Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce

Issue 10 - Evidence - May 7, 2014

OTTAWA, Wednesday, May 7, 2014

The Standing Senate Committee on Banking, Trade and Commerce, met this day at 4:17 p.m. to examine the subject matter of those elements contained in Parts 2, 3 and 4, and Divisions 2, 3, 4, 8, 13, 14, 19, 22, and 25 of Part 6 of Bill C- 31, An Act to implement certain provisions of the budget tabled in Parliament on February 11, 2014, and other measures.

Senator Irving Gerstein (Chair) in the chair.


The Chair: This afternoon is our second of five meetings as part of the pre-study of Economic Action Plan 2014, namely, Bill C-31, An Act to implement certain provisions of the budget tabled in Parliament on February 11, 2014 and other measures.

Last Thursday, we were pleased to have the Minister of Finance, the Honourable Joe Oliver, along with officials from the Department of Finance.

Today we are focusing on Part 6, Division 19, which amends the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, found at tab F-19 in your binders and at page 164 in the bill.

For the information of members of the audience, last year this committee completed a statutory review of this act, tabling its report on March 20, 2013. The report, entitled Follow the Money: Is Canada Making Progress in Combatting Money Laundering and Terrorist Financing? Not Really, made 18 policy recommendations to improve Canada's anti- money laundering and anti-terrorist financing regime. I will put it on the record that this bill before us acts on a number of those recommendations, including greater reporting on the efficacy of the regime, better information- sharing between regime partners, including allowing FINTRAC to provide information to its partners when it suspects crimes other than money laundering are taking place, and keeping pace with changes in the marketplace and new payment methods and technology.

Today's meeting will be divided into two parts. First there will be a session with government officials representing the Department of Finance, the Financial Transactions and Reports Analysis Centre of Canada, better known as FINTRAC, and the Canada Border Services Agency.

In the second hour we shall hear from various associations with a direct interest in this legislation.

To begin our testimony today, from the Department of Finance we have David Murchison, Director, Financial Sector, and Rachel Grasham, Chief, Financial Sector Division; from FINTRAC we have Darlene Boileau, Deputy Director, Strategic Policy and Public Affairs; and from Canada Border Services Agency we have Colette Cibula, Director, Recourse Program Management, Recourse Directorate.

Mr. Murchison will provide the committee with a general overview of what Part 6, Division 19 does and how it is achieved.

David Murchison, Director, Financial Sector, Department of Finance Canada: Thank you very much Mr. Chair. It's nice to be back before this committee. You will recall we were last here discussing virtual currencies and we have been following your proceedings with interest. We have had a number of the have witnesses you've had before your committee in to see us in the course of their business here and we continue to learn quite a bit from those interactions.

You've introduced me and I am joined by colleagues that we work closely with from both FINTRAC and the Canada Border Services Agency. I am happy to be here with them.


We are pleased to be here today to speak to the package of proposed legislative measures that the government has put forward to strengthen the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.


I have learned, in English, it's the PCMLTFA, or Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

This is legislation, but it's important to note that there are supporting regulations. Those are forthcoming and we will be developing those accompanying regulations over the coming months and will be consulting on those. So these are just the legislative provisions we are talking about today.

This is all important because money laundering and terrorist financing can threaten the integrity of the financial system and create incentives for crimes that may harm Canadians and threaten our quality of life. The potential business and social damages of these crimes underscores the need for clear and effective deterrent. Maintaining a strong and comprehensive anti-money laundering and anti-terrorist financing regime that is consistent with international standards and ensuring it is kept up-to-date is an important activity for my shop and my colleagues.

The Minister of Finance has overall responsibility for Canada's regime and the act. The act's objective is to implement measures to detect and deter money laundering and the financing of terrorist activities, and to facilitate the investigation and prosecution of those crimes.

The act establishes FINTRAC as Canada's financial intelligence unit and the AML/ATF regulator. FINTRAC's dual mandate in this regard is something that I would underscore with you and it's important to note in this context that it's the dual mandate of an intelligence unit and a regulator. The act also requires that financial institutions like banks and credit unions, and intermediary entities such as accountants, dealers in precious metals and stones, and the real estate sector, identify their clients, keep records, have internal compliance procedures in place and report certain transactions to FINTRAC.

The PCMLTFA was the subject of a lengthy review and consultation process including, as noted by the chair, a review by this committee. We have closely taken your report — and I have to say it challenged us in a number of areas — and these amendments benefit from the work that you have done.

It is a requirement that the act be reviewed every five years. Most recently this was started in 2012 and reported in 2013. This review process ensures the act remains dynamic and evolves to meet the new and emerging threats.


The government approached this review with the goal of ensuring the fundamentals of the PCMLTFA remain strong to further its mandate of deterring and detecting money laundering and terrorist financing.


With this in mind, the review is guided by the principles that Canada's regime should be at the forefront of the global fight against money laundering and terrorist financing; safeguard the integrity of Canada's financial system and the safety and security of Canadians; maintain the balance between the need to deter and detect money laundering and terrorist financing and the need to protect the privacy and Charter rights of Canadians. This is a balance that we continually seek to find as we approach the regulations and legislation.

Finally, it is important in this context that we minimize the reporting burden on entities. It's a critical nature of this being new legislation that there is a burden imposed, and we are ever mindful as we think about amendments that we're not adding to that burden. Budget 2014 and Economic Action Plan 2014 includes almost 40 legislative amendments to this act that we developed in conclusion of the review we mentioned.

I would like to spend a few minutes to give you some themes that collect those various amendments.

The first would be closing gaps in this regime, and one of those is the virtual currency activities we talked about earlier. Certain entities that are at risk for money laundering will be brought into the act. In addition to businesses like virtual currencies, bitcoin, these include online casinos and foreign money services businesses that specifically target the Canadian market for online financial services. Those are some examples.

A subsequent theme would be strengthening customer identification and due diligence. This act, for example, already covers politically exposed persons. That's on a national basis. Under the proposed amendments, we are proposing to introduce provisions requiring reporting entities to identify domestically politically exposed persons — those would be on a national and sub-national basis — and to take measures when such persons are of a high-money laundering risk. In part, this responds to some G20 commitments.

A third theme would be improving compliance, monitoring and enforcement efforts. FINTRAC will be able to receive information voluntarily provided with respect to the compliance of a reporting entity, and the appeal and correction processes for cross-border currency reporting programs will be amended to improve client service and reduce burden.

A fourth theme would be strengthening enforcement sharing within the regime more broadly. FINTRAC's ability to disclose on threats to the security of Canada would be enhanced, consistent with the government's response to the Air India inquiry. Specifically, FINTRAC can already disclose to CSIS on threats to the security of Canada and will now also be able to disclose to Canadian law enforcement and the CBSA.

A final theme would be bringing Part 1.1 of the PCMLTFA into force. This would allow the government to take countermeasures against foreign states and foreign entities that are of high-money laundering or terrorist financing risk.

It is important to note, as I said before, that these are legislative measures only and it is only now that we are beginning the process of developing regulations to support them. That work will start shortly and we will, as part of that process, be consulting on it.

Mr. Chair, criminal practices are constantly evolving and Canada's anti-money laundering and anti-terrorist legislation needs to be current and keep pace with those changes. The proposed amendments will strengthen the fundamentals of Canada's regime and ensure that it continues to address emerging risks that could undermine the integrity of Canada's financial system and, with it, the economy.


Mr. Chair, we will now be pleased to answer your questions.


The Chair: Thank you. We will begin our questions.

Senator Black: Thank you for being with us today; it's nice to see you back.

I'm interested in knowing how the Proceeds of Crime (Money Laundering) and Terrorist Financing Act will deal with virtual currencies from a practical point of view?

Mr. Murchison: From a practical point of view, we would seek to bring them into the regulatory sphere, so they would go from what are today unregulated businesses and bring them into a regulated sphere. If you had met with VirtEx — and I believe you did — it is an entity in that business now. Interestingly, they find challenges in an unregulated business in finding banking services. They think that in being brought into a regulatory framework, they would have better access to domestic banking services with the various provisions that being in a regulatory framework would provide them.

