The Chair (Mr. James Rajotte (Edmonton—Leduc, CPC)):
I call this meeting to order. This is meeting number 79 of the Standing Committee on Finance. Our orders of the day, pursuant to Standing Order 108(2), are that we resume our study of terrorist financing in Canada and abroad.
We have with us three witnesses in Ottawa and then two by video conference. We have, first of all, from Carleton University, Mr. Martin Rudner. We also have, from the Egmont Group of Financial Intelligence Units, Mr. Kevin Stephenson, and from the Foundation for Defense of Democracies, Mr. Yaya Fanusie. Welcome to all.
We also have, by video conference from Pittsburgh, Pennsylvania, from the RAND Corporation, Mr. Patrick Johnston.
Mr. Johnston, can you hear me okay?
Prof. Martin Rudner (Distinguished Research Professor Emeritus, Carleton University, As an Individual):
Thank you very much.
Indeed, it's an honour and a privilege to be appearing before this committee on this highly important and relevant topic. I might begin by saying that we have a sad experience in Canada of Canadian involvement in terrorism finance dating back to the troubles and conflicts in Sri Lanka, where Canada had become the world's largest single financer of Tamil Tiger terrorism in Sri Lanka and globally, which included the murder of two prime ministers, of India and of Sri Lanka. So I think it's absolutely appropriate that Parliament and this standing committee on finance examine the issues of terrorism financing in the contemporary period precisely to prevent any possible resurrection in Canada of what happened in the past.
I'd like to begin my remarks by saying that I will be focusing on four areas of, I think, relevance to the work of this committee. One will be the mobilization and transfer of funds from Canada to terrorist organizations globally. The second topic will be the import of funds from abroad for terrorist activities in Canada. My third topic will be emergent issues in terrorism financing, which involves Canadians and Canadian interests. Finally, if I may, I'll make some recommendations derived from the analysis that could, I hope, be of assistance to the committee in its procedures.
On the mobilisation and transfer of funds from Canada to terrorist organizations, I've identified seven areas of interest. I'll mention them here, and we can go into the details of case studies, if you wish, in the questions that follow.
There is, for example, the raising of donations and the transfer of donations to terrorist organizations through front organizations. Canadians donate money to front organizations, which transfer those funds to terrorist organizations like al Qaeda, the Islamic State, or Hezbollah.
Secondly, there's the diversion of charitable funds that are given by Canadians to charitable organizations, but those organizations are sometimes infiltrated by sympathizers of terrorist organizations, and the funds are diverted.
Thirdly, there are profits from contraband trade, where products are smuggled across state or provincial boundaries, tobacco for example, from low tax jurisdictions to higher tax jurisdictions, with the profits going to terrorist organizations.
Then there are the sales of mementoes, books, and other things that people buy, and the funds go to terrorist organizations.
There are trade-based transactions of high value, easily cashable merchandise. One example of this is the Islamic State acquiring petroleum from northern Iraq or northen Syria, exporting it through clandestine channels, and keeping the profits. And, by the way, there are examples of this in North America from Canada.
Then we have drug trafficking, sadly, and then we have financial fraud, the abuse of credit cards, for example.
On the import of funds from abroad for terrorist activities in Canada, we have a number of examples of areas of involvement. We have, for example, prepaid travel credit or debit cards that have financed Canadians to go abroad as foreign fighters or as other terrorist operatives.
Prof. Martin Rudner:
Sorry, I'd better hurry.
Then we have the funding of extremist clergy in mosques and itinerant radical preachers. We have the funding of terrorist networking sleeper cells. We have the funding of activities targeting deliberate Canadian interests, mostly in oil and gas. We have emergent issues. We have cyber-theft, which targets banks. We have welfare payments to jihadists. We have the crowd sourcing of terrorist fund mobilization and we have international bank transfers of funds through the banking system, or money laundering.
On recommendations, my first would be to prioritize terrorism financing, detection, prevention, and prosecution. Second would be to enhance the investigative powers of FINTRAC, our Financial Transactions and Reports Analysis Centre of Canada, which is part of the Egmont Group, to enable it to conduct investigations and lead to proper prosecutions and prevention. Then the banking system has to be made more engaged in the prevention of terrorism financing.
Thank you very much.
Mr. Kevin Stephenson (Executive Secretary, Egmont Group of Financial Intelligence Units):
Thank you, Mr. Chair.
Good morning, everyone.
First off, I just want to highlight a special thanks to the Canadian government. There's a reason that our office and the secretariat of the Egmont Group of Financial Intelligence Units are in Toronto. It's because the Canadian government gave $5 million back in 2006 so we could open up a secretariat in Toronto in 2007. The commitment from the Canadian government has been continuous throughout. FINTRAC has chaired one of our training working groups and also has been a vice-chair on the Egmont committee.
I'll give you a brief history about the Egmont Group. It started in 1995 with about 20 heads of FIUs sitting around the table saying, how can we share information when it comes to anti-money laundering? That was in 1995, before 9/11 when we started passing out all the TF legislation. We've grown to 147 member jurisdictions now, and we continue to grow. We are having our plenary meeting this summer, in June. We anticipate having over 140 members by then.
The major objectives of the Egmont Group are to improve the effective exchange of information upon request and spontaneously among financial intelligence units, and also to promote the development of effective FIUs globally.
One of the things that we're very proud of is the Egmont Secure Web. It's a secure network whereby FIUs—all of our 147 members—can securely share financial intelligence with each other through the network.
In terms of the importance of information exchange and international cooperation in combatting terrorism financing, there are a few things we think are highly important from the Egmont Group's perspective. It's the importance of the jurisdictions to at least meet the international standards. I believe Canada will be going through its mutual evaluation towards the end of this year. I think the IMF will be leading that evaluation.
