Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 15 - Evidence - March 29, 2012
OTTAWA, Thursday, March 29, 2012
The Standing Senate Committee on Banking, Trade and Commerce met this day
at 10:30 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.
SenatorLarry W. Smith (Acting Chair) in the chair.
The Acting Chair: Good morning. My name is Larry Smith, and I am
pleased to welcome you here this morning.
Honourable senators, this morning we will continue the five-year
parliamentary review of the Proceeds of Crime (Money Laundering) and
Terrorist Financing Act. This is our thirteenth meeting on the subject. In
conducting this review, the committee has heard from a number of the so-called
"regime partners'' involved in the implementation and administration of this
legislation. In recent weeks, we have been hearing from those familiar with
and impacted by the regime, including industry groups and associations, as
well as independent experts in the field; and we continue with that work
In the first half of this meeting, we are pleased to welcome,
representing MasterCard, Ms. Andrea Cotroneo, Vice- President, Canada
Regional Counsel; and Mr. Richard McLaughlin, Senior Vice-President, Global
Products and Solutions; representing Western Union Financial Services
(Canada), Inc., Mr. Derek McMillan, Director, Compliance (International);
and representing Amex Bank of Canada, Mr. Scott Driscoll, Vice President,
Chief Compliance Officer and Chief Anti-Money Laundering Officer, and Mr.
Wilf Gutzin, Vice-President and Senior Counsel.
We have one hour for this session. Ms. Cotroneo, if you could begin your
Andrea Cotroneo, Vice-President, Canada Regional Counsel, MasterCard
Canada Inc.: Good morning. Joining me from MasterCard is my colleague,
Richard McLaughlin, head of our global products and solutions business in
Canada. My remarks today will focus on two areas: MasterCard's role in the
Canadian payment system and the protections that MasterCard has in place
globally that are designed to prevent MasterCard branded prepaid products
from being used for money laundering and terrorist financing purposes.
MasterCard is a global payments and technology company that connects
billions of cardholders, thousands of financial institutions and millions of
merchants, governments and businesses, enabling them to use electronic forms
of payment instead of cash or cheques. MasterCard seamlessly processes
billions of transactions representing trillions of dollars each year. We
drive innovations that deliver value to cardholders, merchants and our
financial institution customers.
Now that I have told you what we do at MasterCard, it is also important
to provide you with an overview of what we do not do. MasterCard as a
payments network does not issue credit cards or other payment cards and does
not contract with merchants to accept MasterCard-branded payments. Those
functions are performed by MasterCard's customer financial institutions
located in Canada and around the world. Our card-issuing customers, such as
Bank of Montreal, are known as issuers. Our customers that contract with
merchants for payment card acceptance are known as acquirers.
Generally speaking, we focus our anti-money laundering, AML, efforts on
our customers, the issuers and acquirers, and we require our customers to
focus their AML efforts on their customers, the cardholders and the
merchants. This structure is important. In Canada, participation in the
MasterCard system is open only to regulated financial institutions. Also, we
conduct thorough due diligence on prospective issuers and acquirers from an
AML perspective, and we impose limits and conditions on the prepaid cards
that are processed on our system to further mitigate AML risk.
We would like to briefly set out the different MasterCard prepaid
products in market and address our approach to these products. As defined by
the Department of Finance's consultation document, a financial product is
considered prepaid if it allows customers to load funds to a product that
can then be used for purchases and, in some cases, access to cash or
person-to-person transfers. The prepaid product most familiar to consumers
would be one that is anonymous and non-reloadable. These cards are branded
with the MasterCard logo and can be used anywhere MasterCard credit cards
are accepted. They are available for purchase at many retailers across the
country. Generally speaking, there is no cash-back option for these cards;
cardholders cannot use them to withdraw cash from an ATM; and they have a
maximum load limit at the time of purchase.
For anonymous non-reloadable prepaid cards, MasterCard has established
program standards and guidelines to significantly mitigate AML risk. For
example, in addition to the conditions I mentioned earlier, for anonymous
non- reloadable prepaid cards sold in a retail environment, the maximum
value that can be paid for with cash is $500. Any purchase of cards above
this amount must be completed with another more traceable form of payment,
such as a credit card.
The second type of prepaid card in the Canadian market is a reloadable
prepaid card. These types of cards include prepaid payroll cards, expense
reimbursement cards, travel cards and government benefit cards and can be
reloaded with additional funds and used to withdraw cash from an ATM. Since
these types of prepaid cards can have a greater maximum value and can be
used to access cash, MasterCard's rules require issuers to follow a due
diligence process with cardholders that is very similar to opening a bank
account. This process requires positive customer identification, such as a
government-issued photo ID, and other applicable know-your-customer checks.
In conclusion, MasterCard believes that a risk-based AML approach to
prepaid cards is appropriate, more specifically with respect to prepaid
cards that are low value, anonymous and non-reloadable that do not provide
cash access. We believe these very constraints make such cards unattractive
for money laundering and terrorist financing, and that the risk of such
activities occurring on these kinds of cards is relatively low. Accordingly,
we believe that imposing customer identification requirements would create
burdens that would outweigh the corresponding AML benefits.
In addition, because of the essential role that card issuers play in any
prepaid card arrangement, MasterCard believes issuers are in the best
position to perform customer due diligence requirements for re-loadable
prepaid cards. We also believe such an approach would be relatively simple
for the Department of Finance and FINTRAC to implement and supervise. We
would be pleased to answer any questions.
The Acting Chair: Thank you very much.
Does Western Union have a statement to present to us? Afterward we will
Derek McMillan, Director, Compliance (International), Western Union
Financial Services (Canada), Inc.: Thank you for the opportunity to
appear before the committee. Before I discuss our position on the act and
the proposed amendments to assist the five-year review of legislation, I
would like to give you a brief overview of our business and the services we
provide to Canadians and how the business has changed since the
implementation of the act.
Western Union continues to be a global leader in the money transfer of
business, with a network of over 450,000 locations in 200 countries and
territories. We have been in Canada since 1991 and now have more than 3,800
locations in Canada. This retail network allows Canadians to financially
assist family members overseas by providing a fast, efficient and secure
method of transferring funds, and provides those underserved by large
financial institutions a way to send and receive funds without holds as well
as to pay bills and expenses.
Our business in Canada has evolved and matured, and we continue to
develop partnerships with other regulated entities to provide
account-to-cash services at reasonable costs to customers of financial
institutions, both online and in branch.
In addition to our core remittance business, our Western Union Business
Solutions division offers foreign exchange services and large principal
bank-to-bank transfers to individuals and businesses in Canada and around
the world. Western Union Business Solutions includes Custom House, a
Victoria, British Columbia business acquired by Western Union in 2009; and
the former Travelex Global Business Payments business, which we acquired in
Compliance is an integral part of the Western Union business. We
participate in regulatory outreach in a variety of settings including in
Canada, representation for the money service businesses industry on the
public-private sector advisory committee on AML and CTF and on the steering
committee for the Canadian chapter of the Association of Certified
Anti-Money Laundering Specialists. We have also participated in the private
sector consultations in relation to the FATF's updates to the 40 plus 9
Additionally, we work with countries and territories across the globe to
educate and guide efforts to AML regulators and policy-makers. We take our
role and our responsibilities to this end very seriously.
Western Union and Western Union Business Solutions support the principle
of enhancing and strengthening Canada's AML/CTF regime and the
implementation of a best practice approach to the Canadian AML program, but
want to ensure a balanced and measured approach when implementing
requirements that may be overly burdensome or costly to the industry, where
those changes do not enhance the ability to detect and prevent money
laundering or terrorist financing.
There are two areas where we would respectfully request that
consideration be given to achieving this balance. One example are proposed
changes to the risk-based approach, and second relates to the ability to
rely on customer due diligence conducted by other reporting entities.
Starting with the risk-based approach, with our core Western Union
business, we require ID when sending $1,000 or more or receiving over $300.
We further require personal interviews with anyone sending sums of over
$7,500. We have strong monitoring systems that identity, analyze and report
attempts to split large sums of money into smaller amounts to avoid
We also have a risk-based compliance program to assess our agents'
compliance with the regulatory requirements and Western Union policies and
Western Union has implemented processes to report prescribed transactions
and to monitor transactions that meet established risk thresholds through a
risk-based approach. Some proposals made to enhance the current legislation
would have significant impacts on the current risk-based approach
methodology. These include the proposals to extend ongoing monitoring
obligations to all risk levels of customers and activities to which the act
applies. This monitoring will invariably identify the same patterns of
activity that are currently identified under the risk-based program with the
added costs, processes and infrastructure to review all transactions.
