Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 24 - Evidence - October 17, 2012
OTTAWA, Wednesday, October 17, 2012
The Standing Senate Committee on Banking, Trade and Commerce met this day at 4:15 p.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 Irving Gerstein (Chair) in the chair.
[English]
The Chair: This afternoon, we continue the five-year parliamentary review of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. This is our nineteenth 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. Also, our committee has been hearing from those familiar with and impacted by the regime, including industry groups and associations.
This afternoon, we are delighted to welcome Chris Chandler, President of the Canadian Bank Machine Association, the CBMA. This association represents the non-bank ATMs throughout Canada.
We have scheduled an hour for this portion of our meeting. Mr. Chandler will make an opening statement, which will be followed by questions. At the end of the hour, there will be an in camera meeting to discuss future business.
With that, Mr. Chandler, the floor is yours.
Chris Chandler, President, Canadian Bank Machine Association: Thank you for the invitation to appear before the committee. I am President of the Canadian Bank Machine Association and also a director of the ATM Industry Association. I will provide you today with an overview of our business and the services that we provide to Canadians.
We also welcome the opportunity to offer our perspective on current money laundering regulations, including the new regulations for non-bank ATMs that were enacted after the 2008 FATF report.
The CBMA represents the four largest non-bank ATM or ABM service providers in Canada. We have operations from coast to coast. We operate in more than 1,500 rural and urban centres. We are in small towns and large cities; we are in airports and in your local convenience stores. We provide consumers with convenient, secure access to their currency, often in locations where they have been underserved by their banks.
The ATMIA, to which I belong, is a global non-profit trade association, with over 3,500 members in 60 countries. This organization promotes ATM best practices and security. I sit on the ATMIA Canada Board of Directors, and I am also a member of the ATMIA Global Board of Directors.
As of December 31, CBMA members operated approximately 15,000 ABMs, or 26 per cent of all ABMs in Canada. These ABMs conducted 33 per cent of all Interac ABM cash withdrawal transactions during the year. There are approximately 60,000 ABMs in Canada, two thirds of which are non-bank ABMs. CBMA members are compliant with all applicable anti-money laundering regulations in Canada.
Canadian ABM access is considered to be one of the most convenient, efficient, safe and competitive in the world. With two thirds of the ABMs, the non-bank ABM industry clearly contributes to this success. Canadian citizens take advantage of the greater access to ABMs provided by the non-bank ABM industry.
The Bank of Canada recently released a discussion paper, their 2009 Methods-of-Payment survey, where they stated that the most popular way for Canadians to access cash is through ABMs. They further said that Canadians take cash out of ABMs on average once a week.
For small businesses and merchants that have ABMs in their store or bar or location, non-bank ABMs can provide for increased customer traffic in the store, increased sales and an additional source of revenue through fees charged for the ABM services. In addition to these cardholder benefits and merchant benefits, transaction processors, independent sales organization, service companies, paper providers, ABM manufacturers, armoured carriers and telecommunications companies all benefit from the business activities of the non-bank ABM sector.
For Canadian banks and debit card issuers, our ABM networks allow their cardholders broad and convenient access to their accounts across the country. Non-bank ABMs have extended the reach of the Interac system across Canada in a highly competitive and cost-effective way.
The non-bank ABM industry continues to mature and evolve. Each CBMA member is a financially strong business with professional management. The Canadian payments landscape continues to undergo change with the emergence of alternative payment technologies and new challenges with the emergence of mobile payments. The government has begun consultations to add mobile payments to the Code of Conduct for the Credit and Debit Card Industry. However, throughout all of this change, cash continues to be a valuable and important component of the payments system.
Canadian consumers can be confident that their use of non-bank ABMs is safe and secure. ABMs follow stringent reporting methods and create, generate and retain detailed records of the flow of funds from each and every ABM. All non-bank ABMs deposit their funds into Canadian bank accounts. Every dollar that passes through an ABM is easily traced and tracked with the records being held by a Qualified Members of Interac, who are almost certainly also an independent third parties from the ABM cash owners. In addition, every ABM cash owner must provide customer due diligence information before activating the related ABM, and they must sign a contract stating that they will comply with Interac regulations, which include anti-money laundering regulations. For high-risk ABM cash owners, these cash owners must also provide compliant criminal background checks to qualify for the operation of an ABM.
The CBMA has been and continues to be very supportive of the government's efforts around anti-money laundering. In February 2008, the Financial Action Task Force report, Anti-Money Laundering and Combating the Financing of Terrorism in Canada, included a reference to the non-bank ABM industry. The report identified that there were no specific AML regulations documented for the non-bank ABMs and indicated that there should be. While the third party recordkeeping and the maintained detailed funds flow is a significant deterrent to any criminal trying to deposit criminal funds via an ATM, the industry embraced the opportunity to join the Department of Finance task force and help to lead the development of new AML regulations for non-bank ABMs to further mitigate any risk of money laundering.
