Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 10 - Evidence - February 9, 2012
OTTAWA, Thursday, February 9, 2012
The Standing Senate Committee on Banking, Trade and Commerce met this day at 10:35 a.m. for the review of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (S.C. 2000, c. 17), pursuant to section 72 of the said Act.
Senator Irving Gerstein (Chair) in the chair.
The Chair: Good morning, ladies and gentlemen, and welcome to our meeting. Honourable senators, this morning we continue the five-year parliamentary review of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. This is our third meeting on the subject. When this legislation was first adopted in the year 2000, it established the Financial Transactions and Reports Analysis Centre of Canada, more commonly referred to as FINTRAC. This organization is one of the key elements of Canada's anti-money laundering and anti-terrorism financing regime.
We are delighted to have FINTRAC before us today. We welcome Ms. Darlene Boileau, Deputy Director, Strategic Policy and Public Affairs; Mr. Barry MacKillop, Deputy Director, Financial Analysis and Disclosure; Ms. Chantal Jalbert, Assistant Director, Regional Operations and Compliance; and Mr. Paul Dubrule, General Counsel.
Darlene Boileau, Deputy Director, Strategic Policy and Public Affairs, Financial Transactions and Reports Analysis Centre of Canada: Before I begin with my opening remarks, I would like to let the committee know that we have brought some documents for you that we will leave with the clerk: the annual report, which I hope you received, and our trends and typologies document, which may be useful to help inform the discussion. It is our pleasure to appear before the committee today. My opening remarks will outline FINTRAC's role in Canada's efforts to combat money laundering and terrorist financing. I will also describe how FINTRAC has evolved since this committee last reviewed the Proceeds of Crime (Money Laundering) and Terrorist Financing Act in 2006.
FINTRAC is Canada's financial intelligence unit. We have a staff of 342, and we have three regional offices in Montreal, Toronto and Vancouver, as well as our headquarters here in Ottawa. Our agency is unique in Canada. Our mandate, as defined under the act, is to receive and analyze financial transaction information and disclose this information to various levels of Canadian and foreign investigative bodies when certain legal thresholds are reached.
This legislation governs FINTRAC's receipt, collection, analysis and secure handling of the information under its control. While the core of FINTRAC's work involves in-depth analysis of suspicious financial activity, FINTRAC is not a law enforcement agency. We do not investigate, we do not charge, and we do not prosecute. Our job is to provide financial intelligence leads to police, law enforcement and national security and intelligence agencies. We are an important resource for every police department in Canada because of our unique ability to follow the criminal money trail across the country and around the world.
Moreover, the act requires of FINTRAC that we disclose financial intelligence to our partners when we have reached a certain threshold of having reasonable grounds to suspect that the information would be relevant to investigating or prosecuting a money-laundering or terrorist-financing offence.
When statutory standards for disclosure to these organizations are met, we communicate information to federal police forces, the Canada Revenue Agency, the Canada Border Services Agency, the Communications Security Establishment, and the Canadian Security Intelligence Services.
We also disclose information to foreign financial intelligence units.
Our work begins with the daily intake of over 65,000 reports on several types of financial transactions from many businesses, which we call "reporting entities.'' Most of the reports we receive come from the banks; however, we also receive reports from casinos, credit unions, life insurance companies and money service businesses, to name but a few, who are obligated by the act to send reports to us. We receive several categories of reports as authorized by the law: suspicious transaction reports, including attempted suspicious transactions; large cash transaction reports of $10,000 or more; casino disbursement reports; reports of international electronic fund transfers of $10,000 or more; and terrorist property reports. When I say "international,'' I should be clear that I mean electronic fund transfers entering or leaving the country. We are not authorized to receive reports of domestic electronic fund transfers.
The requirement of reporting entities to send us these reports is a strong measure at the front line of detection and deterrence of money laundering, and that is one of the key objectives of the act. As FINTRAC receives thousands of statements weekly, protection of privacy is a responsibility that is always foremost in our minds.
In fact, our act specifically stipulates that privacy considerations be intrinsic to our procedures for handing this information, including having a very robust set of security features.
Over the years, we have built a very large data base of these different types of transaction reports. Through sophisticated technology and the skills of highly trained and experienced analysts, we can analyze this date from both a tactical and strategic perspective and understand it in combination with information from other sources such as law enforcement and national security data bases, commercially or publicly available data bases and sometimes information from foreign financial intelligence units.
We make use of this information to produce both tactical and strategic financial intelligence. Tactical financial intelligence assists criminal and intelligence investigations. Its focus is the individuals, businesses, transactions and accounts that we suspect would be relevant to an investigation or prosecution of a money laundering offence or a terrorist activity financing offence or, as well, a threat to the security of Canada.
FINTRAC's core tactical intelligence product or, as we commonly call them, the case disclosures, contains comprehensive details of the financial data we receive.
Senator Ringuette: We are missing page 5.
Ms. Boileau: I am sorry. We will get you page 5.
The Chair: We will listen very carefully.
Ms. Boileau: I will speak slowly. I apologize; we will make sure that information is received.
These disclosures are communicated to our partners in law enforcement and the intelligence community to assist investigations. As stated in our most recent annual report, we provided 777 case disclosures to assist investigations, and 80 per cent of these were generated following receipt of voluntary information from our partners.
The point of undertaking strategic financial intelligence is to gain a high-level, longer-term view, identifying emerging trends and patterns in methods used by criminal and terrorist organizations in money laundering and terrorist financing operations. This supports the government's national priorities, such as the national agenda to combat organized crime.
Strategic financial intelligence not only contributes to law enforcement and security agencies to directing their resources to manage different types of threats, but it also influences the development of appropriate legislative and regulatory amendments, where warranted. In addition, it enables us, FINTRAC, to refine our own tactical analysis tools and methods to better serve the needs of disclosure recipients.
That summarizes FINTRAC's role as a producer of intelligence for the benefit of other agencies and partners. FINTRAC also has responsibility for ensuring compliance with Part 1 of the act. We do this by working with the many businesses and individuals who have reporting, recordkeeping and client identification obligations as set out in the legislation.
FINTRAC's compliance work ensures that the agency continues to receive the transaction reports necessary to produce financial intelligence. As I noted earlier, our compliance efforts serve both the detection and deterrence aspects of our mandate. By improving recordkeeping and client identification requirements, we are creating an environment in Canada that is inhospitable to money laundering and terrorist financing. Banks, credit unions and other businesses have played a critical role in changing that environment.
The last parliamentary review of this legislation brought significant improvements to how FINTRAC operates. Specifically, it expanded the scope of what information we can receive and what information we can disclose to our domestic and international partners. Prior to this change, FINTRAC was prohibited by law from informing its partners of the grounds reporting entities had for suspecting money laundering or terrorist financing. This seemingly small change has been of tremendous benefit to our work, and we are now able to provide our partners with more precise information, which in turn aids their investigations.
FINTRAC has also made operational changes to improve the quality of our financial intelligence and turnaround times, improvements largely based on feedback from our clients. We have worked to align this output with the highest priority cases of the RCMP and other police services in Canada. By assisting police with these cases, our intelligence has become much sought after, to the point that the Canadian Association of Chiefs of Police adopted a resolution at their last annual meeting acknowledging FINTRAC's significant contribution to organized crime investigations. The resolution recognized that we are a key partner and that "financial advantage is the key goal for all criminal organizations and that consequently financial intelligence must be an integral component of all organized crime investigations.''