For example, the proposal to implement a business relationship would
require the same amount of due diligence, monitoring and reporting for
transaction-based customers who may never conduct another transaction, as
for account-based customers with whom we would expect ongoing, more
extensive relationships. This is a material change to the business model
utilized by many MSBs and would require significant infrastructure processes
and system changes with conceivably little additional intelligence than that
gleaned from the current risk-based model.
Turning to the example of reliance on CDD, consumer due diligence,
conducted by other entities, Western Union would be supportive of the
proposal to allow for the reliance of one reporting entity on another for
customer due diligence, record-keeping purposes and scenarios relating to
introduced businesses. An example of a scenario affecting Western Union
relates to the provision of our services to Canadian banks. Such customers
are introduced to Western Union and access these money transfer services via
the bank's online banking platforms. At the current time, a customer cannot
send an online transaction over the prescribed limit of $1,000 without
having their identity ascertained and verified in person by an agent, as
available non-face-to-face methods do not support a real-time transaction.
The customers of Canadian banks are subject to CDD at the time of opening an
account with the financial institution, which are required to maintain
FINTRAC's confidence in the AML/CTF procedures of Canadian banks is
evidenced by the acceptance of the cleared cheque method of customer
verification. If an MSB is unable to rely on the consumer due diligence
conducted by the Canadian financial institution, there will be two
unintended and negative consequences. First, the services offered by the
financial institutions are restricted, notwithstanding that customers who
wish to use the services have been fully subject to customer due diligence
by Canadian banks. Second, there is a duplication of effort and duplicate
documentation maintained by two reporting entities.
We support the general direction of enhancements to the legislation but
ask the committee to take a balanced and reasonable approach to the
implementation to ensure the industry is not overburdened by requirements
that do not meet the overall objectives. We have provided a copy of a more
detailed submission, and I welcome questions from the committee.
The Acting Chair: Thank you very much, Mr. McMillan.
Moving forward, we will now hear from Mr. Driscoll and Mr. Gutzin of Amex
Scott Driscoll, Vice President, Chief Compliance Officer and Chief
Anti-Money Laundering Officer, Amex Bank of Canada: Good morning. Mr.
Chair and honourable senators, I would like to thank you for inviting us
here to participate in the parliamentary review of the Proceeds of Crime
(Money Laundering) and Terrorist Financing Act. My name is Scott Driscoll,
and I am the Chief Compliance Officer and Chief Anti-Money Laundering
Officer for Amex Bank of Canada, a Schedule II bank here in Canada since
1991. I am joined by my colleague, Mr. Wilf Gutzin, Vice-President and
Senior Counsel for Amex Bank of Canada.
It may surprise you to be aware that American Express is celebrating 162
years as a company, but what might surprise you even more is that we are
celebrating 159 years as a proud Canadian employer. We opened our first
offices in Canada, in Hamilton, in 1853, and today we have over 3,700
employees across the country.
I would like to highlight that we operate like a virtual bank, having
only one limited service retail branch location, located in Markham,
Ontario, where our Canadian headquarters for American Express is located.
Accordingly, almost all of our customer contact and communications are
virtual, not through a branch network. Amex Bank of Canada issues American
Express cards in Canada, provides American Express merchant services and
provides other merchant and financial services to Canadians.
Amex Bank of Canada has been an active participant in the discussions on
the AML environment in Canada with government officials for many years, with
the goal of achieving an effective regime to combat money laundering and
terrorist financing, at the same time ensuring a balanced approach that does
not place unreasonable burden on consumers and businesses. To that aim, Amex
Bank of Canada has recently contributed comments on the Department of
Finance consultation papers through the Canadian Bankers Association and
with a group of smaller banks focused on credit card issuing in Canada.
I want to mention that we are a member of the CBA and we are aligned with
the positioning they put forward during their appearance at the committee on
March 8. In particular, we believe that any new measures need to be risk-
based and flexible to accommodate the rapidly evolving state of the
financial sector in Canada.
We would like to take this opportunity to highlight two specific areas to
the committee. One is a challenge, the other is an opportunity. The
challenge is for financial institutions that operate without a branch
network across the country, and the opportunity is the need for new and
seamless electronic customer identification methods to meet the needs of
Canadians that are serviced in a non-face-to-face environment.
The payments task force appointed by the Minister of Finance noted that
anti-money laundering and anti-terrorist financing measures, with customer
identification measures in particular, create barriers to innovative payment
systems. To that end, we would like to see the government support new and
additional, robust, non-face-to-face identification methods, including
approaches similar to those in other jurisdictions where the government
facilitates identification through access to specific government databases
for such purposes.
For example, both Australia and the United Kingdom have made electoral
registries and voter registries publicly accessible for non-electoral
purposes. Other measures could include expanding the acceptance of
electronic copies of identification and other documents.
Due to the pace of innovative change and to ensure that the Canadian
payments regime does not fall behind, it is imperative for the government to
enable the adoption of new digital identification and authentication
measures to support mobile payments. Currently, the methods of
identification are prescribed in regulation, not easily changed and have
become less useful and relevant over time. There is a need for a more timely
administrative approval process for new identification processes and
methods. For example, an excellent move forward would be assigning
appropriate authority to FINTRAC or other government authorities to take a
risk-based approach to permitting acceptable identification measures. To
support electronic channels and the move to digital products, written
signature requirements should also be eliminated from the regulations. We
commend the Department of Finance for re- evaluating this requirement in the
We appreciate the consultative approach that the government has taken and
the acknowledgement for the need to strike an appropriate balance for
Canadians and the private sector, particularly as it relates to potential
compliance challenges related to implementation time frames. In order to be
effective, the government needs to provide sufficient time to implement
changes arising from this review. We look forward to having further
discussions with the government in this regard.
We would like to reaffirm our support for a strong and solid anti-money
laundering and anti-terrorist financing regime in Canada and look forward to
continued open and transparent dialogue with the government in this regard.
Thank you again for providing Amex Bank of Canada with the opportunity to
share our perspective. I would be pleased to accept any questions you may
The Acting Chair: Thank you very much, Mr. Driscoll.
Do you have any comments Mr. Gutzin, or will you be available to answer
questions if asked?
Wilf Gutzin, Vice-President and Senior Counsel, Amex Bank of Canada:
Senator Maltais: First, I have a question for Ms. Cotroneo from
MasterCard. Is MasterCard listed on the Canadian Stock Exchange?
Ms. Cotroneo: Yes, MasterCard is publicly traded.
Senator Maltais: Can I buy MasterCard shares?
Ms. Cotroneo: MasterCard is a publicly traded company on the New
York Stock Exchange, not on a Canadian stock exchange. Yes, it is possible
to buy shares in MasterCard.
Senator Maltais: You talked about prepaid cards. Several other
witnesses have told us that these prepaid cards are a good way to launder
money. I see that this would be fairly difficult to achieve based on the
maximum amount you allow. It would take a lot of $500 transactions to buy a
Porsche. Do you know whether any attempts to launder money have been
reported to FINTRAC by your organization?
Ms. Cotroneo: We have not seen any money laundering attempts that
we would have to report. Allow me to explain that.
MasterCard is not a reporting entity to FINTRAC. The cards are issued by
MasterCard's customers, who are some of the largest banks in Canada. They
are sold by those financial institutions and other financial institutions.
Those entities would be the appropriate reporting entities to FINTRAC for
any anti-money laundering compliance issues.
Senator Maltais: Today, the vast majority of cards issued by
American Express or MasterCard contain a chip. What information does this
Ms. Cotroneo: I am sorry. Is the question: What type of
information is on the chips? I will ask my colleague, Mr. McLaughlin to take
that question. He is the head of our products and services in Canada.
Richard McLaughlin, Senior Vice-President, Global Products and
Solutions, MasterCard Canada Inc.: It is important to differentiate that
the prepaid cards we are speaking of do not carry those chips. However, to
specifically answer your question, the chips on credit cards store the
information that allows the authentication of the customer using a PIN. It
communicates with the host system to ensure that the person using the card
is the owner of the card.