Also, we think that the timely exchange of information in terms of terrorism financing is critical and we're going to start having discussions within the Egmont Group on how we can get closer to real time. Is real-time exchange on terrorism financing information possible? What are the resource implications? What are the capacity concerns? And how do we make it happen?
We also think that jurisdictions need to have an effective regime, and this is something that the FATF has evolved through with the changes in the methodology from 2012. The days of just being technically compliant are over. Hopefully, for example, they have what's called “immediate outcome 6” within the FATF recommendations. It talks about how financial intelligence moves through the entire regime, starting from the reporting entities—and Mr. Rudner mentioned that in terms of the banking reporting—all the way to successful prosecutions. It is no longer okay to have just one particular entity doing a good job. It has to work well throughout the whole regime. That's something we need to work on. It's very critical when it comes to terrorism financing.
What is the Egmont Group doing now in terms of terrorism financing? Actually right now there is a meeting in Washington, D.C., of some FIUs that are on a project that's dealing with ISIL and foreign terrorist fighters returning and how they're being financed in this and that. Actually, FINTRAC is playing a very active role in that particular project. I can't go into the specifics at this stage, but we anticipate the work of this project team is going to look at some of the operational information. They're sharing operational information but they're also recording the barriers, either legal or operational, that might come up and that we need to improve or look into. We anticipate that report might feed into the FATF this summer, then also feed into the G-20 report later on.
Challenges facing FIUs in combatting terrorism financing. Domestically, agencies dealing with TF have a bad habit of working in silos. That's something that has to change. Internationally, we need to improve and install mechanisms that share information almost instantaneously. That's a big challenge for FIUs. That's a big challenge for a lot of places.
Mr. Kevin Stephenson:
I'm almost finished.
Also, policy-makers need to properly resource the competent authorities mandated to combat terrorism financing to include FIUs. We have also recognized that there is the growing recognition that financial intelligence is a vital tool in being able to monitor and track terrorism financing. It's a big challenge because sometimes the amounts of money are very small, so it's a great challenge for the FIUs and everybody involved.
This summer, in the plenary session, we're going to have a panel conversation between a lot of competent authorities from the intel community, law enforcement, and FIUs. We will also bring in the private sector, on a separate panel, some reporting entities to give their perspective to include how they look at the TF issue.
Mr. Yaya Fanusie (Director of Analysis, Center on Sanctions and Illicit Finance, Foundation for Defense of Democracies):
Good morning. Mr. Chairman, and members of the committee, thank you for giving me this opportunity to appear before you to discuss terrorist financing.
In short, terrorist attacks do not require much capital. Al Qaeda in the Arabian Peninsula once touted how its failed plot to bomb a plane over North America in 2010 cost only $4,200. What's not captured in such estimates is the general cost of operating. This includes salaries, ground transportation, safe houses, and even paying bribes. These make up some of the fixed costs which terrorist organizations incur.
We've identified four general typologies that we see terrorist groups employing in order to meet these costs. They are controlling territories and borders, participating in crime and smuggling, tapping wealthy private donors, and also there's state sponsorship.
I'll give an overview of some of the examples and identify some vulnerabilities in these methods that we can use as opportunities for our governments to disrupt and weaken terrorists' ability to fund themselves.
First, terrorists leverage their control of borders and ports. One example is ISIS. It makes $1 million to $2 million per day by selling oil from the refineries it controls in Syria and Iraq. It levies taxes on goods in the territories that it controls and it actually forces local businesses to pay fees for electricity.
There's Boko Haram. Boko Haram controls parts of Nigeria and neighbouring countries. It earns money by taxing the fish trade. Al Shabaab taxes charcoal and other goods that have to travel on roads to and from Somalia's major ports. The UN estimates that al Shabaab at one point was earning $75 million to $100 million a year in charcoal sales alone, and charcoal was banned from being exported from Somalia.
There's an opportunity here. The local business people are affected by violent extremists and they may serve as potential allies in fighting terrorist influence.
Then there's crime and smuggling. For example, kidnapping for ransom is actually the leading method of terrorist financing after state sponsorship. One example, since 2008, al Qaeda in the Islamic Maghreb alone has received more than $90 million from various governments around the world to release hostages.
There are, of course, the jihadist conflicts in Syria and Iraq. They've opened the flood gates for the legal trade of antiquities. It's difficult to calculate the exact amount that ISIS has received from the antiquities trade, but one source estimated that the group accrued $36 million from stolen artifacts just in one part of Syria.
Boko Haram, as I mentioned, robs banks and steals military equipment. It threatens poor farmers just to sustain itself. It will threaten kidnapped family members, so that it can receive livestock and food.
There is the worldwide illegal wildlife trade. Going back to al Shabaab, it's used its proceeds from illegal ivory tusk trafficking to fund terrorist attacks in Kenya. You're familiar with the Westgate mall attack, a Canadian official was killed in that attack.
There is the Lord's resistance army. They poach elephants to fund their activities. There's a vulnerability here because crime and extortion also alienates the local population creating potential allies.
Regarding hostage-taking, one U.S. official noted at the U.S. treasury department noted that al Qaeda has apparently shifted its focus from targeting Americans for kidnapping because the U.S. government does not pay ransoms. This may bode well for the Canadian government which has a similar stance.
There are also the wealthy donors. This is particularly an issue in the gulf. A considerable amount of funding still alludes financial oversight at times. This is a challenging target because many of the regimes that co-operate with our governments in military and diplomatic areas nevertheless continue to allow terrorist financiers to operate largely unabated.
Qatar and Kuwait are some areas of concern. Various jihadist fighters in Syria are receiving funds through the fundraisers who leverage social media. There is still an opportunity here because the gulf states, obviously, rely on military support from North America and that's a lever that Canada can use to pressure regimes to arrest terrorist financiers.
