FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, April 12, 2000

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[English]

The Acting Chair (Mr. Paul Szabo (Mississauga South, Lib.)): We are resuming consideration of Bill C-22, an act to facilitate combatting the laundering of proceeds of crime, to establish the Financial Transactions and Reports Analysis Centre of Canada, and to amend and repeal certain acts in consequence.

This afternoon we have representatives from the Canadian Bankers Association; H and R Block Canada, Inc.; the Canadian Police Association; and the Royal Canadian Mounted Police. Welcome to you all. I'd like to begin with the Canadian Bankers Association.

Our normal practice is to receive your presentations for about five to seven minutes, and then the members will have an opportunity to ask questions of the witnesses after all the presenters have given their statements.

We'll begin with the Canadian Bankers Association, Mr. Warren Law. Maybe you'd like to introduce your colleagues.

Mr. Warren Law (Vice-President, Corporate Affairs and Legal Counsel, Canadian Bankers Association): Yes, thank you, Mr. Chairman.

Mr. Chairman, committee members, good afternoon. My name is Warren Law and I'm the vice-president, corporate affairs and legal counsel of the Canadian Bankers Association. On behalf of the banking industry, I thank you for the opportunity to discuss our industry's experience with the deterrence of money-laundering activity.

Specifically, we welcome the opportunity to provide you with our views on the current legislation before the House, as well as the related consultation paper issued by the Department of Finance in December 1999.

With me today is Frank Craddock, chief security officer of the TD Bank Financial Group, who is also the current chair of the CBA corporate security committee; and Mr. Gene McLean, who is the director of security of the Canadian Bankers Association.

Mr. Craddock was with the Toronto police service for 26 years, with responsibility for the investigation of various major crimes. He has been with the TD Bank Financial Group since 1993, where he currently serves as the head of corporate security and is responsible for his bank's money-laundering deterrence programs.

Mr. McLean was with the Royal Canadian Mounted Police for over 25 years, with responsibility for the investigation of organized crime, and occupied the role of liaison officer in England and Switzerland for many years. He is at present responsible for the development and execution of industry-level strategies, including the deterrence of money-laundering activity.

As key intermediaries in the financial system, we recognize the very negative impact of money-laundering activity and we understand its damaging effects upon our society.

I will now turn to Mr. Craddock to review the industry's position with respect to the deterrence of money-laundering activity.

Mr. Frank Craddock (Chair, Corporate Security Committee, Canadian Bankers Association; Chief Security Officer, TD Bank Financial Group): Thank you, Mr. Law, and thank you, Mr. Chairman and committee members, for inviting us here to participate in this important process.

I believe it may be helpful to understand a bank security officer's role within the Canadian financial institutions. The position I occupy is normally recruited from law enforcement. There are two distinct areas within security that require our supervision.

The first is protective service, which includes guards, physical security, security equipment, and technology.

The second area, the one I will be focusing on today, is investigations, which includes our activity related to the deterrence of money-laundering activity. In order to protect against this criminal activity, we have established sound policies and programs that detect and prevent money laundering.

Just a few of the preventative measures taken by Canadian banks include: the right to refuse financial transactions suspected of being proceeds of crime as defined by the Criminal Code; a requirement that a declaration of source of funds be signed by customers for financial transactions involving $10,000 or more; a requirement for bank employees to report any financial transactions that are judged to be suspicious, regardless of the amount; the placement of a senior bank officer in every branch, known as the designated officer, to whom suspicious transactions are reported; a strong emphasis on the know-your-customer rule, whereby employees must obtain appropriate identification and documentation from clients, as well as understand the client's usual pattern of financial transactions; an audit of branch compliance with anti-money-laundering policies; and various staff awareness and education programs, including the distribution of related videos produced by the CBA corporate security committees.

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We all work within the scope of the existing legislation, together with the guidelines issued by the Office of the Superintendent of Financial Institutions, known as OSFI, and we believe we have developed a very effective measure to identify money-laundering activities while avoiding high volumes of irrelevant reports.

Most important to our success is our relationship with the law enforcement agencies, the RCMP in particular. The banks have consistently supported the principle of mandatory reporting of suspicious transactions, and for several years there has been a voluntary arrangement between the RCMP and the banks to facilitate the disclosure of those suspicious transactions. We all work together, share appropriate security intelligence, and currently refer many suspicious transactions to the RCMP for investigation.

I will now turn to Mr. McLean to review the industry's position with respect to our specific comments regarding the legislation and regulations.

Mr. Gene McLean (Director, Security, Canadian Bankers Association): Thank you, Mr. Craddock. Thank you, Mr. Chairman and committee members, for the opportunity to participate in this important process.

The Canadian Bankers Association and all of its members are fully committed to the deterrence of money-laundering activity and fully support, in principle, the current proposed legislative changes. We have made some preliminary comments about the proposals in a letter we have sent to the Department of Finance. We have provided a copy of this letter to the committee; therefore, I will now simply highlight some of the matters raised in that letter.

Our main concern is that implementing legislation for a mandatory system of reporting should not be overly prescriptive or complicated in terms of the types of transactions that must be reported. Otherwise, many legitimate transactions will be reported and the resulting huge volume of information may prove ineffective as a means of identifying money-laundering activity.

Bill C-22 requires every person or entity to report to the Financial Transactions and Reports Analysis Centre of Canada every financial transaction where there are reasonable grounds to suspect the transaction is related to money laundering. However, there is no definition or criteria for making this determination, which may lead to inconsistent reporting by the entities covered by the legislation.

While it is anticipated that FTRAC will develop reporting guidelines, we urge the federal government to begin consultations as soon as possible to develop practical measures that ensure consistent reporting.

Bill C-22 provides for the creation of a reporting exemption scheme through regulations. It is our understanding that the intent of these provisions is to reduce reporting of customer transactions that are obviously above suspicion. Some good examples would be deposits from government departments and agencies, or routine transactions by customers that regularly deposit large cash amounts, such as large grocery chains and fast food restaurants.

This concept marries exceptionally well with the current practice of our members, whereby carefully controlled exemptions for such clients currently exist. Unfortunately, the consultation paper states that no specific exemptions are proposed at this time. We believe the use of exemption lists would substantially improve the effectiveness of the mandatory transaction reporting system and specifically prevent the FTRAC from receiving large volumes of irrelevant reports.

Similarly, while Bill C-22 will require the reporting of cross-border flows of currency and monetary instruments, it provides for exemptions from the reporting requirements. Again, and unfortunately, the consultation paper states that no exemptions are contemplated at this time for such transfers.