Senator Maltais: A few years ago, some credit card issuing banks
included a picture of the person on the card. I particularly recall that
CitiBank did that. Was it not a good security measure for financial
Mr. McLaughlin: In fact, it was not. In our experience, the clerks
in stores do not look at the front of the card. They rely on the security
systems that we have in the background to ensure that the card is valid.
Those photos did not serve any security purpose.
Senator Maltais: Somebody mentioned the voters' list. But it has
no photos. So how could the voters' list help you better identify
individuals? If it is not a good picture, of what use would it be? What
about DNA? I do not know. How did you come to that conclusion?
Mr. Driscoll: Such systems are available in other developed
countries in terms of identification measures. This in and of itself would
not be the only measure we would take. However, it would provide us the
ability to verify the information that we collect on an application basis
before granting an individual a piece of plastic or a card and entering into
a relationship. This is a data point that we could use that is government
housed that we could use for verification purposes. It is not intended to be
a point-of-sale device for verifying the actual plastic holder at a merchant
location. It is meant at the application stage. We would verify certain data
points on the application that we have received.
Senator Maltais: However, a photo is standard on our passports, on
our driver's licences and our medical insurance cards, together with the
relevant information. Why would that not be good enough for you? If the
salesperson makes a mistake, that person should be fired and someone who can
do the job properly should be hired.
Mr. Driscoll: The option for us is that unfortunately we are not
in a face-to-face environment for all of our customers. We do not have an
extensive branch network, so when customers apply for credit cards, we only
have one limited service retail branch location to see people face-to-face.
We are looking for robust identification measures where we actually do not
see the customer face-to-face. One of the options we put forward is that we
would like to be able to receive electronic copies of identification as a
measure to record. That being the case, we do not see our customers. This is
true for a large portion of the industry in Canada. We do not see our
customer on a face-to-face basis so the photos are not that valuable to us
for matching an individual with an application.
Senator Ringuette: Earlier, I said to the clerk that we have the
fantastic plastic people before us this morning.
Ms. Cotroneo, you say that MasterCard's rules require issuers to follow a
due diligence process with cardholders that is very similar to opening a
bank account. The bottom line is that MasterCard and your competition, Visa,
have no reporting mechanism because you give your transaction responsibility
to either the bank or other issuing entities and to the technology providers
that deal with the merchants, and so forth. You wash your hands of any kind
of situation in regard to having an obligation to report to FINTRAC.
However, my first question to you is, of all your issuers and all your
acquirers, what is the feedback that you are getting in regard to your
prepaid credit card system — both systems?
Ms. Cotroneo: Both systems?
Senator Ringuette: Both prepaid card products that you have on the
Ms. Cotroneo: I would like to set the stage to try to answer that
question by saying that MasterCard has very robust AML-compliance programs
that are in our rules and that our issuers of prepaid cards must follow.
MasterCard absolutely supports the AML regimes in every country in which
it transacts and also supports our customer issuing banks in their AML
We do not have specific contractual arrangements with cardholders in
Canada, so we believe that prepaid issuers — primarily banks, in this
country — and other deposit-taking institutions that are subject to the
customer due diligence requirements and to extensive regulatory scrutiny
like FINTRAC have compliance departments. They deal with AML on a day-to-day
basis, and they are the best entities in the system to ensure that AML
compliance is undertaken in respect to these products.
In terms of what we have heard from our issuers and acquirers, on the
issuing side, we know that prepaid products, both non-reloadable — the
anonymous ones you could purchase at a retail location — and the reloadable
cards that might be less familiar to you, are valuable products for our
issuers. We know that Canadian consumers —
Senator Ringuette: My specific question to you was in regard to
compliance with FINTRAC. I know very well the entire scenario of Visa and
MasterCard, but I want to know what you know from the issuers that you deal
with in regard to your two prepaid products.
Ms. Cotroneo: The issuers do not necessarily report to MasterCard
their FINTRAC reporting obligations, so we do not have specific oversight
into the issuer's reporting obligations to FINTRAC.
Senator Ringuette: At any time, did any of the issuers contact
MasterCard to say, "We have concerns in that we think that we have issued a
prepaid card to a high-risk individual, and we want you to make a stop
payment or stop transaction order on these prepaid cards''?
Ms. Cotroneo: I am not aware of any such incident in Canada.
Senator Ringuette: Okay. Thank you very much.
In regard to Amex, I know you are pretty specific in your field of
action. I find it quite unbelievable, in this day and age of general public
concern about "big brother,'' that you are asking the Government of Canada
to allow you to have access to government data banks, whether they are from
Elections Canada or elsewhere. I am sorry, sir, but if you want to deal in
the marketplace and provide a very specific kind of product, the legislation
is quite specific. You have to know your customers. You are responsible for
how you deal in the marketplace.
The Acting Chair: Maybe Mr. Driscoll could give you some
background to expand on why it is of interest for Amex to make that request.
Would that be a fair question?
Mr. Driscoll: Yes. First, I want to say that we are not
necessarily looking for complete access to these databases. We are looking
for the ability to match the information in these databases through a
mechanism that would protect the privacy and confidentiality of Canadians'
information. This is access to the information from a matching perspective,
to identify the individuals that we are granting credit to and providing
these cards to.
In many other countries, they have done similar types of exercises to
allow for the overall government need of identifying individuals and
preventing money laundering from occurring in the system, while facilitating
access, by their individual consumers, to this credit and these products. It
is a scenario where there could, perhaps, be an interface; we would submit
the information we have, and certain data points could be verified on the
government database and come back as a match or a not a match. It does not
necessarily provide us with any additional information other than that which
we already have on our systems and/or that the customer has provided to us
with full protection from a privacy perspective.
Senator Ringuette: When you say "other countries,'' could you give
us the names?
Mr. Driscoll: The two I have highlighted are Australia and the
Senator Ringuette: Western Union is also in a very particular
situation where you need to rely on the information provided by a Canadian
financial institution. What kind of scrutiny can you count on in regard to
dealing with other countries because of the international transactions that
you are doing?
Mr. McMillan: Thank you for the question.
The way Western Union works is good background to help answer that. We
are a closed system. When a transaction goes through Western Union's system
— a typical consumer-to-consumer transaction, someone in Canada sending
money to India, let us say — someone will walk into a location in Canada,
and we will have an agent in Canada collecting information. Western Union is
in the middle, and then it is a Western Union agent, on the other end, who
is paying out the transaction. Like in Canada, there are, I think, over 40
countries where we, directly, are the regulated entity. There are a lot of
others where we are master agent locations, largely banks and post offices,
and another country owns that licence. We work with them to ensure that they
meet our overall global compliance program.
Senator Ringuette: The amount standard of $10,000 is quite an
issue because you were looking at an average of $7,500.
Mr. McMillan: No, our Canadian average transaction is probably in
and around the $400 mark. One of our concerns would be that the prescribed
threshold for which we report a cross-border transaction is $10,000. To
bring it down to dollar one would flood data and cause a lot of work, and I
am not sure that the benefit matches that additional work, cost to, and
collection of information from consumers.
Senator Baker: Thank you for permitting me to ask a question.
I have followed this act since its inception in the year 2000. At various
points, since the year 2000, the provisions of the act have come into force.
In other words, the entire act did not come into force in 2001, but
provisions came into force over a period of time. The most recent period of
time in which provisions came into force was 2008. Therefore, it is good
that the parliamentary review is taking place at this time.
The reason I was interested in addressing one question on this subject is
because six months ago the act was struck down as being unconstitutional as
it applies to law offices or to lawyers. We only have one lawyer here, so
the only safe place for documents would be in the office of — we have two.
No, we have loads on the committee. We have lawyers everywhere on the
committee, too many, some people would say, including the chair, who is an
expert in his own right.
One of the questions before the court, which has been talked about much
since the inception of this act, is the permission granted, which we
granted, to FINTRAC for purposes of investigation or compliance with the act
to enter upon any premises, any offices of any premises such as yours, at
any time without a warrant and to look at all of your documents.
We also have in the act the provision that if, for example, the documents
were in someone's residence or home, you would need a warrant issued by, as
I recall, a justice of the peace.
Given that this act has been struck down for any of the documents held in
lawyers' offices or in offices of law firms, do you have any concern at all
or anything to add — you do not have to if you do not wish. I am not
suggesting you have to address this question, but do you have any concerns
at all as to provisions 62 to 65 of the act, of which 63.1 only came into
force in 2006, as it relates to the warrantless provisions in the act that
allow FINTRAC at any time to enter your offices and obtain your documents?