Finally, there is the issue of state sponsorship of global terrorism. Iran is the most active sponsor of terrorism. Tehran sends hundreds of millions of dollars annually to terrorist organizations such as Hezbollah and Hamas, and despite sharp ideological differences between Iran's leadership and al Qaeda's, Tehran has provided safe haven to even high-ranking al Qaeda members over the last 10 years and al Qaeda has used Iran as a transit point to move recruits and money.
Last year the Canadian court decided to seize $7.1 million in Iranian assets in Canada. That was a milestone for the families of the victims of Iranian terrorism and can serve as a precedent to seize assets which are held back from companies.
In conclusion, as terrorists vary their means for securing funds it becomes more critical for authorities to fully address the multiple strategies they deploy.
The above typologies for terrorism finance demonstrate our enemies' adaptive nature, but each of these methods comes with vulnerabilities, which Canada can exploit.
Thank you for your time and the opportunity to testify today.
Mr. Patrick Johnston:
Thank you, Mr. Chairman, and members of the committee for inviting me to testify today.
As terrorist organizations have marshalled unprecedented funding for their activities recently, the need to address counterterrorist finance policy is clear. Accordingly, my remarks today will focus on the Islamic State, also known as ISIS or ISIL, a group that I've been studying extensively since 2012.
Over the last year ISIS has risen to become the richest and most threatening terrorist organization in the world, and ISIS' recruitment of hundreds of Canadian and U.S. citizens makes it a special threat to North America.
I'm going to divide my testimony into three main parts. The first will look at how ISIS raises and spends its money; the second will examine the impact of current coalition efforts against iSIS' finances; and the third will offer steps that Canada, the U.S., and coalition partners could consider to enhance the effectiveness of these efforts.
Disrupting ISIS' financing presents a special challenge for western countries because its funding sources differ from most other terrorist groups of interest to Canada and the United States since 2001. Unlike groups like al Qaeda and Hezbollah, for example, ISIS finances its operations by raising the vast majority of its revenue internally from territory that it controls. It doesn't rely on deep-pocketed donors, Islamic charities, or state sponsors, which are vulnerable to traditional counterterrorism finance instruments such as targeted sanctions. This makes ISIS both unique and a very resilient financial adversary.
How exactly does ISIS make its money? It's established a diverse set of revenue streams that include extortion, oil sales, looting of rare antiquities and other stolen goods, and tax collection. It's also raised smaller amounts of money from kidnapping for ransom, foreign donations, and money smuggled into Syria and Iraq by foreign fighters.
The coalition's biggest success so far in disrupting ISIS' finances has been in terms of its oil revenues. Last summer the group was making between $1 million to $3 million U.S. per day, and this is just on top of all of its other revenue streams, as well as approximately $1.2 billion that it accumulated in existing assets.
After the coalition began a counterterrorist campaign against ISIS in September, air strikes on its oil infrastructure have helped to disrupt these revenues. The air strikes reduced ISIS' oil extraction capabilities to as little as 5% of what they were at last summer's peak rate. These production decreases coincided with the sharp decline in oil prices worldwide, so ISIS' oil revenues are now reported to have dropped from approximately $1 million to $3 million per day to about $2 million per week.
This represents a significant decrease in what was previously ISIS' main revenue source, but it hasn't been enough to meaningfully degrade ISIS' ability to operate and to fund these operations. The reason why is simple: ISIS isn't a petrostate. It retains lucrative internal revenue streams from which it continues to make an estimated $2 million to $3 million each day.
Compared to recognized nation states, ISIS' economy is small. It would be in the bottom 10% to 15% of all countries in terms of GDP, falling somewhere between Belize and the Gambia. But as a terrorist organization ISIS remains extremely rich.
The self-proclaimed Islamic State does have grand ambitions but its operating costs are relatively modest given these ambitions. It minimizes investments in service provision, infrastructure, and materiel, and most of ISIS' spending actually goes into one or two areas, which are wages and personnel costs, and running a Sharia-governed police state essentially on the cheap.
However, ISIS has managed to increase its manpower on the cheap by attracting recruits who are more interested in its extremist ideology than the size of their paycheque. The reports on ISIS' salaries vary, but even if the high-end estimates are correct—which are about $500 per month—ISIS' personnel costs would still be less than one-quarter of its estimated revenues, leaving ample resources for it to fund its various religious, media, and military operations.
I have a few recommendations. The first is to support new and ongoing efforts to disrupt terrorist organizations' internal revenue-generating capacity. ISIS' wealth is inextricably linked to the territory that it controls. Building a local and regional security force capacity is going to be necessary in order to reclaim the territory that ISIS uses to fund itself.
The second is to find and to seize existing ISIS financial reserves and cash stores. ISIS' war chest is large enough right now that failing to seize it may enable the group to weather the storm of what otherwise might be successful efforts to target its finances.
Third and finally is for counterterrorism operations against ISIS to prioritize not only the group's high-level leadership, but also its administrators and financial facilitators who account for and distribute the group's money. Targeting these nodes, whether kinetically or non-kinetically, can disrupt the group's financial operations and provide valuable intelligence for further unravelling its financial networks.
Thank you very much.
Ms. Vivian Krause:
Good morning, Mr. Chairman and members of the committee. Thank you for inviting me to testify today.
My understanding from the clerk is that she wanted to hear from me because of the expertise I've developed around the issue of the funding of the environmental movement, the workings of the charitable sector, and how money has come into Canada from the United States especially, and also other countries.
I'd like to preface my remarks by saying from the outset that I've gone through more than 100,000 pages of American tax returns going back 20 years. I've traced the funding of more than 100 environmental groups, and I have never seen any evidence of eco-terrorism or eco-sabotage or anything within the environmental movement that from my lay perspective would constitute terrorism. I want to make a point of saying that, because given the public conversation we've been having in Canada, I think it is important to distinguish between activism and terrorism and between civil disobedience and terrorism.
