Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 9 - Evidence - February 2, 2012
OTTAWA, Thursday, February 2, 2012
The Standing Senate Committee on Banking, Trade and Commerce met this day
at 10:36 a.m. for the review of the Proceeds of Crime (Money Laundering)
and Terrorist Financing Act (S.C. 2000, c. 17), pursuant to section 72
of the said Act.
Senator Michael A. Meighen (Chair) in the chair.
The Chair: Welcome back after the break, colleagues. You all look
very refreshed and ready to go. This is our first meeting of the Standing
Senate Committee on Banking, Trade and Commerce for the new year. We have an
interesting if somewhat technical piece of legislation to look at today.
This is the first meeting, as I say. However, it is the last meeting for
one of our members — which is in some ways quite sad — but that individual
has always enjoyed participating in the deliberations of the committee.
Let me get right down to business. My name is Michael Meighen, I am a
senator from Ontario, and I have the honour of chairing, this committee, at
least for today. I would like to introduce the senators here today:
On my left, Senator Mac Harb from Ontario; Senator Pierrette Ringuette
from New Brunswick; Senator Wilfred Moore from Nova Scotia; Senator Michel
Rivard from Quebec.
We also have Senator Gerstein from Ontario, Senator Stewart Olsen from
New Brunswick, Senator Tkachuk from Saskatchewan and Senator Oliver from
Nova Scotia. We have just been joined by Senator Massicotte from Quebec.
On Tuesday our committee received authorization in the chamber to
undertake a review of the Proceeds of Crime (Money Laundering) and Terrorist
Financing Act pursuant to section 72 of that act. We are requested to submit
our final report no later than May 31, 2012.
In order to kick off this review and give us a background and overview of
the proposed legislation, we are fortunate to have with us from the
Department of Finance Canada, Ms. Diane Lafleur, General Director, Financial
Sector Policy Branch; Ms. Leah Anderson, Director, Financial Sector
Division; Mr. Allan Prochazka, Senior Analyst with the Financial Sector
Finally, we have Annik Bordeleau, Senior Project Leader, Financial Crimes
— Domestic, Financial Sector Division. That is quite the title,
Our deputy chair — and I apologize to her for not having introduced her —
Senator Hervieux-Payette from Quebec, would like to add something.
Senator Hervieux-Payette: I would like to mention that the member
leaving us is our chair. On behalf of my colleagues, I would like to thank
him for the fabulous work he has done on our committee. We will miss him
greatly. His contribution, both to this committee and to the Senate, has
always been of the highest quality.
Perhaps he will return as a witness on an issue one day. His good advice
will always be welcome.
I must say that I felt privileged to be able to sit as deputy chair with
Senator Meighen. He did outstanding work as a chair. I have one or two
little things that I will remember — especially on my bill about women on
boards — but for the rest I think he was almost perfect.
I have a special request from my leader and I will have to leave a little
early, so I wanted to express my thanks. I am sure our colleagues could do
that later, but I will let you start with your presentation and welcome you
as well for this last meeting, which is not as dramatic as it was for other
people in the past. It is not the last scene; it is the last meeting.
The Chair: Thank you. That means a lot to me. Let us get started;
I think you, Ms. Lafleur, are going to start. We have already received your
remarks. Does everyone have them? You have the floor.
Diane Lafleur, General Director, Financial Sector Policy Branch,
Department of Finance Canada: It is always a pleasure to be before this
committee and especially on such an important issue, so we welcome the
opportunity. My intention today is to give you a brief overview of the goals
and structure of Canada's anti-money laundering and anti- terrorist
financing regime, which I will refer to for simplicity as "the regime'' in
I will also provide you with an overview of our recent consultation
papers that propose changes to strengthen the fundamentals of the regime.
My colleagues and I will be pleased to answer your questions on the
administration and enforcement of the Proceeds of Crime (Money Laundering)
and Terrorist Financing Act.
A strong regime acts as a deterrent to crime, improves the safety of
Canadians, and the integrity of Canada's financial system. In turn, this
increases confidence in Canada's financial system, making it an attractive
place to invest and do business. The requirements of the regime provide
financial intermediaries with heightened awareness of money laundering and
terrorist financing risks, which forces these intermediaries to know with
whom they are dealing and prevent unwitting abuse of the financial system.
Implementing a robust anti-money laundering and anti-terrorist financing
requirements also allows financial intermediaries to combat fraud and
effectively manage risks, helping to preserve their reputation both
domestically and internationally.
Canada's regime is comprehensive and robust. It is a cohesive framework
that involves 11 departments and agencies. The core elements of the regime
are set out in the Proceeds of Crime (Money Laundering) and Terrorist
Part 1 of the act, along with the associated regulations, requires
financial intermediaries to meet customer identification, due diligence and
record-keeping obligations and to report suspicious and other prescribed
transactions relevant to the identification of money laundering and
terrorist financing, and the possession of terrorist property. This includes
reports on cash transactions of $10,000 or more, international electronic
fund transfers in and out of Canada of $10,000 or more, and casino
disbursements of $10,000 or more.
Part 2 of the act requires persons or entities to declare the importation
and exportation of currency or monetary instruments of $10,000 or more. This
part of the act is administered by the Canada Border Services Agency.
Part 3 of the act sets out the constitution of the Financial Transactions
and Reports Analysis Centre of Canada or FINTRAC. It is Canada's financial
FINTRAC receives and analyzes reports and provides information to
Canadian law enforcement organizations and other organizations, in
particular the Canadian Security Intelligence Service, the Canada Border
Services Agency and the Canada Revenue Agency.
FINTRAC also ensures that reporting entities comply with the act.
Numerous changes to the act have been implemented since the committee
last undertook its review in 2006. Most of the changes made were in line
with the recommendations contained in the committee's 2006 report. Most
notably, a registration regime for money service businesses was established
and new sectors were incorporated into the regime, including dealers in
precious metals and stones, notaries and real estate developers. In
addition, FINTRAC now may issue administrative monetary penalties to
encourage reporting entities to comply with their obligations under the act.
Also, in 2010, Part 1.1 was added to the act to enable the government to
impose financial countermeasures against foreign jurisdictions and entities
that lack sufficient controls against money laundering and terrorist
financing. These powers will come into force pending the associated
regulatory amendments that are outlined in the December consultation paper.
Canada has a strong and comprehensive system in line with the
international standards set by the Financial Action Task Force on Money
Laundering, the FATF. The FATF is the main intergovernmental body dedicated
to developing and promoting policies to combat money laundering and
terrorist financing internationally and domestically. These policies are an
integral part of the 40 recommendations on money laundering and the 9
special recommendations to combat terrorist financing.
These recommendations set out best practices in the financial sector, the
legal sector and law enforcement to combat these crimes.
Although the Financial Action Task Force's standards are not technically
binding, as a member Canada has made a political commitment to implement
them and to submit to a peer-review evaluation of our effective
implementation of the recommendations.
The Canadian regime is ranked in the top tier of the FATF's members in
terms of compliance with the standards. However, it is important to
regularly review the regime to address emerging domestic risks and to
maintain Canada's leadership position in the fight against money laundering
and terrorist financing.
This is important to ensure that our financial system is not vulnerable
to abuse or becomes a weak link in the global efforts to combat these
crimes. Canada's regime has been subject to various audits and evaluations
since the committee's 2006 review. This includes the FATF's mutual
evaluation or peer review I referenced earlier, which took place in 2007-08,
the 2009 Privacy Commissioner's audit of FINTRAC and, most recently, a
Treasury Board mandated 10-year evaluation of the regime that was completed
The 10-year evaluation examined the regime's performance according to an
evaluation framework and logic model that was developed for the regime, as
well as Treasury Board evaluation policy. The evaluation found that the
regime continues to be relevant and has become more efficient with recent
amendments to the legislation. The regime was found to contribute to an
environment that is hostile to money laundering and terrorist financing,
thereby deterring criminal activities and reducing their profitability.
Canada's regime has also been looked at in the context of broader
reviews, such as the Air India Inquiry and the 2010 review by the Special
Senate Committee on Anti-terrorism. The recommendations that have been made
in the context of these reviews are being considered as part of our policy
In order to maintain a comprehensive and effective regime, the government
must remain vigilant when it comes to threats and events that could
compromise the integrity of the Canadian financial system.
In light of this, the Department of Finance recently published two
consultation documents that lay out the government's proposals to strengthen
the Canadian regime. The purpose of the November 2011 consultation paper is
to strengthen the regulations surrounding client identification. The
December 2011 consultation paper proposes a range of broader measures to
resolve a larger number of elements in response to the questions raised by
the system's partners, private sector stakeholders and different reviews
brought up previously.