We believe that the failure to allow exemptions would lead to the unnecessary reporting of cross-border cash transfers, such as those between financial institutions and those made by the federal government or its agencies.

Finally, Bill C-22 sets out relatively severe penalties for failure to comply knowingly with the record-keeping and reporting provisions of the legislation. Although there is provision for a due diligence defence, it must be demonstrated that all due diligence has been exercised.

It is our view that while Bill C-22 uses extremely broad language to describe the scope of the offences, it then provides a defence that is potentially very narrow and difficult to satisfy. Criminal liability should only arise in cases where the employee and/or the institution knowingly and deliberately fail to file a report or keep a record, or act in gross negligence or wilful blindness to the facts.

The use of the word “all” to qualify the due diligence defence means that it becomes very subjective and establishes a test that may be difficult, if not impossible, to meet. We recommend, therefore, that the word “all” be removed from subclause 77(2).

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Thank you for your time. I now invite Mr. Law to conclude our presentation.

Mr. Warren Law: Mr. Chairman, the Canadian Bankers Association, together with all of its members, is deeply committed to the fight against money-laundering activity, and we look forward to working closely with the government, law enforcement agencies, and FTRAC to ensure that the measures in Bill C-22 are effectively and efficiently implemented.

On behalf of Mr. Craddock, Mr. McLean, and myself, I would like to thank you all for your attention, and we would be pleased to answer questions later on in these proceedings.

The Acting Chair (Mr. Paul Szabo): Thank you very much, gentlemen. The CBA has always been very thoughtful in its comments to the committee over the past years, and we appreciate it very much.

I'd now like to call on the representatives of H&R Block Canada, Inc.: Mr. Bonar Irving, senior vice-president and general manager, and Mr. Todd McCallum, vice-president. Welcome, gentlemen.

Mr. J. Bonar Irving (Senior Vice-President and General Manager, H&R Block Canada Inc.): Thank you, Mr. Chairman, committee members.

We have prepared bilingual opening statements, which I understand have been circulated to the committee, and we have additional copies, if anybody needs them. Since you already have the document, I'll restrict my comments to our key concerns.

H&R Block has 537 offices and 470 franchise offices across the country. Three years ago we established Financial Stop as a no-frills financial services platform to cater to the underserviced segment of the population that earns less than $25,000 per year. We now have 45 corporate and 32 franchise Financial Stop locations. In addition to cashing cheques, we provide money orders, bill payments, moneygrams, currency exchange, phone cards, mail box rental, business services, and of course income tax preparation.

Cheque-cashing retail outlets exist because a segment of consumers seeks immediate use of their money and is unwilling to wait until a cheque clears through the banking system. A significant percentage of our clients do not use the mainstream banking system. Our service provides easy access to their money and a variety of user-pay services at a one-stop neighbourhood location.

We know that money laundering is a serious problem and that any institution that handles cash has to accept ongoing responsibility to combat that problem. We comply with existing money-laundering regulations, and we support the new legislation. We are prepared to make the necessary investments and to ensure that our staff is properly trained.

We do have three specific concerns: first, our main concern is section IV, record-keeping requirements for the new entities, which requires that we retain a record for five or more years of every transaction of $1,000 or more. This threshold level captures a significant volume of our business. Overwhelmingly, these are ordinary, everyday transactions. People are cashing their bi-weekly pay cheques. They're obtaining money orders to pay their and their roommate's rent or to pay a bill, or they are using money orders to send money to their families in or outside of Canada.

It is simply not clear to us why this arbitrary level was picked and why Canada feels the need to be out of step with other countries. We are told that the United Kingdom established the equivalent recording threshold at £2,000, and the U.S. has established $3,000 as the appropriate level. We would like to see the Canadian threshold for our industry established at $4,500 to $5,000 Canadian.

We have done some rough calculations, and the $1,000 threshold would have captured almost 100,000 of our transactions in the last year in just our corporate offices alone and over 30% of all cheques we cashed. Bringing the threshold to the $4,500 to $5,000 range would remove the pay cheque and rent transactions and have us archiving from 5,000 to 10,000 transactions a year. We believe this is a more realistic and more manageable number.

Our second point relates to the type of information to be gathered. There are common forms of identification that most of us take for granted: driver's licence, social insurance cards, credit cards, medical cards, etc. A significant number of our Financial Stop clients do not have these forms of ID. That does not mean we don't verify our customers' identities. We just do it in ways that would not occur to deposit-based financial institutions.

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The regulatory consultation paper refers to corporate and individual account information. Officials are applying the deposit-taking institution mindset to our business, which is totally inappropriate. Deposit-taking institutions are in the relationship business. That is why they have the account information. We don't have this type of relationship with our customers. We do transactions. Every transaction is a separate event, accepted or rejected on its own merits. The way we collect information from our customers reflects the reality of our business. If we are pigeonholed in the same box used for the department's regular bank clients, we'll be forced to collect types of information that many of our customers simply cannot supply. This could drive them away from us toward fringe and underground operators. This would not serve the legislation's overall objectives.

Third, we are concerned about the privacy rights of our customers. We note that the government is about to pass important privacy legislation, Bill C-6, and the privacy concerns have been highlighted in the consultation paper. We expect to fully comply with Bill C-6, and we simply want to know that our obligations under federal or provincial legislation will not be in conflict with our obligations to this upcoming agency.

In summary, irrespective of their income, people need access to basic financial services. We want to ensure that our services are accessible and easy to use.

We support this legislation, but we are worried that its application will lead to a denial of services that pushes some of our clients underground. We want to avoid having our staff standing at their counters gathering unnecessary information from people paying their rent or cashing their paycheque. The bottom line is that this is good legislation, but let's not have the net so tightly structured that we are inundated with information about working people's ordinary, day-to-day transactions. Thank you.

The Acting Chair (Mr. Paul Szabo): Thank you very much, Mr. Irving. We appreciate your input.

I'd now like to turn to the Canadian Police Association, and today we have with us Mr. David Griffin, who is the executive director. Welcome, Mr. Griffin.

Mr. David Griffin (Executive Director, Canadian Police Association): Thank you very much, Mr. Chairman. It's a pleasure to be here today.

The Canadian Police Association welcomes the opportunity to appear before the committee today in support of Bill C-22.