More than ever, police are now voluntarily sharing information with FINTRAC concerning their priority investigations. They do so to gain a perspective on the proceeds of crime and the relationship within an investigation that can often only be made visible by following the money trail.
Significant regulatory improvements have also been made, improvements that were directly inspired by recommendations from this committee in 2006. The majority of the 16 recommendations made have been implemented. As per the committee's suggestion, FINTRAC implemented a national registry of money services businesses. These entities are now legally required to register with FINTRAC. As well, we instituted an administrative monetary penalty system to help ensure compliance with the law.
There are several other proposals for improvement that you will see reflected in the consultation paper released by Finance Canada. I would call to your attention the proposals intended to improve information sharing within the regime and allow FINTRAC to better serve the police and other recipients of our financial intelligence.
FINTRAC does work closely with Finance Canada to propose legislation changes that will bring the much-needed improvements identified through our operational experience of working within the existing legislative framework.
FINTRAC looks forward to the committee's recommendations, seeing as earlier recommendations resulted in significant improvements to how we fulfill our mandate, and hence to our usefulness to police, law enforcement and national security agencies.
Over the past five years, FINTRAC's scope and reputation as an intelligence agency have grown considerably. Our success is measured by the quality of the intelligence we provide and the assistance we offer our regime partners.
I am pleased to say that, based on those measures, we are delivering a valued product for which demand is growing. My colleagues and I would be happy to take any questions that you might have.
The Chair: Thank you very much, Ms. Boileau, for your opening remarks. As I mentioned in my opening comment, this is the third of our meetings on the subject. In the two meetings that we have held to this point, we ever had representatives of Finance, RCMP CSIS, CBSA and Public Safety. I would be very interested if you could open by giving us some indications of how you view the coordination and cooperation between the various groups. Are there restrictions that you would be looking to our committee to make recommendations that might help you in being able to communicate or work together better?
Ms. Boileau: Thank you, Mr. Chair. I will start, but I will look to my colleagues to offer their advice based on their operational experience.
I believe that we have a very good working relationship with our partners within the regime, and we have, over the number of years since the last review, improved tremendously the way we do business collectively. I think that these reviews offer an opportunity for us to not only look back at what we can do but also look forward with regards to how we can, within the system, improve how we serve Canadians better.
The Chair: Are there any further comments? I hear quietness.
With that, I would like to start with our questions, turning first to the deputy chair of the committee, Senator Hervieux-Payette.
Senator Hervieux-Payette: When you talk about your very competent analysts, what is their training and what is their incentive to find all these bad people?
Barry MacKillop, Deputy Director, Financial Analysis and Disclosure, Financial Transactions and Reports Analysis Centre of Canada: If I understood you correctly, you would like to know why we consider our analysts excellent. When we hire them, their training comes from their educational background as well as any potential work-related background that they have, either in banking, in economy and criminology. We have established and offer a very comprehensive training program at FINTRAC. Training is provided to all analysts when they come in on how to use our tools, how to identify the data, and the money laundering or terrorist financing indicators that we look for. The training is not only given to analysts when they come in but also ongoing throughout the course of their experience with us, whether that might be 5 years, 10 years or a full career.
Ongoing training occurs as we get better, as we learn different ways to search our data base, for instance, and different techniques, or have increases in our technological capacities. We have a dedicated training team that covers all sectors of FINTRAC and provides ongoing training to the analysts. We also participate in training with the RCMP, where they have training on money laundering that they can offer, as well as any international courses. We both give and receive international courses on money laundering and terrorist financing analysis.
Senator Hervieux-Payette: I cannot go into the details of the classifications and their coding, because the general public would not understand the jargon.
What salary levels are we talking about? I just want to know the competency and performance levels of these people. Is there an incentive, performance-based remuneration?
Mr. MacKillop: FINTRAC does offer performance-based incentives to all employees, from those who have just taken up their position to the most experienced employees. Yearly salary incentives reward their performance, which itself is attributable to the pride they take in finding people who are, or who are suspected of being, criminals. They are very proud of their work and find it most interesting. There is also the financial incentive.
Senator Hervieux-Payette: What are the lowest and the highest salaries?
Ms. Boileau: Salaries fall within a scale of $60,000 to $100,000. Compared with public service executives, they are earning the equivalent of an EX-1. The salaries of the analysts working under them, from $50,000 to $100,000, are comparable to those in other departments.
Senator Massicotte: These are communications experts and people specializing in e-commerce applications. We know it is rare to find engineers in this domain. What is the compensation of this group of specialists?
Even though we are not competitive in new technologies, as we know, is this salary high enough to attract the best, so they can tackle organized crime?
Ms. Boileau: Yes, very much so. We have people with Ph.D.'s in mathematics who are passionate about intelligence analysis methodology. The sector has a very competitive edge in attracting people.
Senator Massicotte: How much do they earn?
Ms. Boileau: The group you mention earns between $70,000 and $80,000.
Senator Hervieux-Payette: On page 6 of your French document, bottom of the page, you say you have 777 communications moving investigations forward, and that 80 per cent of these are based on information your partners transmitted voluntarily. This word, "voluntarily'', turns up somewhere else in the report. On page 8 of the English document, it says:
More than ever, police are now voluntarily sharing information with FINTRAC —
Why would information be provided voluntarily? I believe that if a law applies, it applies of necessity. Everyone is obliged to respect it. It is no longer a matter of volunteering; it is mandatory.
The wording of the act will have to be put right because it cannot be done voluntarily, meaning only when one feels like it.
Ms. Boileau: I will have my colleague Mr. MacKillop explain the wording.
Mr. MacKillop: The thing is that police forces are not obliged to disclose information about all investigations. We receive intelligence on a voluntary basis, when the police investigation relates to money laundering or terrorism funding.
The information we receive is provided on a voluntary basis. We, ourselves, do not search out information, carry out investigations or extract information from police forces. What police forces tell us is that they provide information voluntarily if they feel it is important for FINTRAC to receive that information.
Then, if FINTRAC reaches its threshold, it discloses the information to the relevant police forces. The police are not obliged to provide the information; they do so more to advance their own investigations.
Senator Hervieux-Payette: In reviewing the act, I think there is an argument to be made for —
Paul Dubrule, General Counsel, Financial Transactions and Reports Analysis Centre of Canada: FINTRAC was created under the act as an autonomous agency, independent of police forces. It is by design that police forces are not obliged to disclose information to us. This is to ensure that FINTRAC remains independent, since the centre receives information directly from the reporting entities.
Senator Hervieux-Payette: Allow me to say that this could create large gaps. Not all police officers are well-informed of FINTRAC's role in the first place. Your teams involve a few hundred people.
There are thousands of police officers carrying out investigations, working in the field. I imagine this must be an important source of information for your operations. Your team is not going to find the criminals all on your own. In any case, we can ask other witnesses about this. However, I am very concerned to hear they will report something to you if they feel like it and they know about it. Your autonomy is not jeopardized, because you have the choice of whether to proceed or not. It is up to you to judge whether the information can be useful.