The purpose of the proposals in the December 2011 paper is mostly to
consolidate the main principles of the regime and to improve them. Some of
those proposals are very detailed, while others are still at the draft stage
and are intended to seek the advice of stakeholders to assist in the policy
The December paper proposes measures that would enhance the existing
framework and does not seek to expand the scope of the regime to cover new
entities or products, with the exception of the discussion on potentially
extending reporting obligations to capture prepaid products.
The key measures proposed in the consultation paper touch on five areas.
Firstly, to update client identification, due diligence and record-keeping
requirements, including changes to enhance customer due diligence
obligations with respect to politically exposed foreign persons and
revisiting existing client identification requirements in a non-face-to-face
Secondly, to address gaps in the regime, such as examining the issue of
prepaid access products that I just mentioned, and to revisit thresholds for
reporting international electronic funds transfers.
Thirdly, to improve compliance, monitoring and enforcement to assist both
FINTRAC and the CBSA with their responsibilities, including a new
administrative monetary penalty to encourage reporting entities to file
missing reports, and a new requirement for reporting entities to document
the reasonable measures they take to meet their regulatory obligations.
Fourthly, to strengthen information sharing in the regime through
measures that would expand the information that FINTRAC is able to disclose
to law enforcement and intelligence agencies.
Lastly, detailed regulatory proposals on countermeasures needed to bring
Part 1.1 of the act into force are set out. Where permission is granted, we
are posting the submissions from industry stakeholders in response to these
papers on the Department of Finance website. We hope that the papers and the
comments they generate will provide the committee with valuable input and
inform the committee's deliberations. To date we have posted 16 submissions
related to the November consultation paper on the Department of Finance
To conclude, it is important that Canada remains at the forefront of the
fight against money laundering and terrorist financing and that Canada's
regime remains robust and effective, addresses emerging domestic threats and
is consistent with international standards. Our consultation papers are
intended to lay the groundwork for accomplishing this goal.
I would be pleased to answer your questions. We are eagerly awaiting the
committee's recommendations as we move forward with this important task.
The Chair: Thank you, Ms. Lafleur. Would one of your colleagues
like to comment or will they wait for the questions?
Ms. Lafleur: They will wait for the questions.
The Chair: Perhaps I will start by trying to gain a general
understanding of this legislation before us. I am sure that my colleagues
are much further ahead in their comprehension of it.
You said in your remarks that many of the proposals of the 2006 review
have been incorporated into the legislation. Is that correct?
Ms. Lafleur: That is correct.
The Chair: You also said that both the November and December 2011
papers are out there for comment, principally the December paper, I believe.
Ms. Lafleur: That is right. The comment period on the November
paper has closed. As I mentioned, 16 submissions have been posted on the
website of the Department of Finance. The comment period for the December
paper is open until March 1.
The Chair: Presumably, many of those people who have commented
would be potential witnesses for the committee. We will consider that.
What is a prepaid access product?
Ms. Lafleur: Prepaid access products are fairly new in the
Canadian market, but they are quite common in other countries, such as the
United States. Essentially, they are cards that can be loaded with value and
then used to pay for purchases. For example, there are visa cards that you
can load money onto and take that card to make purchases.
The Chair: A well known coffee chain has a prepaid card, I
Ms. Lafleur: Yes. There are different kinds of prepaid products.
Some are more closed loop, such as store-bought cards. Certain stores sell
such cards that you can give as a gift to someone, but it can be used only
in that store. That is a closed-loop environment. More at risk is a card
that can be loaded with monetary value and used just about anywhere. You can
sometimes load fairly significant amounts of money on the card. We have seen
that these cards can be taken across the border and used in the United
States, for example.
Senator Massicotte: On that issue, your proposed regulation says
that all prepaid cards would have to be reported, irrespective of the sum.
Does that include Canadian Tire gift cards?
Ms. Lafleur: No, it would not include those.
Senator Massicotte: What is your definition of prepaid cards?
Ms. Lafleur: They are cards that you can load value on and use
Senator Massicotte: That would be irrespective of the sum; it
could be $5.
Ms. Lafleur: You could load whatever amount you choose.
Senator Massicotte: Your regulation is even for cards with a value
Ms. Lafleur: There needs to be customer due diligence and
identification of who is buying that product.
Senator Gerstein: Could I ask for clarification? You said that a
prepaid card can be loaded up with a "significant amount of money.'' The
last time I tried to deposit an amount and said that it was a significant
amount of money, they said that I had to put a number down. Could you give
us an idea of a significant amount? What range are you talking about that
you can load onto a card? I assume you can load up more than one card.
Ms. Lafleur: Absolutely.
Senator Gerstein: What is the maximum amount you could load onto a
Ms. Lafleur: Different cards have different limits, but we are
talking about loading up with thousands of dollars.
Senator Gerstein: Can you have a card with $10,000 on it?
Ms. Lafleur: Yes.
Senator Gerstein: Is $20,000 possible?
Ms. Lafleur: Yes, I believe so; or you could get multiple cards
with $10,000 each.
Senator Gerstein: There is no limit to the number of cards you
could load up, I assume.
Ms. Lafleur: No.
The Chair: Thank you for those initial clarifications.
Senator Tkachuk: I will go back to the card and also to cash
transactions of $10,000 or more, money laundering and transactions relevant
to identification. When a bank receives $11,000 in cash, does $10,000 of it
automatically have to be reported or does the bank have some discretion in
consideration of a customer of 30 years, for example, and not report the
amount? Can they do that?
Ms. Lafleur: No. They are obligated to report all transactions
involving $10,000 or more in cash.
Senator Tkachuk: The discretion comes with a person loading up
$5,000 a day, for example.
Ms. Lafleur: If they did it twice within a 24-hour period, the
intent is that those two transactions would be combined into one and
reported as one.
Senator Tkachuk: Someone can deposit $5,000 at the end of one day
and 24 hours later deposit another $5,000. Then, it becomes a question of
discretion. For example, a bar could be making the deposits. Is that right?
Ms. Lafleur: Absolutely. There are exemptions in the framework.
For example, grocery stores deal in a lot of cash. Certain exemptions are
provided whereby you know the source of funds and that it is the normal
course of business.
Senator Tkachuk: Yes. When you add a new sector, does it require a
bill or regulation? You mentioned real estate and precious metals. How did
they get added to the regime?
Ms. Lafleur: It was through the regulatory process.
Senator Tkachuk: Through the regulatory process you can add
anything you want — any industry or any group of people.
Ms. Lafleur: You would want to ensure that they are sectors that
do risky financial transactions. You want to do some due diligence to ensure
that you are addressing risks and not just imposing regulatory burden on
Senator Tkachuk: Okay.
Ms. Lafleur: There is a value for money.
Senator Tkachuk: Who decides that?
Ms. Lafleur: Parliament decides that.
Senator Tkachuk: It is through the regulatory process.
Ms. Lafleur: That is right.
Senator Tkachuk: Let us put it this way: Is it usually
parliamentarians who decide to include such things as precious metals and
real estate, or does the regime decide what to include and then put it
forward to Parliament or the regulatory committee for consideration?
Ms. Lafleur: There are different inputs to the decision-making
process. There are international standards, which I mentioned, from the
Financial Action Task Force, which informs our policy development at home.
As well, threat assessments and risks are identified by law enforcement and
brought to us. When we were before the committee in 2006 and discussed
whether dealers in precious metals and stones should be added, the committee
recommended that they should be included, which informed the government's
thinking on that. There are many inputs to the decision-making process.
Senator Tkachuk: How many prosecutions have resulted from the act?
How many have been successful?
Annik Bordeleau, Senior Project Leader, Financial Crimes — Domestic,
Financial Sector Division, Department of Finance Canada: I do not have
Ms. Lafleur: We can get those numbers for the committee. However,
I just warn the committee against focusing too much on successful
prosecutions because there are many elements to the regime. For example, we
will never know the deterrence effect of the regime — how many acts of money
laundering and terrorist financing do not happen because we have put
safeguards in place to ensure that those kinds of activities cannot happen.
As well, there is not necessarily a one-for-one link between a report made
by a financial institution to FINTRAC and a disclosure that FINTRAC makes to
law enforcement becoming a successful prosecution. There are so many steps
in the process and there can be some tradeoffs in terms of plea bargaining,
et cetera. There are many variables in the process.
Senator Tkachuk: Do the police use FINTRAC as evidence? For
example, the police might be looking at a person or organization. Would they
come to the regime and ask what they have on that person or organization?