Mr. Gutzin: Let me comment generally that we are always balancing
both our requirements under anti-money laundering and anti-terrorist
financing to meet the requirements of this legislation, and at the same
time, to meet our obligations under privacy legislation. They are both
equally important policy objectives and obligations on us as a Canadian
Today, we ensure through our legal department that any requests for
information, be they in private litigation where there are court orders or
attempts or government institutions or law enforcement that are regularly
asking us for information, we ensure there is proper authority before we
release any customer information. We review every request carefully, and if
those requests do not have authority, then we will not provide the
I guess anything that makes it easier for this information is probably
going to lead to more requests.
Senator Baker: Yes. However, FINTRAC is what is called, as the
chair would say, an agent of the state.
If the committee decided in its wisdom at the end of the day after
looking at this and at the recent court judgments concerning this that a
provision were included that would require some kind of judicial
authorization, be it by a justice of the peace or a judge, do you have any
comment as to whether or not you would object to that? Would you defer to
the committee's wisdom?
Mr. Gutzin: We would defer to the committee's wisdom, but you have
heard our general comments in that we believe this legislation should have a
risk-based approach, and we think that a risk-based approach includes
weighing privacy against money laundering and terrorist financing and
weighing the impact on the consumers, the businesses and the financial
institutions that serve customers. We think that has to be looked at very
carefully to find the right balance.
Senator Massicotte: Thank you for being with us this morning.
Obviously, this is a very important issue to the integrity of our economic
system, but it is also very complex, and you have made very detailed
Let me make it a bit broader. Everybody recommends a risk-based approach,
and who can disagree? It sounds good and it is the right approach. Nowadays
we are getting more conceptual and less rules-oriented, but sometimes one
can interpret it to say, "Trust us, we will do it right; and if we do not do
it right, at least we tried.'' Government agencies are basically saying that
is not good enough; they need something more finite.
When you say "risk-based,'' what does that mean? Is it a broad base that
lets us decide the best system that applies to our customer base, or should
there be rules as proposed? Mr. McMillan or Ms. Cotroneo, could either of
Mr. McMillan: From Western Union's standpoint, I think there is a
place for having the prescribed requirements and certain amounts to report
Our comments on this risk-based approach are more that the regulations as
proposed bring anything down to every single transaction conducted requires
something. In my mind, the risk-based approach we are referring to is
getting away from that. We do not think the benefit of sending these small
remittance transactions and reporting them to FINTRAC would add much value.
Applying a risk-based approach means using our monitoring systems to
identify certain scenarios within smaller transactions that we would
identify as unusual, allowing us to focus our efforts that way, rather than
prescribing such a low threshold.
Ms. Cotroneo: I would add that from MasterCard's perspective, we
would like our different products in the market to be considered. There are
different types of prepaid products; I went through them in my submission.
Certainly, there are very low-risk products out there in the prepaid space,
like these anonymous, non-reloadable products, low value, no access to cash.
We would suggest that they perhaps would not warrant the type of attention
that other products in market would.
We also support the submission by the Amex Bank of Canada in terms of
establishing principle standards for non- face-to-face customer
identification rather than specifically prescribing data sources. That is
what we considered when we were advocating for a risk-based approach.
Senator Massicotte: Do you realize that the current legislation
gives caps, such as for $10,000, but the rest is risk- based? This removes
your responsibility, but you still have the responsibility to investigate
all suspicious transactions.
What you are really saying is that for international transactions, $1 is
not serious; it is too detailed. What should that dollar amount be, then,
for international transactions if you think $1 is too low?
Mr. McMillan: It is at $10,000 today. The identification threshold
today is at $1,000, and that is where we are required to ascertain the
identity of someone conducting a transaction. Possibly having the EFT
threshold reduced to that point where we are already required to get more
information would make sense.
Senator Massicotte: $1,000?
Mr. McMillan: Yes, perhaps.
Senator Massicotte: Let me ask your advice. On the international
side, the experts have said that our country reporting is where the exposure
is. We have gotten very detailed and we have pretty good control of what
happens within Canada when someone comes to an institution regarding cash
transfers. However, internationally we are exposed because people can work
in countries that have less revision or are more corrupt and have more
flexibility. I suppose Western Union must be exposed to this. It is like a
competition by the agency to keep track of the criminals and their
What do you see happening? We are always several years behind. What are
criminals doing today to basically get their proceeds from criminal activity
into the system? Is there something we could learn or should we be careful
of or watch out for something?
Ms. Cotroneo: MasterCard and other payment providers would
certainly point to cash as one of the biggest risks to the system in terms
of anti-money laundering and terrorist financing. We have protocols in place
for our products to ensure that, as required, there is customer due
diligence. We believe that some focus certainly should be on cash and how it
moves across borders and through the system. It is no surprise to this
committee, I am sure, that cash is a focus for FINTRAC.
Mr. McMillan: I will support that comment. One of the things we
discussed with the Department of Finance at one time was differentiating
between a cash transaction at a retail location and one done in a
non-face-to-face method. In many cases, the non-face-to-face transaction may
carry less risk if it comes from a Canadian bank account and someone had to
log into their banking website in order to initiate that transaction.
Not having the same identification requirements for cash transaction and
an online transaction based on the transaction amount, and not how it was
paid for, potentially would be a good idea. It would be a good idea to
separate the two.
Senator Massicotte: I make the observation that people in the know
say that billions of dollars in cash transactions are done each year in the
drug trade in Canada. The government has closed down many areas, but I
understand that the drug trade has not diminished in volume. Where is the
cash going? These people are smart and change their methods. Where is the
cash going? What is happening? You folks are in the sector, so you must talk
among yourselves or see what is happening.
Mr. Driscoll: I would comment that within the banking sector we
are heavily regulated by OSFI and FINTRAC to ensure that we have the
measures in place to monitor and report all that activity. I would say that
what does happen is they move to the areas that have fewer controls and
regulations to find the weak points in the system.
Senator Massicotte: Where is that?
Mr. Driscoll: I would say that cash-based activities and
businesses that are cash intensive would likely be weak points.
Senator Massicotte: Such as what?
Mr. Driscoll: I would hate to point to any specific one, but
sectors such as jewellery, real estate and auto dealerships are or could be
cash-intensive businesses. They might not have the same type of oversight as
banking regimes have or be as heavily regulated.
Senator Stewart Olsen: Western Union's individual transfers are
relatively small, but you can do them in tranches. Is that correct? One
person coming into the same address could do multiple transactions. Do you
have a limit on those tranches?
Mr. McMillan: We have monitoring systems in place where we will
aggregate across consumers. One good example is the identification of a
potentially suspicious activity of a consumer that walks into a location on
one side of the street and then walks over to the other side of the street
to send money as well. That is a good example of what our transaction-based
monitoring systems are looking to identify and to report. We actively report
to FINTRAC on such scenarios.
Senator Stewart Olsen: What kind of rules and regulations do you
put in place before granting Western Union agency?
Mr. McMillan: We have a number of different controls. We have
class-of-trade restrictions, criminal record checks on the ownership of our
agent locations and government-sanctioned checks on the ownership of our
locations around the world. A piece of our program is focused on looking for
suspicious consumer activity, and we have an agent compliance support
division that focuses solely on monitoring an agent location. We monitor for
suspicious behaviour and try to determine whether we have an agent that may
be complicit in some activity or perhaps in need of training because it
looks like they have unusual activity going through the system. We have
specific controls set up as part of our compliance program.
Senator Stewart Olsen: Do you review an agency on an annual basis
Mr. McMillan: We have our compass model — a comprehensive strategy
— for identifying the risk of agent location. In Canada, we run over 3,800
locations and each one is run against this risk assessment model where we
take into consideration a number of different factors from the transaction
activity done at the location to identify where we think we have an agent
that has suspicious activity.
An example would be a person who walks in and sends just under our ID
threshold at an agent location three times in a month, or all in the same
day, or just minutes apart. We would vary the score accordingly. That
risk-based model drives where our compliance officers would go to a location
and do a compliance review with that location to determine whether we need
additional training or whether we need to shut that location off.