On page 7 of the English document, you bring up the RCMP again. However, of the people who make these reports to you when they feel like it, what are the percentages of the municipal police, provincial police and RCMP? That will be my last question.
Mr. MacKillop: The RCMP is one of our largest clients. RCMP officers maintain a presence everywhere. We also work a lot with the various police forces all across Canada, as well as with the Canadian Association of Police Chiefs, which shares a lot of information with FINTRAC.
We do a lot of education with the police forces. As Darlene was saying, the resolution of the Canadian Association of Police Chiefs clearly indicated that police officers across Canada support FINTRAC. They see how useful accessing our intelligence is for advancing their money laundering and terrorist financing investigations.
The police forces are aware of what FINTRAC is capable of and make use of us in nearly all their money- laundering investigations. FINTRAC continues to work closely with individual police forces as well as with the Canadian Association of Police Chiefs.
Senator Stewart Olsen: Perhaps you can help me. I was not on this committee years ago. You say that you deal with international reports, but you do not deal with domestic money laundering. Is that correct?
Ms. Boileau: Domestic financial transfers.
Senator Stewart Olsen: You have a suspicious transaction threshold. What would that constitute? I have two more questions after that. A suspicious threshold or a suspicious transaction would constitute what?
Mr. Dubrule: There is no specific threshold set out in the legislation regarding what is suspicious. That is left up to the reporting entities, given their specific knowledge of their business, their products and their clients, to determine what activity, given all those circumstances, is suspicious to them.
Senator Stewart Olsen: It is not just the $10,000?
Mr. Dubrule: No. The suspicious is a separate category of reports, regardless of amount, and then there are objective reports of $10,000 or more in cash. Those transactions are covered, as are electronic funds transfers of $10,000 or more where one end is in Canada.
Senator Stewart Olsen: Does FINTRAC work with the various organizations that you have detailed here as to what would be a suspicious transaction? If I were working in a bank, I would probably not know, although I might have a nibble of something. How do they know what is suspicious and what is not?
Chantal Jalbert, Assistant Director, Regional Operations and Compliance, Financial Transactions and Reports Analysis Centre of Canada: I think that question is for me, because I am responsible for the compliance program, and what you mentioned is essentially part of that. The reporting entities, of which banks are very important ones, have to put in place a compliance regime, which includes policies and procedures, training for their front-line staff and all of their staff so that they understand their obligations in regard to reporting, and submit the reports that were just mentioned.
Senator Stewart Olsen: I am seeing something, and I am not sure if it is real. You do the international, and you work with our police forces here in Canada on international. Who looks after the domestic, and how does that come back to you and integrate in the whole worldwide scheme? Suppose we have a domestic report. In Montreal or Toronto, there was a suspicious transaction, and that would go to the police forces, I assume. How do you find out about that? That would actually possibly be connected with an international. I am wondering about how you integrate.
Mr. Dubrule: In relation to the suspicious transactions, for anything that occurs in Canada, and I will just use the banks as the biggest area in the financial sector, that they find suspicious, or an attempted transaction that they find suspicious, they are required to provide a report of that incident to FINTRAC. That is a suspicious transaction.
On the international front, the focus is on the electronic funds transfers, where FINTRAC gets reports from banks and other reporting entities of a transaction that is outbound from Canada, the value of $10,000 or more, or inbound to Canada of a value of $10,000 or more.
Senator Stewart Olsen: I probably misread, but I wanted that clarified.
You are working closely with the department, and I understand that, but I am echoing the chair in asking for my recommendations that you might have to go a little bit further for this committee to perhaps include in a report. Thank you.
Senator Ringuette: Many times in your statement this morning you talked about partners around the world and so forth. Who are these partners?
Ms. Boileau: As I believe Finance explained last week, we are members of FATF, the Financial Action Task Force. A number of countries are part of those agreements and look to the international standards set by that Financial Action Task Force.
We are also a member of Egmont, and Egmont is financial intelligence units around the world. There are 127 countries that have financial intelligence units. We also work very closely with those FIUs globally.
Senator Ringuette: Do you attend meetings of the Financial Action Task Force?
Ms. Boileau: I will be. I have not yet. I have been at FINTRAC for a short while, so I will be. FINTRAC does attend.
Senator Ringuette: I was talking about your organization. Yes, you do.
Ms. Boileau: Yes.
Senator Ringuette: Can you explain why the U.S. does not have the same legislation that we do in Canada in regard to requesting the financial institutions of their country to supply information on transactions that are $10,000 or more in the case of Canada but whatever amount? Throughout all these years, why have they not complied in regard to what I find to be the minimum in regard to the Financial Action Task Force?
Ms. Boileau: I cannot explain why, exactly, the U.S. does not have that threshold, but each country is sovereign within its setting of their parameters of their legislation.
Senator Ringuette: I understand that. Your organization is part of this task force. It is also part of what we know now as Egmont, which is the financial international units of 127 countries. There is a standard that is established in order to really have efficiency in regard to detecting money laundering or money for terrorist actions. It seems that you are maybe very active in regard to receiving and giving out information domestically and internationally. My question is, how active are the other members of the task force in supplying the same kind of information to you?
Mr. Dubrule: When FINTRAC was created just over a decade ago, it was created in light of what the international experience was at the time. It was as a result of that that things were done here in a very innovative way, requiring the reporting of these electronic funds transfers and large cash transactions. In most of the world, in almost all the other countries that have financial intelligence units, those types of reports are not required to be provided to their FIUs.
We, through our work, are attempting to show the value of those types of reports to the intelligence products we provide, not only domestically to our police and other agency partners but internationally, so that those countries also see the value and the benefit to the world's financial system of getting those types of financial reports.
Senator Ringuette: Basically, after a decade of this international organization being put together, Canada, through your organization, is probably supplying a lot more information outbound than anything you would get internationally inbound? Am I correct? On average, how often do you receive suspicious information in a year?
Mr. MacKillop: Do we request information from our international partners and do they request information from us on particular and specific cases? The answer is yes, in both cases.
Senator Ringuette: I am asking about proactive information, because you are a proactive organization, in your own sense of the word, because of the reporting requirement from financial institutions and other entities in Canada. How many times would you get information that would be proactive from other members of this task force?
Mr. MacKillop: We receive a couple of hundred queries, which is information similar to the voluntary information reports. We get about a couple hundred queries a year. Last year, we provided about 150 disclosures to our foreign intelligence unit partners. There were probably about 50 different cases where we queried them for information and received information.
Our queries tend to be proactive, which you referred to. If we have a domestic case, for example, where we want to disclose information to the RCMP, one that has an international connection as we see in our analysis, we will request authority from the RCMP to disclose that as well to the international partners. They will take that and either provide information to us, if they have it, or use it in their investigations in their own country in terms of their domestic partners.
Senator Ringuette: The Department of Finance is suggesting that prepaid credit cards be included in the legislation. Technology and different currency products are rampant, and they change almost on a three-month basis. Why should we specify a particular product now when this legislation will be reviewed only every five years? Why not have the list of products in the regulations where it could be added to on an as-needed basis, instead of in the legislation that will not be reviewed for five years?
Ms. Boileau: It is a policy decision. We look forward to the advice from the committee on how you would like to see that implemented. We at FINTRAC implement the legislation.