Practically speaking, we would think of them as money services businesses. We, of course, will be developing regulations to support that, and we will get into the specifics of that. But broadly speaking, we would think of them as money services businesses.

Rachel Grasham, Chief, Financial Sector Division, Department of Finance Canada: I would add that with respect to the regulation of money services businesses, with the client identification requirements and record-keeping, they would have to have a compliance regime. They would be obligated to report to FINTRAC and to register with FINTRAC as money services business, as well.

Just to be clear, we're looking to define in the regulations those businesses engaged in the business of dealing in virtual currencies, so we wouldn't be looking at regulating retail businesses that accept virtual currency.

Senator Black: Is it a fair summary to say you're expanding the net to incorporate new forms of business?

Mr. Murchison: Yes.

Senator Black: In respect of the 18 recommendations this committee made respecting money laundering and terrorist financing, are you able to tell us which of those you have accepted and which of those you have not, just by way of a quick overview?

Mr. Murchison: I would begin by saying that we went through the report very carefully and did a lot of internal analysis. We challenged ourselves on many of your recommendations. We wanted to make sure, even in those cases where it might not have felt that we were responding in a proactive way, that we had thought about it and felt that it either shouldn't be responded to or that it was already effectively dealt with.

In those areas about which we feel we can be specific, we think we've been able to provide, through your recommendations, better feedback to reporting entities. We have covered emerging money laundering and terrorist financing risks more effectively as a result of some of your recommendations, including those entities that are in the business we just chatted about. More broadly, we've improved information sharing within the regime.

In short, if not in the specifics but in the spirit, we feel your recommendations were both helpful and have advanced much of our thinking in the amendments that were brought forward specifically, and there will be more in the future.

Ms. Grasham: As David pointed out, this is a legislative package. We have a regulatory package coming. Also, to a large extent, some of the recommendations were more administrative or operational in nature than legislative or regulatory, per se.

One of the legislative measures in terms of enhanced accountability and reporting was the one in terms of FINTRAC reporting on its effectiveness and performance measurements. The Department of Finance Canada, through its departmental performance review, or DPR, reports on the horizontal initiative in terms of the funding the different partners receive.

We're doing a big review of the performance management framework for the regime. We would want to report more publicly on some of the other performance measurements and statistics through that mechanism, as well as in discussion with FINTRAC in terms of the things they report through their annual report. So there are some administrative things coming along, as well.


Senator Hervieux-Payette: Just a brief question. You certainly took our report into consideration. One of the most important things in my opinion was the coordination among all of those involved in tracking money laundering. Will the bill allow you to extend that constant coordination and exchange of information, and allow this file to advance?


Mr. Murchison: We strengthened information-sharing provisions. We can always improve in our coordination efforts; it continues to be a challenge as we approach all our regulated entities and our regulators in the interface with the Department of Finance Canada.

We are doing a lot of work on our risk assessment framework. As we think about that, it is allowing us to focus on those areas. We all have limited resources that present the highest risk, so I think that has been effective.

Do you have anything to add to that?

Ms. Grasham: In terms of the coordination function, we have a number of committees in place. We have an ADM- level steering group that meets as needed. We have regular coordination more at the working level with interdepartmental representatives from the different departments and agencies that form part of the regime.

As David said, a risk assessment framework is being developed, which is quite a significant undertaking. It involves all of the different regime partners and committees, and they are systematically going through all sorts of different sectors and products, and designing a framework for better feedback to the private sector in terms of relative risks as well as to inform government policy-making and the different regime partners. It is quite a significant undertaking.

Our public-private sector advisory committee meets twice a year. It will be meeting tomorrow, and representatives from the private sector sit on that committee, and they are sitting behind us today. So I think that also has been an effective tool for reaching out to the private sector, as well as for the coordination internally.


Senator Hervieux-Payette: This may be an awkward question, but we were told by the RCMP that at least $100 billion a year is laundered. I wonder what the two main targets are for you in order to track these $100 billion, and when you will go and get this money. I wonder, for instance, where the investigators are, those who use strictly statistical methods in specific sectors. I am thinking, for instance, of the Toronto Stock Exchange, where billions of dollars are traded every year. I am also thinking of the real estate sector, which seems a little bizarre to me, because construction goes on but there are no buyers.

In my opinion those are sectors where in-depth study should be focused, because the money probably went through three different countries before it arrived here, and we have to unmask those who are at the origin of those transactions.

So, who does those investigations? Who has the expertise? You talked about a risk assessment framework.


You should have somebody, when it's $100 billion, who looks at certain sectors where billions of dollars are transiting. You don't look at Tim Hortons. You look at places where billions of dollars are being invested.

If I look just at Montreal, and we've seen the same thing in Toronto and Vancouver for sure, there are also billions of dollars in the real estate business.

I want to know how you proceed. We have an organization, but we don't seem to get to the bottom of the question, which is, of course, diminishing this activity. It's a criminal activity.

Mr. Murchison: First, I agree, it is frustrating. I think law enforcement in the areas of financial markets and criminal elements is generally an issue not just in money laundering, but as we look at white-collar crime and other areas. It is challenging.

As it relates specifically to law enforcement, we have very strict separation between what FINTRAC does and is allowed to release and what in turn law enforcement is allowed to do with information that they have.

As a general statement, I would say that the act seeks first to deter, so there is a strong element of deterrence here. From there, it is FINTRAC's role at certain thresholds to release information to law enforcement in those areas where they've identified what they think are illegal activities and for law enforcement to take that up and act upon it.

I don't mean to duck your question, but it may be that it's law enforcement that you should be asking some of those questions of. There are limits to what we can do. We can provide as good information as we can to law enforcement, and in turn law enforcement can, on certain thresholds, request information from the regulator, like FINTRAC and others, to aid in their investigation. But, at the end of the day, there are certain limits to our success on the law enforcement.

I'm not here to be able to speak knowingly on the law enforcement activity specifically.


Darlene Boileau, Deputy Director, Strategic Policy and Public Affairs, Financial Transactions and Reports, Analysis Center of Canada: Generally, this is a big challenge for us, as you have pointed out, but at FINTRAC this gives us the opportunity to deal with the issue you raise, in part thanks to our cooperation with the RCMP.

The RCMP creates some relatively public forums when it conducts investigations into money laundering and financing, and even regarding what we call predicate offences in the context of fraud, drug trafficking and things of that nature. The RCMP then requests our help and cooperation.

Last year there were over 1,000 case disclosures which we provided to our partners, in the context of national security and enforcing the law.

We saw twice as many requests from law enforcement and national security organizations asking for our cooperation to help identify what we call the ``money trail,'' and to help them also in their investigations.

Last year when my colleagues and I appeared before the committee we were told that we needed to communicate our results in a more effective way, and in a more constant forum. We have made efforts in that direction and we will continue to do so, that is certain.

We shared our annual reports with you, as well as the speeches we made during the year which set out our results and our financial information with our partners. We also today gave a package to the clerk of the committee which discusses the efforts we made on that front.

I can give you some highlights. A few weeks ago in Toronto the RCMP recognized the role of FINTRAC in a fraud investigation —


— that exceeded over $200 million and led to charges against six individuals.

A few weeks ago, the RCMP in Quebec also recognized FINTRAC's contribution after charging a former financial planner and an ex-lawyer with fraud of having cheated five victims out of over $400 million.


Also, last year the SßretØ du QuØbec recognized our contribution to the investigation on corruption in the construction industry in Quebec, the Marteau project.


There are some highlights of what we can do and have been providing and collaborating with law enforcement. It's a small number, and we've left another dozen of those clippings that will help you to understand how we can contribute, but also the resource that we can provide to law enforcement.


Senator Bellemare: I wanted to pursue the issue of the benefits these activities can generate if we find them and punish them, and the costs associated with tracking and preventing money laundering. The amendments to the current act involve, as Mr. Murchison said, an increased burden in some cases. Do you have some idea concerning this increased burden — of a financial order, obviously, for several organizations — of its scope for the government, on the one hand, and for the different economic stakeholders on the other?