In 2009, CBMA and ATM Industry Association members worked closely with the Department of Finance, Interac, the RCMP, the Sûreté du Quebec, the Ontario Provincial Police, Visa, MasterCard, AMEX and FINTRAC collectively in a task force to create and implement anti-money laundering regulations for non-bank ATMs and their cash owners. The result was Interac Security Regulation SCD8 that specifically addresses customer due diligence requirements, source of funds declarations, criminal background checks for high-risk cash owners, and annual audits to ensure compliance. These new regulations have been fully executed.
The CBMA has most recently participated in the 2011 Department of Finance consultation reviewing the anti- money laundering and anti-terrorist financing regime. I note that our sector was not identified as an area of concern within that departmental consultation paper.
We read with interest the response by the Minister of Justice on the report of the Standing Committee on Justice and Human Rights on the state of organized crime. We were pleased by the minister's stated goal of continuing to work to combat money laundering. The CBMA does not support, however, the standing committee's recommendation that would require companies operating private or non-bank ATMs to report cash transactions of $7,500 or more to FINTRAC.
The standing committee began their study in 2009 and concluded their report in 2012. The final report does not appear to reflect knowledge or understanding of the ABM/AML regulations that are in force today. The non-bank ABM/AML regulations were developed through a year-long process that included FINTRAC. The Finance Department confirmed that these AML regulations satisfied the issues raised in the 2008 FATF report. While we likely need to do a better job of informing lawmakers and other relevant regulators that these regulations exist and are in full force and effect, we do not believe that any additional regulations are required.
Mr. Chair, when the minister's response to the report was published, I was called by a reporter who asked me about the need to better regulate non-bank ABMs and, in particular, to scrutinize cash owners. I said to him that any criminal looking to put proceeds of crime into an ABM should think twice because there is extensive third party documentation related to those cash flows and the Canadian bank account that they are deposited into.
Thank you for the invitation to appear. I appreciate the opportunity to share with you this information about the non-bank ABM industry, and I welcome any questions you may have.
The Chair: Thank you for your presentation today. I will start by referring to prepaid and disposable credit cards. They can be found in many retail outlets and bought for a fixed amount; and some are reloadable. As I understand it, you can assign a PIN to these cards and use them at an automatic teller.
Recently we heard about a case in Halifax in which a naval espionage case took place. It came out that the lieutenant was being paid by the Russians with this type of card. Can you explain to the committee how this fits into the whole question of how it varies when using one of your machines versus a bank debit card? Perhaps you could expand on the whole area of prepaid and disposable credit cards.
Mr. Chandler: I can expand on that with respect to ATMs. Bank and non-bank ATMS operate on payment networks. In Canada, the primary network is Interac. We also accept international cards through MasterCard, Cirrus, Maestro, Visa/Plus, China Union Pay, and so on.
The non-bank or bank ATM is designed and functions by allowing a cardholder with a PIN to access cash that is in an account where the issuer of that card identifies that the cash is available for withdrawal. As an ATM operator, I really have no insight whatsoever into who set up the account on the back end and what their purpose would be. Our job is to accept the card. If they have the card and the PIN, we will communicate with the issuer — we know who that is — and provide the cash to that person. I do not think we would play a role in that type of criminal activity at all. It is really a matter of who is issuing that card and who is holding those accounts with the funds as a qualified financial institution in one of the payments networks.
The Chair: You are talking about money that is in an account. If someone shows up with a reloadable card they have bought at a retail outlet, this money is not in an account; it is in the card.
Mr. Chandler: No. Money is never in a card. If you put $100 on a prepaid card, that $100 is in an account somewhere. Someone has created an account associated with that prepaid card. When it is put in an ATM, it is withdrawing money from that account. That account would be either the merchant's account if they have set up a payment account like that, but more likely a bank or trust company account.
Senator Ringuette: I have to apologize; I was late for the start of your presentation and you may have answered these questions.
How many machines do you have in Canada?
Mr. Chandler: The four CBMA members have approximately 15,000 ABMs.
Senator Ringuette: You indicated to the previous questioner that you communicate with the issuer. Is that a bank within Canada or outside of Canada as well?
Mr. Chandler: Through international networks such as MasterCard, Cirrus, we can function within international accounts. There are two things to think about. The person withdrawing the money can be from anywhere in the world, so their bank account can be anywhere in the world. I also stated that with every ATM in Canada, with respect to the money inside the ATM, when those funds are withdrawn they are being electronically deposited into a Canadian bank account only. Do you understand the —
Senator Ringuette: Please continue.
