ringuette: Thank you.
Has the list of red highlighted amendments — that you provided us this morning — been provided to the minister responsible?
Mr. Caldera: Yes, I sent this to the minister’s office this morning as well.
Senator Ringuette: Okay, this morning.
Mr. Caldera: Yes.
Senator Ringuette: I can understand requesting the country of residence and the name of the corporation.
Correct me if I’m wrong: For the issue of identification with valid government-issued photos, you must have a reason to ask for this specific thing. Is it because of the evidence you’ve seen in the U.K.? You have a reason to ask for this specific thing. Do you have evidence that some names attached to corporations are not necessarily verifiable names? You have a reason to ask for this.
Mr. Caldera: Thank you for that observation, senator. Yes, we were very specific with that recommendation.
As much as I spoke of some of the shortcomings of the U.S. registry system, there is one positive aspect: In the United States system, there is a requirement for beneficial owners to submit just the ID numbers from non-expired government identity documents. It’s important to remember that we’re not asking for this information to be public whatsoever. This is for information to be held at the company level.
We’re also not asking for companies to hold the identification document itself because there are risks to privacy, and it’s my perspective that many individuals of significant control would be uncomfortable with that. However, if a company happened to have on reference an ID number from a valid, non-expired government-issued photo identity document, that just makes it much easier for the RCMP or competent authorities to be able to link and understand who the ultimate owner is.
Senator Ringuette: To my question of why, your answer is that it’s easier for the RCMP to do the research. You have no other evidence in regard to this request?
Mr. Caldera: Well, it is already legislated in the United States. From other practical purposes, this would make it a lot easier to set up Canada’s system for eventual identity verification because the firm would already have documentation that corresponds to the ID of the individual of significant control.
Senator Ringuette: Okay.
The Chair: Thank you.
[Translation]
Senator Massicotte: Thank you very much for joining us; we appreciate it. I’m going to ask you a technical question, and I have to ask it to make sure I understand. We always talk about cooperation, but I assume that includes individuals, partnerships and trusts.
[English]
Mr. Allen: Not partnerships.
Mr. Caldera: Thank you for that question, senator.
This is one of our other recommendations, and I think it’s also going to be a learning curve for Canada. Right now, in the CBCA — I believe it’s section 2.1(1) — there are measures for indirect control and influence, and the definition of an individual with significant control.
Now, that’s at a very broad level, so it’s conceivable that trusts and partnerships would fall under that definition. However, we would recommend that Innovation, Science and Economic Development Canada consider language specifically from the U.K.’s Economic Crime (Transparency and Enforcement) Act 2022 because that language very specifically articulates to what extent you directly or indirectly hold shares; whether you directly or indirectly control voting rights; and whether you directly or indirectly have the ability to appoint or remove boards of directors, or to what extent you exercise significant control. And there is a provision specifically on trusts.
Right now, I think the legislation is up to interpretation on whether partnerships and trusts are covered, and this is why we recommend as a next step — for public servants and for the minister’s office — to consider more specific language so that it’s quite clear what is covered and what isn’t covered.
[Translation]
Senator Massicotte: I have another question.
We talked earlier about the fact that certain people, including journalists, would have the right to access rather confidential information. That said, is there an obligation for this person to keep the information confidential or to deal with the fact that the information must remain confidential?
At present, in the law of the marketplace, the answer is no. However, I assume that if the person receives confidential documents, he or she automatically has a responsibility to keep them confidential. Am I mistaken?
[English]
Mr. Caldera: Thank you so much for your question.
It’s our understanding that journalists would only have access to the information that is publicly accessible to everyone. They would not have access to the sensitive information — that would only be available to the RCMP and competent authorities.
If they have access to the public information, it’s my presumption that they will use it for whatever purposes that are deemed ethical within their profession.
[Translation]
Senator Massicotte: So I misunderstood your answer to my question earlier, because I thought it was a good idea to give more information to journalists and allow them to play the important role they’ve played in the past, but you’re saying it’s not. There wouldn’t be more information available to the public.
[English]
Mr. Caldera: Correct, yes; I understand.
Journalists would only have access to the information that is made publicly accessible. Whether there should be a provision for journalists to access more information, that has to be studied — just because it would have different implications for the privacy of individuals. This is something that we don’t necessarily have a position on, but, in principle, we would support a privacy analysis in that regard.