Concerning the benefits, Senator Hervieux-Payette talked about the possibility of punishing people or recovering some of the money, even though I do not think we are going to recover all of the $100 billion, but there would be some financial advantages to pursuing this.

Have you examined the cost-benefit aspect?


Mr. Murchison: We have not looked at it in any great detail. I couldn't give you numbers, for example. My colleague Darlene has given some numbers on the effectiveness of some of the enforcement, which I appreciate may sound modest against the numbers that the senator was referencing in terms of potential losses.

My colleague to my left, Rachel, referenced one of the committees that's important to us, which is the stakeholder committee, and the composition of that committee is in part sector-based. One of the reasons we have those groups there is to inform us on issues like you have raised, the compliance burden attached to existing and proposed amendments.

Then there are actually internal processes that are built into advancing legislation and regulations. The one-for-one rule, for example, that you may be familiar with forces us to think about, okay, you're bringing in a rule now and where is the rule that's dropping off?

I would say that we are alive to the issue. We seek to make sure that the burden is not great. We seek to consult with those sectors. For example, the real estate sector is an important sector that is typically staffed with small offices that are not automated and are not in a position to readily provide resources against new regulations. We talked to them and, frankly, they'll scream if it's too much and too expensive.

Ms. Grasham: I would add a few things. One of the things that we looked at when we were embarking on this was do we want to significantly expand the scope of this regime? We are doing a little bit of scope, but we're not really expanding it wholesale to all sorts of new sectors. Some of our partners would like us to cover all sorts of different entities. We are mindful of the burden.

A lot of the amendments pertain to government, better information sharing. For example, we are expanding the designated information that FINTRAC can provide to its disclosure recipients, but it is information that's already being provided. It's not, for example, occupation and gender. Those are provided by reporting entities and are already collected. So reporting entities won't have any additional burden from that, but we do think that providing additional information in disclosures to disclosure recipients will help them with their investigations. That's a net benefit to the regime in terms of its effectiveness without any increased burden.

Another area is that we are bringing into the regime the concept of politically exposed domestic persons. We have foreign ones right now. We were told by our prudential regulator when we did our consultations that most of the federally regulated financial institutions already do that because they see it as part of their risk assessment to look at those kinds of things. For example, the act already requires reporting entities to identify and get someone's occupation, and now they would have that information but they would make a determination if they're a domestic PEP or not. Apparently a lot of them are doing that already.

On the regulatory front, we are also looking at measures that will assist, for example, looking at the non-face-to-face identification requirements, which is something that the private sector has raised with us.

In terms of where we are covering, yes, we are extending to virtual currencies. We are extending to online casinos. So there are some areas where there will be new sectors, but we're trying as best as we can to try and minimize the associated burden.


Senator Bellemare: I understand that in any case you are aware of this burden.


The Chair: Mr. Murchison, I've been interested in your comments. When we tabled the report, reference was made to the fact that money laundering and terrorist financing is a global issue in the trillions of dollars. I think the expression one of us used was that it's a chain, and you want to make sure, in this global chain, that you're not the weakest link.

The first recommendation that the committee made, if I could refer to it, was that the Department of Finance ensure that Canada implements any recommendations by the Financial Action Task Force on money laundering that are appropriate to Canadian circumstances. That's playing on the global basis.

What assurances can you give the committee that the recommendations you are making — I think there are some 40 legislative amendments — are in fact maintaining Canada at a level where it is fulfilling its obligation in this global situation, and how are we going to look on the report card that we get from the Financial Action Task Force that I expect comes up shortly?

Mr. Murchison: It does come up shortly. We are going to be part of a mutual reliance review in 2015, so we are actively thinking about that. We're addressing any gaps among our friends, colleagues and partners now in preparation for that work.

One of the sections that works under me is the financial crime international group, which plays in the centre of the FATF world and keeps abreast of those global developments, so we are live to those issues.

We first and foremost think about our domestic issues and provide amendments that are making our domestic financial crime deterrence stronger. But we are live as part of that and we make sure that we're meeting our international obligations and are not a weak link in that chain.

We had a very good last FATF review and we anticipate that we will be a good review as we look toward 2015.

Ms. Grasham: I can add some colour to the detailed things that we are doing that will, as David said, strengthen the domestic regime but will also be smiled on by the FATF.

One of the areas that FATF has been involved in, at the behest of the G20, is in terms of anti-corruption measures. The FATF revised its standards and brought in domestic politically exposed persons as well as heads of international organizations and close associates. We are expanding our legislation to cover those, as I mentioned.

Another area is with respect to large financial conglomerates that operate in multiple jurisdictions having a group- wide compliance outlook, so that they share the same policies and procedures with respect to anti-money laundering and anti-terrorist financing measures. The legislation is also speaking to that. If there's a large financial conglomerate with subsidiaries overseas, those subsidiaries would have to be responsive and have similar standards in place or follow similar requirements as would be in Canada. Obviously, they're also subject to domestic law in the countries they're operating in. If they're not able to meet Canadian standards, they would be required to report that to FINTRAC and to OSFI with their principal regulator.

We're covering online casinos, which was another thing that came out of our last FATF report. FATF has moved in embracing the risk-based approach, so we are trying, to the best extent possible, to introduce concepts of the risk-based approach.

We did issue some regulations that came into force in February of this year that strengthened the customer identification requirements.

I think David talked about the national risk assessment, which is a key recommendation.

Senator Ringuette: My first question would probably be one that our former colleague Senator Finley would ask. One of our recommendations was that you get the information and transmit it in real time. Have you put that regulation in place and the technical requirements to be able to receive and transmit real-time data?

Mr. Murchison: I'm inclined to let my colleague Darlene at FINTRAC take that question.

Ms. Grasham: This is one of the recommendations that we looked at. One of the issues with real time is that it does create quite a substantial burden on the reporting entities — maybe not the really large banks, but certainly the smaller reporting entities. To have things done in real time would be difficult for them. We had discussions with FINTRAC at the time of the release of the report. The way that FINTRAC operates, in terms of the analysis that they do, does take some time to pull that together.

Senator Ringuette: So the answer is no.

Ms. Grasham: The answer is no because —

Senator Ringuette: The answer is no.

I want to further my question and say that the bulk of our recommendation in regard to the real-time capability of receiving and transmitting the very important data was to particular sectors that use the Internet to transfer funds to foreign entities and so forth. So it is not a burden. From our perspective at the time, it was a relatively easy measure to put in place.

Real-time data of suspicious high-risk transactions was really important for policing authorities within Canada and also foreign partners in dealing with all of this. I'm disappointed.


Ms. Boileau: I understand. We sat on the committee where questions were asked and recommendations made. Our partners who receive disclosures in the prescribed time periods, according to the information we receive from the regulated bodies, regarding deadlines, for instance, do not complain about the timeframes. The information we provide to them and the cooperation of the partners meet their needs with regard to enforcing the federal law, national security, and activities at the international level.

Senator Ringuette: In your unit you carry out analyses that account for a large part of your costs. The analysts could, in real time, receive the information about the suspect transactions transmitted over the Internet. I am really disappointed that no efforts have been focused on that. I advocate putting in place measures very soon. I would be curious to know the interest rate that is charged Canadian clients, among others, who play games for money online, or who turn to foreign currency agencies online.

You say that you want to cooperate with online entities. All of the transactions carried out online take place in real time, and so why not demand that information be transmitted to you in real time? In my opinion that would not be difficult to realize. In light of your mission and the analysts who work in your unit, I think you are already well- positioned to do that. I will have another brief question for you later.

The Chair: A very brief question.

Senator Ringuette: Yes.

Ms. Boileau: With your permission, Mr. Chair, I would add that there are deadlines provided in the regulations of the act. You mentioned the transmission online of money internationally. The regulated entities have to submit that data to us within five days. You also mentioned doubtful reports. According to the regulations that exist, the entities have 30 days to transmit that information to us. That can seem long, but it is better from the perspective of distributing the burden of the regulated entities regarding the transmission of information.

Senator Ringuette: If they can do millions of dollars of transactions on the Internet in a few minutes I do not understand why it would take 5 or 30 days.


The Chair: Senator Ringuette, can I ask you to wrap up the question? There are other senators.