Mr. Chandler: You cannot have an ATM and put money in an ATM. When a cardholder withdraws money, they receive cash. Wherever their bank account is, the cash is removed and is essentially deposited to the person who owns the cash in the ATM. If it is my bar and I have money in my cash register and I put money in my ATM, it is my company's money, so that money should go to my company's bank account. That company bank account must be a Canadian bank account; I cannot put money in my ATM and have it deposited into another country.
Senator Ringuette: I understand the process, but ultimately, if a person in Canada has an account in the Cayman Islands and a debit card from that account, they can go to your machine. Is that right?
Mr. Chandler: To my ABM?
Senator Ringuette: Yes.
Mr. Chandler: If they have an account in the Cayman Islands with a bank that, in this case, is certified by MasterCard or Visa and has gone through the MasterCard or Visa due diligence process to be certified on their network, then, yes, they can use our ABMs to withdraw cash.
Senator Ringuette: You say that you are a non-bank operation. Who owns those 15,000 machines? I understand you are an association, but who are the members?
Mr. Chandler: The CBMA is made up of four large ATM operators: Access Cash, which is my company; DirectCash; Frisco Bay ATMs; and Threshold Financial.
Senator Ringuette: Who owns those companies?
Mr. Chandler: My company is owned by Morgan Stanley Global Private Equity; DirectCash is on the Toronto Stock Exchange; Frisco Bay is owned by Stanley Works, which is a large multinational company in the United States; and Threshold is owned by Brink's.
Senator Ringuette: The multinational company in the United States, what is their raison d'être?
Mr. Chandler: I am not an expert on Stanley, but I understand they have two large business units. One is security. Stanley Security does alarm systems. They also do the garage door openers that you may have. They own Black & Decker tools. It is a very large business.
Senator Ringuette: You have absolutely no agreement with Canadian banks.
Mr. Chandler: I did not say that.
Senator Ringuette: No? How do you enter into an agreement with Canadian banks? What would be the purpose here?
Mr. Chandler: For example, speaking for my company, we have an agreement with the Bank of Montreal where we are in partnership with them and we are now deploying Bank of Montreal ATMs. The vast majority of my ATMs are non-bank or private ATMs, but I also have hundreds of Bank of Montreal ATMs that I operate and are free to Bank of Montreal customers.
Senator Ringuette: There is a portion of ATM bank machines that you operate?
Mr. Chandler: Yes.
Senator Ringuette: Are any of the other three partners in the same situation as you with the banks?
Mr. Chandler: Again, I am no expert on their specific businesses, but I believe DirectCash operates machines for their sister company called DirectCash Bank, which is a Schedule II bank in Canada. I believe Frisco Bay has a relationship with Scotiabank where they are servicing some machines for the Bank of Nova Scotia. Threshold, I believe, has relationships with a number of credit unions in Canada, but you would have to ask them directly to verify that.
Senator Ringuette: Coming back to your specific situation — and I am sorry but you are the one here to answer questions — and your partnership with the Bank of Montreal, would that include reporting with regard to money laundering potential and the requirements from the regime?
Mr. Chandler: Yes, of course.
Senator Ringuette: Could you give us examples of when and how that would occur?
Mr. Chandler: Any ATMs that I have deployed are in compliance with the AML regulations related to the ATMs in the marketplace.
Senator Ringuette: Who does the reporting? Do you do the reporting or does the Bank of Montreal do the reporting?
Mr. Chandler: We do the reporting and we work with the bank to make sure they are also satisfied with it.
Senator Ringuette: How can you report when your customer, in reality, is anonymous?
Mr. Chandler: I am sorry?
Senator Ringuette: Part of the reporting requires that you provide client information, or at that you at least have client information. How can you comply if you do not know who the client is?
Mr. Chandler: We always know who the client is.
Senator Ringuette: You always know? How do you do that with a card?
Mr. Chandler: I think we are confusing the cardholder who is withdrawing money from the bank, who we do not know. The AML regulations for non-bank ATMs are focused specifically on the domain that is somewhat in the control of the ATM operators and Interac, and that is who owns the money inside the ATMs. That is the relevant question and the relevant portion regulated by the AML regulations. That is the risk area and that can be controlled.
Senator Greene: I just have one question. It is basically a follow-up to the line of questioning from Senator Ringuette.
Are your reporting arrangements and requirements through FINTRAC different for the Bank of Montreal ATMs that you operate and the non-bank ATMs that you operate?
Mr. Chandler: Yes, there are contractual differences.
Senator Greene: What practical differences are there?
Mr. Chandler: I cannot disclose the differences, but the white label ATMs are all being regulated by the Interac regulations that we have today, and the bank ATMs are at a higher standard than that.
Senator Greene: What does that mean in terms of money laundering?