I've seen no evidence of terrorist financing. That said, I'm not an expert on the matter, and I haven't been looking at it.
I would like to make one suggestion for the committee. It's actually something I mentioned four years ago, when I first testified to a standing committee on national finance. I would just point out that the disclosure requirements we have in Canada are not the same as they are in other countries. In fact, we require far less disclosure from our charitable sector. I mention that because our first speaker of course referred to the use of charitable organizations as a way to launder money. I made a suggestion four years ago, and many other people in Canada have made the suggestion, that we need more transparency in the charitable sector to help ensure the credibility of the sector and also to ensure that it's not used or misused as a way of laundering money into Canada.
You know, it's not rocket science. In the U.S., the IRS has already established pretty simple requirements. For instance, charities are required to list the names of their five highest-paid employees, the names of the five highest-paid contractors. They also, more by way of tradition than anything, include not only the recipients of grants and the amounts but the stated purpose for which the funds are granted. They also include information on where the charity has its investments and on who the donors are.
I'm sure there are people who have much more expertise on that than I do, but it just seems to me, even from my lay perspective, that given the size of the charitable sector in Canada it's important that there is more transparency, for several reasons. One, of course, is just that it's not used as a vehicle for laundering money.
I'd be glad to answer any questions you have. I'll just mention that one other thing I've noticed in my research is that there are several ways that money can come into the charitable sector but it doesn't show up in the tax returns. Organizations have found various ways to get around this by using intermediary organizations and front groups. It seems to me, even from my lay perspective, that a few measures could be taken to prevent that sort of activity.
Thank you for your time. I'd be glad to answer any questions.
Mr. Nathan Cullen (Skeena—Bulkley Valley, NDP):
Thank you, Chair.
Thank you to our witnesses. My apologies for being late.
Mr. Stephenson, I'll start with you, but this might be for Mr. Fanusie as well. Whatever legislation the government passes in an effort to combat terrorism, whatever measure is taken, there was previous legislation passed through the proceeds of crime act and money laundering and whatnot. It's important that they be constitutional, and then passing any sort of judicial review would be important as well if the intention is to limit money laundering and terrorist financing.
Is that a fair comment for me to make, that they stand up in court?
In the government's first iteration of this, they had several sections of their anti-money laundering and proceeds of crime act struck down in the court, warrantless searches of lawyers' offices being one of them. A second section around trying to break solicitor-client privilege, which is what that act has attempted to do, was deemed unconstitutional by the courts.
So all those efforts are for naught. We now have a bill in front of us, Bill C-51, which is making its last way through Parliament, that seeks to further disrupt terrorist financing but perhaps through means that won't pass constitutional muster.
Would it be critical, in terms of using any of these tools, to have a strong sense that they are legal under the Canadian Constitution before we pass them through Parliament in order for them to eventually one day be effective in doing what they're meant to do, which is prevent terrorists from receiving funds?
Mr. Nathan Cullen:
Thank you, Chair.
To Mr. Stephenson, or perhaps any of our panellists here today, if you don't have knowledge of this then let us know. What we've heard from folks who worked with the RCMP in the money laundering and terrorist financing section is that there's a problem with our capacity in Canada. When RCMP officers train up and start to learn the incredibly complicated issue of how to track the money, the way our current system is—as we've heard from folks who worked within the RCMP—is that when they get to a certain level of expertise, the way the RCMP works, they get promoted and transferred out of that division entirely.
A story was related to us about someone who had become quite a proficient expert but was now a detachment commander at a post somewhere because that was the next step of promotion.
Is this anything you have come across in your experience? Mr. Rudner's nodding, so I'll allow him to comment.
Mr. Patrick Johnston:
Sure. I think that the main threat to the United States and Canada does come from the citizens of North America who went and travelled to Iraq or Syria, continue to hold passports, and can return. I think that this presents a different set of challenges from the ones that I highlighted as kind of the high-level issues about what makes ISIS a particularly potent and difficult adversary to deal with through some traditional terrorist finance instruments.
I think that, in terms of the returning volunteers who have travelled to Iraq and Syria, the previous witnesses are correct that this isn't incredibly expensive, that there are domestic sources of funding, oftentimes, that tend to be very grassroots within the communities that they come from, often within mosques and other areas. I think this is, essentially, a set of law enforcement or intelligence questions, but I think it is correct to say that the main threat probably doesn't come from a 9/11 style of attack, if you will, but rather people who are currently being radicalized within Canada or the United States and their ability to get training and funding from ISIS or other groups in Iraq and Syria.
Ms. Vivian Krause:
I'll do my best. There are two parts to your question.
How are charities being used for illicit activities? I don't think that I necessarily see charities being used for illicit activities. I certainly haven't seen anything illegal, and certainly nothing criminal. As for whether some of the rules are being broken in terms of what charities are allowed to fund, perhaps they are.
How can I answer that? Some of the types of activities that raise questions for me are things like how I've seen environmental groups funded to renew the commitment of opposition parties to a ban on oil tanker traffic. Charities aren't allowed to do that sort of political activity. I'd also question, for example, cultivating indigenous opposition on building relationships with communities along a pipeline route. Does that constitute charitable activity? That's obviously something for the CRA to decide.
To the second part of your question on how funds come into Canada, there are the obvious acceptable and normal routes. Charities in Canada can receive funding from any donor anywhere around the world and are required to disclose that on their tax returns. Most do. I have seen some cases where, for instance, U.S. tax returns say that a Canadian charity was paid but in fact the Canadian charity hasn't reported it. I've contacted some of those organizations and they have in fact said that they filed their tax returns incorrectly and would refile with the CRA. That's one route, which is just the normal entrance of money.