The Chair: Surely, with the question Senator Ringuette has asked, you have thoughts about how you could better handle your affairs and what you would be asking of our committee. What would you like to have to be able to be more effective?
Ms. Boileau: We work very closely with Finance, with the proposals that you have in front of you, based on the experience we have seen over the last number of years at FINTRAC. The proposals that are in front of you are very well-informed by our work.
Senator Ringuette: I understand, but the proposals are based on past experience. We are looking at legislation that will help you in your task for the next five years. That is why I question adding specific products to the legislation when the option is to have a granting of a rules-based list of products on an as-needed basis. For example, in a year, a new product might come on the market that might be identified as a source of criminal activity, but we would not have the means to look into that product because it would not be in the legislation. Do you not think that you should probably ask for the option to have the list of products that you have to look at in a regulation that can be adjusted quickly by the department?
The Chair: Do you have a comment on that?
Mr. Dubrule: FINTRAC would like to be able to do its job in the best way possible, as Ms. Boileau indicated. However, we are not in the position to say how the legislation or regulation should be done.
The Chair: Would Senator Ringuette's suggestion be helpful to you?
Mr. Dubrule: Something that would enable the government to respond rapidly to a new development, as a general rule, would be helpful.
The Chair: Are you raising as an issue that the government cannot react rapidly enough?
Mr. Dubrule: I am not, Mr. Chair. Amendments have been made to this legislation when warranted. I am noting the senator's comment that regulations can be made more rapidly than legislative changes can be made.
Senator L. Smith: Following up on what Senator Ringuette and our chair have said, on page 8 of the English document, you mention having applied most of the 16 recommendations. Is there anything else from amongst them that you would like to apply, and can you tell us what that would be? Do you have a strategic plan? I know your work consists of meeting the requirements of the legislation, but at the same time, you also have a special role to play. If I understand this correctly, you are able to be aware of future trends and, perhaps, develop tools. Your relations with the Department of Finance, which you work with directly, and with the agencies are very important; but what is your role? Is there anything in the 16 points mentioned that you want to do?
Do you have a vision that is — as Senator Ringuette put it — "proactive''? Myself, I would use the phrase "strategy moving forward.''
I know that is a big complicated; there are two parts to the question. Firstly, over the past five years, what have you seen that you would like to implement? Secondly, do you have a plan you could implement to perhaps develop more tools? I know it is a sensitive question and that you are going to want to respect the role you play.
Ms. Boileau: Those are very good questions. Of the 16 recommendations put forward by the committee in 2006, approximately 13 found their way into amendments and have been implemented. A number of those are back with regard to the consultation document — those that might not have had enough information at the time. We have gleaned more information over the number of years and it is before you in the proposals.
We have worked very actively with Finance, Public Safety, CSIS and our RCMP partners to identify how we can improve what we do. The information is for the committee as part of the consultation paper, which you will come back to as part of your report. Information is coming to the committee from the stakeholders as well, which are the reporting entities, which will be taken into consideration as well. The pieces that we are most interested in are before you as part of that consultation paper.
Senator L. Smith: I asked the question because throughout the testimony we have had people tell us how quickly crime, criminals and criminal organizations adjust. When you put up a block, they adjust.
In my own mind, a simple person, I have always tried to anticipate what my opponent will do. If I were in your shoes, I would sense that one of the opportunities you have, being in a unique position, would be to have that strategic capability of anticipating moves.
We also know that technology is advancing so quickly, and technology is involved with criminal activity, that to me it would seem natural, respecting the fact that you respond to legislation, that you would appear to be the people in the position to have the ability to develop this capacity moving forward. I am not sure whether legislators would have necessarily the same strategic capability that you would have.
If we are going to be proactive and play a leadership role, I hate to say it, and maybe you have to change the scope of your mandate, but it would appear to be an opportunity.
Mr. Dubrule: On that score, I would like to assure all members of the committee that FINTRAC is aware of these types of issues looking forward. Bearing in mind that we are an intelligence agency and, as such, constrained from what we are able to say regarding what may be trends and how we may wish to counteract such trends in criminal activity, that type of information is provided to the Department of Finance so that they can take it all into account in developing proposals, either for regulatory or legislative amendments.
Senator L. Smith: What you are saying is that you are already doing it.
Mr. Dubrule: Absolutely.
Senator Harb: I have a couple of questions, and the first is an easy one about the protection of information. In your statement here, February 2012, you say that FINTRAC only discloses what is defined as "designated information to police and security agencies, and only when prescribed legal thresholds have been met.''
Say, for example, I am a member of a police force in Country A. I want to make a request and obtain information about Mr. John Smith or Joe Smith, so I will write to you. What do you do before you decide whether or not you want to share information with me?
Mr. MacKillop: First, if you are in Country A, the requests should be coming through the financial intelligence unit in your country. If the information is received by us, if we have an MOU, a memorandum of understanding, with the country that allows us to share information and disclose our cases to them, then we will proceed with the analysis. Our threshold is that we have to suspect it is relevant to a money laundering investigation. If there is an investigation going on in another country, the financial intelligence unit sends us a query and we do the analysis. If we suspect the information or intelligence we have may be relevant to an investigation and we have an MOU with the country, we will make a disclosure package, put it together and we will disclose to the foreign intelligence unit. If we do not have an MOU, then that information coming in would simply be information that could come in and be regarded as a voluntary information report that comes in. We have the discretion at FINTRAC to disclose, so we can, regardless of an MOU being in place or not, decide whether or not we want to disclose to that country. We do not have to disclose the information we have.
Senator Harb: You have said yourself in your own policy that you have certain standards. If it does not meet the test, you do not disclose it.
Mr. MacKillop: It has to achieve the threshold. It is not the $10,000 threshold. If we suspect that the information we have would be relevant to a money laundering or anti-terrorist financing investigation, then we can disclose. It is the level of suspicion.
Senator Harb: I presume pretty well any one of the 127 financial units could make a request, and you will disclose the information?
Mr. MacKillop: Not necessarily. They can make the request and, if it achieves a threshold and we have an MOU with that country, with that FIU, that financial intelligence unit, then we can disclose. It is not an automatic requirement for us to disclose.
Senator Harb: Would it be possible to supply the committee with a list of the MOUs you have with other countries? There are countries where they may not be democracies and, for political reasons, if Mr. Oliver is my political opponent and I have a good relation with the police, I will call the police and ask them to please launch an investigation into Mr. Oliver. I have seen Mr. Oliver has made a couple of trips to Canada. I can make his life quite miserable, using what is a very legitimate tool to deal with a very legitimate problem. That is the concern I am raising.
I want to jump quickly to the suspicious transactions reports that were submitted to your agencies between 2007 and 2010. A total of 238,000 transaction reports were suspicious. When we look at the table supplied to us by Finance, and I presume you are aware of it, during the same period, between 2007 and 2010, case disclosures come up to something like 2,000, although the transactions we are dealing here are approximately close to 80 to 90 million. Were the threshold to be removed from $10,000 for any kind of an international transaction, basically you will have, I presume, hundreds of millions if not billions of transactions. My question to you is this: How on earth will you be able to handle that, short of becoming a pure and simple database? Other than that, it is not conceivable. What sort of economic analysis or case study have you done in order to say there is value for money here? Does it make good economic sense, or are we really throwing good money after bad?