Mr. Chandler: I do not believe that it means anything. We are focused on cash owners, and the standard that is used for the white label ATM is the standard that all the ATMs that we operate meet. The primary difference with the Bank of Montreal is that we have someone other than Interac also looking at it because they are putting their brand on those machines. They are looking at it at the exact same level as Interac looks at it. It is just another set of eyes.
Senator Greene: Is it a more secure set of eyes?
Mr. Chandler: No, it is the same.
The Chair: Let me understand, Mr. Chandler. Can you not take cash, deposit that into an ATM machine and buy a prepaid credit card?
Mr. Chandler: No.
The Chair: You cannot?
Mr. Chandler: You cannot.
The Chair: You cannot go into a retail store and buy a loaded card by depositing cash?
Mr. Chandler: Into an ATM?
The Chair: You deposit the cash into the machine to buy the loaded card, and then you take the loaded card and go to the ATM.
Mr. Chandler: I have done a lot of investigation into and discussion of the concept of money laundering at ATMs. We are quite confident that there is an extremely low risk of people using white label ATMs for money laundering. We do, however, continue to hear that law enforcement has identified ABMs as a source of money laundering.
Those two things sound contradictory, so we continued to dig into that. We have become aware of a supposed study by the FBI in New York that has identified ABM use by criminals. When you really look below that headline, which sounds very sensational, you find that it is in two ways. The first way in which that study apparently documented criminal use of ABMs was along the lines that you are talking about. It describes situations where smaller criminals on the street were using ABM cards to deposit money, presumably from the sale of goods, into bank accounts essentially anonymously. They were depositing through ABMs, and that was contributing to criminal money laundering.
I have no reason to believe that that is not happening. However, none of the CBMA or ATMIA ABMs in Canada and, to my knowledge, none of the white label ATMs in Canada accept deposits. It is impossible for anyone to go to a non-bank ABM and make such a deposit. They do not accept deposits. They only dispense cash.
One of the big perception gaps is due to this documentation from the FBI that I know the RCMP and others have that says that criminals are using ABMs for money laundering. That is the first example I got, and immediately people think that that means that non-bank ABMs are being used that way. They physically cannot be. It is impossible. I think that is an answer to your question.
Senator Campbell: Can you tell me how many times, to your knowledge, an ATM has ever been used as described in the myth scenario here?
Mr. Chandler: To my knowledge, no one has ever been charged with or convicted of doing that.
Senator Campbell: Has it happened?
Mr. Chandler: I do not believe so.
Senator Campbell: Is there really an issue here?
Mr. Chandler: There is a perception. I have spoken to a number of law enforcement officers who, at first blush, will describe that myth and say, "I know this happened." I say, "Wow, I will finally hear of one instance." Then sit down and walk through it, and it turns out that the story was that they were investigating a criminal for something else and that he also owned a bar that had an ATM. Was he using it for money laundering? "Oh, I do not know; I always assumed he did." All the stories ended up with "I assumed he did," but there was never anybody who said, "Yes, we have evidence of that."
Senator Campbell: I have to apologize to you because I once wrote a script for Da Vinci's Inquest where we did exactly that.
Mr. Chandler: I saw that episode, and I was quite upset, actually.
Senator Campbell: Maybe I am helping to get that going.
How might these machines be used? Could they be used to launder money outside of the scenario of owning the bar, having cash and wanting to get rid of it? Are there any other scenarios where you could use the machine to launder money?
Mr. Chandler: The only other one is the second scenario described to me as being part of this FBI study. I do not believe anyone operating an ATM has control over it. Criminals have money in a bank account. They got the money in there somehow. Other criminals are accessing that bank account, often in a different country — Mexico, Colombia, wherever — and are withdrawing funds from that account from ABMs in that country. That was the second scenario that was described to me.
Senator Campbell: That is not laundering; it is transferring.
Mr. Chandler: It is using an ATM as a tool to facilitate the money laundering but is actually not part of the money laundering. It is part of the brush that is painting ABMs as being used by criminals. That is how it was described to me.
Senator Campbell: I am a little concerned when somebody says "higher standard," and I would like to know why the banks would have a higher standard of reporting. Is that correct?
Mr. Chandler: I do not think that they do, and I may have misspoken. The regulations that we drafted in conjunction with the payment associations, Finance, FINTRAC and so on not only have customer due diligence that meets or exceeds what you need to open a new bank account, but we also added to that a risk threshold for high-risk where we get criminal checks and verify it against a list of crimes provided to us by the RCMP. That high-risk definition has a threshold of $5,000, not the $10,000 used in reporting in banks. I think I would have misspoken earlier because we were looking throughout to meet or exceed the levels that you would find in opening a bank account.
Senator Tkachuk: How much can you take out at one time? Is it $400?