Ms. Lafleur: There are generally two ways that the information
flows between FINTRAC and law enforcement. The first is that FINTRAC
receives reports from reporting entities, does analysis of those reports and
determines if there are grounds to suspect that there is money laundering or
terrorist financing. Then they disclose that to law enforcement.
The other way is that law enforcement may have an investigation under way
and they can send a request to FINTRAC saying, "Do you have any information
that is relevant to this investigation?'' If FINTRAC did, they would
disclose that information in the investigation.
Senator Tkachuk: How many people work for the regime?
Ms. Lafleur: For the regime at large? I would have to get back to
you on that. There are a number of agencies and departments.
Senator Tkachuk: FINTRAC especially.
Ms. Lafleur: FINTRAC has close to 300 people. There are people at
the RCMP that work on this, Canada Border Services Agency, Canada Revenue
Agency Charities Directorate, the Department of Finance, and the Office of
the Superintendent of Financial Institutions. It is a very comprehensive
regime and all of us devote some resources.
Senator Tkachuk: How many were there before real estate and these
other additions were made?
Ms. Lafleur: I can only speak from the perspective of the
Department of Finance. Resources have not really increased as a result of
the amendments. We devote the same number of resources to the policy
development work as we did before.
Senator Tkachuk: You have the same number of people and have added
all these other institutions to the act itself?
Ms. Lafleur: That is correct. FINTRAC has increased resources over
recent years for the administration of the act.
The Chair: I am sure that will not be the end, Senator Tkachuk, on
that line of questioning.
Senator Tkachuk: No, it will not.
The Chair: Ms. Lafleur, undoubtedly — or anecdotally, certainly —
I have heard comments that the administrative burden of complying is not
insignificant. Have there been any submissions suggesting ways and means to
render that burden somewhat lighter or to make it easier for people to
Ms. Lafleur: We actually have an ongoing dialogue with the
stakeholders to talk about those kinds of issues. Yes, there is an
administrative burden in complying with the act. There are also significant
benefits to the provisions of the act. It is helpful for the institutions,
for example, in terms of combating fraud and knowing the risks out there.
The act helps them in doing that. As well, there are tremendous risks in not
having this kind of framework in place because money, especially dirty
money, is so fungible that it will flow to the point of least resistance in
terms of money laundering. If Canada does not have these safeguards in
place, we will become a haven for money laundering and terrorist financing.
The costs of that are very significant.
The Chair: Thank you very much.
Senator Ringuette: My first line of questioning would be on those
prepaid cards. We know that Visa and MasterCard are in the market of
providing prepaid cards. What are you proposing with regard to getting a
U.S.-based entity to comply by giving you the prepaid information that you
are looking for? What are the tools that you will use to get Visa and
MasterCard — from their U.S. headquarters — to give you the information in
regard to prepaid cards to a certain customer, group or country? How will
you get access to that?
Ms. Lafleur: The requirement being proposed is on the person or
the company that is selling the prepaid card to identify the client. The
Visa and MasterCard prepaid cards are sold through various outlets
throughout Canada. It could be those who are selling those cards that would
have to do it. It does not matter where the head office is.
Senator Ringuette: Yes, but those cards can be bought anywhere in
the world. Visa and MasterCard are international entities in retail. You
could have a Canadian flying to another country and purchasing these prepaid
cards, and you would never have the information.
Ms. Lafleur: However, a prepaid card sold in the U.K., for
example, would be in British pounds and not very useful in the Canadian
market. A risk here is Canadian-dollar denominated prepaid cards, therefore
sold in Canada for Canadians.
Senator Massicotte: That is the case with any credit card. You
have a Canadian credit card, but it does not inhibit me from using it
anywhere in the world. You do not think they allow Canadian dollars to be
charged against that prepaid Visa or MasterCard and they do the conversion
as they do for credit cards automatically in pounds, using your example?
Senator Ringuette: Exactly. They do that.
Ms. Lafleur: Do they do that?
Senator Massicotte: I am sure they do. How do you deal with the
risk that Senator Ringuette is raising? How do you deal with that issue?
Ms. Lafleur: That is where it becomes very important to have
international standards in these areas. That is why we work through the FATF
in collaboration with them to identify common threats and then have
standards that all member countries impose. We are not the only ones who are
looking at the prepaid card environment. In fact some jurisdictions, because
they have more prevalence of prepaid cards, have moved in this same
Senator Ringuette: I still have a lot of doubts, but I guess in
our future meetings we can further discuss our questions on this.
Leah Anderson, Director, Financial Sector Division, Department of
Finance Canada: I would note in the context of the consultation paper,
it is recognized that this is a newer product. The proposal itself is to
review the area and to seek inputs on whether to impose customer due
diligence requirements and what would they be as appropriate to this area.
We do not have a very detailed proposal in this, unlike in some other areas.
We are looking for the feedback to inform us in this area.
Senator Ringuette: I will be looking forward to comments because
it is a very flexible product, not to say ease of mobility.
Ms. Lafleur: That is what makes it risky.
Senator Ringuette: Absolutely, and I still wonder how you are
going to get the information.
I would like to move on to another issue that you have highlighted,
precious metal. In the last five years we have had an increased amount of
mobile, small businesses that are buying gold for cash. Has FINTRAC looked
into what is going on there? There is the possibility that someone may bring
gold into Canada in some shape or form. It is not cash, so the requirement
at the border to declare $10,000 in cash or more is not applicable. This
gold can be converted into cash in any these small gold buying businesses
that we have throughout the country these days. Has that been looked into?
Ms. Lafleur: Dealers in precious metals and stones have actually
been covered by the regime since 2006-07, so they already are subject to the
requirements of the act.
Yes, you probably are right that the increase in price of gold has
increased the number of people who are in this line of business, or it has
potentially increased the risks in this area. I think FINTRAC is best placed
to answer questions about what they are seeing, and I do not want to speak
for them. However, the dealers in precious metals and stones are partners
with us in the fight against money laundering and terrorist financing. They
are very involved in the work that we do. I think they would be happy to
come and speak to you about the regime and how they administer it on their
Senator Ringuette: In regard to real estate purchasing and the
issue of cash, I will give you a scenario. Let us say that in New Brunswick
you have an elderly farmer who is looking to sell his farm and retire. All
of a sudden a buyer comes in and buys the land for cash, and the farmer
decides to invest that cash into RRSPs. What would the process be? If the
farmer decides that he is going to buy a house in a small community where
medical services are easily accessible and so forth, what would the
mechanism be to track the cash used by that farmer?
Ms. Lafleur: It depends how the transaction is effected and what
intermediaries may or may not be involved. If a real estate agent is
handling that cash, that person is subject to the act and would have to file
a report. If it were a private sale, for example, the farmer would likely do
one of two things: He would either deposit that cash in a financial
institution, in which case the financial institution would make the report
to FINTRAC about the cash being deposited; or if, as you said, they entered
into another real estate transaction, then it would either be caught by that
real estate transaction or subsequently down the line. At some point in that
transaction that cash is going to be integrated into the financial system
and the financial intermediary who is handling it has an obligation to
Senator Ringuette: When you talk about the financial intermediary,
would that also include all the insurance sectors, the stock market and so
Ms. Lafleur: The securities dealers.
Senator Ringuette: The dealers all have an obligation to report
$10,000 and more?
Ms. Lafleur: That is correct.
Senator Stewart Olsen: I want to ask a few questions about methods
of identification. With these cards that you are purchasing, how is that
done? Is there an automatic flag from these institutions? Suppose I went and
purchased a Visa card and put $1,000 in one spot and went to another drug
store and got another $1,000. I can see people doing this. Is there an
automatic flag with that institution after you get to $10,000? Do you use
the $10,000? Is there some way of flagging that?
I have noticed it is a very loose system when you are buying the card to
put money on. Anyone can actually buy those cards. Have you looked at that
and are you looking at perhaps tightening up that kind of thing? It is a
wide-open field, as far as I can see.
Ms. Lafleur: As Ms. Anderson mentioned, the prepaid card product
is not now covered by the regime. The issue we are putting out there for
consultation is whether the risks — as you are all clearly identifying here
— merit bringing those products into the regime. If so, what is the best way
of doing that to address those risks?
Quite frankly, we are asking for advice here on how you see this.
Senator Stewart Olsen: As methods of identification, I noticed one
time you said if a client is well known to a bank. Are there standards that
must be applied? Even if you are well known to a bank or someplace, should
there not be standards of identification, Canada wide and perhaps
nationally? Do those exist?
Ms. Lafleur: The act and the regulations specify the kind of
acceptable identification that financial institutions can take when they
identify the client and when they are either opening an account for the
first time or doing certain financial transactions on behalf of a client.