Senator Ringuette: I'm trying to make a point, and I hope I did it. But I have another small question.

The Chair: May I put you down for a second round?

Senator Ringuette: Yes.


Senator Maltais: Mr. Murchison, earlier in your introduction you talked about the partners' advisory committees. Can you tell us who your partners are?


Mr. Murchison: We would have as partners the colleagues that you see here. We would have OSFI, which is the banking regulator; we would have Justice Canada, the prosecution services; and then more broadly, we would have all of the regulated entities.


Senator Maltais: I have a very specific question to ask. I look at what has happened in the history of collusion and corruption in the construction industry in Quebec. The only people who have recovered money and who did not say a single word about it are those who work at Revenue Canada. They recovered all of the money they could. They did not ask about the origin of that money nor about what would happen afterwards. There was no publicity. They simply recovered money.

I think that the methods Revenue Canada uses are really effective. Why is that department not one of your partners?

Ms. Boileau: The partners who sit on that committee represent Revenue Canada, the RCMP, national security and the federal entities that are collectively involved in the plans.

Senator Maltais: I think the Canada Revenue Agency is the most competent to recover the money. It does not ask about where the money comes from. Do you not have a duty to get that information?

Senator Massicotte: I thank all four of you for being here at the committee. You will have noted that we had a lot of questions concerning the effectiveness of FINTRAC. I think the message is clear. Numerous studies have in fact been carried out in the United States. Here we seized $15 million over three years. The Americans for their part seize a billion dollars a year.

Earlier, property and life insurance companies asked us some questions and recommended some amendments. I would like to take advantage of your presence to clarify some of their comments.

One of the questions raised was that of Politically Exposed People — PEP. Here is the question we have to ask: who are these people? Close associates are mentioned. That is very vague and broad as definitions go. Does that mean that the senators appointed by the current government are important, and that those who are members of the opposition are not?


Mr. Murchison: First of all, there will be regulations to support this that will go some way toward answering that question more definitively.

That said, these are measures that already had been in place on the foreign side — foreign nationals — and now we're bringing these measures into domestic application at national, sub-national and municipal levels. I think that covers a reasonably broad gamut.

We have a regime today that is already asking reporting entities to identify people, and we're now being specific and saying, ``You should look specifically at these people, and here is how you might think of them within that context.''


Senator Massicotte: Provincially and federally, all of the members of a municipal council are automatically considered to be PEPs.


Mr. Murchison: Just mayors.


Senator Maltais: Only the mayors? Not the members.

Another question was raised by the property insurance companies. We know that among life insurance companies today, several offer investment management services. But the property insurance companies as you know offer a guarantee to cover damages if you are in a car accident or a fire. However, the insurance policy is not worth anything and cannot be exchanged for cash.

The question those companies asked was the following: why will they be subject, according to the proposed amendments, to FINTRAC, when there is no liquidity as such, no profit?


Ms. Grasham: In fact, we don't cover property and casualty insurance under the regime. It's life and health insurance.


Senator Massicotte: Yes. We can thus withdraw those who are here from the agenda. There is another question I wanted to ask; you also testified about virtual money. We heard some testimony according to which these people are turned away by bankers because they are considered risky. The fact of including them does carry greater risk. I think that is a valid point of view if we consider what happened in Florida recently, and in some foreign countries.

This means that since they are covered and legally responsible for reporting any transaction over $10,000, the banks have no more reason to refuse them banking services?


Mr. Murchison: I can't speak for the individual entities, but I would think that is not the case. There are probably all kinds of reasons why they might choose not to have them as clients.


Senator Massicotte: The explanation we were given, and I think it came from a Royal Bank representative, was that if the transaction is liquid it is difficult for them to know who they are dealing with, and since they are not subject to FINTRAC, if they feel this is high risk, they do not touch it. But if they are included in the legislation, if they do not contravene the obligation and if that rationale disappears, that reason is no longer valid.


Mr. Murchison: I think banks can choose what clients they want to have, frankly, and they can well choose not to have a client in the virtual currency business.

They may be wrong in making that assessment, like not having a client because of the business they're in even though they are compliant with all the regulations, but at the end of the day that would be the bank's choice.

Senator Ringuette: Has the litigation in regard to the law society and the client privilege situation been resolved? You say no. Okay.

Mr. Murchison: For the record, no. In fact, it's before the Supreme Court next week.

Senator Ringuette: Ms. Grasham, you indicated you were doing a performance review, but it's internal, if I heard you right; it's an internal process that you're undertaking?

Mr. Murchison: This is an annual, government-wide performance review.

Senator Ringuette: We had recommended an independent performance review of FINTRAC and, if possible, that it be done by the Auditor General. That was one of our recommendations.

Ms. Grasham: Yes. There is a Treasury Board requirement now that every government program be reviewed every five years, so that's an automatic.

Certainly, this regime has been reviewed quite substantially. We conducted a 10-year evaluation. It was subject to a one-year and a five-year evaluation, as well as the Financial Action Task Force evaluates all FATF members every eight years according to the implementation of their standards. Canada's review will be in 2015 and the FATF will be focusing more on the effectiveness of its members' anti-money laundering and anti-terrorist financing regimes this time around. There is a fair amount going on.

Senator Ringuette: It's not an independent review.

Ms. Grasham: The FATF is an independent review in that it is a peer review, so it's made up of members of FATF from different jurisdictions. Certainly, I would consider that to be independent from the Government of Canada, and the Treasury Board reviews would be independent as well.

The Chair: Thank you very much to our witnesses. On behalf of all the members of our committee, I express our appreciation.

In this second hour, we are continuing with our pre-study of Part 6, Division 19. Having heard from government officials in the first hour, we now turn to witnesses from various associations who work within the act.

Today I'm pleased to welcome, from the Insurance Bureau of Canada, Mr. Garry Robertson, National Director, Investigative Services; from the Insurance Brokers Association of Canada, Mr. Steve Masnyk, Manager, Public Affairs; from the Chartered Professional Accountants of Canada, Mr. Matthew McGuire, Chair, Anti-Money Laundering Committee; and from the Canadian Life and Health Insurance Association, Mr. Frank Zinatelli, Vice President and General Counsel.

I will turn the floor over to Mr. Robertson first, to be followed by Mr. Masnyk, Mr. McGuire and Mr. Zinatelli. I would indicate that you each have five minutes to make your remarks so the committee will have ample time to ask questions.

Garry Robertson, CFE, National Director, Investigative Services, Insurance Bureau of Canada: My name is Garry Robertson. I am National Director of Investigations at the Insurance Bureau of Canada.

I am pleased to be here today on behalf of IBC and our member companies. We value the opportunity to contribute to this important discussion.

The Insurance Bureau of Canada is the national industry association for Canada's private home, car and business insurers. We work with governments and other stakeholders on issues affecting Canadians and the property and casualty insurance industry.

Insurance crime is one such example. It takes money from honest policyholders, driving up premiums, health care and court costs, and wasting emergency services. It's estimated that insurance crime costs our industry well over $1 billion each year.

We take this issue very seriously. In the past decade, IBC's investigative team has focused almost entirely on organized crime rings involving auto theft, staged car collisions, and the theft of cargo from commercial trucks and trailers. These three schemes are driven by highly organized operations, many with ties to international crime and terrorist syndicates.

Insurance crime is very attractive to organized criminals because of its low risk and high reward. Perpetrators tell us that it is easy money. We have even seen international participants come into Canada to establish operations and channel funds from false claims back to other countries.

Auto theft is a favourite activity of organized crime. While the number of stolen vehicles in Canada has dropped, the vehicles being stolen are more valuable and are being chopped for parts or exported and resold for quick profit. Last year alone almost 500 stolen vehicles valued at more than $8.7 million were intercepted in the ports of Halifax and Montreal by a task force made up of IBC, Canada Border Services Agency, RCMP and local law enforcement agencies.

Staged car collisions, unfortunately, have also gained popularity. These are highly orchestrated scams involving cars with multiple paid passengers that are deliberately crashing into unsuspecting drivers on busy streets, all in an effort to appear legitimate and submit false claims with the goal of stealing the maximum amount of money from the system.