The Canadian Police Association represents approximately 30,000 front-line police personnel across Canada. In addition to nearly 300 member associations from all 10 provinces, the CPA has members from the Royal Canadian Mounted Police, the CN Railway police, the CP Railway police, and first nations police officers.

As professionals who dedicate their lives to community safety and the reduction of crime, our members are acutely aware of the impact of the thriving multibillion-dollar industry known as organized crime. Organized crime affects all Canadians, undermines our economy, reduces our security, and threatens the integrity of our political institutions. Organized criminals are most often associated with the illegal drug trade, as the primary suppliers of illegal drugs to our communities and children, including cocaine and heroin. Their activities also include, but are not limited to, the illegal movement of firearms; illegal gaming; prostitution and the sexual exploitation of our children; and trafficking in stolen commodities, such as alcohol, vehicles, and jewellery. The organized criminal is also the distributor of human commodities through the smuggling of illegal migrants, prostitution, and the sexual exploitation of third world children.

The explosive growth of technology in our increasingly global society has presented new opportunities for organized criminals through technological crime, distribution of child pornography, international telemarketing fraud, and offshore gambling.

Organized crime is far from victimless. In addition to the traditional forms of violence associated with the organized criminal, their illegal activities damage and often destroy the lives of our children and vulnerable persons who fall prey to their illicit trade. The child prostitute, the drug addict, the addicted gambler, and the senior defrauded of their life savings are familiar examples. There is a tremendous economic drain on our economy as businesses and insurance companies pass on to consumers the tremendous costs of fraud and theft.

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The Canadian Police Association has for several years now adopted resolutions at each of our annual general meetings calling for increased resources for the Royal Canadian Mounted Police and national police services to bolster our federal policing responsibilities.

We have also highlighted the need to strengthen our borders to combat these growing concerns. We were pleased that the Solicitor General of Canada, the Minister of Finance, and this government responded to these concerns in the recent budget announcements. We will be watching closely in the months ahead to measure the impact of these changes on front-line services.

Funding is an increasingly important issue in the battle against the sophisticated, wealthy, and unencumbered organized criminal, but money is only one element of an appropriate national strategy to combat organized crime.

We were pleased when the federal government recently decided to remove the $1,000 bill from circulation, as suggested by Mr. Marceau in his private member's bill. We were also pleased that Parliament supported the resolution brought forward by the Bloc Québécois in December of last year to convene parliamentary committee hearings on organized crime.

The Canadian Police Association welcomes this opportunity to raise awareness of the increased threats to community safety and national security and, more importantly, to identify strong and effective measures to combat the scourge of organized crime in our communities.

When experts discuss money laundering, Canada has been described as “Maytag of the north”. Bill C-22 is a positive step in addressing this concern.

Most Canadians do not understand the concept of money laundering or its impact on our communities. Simply put, money laundering refers to the methods used by the organized criminal to transfer the proceeds of their dirty criminal activities into legitimate financial instruments. The ultimate goal is to insulate or cleanse the money from any trace back to its criminal origins.

A variety of methods are employed by the laundrymen to accomplish their objectives. These innovative methods include, but are not limited to, the following: “smurfing”, where large sums are broken down into smaller parcels to be transacted by a large team of individuals; “flying” money, the process of engaging in cross-border transactions involving the transfer of legitimate goods for cash through jurisdictions with lax or permissive regulatory schemes; smuggling cash to jurisdictions that provide a haven for criminals through banking secrecy, such as the one-quarter of 200 United Nations countries that provide secret banking regulations, including one jurisdiction that has one bank for every 48 people; and the creation of shell companies or legitimate enterprises to process proceeds of crime. For instance, in some jurisdictions criminals are able to establish their own banks for these purposes.

The laundrymen work separately from the drug dealer. Their paths do not cross. This is the first step in separating the proceeds from the crime. The money launderers employ professionals such as money managers, lawyers, and accountants who accept high fees in exchange for their sophisticated services. These professionals pacify themselves with plausible deniability and wilful blindness in accepting that the money they are transacting is anything but drug money.

Technology provides increased opportunity for the laundrymen and increased complexity for criminal investigations. Bill C-22 provides a foundation to build upon as technology continues to change the way criminals exploit emerging opportunities. The ultimate goal for law enforcement is to interrupt the flow of ill-gotten gains and identify its criminal source.

In considering the provisions of the bill, we would offer the following observations.

First, the $10,000 mandatory reporting level is appropriate and should not be softened. Incremental changes in this level increase exponentially the opportunities to the organized criminal who launders money by transacting smaller parcels.

Professionals involved in the movement of illegal money should not be insulated from reporting transactions or suspicious occurrences by professional codes of conduct or standards. There is a corresponding public interest in ensuring that professional ethics, wilful blindness, or plausible deniability do not immunize those who provide services to the organized criminal. We support the direction of the legislation with respect to these individuals.

Third, we consider this bill to be a work-in-progress. There is a need for flexibility to adapt to new technologies and trends, such as e-commerce. We support the reliance on a regulatory scheme to ensure that sufficient flexibility exists in the future to respond to emerging issues.

Consideration should also be given in the foreseeable future to including retail transactions involving large sums of cash. The underlying rationale is the same for police when it comes to tracing the proceeds of crime and the accumulation of assets.

We understand the delicate balance that is needed to ensure that individual privacy rights are not unreasonably compromised. While investigations could be expedited by increased access to information gathered by the proposed agency, FTRAC, we understand the need to safeguard personal information. We believe this bill strikes the right balance.

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This committee has already heard evidence suggesting that limits need to be increased and exemptions provided for specific institutions. We would strongly caution against such changes, as any exemptions or changes provide corresponding opportunities or loopholes to be exploited by the sophisticated criminal or his agents. We believe uniformity is a compelling and required feature of this legislation.

Ultimately, the success of this legislation will rely heavily on the successful implementation of this agency and timely re-evaluation of the scope and mandate of the legislation and processes.

We have had the opportunity to meet with officials from the departments of finance, justice, and the Solicitor General to discuss this bill and the proposed agency. We appreciate their cooperation and I'm impressed by their commitment to the success of this legislation. We look forward to continuing these discussions in the future as this vision becomes a reality.

The Canadian Police Association endorses this proposal, and we would encourage this committee and all members of Parliament to facilitate swift passage of this bill. This bill is an essential tool that is required to bolster existing law enforcement efforts. It is not, however, a panacea, and additional measures will be required to effectively combat organized crime. We look forward to working with you and your colleagues in the months ahead as Parliament considers these important issues.