Mr. Chandler: That is the typical maximum. You can have a higher limit if it is set up that way, but the typical maximum is $400.
Senator Tkachuk: Can you go to an ATM every hour and withdraw $400?
Mr. Chandler: There are two different restrictions. There is a restriction set at the ATM that is typically $400; then there is a restriction set by your card issuer. Your bank may say that you can withdraw $2,000 per day and that I am not as good a credit risk and can only withdraw $500 per day. We have nothing to do with that limit. If you had a $2,000 limit, you could go five times and take out $400, and I could go once and take out $400 and once and take out $100.
Senator Tkachuk: If I were taking that $2,000 from Colombia you would think that the bank would say, "I think something is going on here."
[Translation]
Senator Maltais: You may correct me if I am wrong, but most white label bank machines are in buildings and stores where there are no ATMs belonging to the main Canadian banks. Is there a special reason for this?
[English]
Mr. Chandler: I do not think that is necessarily correct. Non-bank ATMs are often found where there are no bank ATMs; but they are also found close to where there are bank ATMs. There are about 40,000 non-bank ATMs and 20,000 bank ATMs — the ratio is roughly 2:1. There is saturation in the cities. For example, in Ottawa at the Byward Market you will see bank ATMs and non-bank ATMs within feet of each other. The reality of the system and the competitiveness that Interac opened up is that it allowed non-bank ATMs to be cost-effective and economical in areas where the banks were not. We have actually increased consumer convenience and access to their cash in many locations that the banks were not servicing. However, it does not mean that we are not also operating very close to where the banks are operating.
[Translation]
Senator Maltais: You said a while ago that your institution was affiliated with the international network CIRRUS. Here is an example: I am a bad guy, I am in Europe and somebody could have deposited money in an account in Canada. What is the maximum amount of cash I can withdraw in Europe?
[English]
Mr. Chandler: I have no idea. That is set by the Cirrus network owned by MasterCard and/or the operator of the ATM in Europe.
[Translation]
Senator Maltais: Then your businesses help transfer money on behalf of a customer or a bank? You are an intermediary?
[English]
Mr. Chandler: We are an intermediary with clear visibility to one side of the transaction.
[Translation]
Senator Maltais: What fee do you charge the customer who withdraws $1,000?
[English]
Mr. Chandler: The limit is typically $400.
[Translation]
Senator Maltais: For $400 then, how much do you charge?
[English]
Mr. Chandler: I believe that the average rate within all of the ATMs of CBMA members is something like $1.75 per withdrawal. I do not have the exact number.
[Translation]
Senator Maltais: For withdrawals of $400?
[English]
Mr. Chandler: It is for any amount from $20 to $400.
Senator Massicotte: Mr. Chandler, we appreciate your argument about why in your case money laundering could not happen. You represent four reasonably large companies and approximately one third of all transactions. The financial institutions represent another third. Is that correct?
Mr. Chandler: They are about 40 per cent of the Interac ABM transactions.
Senator Massicotte: The other 30 per cent, I presume, comprises many owners of ATMs. Is that the case? How many owners would there be?
Mr. Chandler: We estimate that there are between 100 and 120 smaller ATM operators. The comfort for those operators comes from the fact that each of them can only access the Interac or Cirrus network by contracting with a member of Interac. They cannot get directly into the Interac network without being connected to a member of the Interac network; and those members are responsible for ensuring that the smaller operators comply.
My understanding is that all of those members and every ATM today are in compliance with the Interac anti-money laundering regulations.
Senator Massicotte: Where is the issue? In 2007, FINTRAC raised an issue of concern. You are saying that since then, you sat down with the Department of Finance and came up with a different governance structure, which you describe in your submission. The House of Commons committee recently said that they have to bear down on your industry because there is still some risk. You are saying that they have it wrong and there is no risk. Does FINTRAC believe that you should be subject to greater regulation?
Mr. Chandler: I do not believe so. As far as I know, they never did think that — at least no one ever told me they did. It is my understanding that there has never been an issue with this and no one has been charged or convicted of money laundering through an ATM in Canada. The Financial Action Task Force noted that there were no documented rules saying that you should not or could not launder money through ATMs. The FATF is part of a G8 anti-terrorism and anti-money laundering effort. This has been driven out of that report. There was a 400-page report, I understand, of which half a page was dedicated to saying that there are no rules written down. They did not say there is money laundering going on.
Senator Massicotte: What year was that?
Mr. Chandler: It was 2007.
Senator Massicotte: That was before you sat down with the Department of Finance to develop the governance structure.