These accidents are not isolated events. They often trigger a chain reaction that includes body shops, tow operators, paralegals, rehab clinics and more.

The car accident business is lucrative. One IBC investigation identified a ring involving more than 36 people who staged more than 50 car collisions and fraudulently obtained an estimated $25 million from insurers.

We partnered with member insurance companies, Toronto Police Services and two dedicated Crown prosecutors to bring the criminals to justice. IBC is currently investigating 55 similar projects in southern Ontario alone.

Cargo theft is also linked to organized crime, which uses the proceeds to fund activities such as gun and drug smuggling. Trailers can carry goods worth thousands and upwards of several millions of dollars. Organized criminals steal the cargo, parcel it out and sell it via a sophisticated distribution network often before the crime is even reported.

As an example, criminals stole a load of T-shirts north of Toronto at three o'clock in the morning. By 6:30 that same morning, half the load was being offered at discount stores and flea markets in southwestern Ontario. The other half of the load was put in a container with false paperwork and crossed the Peace Bridge by 9 a.m. that same day into the United States en route to California and then overseas.

To fight insurance crime, IBC is working with law enforcement, Canada Border Services Agency, Canada Revenue Agency and many other agencies in Canada and the United States to share information from our investigations. In our experience, partnerships are critical to bringing offenders to justice.

To this end we would like to see protocols established that would allow an easier exchange of information between private and public organizations. Everyone involved needs to be aware of the outcomes for faster and more effective investigations. To fight these crimes, we must be as well-organized as the criminals who are committing them.

IBC's National Cargo Theft Reporting Program is a good example of public and private sector collaboration. The online reporting forum allows for information sharing between insurers, the trucking industry and law enforcement to help identify stolen property and speed in its recovery.

The insurance industry is committed to combatting insurance crime and is proud to be part of the fight against criminal and terrorist activities. Thank you for your attention and I would be happy to take questions.

Steve Masnyk, Manager, Public Affairs, Insurance Brokers Association of Canada: Good afternoon, my name is Steve Masnyk and I am Manager of Public Affairs for the Insurance Brokers Association of Canada.

We are thankful for the invitation to appear in order to provide our perspective on changes to the various pieces of legislation dealing with anti-money laundering and terrorist financing.

The Insurance Brokers Association of Canada represents over 35,000 insurance brokers across Canada who deal with property and casualty insurance products, namely home, car and commercial insurance.

Our members deal with numerous insurers and provide choice to Canadian consumers, as well as act as their advocate with the insurer in the event of a claim. IBAC, as well as our international colleagues around the world, is supportive of a regime to stem money laundering and bring greater scrutiny to terrorism financing schemes.

We support the government's efforts in achieving these goals. As a member of the World Federation of Insurance Intermediaries, we have had input into the Financial Action Task Force discussions and processes over the past few years in developing general anti-money laundering principles that national governments are either considering or have adopted, and Canada is no exception. One of the positions we have presented at the FATF is that the intent and spirit of creating a regulatory net should never be cast so wide that it covers unintended parties.

Another important aspect is that such a regime must always take into account the size of the organization they are supervising. In addition to the size, the nature and type of organization should be taken into account as many non-life organizations can have as few as two or three employees.

Let me now turn to our sector.

The property and casualty insurance sector and the life insurance sector are very different. Life insurance is mostly about wealth management whereas property and casualty insurance is all about risk management. These are very different sectors both in their objectives and form.

The P and C sector's main goal is to return an insured to the same position they were in prior to a catastrophic event. It is not to create wealth.

There is virtually no monetary value in P and C policies, other than a promise or guarantee that you will be put in the same position you were in before a catastrophic event. From our perspective, along with other insurance broker organizations around the world, property and casualty transactions offer virtually no chance for money laundering or terrorism financing to take place, unlike the banking or life insurance sectors, which are cash heavy and where transactional frequency is high.

With this in mind, we would submit that in the two areas that this bill addresses, there exists no problem or concerns in the property and casualty intermediation profession. As such, our recommendation would be to exclude the registering and reporting requirements for the P and C intermediation sector in these pieces of legislation.

Thank you and I would be happy to take your questions.

Matthew McGuire, Chair, Anti-Money Laundering Committee, Chartered Professional Accountants of Canada: On behalf of the Chartered Professional Accountants of Canada we appreciate the opportunity to provide input to the amendments of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act proposed by Bill C-31.

CPA Canada is a national organization established to support the unification of the Canadian accounting profession under the chartered professional accounting designation. It was created by the Canadian Institute for Chartered Accountants and the Society of Management Accountants of Canada to provide services to all CPA, CA, CMA and CGA accounting bodies that have unified or committed to unification. Under that unification there are currently close to 100,000 CPAs in Canada. As part of those unification efforts, CPA Canada and the Certified General Accountants Association of Canada are working towards integrating their operations this year. All members are committed to working together in the fight against money laundering and organized crime.

My comments today focus on the issues that are relevant to accountants and accounting firms arising from the proposed amendments, and a few amendments that we had expected. I'm a chartered professional accountant and chair of the Anti-Money Laundering Committee of CPA Canada, which was constituted to address the consultations and proposed regulatory amendments.

I'm proud to represent my profession on this committee as well a member of the Department of Finance's public private advisory committee on AML/ATF, and I'm also a partner and the national anti-money laundering practice leader for MNP LLP, which is the sixth largest public accounting firm in Canada, where I look over 10 anti-money laundering professionals. So my professional life involves investigating, designing and evaluating risk-based anti- money laundering programs for all sectors and sizes of reporting entities, and has since my time as an intelligence analyst with FINTRAC back in 2004.

I qualified as an expert witness in money laundering and forensic accounting by the Ontario Superior Court of Justice and was honoured to address this committee back in 2012.

The first amendment that we had expected to see was the addition of the CPA designation under the reporting entities that are responsible to the act, and we didn't see that at that time. Additionally, we recognize that outside of the Canadian provincially regulated accounting profession exist those that practice accounting who may not necessarily have a Canadian accounting designation or are provincially regulated.

We suggest that future amendments to the act include all individuals and firms that perform accounting functions in Canada, particularly those around the triggering activities that are now covered, to address the money laundering risks that they pose.

Additionally, when we appeared in 2012, we commented on a proposal that would seek to clarify the reporting obligations under the act for accountants involved in the practice of bankruptcy. At that time, we explained the proposal did not go far enough to address the activities that were properly outside the scope of the act, such as engaging as a receiver monitor, receiver manager or interim receiver. We anxiously await amendments to the PCMLTFA in that respect.

My other comments relate to alignment with the FATF standards, which were discussed a little earlier on. The FATF, of which Canada is a member, released its updated recommendations in February 2012, and we are concerned that the proposed amendments would not completely align the act in respect of accountants and accounting firms. That alignment will be critical, in our view, when we are evaluated in 2015 by our peers.

Currently, the act applies to accountants when they receive or pay funds; when they purchase or sell securities, real property or business assets or entities; or when they transfer funds or securities by any means or on behalf of any person or entity.

The FATF recommendation 22 sets out an expectation that AML obligations for accountants should also be triggered when they prepare or carry out transactions for their clients concerning the following activities: organizing contributions for the organization, creation, operation and management of companies or for the creation, operation and management of legal persons or arrangements. We suggest the inclusion of these activities and regulations as being subject to the PCMLTFA to achieve compliance with the FATF recommendation 22 for professional accountants.

Then on the topic of information sharing, one of the greatest challenges in complying with the PCMLTFA is the determination of reasonable grounds to suspect in the case of a suspicious transaction report. Part of that challenge is the lack of confirmation that the reporting entity receives back about whether or not money laundering or terrorist financing actually occurred. Therefore, in assessing whether future transactions are suspicious or in assessing money laundering risks to the organization, we are often left guessing.

The amendment to the bill that provides FINTRAC the ability to publicly disclose that they were involved in a case that was successfully prosecuted is one that we like. We suggest that be expanded to permit FINTRAC to make public the details of suspicious transaction reports and support the disclosure and their characteristics, clearly without identifying the reporting entities involved. In our view, that intelligence would surely improve the monitoring and reporting practices of reporting entities.