The other thing that happens is that sometimes a donor will make a payment to a non-profit society, say, and that non-profit society then funds the Canadian charity, so by the time the foreign funds get to the charity they've been Canadianized, if you will, through the non-profit organization. There are millions of dollars coming in that way that don't show up as foreign.
Prof. Martin Rudner:
I think you've raised a very important question. I think perhaps the Egmont Group may well want to participate both in the answer and in the solution.
There's no question that funds are emerging from private, so to speak, sources or wealthy people in Saudi Arabia, Kuwait, Qatar, and the United Arab Emirates and going to fund activities involving political violence in Canada and elsewhere. The governments of those countries, by the way, are very aware of this and in fact have clamped down under the recent new king. They have clamped down stringently, but I think they lack the capacity to clamp down effectively on all the prospective donors. They're trying, but they have a way to go.
I think one of our possible roles, in cooperation with counterparts at the Egmont Group, could be precisely to build the capacity of those governments to undertake the terrorism financing challenge they face and to prevent, to detect, and to prosecute.
Prof. Martin Rudner:
I have a paper submitted for publication that will deal with that. But very briefly, on a complex issue that you've identified quite correctly, on the one hand, with the reduced prices, there's no question that Saudi Arabia has said explicitly that one of their purposes of the supply-management regime they created in OPEC to reduce prices was in effect to curtail the revenues of ISIS.
As you say though, the problem is that the cost of production is so low that even at a low price, let's say $50-plus a barrel, it's still profitable for ISIS. But as we heard from my colleagues, it's much less so than in the past. The thing is, of course, that smuggled oil has a criminal premium, if you could call it that. The criminals involved in that oil trade also want a share of the profits, so that limits their incentive to engage in smuggling.
But it's still significant. Your point is very well taken.
Ms. Joyce Bateman (Winnipeg South Centre, CPC):
Thank you very much, Mr. Chair.
Thank you to all of our witnesses this morning. I very much appreciate the time and the information that you're sharing with us.
A number of you have touched on the fact that organizations are effectively being used to funnel money to these terrorist organizations. Whether it's a business or a charity, or indeed, a financial institution, what kind of training could be used, what kinds of strong accounting principles could be used, what kind of awareness building could be enhanced to assist those innocent businesses, charities, and financial institutions...from being used for the nefarious purposes of terrorist financing?
Perhaps Mr. Fanusie could start with this question.
Mr. Yaya Fanusie:
In terms of organizations or businesses themselves, I'll start with charitable organizations. There are two parts to this. First, are organizations being used unwittingly or wittingly? Much of what we've seen involves witting participation, so that's one of the key issues. Anyone can start up a company and anyone can have a representative for a company who usually will know who the original owner is or who the actual beneficiary is.
But there's another sort of tack for that question, which is how to better identify these companies. Using the U.S. example, I can mention that in the press there's been a lot of discussion about front companies that own property. In fact, The New York Times had a very lengthy series on the number of million-dollar properties in New York City, a certain percentage of which are pretty much owned by front companies. So if you go to look up who owns such and such a property, you won't get the original owner if you look in the public records, or you'll have to do a lot of digging.
There's a discussion going on now about how much information should be available when someone owns a property. There are certain protections. There are reasons people do it. A lot of times the owners of properties that might be in North American jurisdictions are from abroad.
I think a legislative discussion needs to occur regarding how we monitor or how we facilitate more transparency in public records. That would be a big—
Mr. Murray Rankin (Victoria, NDP):
Thank you, sir. It's good to be on the finance committee.
I'd like to ask my question initially of Ms. Krause. You've spent, I believe, a considerable amount of your time focused on charities and have expressed concerns about foreign influences, very much in line with what this committee is studying.
I believe, however, that your work shifted to pipelines and energy, or oil and gas issues, in 2011 and 2012 if I'm not mistaken, at the same time as a minister of the Conservative government stated publicly that environmentalists and other radicals opposed to pipeline development use funding from foreign special interest groups.
Do you share that view? Was that part of your work at the time?
Ms. Vivian Krause:
I'll give you one example.
The Yellowstone to Yukon initiative is a registered Canadian charity. It has reported zero financing over a number of years. Actually, the majority of its funding, if I am not mistaken, in the millions of dollars, has come from an American charitable foundation. That money, first of all, goes into a non-profit society based in Canmore, Alberta, and then that organization funds the Canadian registered charity. The money is Canadianized through a non-profit organization, so when you look at the tax returns, you see zero foreign funding over a period of years, when in fact the funds the charity has been using did originate from outside of Canada.
There, you wanted an example.
Hon. Ron Cannan (Kelowna—Lake Country, CPC):
Thank you, Mr. Chair.
Thank you to our witnesses.
I apologize to our witness from British Columbia, as a fellow British Columbian who brought Mr. Rankin in. He is not normally on the committee. I think it is very inappropriate to attack you.
We are not dealing with this aspect. As you indicated, this isn't an issue of the funding for environmental groups. They are legitimate, in the sense that you feel they have nothing to do with terrorism. You are upfront with that. I want to gear my questions toward the terrorism study that we are dealing with.
My first question would be to Mr. Rudner. In your opening comments, you said you have some examples of Canadian organizations that are diverting and transferring funds to terrorist organizations. Could you provide some examples?
Ms. Marjolaine Boutin-Sweet (Hochelaga, NDP):
Thank you, Mr. Chair.
Gentlemen, thank you very much for your presentations. They were very interesting.
I would like to focus more on Canada, for a change.
The committee has heard from a number of witnesses who talked about Canada's ineffectiveness in prosecuting cases in the fight against terrorist financing. For instance, FINTRAC receives a huge amount of information, but very few cases come before the courts.