Mr. MacKillop: On the queries we get internationally, going back to your previous question, through Egmont, the standard is we would get them through the financial intelligence unit, not simply a police force in a country doing an investigation on someone. It would go through the financial intelligence unit, and they would submit that to us. That is on that side.
With respect to the EFTs, I cannot tell you how many more we will get because we do not systematically receive them right now. It is certainly logical to suspect there will be many more. Do we have the capacity and can we handle these? The intelligence we have seen to date and the experience we have suggests that, particularly in the area of terrorist financing, for example, the money that tends to be moved tends to be well below the threshold of $10,000. From that perspective, in terms of bang for the buck, yes, we will likely be able to find many more transactions that may be related or suspected to be related to terrorist financing and/or money laundering because, as noted earlier, with criminals being capable of adapting, they will do their electronic fund transfers below the threshold now. Even though we have a 24-hour rule, they will do it in 25 hours to get around that rule.
There are technological advances that we can look at. As mentioned, criminals use technology, as do we, that will allow us to mine the data appropriately and to use the data to maximize the intelligence that we can glean from the data that comes in. We believe that the reports and the disclosures that we do right now will increase in their usefulness and their "actionability'' with the law enforcement and security partners we deal with because the information we have will be increasingly useful with respect to developing and identifying any potential transactions.
Internationally, as Mr. Dubrule noted earlier, EFTs are not systematically collected by all FIUs, but we do know that in Australia they do collect electronic fund transfers, the international ones, as we do, and they do not have a threshold, and they seem to be able to function quite well in terms of their disclosures and managing the data that comes in.
Senator Harb: What about the cost from the financial institutions on yourself and the regime, which I presume is the RCMP, Revenue Canada as well as CSIS?
Mr. MacKillop: In terms of the cost of sending all the reports in, arguably from the reporting regime it may in fact reduce some of the burden because they no longer have a rule or level that they have to establish. They simply send everything to us. In terms of receiving, the data comes in electronically, so whether you have a batch of 10 reports or 100 reports coming in, there is no additional cost. Down the road, in terms of the number of analysts we do the best that we can with the resources that we have.
The Chair: Is the Australian model one that you look to in particular areas?
Mr. MacKillop: As one of our key partners, yes. As was mentioned yesterday, we deal with the 5-Eyes in all areas of law enforcement and national security. Certainly, we look to that model to learn from, and we look to all other partners to try to learn from best practices across the world. As mentioned earlier by the senator, not all FIUs work the same because they do not all have the same legislation. We strive to be the best.
Senator Maltais: I want to go back to the suspicious transactions reported to FINTRAC. I am intrigued; looking at the ones from the large banks, I see they make up around 32 per cent of the transactions. If I add up the credit unions and credit cooperatives, I get nearly 29 per cent. I am surprised, because large banks are in large centres, large cities, or oftentimes they are outside the country in large American, South American or European cities. The cooperative of Saskatoon or the Sainte-Thérèse credit union, however, does not have any representation in Guatemala. How can there be so many suspicious transactions in these small savings and credit cooperatives?
Ms. Jalbert: Certainly, the financial sector is one of the most important to us when it comes to preventing and detecting money-laundering and terrorist-funding activities. What you have just named is pretty much the entire financial sector; that industry sends us the most reports, which are eventually analyzed by my colleague, Mr. MacKillop, and turn up in case presentations we make to police forces.
Senator Maltais: Still, that is surprising. I did not think credit cooperatives operating within Canada were subject to international money-laundering pressure. I am surprised. For example, if we take the Quebec North Shore workers' cooperative, located only in Baie-Comeau, how can anyone get in touch with it to carry out a suspicious transaction?
Ms. Jalbert: If I may, when we say suspicious transaction reports, we are referring to financial transactions taking place within Canada. When we spoke earlier of "international,'' it was about international electronic fund transfers. Those involve a transaction that either starts in Canada or arrives in Canada. What you are referring to are Canadian financial transactions for which financial institutions have instituted risk management plans. They will evaluate their products, the services they offer, as well as their clients and geographical settings. If they reach a certain risk level, they start sending us suspicious transaction reports.
Senator Maltais: Of the 238,000 suspicious transaction reports sent to you, how many do you process within the year? Do you filter them? How does it work?
Ms. Jalbert: I am going to let Mr. MacKillop answer that, because he deals with them on a daily basis.
Mr. MacKilllop: Actually, that is the answer; we check them every day. Luckily, we do not receive them all at once, but we do receive about 200 a day. We go through them daily. They truly are an important tool for us in order to remain proactive and generate case disclosures we can make to police forces. Over the past few years, the quality of transaction reports has risen a lot. Entities sending in these reports play a very important role within the regime.
Senator Maltais: And how do you manage, running through them at a rate of 200 a day, to decide, this one is really suspicious, I am going to earmark it for processing after 5 p.m.?
Mr. MacKillop: Unfortunately, I cannot explain all of it to you. Although if you are looking for a job, I invite you to take our training; then I would give you a full account of how we do it. Naturally, we have techniques, indicators; there are key words we look for.
Senator Massicotte: If I understand you correctly, your department focuses almost exclusively on cash transfers, electronic fund transfers? Am I wrong?
Mr. MacKillop: No. Electronic funds transfers are not in cash.
Senator Massicotte: Right, they are cash deposits or cash assets of $10,000 and up. Without referring to them by name, it is clear that, of the 200 countries around the world, some are poorly regulated or in cahoots with organized crime. In those cases, we hear, and it is reported in the newspapers, that organized crime works hand in hand with the local authorities, who tolerate companies conducting activities that may be criminal. As a result, the people in these companies have bank accounts, credit cards, debit cards, prepaid cards; then these people come to Canada and write cheques, make payments, deposit a cheque at the Bank of Montreal or other banks. Do these deposits have to be reported? If a contractor receives a cheque for building construction and deposits it in the bank — clearly it goes back to the bank in the foreign country — what sort of surveillance is there at that point?
Ms. Jalbert: I can try to explain. Is your question about a company that wants to operate in Canada, have a bank account in Canada and make transactions?
Senator Massicotte: No, I am referring to a foreign company — perhaps it is able to register as a Canadian company — that has foreign bank accounts in a poorly regulated country and that uses those accounts to write cheques and make payments from in Canada.
Ms. Jalbert: As we were saying, in that case, the only reports we receive are the international electronic fund transfers. The other transactions, within the other country, will not reach us.
Senator Massicotte: If one of those people writes a cheque for $100,000 to buy a house or some such thing using dirty money from outside the country, do we in Canada have any control over that type of transaction?
Ms. Jalbert: Not outside Canada. Conversely, requests might go out to Mr. MacKillop, further to investigations taking place over there, for intelligence about people operating in both countries. Other than that, we do not have access to the international transactions to which you refer.
Senator Massicotte: The bank has no obligation to report that something looks suspicious?
Ms. Jalbert: That depends on whether the client has an account in Canada. The client has to have an account in Canada.
Senator Massicotte: No, the person does not have an account in Canada and issues a cheque from some country or other. There are thousands of banks of which we have no knowledge. In Canada, we are accustomed to five or six large banks, but there are tons of bank accounts in countries that are more secretive or lesser known.