I just have two final comments. We are concerned that the proposed section 68.1 of Bill C-31, which would permit FINTRAC to file with the court suspicious transaction reports and other voluntary reports in the case of an action suit or other legal proceeding brought to the PCMLFA — we submit that in the case of such filings the details of the reporting entity involved be redacted or sealed so as not to discourage suspicious transaction reporting volumes or quality for fear of public scrutiny of those reports.

We're also seeking clarity on the regulations to support laws related to ministerial countermeasures. The full range of the potential countermeasures is not known and, therefore, we're concerned about the practical extent to which systems and processes can be designed to adhere to them and the agility required of our members. We would ask that any regulations supporting those new measures provide sufficient lead time for those directives.

Common among reporting-entity sectors is the frustration with the current regime around identification, particularly in cases when the client is not physically present at the time of identification. Challenges arise when a client doesn't have six months of Canadian credit history or that credit history has a different address, and then most identification measures become frustrated or impossible.

Furthermore, some of the recent examinations have sought to limit the concept of client recognition, requiring re- identification upon every transaction rather than relying on security measures that are fairly industry-standard such as tokens. Far from resolving the situation, the new ongoing monitoring of business relationship guidelines seek to draw on those non-face-to-face standards as supplemental risk measures.

Although the program of client identification is not proportionate to risk, it is burdensome compared to regimes in other countries. We note the situation does not appear to be addressed in that bill.

We do understand that the balance must be struck between reporting and record-keeping, and identification requirements that properly deter and detect money laundering and terrorist financing activities. However, we need to ensure the measures being imposed address material risks and have a chance at being effective without causing undue burden to legitimate transactions that are conducted in the private sector.

Thank you.

Frank Zinatelli, Vice President and General Counsel, Canadian Life and Health Insurance Association: Thank you for the opportunity to contribute to your review of Part 6, Division 19 of Bill C-31 relating to money laundering and terrorist financing.

As you know, the Canadian Life and Health Association represents life and health insurance companies, accounting for 99 per cent of the life and health insurance in force across Canada.

We welcome this opportunity to appear before your committee as you seek to develop your report to Parliament. The industry believes that Part 6, Division 19 will strengthen the proceeds of Crime (Money Laundering) and Terrorist Financing Act consistent with Canada's undertaking to comply with its international commitments.

Let me make a few brief comments. First of all, let me emphasize the importance of a risk-based approach. The principle of such an approach is that where there are higher risks, financial institutions are required to taken enhanced customer due-diligence measures, including conducting more frequent ongoing monitoring, keeping client identification information up-to-date, et cetera.

Correspondingly, where the risks are lower, simplified measures are permitted. Such an approach is necessary and appropriate to ensure the needed steps are taken to combat money laundering and terrorist financing while also providing for an efficient allocation of resources by financial institutions.

While some of the requirements now in place for identification, record-keeping and reporting obligations work through the use of this risk-based approach — and, indeed, some of the new requirements in Part 6, Division 19 will do the same — we believe the risk-based approach should be even more central to Canada's system for fighting money laundering and terrorist financing. This is consistent with the recommendations of the FATF and international trends, and it is an approach that is fully supported by the life insurance industry in Canada, as well as by the international insurance community.

Let's turn now to one of the major new requirements of Bill C-31. Proposed section 9.3 of the act would require life insurers to determine whether they are dealing with a politically exposed domestic person, which includes prescribed family members and persons or entities closely associated for personal or business reasons to that domestic PEP, or politically exposed person.

We agree that domestic PEPs, unlike foreign PEPs, should not automatically be considered ``high risk.'' We also note that the definition of domestic PEPs is similar to that for foreign PEPs, and, in the context of harmonization, the requirement makes sense. However, we also believe that in the Canadian context, the listed categories of persons are very large and include types of listed persons that normally pose a very low risk, such as judges referred to in Bill C-31.

Searching for a person's status as a domestic PEP is not as simple as searching for foreign PEPs. At the current time, no comprehensive public source of information is available for identification of domestic PEPs.

Taking into account the risk-based approach referred to above and wanting to ensure that identification and tracking of domestic PEPs will be workable for life insurance, consideration should be given to further narrowing the list of types of persons considered to be domestic PEPs; for example, the category of persons who could be considered close associates, say, of a domestic PEP could be extremely broad, as interpreted. So it would really help if, when working on the regulations, it were made clear that the requirements to identify close associates would only apply in the context where a client has been identified as high risk. I'm sure there are other ways and approaches that could be used to limit the scope of domestic PEPs.

On another point, with respect to extending the application of Canadian anti-money laundering requirements to foreign branches and subsidiaries, we are pleased to see that the branches and subsidiaries would need to adopt requirements similar to those in Canada. This suggests a principles-based approach, and we are supportive of this because the application at a micro level would inevitably lead to conflicts with local laws, for example.

Finally, another aspect I would like to touch upon relates to implementation. The Department of Finance, FINTRAC and OSFI each have different mandates that relate to AML/ATF. I have seen all three working together in their efforts to provide a framework that is clear, consistent and workable for organizations such as life insurers. The industry appreciates such efforts and urges the government and the regulators to continue pursuing this dialogue. This can go a long way to promoting an efficient and effective regime for both regulators and for the life insurance industry.

Thank you very much, chairman, for the opportunity to make these comments. I would be pleased to try to answer any questions.

The Chair: Thank you, Mr. Zinatelli.

I'm going to go to my list of questioners immediately, starting with the deputy chair of the committee, Senator Hervieux-Payette, to be followed by Senator Maltais.


Senator Hervieux-Payette: Welcome, everyone. I was wondering earlier when Canadians pay their insurance premiums what percentage theft represents. Is five per cent of the thefts represented in the premium I pay, that is to say five per cent of the losses that you incur? Or is it 10 per cent, 15 per cent? I would like to have that information broken down by sector, for individuals and businesses; because someone has to be paying somewhere and you have to be profitable.


Mr. Robertson: The most recent study that has been conducted was done by KPMG on behalf of the industry back in 2012, and the difficulty, as you can imagine, in trying to look at how much fraud is within the system really comes down to what types of fraud they are looking at in a system.

Two different studies have taken place. The averages now are between 9 and 18 per cent of what you're paying towards premiums are going towards insurance crime. That would be from the property and casualty standpoint. From a business standpoint, the numbers, the stats, the research done on that, I do not have those numbers, but certainly from an individual standpoint, between 9 and 18 per cent is what the current numbers are.

Senator Hervieux-Payette: I think it's important to know what we're talking about.

I think it's you who mentioned the report online and the time.


I jotted down a note, but I cannot refer to the text. Those who appeared before you, earlier, were talking about reports that are made online, directly, by computer. Concerning the reaction time to an event when a theft is reported, I suppose that different people receive the report to process it; those who will be preparing the estimates, those who accept them, the whole process.

What is the average time it takes to process a theft? How much time does it take, generally?


Mr. Robertson: On an individual standpoint within an insurance company, I can't give you that number. As I mentioned earlier, we are really now focused on the organized criminal activity and bringing together those people who are involved in attacking and going after multiple insurers.

From my standpoint from an investigation, the investigation that I made reference to where there were 36 people in 50 staged accidents, by the time all that information was gathered, it took about two years to get all that compiled to look at the scope and the size and how big a problem that is.

Individually, each individual insurance company involved in property and casualty insurance really has within their own policies to find time as to how long they can handle it. But from my standpoint doing the investigation, we wouldn't take part in that type of study or survey, because we are looking at it from a big industry picture as opposed to an individual company picture.


Senator Hervieux-Payette: Are they reported automatically to police? If there is a theft, normally, police look for the thief. What is the mechanism between your members and the police?


Mr. Robertson: The individual insurance companies can, if they've identified a fraudulent claim or what they believe to be a fraudulent claim, they've got several. We do not just have law enforcement to go to to go after it from a criminal perspective. They could go through financial services and go through a provincial investigation as well, but from our standpoint, we would be a conduit for multiple insurance companies that see similar targets or similar groups. They would come to us. We are then a liaison with law enforcement to put together the investigative brief in one picture and then take that investigative brief to the law enforcement agency that we see as the appropriate one to be looking at the overall big investigation.