Senator Stewart Olsen: I did go through this. I am very new to
this act, but I thought those methods were quite loose. I do not know if you
have looked at those.
Ms. Lafleur: They are specified in regulations. I would say
generally speaking we are talking about government- issued photo ID as being
required to open a bank account, for example.
Senator Stewart Olsen: Thank you. That is all I have for now.
Senator Rivard: Ms. Lafleur, I am concerned about the obligation
for all Canadians entering or leaving the country who have over $10,000 in
cash on them to declare it. I understand that the purpose is to combat money
laundering and contraband. Sometimes we see on TV that border officers have
arrested someone who hid large amounts of money in shoe boxes, under fake
floors or something like that, but I think there may be a lot of people of
good faith who might travel with $10,000.
For example, a new snowbird, someone who is newly retired, who has just
bought a recreational vehicle like a Winnebago and is going to Mexico or the
United States for a few months, could easily have $25,000 or $30,000 on him
or her. Even people who are going to buy their first mobile home in Florida
might cross the border with $50,000 or $60,000.
In such a case, if the person does not declare it at the border, whether
travelling by car or by plane, is the undeclared amount automatically
seized? Are there fines or can there be some leniency with an explanation?
Ms. Lafleur: It is not illegal to cross the border with $10,000 or
more. It is perfectly legal and acceptable but it must be declared. If it is
declared, there is no penalty.
Senator Rivard: I agree, but perhaps I did not ask my question
properly. I will take the case of someone who is of good faith, who is
crossing the border and is caught with $12,000 or $15,000. This person is
clearly not a smuggler but rather someone who misread or did not pay
attention to the rule. Is the money seized automatically? Is there a fine
or, following a verification or an explanation, can the person have his or
her good faith recognized?
Ms. Lafleur: That depends on the situation and I would encourage
you to perhaps put this question to the responsible agency, because it
administers this part of the act. Obviously, honest people do forget to
declare. However, if you have travelled recently, especially by plane, you
will know that you have to fill out a form that very specifically asks this
question: "Are you carrying currency of a value totalling $10,000 or
more?'' If you say no and you do have this currency, that would perhaps
suggest that you do not intend to tell the truth.
When you cross the border by car, the customs officer usually asks the
question. So you have the opportunity to say yes or no.
Senator Rivard: Do you have any statistics on the number of
arrests made in Canada last year, for instance, for undeclared amounts,
mentioning the total amount and specifying whether the individuals arrested
are primarily people who are caught, through ignorance, carrying $10,000,
$15,000 or $20,000? When there are seizures of cars carrying $400,000 or a
million dollars, we know that this truly is money laundering.
Ms. Lafleur: The Border Services Agency could provide you with the
statistics on the number of seizures made over the past few years and the
amounts involved. If not, we could send these figures to you later on.
Senator Rivard: With my last question, I would like to ask for
your opinion. Do you find that the $10,000 threshold is quite low? Do you
think that it should be set at $20,000 or $25,000 instead? What is your
personal opinion on the matter?
Ms. Lafleur: What interests me is hearing your opinion, your
Senator Rivard: For someone who spends several months abroad, it
seems to me that $10,000 is quite low. Setting aside the fact that it is
embarrassing to declare "I have $13,000 in my pockets,'' I find that the
threshold amount of $10,000 is low.
Ms. Lafleur: As I was saying, what we want to hear is your opinion
on this type of issue.
The Chair: For purposes of clarification, is it not true that this
$10,000 amount applies to both the existing American system and the one
here? Is it the same amount in English pounds, in euros?
Ms. Lafleur: According to the FATF standard, the international
standard, it is US$10,000 that needs to be declared.
Senator Massicotte: Thank you all for coming here today. I would
like to begin by making a few comments.
As you know, all of these procedures are very significant for both our
economy and our market. Indeed, transactions are made between consumers,
businesses and business people. These transactions are based on confidence
in the integrity of the system. If the criminal sector grows in size, that
jeopardizes our quality of life and the Canadian economy. I would therefore
like to congratulate you and underscore the importance of your activities.
This bill is focusing on the laundering of proceeds of crime and the
funding of terrorist activities, but if we look at what the Americans are
doing, we see that they are focusing on taxation. Many people hide
significant income in foreign countries. Does this bill deal exclusively
with the funding of terrorist and criminal activities or can it also be used
to ensure that people pay the taxes that they owe to our country?
Ms. Lafleur: The way that this legislation is set up, when FINTRAC
analyzes the financial transactions that it receives and notes that there is
a reason to suspect money laundering, if it feels that there may also be tax
evasion, it can report the matter to the Canada Revenue Agency who can then
take action based on this information. So there is an advantage.
First of all, we have to meet the test of money laundering, and after,
FINTRAC is free to disclose the information to the Canada Revenue Agency if
it thinks that such information could be useful for an investigation.
Senator Massicotte: If it finds a few million in a suspicious bank
account, money that is not suspected of being the proceeds of crime per se
but may be a case of tax evasion, it is not entitled to report the matter to
Revenue Canada as such?
Ms. Lafleur: No, the system tries to balance the different
interests, privacy as well as the need to protect the Canadian financial
system. So there is this initial test that must be met before the
information can be disclosed.
Senator Massicotte: From the international perspective, there is a
suspicion that some countries may be rather negligent as you referred to in
your report. Is any pressure being exerted? Is there any attempt to minimize
the impact that this will have on our country when we know that these
countries or their political representatives are perhaps more suspicious?
I know that there are some reporting regulations, but is any
international pressure being exerted? Are any steps being taken in this
Ms. Lafleur: I cannot speak on behalf of my colleagues from the
tax department, but I do know that a great deal of work is being done in the
world by, for example, the OECD, to apply common standards and put pressure
on jurisdictions that have less stringent standards. I could put this
question to my colleagues who could provide you with more information on the
Senator Massicotte: In 2006, the last time that this legislation
was reviewed, there was a huge debate in society about the involvement of
lawyers or notaries and their obligation to report. As you know, they argued
that there was this obligation to protect confidentiality; they argued that
the Constitution itself required that they represent the client as such.
I see, from the amendments made to the legislation, that now the lawyers,
including the notaries of British Columbia — but I do not think that this
includes the notaries of Quebec, I do not understand this aspect — must
report when they have transactions involving more than $10,000.
Could you summarize the situation and explain what this means for lawyers
Ms. Lafleur: I will begin by making a distinction between the two,
starting with the notaries. The distinction between the notaries of British
Columbia and those of Quebec is that those in British Columbia make
financial transactions for their clients whereas those in Quebec do not.
Consequently, there is a risk for British Columbia's notaries that does not
exist really for those in Quebec.
Secondly, the legislative provisions that apply to lawyers are not
currently in effect because the issue of how the legislation applies to
lawyers is still before the courts. The case was heard by the British
Columbia Superior Court, which ruled in favour of the lawyers. The federal
government is appealing the matter. So the matter is still in abeyance and
before the courts.
Senator Massicotte: When we read articles, and we do read a few of
them, we see from time to time that, with some transactions, the lawyers are
involved or even found guilty. So, at this point, they are all excluded from
this obligation to report $10,000 cash.
Ms. Lafleur: The act does not currently apply...
Senator Massicotte: So they are excluded. Despite the fact that
the act provides for it, it is not enforced as such?
Ms. Lafleur: The provisions are not in effect.
Senator Massicotte: To get back to Senator Ringuette's question, I
know that sometimes notaries public in Quebec are quite involved in real
estate transactions. I do not know the definition of financial transaction,
but they are involved in the sale of houses or buildings. They deal with
significant amounts, but they are under no obligation to report on buildings
worth several hundred thousand dollars, for instance, once they have
represented a client or worked on a title, et cetera.
Ms. Lafleur: According to my understanding notaries in Quebec do
not handle money, not in the case of real estate transactions.
Senator Massicotte: I thought otherwise. There are trust funds and
sometimes there is no broker involved, they use notaries.
Ms. Lafleur: That is something I can look into to provide you with
a response at a later date.
Senator Massicotte: I note that the number of transactions
reported continues to increase, but the number of reports has decreased over
the last year or two. Do you know why that is?
Ms. Lafleur: That would be a good question to ask FINTRAC. From my
understanding, over time the analyses have become more and more
sophisticated. Oftentimes, each report will contain information on a
multitude of transactions. The tracking of funds has become increasingly
sophisticated. So it is not only the investment of funds but also the way in
which, through several transactions, these funds make their way through the
financial sector. So reports have become far more sophisticated and now
track funds through several transactions.
In other words, there is as much disclosure, but each disclosure contains
information on far more transactions.