Thank you once again for the opportunity to appear before the committee today. We sincerely appreciate the opportunity and would welcome the opportunity to address any questions.

Thank you.

The Acting Chair (Mr. Paul Szabo): Thank you very much, Mr. Griffin.

Our final witnesses are from the Royal Canadian Mounted Police. We welcome Tim Killam, assistant commissioner, technical operations, and Lou Goulet, staff sergeant.

Welcome, gentlemen.

Assistant Commissioner Tim Killam (Technical Operations, Royal Canadian Mounted Police): Good afternoon, Mr. Chairman, and committee members.

As you said, Mr. Chairman, I have Mr. Goulet with me from our policy centre. As well, for any subsequent questions, I have three officers in charge of our integrated proceeds of crime units across Canada, from Montreal, Regina, and here in Ottawa.

My presentation today is intended to give you the view of the Royal Canadian Mounted Police on Bill C-22 as it pertains to money laundering, the effects on the legitimate economy, and what we see as the way ahead in the attempt to stem the tide against organized crime money laundering.

As the former officer in charge of the proceeds of crime program in Canada, I diligently worked with my colleagues in attempting to ensure that Canada was protected by a broad range of measures aimed at strengthening organized crime enforcement by preventing the laundering of the profits of illegal activities.

It became clear to me early on that Canada's financial systems were being exploited by criminal organizations to conceal, legitimize, and transport their illicit profits, thereby financing their future activities. It was felt that Canada required a systematic, coordinated, and cooperative approach to ensure that our financial systems were sound as well as free of criminal taint.

We've heard some definitions of money laundering, but for me, money laundering is the economic engine that runs all criminal organizations around the world. Preventing dirty money from entering Canada's financial system would mean not allowing those predisposed to this activity from ultimately strengthening criminal organizations. The fight against organized crime is one that the Government of Canada has taken very seriously. By extension, the RCMP, as the federal police force, is on the front line of this fight.

Estimates of the amount of illicit drug money laundered annually, worldwide, range from between $300 billion and $500 billion U.S. The UN estimates that in excess of $1 trillion U.S. in illegal profits are generated by organized crime annually. The inclusion of laundered illicit funds from economic and other non-drug crimes could potentially double these figures. The magnitude of these figures is obviously staggering.

The flight of capital and the chaos spilling over the borders of the former Soviet Union and other east bloc countries and into jurisdictions in Europe, the U.S., and elsewhere are examples of just how complicated these matters can be.

A portion of these illicit funds ends up in Canada, which is seen internationally as a haven. The RCMP is unable to quantify the exact amount of money laundering in Canada annually but have ample empirical data to show that it is in fact happening at an alarming rate.

There are a number of reasons why money launderers are attracted to Canada and consider it a haven.

First, Canada has a stable economy with a relatively strong currency and a banking system whose efficiency, stability, and security is second to none.

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Second, there is a long, undefended border between Canada and the United States, over which a huge volume of financial trade occurs.

Third, Canada is located next to one of the world's largest illicit drug markets, the United States.

And finally, and likely most important, is the lack of controls in Canada over cross-border movements of currency and the lack of a mandatory unusual transaction reporting system.

What this means for Canada is there exists an ever more challenging regulatory and law enforcement environment, particularly in a time of reduced barriers to trade and finance.

It is the opinion of the RCMP that in order to effectively combat organized crime, Canada must institute a legally defensible, mandatory unusual reporting system to assist in the investigation of the laundering of proceeds of crime. As far back as 1993, during the Commission on Crime Prevention and Criminal Justice held in Vienna, the Secretary-General of the United Nations put forward an unsettling portrait of the control organized crime has on a worldwide scale. He said:

As revenues generated by organized crime increase, the necessity to control banks becomes a priority for criminals. (...) Businesses controlled by organized crime generate a seventy (70) percent profit margin on their investments. This is achieved at the detriment of law-abiding competitors who must worry about profit margins, overhead, repayment of bank loans. All in all the infiltration by organized crime tends to introduce distortions in the interplay of market forces. In the long run it is the taxpayer and consumer who are affected. The profits of organized crime are so huge that no economy is immune to the impact of this underground economy. (...) We must improve investigative techniques and limit secrecy to appropriate dimensions.

The situation described by the Secretary-General seven years ago is identical to the situation being observed in Canada today.

All financial institutions—banks, trust companies, near-banks, insurance companies—and intermediaries such as solicitors, accountants, casinos, and others who deal with client funds on a daily basis have a front-line role to play in reporting unusual and suspicious transactions. Under voluntary disclosure, as we have today in Canada, there is no systematic and reliable way of detecting money-laundering activity.

A permissive system grants wide discretion to individual financial institutions to determine their commitment to the battle against money laundering and ultimately organized crime. The anecdotal evidence the RCMP has seen underscores the varying commitments in Canada.

At this time there is no overall coordination or control of reports, which are fragmented at best, and thus there is no way of ensuring the available information is being used to its full potential by way of a central agency, as proposed under Bill C-22. It is accepted that it is a struggle to reach an appropriate balance between privacy and enforcement considerations, and it seems clear the balance can never be struck once and for all time. Rather the balance requires constant examination, as ways of doing business, record-keeping and retrieval systems, and the methods of fraudulent transfers all evolve.

But from the enforcement viewpoint, the benefits of the creation of the Financial Transactions and Reports Analysis Centre of Canada, as envisioned in Bill C-22, are many. The centre would, among other things, provide a deterrent by making it more difficult to use traditional financial institutions to hide the profits from illegal activities, therefore reducing Canada's reputation as a haven for money laundering. The centre would fulfil our international obligations. We heard that even yesterday. It would provide a mechanism for enlisting the support and cooperation of banks and other financial institutions in identifying possible currency violations. This centre would identify investigatory targets for possible laundering of the proceeds of crime. And finally but not least, it would provide corroborating evidence against individuals identified through other sources, such as informants and other agency referrals.

At the end of the day, countries are only as strong as their weakest link. Of the 26 member countries of the Financial Action Task Force, only Canada, Singapore, and Germany have not yet implemented mandatory systems of reporting suspicious or unusual transactions. In addition, Canada does not meet the standard required for the Egmont Group, a collection of financial intelligence units, of which there are 48 member countries around the world, that set standards and share financial intelligence data in order to combat money laundering.

The bottom line is money laundering ultimately entails the use of the lawful commercial system for unlawful means. The addition of a mandatory suspicious transaction and cross-border reporting regime will serve notice to Canada's criminal organizations, and indeed to the world's organizations, that Canada has an effective transaction reporting system and that their money is not welcome here.