Mr. Chandler: It was the catalyst for this. Shortly after that report was released, we received a call from the Department of Finance. They said that this was a gap in the documentation identified by the Financial Action Task Force and that we should talk about it. They established a broad task force that included all of those groups I mentioned. We sat down and came to them essentially with the same myth and reality document that you see there, but people did not know. There is a real perception that this might be happening. In fact, people have made television programs about it, frustratingly so.
To be very candid, the first two meetings were pretty tense because all these groups of people had a preconceived notion that this was a real problem. After a couple of meetings and thorough explanations of how it works, the documentation, the tracking and how independent it is, people became relaxed about the concept. However, we still said that we need to document and have rules. The process continued to document and produce these rules; and it was a three-month piece.
Senator Massicotte: There must be some reason for some concern. I understand that Australia had a similar problem. They issued a report that they did have a problem. Are you saying that there is no relevancy to this concern?
Mr. Chandler: I can tell you only that I am not aware of anyone being charged or convicted. I am not saying that no one has tried it. I am not saying that no one has ever done it. I know that if a criminal is using an ATM for money laundering, it is a challenging place to do it because the minute they are investigated and the police access the records they have a lot of explaining to do. The documentation is clear, and there is no anonymity. You cannot hide the money, the time, the date or the amount. It is all crystal clear and we would know where the money went. I cannot tell you that no one is doing it, but I am telling you that I do not think it is a smart place to do it and that the RCMP who dealt with us agreed.
Senator Massicotte: The House of Commons committee recommended that any withdrawal in excess of $7,500 be reported by you. I gather you do not think it is necessary.
Mr. Chandler: I do not.
Senator Massicotte: Why would you object to it? Some banks allow withdrawals of as much as $5,000 a day, depending on the customer. I know your average is $400 a day. Very many ATMs allow that kind of withdrawal depending on the type of client. It can come up significantly. Why do you object to reporting, given that it never happens? What is so bothersome about reporting transactions in excess of $7,500?
Mr. Chandler: I am a pragmatic guy, so I do not believe in putting anything in place for something that will never happen.
Senator Massicotte: If you are pragmatic and it never occurs, why would you be concerned?
Mr. Chandler: I do not believe it is sensible. You cannot take $7,500 out of an ATM. If you want to put in a regulation that is impossible to achieve, then I would not stand in the way of it. However, I do not think it is very pragmatic.
Senator Massicotte: The other concern is the prepaid cards. Some countries are much less fussy and more flexible with respect to who they deal with. I will not name a country. You can choose different names. Let us say organized crime is working in different countries. We read the newspapers and that happens quite frequently. They make a deposit in a significant bank. It is deposited there, but they want to get into our country. What stops them from transferring those sums through existing ATMs, yours or the banks', in Canada?
Mr. Chandler: They cannot transfer money through the ATMs. What they can do is provide —
Senator Massicotte: They can use Interac or Cirrus, though?
Mr. Chandler: If they had a bank certified by Cirrus or Plus to issue cards to them, they could come to Canada and be able to withdraw $400 at a time in cash.
Senator Massicotte: Or $5,000, using my example.
Mr. Chandler: I do not know of any ATMs from which you can withdraw $5,000.
Senator Massicotte: I have.
Senator Moore: I want to follow on Senator Massicotte's questioning. We heard there are more than 60,000 ABMs across Canada and that 17,590 are bank-owned, which is about 29 per cent. I think you told Senator Ringuette that your association has 25 per cent, or 15,000 machines. That leaves 46 per cent owned by others, not the 30 per cent you indicated. You said that 46 per cent is owned by small operators. What rules do they operate under?
Mr. Chandler: As mentioned, any smaller operator that represents all of those ATMs all operate under the same Interac rules that we do. The only way they can connect to the Interac network and transactions is through a member of Interac. Those members of Interac are responsible to ensure compliance. In fact, the AML documentation, the customer due diligence, is actually stored at Interac.
There is no operator, big or small, that can say, "Yes, I have all my customers' AML documentation, trust me." You cannot do that. You must have it vetted by the Interac member, who is the processor, and then it is also posted at Interac. If you do not do that, they turn it off. You cannot be lying or hiding behind saying, "Yes, I have it." It is not possible.
Senator Moore: Senator Greene was asking about the reporting to FINTRAC. When do you report? If a member of your organization has a machine, do you report upon putting money into the machine? We put in $50,000 today. Do you report that to FINTRAC? What is reported? You cannot take out more than $400 a day or whatever the average is, so what is reported and when?
Mr. Chandler: Throughout the course of the one-year task force on this topic, it was determined that reporting to FINTRAC was not practical at that time and did not add value. Instead, we added a risk layer for getting criminal background checks on the cash owners and the ATMs.
Essentially, it is doing the work as though you had sent a report to FINTRAC, they identified that there may or may not be a problem and they asked for a criminal background check. We just jumped to that step. Let us cut all that out, and if you are considered to be a high-risk cash owner, you must provide a criminal background check. I think there were 15 crimes identified, and if you have any one of those, you cannot have an ATM. It is that simple.