Senator Massicotte: A detailed question regarding subsections
56(2) and 62(1). They discuss individuals dealing with customers coming from
other financial institutions who were exempt from customer identification
Would that only apply to Canadian financial institutions or does it also
include foreign financial institutions?
Ms. Lafleur: It includes foreign institutions operating in Canada.
Senator Massicotte: But are they registered in Canada?
Ms. Lafleur: Our legislation does not apply outside of Canada save
for subsidiaries and branches of financial institutions operating abroad.
Senator Massicotte: So if a Canadian citizen returns to Canada and
wants to transfer funds from a bank in the Cayman Islands or the Bahamas,
despite the fact that he comes recommended by a financial institution in the
Bahamas, in the past, I understand he would have been excluded. Is that
Ms. Lafleur: If the person is an agent, there is a contractual
agreement between the Canadian institution and possibly the institution in
the Bahamas. It will identify the client and is responsible on behalf of the
Canadian institution to identify the client. The information will be
transferred to the Canadian institution.
Senator Massicotte: So if I understand correctly, in this case,
the Canadian institution is under no obligation to look any further?
Ms. Lafleur: Because there is a contractual agreement between the
Senator Massicotte: Despite the reputation of the financial
institution? It may not be a Canadian institution, it could be a
three-client bank requiring, say, the street address in the Bahamas?
Ms. Lafleur: Financial institutions have an obligation to be
vigilant about the people they do business with. There are restrictions on
relationships, referred to as corresponding banking relationships, regarding
which institutions they can do business with and the type of business they
can be involved in.
Senator Massicotte: Sections 56 and 62 give the impression that
when one is referred by another financial institution there is less of a
requirement to check identity. Have I understood these two sections?
Ms. Bordeleau: I would like to say that section 56 deals with the
life insurance industry and section 62 deals with securities brokers. So
they are quite targeted and do not necessarily apply to larger financial
Senator Massicotte: So Canadians are not required to identify
customers if they are referred by brokers. Is that what you are saying?
Ms. Bordeleau: There are some requirements. As a part of that, the
person who has gotten this business, to whom the customer is referred, must
believe or have reasonable grounds to believe that the individual's identity
has already been established within the same transaction or the same series
of transactions. It must be related to the loans.
Senator Massicotte: We have to look at the amount that can be
required. Does he have to look into his file and find documents that would
serve as grounds for him to say yes, this client is eligible, I can do
business with him or is it just about a reasonable doubt?
Ms. Bordeleau: It is at the broker's discretion.
Senator Massicotte: Moreover, in section 62, you suggest that now,
when companies are listed on the stock exchange in Canada, they would
automatically be exempt from any reporting. That is a sign that you have a
high degree of trust in our provincial and federal securities regulators,
that their screening system is adequate. Without naming any names, you just
have to read the papers, there are some Canadian companies that have
significant lands in China. In fact, it turns out they may not exist.
Perhaps the regulator did not do its work. Are you not concerned about
exempting all of these companies? There are some bogus companies that exist.
Many companies laundered money in Canada recently. So, why exempt all of
Ms. Lafleur: It is a proposal. We would like to hear your opinion
on it. There are disclosure standards that exist, and they are the same for
all public companies, regardless of their assets. Although we are
comfortable with an exemption above $75 million, if the standards are not
the same for smaller companies, we wonder about potentially doing away with
this threshold. But we are soliciting your opinion on the matter.
Senator Ringuette: When it comes to law firms, I understand that
this entire aspect is before the court. I am looking at a potential
scenario, I am not a lawyer, but I believe that lawyers are responsible for
establishing trusts on behalf of their clients or not. I am wondering what
role banks play in identifying the establishment of a trust fund by law
firms. Is the account in the name of the law firm or the law firm's clients?
The issue of disclosure by lawyers can go before the courts. Are you a
lawyer? No; okay.
I am supposing that lawyers have the ability to open up trust accounts on
behalf of their clients for a period of time when there is litigation or
other legal activity. Is that right? Okay.
Would that trust account have to be signalled by the banking institution
to FINTRAC? Would that trust account be under the name of the law firm or
under the name of the client of the lawyer? I would like to understand that
Ms. Lafleur: I think you are zeroing in on some of the risks that
we clearly see with the legal profession. They can do a variety of financial
transactions for their clients, which can take different shapes.
Large law firms tend to have trust accounts in their own names. Through
those trust accounts, they often can do a variety of transactions for
various clients, which are not necessarily identified individually. That is
one risk. You are right in saying that they can open trust accounts in a
financial institution on behalf of their clients. In that case, the issue is
whether the financial institution requires information about the beneficial
owner of that account. The simple fact of opening an account is not
necessarily reportable to FINTRAC.
Senator Ringuette: We are looking at amounts of $10,000 and more.
Ms. Lafleur: Yes.
Senator Tkachuk: Why would you care? You would care only if there
were cash deposits over $10,000, and that is already covered.
Ms. Lafleur: Not with lawyers. Right now, that part of the act is
not in affect for law firms.
Senator Tkachuk: If a law firm deposited $10,000, the bank has no
obligation to report.
Ms. Lafleur: The bank would report that transaction, but it would
show as the law firm doing the transaction, not the individual doing a
Senator Tkachuk: Would FINTRAC not say that $10,000 cash is a
strange way to get paid?
Ms. Lafleur: I am not a lawyer, but I understand that it happens
quite often in terms of fees or bail or other transactions.
Senator Oliver: It is money from under the mattress.
Senator Tkachuk: My point is: So what?
Senator Massicotte: They do not know where the money comes from,
so they might as well not report it. They can have thousands of them.
Senator Tkachuk: The bank has to report it because it is over
Senator Ringuette: Yes, but it is reported, from what I
understand, in the name of the legal entity and not the name of the customer
of that legal entity.
Ms. Lafleur: Currently, because the provisions do not apply, the
legal firm is not required to collect information on the client and the
nature of the transaction and retain those records in the event that there
were to be a criminal investigation. Part of the provisions in the act, but
not effective yet, is that there be client identification and record keeping
that happens in the event that there might be an investigation so that law
enforcement could access it.
Senator Moore: I want to follow up on Senator Rivard's question.
If I stop at the border and they ask me if I have more than $10,000 and I
say that yes, I have $12,000 with me, what happens?
Ms. Lafleur: You have declared it. Unless they have reason to
suspect that the money is from some criminal activity or that there is
something suspicious about you, I cannot speak to how they go about doing
that. That is a better question to ask them. Like I said, there is nothing
illegal about having it.
Senator Moore: As long as I declare it, I can have it and carry
Ms. Lafleur: The obligation is to declare it; there is no
prohibition on having it.
Senator Moore: Tell me about casino disbursements. If you go to
the casino and you win $50,000, what must the casino do?
Ms. Lafleur: If you were to take that money in cash rather than a
cheque, they must report to FINTRAC that they have given you $50,000 in
Senator Moore: What if they issue a cheque to me?
Ms. Lafleur: I want to make sure I am getting that right. Any time
that they give $10,000 to someone before they walk out the door of the
casino, they have to report it, whether it is cash or a cheque.
Senator Moore: Where is the Financial Action Task Force located?
Ms. Lafleur: The secretariat of the Financial Action Task Force is
in Paris and is actually co-located at the OECD.
Senator Moore: In the second paragraph on page 5 of your brief you
mention that the 10-year evaluation examined the regime's performance
according to the evaluation framework and the logic model developed for the
regime. Developed by whom? Developed by the Financial Action Task Force?
Ms. Lafleur: No, it was developed by Canadian authorities.
Senator Moore: Who?
Ms. Lafleur: In large part by the Department of Finance.
I want to point out you should find the logic model in question at tab 14
of your binder.
Senator Moore: That is fine.
Finance is writing the rules for the others?
Ms. Lafleur: Yes, in collaboration with the partners in the
Senator Moore: Who are the partners?
Ms. Lafleur: FINTRAC, the RCMP.
Senator Moore: All the people you mentioned earlier?
Ms. Lafleur: That is right.
Senator Moore: You mentioned that the December 2011 consultation
period ends on the first day of March 2012. When did the November 2011
consultation period end?
Ms. Lafleur: The end of December.
Ms. Bordeleau: December 16.
Senator Moore: Is there magic in that date? Was it issued on
November 16 and you have 30 days? How does this work?
Ms. Lafleur: The November one was a much narrower, shorter paper
focusing on a set of regulations having to do with client identification and
due diligence. According to the national standards — the recommendations
that I spoke about in my speaking points — the FATF considers a certain
subset of those standards to be core standards. Countries are expected to
put a special effort in complying with those standards.