Senator Miville-Dechêne: Yes, it’s not clear. What is the information that’s publicly accessible as opposed to the one that won’t be? Maybe everybody else understands, but I am not understanding.
Mr. Caldera: Thank you for that, senator.
The information available to the public is in proposed section 21.303(1):
The Director shall make available to the public the following information sent to the Director under section 21.21 for each individual with significant control . . . .
It’s their name; their address for service, if it has been provided to the corporation; their residential address, if their address for service has not been provided to the corporation; the information referred to in other paragraphs; and any other prescribed information.
We are also recommending that the country of residence be made publicly accessible, and this can be part of what already exists in the service address. As far as I know, service addresses have countries attached to it. And then there’s the name of the corporation because that would allow the easiest means to search the registry by simply typing in the name of the corporation, and you get a list populated with the names of the individuals with significant control.
The Chair: I’m wondering if we can get a quick response from each of our three witnesses. There seems to be an awful lot of outstanding questions. What is the definition of beneficial ownership? Who qualifies? You don’t have the provinces onside. The offences need to be looked at again. There is a question of access for journalism, and court decisions on privilege for lawyers and accountants. Is this really ready for prime time, or should we be doing more work on the bill before we pass this bill and then say, “Let’s try to fix it”?
Mr. Caldera: I think this bill is quite good. Where I would really do some work is on ensuring that there is some measure for corporations to hold and a means to verify the ID of individuals of significant control.
The Chair: My point is that these are all outstanding questions. Shouldn’t we actually be settling some of that first? It’s the cart before the horse.
Mr. Caldera: I think it should be settled, and I don’t think some of these revisions are going to be onerous. It would take a little bit of extra study, but I don’t recommend to stall this legislation unnecessarily.
The Chair: Mr. Allen, do you have any thoughts on that?
Mr. Allen: Yes. The issue of journalists — and what they’re entitled to see or not — is clearly set out in the legislation, and that’s really for everybody. There is public access and non-public access.
In regard to some of the other issues that I raised about enablers, that’s for another day. It’s something that we’re hoping for, just like we want more money for enforcement.
I think we’re ready to go. The only issue is there seems to be some questions of interpretation regarding whether it applies to partnerships and single individuals. That should be clarified if it can be. Otherwise, it’s a tight bill. It addresses specific concerns. It’s not perfect, but we can deal with the other things later. We do need to get this done quickly.
Mr. Cochrane: We all know the expression about not letting perfect be the enemy of the good. We all think this bill is very good. One of the impressive things is that it has not received substantial pushback. There are people and groups with whom we have pretty different ideas about how to achieve some of these ends, and the government has managed to create a bill that, more or less, has all stakeholders on board. How many bills can you say that about?
The Chair: Thank you. We have a little time left, so we’ll do a quick second round. I’ll ask everyone to be short and sharp.
Senator Marshall: My question is very specific. The director is mentioned I don’t know how many times in the bill. Has anyone gone through and looked at the roles and the responsibilities of the director? The director has a lot of discretion. Has anybody focused on that to see if there are any concerns?
Mr. Caldera: Thank you, senator. The role of the director can be augmented as part of subsequent regulations. We’re hoping to see some more information about the specific powers and privileges in the Canada Business Corporations Regulations, or CBCR. The director is referenced quite a bit.
Right now, in regard to what the director is making available to the public, and the role of the director to be able to inspect and to work with other branches of government, particularly the CRA and FINTRAC, we think that the key ingredients are there.
Senator Marshall: There are no red flags?
Mr. Caldera: No, I don’t think so.
Senator Loffreda: Mr. Allen, you mentioned that the bill is only one tool, but we’re ready to go, and it should be passed.
Mr. Caldera, you said that if we pass this legislation, we will leap to the head of the class, and it’s nice to see Canada at the head of the class. I heard that it’s not perfect, but it should be passed.
My question is a practical question: To what extent will this bill reduce money laundering?