I will quote Ms. Vonn, who is a policy director at the British Columbia Civil Liberties Association. She said the following:
||... what little evidence is available can only suggest either that there is considerably less terrorist financing than feared or that the regime is not very effective at addressing it. However, much of the response to that situation of genuinely failing to understand the need and advocacy of the regime is simply repeated or just for more invasive powers; broader disclosures of sensitive, highly prejudicial personal information; a more onerous administrative burden on the private sector; and more resources for FINTRAC and its partners.
How do you think we could combat terrorist financing more effectively? For instance, should criteria be established to target more at-risk transactions or should changes be made to the current $10,000 threshold?
My question is for Mr. Stephenson, Mr. Johnston or Mr. Rudner.
Mr. Kevin Stephenson:
I think FINTRAC, the RCMP, and the other competent authorities can best answer those questions specifically dealing in the Canadian context.
But I think when you look within the context of the international standards, it says that each jurisdiction is supposed to identify and understand its risk. By doing that you have to bring in or involve a private/public sector partnership in identifying the risk to include the TF risk. Then you're supposed to spend your resources trying to deal with that risk accordingly.
You mentioned the cash transaction reporting. When you're dealing with terrorism financing, there's not a cookie cutter that can fit everywhere. Basically, as I tried to mention before, there need to be different agencies working more closely together and bringing their own expertise, which is one of the things that the FATF has tried to do in changing the standards recently in 2012. I mentioned this earlier in my opening remarks. It's basically looking at how you deal with financial intelligence throughout the chain.
You mention that you don't have a whole lot of convictions. Well, a lot of jurisdictions don't have a lot of convictions. A lot of jurisdictions don't have confiscations, and there are challenges. We need to be doing much better, but a lot of that has to do with better understanding of financial intelligence, better working with the private sector so they can make the reports to FINTRAC, better working with RCMP investigators to follow the money, and better disrupting of terrorism finances. It's a chain. It's not necessarily one entity or one particular thing that you can do, but you have to do it all across the board.
Mr. Kevin Stephenson:
Both FINTRAC, and FinCEN in the United States are members of my organization, so I don't want to get into a debate on who is doing a better job. I think both of them are doing an excellent job overall. Of course, there is always room for improvement.
You would have to ask FINTRAC specifically if they think they needed to compare themselves with FinCEN, but overall, as I mentioned before, I think globally that reporting entities in almost every jurisdiction are always asking for more information. But it's not an exact science. You can give them red flags, but it's not like someone walks into a bank and has on the front of their forehead a sign that says, “I'm a money launderer” or “I'm a terrorist and I'm moving money”. It's not that simple; it's not that easy. You can give information to the reporting entities and say “Look at these kinds of things. You should know your customer. These should look suspicious; these should look unusual, and you should report that to your FIU.” I think a lot of reporting entities just want to be able to check the box.
I think that FINTRAC does an excellent job here, and also FinCEN as a regulator in the United States, in communicating with the private sector and saying, “These are the red flags to look for”. But there is a responsibility on the reporting entities that a lot of them are not comfortable with. We're not investigators or intelligence experts, but there is a relationship or partnership that's building the trust and communication that's required. I think overall that FINTRAC and FinCEN are doing an excellent job along those lines.
Prof. Martin Rudner:
Yes, I think there was an example of—
By way of background, it was a Canadian branch of the Royal Bank of Canada that was taken over by Lebanese interests and was prosecuted in a private litigation—that's the important thing, that it was private—on the basis of an argument that that ex-Canadian bank, Lebanese-Canadian bank, was used to funnel resources to Hamas and Hezbollah. There was a settlement that's not public. It was a private settlement between the private litigants and the bank where, in effect, they admitted culpability.
I have to say that I was involved as an analyst for the litigants in that case. That's my declaration of interest. Let me just say that the issue there was analysis, that there was sufficient material to be properly analyzed to show evidence that would have convinced the courts. Therefore, the bank realized its culpability and was willing to achieve a private settlement.
I'd like to just go back to this point on sources and methods. One of the reasons why so few prosecutions arise in Canada, I believe, is that the sources and methods are so sensitive that one doesn't want to necessarily bring them before an open court by way of prosecution lest sources and methods be compromised. Therefore, the preference is what we call disruption. In other words, if we can't prosecute, let's detect and disrupt the terrorism financial effort.
Mr. Mark Adler:
Thank you, Chair.
Mr. Johnston, I just need a very quick answer to this.
This is not a traditional war that we're fighting. We know that radical jihad has declared war on Canada, but this is not the kind of war where we suit up in uniforms and go to fight another enemy in uniforms, and then someone sues for peace at the end. This is a very different kind of warfare that we're fighting now, and we have to fight it on a number of fronts. One front is through financing and there is also military action, but we also have to have a humanitarian component too, for the victims who are finding themselves displaced over in that part of the world.
Could you comment on that quickly, because I want to move on to other topics, please. Thank you.
Prof. Martin Rudner:
Many of the so-called radical mosques originally were funded by Saudi sources, including Saudi public organizations such as the Muslim World League and other such organizations, and they cultivated a Wahhabi perspective, which itself became radicalized in the diaspora into support for some of the missions of al Qaeda and other groups. But the Saudis experienced a backlash to this, and in the past five or six years the Saudi government itself, under the late King Abdullah, has clamped down fiercely—and I'll use that word—on that syndrome within Saudi Arabia and also tried to prevent its dissemination of those kinds of, call it, theological guidelines abroad. So that period is in effect over.
The worry I would have as a scholar studying terrorism and terrorism financing is that if the funding channel from Saudi Arabia has now been curtailed, are there other channels, and one suspects, for example, Qatar, in the Middle East itself, and the Egyptians and others, who are very much involved in the dissemination of Muslim Brotherhood radicalism?
Are they involved in Canada? This is something we would want a terrorism financing investigation organization—FINTRAC, CSIS, the RCMP—precisely to track to see if there's a new source of funding for radicalization of Islam in Canadian institutions.