Recommendation 5 deals with client identification and record keeping and
is quite an ambitious standard, one that most jurisdictions have had some
challenges in complying with, including Canada. Currently, we are not deemed
to be in compliance with that international standard. A big part of the
objective behind that consultation paper is to put forward measures that
would bring us into compliance with that core standard.
Senator Moore: With regard to identification.
Ms. Lafleur: Yes. That is a very narrow exercise. The December
paper, as I mentioned, deals with a much broader set of issues. That is why
we have allowed more time for stakeholders and partners to comment on it and
give us, and you, their views.
Senator Moore: Hence the key measures proposed in the paper,
number one being the updating of client identification. Where are we not
compliant? Are there any examples you can give us that you are looking for,
and hope you will get a report from the committee on, urging that you
tighten this up in certain areas? Where are we? I thought we were pretty
good in ID, but I guess we are not. Others do not think so.
Ms. Lafleur: In some areas we are good in terms of what happens
when you go into a financial institution and open an account. The standards
are compliant. Where it gets more challenging is in the area of enhanced due
diligence when potentially riskier clients are identified and what the
institutions have to do in terms of the ongoing heightened monitoring of
those riskier accounts. We have to beef up our requirements to meet the
Senator Moore: What does "heightened'' or "riskier'' mean? You
go in to open an account, show your ID, and your account is opened. What
standards does a bank apply to say whether or not you are risky or getting
Ms. Lafleur: Some things we are proposing, for example, are to
ensure institutions really understand the business relationships that they
are in, not just with respect to the opening of the account, but the ongoing
relationship they are going to have with their client. They can be certain
that all the transactions they end up doing with their client over time are
consistent with the business of that individual. There is ongoing monitoring
of what that individual is doing to ensure it is consistent with the
information that they have been given. If there is something that is higher
Senator Moore: Sounds like big brother to me.
Ms. Lafleur: Well, it is risk management.
Senator Moore: Risk management? It sounds like the bank is being
nosey as to what the customer's business is.
The Chair: Is it "know your client''?
Ms. Lafleur: It is "know your client,'' essentially. It is
knowing what they are all about and ensuring the risks are being identified
Senator Moore: The third bullet relates to improving compliance,
monitoring and enforcement to assist both FINTRAC and the CBSA. Part of that
was a new administrative monetary penalty to encourage reporting entities to
file missing reports. Are there many reports missing? How does that happen?
Ms. Lafleur: It happens when reporting entities do not file
reports when the act says that they should.
Senator Moore: Very often?
Ms. Lafleur: That is a question for FINTRAC.
Senator Moore: What do you hear about that? You are asking for
Ms. Lafleur: It is important that reporting entities meet their
obligations under the act. If there are tools in place for FINTRAC as the
regulator in charge with compliance, they have the tools to ensure that
reporting entities are meeting their obligations. Administrative monetary
penalties are one of those tools.
Senator Ringuette: In regard to the questions about the banking
responsibility to report, is it at the banking headquarters where the
obligation lies, or at the local retail bank?
Ms. Lafleur: I want to start by making one thing clear. We are not
talking about automatic reporting here. We are talking about institutions
collecting information and keeping records of that information. It is not
automatically sending it on to FINTRAC. They are keeping it for their own
records. The obligation is on the institution writ large, and it must happen
at the point of sale or the account opening.
Senator Ringuette: What if a local manager does not want to report
that activity to the head office?
Ms. Lafleur: Institutions have obligations to have procedures in
place to ensure that the whole of the organization is both informing
employees about the obligations, that there is training available for that,
and that they have measures in place to ensure that there is conformity.
Those compliance measures in the institutions are actually audited by
FINTRAC to make sure there are processes in place.
Senator Ringuette: Okay, you are audited by FINTRAC.
Senator Harb: Ms. Lafleur, I presume you have a copy of the
10-year evaluation report that was done for the Department of Finance?
Ms. Lafleur: I can pull it out.
Senator Harb: I want to take you to the conclusion, point 4 in
particular. I will quote it in order to get your comment:
The Regime —
— I presume that is FINTRAC —
— is considered to be economical, to the extent that economy can be
determined from the available financial and performance information,
because direct Regime funding has leveraged the use of funds from other
sources by Regime partners, and more economical alternatives to the
current Regime were not conclusively identified.
Would you care to elaborate a little about this in terms of value for
money? This particular point by itself is fully loaded, fully coded, and I
presume only you or your department knows what is meant by this.
Ms. Lafleur: These are the words of the independent evaluators, so
they are not my words. When we talk about the regime here, much like in my
opening statement, this is not targeted strictly to FINTRAC. We are talking
about the whole anti-money laundering, anti-terrorist financing regime. What
I think he is trying to say is that there are resources dedicated to this
regime at the government level, but there are also, obviously, resources
dedicated to this by the private sector. That is what, I think, "leveraged
the use of funds from other sources by Regime partners'' means.
Financial institutions are regulated. They need to put in place measures
to comply with the act. As well, in the regime there are both funded and
unfunded partners in the government. Some get dedicated funds for this
initiative and others, like the Office the Superintendent of Financial
Institutions, is not funded. They use their existing resources in terms of
supervising institutions to ensure that there are procedures in place. It is
both funded and non-funded.
In terms of the more economical alternatives not conclusively identified,
I think that unless you were to actually road test a completely different
system you would not be able to compare, and it is almost impossible to do
that. What you have in place is what you can evaluate. Comparing it to
something theoretical or something different is a very difficult exercise.
Senator Harb: Part 5 is also a bit critical here. They talk about
inefficiencies found in the full use of FINTRAC proactive disclosure. In
reading this, I am somewhat puzzled.
The department moves along, and they have asked to eliminate the
threshold for electronic foreign transactions to and from foreign
If I look at your table, figure 1, for example, if we take 2009-10, you
had the transaction report of $24,825,481. You have a threshold on that of
$10,000. If you remove the threshold, this presumably will go through the
As a member of this committee I am saying that we have to look at value
for money. You have a transaction reported of $24 million and some change.
You have 29 cases which resulted in a guilty verdict: 29 out of 25 million.
Now you are going to remove the threshold, so how many more transactions do
you think you will have reported by FINTRAC?
Ms. Lafleur: You identify a very important issue. Clearly there
would be a significant increase in reports if the threshold were removed.
There does have to be some cost/benefit analysis brought forward on that. We
welcome your advice on that.
A related question is if this would require additional resources and what
is the value for money of those.
It is a very good issue that you have identified, and that is why we put
it out there for consultation.
Senator Harb: Did the government make available to you the
resources to do the financial analysis and value for money?
Ms. Lafleur: Fortunately that is something that we do
collectively, and we have partners who help us in that work.
Senator Harb: The entities that have to report, if they do not
there will be a penalty imposed on them. What type of penalty has been
imposed since the system was set up 11 years ago?
Ms. Lafleur: I do not have the information at my fingertips. I do
know that since the implementation of the administrative monetary penalties,
FINTRAC has issued a number of penalties to reporting entities for a variety
of noncompliance issues.
Senator Harb: It was also recommended that you conduct a survey to
find out what the public reaction is, how this is working and impressions
and so on. Have you done any of that and do you plan on doing something
along those lines? While you are at it, out of the 29 guilty verdicts, how
many were in relation to terrorist financing?
The Chair: I presume you do not have that information at your
Ms. Lafleur: I do not have that information, but we can get it for
The Chair: If you would send it to the clerk, that would be
Senator Moore: Looking at that same 2009-10 year, there were 579
cases disclosed by FINTRAC and 138 cases tried. Are those 138 included in
the 579, or are some of those cases other situations developed by the RCMP
when they come across some investigation and stumble on a whole new area?
Would you know that?
Ms. Lafleur: Like I said earlier, it is not a one-for-one thing.
The disclosure can happen because FINTRAC sees something that is suspicious
and they disclose it to law enforcement. That can potentially generate a new
investigation, or it could contribute to an ongoing one.
That is why there is not a one-for-one. The disclosure could be the
result of law enforcement asking FINTRAC for information, so the
investigation is already ongoing and that disclosure just feeds into that
investigation. It is also possible that there be more than one disclosure
that feeds into the same investigation.
Senator Moore: From different entities.
Ms. Lafleur: Yes.
Senator Tkachuk: With respect to the ones that were noncompliant,
you mentioned that there have been some penalties imposed on those
institutions. Are those penalties public?
Ms. Lafleur: They do become public, yes.
The Chair: I presume they are fines?
Ms. Lafleur: A monetary penalty, yes.
Senator Gerstein: Ms. Lafleur, this study is clearly focused on
Canada's regime. We have been talking about many risks and loopholes, and I
am sure there are many that we have not even thought of.