Ms. Jalbert: There have to be transactions Canadian banks pick up on as suspicious. It has to go through Canada in some way.
Senator Massicotte: I am trying to understand the responsibility of the Canadian banks. Let us say one of them sees this payment from a small bank; they have already dealt with this bank and are sure they will be paid. They have no good reason not to accept the cheque. Is their sole acceptance criterion that of being paid, saying, "this transaction looks odd, but I am under no obligation to FINTRAC to report it''?
Ms. Jalbert: What you are referring to in that case may be internal fraud, which is not a designated offence for us. Money laundering must be suspected. If money laundering is suspected and the bank picks up on that transaction, it could report that suspicious activity to us.
Senator Massicotte: Could or should?
Ms. Jalbert: It could report it. As Mr. Dubrule was explaining earlier, it is up to the bank to see whether it can, with good reason, judge the transaction to be suspicious.
Senator Massicotte: Does the same process apply to cheques and prepaid cards? In other words, the person comes with a prepaid card for $10,000, $15,000? Is it the same system, and therefore does not come under your control either?
Ms. Jalbert: At this point, prepaid cards are not covered by our regime.
Senator Massicotte: The legislation proposes an amendment in that regard. Would that include cards that have been prepaid outside the country?
Ms. Jalbert: It may, but it is really for the cross-border transactions where they will be a significant instrument.
Senator Hervieux-Payette: It is very interesting. There are two categories of people who can come here and buy a business or buy a building, immigrants who are called immigrant investors. Very often, it is a big amount of money. Are we looking at the source of the money? Some people who were politicians in other countries have had money that they obtained by fraud in their own country, and we have some. We had a $4 million apartment in our country. Do you consider that money as money laundering? They have obtained that money not in a very good fashion. There are many incidents that happened that we are aware of. Are you involved with that?
Ms. Jalbert: I would answer that by saying that banks have to know their customers, and there are certainly a lot of obligations included in the PCMLTFA that require them to understand their customers and ask them for the reason for the funds, their identification and so forth. Having a strong compliance regime and having your risk assessment in place, which includes looking at your products and services and your clients as well as the geography that they come from, would help them to make an advised and informed decision whether or not to be suspicious that there is money laundering and then make a report to us.
Senator Hervieux-Payette: The money can come from a very reputable bank in countries where the banks have very secret operations. I will not name the country, but it is in the middle of Europe. I say to myself, the dictator — call it the way you want — or the people who have abused their power have put their money aside. We read in the national and international newspapers that they have a tremendous amount of legitimate money in that bank, but how did they obtain it? Is it money laundering? It cannot come from only drugs and human trafficking. Who is going to catch these people, and how can they buy very select properties in our country?
Ms. Jalbert: You raise really good points. Certainly we put out indicators to show that certain types of trends and typologies could result in money laundering. We try to assist our banks and our reporting entities overall with that type of information so that they can find the transactions that you are mentioning. It is still up to them to either report to us or, in egregious cases, they could report to police directly as well.
Senator Hervieux-Payette: What will you do if they report to you?
Ms. Jalbert: If they report to us, and we encourage them to do so if the indicators are there, then they will go do Mr. MacKillop's team and be analyzed. If there is a threshold of the suspicion of money laundering, he will disclose to the law enforcement end partners, as we explained.
Senator Hervieux-Payette: Do you want to add something? I think of a special case recently, the son of a dictator who invested quite a lot of money in our country.
Mr. Dubrule: There are two elements. First, there is legislation passed by Parliament in relation to the freezing of assets of dictators, to use the shorthand. FINTRAC is not directly involved in relation to that legislation. To use your case, if someone is known, notorious in the media for being part of a regime abroad which is suspected of having received or being involved in criminal proceeds, armed with that information, financial institutions here would have to take all that into account in relation to their dealings with either that person or someone dealing with that person to see if they had, in their minds, reasonable grounds to suspect that the transaction was related to money laundering. If yes, they are obliged to report.
Senator Hervieux-Payette: At the end of the day, if the bank does not report, what does the bank incur in terms of a penalty, punishment and whatsoever?
Ms. Jalbert: The banks are actually doing a very good job and have a very strong regime of compliance in place. The penalties that you are mentioning, if they are not reporting to us properly, are there to enhance and support compliance with the PCMLTFA. We are working and are committed to working with the reporting entities, including our banks, to make sure that we give them every opportunity to comply and that they are aware and understand their obligations. It is only in the last resort when we do not see a change of behaviour that we would have to go to levying a penalty.
The Chair: I would like to go back to something I believe I heard. Am I correct that prepaid credit cards are a facility that has evolved since the last review? Is that a correct assumption on my part?
Mr. Dubrule: Yes.
The Chair: I would like to go back to Senator Ringuette's question. Are you then saying that until you receive an amendment, which you have not yet received, you are not able to deal with this facility?
Mr. Dubrule: The major issue in relation to prepaid cards is concerning people crossing the border. The part of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act that deals with border crossing, Part 2, is under the jurisdiction of the CBSA, not FINTRAC, so in relation to that we are not in a position to comment.
The Chair: With respect, I think you are missing my point. This is a new vehicle that developed since the last review, and you are saying that, until you receive an amendment, which I understand you have not yet received, you cannot deal with this vehicle? Is that correct?
Mr. Dubrule: Yes.
The Chair: Thank you. That is what I wanted to understand.
Senator Tkachuk: It would not fall under suspicious transactions, would it?
Mr. Dubrule: It depends. If someone is purchasing a prepaid card or coming in and wishing to use it and to withdraw money from it, the circumstances could give rise to the reporting entity having suspicion. It depends on what the circumstances are
Senator Tkachuk: Of course.
On page 4, the first paragraph, you say you are not authorized to receive reports of domestic electronic fund transfers. If you have money being sent from Saskatchewan to Alberta, it could fall under suspicious transaction. If the bank themselves thinks there is something funny going on, they can then report these transactions of money flowing from one province to the other? Okay. I just wanted to clear that up.
I had asked previous witnesses about privacy issues. The bill presently has a 15-year period of keeping records, I understand, before they have to be destroyed. Do you really require 15 years? Would 10 years be fine? Why do you need 15 years? It seems like a long time to hold on to information that is of no consequence to you.
Mr. Dubrule: First, FINTRAC is now required to keep the information reports for 10 years and to destroy the identifying information contained in those reports by the fifteenth anniversary of the receipt of the reports. The rationale —
Senator Tkachuk: That is different. We thought it was 10 years.
Mr. Dubrule: We must retain it for 10 years, must destroy it by 15 years, in relation to information that has not been subject of a disclosure. That bit is put aside. The rationale for the length of time goes back to the time-consuming nature of money laundering investigations, which can take years, even decades. As a result, information that may not have been used in a disclosure in eight or ten years could be used in the twelfth year because that is the nature of the financial intelligence business. Parliament determined it appropriate to say that FINTRAC must retain the information for ten years and that if it has not been used, must destroy it prior to the fifteenth anniversary.
Senator Tkachuk: The law was passed a decade ago. I want to get to the question of deterrence and disadvantage in using electronic means to move cash. Have the number of suspicious transactions decreased over time or have they increased year by year — suspicious transactions, not necessarily the automatic $10,000 amount?