Senator Stewart Olsen: For MasterCard, how do you monitor
compliance? I realize it is quite different but nonetheless you should bear
some responsibility for what your agents are doing.
Ms. Cotroneo: In MasterCard's model it is a bit different in terms
of our issuing bank customers being those that issue prepaid cards, in this
case. While the specific practices of each individual financial institution
would be better addressed by them, we certainly require issuers to have
robust anti-money laundering compliance programs in place. We have audit
controls over those programs, ongoing due diligence and ongoing suspicious
activity monitoring. As well, we require them to have record-keeping
Senator Stewart Olsen: To American Express, this is a request for
a follow-up. I am interested in your suggestions about moving into the
digital age with better ideas of identification. With the committee's and
the chair's permission, would you be able to send to us some of your ideas
of how this could be done? I will not take the time now, but I think these
are very interesting ideas that everyone would have to look at.
Mr. Driscoll: Definitely, we will take that away and provide that
Senator Moore: MasterCard is not a reporting entity to FINTRAC. Is
Ms. Cotroneo: Yes.
Senator Moore: Amex and Western Union are reporting entities. Is
Mr. Driscoll: Yes.
Senator Moore: Could you tell us how many suspicious transactions
you have reported to FINTRAC and over what period of time?
Mr. Driscoll: I would have to take away to get a specific number
for you. I can tell you that it is in the neighbourhood of 200 transactions
that we would report annually based on a review. I can get specific details
broken down by monthly statistics going back many years, if you would like.
Senator Moore: Since you have to report, could you send an annual
figure to the clerk of the committee? It would be useful.
What is the experience of Western Union, Mr. McMillan?
Mr. McMillan: We are one of the largest suspicious transaction
reporting entities to FINTRAC. I can get those numbers as well, but the
difference in our business model drives that. Occasional transactions with a
person going to a couple of different locations would cause us to file a
report. Our typical STR is a much smaller dollar amount than you would see
at a financial institution.
We have a lot of those reports going to FINTRAC, so I can provide you
with that. On the flip side, the prescribed reporting is much smaller with
our average transactions being around $400. We do not do a lot of LCTR
Senator Moore: When you have someone doing two or three
transactions from one place and going across the street to another outlet to
do more, would you be talking about more than the cross-border figure of
$10,000 or less than that?
Mr. McMillan: In many cases, we do not get near that amount. It
could be that three transactions under our ID threshold that we have tied to
the same sender are all going to the same geographic area in the world. We
would file an STR for $3,000, for example.
Senator Moore: How many transactions from one sender would trigger
suspicion that would cause you to make note and report?
Mr. McMillan: We use a decision matrix to identify activities such
as that in reviewing the data on our transactions. It would populate a queue
for an analyst to review and then file a report to FINTRAC or not file to
FINTRAC for one reason or another. In the past we have not shared those
rules with the bad guys. We do not want those rules necessarily getting out
Senator Moore: Could you send in those figures, as asked from
Amex, to our clerk?
Mr. McMillan: Definitely.
The Acting Chair: I have one question for each of you. Given the
number of players involved in this process and the complexity of the
legislation, I would like to hear a summary from each of you on your number
one issue and your number one recommendation to us in terms of how we can
improve or advance the legislation.
Mr. McMillan: One thing we would focus on is the introduced
business situation. In many cases in Canada, our agents are becoming more
and more financial institutions. However, with the way the regulations are
today, when conducting a Western Union transaction, bank A is acting as an
agent of a money servers' business and has to comply with MSB requirements
for non-face-to-face identification and what not. It would help out Western
Union and other MSBs that work with other regulated and reporting entities
to be able to rely on the account opening work that the bank has done if the
transaction is initiated through that bank account by the bank as an agent
of a money server's business.
I hit you with two: the introduced business concept as well as accounting
for the non-face-to-face situation when the introduced business has the
information but they happen to be conducting a transaction through their
online banking website to a consumer who picks up their money at a Western
Union location somewhere around the world.
Ms. Cotroneo: With respect to prepaid products, which have been
the focus of MasterCard's submission, I would respectfully ask that they be
considered in their entirety as there are different products. Any additional
AML requirements should be subject to a very principled risk-based standard.
We believe that these products in market are valuable to Canadian consumers
and represent a fairly low risk on AML and terrorist financing. We believe
that the issuers that promote and sell these products are already subject to
extensive regulatory scrutiny and are in the best position to ensure that
their compliance regulation and regulations are in place for these products,
and generally that they are low risk in the sphere of AML and ATF.
The Acting Chair: Basically, we do not need to have protection. Is
that what you are saying?
Ms. Cotroneo: No. I would say that we already have robust
compliance programs in place, both at the network level and at the issuer
The Acting Chair: That category is fairly well scrutinized.
Ms. Cotroneo: Absolutely. It is also represented in the
Mr. Driscoll: I would say that for us and for many other players
in the financial sector that one of the biggest challenges we face is coming
up with new and robust non-face-to-face identification methods. This has
been flagged by the Department of Finance and by the task force on the
payment system. It is where we are going in terms of digital mobile
payments, where individuals do not necessarily go into a branch to show
identification. We need to develop robust and effective methods of
identifying our customers in a non-face-to-face environment.
The Acting Chair: Will you send the clerk a list of some of those
suggestions and recommendations you have made from a technological
Mr. Driscoll: Yes, I will.
The Acting Chair: Thank you for participating this morning. It has
been insightful, and we appreciate the information that you have shared with
Honourable senators, in the second half of our meeting we are very
pleased to welcome, representing the Canadian Chamber of Commerce, Mr.
Matthew McGuire, Chair, Anti-Money Laundering Committee; and representing
the Canadian Real Estate Association, Mr. Gary Simonsen, Chief Executive
Officer, and David Salvatore, Director of External Relations.
We have one hour for this session. Mr. McGuire, if you would start, we
would appreciate it.
Matthew McGuire, Chair, Anti-Money Laundering Committee, Canadian
Institute of Chartered Accountants: Thank you and good morning. On
behalf of the Canadian Institute of Chartered Accountants, we appreciate the
opportunity to provide input on the committee's five-year parliamentary
review of the Proceeds of Crime (Money Laundering) and Terrorist Financing
Together with the provincial chartered accountant institutes, the CICA
represents approximately 80,000 chartered accountants in Canada. Our members
are committed to working together in the fight against money laundering and
organized crime. My comments today specifically focus on issues related to
accountants and accounting firms arising from the consultations undertaken
by the Department of Finance in recent months, particularly on strengthening
the regime for combating money laundering as well as the proposed regulatory
amendments under the act.
I am a chartered accountant and the chair of the anti-money laundering
committee of the CICA, which was constituted to address the consultations
and proposed regulatory amendments on behalf of the profession. I am also a
partner and the national anti-money laundering practice leader for MNP LLP,
which is the seventh largest public accounting firm in Canada. Together with
my team of anti-money laundering advisers, my professional life involves
designing and evaluating risk-based anti-money laundering compliance
programs for all sectors and all sizes of reporting entities across Canada
and has been since my time as an intelligence analyst with FINTRAC in 2004.
The first area I would like to comment on relates to clarifying reporting
obligations under the act for the accounting sector. There are certain
activities performed by accountants that currently trigger reporting
requirements that are inconsistent with the original policy intent of the
legislation, particularly with respect to insolvency services and the roles
of trustee in bankruptcy. The government recognizes this issue and has
proposed that the act be amended to exclude from certain reporting
requirements those activities undertaken by the accounting sector when
providing trustee in bankruptcy and insolvency services, acknowledging that
these activities are indeed similar to others performed by accountants that
would not trigger reporting requirements.
Proposal 2.8, which deals with clarifying reporting obligations to the
accounting sector, is contained within the December 2011 consultation
document issued by Finance Canada. While we welcome this proposal, it does
not go far enough to address the activities that are properly outside of the
To illustrate, the interpretation notice issued by FINTRAC, known as
Interpretation Notice No. 7, recognizes that, in addition to trustee in
bankruptcy services, acting as a receiver or a monitor in an insolvency
context would not be considered to be triggering activities. That
interpretation notice recognizes that in these scenarios, the accountant is
not working on behalf of the client, but rather to carry out a court order
as an officer of the court and under the supervision of a court. However,
such interpretation notices do not have the force of law.