In our case right now, especially when you look at staged collisions, they're primarily happening in southern Ontario. They are predominantly within the Greater Toronto Area, and they are expanding. It really is right now a southern Ontario issue that we're dealing with when it comes to staged collisions. Much like any type of criminal activity, they are expanding across other areas within Canada, but primarily right now it is southern Ontario.

We would be the conduit to take that information to law enforcement or to another regulator. It could be to financial services. We could take the investigation on to a provincial body for health regulators as well.


Senator Maltais: Mr. Robertson, full disclosure: I am an insurance broker by trade. I want to congratulate the Insurance Bureau of Canada for the work it has been doing for 25 or 30 years.

One thing bothers me. In another Parliament than this one, I fought against my own party regarding the decentralization of insurance companies. In Quebec, among other places, Desjardins was exerting enormous pressure for general insurance to be sold directly. Then the banks came on the scene. If you watch a hockey game in Quebec — I do not know if the same thing applies elsewhere — you may see 10 to 15 insurance company ads during the game. One says that they will give you a $200 discount, the other one says $300, depending on whether you have a motorcycle or a bicycle; everyone offers discounts.

You have so many distributors — and I am not calling their competence into question — I will come back to this later with a sub-question for Mr. Masnyk — is that a problem? How can you make sure, in the context of the work done by the Insurance Bureau of Canada, that everyone is giving clients the services they expect?


Mr. Robertson: Senator, with respect to the investigation of an organized activity, is that what you're referring to?

From our standpoint, because we obviously have our member companies that belong to the IBC, we do have information coming to us specifically about organized fraud or insurance fraud that we would use to start the investigation. It may not come from all members all at once, but as we're doing the investigation, we are going to see where it crosses over into other companies. It may be other companies that have not provided any information at that point in time. We would then reach out to them and inform them, using the reasonable grounds that we've obtained, and say, ``This is what we have found so far. Review your files and come back to us with this investigation or with your information.''

From that standpoint, being able to look at the big picture and bring that other information to the members is a critical piece. I would suggest that the majority of the investigations that we undertake start off with one or two members, and by the time we're finished expand into many more, because we do not just rely on those members that have come forward. We'll expand it as far as necessary.


Senator Maltais: In the list of goods that are stolen most often, you forgot one: slaughter animals. In containers, the biggest ones are always the ones that disappear. It is not the little veal but the large 1,500-pound beef; that is the one that disappears first.

My question will be for Mr. Masnyk. You work for the Insurance Brokers Association of Canada. I was wondering if everyone who sells insurance in Canada has to swear the same oath as brokers do. Today, brokers have to be brave, because their turf is being invaded by just about everyone.

Do those employees swear the same oath regarding the integrity of the people they sell insurance policies to?

Mr. Masnyk: I am happy to hear that you were an insurance broker.

All of the insurance brokers in Canada are licenced in their respective provinces. A lot of people claim to sell insurance, without having a licence. The standard to practise the profession in Canada varies from one province to another, but there are a lot of people throughout the country, like merchants or travel agents, who sell travel insurance as a secondary product, for instance, but do not have a licence.

This is a big problem in the country, which our association and the provincial associations are trying to solve with the provincial regulatory authorities.

Are there people in various professions or industries who hire people to sell insurance although they do not have a licence? The answer is yes. Sales over the Internet are another example.

How can a consumer know who is behind the Internet operation that is selling insurance? Is that person qualified and licenced? No one knows.

It is a problem.


Senator Ringuette: I have two questions. Mr. Robertson, I had never heard of staged car collisions before and the quantity of car theft. You say that to this end you would like to see protocols established that would allow an easier exchange of information between private and public organizations. So you're referring to your organization as private and FINTRAC or the RCMP or SßretØ du QuØbec as public.

How would you see that happen? There's the issue of privacy law involved. In your organization, the level of certification and compliance with the Privacy Act, to what degree is that so, so that it could facilitate this exchange of information?

Mr. Robertson: The Insurance Bureau of Canada, the investigators, have investigative body status within PIPEDA since the onset of PIPEDA.

Senator Ringuette: What is PIPEDA?

Mr. Robertson: The Personal Information Protection and Electronic Documents Act. We have had investigative body status along with the Canadian Bankers Association since day one. During our investigation, that allows us under certain terms and certain investigation reasonableness to look at that investigation. Where we see a breach of contract law or those categories, we exchange that information with those regulators, law enforcement, FINTRAC. In cases where the information is able to come back to us, we respond back to the insurance company, for example, that provided us with the information in the first place.

So from an investigative standpoint, and understanding now the Privacy Act portion of it, being able to exchange that information and get information back is critical.

I can give you examples where we have provided information on certain individuals.

Senator Ringuette: To whom?

Mr. Robertson: To law enforcement agencies as well as directly to FINTRAC. The difficulty is, we have to go through a third party, for example, law enforcement, to get that information over to FINTRAC directly and vice versa.

In a lot of cases, what's happening is that we will be able to get the information in but not necessarily will that law enforcement agency be the one that would then take on that investigation. They have simply become a conduit.

Senator Ringuette: Have you made that presentation before today to the people responsible for FINTRAC regulations?

Mr. Robertson: From my standpoint, no. I have not had that opportunity until today.

Senator Ringuette: This is a new issue then?

Mr. Robertson: Absolutely, yes.

Senator Ringuette: Thank you for bringing it up.

Mr. Robertson, the numbers that you indicate in particular with cars are enormous.

Mr. Masnyk, you said in your presentation that life insurance is all about wealth management where P and C insurance is all about risk management, and then you go on and you say that there is virtually no monetary value in a P and C policy other than a promise or a guarantee that you will be put in the same position as you were in before. So that is quite contradictory in regard to your declaration and the facts that you've stated and the volume of auto theft.

Mr. Masnyk: When an individual has a car stolen, the first thing he does is call his insurance company or usually his insurance broker. That individual, the broker and the company at the outset do not know what the cause is or what's behind the actual theft of the car. Is money laundering involved? At the outset, nobody knows. It's only later when the insurance company compiles a bigger picture perspective — and Mr. Robertson will probably have more insight into this than I do, at the insurance company level or even at the IBC level — that that individual car loss or car theft is put in a category of, okay, this looks like and smells like some kind of money laundering scheme.

Senator Ringuette: Then you are in agreement with Mr. Robertson that it's a major issue.

Senator Black: I want to thank the four of you. You make our job much easier. We're here to study a piece of legislation, to try and make it better. We only know what we know, and I'm very appreciative for all four of you taking the time to be here to help us do our jobs a little bit better. Thank you very much.

I appreciated from the three gentlemen that they have made specific recommendations as to how we could make this legislation better.

Mr. Robertson, you didn't make any specific recommendations as to how we could make the legislation better. Do you have any specific recommendations?

Mr. Robertson: We are looking at it — at least, I am — from an entirely different perspective. From our standpoint, looking at it from an investigative standpoint, we are seeing money going out as opposed to the money being put in. So we're seeing the losses coming out.

The real recommendation from my standpoint really focuses on that ability to be able to get the information to those authorities in a way that we can do it, number one, easily, and number two, to get it there quickly.

Senator Black: Are there blocks to that now?

Mr. Robertson: I believe there are, and where we're seeing the block, as I made mention, is having to go through that third-party conduit.

I'll give you another example. Within Canada Border Services Agency Act, they can only provide certain information to law enforcement agencies. The regulations stipulate that.

In the working agreement that we have right now and the working group that has recovered almost 500 cars in the ports of Halifax and Montreal, again Canada Border Services, although we're working together as a team, cannot provide us directly with information. It has to go through the RCMP or local law enforcement, who then can provide it to us. So that type of digging in further, looking further into how can we avoid that type of blocks in those areas are certainly areas that I would recommend that we could look at further, to be able to go after these proceeds, because they're there.

Senator Massicotte: My question has been answered.

Senator Greene: My question has almost been answered also, but I will ask it in a different way, I think.