Ms. Jalbert: I can certainly answer the first part of your question. Year over year they have been increasing steadily. That is in part because reporting entities are becoming more and more aware of their obligations and understanding the indicators of money laundering and getting more sensitive to that. We think that is the reason. We have been working closely with them to ensure that they understand their obligations.
It is possible sometimes for us to see it levelling off, but it does not mean that it will continue to increase exponentially. I think, right now, that we are seeing more of a plateau.
Senator Tkachuk: Has the quality of the information received on suspicious transactions improved over time?
Ms. Jalbert: I can explain the work that our compliance officers do with the reporting entity. Perhaps Mr. MacKillop wants to attest to that.
Certainly, the quality and the quantity, the volume if you will, are part of the compliance work that we do to encourage entities to submit the transactions in the best quality possible. We provide them with feedback. We have our trends and typologies reports — and I believe we brought one for you — to show them the value of their contributions to us and to encourage them to submit to us the best-quality-possible products, which then has increased the quality of the case disclosures that we can take to law enforcement.
Mr. MacKillop: Definitely. The quality of the suspicious transactions reporting has improved significantly. I think it is a recognition of both the training that is provided through FINTRAC but also within the entities themselves as well as the importance that they place on being true partners in the regime. In terms of how it is reflected on a daily or yearly basis is in the number of proactive disclosures that we now make, which has consistently increased as the quality of STRs increase and as our data base gets better and as we have increases in terms of the information that are proactive disclosures. Yes, the reporting is improving.
Senator Tkachuk: What do you use more in identifying a potential problem: the information you receive on names sending over $10,000, or subjective information, i.e., the identification of suspicious transaction by the banks? What material is better for you to use?
Mr. MacKillop: In our disclosures, it is really a combination of all of the above. The voluntary information reports that we get from the police are very important. They identify areas where they are investigating potential money laundering or terrorist financing activities. That will give us leads. The electronic fund transfers will allow us to identify patterns. The suspicious transaction reports will allow us to identify and use subjective information that has been given supported by the financial information that we have in our data base. We will use casino disbursement reports and all types of reports. We also use publicly available information that allows us to identify connections and patterns that support the financial and factual information that we have. The disclosures are a combination of all of them.
Rarely will we have a disclosure that has but a single type of transaction. Often we will use the STRs to do a proactive case, but we will look in our data base to see if there are other supporting transactions to go along with it. In terms of what is key or what kicks off a disclosure, it is usually a combination of the voluntary information reports, the STRs. It could be the media. There was a question earlier about foreigners who may be investing in Canada, whether they are politically exposed or otherwise. We read the newspapers and use the media and publicly available information to launch an analysis to determine whether it meets the threshold for disclosure.
It is a combination of all the information and data we have that we pull together for the analysis.
Senator Moore: I have questions with regard to privacy. On page 4 of your report, Ms. Boileau, you say that the receipt of thousands of reports weekly by FINTRAC also means that the protection of privacy must always be foremost in our minds.
I go to the consultation paper under the privacy section at page 6. I should read this in for the record:
The proposals and issues discussed in this paper seek to maintain a balance between the legitimate need to gather intelligence to assist with deterring and detecting money laundering and terrorist financing activities and to facilitate the investigation and prosecution of these offences with, the privacy rights of Canadians under the Canadian Charter of Rights and Freedoms (Charter) and Canada's privacy legislation.
Page 7 of this report goes on to say there is a legislative requirement for:
. . . the Office of the Privacy Commissioner (OPC) to perform, every two years, a privacy audit of the measures taken by FINTRAC to protect information it receives or collects . . . the report did identify gaps in FINTRAC's privacy management framework.
The report issued by the Privacy Commissioner in 2009 says:
While we found FINTRAC collects and uses compliance-related personal information for the purpose of ensuring reporting entities meet their obligations . . . , a number of issues surfaced that warrant attention.
The report continued:
. . . restricting the collection of information to that which is strictly necessary to fulfil an identified purpose, mitigates privacy risks. Simply stated, data not collected is data not at risk.
In their audit, they found:
. . . there was no demonstrated need to retain certain types of records, examples of which appear in Exhibit D.
I will read the list to you:
Letters to individuals capturing details of their investment portfolios;
Listing of credit union members, dates of birth, dates accounts were opened, account numbers and types;
Records relating to non-reportable transactions which included customer names, addresses, and currency amounts involved; and,
Employee training records.
The recommendation was to observe the data minimization and the execution of these compliance activities. Your response was:
The Centre will continue reinforcing the importance of respecting this principle when training its compliance officers and when reviewing and updating its policies and procedures.
However, it does not say that you do not do those collections. Could you tell us about that?
Mr. Dubrule: On the first point, yes, FINTRAC does take all privacy requirements very seriously. The issue is that this is information provided to FINTRAC. In furtherance of our compliance work, we may ask and require reporting entities to provide us with certain compliance-related information.
In responding to such requests, they may provide other material that we frankly do not want to see and have no need to see. It is that which the Privacy Commissioner was focusing on. As we indicated to her at the time, FINTRAC agrees that that type of information should not make its way to us. That is why we are working with reporting entities to ensure that they provide to us the information that is required, period.
Senator Moore: When you get this information, do you destroy it?
Ms. Jalbert: Yes, or return it.
Senator Moore: Is it removed from your records? You are nodding. Is everyone saying yes to that?
Mr. Dubrule: That type of information first is segregated. We have found it, so we do not want to use it. Then, depending on whether the particular nature is a letter we have received in response to a request for information from a reporting entity, and we do receive them in that form, that could be simply returned to them. If it is something received in an electronic form, we will destroy that information.
Senator Moore: Do you make a copy of that letter before you return it?
Mr. Dubrule: No, we do not.
Senator Moore: Next, under the consent is not meaningful section, this deals with consent not sought from the parties whose financial transactions are the subject of reports, nor from individuals who act as contacts for reporting entities. There is one exception. When a reporting entity is located in a dwelling house, you must first obtain, prior to entering such a place, a warrant, before you go in.
You have a consent form. Apparently, under the audit, it is not clear that the consent may be refused, nor the ramification of such refusal. The form does not indicate the purpose of collecting the date of birth nor what use will be made of this information.
The auditor recommends that you indicate in a better form. You say you welcome this recommendation, in line with the act, in fair information practices, and you will amend its consent to enter a dwelling house for compliance information form. Have you amended that form in compliance with that audit?
Mr. Dubrule: Yes, we have.
Senator Moore: The next one deals with personal information in transit at risk of interception. Apparently, there was an instance, and they say one instance, but there may be more or more since this audit. I do not know. They found one instance where a reporting entity forwarded client records containing names, addresses, social insurance numbers, account numbers and account activity to your centre by email, and the use of encryption is critical to safeguarding information in transit. Unencrypted personal information to FINTRAC by open channels runs the risk of interception. They recommend that you amend the notice of examination to include explicit instructions that reporting entities are not to transmit records containing personal information. Have you done that? Have you taken steps to ensure that reporting entities do not use unsecured transmission methods to transmit personal information to FINTRAC?
Mr. Dubrule: Yes, that has been done.
Senator Moore: How do you do that? Do you send a letter to all the banks, or do you send it to one of the organizations and ask them to do it? How do you get that information out so that the reporting entities know that there is a new standard of reporting?