Mr. Caldera: That’s a terrific question, senator. We think that this bill will play a large role in deterring money laundering activities in the country. Right now, it’s estimated that $45 billion to $113 billion is laundered annually in the country. When you think about how that money is transmitted, it is primarily through anonymous corporations, anonymous properties and other assets. This bill will create a whole lot of headaches for the enablers, as Mr. Allen attested to, and for other large transnational criminal organizations. They will have to restructure their shareholdings, or rethink about how to infiltrate Canada’s economy. Unfortunately, we don’t have a percentage of what this deterrence would look like, but it would be sizeable.
This is also taking into account that other countries have already done this. The United Kingdom not only has a beneficial ownership registry for corporations, but has also recently enacted a beneficial ownership registry for properties. This is an additional legislative framework that we would encourage the provinces to study and undertake, specifically Ontario.
There is a lot of potential with this registry. It’s good legislation. There are some elements that need to be studied, but, at the same time, it shouldn’t delay the passage of the legislation.
Senator Loffreda: Thank you.
Mr. Cochrane: I’ll add that trying to measure money laundering scales is incredibly difficult. That’s why we have such a wide range. We know it’s somewhere in the $10 billion to over $100 billion range, but that’s quite a big difference. Trying to figure out what the impact will be is also extremely difficult. Unfortunately, we don’t have any clear numbers. It will be a matter of time, once this is implemented, to see what the effects have actually been on the types of transactions that we use to measure money laundering.
Mr. Allen: I would add that these criminal gangs look to the weakest link. If they find that Canada has finally, after years, tightened up its system, they will go elsewhere. There are plenty of other countries that don’t have this. It’s just as easy to set up a numbered company in Panama or somewhere else, but they liked Canada because nobody expected that they would be doing this here. If we can pass this legislation, we can have a wall of deterrence. It’s not perfect, but I think it will lead the criminal types to look elsewhere. Thank you.
Senator Bellemare: I was looking at some data from Statistics Canada, and the number of enterprises without employees registered in Canada is 2,900,000 enterprises compared with the number of enterprises with employees, which is 1,300,000 enterprises. That is a big difference. There are a large number of enterprises that don’t have any employees. Do you think that this is normal, and do you think that this type of legislation will affect that data?
Mr. Caldera: Thank you for your question, senator. In the same way in which we’re seeing properties being vacant in Canada, there is a phenomenon of shell corporations being vacant, which is the very nature of what a shell corporation is designed to do.
In British Columbia, I know the province is working with its fishing licences because it is understood that many shell corporations have purchased fishing licences in the province. Fish stocks are a natural resource in Canada — should there be non-compliance, such as overfishing, for instance, it is impossible to understand who ought to be held accountable.
To answer your question, yes, I think this legislation will affect the size of these shell corporations in the country.
Senator C. Deacon: Again, thank you to our witnesses.
I want to summarize the work outside of this bill that is really important because we do not want to say that we are done. Sharing Bill C-27 allows the PCMLTFA to provide a structure for sharing data very clearly and under clear rules, drawn from this database — I would expect — about activity.
I noticed from one of our witnesses from Transparency International that you had a white paper on the Canada Financial Crimes Agency — the need for dedicated, sophisticated, investigative and prosecutorial capacity to exist because these are the smartest lawyers, as we’ve heard, and the smartest accountants being paid a whole lot of money to make this stuff happen. We need to have just as smart people on the other side who are dedicated and empowered to deal with that.
I wanted to go back to Senator Ringuette’s point about the identification.
If you are transferring money in and out of Canada right now, and you have a small business, you have to provide your photo identification to the financial institution in order to have a bank account — do you not? This is not something new. This is a central component of actually being able to move money in this country. Am I correct about that?
Mr. Caldera: Yes. As far as I understand, to carry out that kind of a transaction, the financial institution will certainly ask for an ID.
Senator C. Deacon: So this would just extend, then, to all directors and significant parties within that corporation?
Mr. Caldera: Yes. Our recommendation is for the corporation to hold some type of government-issued identification that’s non-expired and valid because there will likely be foreign beneficial owners who are not Canadian. There needs to be a standard set up for companies to understand how to verify the ID of the beneficial owner. We are also recommending that the individual with significant control or the beneficial owner sign an attestation saying, “I am who I say that I am.” This is also held as a record at the corporate level.
A lot of your questions are along the following themes: How do we future-proof this registry? When the technology is available, and when the department is ready to take this next step on digital ID verification, companies would already have this ID information held at the firm level. It would just be a lot more seamless to roll out the technology, with the paper or hard copy of the ID number.