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Problems caused by organized crime are not the sole responsibility of the police. Bill C-22 allows for a partnership with police, government, and the private sector. It will discourage the continued use of Canadian financial institutions for depositing large amounts of illicit cash and concealing them in accounts around the world. A word of caution, though. A mandatory reporting regime is by no means a panacea. Rather, it is just an integral part of a broad range of measures aimed at strengthening organized crime enforcement.

It seems logical that we should be obligated to cooperate amongst our national institutions and across international boundaries with at least the same effectiveness as those who launder the proceeds of crime.

Thank you, Mr. Chairman, and we're open for questions.

The Chair: Thank you very much, Mr. McCallum.

I think that's all the testimony, so we're going to move now to questions from the members. We're going to commence with Mr. Abbott from the Canadian Alliance.

Mr. Jim Abbott (Kootenay—Columbia, Canadian Alliance): Thank you, Mr. Chairman.

Just before I go to questions, I want to go on record, Mr. Chairman, as having something of a concern about the process. I'm concerned about the process that we've embarked on here, where we are finishing up with the last of the witnesses at 5:30 tonight. At 9 o'clock tomorrow morning, we're going to be starting on clause-by-clause.

I don't feel I would be doing my job as a representative of Her Majesty's official opposition in permitting that to happen. I haven't had any time from 5:30 p.m. to 9 a.m. to consult with any of my staff, any of my advisers, in any way, as to the testimony of these people or for that matter to have digested the testimony of the other people we've had over the last couple of weeks.

I've made the Canadian Alliance position very clear. We want to see this legislation go forward. We are in fact, as you know, on record as having been critical of the government for having taken two years to get us to this point.

Notwithstanding, the committee process is one that is very important in the development of legislation, where there are legitimate questions and concerns brought forward by these witnesses and prior witnesses that have to be taken into account. And prior to getting into clause-by-clause, if I'm going to be doing my job in the parliamentary system, I must be given some time to be able to consult with my advisers.

Unfortunately, we're seized with the fact that we are now going into a two-week break, which is not of our doing. That's just the way the parliamentary calendar works. I can tell you in all truth that if we were back next week and we were having a committee meeting on Monday or Tuesday, that would be fine. That would at least give me one day to consult with my advisers.

So I want to go on record right now. I certainly want to see the legislation go forward. I'm in support of the legislation in principle. I want to make sure that we do a proper job. I think this haste is not working to the benefit of Canadians who are going to be faced with this legislation and having to work this legislation through.

The Acting Chair (Mr. Paul Szabo): Thank you very much.

Mr. Gallaway.

Mr. Roger Gallaway (Sarnia—Lambton, Lib.): I don't want to subtract from Mr. Abbott's time, but in terms of the basic fairness of this committee in terms of operation, there are probably a number of people who want to propose amendments or perhaps would like to bring back department officials. I would like to have department officials come back. Perhaps we would like to have the minister responsible appear before the committee.

This rush to the finish line because of the break I don't think is a very good idea. The idea that we're going to clause-by-clause tomorrow is unacceptable. I've been at other committee meetings recently discussing legislative counsel. I can tell you we're putting an additional burden on the legal draftspeople here.

I don't know if it's in order or if we have a sufficient quorum here today, but I would like to suggest that the committee not meet tomorrow morning, or if the clerk has other witnesses who could be brought tomorrow morning, that would be fine. I would like to suggest we not go to clause-by-clause tomorrow.

The Acting Chair (Mr. Paul Szabo): Okay. Thank you.

Mr. Marceau.

[Translation]

Mr. Richard Marceau (Charlesbourg, BQ): Mr. Chairman, I simply want to say on this rare occasion that I agree with my Liberal colleague and with my colleague from the Canadian Alliance.

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[English]

Mr. Jim Abbott: Mr. Chairman, I wonder if you can advise me if we have a quorum.

The Acting Chair (Mr. Paul Szabo): We have a quorum for the purposes of receiving testimony. We do not have a quorum for the purposes of transacting business of the committee.

Mr. Jim Abbott: Okay, thank you.

The Acting Chair (Mr. Paul Szabo): Having said that, all members' input is certainly valuable. It's obviously in our best interest to ensure that we address fully all of the issues and all of the concerns that all members raise with regard to this legislation.

Tomorrow morning at 9 o'clock the committee has a scheduled meeting, and I think we've made available most of the day to address this. Although clause-by-clause is part of that, since it was the whole committee that approved this schedule of addressing Bill C-22, we'll have an opportunity tomorrow morning to raise this issue with the committee. If it's the view of the committee that more work, additional witnesses, more time, etc., is necessary, we'll be able to address that as a full committee tomorrow morning.

Mr. Jim Abbott: Thank you very much, I appreciate that.

The Acting Chair (Mr. Paul Szabo): Now come again.

Mr. Jim Abbott: Thank you.

As I indicated, the Canadian Alliance is definitely in favour of this legislation and principle. Clearly, the tools required by our enforcement agencies in some places are deficient. This is such an important area in Canada, where organized crime is making further and further inroads... and bringing our legislation up to world standards.

Having said that, I was very interested in the H&R Block presentation. On page 3 of the presentation, under the title of “No Undue Paper Burden”, and in light of the presentation of Mr. Griffin, in particular, I'm trying to reconcile those things. In other words, I'm really asking H&R Block, in light of his presentation, where he's saying by creating exemptions we create more loopholes, we create holes in the sieve... then, as a business person, I have a tremendous amount of sympathy for H&R Block.

What suggestions could H&R Block offer to us on their behalf and perhaps on behalf of the CBA and others who are involved in the paperwork?

What constructive suggestions, I wonder, could you offer that would be able to satisfy the concerns of the police and what this legislation is about and yet ease your burden so that it becomes more workable?

Mr. Bonar Irving: Mr. Chairman, we have no information from the government that says what amounts of money laundering occur at what financial levels or at what dollar levels. Acting from a lack of information, we certainly have no problem with the $10,000 level. We would have no problem with the burden or the duty to see that our staff was properly trained, but we think we're not asking for any exemption. We're just saying establish a more reasonable level. We don't think $1,000 is a reasonable level. We think $4,500 to $5,000 will avoid the gathering of information from people that just relates to their everyday living activities.

Mr. Jim Abbott: In light of that, we have Mr. Griffin here from the Canadian Police Association, and also the RCMP. I wonder, could you as enforcement officers... in your judgment, is that a workable number, or if not, why not?