Senator Moore: As a member of your organization, do you report to FINTRAC or the banks? Do they report to FINTRAC upon putting $10,000 or more into their machine?
Mr. Chandler: No.
Senator Moore: They do not?
Mr. Chandler: No. Why would they?
Senator Moore: Well, that is what we are here to find out. I am trying to figure out how we can make sure cash that might be proceeds of crime or whatever does not end up in a machine. You said you do a criminal check. Do you do that on all of the small operators?
Mr. Chandler: Yes, if the ATM is —
Senator Moore: Connected with Interac?
Mr. Chandler: Yes, which it has to be.
Senator Moore: In order to flow through the system.
Mr. Chandler: Correct. If it is not connected to Interac, then you put your card in and it does not work. You cannot access your bank account.
The network is critical, and 98 per cent of all the ATM withdrawals through non-bank ATMs are Interac withdrawals. First, if I was not connected to Interac, it is very unlikely that I would be connected to Cirrus or Plus. It is the same switches. They would not let me connect to Cirrus and not to Interac. Hypothetically, let us say I was. Only people with international cards can use my ATM. Then I would be meeting the standard of Cirrus and not Interac. It is illogical. I am not aware of any ATMs that are structured that way.
Senator Moore: You could not get dirty money, as it were, into a machine?
Mr. Chandler: Not without being connected to the network. It is not possible.
Senator Harb: You basically cannot withdraw money from your machines unless you have a bank account; is that correct?
Mr. Chandler: There has to be an account connected to the card. Historically, in the vast majority of transactions, the person using the card is connected to their bank account.
To the chair's point, more recently there are prepaid cards that can also be used. They are also connected to an account, but it may not be your personal account.
Senator Harb: FINTRAC can get it from the other end when someone deposits an amount in a bank account in excess of $10,000 now; the bank or financial institution must report it to FINTRAC. It is not your responsibility to report that yourself because you are not dealing with deposits, you are dealing with withdrawals; is that correct?
Mr. Chandler: We are dealing with withdrawal.
Senator Harb: You already have a limit of $400. I am not aware of anyone in the country who can withdraw $2,000 or more from a cash machine. I do not understand why the committee from the House of Commons would make such a recommendation. I guess I could. It could be either out of ignorance or naivety, to include you in one of the companies or organizations, such as racetracks, law firms, home renovation, et cetera.
Mr. Chandler: I believe we were included there because, as I understand it, they were —
Senator Harb: Ill informed.
Mr. Chandler: They were not ill informed at the time they started. They had the 2008 FATF report which said there were no rules. I believe at the time they started the rules were not implemented. Quite frankly, the rules are housed at Interac. We have done a terrible job letting people know the rules are there. That is part of the reason I am here today.
Senator Harb: Absolutely. In other words, there is absolutely no difference between your machines and any other bank's machine when it comes to someone taking money out of a machine?
Mr. Chandler: Correct.
Senator Harb: Case closed. My recommendation is to write back to the committee that made this recommendation to inform and educate them more so they can understand what you have told us today.
Mr. Chandler: That is a terrific idea. I will do that.
Senator Ringuette: You deal with three entities. Interac, which is issued by the Canadian banks or caisses populaires, has a mandate to report to FINTRAC. However, your other connections — MasterCard, Cirrus and Visa Plus — have told us that they have no mandate to report to FINTRAC because they do not issue the product. It is the banks that issue the products. You have two entities within your system that have no reporting responsibilities to FINTRAC.
The Chair: Can we get to the question?
Senator Ringuette: How can Canadians and FINTRAC be sure that the transactions that go through your machines — be it Cirrus or Visa Plus — are reported, as per the regime request, to FINTRAC?
Mr. Chandler: I think that is out of my purview, quite frankly. You are asking how FINTRAC is regulating Cirrus and Visa Plus, and I have no idea.
Senator Ringuette: They told us that they do not issue the cards; they only operate the system. Therefore, they do not report.
Senator Greene: If you had a preloaded card to $10,000, what is the maximum that you could take out on that card?
Mr. Chandler: Again, most ATMs have a maximum of $400.
Senator Greene: How long would that maximum be in effect? Would you have to wait an hour before you —
Mr. Chandler: That is a question for the issuer. Whoever provided you with that prepaid card would have their own limitations on the size of each withdrawal and the number you could do daily. That would be controlled by the issuer, not the ATM.
Senator Greene: How about going around the corner to another ATM? If you took it out of one of your non-bank ATMs, and then, almost instantaneously, you went around the corner and tried a Bank of Montreal ATM, would you be able to take out another $400?