Senator Yussuff: Coming back to one of my earlier questions that did not get answered, any good legislation like this will see some growing pains, and we will learn, especially with what we are trying to achieve. The data should be searchable; it should be publicly accessible. That is going to take some time to get right, given the technology component. We cannot even pay our federal employees on time, never mind getting this right. Not to be critical, but I am recognizing this reality.
Do you think it is necessary for the legislation to have a review time frame built in?
Mr. Caldera: Absolutely. I could not agree with you more, senator. There should be a review time. Perhaps if it is every five years, like the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, that would be sensible.
You are right that for the technological lift required for Canada to execute this properly, the vast majority of government IT projects are extremely onerous. For something like this, it absolutely must employ a technology that is compatible with Canada’s current internal systems, but also easy to access and without any bugs, for instance, or failures.
The good news is that this has already been done in other jurisdictions. We have been encouraging public servants to connect with registry offices within our Five Eyes partners and other G20 partners, and to understand what is working well when it comes to this beneficial ownership registry implementation, and what are some practices to avoid.
A paper-based beneficial ownership registry would be a huge mistake. I am glad that is not the core part of this legislation.
But you are right; there should be a review period, and we have to make sure that the technology is being deployed appropriately. All eyes will be on the implementation.
The Chair: Mr. Allen, on the review period, do you have a timeline?
Mr. Allen: No.
Mr. Cochrane: I was also going to voice my support for having a built-in review. It absolutely makes sense. It has already been mentioned that we are playing catch-up with this, and while other countries have done similar things, none of them have existed for that long. We are joining the head of the class in something that is novel in certain ways. We need to make sure that we’re going to revisit to say what is working, what is not working and what needs to be adjusted, or what new tools will need to be added. The transnational financial system has also evolved in ways that now need to be accounted for.
Senator Yussuff: I wanted to echo a sincere thanks. I know that many individuals have laboured on this file for such a long time, and never thought that it was going to happen. I want to thank all of the people collectively because, as has already been said, this is a major accomplishment on behalf of the country. But it did not come from nowhere. It came out of a lot of hard, dedicated activists pushing. This needed to be done. I’m glad to see this being done. We learned a lot, of course, from the B.C. scandal around money laundering, and it informed us how bad the system is and what we need to do to fix this. So thank you for all the work you have done over the years.
Senator Massicotte: We are talking about issues that are important to us, and we are finding out that it is more complicated than we thought. If it is not too late, in our next meeting, we should add some people — that you referred to — who are against the idea.
The Chair: We have been reaching out. We will discuss that when we talk about future business. I do think a number of questions have been raised here.
Senator Massicotte: My question that I wish to raise is the issue — we have talked about this for years now — of lawyers being protected by their bar association, and the government was against the issue. They brought them to court — even on appeal. Where is that at? How do we resolve that issue?
Mr. Caldera: Thank you for that question, senator.
That is the $1-million question.
As far as I understand it, there was a Supreme Court ruling in 2015 for the Federation of Law Societies of Canada. The ruling was — or, at least, as part of the ruling — there is room for Parliament to study the issue, and debate it in the House and at the committee level. I think this is going to be a very long road for Canada. At the same time, it is a valuable discussion.
It needs to begin at the philosophical stage: What privacy obligations do we impose upon the legal profession in such a way that it doesn’t compromise the right of clients but, at the same time, it serves the public good?
That’s a really important discussion to have with the right experts, and that conversation is something that our organizations would certainly support.
Senator Massicotte: Thank you.
The Chair: Mr. Allen, do you have any comment on that? Your final word?
Mr. Allen: It might be interesting for you to invite the Federation of Law Societies of Canada to hear why they think lawyers should be allowed to engage in this kind of activity without any transparency or look-in.
Thank you.
The Chair: Do you have a final word, Dr. Cochrane? Okay.
Thank you very much, gentlemen: Sasha Caldera, Campaign Manager, Beneficial Ownership Transparency at Publish What You Pay Canada; Dr. DT Cochrane, Economist at Canadians for Tax Fairness; and Jon Allen, former board director at Transparency International Canada. We really appreciate your comments and your insights today as part of our study.
We will proceed in camera to discuss next steps.
(The committee continued in camera.)