I'm not trying to broker a deal here; I'm trying to get something that's going to work.

A/Commr Tim Killam: This is an amendment to the Proceeds of Crime (Money Laundering) Act, Bill C-22. It's adding it, making the Proceeds of Crime (Money Laundering) Act something more than just a recording act; it's a reporting act now. In the previous Proceeds of Crime (Money Laundering) Act, the levels were $1,000 for money exchanges, so I imagine that's where it came from.

From a policing perspective, as mentioned by Mr. Griffin, smurfing is probably one of the most effective. It's time consuming, but money-laundering organizations or cells of criminal organizations will pay a certain percentage of that. Their full-time job is to go around to different institutions. They'll pay 10%, and up to 30% in some cases, to get into the system through these kinds of institutions. So your guess is as good as mine.

• 1625

Other countries have $1,000. As Mr. Irving said, there are varying levels in different countries. That's probably where the $1,000 came from in this legislation. I'm only guessing.

Mr. Jim Abbott: I think your statement that “your guess is as good as mine”, which is a common one, probably isn't applicable in this case. I would suggest that you or Mr. Griffin would have a far better guess, a more qualified guess, than I would.

A/Commr Tim Killam: I would say to you that yes, you see money laundering at that level.

Mr. Jim Abbott: At $1,000?

A/Commr Tim Killam: Yes, you do, absolutely. That's an unequivocal answer to that.

Mr. David Griffin: Just to go one step further, aren't other institutions already bound by that requirement?

A/Commr Tim Killam: That's what I was trying to say. Other institutions are covered by the law today, presently. Currency exchanges have that same requirement. The requirement of this legislation is to record it only. This new legislation, if and when it comes through, would require them to report it as well.

Mr. Jim Abbott: But this is one extra piece of paper that H&R Block and other people who are in that kind of enterprise would have to handle on an ongoing basis and store for a five-year period.

A/Commr Tim Killam: It's a paper investigation, and once the paper is gone there's nothing you can prove. You cannot prove anything. All other countries in the world have a similar kind of requirement. What we're talking about is the difference between $1,000, as Mr. Irving is saying, and $4,500 to $5,000. I don't think there's any disagreement that there has to be some level. We've seen it go to $1,000 many times.

Mr. Jim Abbott: Didn't I read somewhere in the H&R Block... Where did I read that the U.K. has a significantly higher... Here we are. It's $2,000 and in the U.S. it's $3,000. Both of those are in the neighbourhood of $4,500. If we were to go along with your suggestion, the comparable legislation traps at a level of approximately $4,500, which I believe is what H&R Block is recommending.

I'm not an advocate for H&R Block. I'm simply trying to come up with something that is going to be workable. As a business person, we want to be responsible and ensure that this activity is trapped and that our streets are made safer as a result. Everybody in this room wants that, but at what level? It's a very good question on the part of the business. At what level does this actually start to happen in some substance? If $4,500 will trap it and it does away with 90% of their paper, it's probably worth looking at.

A/Commr Tim Killam: In answer to what you're saying, Mr. Abbott, this would be something that would be addressed in the regulations. The level can be adjusted in the regulations, and that's why the majority, the meat of the act, is in the regulations. Certainly $1,000 would catch all of them.

Of course, we in law enforcement can't do all of the investigations and everything that comes through our door, because we have limited resources too, but we do have major cases that go to that level. There is the regulation process or the discussion process. We'll be looking at an appropriate level there. You have to have a balance.

We in law enforcement—I can speak for the RCMP—don't want to burden every citizen, particularly when the majority of citizens and businesses are law abiding. The appropriate thing to remember is that from our view, we've seen legitimate businesses, such as H&R Block and the banks, all have good intentions to make sure they don't do this. They're involved in it, but they're unwittingly involved.

So the appropriate level is open to discussion, obviously.

Mr. Bonar Irving: I would only say that as long as the regulations would be used to set the limits or to adjust the limits, I think it would be fairer, it would probably serve the purpose, and it would certainly remove a large burden from business if we were to say it's $4,500 but they can be adjusted down to $1,000. My concern is that we would start at $1,000, and that while law enforcement only uses transactions over $4,500, we are still caught recording and maintaining records.

• 1630

Mr. David Griffin: I certainly would rely on the expertise of the gentleman to my left, but I think the question as lawmakers is how impervious you want us to be to organized crime. What thresholds do you want to place for this type of activity? Certainly the $1,000 may prove to be cumbersome, but it's a question of how big a net you want to provide. How much information can the police subsequently access to trace that money back to its roots? Certainly our association believes quite strongly that, yes, there are going to be some obligations put back on financial institutions, and we recognize that ultimately that will be reflected back on the consumer.

We do live in a technological era where record-keeping can be accommodated. If the experience bears out that this is not a manageable amount of information for the agency, the regulations can be adjusted down the road. Certainly the commentary we've heard from all the parties is that we want to send a strong message to the organized criminals.

The Acting Chair (Mr. Paul Szabo): Mr. Abbott, since we're talking about the threshold, maybe we ought to make sure everybody's had their input here.

There seems to be some evidence that the $1,000 threshold does occur at a level where money laundering does take place. It's a fact. If the thresholds were to change, even if you made them lower, chances are that money laundering would occur at a lower level and try to disperse itself even further simply to carry on the activity. It will try, but obviously as you get into lower denominations, the incidence or the frequency of these transactions starts to go up and it creates patterns.

No matter how you do it, if you get sufficient patterns at other levels, maybe that's okay, but I suspect the experiences... Mr. Killam, maybe our inspectors...

I was interested in the examples H&R Block was giving with regard to the kinds of transactions... Maybe it would be of interest or appropriate to suggest what kinds of activities are going on with regard to items that would be in the range of $1,000.

Officer Goulet.

Staff Sergeant Lou Goulet (Royal Canadian Mounted Police): Thank you, Mr. Chairman.

If I could make reference to a common analogy, there are four factors that are common to all laundering operations: the true ownership and the real source of the money must be concealed; the form is, for the most part, changed—in other words, you reduce the bulk; the trail left must be obscured; and there's a constant control amongst these individuals, i.e. theft.

Under the old regulations, under section 11, where this number started years ago, it had to do with foreign exchange dealing where there was a requirement for a verification of identity for any transaction in excess of $1,000. Shortly thereafter, we decided to test the water. In the mid-1990s, we went through approximately 85 exchanges. That was held in the provinces of Quebec, Ontario, Alberta, and British Columbia. Of those 85 exchanges, to make a long story short, we found non-compliance in anywhere from 40% to 70%, in that there was not a request for that simple identification at the $1,000 mark.