Mr. Chandler: Again, that is completely related to the issuer, in my opinion. It would depend on how the issuer structured your card agreement. It has nothing to do with the ATM.
Senator Campbell: Do you know of any FINTRAC investigation regarding an ATM in Canada?
Mr. Chandler: I do not.
Senator Campbell: I will leave it at that.
Senator Massicotte: You are trying to tell us that anybody who is not one of the majors — one of your four financial institutions — must be sponsored and have a relationship with an existing Interac member who guarantees the integrity of their transactions. Is that approval totally private and discretionary, or if they meet the criteria you had in your one example, must they be accepted as an associate of an Interac member?
Mr. Chandler: No. Is your question whether there is a threshold where you, if you meet it, have to be admitted?
Senator Massicotte: Is there something that they must satisfy, and if they do, they will be sponsored by an Interac member?
Mr. Chandler: No. There is always the — for lack of a better phrase — smell test. If someone meets the criteria on paper and you do not feel comfortable, then you have no absolutely obligation to take their ATM.
Senator Massicotte: It is a private agreement between that person and the Interac member. Is that correct?
Mr. Chandler: That person being the ATM company?
Senator Massicotte: The guy who wants to have ATMs — one of the small guys who has 10 of them — if he gets an Interac member to sponsor him, he can then join the system. Is that accurate?
Mr. Chandler: If he gets an Interac member to sponsor and connect him and he provides all of the appropriate documentation to comply with the AML regulations, then he would be allowed to participate if that entity supported him.
Senator Massicotte: Is there not a risk there? You see what is happening in Quebec with the Charbonneau commission, where someone is clearly a criminal and his sons own the company. Is there not an opening there to manipulate the system to gain access, irrespective of the fact that the intention was not to allow that person to have access?
Mr. Chandler: I have spoken to a number of experts on money laundering, and they tell me that absolutely no segment of the economy is completely insulated from or immune to these criminals. They are very clever and creative folks, and we ought not to be striving for or holding ourselves to a standard of zero criminal activity because no one can meet that. What we are trying to do is to make the non-bank ATM one of the last places that criminals would ever want to go. We believe that we have achieved that because the data is there. What we have learned from money laundering experts and law enforcement and so on is that, in their experience, criminals do not want to be where there is such a detailed documentation trail held by third parties. They do not want to have to explain, in an investigation, where these proceeds came from and where they went.
Again, speaking of trying to make pragmatic rules, not only is this documentation required and then required to be hosted with our regulator, which is Interac, but at Interac we have also established a secure liaison with law enforcement so that there is a streamlined and secure manner for law enforcement, in the appropriate conditions, to access this data. It is a huge risk for law enforcement. They told us that any time they are going after organized crime, it is typically an undercover operation. If they ask for data openly, it can put at risk both the investigation and the safety of the officers involved.
The Chair: Thank you, Mr. Chandler. We have wrapped up our hour, but you have stimulated such interest that we have two clarifications.
Senator Greene: I am just trying to understand this. With regard to preloaded cards, suppose it is an amount of $4,000 or $5,000. Of course, that money does not come out of your account, but it comes out of someone else's account or some other account. Maybe it is an account that is set up by someone just for you, which is conceivable, or for a certain group of people. Is it not also conceivable that there would not be a limit on what you could withdraw using that card except up to the value of the card, whether it was $2,000, $3,000, $4,000 or $5,000?
Mr. Chandler: Again, I do not know. Anyone issuing that card, if it is going to be used in an ATM, needs to get the blessing of Interac, Cirrus, Visa Plus or one of these associations.
Senator Greene: Assuming they can do that.
Mr. Chandler: I do not know what the rules are to do that. Those rules alone may have restrictions. I am not privy to those.
Senator Moore: I am not sure if you answered my question earlier, and I am trying to get a handle on this reporting to FINTRAC. Does an institution or an owner of a machine report to FINTRAC that they have put in more than $10,000? When does the reporting take place? I am not clear on that. We can only take out $400 a day, as the example we are discussing here. How do we get to even talk about FINTRAC unless there is a larger sum? Is it when you put the money into the machine?
Mr. Chandler: Again, FINTRAC participated in our year-long task force, and there was no reporting from our industry to FINTRAC before that task force was struck. At the end of that year, it was concluded that there would be no reporting to FINTRAC. Again, we are working with Interac, and we post all of our due diligence material with Interac. We have the risk assessment structure in place that we use and that was found to be acceptable for meeting all the objectives.
The Chair: Mr. Chandler, I think it is evident from the interest shown by all members of the committee how informative and helpful your presentation has been today. On behalf of all of the members of the committee, I would like to express our great appreciation for your appearance today.
Mr. Chandler: Thank you.
(The committee continued in camera.)