I would like to pick up on your comment that you are working on common
international standards. If we start on the premise that a chain is only as
strong as its weakest link, to what degree is the global financial system
compromised by the country that has the weakest financial oversight?
Obviously people, governments, would know who have the weaker oversights, so
to what degree can they be isolated? Once the money is in the system —
Ms. Lafleur: It is very fungible. The Financial Action Task Force
works to establish norms and then subjects its members to peer reviews on
the implementation of those norms. There are currently 36 countries that are
members of the Financial Action Task Force.
In addition to the FATF, there is a network of what we call FATF-Style
Regional Bodies, or FSRBs. They have a much broader membership. Between the
FATF and the regional bodies, there are roughly 170 countries that are
members. They have made political commitments to implement the same
standards and to assess compliance with the implementation of those
standards along the same kind of mutual evaluation process following the
same methodology. Canada, for example, is a member of the Asia/Pacific Group
on Money Laundering, is an observer in the South American Financial Action
Task Force, and participates as a cooperative and supportive nation of the
Caribbean Financial Action Task Force. There is a European equivalent and
there are a number of African and Eurasian bodies, et cetera. Thus, 170
countries have made political commitments to implement those standards and
to be assessed against them.
The level of implementation is clearly not the same across countries, for
which there are varying reasons, such as political commitment, level of
development of the financial sector, and resources capacity, et cetera.
Another aspect of the work has to do with helping countries in terms of
implementing the standards, providing technical assistance and working
through the World Bank and the IMF, et cetera. Essentially, we all try to
help each other along. You are right in suggesting that some countries will
not make that kind of political commitment or see an opportunity, for
whatever reason. The FATF addresses that by issuing black lists and grey
lists identifying high risk jurisdictions. Those jurisdictions have not
implemented the standards, have not made any kind of commitment to work with
the FATF to implement those standards, and pose a risk to the global
There is a graduated system of naming and shaming, if you will. In the
extreme, the members of the FATF impose sanctions against those countries to
isolate them so they can try to protect the rest of the financial system.
Iran is a case in point. Currently, there are significant sanctions in place
against Iran, in part because of their lack of money laundering and
terrorist financing standards.
The Chair: The criminal mind is sometimes far more inventive than
the non-criminal mind. They find ways to get around the laws. Is there any
public tracking of certain sectors, industries or transactions to keep an
especially sharp eye out for?
Ms. Lafleur: The FATF does a lot of work on "typologies,'' which
is exactly this kind of thing. They look for emerging risks that may not
have been identified yet because new technologies and new payment systems
that were not available 10 years ago are all of a sudden mainstream. Such
products could come with risks. There is a constant effort to identify and
communicate those risks. The FATF regularly reviews its standards to make
sure that they are keeping up.
As well, like I said in the beginning, it is important for us to look at
our domestic situation and the risks that exist in Canada, and to respond to
those risks in the first instance. That is what this exercise is really
The Chair: Yes, that is what this is all about, although I suspect
it is a bit of a catch-up game.
Ms. Lafleur: For example, prepaid products are not extremely
prevalent yet in the economy. We are asking ourselves before they are
prevalent whether we need to cover that area.
The Chair: That is fair enough.
Ms. Lafleur: We look for your advice. We have not proposed new
sectors for coverage, but that does not mean you cannot make a proposal.
The Chair: I had planned to say at the end that one of the more
exciting prospects for this committee is that you have asked for our advice,
input and assessment of the situation. Between now and when we deliver our
report, there will be ample opportunity to do just that, and I am sure
members will look forward to it.
Senator Massicotte: The French version of your report mentions
"services monetaires.'' You actually make the requirements easier. What is
"services monetaires''? Is it a money changing office? Is that what you
Ms. Lafleur: In English it is "money services businesses,'' such
as Western Union, et cetera.
Senator Massicotte: How about the currency transaction kiosks at
the airport or downtown?
Ms. Lafleur: Yes, they are covered under that definition as well.
Senator Massicotte: We are all influenced by what we read. My
experience from the comments I have read here and in other countries is that
these were high risk areas of money laundering, without accusing anybody. I
thought that was a significant area of weakness in most countries. If that
is the case, why are you diminishing the requirement to report from these
monetary services whereby they are deemed to be high risk?
Ms. Lafleur: We are not proposing to diminish their reporting
obligations. We are trying to simplify their registration obligations with
FINTRAC. They have an obligation under the act to register in order to be
identified and tracked. With the benefit of five years' of experience with
the registration scheme, we have identified some things that can be
streamlined, some information that is not particularly useful that we can do
away with, and some requirements in respect of the timing of renewal of the
registration that just did not provide any benefit and were burdensome. We
are proposing to focus on the information that is truly relevant and useful
and to simplify the process with the hope of having more people complying in
Senator Massicotte: I notice that the legislation provides that a
member of a group, I presume a corporate group or whatever, once the funds
are in that group does not need to report when funds are transferred from a
subsidiary to its parent or something of that nature. You are proposing to
eliminate that exemption and require them to report all transactions. Could
you describe the intent of the legislation? When you say "group,'' what are
you talking about? Are you talking about an agent? Are real estate agents
and financial groups included?
Ms. Lafleur: I will ask Ms. Bordeleau to respond because I do not
quite understand the question.
Senator Massicotte: I refer to article 13 of the regulations. It
If funds are received by an agent or an entity which is a member of the
What does "même groupe'' mean? Does it mean "same corporate
organization,'' such as banks and real estate agents?
Ms. Bordeleau: I believe so.
Ms. Lafleur: It refers to corporate group.
Senator Massicotte: Therefore, when the TD Bank subsidiary sends
money to its parent company, which likely happens every day, they do not
need to report it. However, I believe that you are proposing to eliminate
that exemption, but not for all groups, I presume. From what I read, your
exemption is applicable to agents or members of the same group. I expect it
is specific to certain kinds of groups.
Ms. Bordeleau: Is that proposal 1.2?
Senator Massicotte: It is referred to in article 13. Maybe you can
take a look at it.
Ms. Lafleur: We could follow up on that.
Senator Massicotte: Yes, if you do not mind.
Senator Moore: I am interested in the list. In response to a
question, you mentioned the black list, which is coded. I understand the
list is issued by the FATF. Who receives the list — the 36 countries that
belong or all 170 countries?
Ms. Lafleur: The list is public and is posted on the website of
the Financial Action Task Force and made available to anybody who wants to
Senator Moore: It is not to a member country or specific
Ms. Lafleur: It is absolutely public.
Senator Moore: Is that the only area in which Canada is not
Ms. Lafleur: Do you mean recommendation five?
Senator Moore: Yes, I refer to the identification section. Are we
in good shape otherwise?
Ms. Lafleur: What we like to say is that we are in the top tier of
compliance for FATF members. At the time of the 2007-08 evaluation, we were
found to be compliant with 30 of the 49 recommendations, 40 on money
laundering and 9 special recommendations on terrorist financing. I will just
remind you that at the time we had just completed the legislative amendments
of 2006 and were in the process of finalizing the regulations pursuant to
those legislative amendments. Therefore, those regulatory amendments were
not taken into consideration in the context of the mutual evaluation. The
score of 30 actually understates Canada's compliance with the standards, and
it is probably much closer to 36, 37.
Senator Moore: In view of our close economic ties with the United
States, do you keep an eye on how they are doing, and would you know how
they are stacking up in terms of the compliance generally?
Ms. Lafleur: We keep track of all FATF members, as well as the 170
countries. We are aware of all the results of the mutual evaluations. Those
mutual evaluation reports become public once adopted by the FATF, so it is
quite transparent. Anyone can consult those reports.
Senator Moore: How is the U.S. doing? Are they top tiered with us?
Ms. Lafleur: They are. On recommendation 5, they too are
noncompliant. It is a very challenging standard and it is not uncommon for
countries to have low marks in that area. That is one we are all working on.
Senator Ringuette: With regard to standards, does the standard say
Ms. Lafleur: For the cross-border currency, it is US$10,000.
Senator Ringuette: No, for reporting.
Ms. Lafleur: Yes.
Senator Ringuette: It does?
Ms. Lafleur: Yes. It is $10,000.
Senator Ringuette: There is an issue here that you are looking at
removing that threshold.
Ms. Lafleur: You are talking about the electronic funds transfers.
The standard is 10,000? I have to double-check the standard on that one,
whether it specifies 10,000 or not. I know that some jurisdictions have gone
with a lower threshold.
Senator Moore: On electronic only?
Ms. Lafleur: On international electronic funds transfers.