Ms. Jalbert: When we communicate with the entities to tell them that we will examine them, we send them a notification letter. In the letter, we explicitly explain how we should get the information that we need. In there, we explain that we do not use email, but rather we use other means such as a CD, such as paper copies and other means that are more secure.
Senator Moore: I guess that is it, Mr. Chair, although there are some other things here.
The Chair: That concludes round one.
In round two, Senator Ringuette, please.
Senator Ringuette: How many administrative monetary penalties have been incurred from your office in the last five years?
Ms. Jalbert: First I will just say that the penalties were recommended by this committee in 2006, but they only became applicable at the end of 2008, so we consider that we have a little over two years under our belt. Basically, the system of penalties was created to support and enhance compliance. We give every opportunity to the reporting entities to comply and change their behaviour, and we work with them through this process. Therefore, the penalties are really our last resort, as I mentioned earlier. That is why we have issued 15 — so far, publicly named 15 —penalties. We feel we have worked with them and the others to change their behaviours to our satisfaction.
Senator Ringuette: What would the financial penalty be in those 15?
Ms. Jalbert: Amounts for penalties amount vary because we have different levels. You have minor, which would be non-filing of some of the reports we mentioned, a large cash transaction report, for example. For those, we go by instances. If you have X number of reports, we would multiply the amount.
We have serious violations, which then are lack of compliance regime elements, no training, no policies or procedures, no risk assessment, that type of issue.
The more serious one is certainly failure to file a suspicious transaction report. For all the reasons in the conversations we had earlier, the value that they have to us is incommensurate. That is why it is a more serious violation.
Senator Ringuette: I will rephrase the question. Out of the 15 penalties, how many are at the different levels, and what is the penalty at such-and-such a level?
Ms. Jalbert: I will take my cheat sheet here.
Senator Ringuette: Is the amount of the penalty in the legislation?
Ms. Jalbert: It is, actually. For very serious, it could be up to $500,000. For the serious one, it is up to $100,000. The minors are up to $1,000.
Senator Ringuette: How much money did you collect through these penalties? How much money did you get from the 15 penalties?
Ms. Jalbert: We got around $200,000 so far.
Senator Ringuette: I guess you did not have many high level penalties?
Mr. Dubrule: Some cases are also before the Federal Court.
Senator Ringuette: Of those 15?
Mr. Dubrule: The ones that are before the Federal Court are in relation to bigger amounts, which have obviously not been collected because the reporting entities are contesting the penalties.
Senator Ringuette: Are you referring to the court case with the legal community?
Mr. Dubrule: No. That is separate. These are ones brought by reporting entities challenging the penalties that FINTRAC has assessed.
Senator Ringuette: That is interesting. We have penalties before the court.
You said that you had memorandums of understanding with different countries and that you will submit the list to this committee. Would you have one with Algeria, for instance?
Mr. MacKillop: We do not have one with Algeria.
Senator Ringuette: You do not have one with Algeria. Why? You indicated there were 127 countries. Why would you not have one with Algeria?
Mr. MacKillop: Primarily, they are not part of Egmont.
Senator Ringuette: They are not part of the Financial Intelligence Unit.
Mr. MacKillop: Correct.
Senator Ringuette: Is the RCMP aware that Algeria is not part of the Financial Intelligence Unit?
Mr. MacKillop: I cannot speak for what the RCMP is or is not aware of. It is public, definitely, so if they were looking they would know.
Senator Ringuette: You have no MOU with Algeria. For instance, if Algeria came to you and said, "We have suspicions about a Canadian. We would like to have some information on financial transactions that this gentleman may have incurred in your country.'' Would you supply the information?
Mr. MacKillop: No.
Senator Ringuette: You would not.
Mr. MacKillop: Correct.
Mr. Dubrule: We are legally prohibited from doing so.
Senator Ringuette: You are prohibited from doing so, but other policing entities in Canada are not prohibited.
Mr. Dubrule: We operate pursuant to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, and that sets the parameters for what information FINTRAC may disclose, to whom and under what circumstances.
Senator Ringuette: Including the Privacy Act?
Mr. Dubrule: We are also subject to the Privacy Act.
Senator Moore: When the Department of Finance officials were before us, they told us that one of the standards where we are a little weak under the Financial Action Task Force standards is to do to with customer identification and due diligence. Proposal 1.2 on page 12 of the consultation paper states:
The government proposes to review the current exemptions from CDD and record-keeping involving introduced businesses . . . and to clarify how responsibility for the CDD information is divided . . .
. . . consideration will be given to expanding the scope of introduced business scenarios that would qualify for an exemption from certain CDD obligations.
Looking at the current exemptions and at what would qualify to expand, can you talk about that? Are there a number of exemptions now that do not enable you to give proper customer identification to meet the FATF standards?
Ms. Jalbert: This proposal talks about client identification and the details would be better addressed by the Department of Finance. We have different methods of ascertaining ID. We have different requirements that we ask the reporting entities to submit to their clients. This would mean to strengthen that so that we would be more in line with the FATF standards.
Senator Moore: I was confused by the second part, which states:
In addition, consideration will be given to expanding the scope of introduced business scenarios that would qualify for an exemption . . .
What does that mean? Does that mean expanding the scope and therefore widening the information net? It says that consideration will be given to expanding the scope of introduced business scenarios that would qualify for an exemption from certain customer identification and due diligence obligations. What does that mean?
Mr. Dubrule: The thrust here is to ensure that clients are properly identified. One of the means is that some other business has identified the client and that client is then passed on to a second reporting entity. These provisions are looking to see whether the second reporting entity can rely on the identification done by the first one.
Senator Moore: You would like that to be so.
Mr. Dubrule: We would like to know exactly what the standards are so that they are relying on appropriate information.
Senator Moore: Consistency.
Mr. Dubrule: Exactly.
The Chair: Ms. Boileau, I refer back to your opening remarks. On page 8, paragraph 3, you said:
Significant regulatory improvements have also been made, improvements that were directly inspired by recommendations from this committee in 2006.
That is very interesting. My question to you is this: Is there anything you would like to say to this committee in conclusion that might inspire us as to what types of things you might feel we should focus attention on? I must say that I am still very confused about your answer with regard to how you could deal with prepaid credit cards, electronic transfer of funds between cellphones, et cetera. If I assume that these both came on the market on January 1, 2007, does it mean that we wait until this report is filed so that you can deal with that issue?
Ms. Boileau: Thank you, Mr. Chair.
To your first question, we would like you to very much consider the proposals that are in front of you in the consultation paper. We feel that these would enhance tremendously the work that we could do for you and for Canadians in the future.
As we explained about prepaid cards, if a suspicious transaction is filed from one of those entities, that information will come to us because the current legislation authorizes it. We look forward to your advice on the recommendations in the consultation proposal in front of you today.
The Chair: I speak for all members of the committee in thanking you for appearing before us today.
Members of the committee, if I may have your attention, at the next four meetings will be continuing with discussions from various government agencies and departments, including OSFI, the Department of Justice Canada, the Public Prosecution Service of Canada, CRA, DFAIT, the Privacy Commissioner and the Information Commissioner. I would like to encourage all members of the committee, when we get to the point of having external witnesses, to provide input on anyone that they would like to have us consider. We would appreciate your input.
(The committee adjourned.)