Mr. Mark Adler:
U.S. intelligence officials claim that it's known that al Qaeda members are recruited, facilitated, and trained out of that mosque, and in 2011, the current leader of the Liberal Party, Justin Trudeau, visited that mosque. There was also a conference, the Reviving the Islamic Spirit conference, that took place in 2011 where the then Liberal leader had spoken, and that was funded by a group, IRFAN, which as we all know raised $14.5 million to send to Hamas and had their charitable status withdrawn.
At the time, Mr. Garneau, who was running for the leadership against Mr. Trudeau, refused to appear at that conference because of the radical ideas that were being promoted.
Could you please comment—either of you if you want to both comment on this—when Canadian politicians appear in places like this, does that give a confidence, a boost of confidence to, or legitimize in any way the activities of these kinds of organizations?
Prof. Martin Rudner:
Let me make a non-political statement on this because one doesn't want to transform countering terrorism finance into a political party issue.
I think the point is twofold. One is that at the time Saudi Arabia had not yet judged those mosques and that “current” of theology in Islam as being a threat to Islam. It changed afterwards. From our point of view, it was a threat to Canada then.
The problem, in my personal view, is that we have to begin treating terrorism and counterterrorism like we treat all “conflict threats” to Canada: as non-partisan. To my mind, there should be consultation and counsel between the Government of Canada and the leaders and members of Parliament of opposition parties, to achieve a non-partisan consensus on what constitutes the threats to Canada and how to constrain and impede those threats from materializing into political violence within Canada. That should be done in an absolutely non-partisan sense, as we did during wartime.
I think we have to return to that. I'm hopeful that Parliament—and through this committee examining terrorism finance—can achieve this metapolitical consensus on terrorism financing threats to Canadian interests.
Mr. David Anderson (Cypress Hills—Grasslands, CPC):
Mr. Chairman, I have a couple of comments.
I'm new to the committee, so I'm glad to be here today. I can assure you that I didn't come here to attack one witness specifically. I've seen this before, in the natural resource committee, where Ms. Krause was attacked personally for the information she brought forward.
It was interesting to hear clear testimony that funding on environmental activism goes far beyond her investigation. It's far more international than most of us had thought it was in the past.
Mr. Stephenson, I want to come back to a couple of things that you mentioned. You talked about the importance—a few times, actually—of real-time information exchange and how to be more effective. I think we'd probably all agree that's necessary, that things need to be monitored much more quickly.
Do you have any idea of how we could prevent the reach of government into the private lives of citizens who aren't involved while we're doing this? We want to be more effective. We also want to stay away from and leave normal citizens to live their lives. Do you have any suggestions on how that might be accomplished?
Mr. Kevin Stephenson:
I mentioned it earlier. I think every healthy democracy struggles with the question of security for its citizens and their right to privacy. With my knowledge of the Canadian system, I think you have quite an excellent balance in doing that, especially when it comes to the terrorism financing,
In looking at some of the things that I was involved in after 9/11, and then also working within Egmont, it seems that more often than not, it's actually very rare that one entity within a government doesn't have information about particular terrorists, terrorist financing, or something that would be of interest to others. The issue seems to be that sometimes that particular agency doesn't share it across the board to other agencies. That's the point I've been trying to make today, to make sure that all the competent authorities are sharing that financial intelligence, and the importance of financial intelligence.
You're much more familiar with the Canadian system than I am. We're not an assessor body within the Egmont Group; the FATF does that. As I mentioned before, you have your mutual evaluation coming up to look at the system.
It's always a struggle to find that balance, and I think open debate is the best way to move forward.
Mr. Patrick Johnston:
In the case of ISIS, I think that certainly there was a warning from the U.S. intelligence community about the group and its rise, particularly in regard to the Shiite crackdown in the government on Sunni politicians, subsequent protests, and the movement of the group that's now known as ISIS into Syria when it was still known as the Islamic State of Iraq.
I think the misperception and some of the reluctance to act initially wasn't necessarily because of not knowing about it, but because of not knowing the size and scale that it could grow into. It really is I think a unique terrorist organization in what it has become, in being really like a terrorist state rather than a dispersed network of cells. Although there are cells, that's not its primary mode of organization.
I think the rise of ISIL, though, was so historically contingent on those factors, which go all the way back to how the Iraqi democracy was set up and who became the president, that it is difficult to undo some of that history, even if you can see the makings of a group like ISIS or another terrorist group emerging from such a context.
Mr. Tarik Brahmi (Saint-Jean, NDP):
Thank you, Mr. Chair.
I want to start by thanking those who have come testify before us and tell them that I am sorry they have had to hear some statements that are a bit exaggerated. Someone said that the Islamic State had declared war on Canada. I hope that, when a state declares war on Canada, the response will be more than 6 airplanes and 70 members of special forces for training. So you have heard some things that are not very serious, and we apologize for that.
I would like to continue along the lines of Mr. Fanusie's somewhat broader perspective. You talked about funding and oil sales that generate $1 million to $2 million a day for the Islamic State. Let's try to put the amount of money generated and the means used in perspective. Two attacks have been carried out in Canada, one in Saint-Jean-sur-Richelieu—which is the riding I represent—and one in Ottawa.
A Winchester rifle was used in Ottawa. It was probably a collection rifle. I don't know what its price is, as I am not an expert on collection rifles, but I imagine it would be around $100.
As for the attack in Saint-Jean-sur-Richelieu, a kitchen knife was used that costs about $10 at Walmart or Canadian Tire. The perpetrator used a 2000 Nissan Altima automobile—so a 14-year-old car—which was beige in colour, to be very specific.
When we put in perspective the millions of dollars the Islamic State generates through the sale of oil and the investment put in by the two individuals who carried out attacks in Canada, can we really say that those were terrorist attacks? How do you view that imbalance?