I tend to agree with the representative from the Insurance Brokers Association of Canada that the P and C industry should not be part of the reporting requirements. It's very difficult for me to come up with an example of how P and C policy could be used for money laundering. I've been racking my brain, but this is the only one I can come up, and so I will run it by you and please knock it down.

Supposing a money launderer with $1 million to launder buys a house in a private sale and also buys an insurance policy on the house. He then burns it down and collects the million dollars. That's insurance fraud for sure, but it's insurance fraud in order to launder money. Could you take me through why that scenario should not apply?

Mr. Masnyk: The adjustor for the insurance company and the broker would look at the burnt down house. The adjustor's first job is to determine the cause of the fire. If it's determined that the cause of the fire is something sinister then the policy will not be paid out. If it's determined it was a legitimate fire, the owner wasn't home and it's an electrical fire or whatever, in that case the house would be rebuilt in order for the owner to have exactly the same house, the same monetary value and as physically close as possible.

I don't see at the end of the day the person in a legitimate claim being enriched. If the system works properly, the fraudster would then be denied the claim and would actually lose the monetary value he has put into the house.

That's generally the scenario.

Mr. Robertson: I would agree. You're looking at a civil contract initially with the policy in place. It really is not until quite a bit of investigation has been conducted that you're able to prove and have reason enough to go after that to say that it is indeed fraudulent and it was an insurance crime.

Senator Greene: Because it would trigger an investigation, it's unlikely that a money launderer would go that route because he has another idea.

Mr. Robertson: It would not be the first way to go.

Senator Greene: He can't get cash.

Senator Ringuette: How about jeweler or works of art? You would insure that with home contents.

Mr. Masnyk: Yes, very expensive jeweler would be under a separate coverage from a standard home policy. Most individual items in a home are usually insured up to a maximum of $6,000 as a base coverage. If you're lucky enough to own a ring that costs $120,000, your insurance broker would ask you for an inventory of your home, would notice a $120,000 ring and say that you would need separate coverage for that.

Senator Ringuette: Would you agree that maybe in regard to insurance for that type of luxury item that could be an issue for money laundering or investigation or something like that?

Mr. Masnyk: It's a stretch, like you said, senator.

Mr. Robertson: The thing is we're not seeing it. It's certainly not coming up on our radar right now as something that is happening so often that we would be getting into investigations of.

The Chair: Mr. McGuire, I was fascinated in your opening remarks, as you went through your resumØ, you talked about the fact that had been an intelligence analyst with FINTRAC. One of the recommendations you're making is in terms of how the act deals with a situation of the coming together of the two groups. Are there any other observations you'd like to share with the committee in terms of having moved from FINTRAC over to your new capacity?

Mr. McGuire: I'm fairly glad you asked, but those comments would be professionally rather than as part of the association.

There are still glaring holes in the legislation that need to be filled. I'm continually surprised that we haven't regulated leasing companies and finance companies, which could be an incredible means to launder money and have been identified as a risk internationally. That's an interesting thing to me.

I have a fair bit of involvement with money services businesses and virtual currency companies. From that perspective, my surprise is that we have kept to a regime where we only register money services businesses and essentially just provide a listing rather than provide any measure of prudential regulation over those companies.

Even today there were reports about people who had funds in bitcoins and virtual currencies that were stolen or absconded with or an example of a company that folds. These are essentially funds that on deposit in some ways with the exchanges, in these wallets. Without that prudential regulation, we miss a fair bit of the story.

Further, I would say that the effectiveness of the regime could be much improved. Following on your last report, we have the equivalent of a fire hose going into a garden hose. FINTRAC is producing incredible intelligence, but when you get down to the levels of law enforcement and prosecution, the numbers aren't showing up. Part of the answer to that question is the civil forfeiture regime, which is underutilized in my view.

To the point of Senator Maltais, the tax mechanisms are effective in large part because they rely more on a civil standard than on a criminal standard, and the funds that are seized and eventually forfeited are put towards further law enforcement much more quickly than in any criminal process. I think a lot of the answer is in that.

The Chair: Mr. McGuire, thank you very much for your response. The record will note that you are speaking as an individual and not in your capacity as chair of the anti-money laundering committee. I greatly appreciate you sharing that with us.

Senator Ringuette: I would be remiss if I did not ask you your opinion. You were sitting in the back when I made my comments in regard to ``on time.'' When we look at 5 days' delay and 30 days' delay in regard to information in this day of super-duper fast technology, what is your opinion on the personal level?

Mr. McGuire: One of the issues with our regime as compared to others, particularly in terms of intelligence, is that there are very few means by which to interdict a transaction to stop it in its tracks. Your idea of real-time reporting might help towards that end in being able to stop a transaction or at least impede the flow of further transactions.

In terms of the availability of information, I work with everyone from the large banks down to smaller shops. I would say if most of the organizations that are large are set up to disclose quite quickly, particularly in the way of wires and electronic funds transactions, you could adapt the legislation to make that more possible. Right now there are some elements of electronic funds transfer reporting legislation that are awkward and impede the flow in some ways. I think that could be cured fairly easily.

On the subject of suspicious transaction reports, I personally believe that some time is necessary to allow the organization time to take sober thought and evaluate the transactions and decide whether they report or not. There are some very significant consequences of reporting a suspicious transaction report. One of the major factors in evaluating the risks to the client is the extent to which you filed suspicious transaction reports against them, and in one that you've filed three transactions against, you're likely going to divest. So suspicious transactions are not to be taken lightly.

On the electronic transaction front, more quickly, particularly for large organizations, would not be a huge issue.

Senator Hervieux-Payette: Mr. Masnyk would like to ``exclude the registering and reporting requirements for the P and C intermediation sector of these pieces of legislation,'' so everything related to stealing cars, et cetera. On the other hand, Mr. McGuire, you want to add.

I think there is a dichotomy between the two. You want to have more people in the financial sector and I feel it's because we underestimate the amount of money of P and C, because why just the financial? Mr. Masnyk, why would you exclude this saying we're not in wealth management, but there are a lot of activities that are criminal and not reporting to anybody?

Mr. Masnyk: I don't understand your question.

Senator Hervieux-Payette: You said:

As such, our recommendation would be to exclude the registering and reporting requirements for the P and C intermediation sector.

Why would you say well, we're talking about criminal action, quite a sizeable amount of money, P and C, and all these organized criminals who conduct these activities. They're not done on a personal basis. We're looking at organization; they pay people. It's a business. So you say exclude the P and C. Why exclude the P and C?

Mr. Masnyk: I wrote in my comments exclude the P and C intermediation sector, as in the insurance brokers who in their daily lives market, sell insurance products and also advocate with insurance companies on behalf of their customers when there is a claim.

In our experiences, as I mentioned in my comments, there are very limited opportunities in the actual day-to-day operations of the P and C intermediation business or profession for money laundering as Senator Greene mentioned earlier and gave an example. Those examples don't actually take place.

A car theft is a car theft. Is the car theft related to money laundering or not? At the outset, the broker and the insurance company don't know. How would anybody know? It's in a big picture looking at what insurers and group of insurers under the IBC do; they put together a pattern. But you get your car stolen today and it might be five years before you know that that stolen car would fall under money laundering. It might be a criminal who is not that far advanced who just wanted to steal the car for a joyride for three days and dump it.

Mr. McGuire: The reason we bring up additions is we recognize that internationally it's known that the skills accountants have can be exploited, wittingly or not, for money laundering. We recognize that and we're asking for not just ourselves be covered, but others that practice accounting be covered, and all the things we could do that could facilitate anti-money laundering properly belong in the act.

I have some sympathy for Mr. Masnyk's position from the perspective that a broker has limited insight for property policy at the inception of the relationship. While there may be some risk factors, it's likely not indicative enough to report meaningfully. The subtlety of his point is that the organization, the insurer, might have intelligence that could be useful to a financial intelligence unit or to law enforcement. I think that's the subtle point.

The Chair: Thank you very much. To each of our panelists, we'd like to express our appreciation for your appearance today. You have been very helpful in our review of this act.

(The committee adjourned.)