As well, there are other relevant services provided by accountants in an
insolvency context, such as receiver-manager and interim receiver, which are
not addressed specifically by proposal 2.8. As such, we believe that it
should be broadened to encompass the roles of trustee in bankruptcy,
receiver, receiver-manager, interim receiver and monitor.
The government has also proposed broadening the requirement to report
suspicious transactions to encompass activities conducted for the purpose of
a financial transaction. This wording is ambiguous, in our view, and could
be interpreted to encompass assurance services, which are currently outside
the ambit of the act. We are therefore looking particularly for clarity on
the scope of that proposal.
We are also seeking clarity on the regulations that will support laws
relating to ministerial countermeasures. The boundaries of these
countermeasures are not known, and therefore, we are concerned about the
practical extent to which systems and processes can be designed to adhere to
My final comment deals with proposed amendments to regulations under the
act that deal with the introduction of ongoing monitoring of business
relationships. These are defined as any financial relationship established
to provide financial activities or transactions.
Beyond the burden represented by ongoing monitoring and record-keeping
contemplated under this proposal, we are concerned that the definition is
sufficiently broad as to bring currently excluded assurance services under
the ambit of the act, and therefore, we are looking for clarification in
that respect as well.
We understand that a balance must be struck between reporting and
record-keeping and identification requirements that properly deter and
detect money laundering and terrorist financing activities while minimizing
the compliance being placed on the private sector.
We appreciate your consideration of these issues identified in the course
of the committee's review of the act, and we would be pleased to answer any
Gary Simonsen, Chief Executive Officer, Canadian Real Estate
Association: Mr. Chair, honourable senators, on behalf of Canada's over
100,000 realtors, thank you for the opportunity to discuss the Proceeds of
Crime (Money Laundering) and Terrorist Financing Act.
As noted, my name is Gary Simonsen. I am the CEO of the Canadian Real
Estate Association. I am joined by our Director of External Affairs, David
Our industry understands the fundamental importance of combating money
laundering and terrorist financing. However, the money laundering and
terrorist financing regime does not always understand our industry. Rules
that are applicable in one sector are not necessarily feasible in another
Unlike banks, with massive infrastructure, a slew of salaried employees
and literally millions of transactions, the majority of our members are
entrepreneurs and small business people. Over 76 per cent of our members
conduct fewer than 10 transactions per year. For them, simplicity is key,
time is precious and red tape is counterproductive. Indeed, an hour spent
interpreting a law or regulation, filling out paperwork or filing records is
an hour away from earning a living.
Over the past 10 years, our members have adapted their business
operations, taking on both a heavy paperwork and record-keeping burden to
comply with the money laundering regime.
This is not to say we do not have a role. We do. However, there is an
important lens through which money laundering measures should be viewed,
assessed and implemented. They must be applicable to a given reporting
sector. This means they should be targeted and feasible in practice.
Furthermore, they must not make compliance with an already onerous regime
It is along these lines that your review is an opportunity to not only
assess additional proposed measures contained in the Department of Finance's
consultation papers, but also to address challenges and lessen the
compliance burden with the existing regime where appropriate.
This is the approach we took in our responses to the two Department of
Finance consultation papers. I will not get into all of the details of our
submissions at this point, but I would like to highlight three proposed
changes that are of greatest concern.
First, it is impractical for realtors to monitor clients and conduct due
diligence on an ongoing basis. Because real estate is a transactional
business, client relationships have a defined start and end point; they
correspond with the beginning and end of a property transaction. Requiring
ongoing monitoring of clients in the real estate sector is impossible, and
as such, would not add any meaningful prevention of terrorist financing.
Second, while we support the objective of providing information that
should have previously been submitted under the money laundering regime,
there are a number of external factors that may prevent a reporting entity
from obtaining the information.
As an alternative to the proposal to fine reporting entities until they
provide the requested information, we recommend FINTRAC require reporting
entities to take reasonable measures to obtain the information in order to
file a missing report. This approach is also consistent with other aspects
of the money laundering regime.
Third, we are concerned about some of the proposed countermeasures for
designated foreign jurisdictions and entities, in particular ones that would
require total reliance on face-to-face identification verification methods.
This is impractical as it would necessitate either the realtor flying to the
buyer's country or the buyer flying to the realtor in order to be
identified. Non-face-to-face verification methods are critical, are
currently allowed and must continue under the proposed countermeasures.
Our submission also raises a few important issues that were not addressed
in the Department of Finance consultation documents.
Our members often deal with elderly clients who only possess expired
identification. The current regulations require realtors to verify a
client's identity using valid ID only, providing no exceptions for expired
ID. From a risk assessment perspective, it seems clear this instance is one
that calls for some leeway.
Furthermore, this review is also an opportunity to close a huge loophole
that allows criminals to launder money by purchasing or selling real estate
through a for-sale-by-owner company. Currently, for-sale-by-owner companies
are not subject to the FINTRAC regime, creating a loophole for criminals to
We also strongly support an overall compliance approach of awareness and
education over penalties and citations. We encourage FINTRAC to re-energize
its education efforts to ensure that stakeholders understand how to
implement modifications to the regime, as well as how to meet existing
expectations and challenges. We also recommend a grace period before FINTRAC
is able to fine for non-compliance under any of the new regulations.
Again, thank you for the opportunity to appear, and I look forward to
The Acting Chair: Thank you very much, Mr. Simonsen, for your very
concise and precise disclosure.
Mr. Salvatore, do you have anything to add as an initial opening comment?
David Salvatore, Director, External Relations, Canadian Real Estate
Association: No, but thank you for the opportunity.
The Acting Chair: Maybe I could ask a question to Mr. McGuire.
Senator Massicotte has asked this a few times, and it is an open-ended
question, Mr. McGuire. In your statement you said, "My professional life
involves designing and evaluating risk-based anti-money laundering programs
for all sectors and sizes of reporting entities, and it has since my time as
an intelligence analyst with FINTRAC in 2004.
Thinking of how some of the criminal element could think, Senator
Massicotte has asked this before, but, to open it up, give us some feedback
on how you see perspective opportunities for the criminal element. We have
asked that question a few times, and we have never had anyone give us too
much feedback on that.
Mr. McGuire: Thank you for your question. Just to clarify, is what
vulnerabilities there are today and how money is being laundered essentially
the core of question?
The Acting Chair: Yes.
Mr. McGuire: It is a wonderful question, and one that has not had
enough empirical research done on it, in my view. Based on the analysis that
we have done, with reporting entities, of suspicious transaction reports,
suspicious transaction reports are largely, in this country, driven by cash
being deposited into financial institutions. There are so many other ways
that are common. We have a real issue with bulk cash smuggling in our
country, smuggling cash from across the border or across water into
jurisdictions where it is easier to deposit cash without scrutiny, and then,
for instance, wiring it back or sending the value back into Canada. A number
of studies have also supported the fact that trade-based money laundering
has been used to launder money in Canada — selling goods across the border
at artificially inflated or deflated values in order to transfer value.
These are a few examples of what seems to be occurring at the moment.
With MNP, we have a cross-country risk tour where we bring together
financial institutions and law enforcement to talk about what they see in
their areas and what the level of sophistication is of the schemes being
seen by law enforcement. The response that we continually get is that it is
not as complicated or sophisticated as you might expect. People are
following very basic schemes in Canada to be able to launder money.
Senator Tkachuk: Mr. Simonsen, what does a real estate agent have
to report —every sale over $10,000? What does a real estate agent have to
report to FINTRAC?
Mr. Simonsen: The $10,000 threshold is dealing with cash, so it is
not that they are having to report every real estate transaction that occurs
but only ones that have that involved in the transaction, which are very,
Senator Tkachuk: If I am selling a house and some guy gives me a
briefcase full of cash, it will be caught up in the bank when I deposit it
because it would be a rare thing that I would deposit that amount of cash
into a bank account. On the private end, I would think that would solve part
of the problem. Once the seller gets the cash, he has to deal with it
somehow, and the only way to deal with it is to deposit it in the Bank.
Therefore, in the end, it would be reported to FINTRAC. Do you want to add
something to that?
Mr. Salvatore: Could I expand a bit? The large cash transaction is
for anything above $10,000, but any time a realtor receives funds, they have
to fill out a receipt-of-funds report. Before a transaction, they would also
have to ID their client, so those are some of the record-keeping
requirements currently required under the FINTRAC regime.