Isn't confusion between real international terrorism and the mental health issues of people who have no connection to those international organizations likely to discredit and diminish the work you are doing to warn authorities about the funding of international terrorist organizations? Couldn't the fuelling of that confusion to fearmonger and support a political program diminish your work?
I will begin with Mr. Fanusie.
Prof. Martin Rudner:
I think the key element we have to focus on is the intentions of the Islamic State. Let me just mention that Islamic laws require the giving of warnings to intended targets of jihad, of the Islamic religious warfare agenda. By the way, they always do that. They don't necessarily send it in English or French to particular email recipients, but they always issue a warning. One of the tasks of the intelligence community and scholars of terrorism is to monitor the discourse of the Islamic State and other terrorist groups.
In answer to your question, there's no question, absolutely none, that the Islamic State has threatened Canadian interests explicitly and directly. Whether or not the two individuals you mentioned were controlled agents of ISIS we will know only when our intelligence and security community publish the intelligence that they were able to collect and disseminate.
They won't do this now for reasons of sources and methods. We Canadians do not want Islamic State to know if we've penetrated them and how we've penetrated them, because we still want to get the intelligence.
There's no simple answer except that there is a direct and explicit threat to Canada.
Thank you very much.
Thank you, Mr. Brahmi.
I'm going to take the next round.
Mr. Fanusie, I wanted to follow up with you on your presentation. I thought it was very interesting.
You made the point that a number of witnesses have made before the committee, which is that an actual operation costs very little. It's the maintenance of the organization in and of itself that is the issue.
You talked about ISIS as an organization raising about $1 million to $2 million per day from oil, but you also said that kidnapping for ransom is the leading method of terrorist financing after state sponsorship, which I think would surprise many people. People are aware of the kidnapping, but I don't know if they're aware of how much money is actually being raised.
I wanted to follow up with you on the illegal trade of ancient artifacts. It's something we've heard very little about at this committee, so I wanted you to expand on it.
It's interesting: I recently read a book by someone on the FBI Art Crime Team. I think it was called Priceless. The amount of money involved in theft and the amount of organized crime involved in art, as well as the artifacts, which you mentioned here, are things that I don't think this committee has really covered that much.
Can you perhaps expand on those in detail?
Mr. Yaya Fanusie:
Sure. Specifically with reference to the Islamic State, it's probably important to point out how this happens. It's not necessarily a case of guys from ISIS going out and digging and looting artifacts and sculptures that they find themselves. What you have is a phenomenon such that they have control of an area, they control the territory, and they pretty much allow the locals to dig, and they tax the proceeds. Getting back to the idea of just taxing whatever is sold, it's sort of an open environment. They don't necessarily pillage themselves, but they're in these areas where you have millennia's worth of artifacts that can be found and they just allow people to find them or bring them and sell them. When they're sold, they get a share of the proceeds.
That's the layout. That's how it happens.
You mentioned the underground economy, which I think we don't really understand. We don't have the same sort of attention to this economy.
Actually a few weeks ago, I read an article, not about ISIS but about a historic Italian book, I think maybe from the Renaissance period, that was found. It was sold by an art dealer. The U.S. Homeland Security had a team that went in and did all the digging and recovered the book, and the book was at a library at Johns Hopkins University.
I talked to the people at Johns Hopkins and they said that for artifacts there's really no process like the Kimberley process for blood diamonds, under which items have to go through a very strict certification to verify that they are not from illicit trade.
There are safeguards, but they're not that rigorous. There's a lack there.
Hon. Scott Brison:
Thank you very much. I'll begin, and then Mr. Rankin will take it from there.
I have a question with regard to the issue of the cost of individual attacks not being that significant. From the perspective of the financing of terrorism, if in fact terrorism financing costs have gone down so significantly, that would seem to indicate the potential for a proliferation of such attacks. In some ways, it makes it much more difficult for us to follow the money when there are such small amounts of money required. We have had some witnesses speak to us on the potential, for instance, of foreign aid inadvertently supporting terrorist activities. Then we have had, from other witnesses, testimony that one of the root causes of terrorism is extreme poverty in these countries and that foreign aid is therefore important.
How do we maintain that balance? It's important to invest in communities and social infrastructure so that failed states do not become hotbeds of terrorism. At the same time, it's important to ensure that the money intended for institution and community building in some of these countries actually achieves that end.
Mr. Yaya Fanusie:
Yes, I think you've hit an important point—the question of aid. I think the answer lies in what aid goes towards and how strong the institutions are that you're going to invest in or provide aid to.
Perhaps an interesting example may be Mali, which for quite an amount of time many people would say was doing well and did not have that much of a jihadist problem several years back. But you had a vacuum, in a sense, with weak institutions and weakly governed space, a vacuum that extremists and others from other parts of the region were able to capitalize on.
So that's just one example. I don't know if that speaks to every question you may have.
But the issue is really, what institutions are going to be strengthened by donating the funds? I haven't identified foreign aid as one of the key sources of terrorist finance, but certainly having strong institutions on the ground probably makes the biggest difference in terms of how well foreign aid goes towards the targeted aim.
Ms. Vivian Krause:
I've tried to look into that.
The biggest example I can think of is the Oak Foundation. I've traced, I think, $20.2 million that's come to environmental groups from the Oak Foundation. What's interesting, though, is that of that, less than $3 million shows up in the U.S. tax returns. So obviously that money came from U.S. charities. The question is, where did the other $17 million come from?
I wrote to the Oak Foundation last week, actually, and I told them I would be testifying today. I asked them to tell us which countries this is coming from. The reason is that we need to know under which rules that money was granted in the first place. Was it granted under the U.S. rules for charities, or, if not, under which other country? They did reply. They told me they wouldn't answer, but they would respond to a government official. So you could pursue that.
The other question—