In the second step of the process, we introduced moneys over $10,000. The third step of our intelligence phase was to go to the next step: we'll give you $25,000 and we'll tell you it's drug money. There was non-compliance in there.

All that is to say that there are also distinct stages in the money-laundering process. They're called placement, levering, integration, and repatriation. The placement stage is the weakest link. As you're well aware, once it's in the system and the wire transfers go across the globe, what they can do in two hours requires two years of reactive police work, more often than not.

I don't know if that answers your question directly, but on those thresholds, I agree with Assistant Commissioner Killam. As a police agency, we are open to furthering this discussion in terms of what's best for everyone and making it work. It's a complex issue, and I think, with the discussions and the fact that it is covered off in regulations, we can probably come to a reasonable threshold after hearing all the arguments related to it, if there are new things we are not aware of. I say that because our colleagues in intelligence units—I believe you heard from NCIS yesterday—had to go through the learning curve at the outset as well, and the listening on both sides could achieve this.

• 1635

The Acting Chair (Mr. Paul Szabo): Are there further comments on the $1,000 issue? Have we added that to everybody's satisfaction?

Thank you.

[Translation]

Mr. Marceau.

Mr. Richard Marceau: Mr. Chairman, first of all, four people want to leave. You do not have to stay. You can leave if you want to.

[English]

All your friends are gone, so if you want to go, go now.

[Translation]

First of all, I am happy to welcome our witnesses. When I asked to be transferred from the Justice Committee to the Finance Committee it was to avoid seeing some of you again. Unfortunately, we are meeting again. So welcome. Jokes aside, I'm pleased to see you again. I am going to start with a question for Mr. Law.

Are you receiving the translation?

[English]

Mr. Warren Law: Yes, but barely—I'm fine.

[Translation]

Mr. Richard Marceau: Mr. Law, I would like to know, in your opinion, how many transactions over $10,000 per day or per year the banks will have to report to the Centre.

[English]

Mr. Warren Law: I think it would be useful to get the industry experience from Mr. McLean.

Mr. Gene McLean: Certainly, if we talk wire transfers alone, you would have in excess of maybe 100,000 a day or more over $25,000.

The Acting Chair (Mr. Paul Szabo): That's for the banking industry?

Mr. Gene McLean: That's for the banking industry.

[Translation]

Mr. Richard Marceau: I'm going to play a little bit of ping- pong. Mr. Killam or Mr. Goulet, do you think that a centre would be able to manage 100,000 transactions per day and analyze them?

[English]

A/Commr Tom Killam: I would say yes. I'll defer to my colleagues, but I would say other countries have the same problem dealing with that many transactions a day. There are three diagrams on the wall; they're not just for target practice. It gives you an indication of how technology is used to try to connect all these transactions together.

The veil that money launderers use is that they try to have their transactions spread over a lot of different areas at different times. The idea, of course, with the centre is that while they come in at a very low level of suspicion, because they're just over a certain figure, if you put them into a large database, you try to collate it together and you get trends. And maybe there's a good side to Canada being one of the last countries to have a centre. We've learned what the others have done. There are many databases out there that do exactly that. They collate it, get the information together, and they say...

I was trying to explain this earlier on. Before, if we got one little transaction, say a suspicious $25,000 transaction from a bank... If anybody has done a 1,000-piece puzzle, you'll know you get one little piece of that puzzle—that's the suspicious transaction from the bank. That alone can't tell you what the picture looks like. That piece of the puzzle now will go to a centre, and hopefully with other pieces of transactions coming from other banks... put together you'll get a larger piece of that picture so that you can then do the investigation.

I want to try to educate the committee as well that this tells you only that there's been money laundering or there appears to be money laundering, and it's at a very low level. Then, as an investigative agency, we have to prove the substantive offence that it was money from criminal activity, one of the criminal activities listed in the Criminal Code—a designated drug offence or an economic crime offence.

• 1640

So there's a lot that has to be done, but at least it gives you a better picture. And yes, you're right. It seems that it's very difficult to do, but perhaps Mr. Goulet can explain how that works at other financial intelligence units.

S/Sgt Lou Goulet: Well, if I could add, sir, what this is right here is what they call a wagon wheel, and it's from our colleagues, FinCEN. Each one of those yellow lines there is a transaction. The green lines stand for location, the brown lines stand for accounts, the yellow lines are transactions, the pink are business names, and the blue are people. All that is to give you a pictorial view. It is all sorted and collated by artificial intelligence. So if I pick this spot right here, this is probably what it looks like over here. After it's massaged and worked upon, you have an actual link and trend of the organization.

Now, I bring this forth to demonstrate that in fact there is a capability by organizations to do this. This is an actual case from FinCEN in the United States, but it's sanitized for presentation purposes. Now, are there 100,000 transactions there? I don't know. There certainly looks to be a lot. So the short answer is yes, it can be done. Would every one of these transactions that are spoken about be all reported in any event, of the 100,000 per day?

But the technology, artificial intelligence, will bring you from here to here. Hopefully, the centre, as we see it at the end of the day, would have that capability to not only... it should not merely be seen as a system of informing the police. This whole bill represents the commitment of the financial sector of Canada against the development of organized crime. As A/Commr Killam has stated, this is not the panacea. It's another tool in the box for law enforcement.

[Translation]

Mr. Richard Marceau: Thank you for explaining the pictures. They look like some of the drawings my two-year-old twins have done for me, which I've put in my office. So that makes sense. Thank you.

Mr. Law, I have a question for you. On page 3 of your document, you say that the legislation should not be overly prescriptive. In the following paragraph, based on my reading of it, and I might be mistaken, you seem to be saying that you deplore the absence of a definition for "reasonable grounds to suspect".

That seems a bit contradictory to me. Would you like there to be a definition for reasonable grounds or, at least, a partial definition? And if that is what you want, do you have a definition to suggest?

[English]

Mr. Warren Law: Well, what we're aiming for is a workable system. To the extent that you have uncertainty in the regime you're creating, that detracts from the workability of the system. When you look at certain sections of Bill C-22, I think there's some work to be done. The expression is “the devil is in the details”.