Senator Tkachuk: The client is identified anyway. Someone has to
buy the place. Someone has to register a deed. Someone has to take
possession. In the end, whoever buys it would be identified in some way or
Mr. Salvatore: Under the current regime, realtors would have to
identify their clients.
Senator Tkachuk: Right. That would make sense. How many
transactions, on average, would a realtor have to reveal to FINTRAC? There
would be very few, I would think, where cash would be king.
Mr. Simonsen: In terms of the overall reporting of any suspicious
transactions or others that would go to FINTRAC, obviously you would have to
confirm with FINTRAC, but our understanding is that there are very, very
few. It would be a handful.
Senator Ringuette: I have one question for Mr. McGuire to start
with. Do chartered accountants have fiduciary responsibility or activities?
Mr. McGuire: That is to say, are there standards that are imposed
on us as a profession?
Senator Ringuette: Yes.
Mr. McGuire: We have provincial institutes that, first of all,
govern us from a perspective of things like specifying that we cannot
associate ourselves with false or misleading information or do things that
would bring disrepute to the profession. Furthermore, we have a significant
volume of accounting and auditing standards. There are also a hefty number
of standards in situations where we have to deal with reporting if we
observe illegal activity, by way of example.
Senator Ringuette: Of the gambit of activities that chartered
accountants would enter into, would fiduciary activities, on behalf of a
client, be part of that?
Mr. McGuire: I am sorry; I misunderstood the question, senator.
Senator Ringuette: Maybe my question was not clear.
Mr. McGuire: My answer to the question that you did not ask was
very good. In terms of, for instance, a trust, a chartered accountant, in
some situations, would be called on to operate a trust, yes.
Senator Ringuette: Just like lawyers, you would, as a
professional, administer a trust fund on behalf of a client?
Mr. McGuire: Certainly, but without the benefit of privilege. Yes.
Senator Ringuette: As far as you know, what would be, in the last
year or two years, the suspicious transactions that would have been reported
to FINTRAC from your membership?
Mr. McGuire: We do not have that information. I am not sure how we
would obtain it.
Senator Ringuette: It is on an individual basis, I guess. You
yourself monitor the screening process and the education process for your
Mr. McGuire: I see what you mean. The CICA has an educational
component, senator. They are advised that in those situations where they are
in public accounting and receiving or paying funds on behalf of a client or
giving instructions to do those things, those are covered by the act and
they have responsibilities around it.
Senator Ringuette: Mr. Simonsen, as far as you know, would your
association would deal with about 80 per cent of real estate transactions,
90 per cent, 95? What is the percentage of real estate transactions that
your membership does in a given year?
Mr. Simonsen: I cannot tell you what the overall percentage would
be. I can tell you the total number of transactions that occur through
multiple listing systems across the country. In the last few years, it has
been around the 400,000 mark.
Senator Ringuette: How many transactions would sales by owners
have in a given year?
Mr. Simonsen: Again, we do not have statistics on the number of
for sale by owners.
Senator Ringuette: Out of those 400,000, how many would be of a
Mr. Simonsen: Again, that would be a statistic we would have to
get back to you. I do not know from our multiple listing service as to what
the exact number would be.
Senator Ringuette: I want to go back to Senator Tkachuk's question
because that is an issue we are trying to understand. No different from any
other Canadian, we certainly hear of money laundering happening in the
purchasing of apartment buildings or the building of apartment buildings or
condos and then being rented or sold and so forth. Would you know if any of
your members have reported to FINTRAC such activity?
Mr. Simonsen: Again, our understanding is that it is a small
number. I think our concern is to ensure that it covers all types of
transactions, that it is not just realtors but also companies engaged in
for-sale-by-owner business, that it also captures that as well. That is a
loophole that exists, because they are not required to report under the
Senator Ringuette: A rural property in New Brunswick that is sold
for $60,000 by an owner would be an interesting venue for money laundering.
In your experience, and in the experience of your membership, there must be
some triggers that would put a question mark on a certain transaction. What
are the triggers within your association that your membership would be using
to provide suspicious transaction information to FINTRAC?
Mr. Simonsen: That is the sort of information that is covered off
in education training materials that we provide to our members across the
country and which is obviously in accord with the FINTRAC regulations that
specify the kinds of things they should be looking out for. We have provided
a very extensive education support to our members so that they have
awareness of the kinds of things they should be looking for that comply with
and that are related to money laundering.
Senator Ringuette: Give us an example of what you would provide in
that education kit to your membership.
Mr. Simonsen: I could turn to my resident expert.
Mr. Salvatore: If it is okay with the committee, is it possible
for us to get back to you with that information? We do have a guide that we
provide to our membership. FINTRAC I also understand has information on its
website, which we provide to our membership.
I want to clarify that CREA provides education on this, but we do not
have a mechanism internally because we are not a reporting entity. Our
members are reporting entities. We do not track the suspicious transaction
reports. We do not track that type of information.
Senator Ringuette: For instance, when you have membership meetings
and so forth, I guess the issue of money laundering and terrorist financing
would be discussed among your membership. I am supposing, just like in any
other group, that you would have some, "Oh, did you hear?''
We are trying to get a pulse on the reality out there so that the
legislation we are reviewing can address this.
The Acting Chair: If you could get back to us with some
information, that would be helpful.
Senator Maltais: I have a question for Mr. McGuire. Regarding
bankruptcy, you play two very specific roles. First, as an accountant, you
can be a trustee in bankruptcy, and second, you can also act as a receiver
or a monitor in an insolvency context, and be the depositary of the assets
of the bankrupted entity. Is that correct?
Mr. McGuire: That is correct.
Senator Maltais: Can the same person play both roles?
Mr. McGuire: No, not simultaneously.
Senator Maltais: I imagine that you, as a trustee and an
accountant governed by your professional order, must inform the proper
authorities when you realize that a false bankruptcy has taken place. Is
this what you do as a trustee, that is, inform the RCMP or another security
Mr. McGuire: Thank you for your question.
Yes, it is the duty of the receiver or trustee to inform the court, so it
is a very public process that would likely lead to law enforcement
Senator Maltais: The second part of your recommendation relates to
separating the role of receiver-manager from that of the asset comptroller.
Is there a specific reason for that?
Mr. McGuire: The reason is that in both of those cases there is
oversight by the court; it is a court order that is being fulfilled by a
court officer. To contrast with the other activities that are covered, in
each of those instances the accountant is acting on the instructions of a
client. That is the risk that the Financial Action Task Force has identified
in their last paper on the risk-based approach as being germane to
accountants; when a client is telling us what to do in terms of receiving or
paying funds or buying or selling assets, that is where the risk lies. In
this case, the client is not pulling the strings; the duty is to the court
as a court officer.
Senator Maltais: When, as an accountant and trustee, you realize
that goods were acquired fraudulently or improperly, and you transfer them
to another accountant who is in charge of monitoring them, can you tell us
how the legal system disposes of these goods, for which, for all intents and
purposes, you are still responsible?
Mr. McGuire: That is a wonderful question to which I do not have
an answer, senator. I am not sure. I would be happy to have an undertaking
Senator Massicotte: Thank you for being with us today. It has been
Maybe I will start on the real estate side. I heard your presentation and
read it. What you are saying is that we are not heavily involved in this
sector, and what FINTRAC is demanding is very burdensome. Yet, I am sure if
you have followed some of our other witnesses, every time we ask an expert
witnesses where the cash is going, real estate is often mentioned, along
with car dealerships, money exchanges and so on. In fact, by coincidence
this morning in La Presse, we understand that the son-in-law of the
ousted Tunisian president owns significant property in Old Montreal.
Obviously, the cash is coming in and the international community has been
alerted to that cash, but the cash is coming in nonetheless. How do we
rectify the problem? It is significant cash. How do we get there? Everyone
says it is too burdensome, but there are still significant loopholes
occurring, particularly in real estate. How do we get there and contravene
Mr. Simonsen: I think we have identified one area, recognizing
that our members are covered. It should be comprehensive to treat all of
those involved in real estate transactions such that they are subject to the
Senator Massicotte: Direct sales by the vendor or buyer.
Mr. Simonsen: It is not necessarily just direct sales. It is by
those companies that are assisting.
Senator Massicotte: I have been in the real estate sector for a
couple of decades now, and there are an infinite minority of transactions.