Senator Ringuette: Could we have that information with regard to
Ms. Lafleur: Yes, absolutely.
Senator Ringuette: I am going back to the issue of the lawyers and
Senator Moore: Solicitor-client privilege.
Senator Ringuette: Yes. Are accounting firms included in that
slate of professionals?
Ms. Lafleur: Accounting firms are covered by the regime, to the
extent they are doing financial transactions for their clients. It is in
force and applicable.
Senator Ringuette: I guess that FINTRAC will be able to tell us
that. They are part of the professional group that has reporting
responsibilities through the act?
Ms. Lafleur: Yes.
Senator Tkachuk: I have just a few questions, getting back to the
reasons for the act. Antiterrorism and organized crime are really what we
are talking about here.
In the case of terrorism, cash would be used to commit an illegal act. In
the case of criminal activity, it is a way to legitimize the criminal act,
right? You want money in a bank so you can buy real estate or whatever.
In the assessment of the 10 years since we have had the act — or actually
12 coming up in June — what is the distribution? Who are we watching here
with FINTRAC? It would be difficult to watch terrorist activities because
terrorists would maybe be raising money here to send somewhere else or to
commit a terrorist act, or money that would be flowing in for terrorists to
use in order to commit a criminal act.
In the prosecutions and investigations, are they mostly organized crime
or are there any terrorists at all involved in this?
Ms. Lafleur: That is probably a better question for law
enforcement than for FINTRAC. Based on the information that has been
released by FINTRAC, through things like their annual report, you see that
the bulk of the disclosures are related to suspicions of money laundering.
However, there have clearly been some disclosures related to suspicions of
One of the reasons the regime is built the way it is is that there are
actually common elements between money laundering and terrorist financing.
For example, in some cases the source of the funds used to finance terrorist
acts can be criminal activity. There are commonalities there.
In terms of raising money — you say maybe they are just raising money
here — that is why an important partner in the regime is the Canada Revenue
Agency Charities Directorate. We want to ensure that Canadian charities are
not used to raise money to then flow funds to finance terrorist acts down
the road. There is a registration system, and they are quite involved in
doing due diligence on Canadian charities to ensure they are not used for
those kinds of terrorist ends.
Senator Tkachuk: We are collecting information from different
institutions. Do we have a profile of what the criminal activity likes to
use? Do they like to use banks or insurance? Where do most of the
prosecutions come from? Do they come because of results of banking activity,
real estate activity, insurance, investment banks? Where does that come
Ms. Lafleur: I think that is a really good question for our law
enforcement partners who actually conduct the investigations and are the
ones who are on the ground tracking this.
Senator Tkachuk: You must know. You receive the information and it
is being used.
Ms. Lafleur: We do not receive the information that is reported to
FINTRAC. In fact, it is quite clearly stated in the act that FINTRAC cannot
share that information with us.
Senator Tkachuk: Once you have prosecutions, do we not know where
the information came from, whether it came from a bank or from an insurance
Ms. Lafleur: It will come from a variety of sources, and that is
why the net is cast quite large. When you try to close one door and make
sure the financial institutions are more or less airtight in the
identification of suspicious transactions, the criminals will move to
something else. That is why we cover the real estate sector or certain
professions that act as financial intermediaries.
Senator Tkachuk: That was one of our concerns when this act was
first introduced. Some of the members were here before. One of the concerns
we had was the question of privacy. You could extend the net so far. We
could have a camera in every business and every home and collect all the
information. That does not mean it is useful for what the intended purpose
What I am trying to get at is that all this information — and I would
love to know how many pieces there actually were, whether there were
millions — what has it resulted in, in order to see whether this is doing
Senator Harb: That is right. Value for money.
Senator Tkachuk: The last question is: How long do we keep it? Do
we get rid of it every five years? How long do we keep that information?
There were promises made that the information would be destroyed, if you
remember. How long do we keep the information that is collected, and is it
still kept from the very beginning?
Ms. Lafleur: FINTRAC would be in a position to answer that
question. I will remind senators, though, that pursuant to some of the
recommendations that came out of this committee in 2006, FINTRAC is subject
to an audit by the Office of the Privacy Commissioner every two years, so
there are safeguards in place that ensure that there are strict privacy
protection measures in place at FINTRAC.
Senator Tkachuk: Yes, but we are more concerned about whether this
stuff is going out the door somewhere or if it is sitting in a vault. It
does cause us some concern that this information is being gathered. Surely,
one of the jobs of the department would be to ensure that this is not used
for nefarious means or is leaked. How secure is it? We would like to know,
and I think we were told there would be a process put in place to actually
get rid of it. It was a concern that after a certain time they would all be
destroyed, and I would like to know if that happened.
Senator Massicotte: The legislation does not give a term. You say
ask FINTRAC, but the legislation does not deal with that issue.
Ms. Bordeleau: Subsection 54(e) of the act says that
FINTRAC "shall destroy, 15 years after the day on which a report . . . is
received, any identifying information contained in the report if the report
was not disclosed under'' certain subsections. My understanding is that
FINTRAC is working with Library and Archives of Canada on the kind of
disposition guidelines and how to implement them.
Ms. Lafleur: In the meantime there are very strict safeguards in
place to protect the FINTRAC database, and it is audited by the Privacy
Commissioner on a regular basis.
Senator Tkachuk: I know that. We hear that all the time, but our
concern is the less information the government has about private — as far as
I am concerned — the better. It is not how protected it is because you are
all good people. However, sometimes there may not be good people in charge,
and they have all this information. My view is that the less information the
government has, the better. We will follow this up with other witnesses, I
The Chair: Senator Tkachuk, is there anything left that you would
like Ms. Lafleur and her team to provide in terms of the destruction policy,
Senator Tkachuk: Is it 15 years that it will be destroyed? Will it
go year after year after that?
The Chair: Could you send that to us?
Ms. Lafleur: Section 54 you said?
Ms. Bordeleau: It is 54 (e), but that is just for the
reports referred to. There may be others, but that is for the reports.
Senator Tkachuk: Whatever you can do to help us with information
you have on how this information is safeguarded, what it is being used for,
and how much it is, I would like to know how much stuff there is.
Senator Harb: Lots of it.
Senator Tkachuk: I would still like to know.
The Chair: I think we have accomplished all we can in the time
allotted to us today. As Senator Tkachuk alluded to, maybe it would be
helpful to look back at the record from our previous hearings in 2006 to see
what concerns were raised and whether they have been met.
Thank you, Ms. Lafleur, for your patience and cooperation. We have a good
start under our belts. I cannot promise you that you will not have the
pleasure of being asked to come back and testify again before the committee.
The committee has its work cut out for it. I wish all committee members
good luck in their deliberations.
It is a complex but highly important subject, and I know the committee
will deal with it in its usual highly competent fashion.
Senator Massicotte: Before you close, I want to make a comment.
The Chair: I thank all members of the committee for their high
level of cooperation they have given to me during my three years as chair.
It has made my job immensely easier and I appreciate it very much. I hope I
contributed in some way to the deliberations of the committee. Thank you.
Senator Massicotte: On my behalf and I am sure on behalf of the
committee members, I want to thank you for chairing this committee for the
last three years. You have done a phenomenally good job in a very
nonpartisan manner to achieve consensus, and the best information we could,
to deliver the best opinions. Your own contribution to those debates and
opinions were clearly very helpful. You have had a long stay in the Senate.
You have had three years with the Banking Committee, immensely contributed
to a better society, to a better Canada, and thank you very much. I wish you
luck and make sure you keep in contact. Maybe we will have you here as a
witness one time.
The Chair: Thank you, Senator Massicotte. I appreciate it very
Senator Tkachuk: I would like to say something on behalf of our
members on our side and members over the years. I do not know if I can speak
for all of them, but I can try to.
You and I have been on the Banking Committee ever since 1996, and of
course I had an absence from time to time. You have been fairly consistent.
You have represented your party and the Senate extremely well as not just a
member, but as the chair of this committee. We are all very proud of you and
wish you every success in your coming endeavours, Senator Meighen.
The Chair: Thank you very much, Senator Tkachuk. Before I change
my mind, I better declare this meeting adjourned.
Senator Moore: Before you close, chair, I want to echo the remarks
of my colleagues. You have been a very balanced colleague in everything you
have done in this committee and other committees that I have served on with
you. You have been a great representative for the Senate both on and off the
campus. You have been terrific and we will miss you.
The Chair: Thank you, Senator Moore.
Senator Massicotte: What I will remember about this last session,
Senator Meighen, is your tie. I think we will all remember that.
Senator Tkachuk: It is a great tie, is it not?
The Chair: Well, the "tie'' has come. We are adjourned.