In fact, the Tunisian son-in-law did not use a broker. It could be a real
problem, but brokers are still heavily involved in many of those
transactions. Maybe there are some less honest than others, but there are
significant dollar sums involved. Everyone says it is burdensome and
complicated and maybe they are not adequately informed, but there is
obviously a problem. What do we do, raise up our hands and say we cannot get
there? It is still happening.
Mr. Simonsen: I think part of what we are saying is ensure that it
is simple and focused. It is reflective of the fact that we have probably
around 9,000 broker offices across the country. They are small business
people. Many of them, most of them are in fact a handful of folks working in
Some of the requirements are ones that apply universally, whether it is
extensive, large banking institutions, as I have referred to, who have legal
counsel on staff and folks who can assist in the interpretation and the
application of it. Our members do not have that kind of expertise, resources
and capacity, so it is a challenge.
Senator Massicotte: One of the witnesses we had yesterday used the
same argument in saying most of their customers are client-based and do not
do transactions as they are burdensome. They suggested they would be
prepared to sign a document. For instance, brokers would sign something
saying, "We will never deal in a transaction with cash less than $10,000, we
are totally disqualified, we do not want to take up the program, and if we
do, it is criminal activity.'' Would you agree with that also? Those who do
should take measures to ensure they properly identify their client base and
do the risk-based analysis and so on?
Mr. Simonsen: Going back to when the legislation was initially put
in place and the threshold of $10,000 was identified, the number of cash
transactions that take place where a realtor is involved is incredibly rare.
Senator Massicotte: Maybe they should not be allowed to do so,
period. Those who do, which are probably more commercial, should have to
take on the obligation as opposed to applying it to all of your members.
Would that be an acceptable solution?
Mr. Simonsen: We would have to consult with our members on that.
Senator Massicotte: Internationally you said that is a problem
because obviously these people are, by definition, not in this country, so
how do you identify them? What do banks do? They have the same obligation to
identify their client base. What do they do when dealing with an offshore
client? How do they get around that issue?
Mr. Salvatore: Unfortunately, I do not know. We are saying that
identification should still occur but that the non- face-to-face
verification method should be allowed. We totally understand the need for
countermeasures; we are supportive of that. We just ask that with respect to
the non-face-to-face verification methods, that it is practical.
Senator Massicotte: That is the same for the banks, I presume?
Mr. Salvatore: I honestly do not know how banks operate in that
Senator Massicotte: Mr. McGuire, you are experienced and actually
head up the money laundering division in your company. You mentioned three
examples earlier of how money laundering is still occurring, basically by
trade and bulk cash being transferred across the borders. What should we be
doing that we are not doing to counter those measures?
Mr. McGuire: In terms of bulk cash smuggling, it is either
scrutiny at the border, which is in place now, or scrutiny to the
transactions that are re-entering the country. At the moment, there is no
guidance on which countries pose a greater money laundering risk as
transitory countries, for instance, or the source of criminal proceeds into
Canada from the government. If, for instance, financial institutions were
given a list of such countries and have them subjected to more scrutiny, I
think that would assist.
The second part of that due diligence is really comparing those
transactions to the documentation that supports them to assess the
Senator Massicotte: With respect to bulk cash, if I understand
your point, someone comes in with a bag of cash; I assume he will look for a
place to deposit it or wash it somehow, right? If he deposits it at the
financial institution, he gets caught and immediately has a record. If he
deposits it with a real estate broker, he gets caught. What does he do with
Mr. McGuire: Either it is smuggled outside of Canada to countries
where it is easier to place that cash or, alternatively, he buys assets that
are easily transportable here and takes them across the border. Still
unregulated are other dealers in high-value goods, such as auction houses,
car dealers, boat dealers.
If I might respond to your earlier question to my friends here, generally
when banks are dealing with identifying overseas customers, they use the
provisions of the act that allow an agent to identify on your behalf. The
act provides that you can enter into a one-time agreement with someone
overseas, to identify someone on your behalf in a face-to- face manner.
Senator Massicotte: Could that apply to real estate brokers? Do
Mr. McGuire: It does.
The Acting Chair: Mr. Simonsen, before we wrap up, with respect to
the level of awareness of your members, small business people, I think most
of us understand the difference between small and bigger businesses and the
complexity that bigger operations have in terms of compliance, especially
with the banks and financial institutions within the legislation.
How aware are your members? Is this an issue? There is a cost-benefit
analysis we do in business. How aware are your members and what is their
sense about this legislation?
Mr. Simonsen: Let me address the awareness issue first. As a
national organization, we have about 100 plus boards and association across
the country. It has been an area we have been extensively involved with in
terms of preparing customized education materials for realtors as well as
brokers. We are also working with our boards and associations to create some
customized materials for brokers across the country.
There is a high level of awareness within organized real estate. It is a
challenge, admittedly, with 9,000 or so offices and 104,000 individual
entrepreneurs, many of whom are in effect operating as though they are their
own business within a brokerage.
The response from our members, from the introduction to the proposed
amendments put forward now, is that it is cumbersome, not responsive and
one-size-fits-all. It is not responsive to looking at the types of
industries and individuals affected and their capacity and capability for
dealing with some of the suggested changes.
As well, the track record that we know is that very few reports are
coming in. Does that reflect that they are not happening or that the
regulations have become so problematic that it is difficult for people to
report? I am not sure, but certainly we know the reaction from our members
and we have seen some of the proposed changes. The things to be contemplated
are incredibly problematic. Flying to another country or having a client or
customer come to Canada in order to be identified is unrealistic in terms of
independent, small-business people. Those sorts of proposed changes are
hugely problematic for our members.
Senator Massicotte: If I am a member of the association and just
the little guy, it is not my problem because I am not going to do a
transaction of $10,000 in cash with a non-resident. I suspect that if 99 per
cent of your members said that, it would be not be a problem. Is that not
Mr. Simonsen: No. Let me address the issue about the amount of
cash. I would strongly emphasize that the number of transactions involving
cash is very small.
Senator Massicotte: That is what I mean. If I am not going to do
any transactions, why would I worry about the legislation?
Mr. Simonsen: The issue is the identification of clients.
Increasingly across the country, we are getting much more involved in the
international arena. We are seeing that from our members. We support
training programs to show international opportunities that exist for them
within the real estate sector. It is a growing sector and will not diminish;
it will increase. That kind of requirement, if anything, will become more
problematic rather than less.
Senator Ringuette: Maybe I am wrong, but I understood that in
order to acquire and register real estate, one needed a lawyer. Therefore,
the international entity ID could be and should be available through the
lawyer residing in Canada who represents that entity. Am I wrong?
Mr. Simonsen: Lawyers are exempt from the regulations with
Senator Ringuette: I get the picture; thank you.
Senator Tkachuk: Mr. Simonsen, if you do not have face-to-face
identification, I can understand the problems with that. What other
suggestion would you have for identification? We still have to do the
identification, which you are not denying. You are just saying, "Let us not
do it face-to-face because it is a problem.''
Mr. Simonsen: Correct.
Senator Tkachuk: How else could you do it?
Mr. Simonsen: In the existing regulations, as my colleague
identified, there are "mandatories'' that you can use in other jurisdictions
to identify. We suggest not changing that.
Senator Tkachuk: You could use a scanned passport with its
picture. You should be able to identify some person who is buying a piece of
property. Mr. McGuire, do you have a comment?
Mr. McGuire: The confusion is happening around what regime
currently exists and what is being proposed in the proposal being rallied
Senator Tkachuk: I am not confused. I want to know how else you
could it other than the way we have. Instead of face-to-face, how else could
you identify the client?
Mr. McGuire: Other industries rely on combinations of information,
for example a passport, with good procedures in place to identify a fake
passport, and attestations by guarantors who are of certain professions —
these sorts of scenarios.
Senator Tkachuk: It could be a lawyer or a banker.
Senator Massicotte: On the identification of a resident, does the
$10,000 apply or must you identify every client, even for $50.
Mr. Simonsen: The requirement is to have identification for every
Senator Massicotte: Identification means what? You have his name
and his civic address.
Mr. Simonsen: There is a list of pertinent kinds of documents that
can be used to validate that, and the broker agent is required to keep those
The Acting Chair: Thank you very much, gentlemen, for your
participation with us today. It was very informative and hopefully we
covered some issues that are important to you. We have your submissions but
if you have a précis in terms of bullet points or notes that you want to
send to the clerk on final recommendations, we would appreciate that