For example, clause 7 deals with suspicious transactions. What is a suspicious transaction? When do you have reasonable grounds for believing that the transaction should be reported? The consultation paper that the Department of Finance came out with said guidelines would be developed to assist us in knowing when we have reasonable grounds. All we're saying is we urge the government to develop these guidelines to help us, so that we know when we have to report under clause 7.

[Translation]

Mr. Richard Marceau: I have one last question for you and then I will have some questions for the others. A cost will be associated with these new obligations. Normally, where there are new obligations, there are costs. As you are aware—and I am speaking on my own behalf, but also on behalf of the witnesses, who, I believe, think the same thing—bank charges are already very high.

Can you guarantee that the costs of these new obligations will not be passed on to bank clients, because to some extent it is your responsibility, as a corporate citizen and a citizen of society in general?

• 1645

[English]

Mr. Warren Law: As an association we represent many members, and of course it would be a business decision on how they would handle the costs associated with the new legislation themselves. But it's also worth noting that to the extent you have certainty in the legislation, it creates efficiencies and will have an impact on lowering costs. From that standpoint as well, I urge the government to make sure the legislation as passed, including the regulations and guidelines, is as certain and as clear as possible.

[Translation]

Mr. Richard Marceau: Do I have time for another question?

I have one last question. Mr. Griffin, I could not forget about you.

On page 7 of your notes you say:

[English]

“The $10,000 mandatory reporting level is appropriate and should not be softened.”

[Translation]

I am asking the question because I want an answer, and not because I want to play the devil's advocate. Isn't the requirement to report any suspicious transaction sufficient? Do we really need this cut-off point? Can't we trust the banks, H&R Block or others to say: whether it is more or less than $10,000, when it is suspicious, we will declare it? Is it really necessary to declare all $10,000-transactions?

[English]

Mr. David Griffin: As I understand the legislation and the proposed regulatory scheme, there will be exemptions for the types of transactions the bankers raised with respect to inter-institutional exchange of funds and government-type transactions, where paper trails exists. But we certainly believe, on the cash transactions, the type of mandatory reporting, and the wiring on behalf of individuals, that there has to be sufficient information reported to the FTRAC agency to ensure that information forms part of their analysis to determine whether or not there is reasonable suspicion of money laundering.

So from our perspective, throw the net out as wide as you can, and as the agency comes together and begins to look at this information, if there are things that are not relevant to this purpose, then start separating them, as opposed to confining the type of information that can be collected by legislation and then having to go through a similar process in the future with respect to changing those limits to where they should be.

The other point I'd like to respond to is the suggestion made yesterday that some types of institutions, such as churches, should be exempt from reporting. There are traditional types of institutions, such as churches, and there are other organizations that may try to fall under the umbrella of being churches, but you have to be very careful when you start throwing those exemptions out there.

[Translation]

Mr. Richard Marceau: Thank you.

[English]

The Acting Chair (Mr. Paul Szabo): Thank you, Mr. Marceau.

[Translation]

Mr. Gallaway, please.

[English]

Mr. Roger Gallaway: I'm speechless at the moment, but I'll get over it.

A voice: That's unusual.

Mr. Roger Gallaway: It is.

I want to ask Mr. Irving a question first. We've heard the question posed by Mr. Marceau regarding costs. Has your organization carried out any study or some sort of plan on what you foresee the cost to your company will be in terms of complying with this legislation?

Mr. Bonar Irving: No, we haven't. We only received an invitation to give input about a week ago. We have not done any study that says at a certain volume the cost will be a given amount of dollars. All we know is that with this our costs will have to go up.

Mr. Roger Gallaway: In your brief you referred to a $1,000 threshold at one point where you have to keep records—or was it $3,000? Where did you get that number? You referred to part IV of the bill. I looked at part IV and maybe I missed it, but I couldn't find it anywhere. Maybe one of our researchers can tell us where it appears. I'm just wondering where you got that number.

• 1650

A/Commr Tim Killam: It's from your regulations, I would assume.

Mr. Roger Gallaway: It's from the regulations. All right.

That leads to the next question I would pose to the Bankers Association and our friends from H&R. This is a very open-ended act, and I think it's very disturbing from a parliamentarian's point of view that we are passing off great authority to a stand-alone agency, which will be created by this act if it passes as is, that will create a lot of rules that no one in Parliament will ever see. In fact, this agency won't even report to Parliament. For a business person such as you who represents a corporation, that must be a concern. That's why I asked you the question about costs.

I would ask the Canadian Bankers Association, have you done any studies on costs, as you know them? You and I know that any regulations at this point are simply a mirage.

Mr. Gene McLean: No. I guess we could say that the additional costs would certainly include electronics, a new reporting system, and the training of staff.

Mr. Roger Gallaway: So you and your members have in no way quantified what this will all mean.

Mr. Gene McLean: No.

Mr. Roger Gallaway: Mr. Marceau has asked you to give an undertaking, as I understand it, about cost to customers—of course, that's of a sensitive nature—trying to balance that with the reason to combat criminal activity, and we are all in favour of combating criminal activity.

You point out in your brief that there's no definition of reasonable grounds to report a transaction. I think it's a valid point.

I'd like to ask you, Mr. Killam, if you think this is a reasonable way of going about it. Let me put it another way. Is there an alternative whereby institutions and groups... We don't even know who's included in the required reporting provisions of this bill, because that's going to be prescribed by regulation if this bill proceeds as is. This great net of people, businesses, and institutions that are going to be caught, if we follow what Mr. Griffin has said, will even include churches. Under this great umbrella, a bunch of people are going to have to report, if they have reasonable grounds, but we don't know what that means.

At the same time, we have a defence system in this country called Canada Customs. Canada Customs does not require everybody who comes into the country to fill out a form. Section 110 of the American Immigration Act, coming into effect April 1, 2001, says that everybody must fill out a form. The Government of Canada is fighting against that law in the United States because they say it's unreasonable.

Perhaps it's not a fair analogy, but do you think this regime—we don't know what the regime is going to be today; it's going to be laid down by regulation—is being laid down in a reasonable way, or is there an alternative? That alternative would be to rely upon those people who deal in the marketplace to recognize that some transactions are usual—maybe exceptional at times but nonetheless usual—as opposed to laying down this hailstorm of what won't be ice, but will be paper.

A/Commr Tim Killam: That's a lot of information you've given me, but I guess at the end of it I think—and please correct me if I'm going the wrong way—

Mr. Roger Gallaway: All right.

A/Commr Tim Killam: —obviously the voluntary way of doing business is what we had. We had a reporting scheme, people reported it... Pardon me, they recorded it; they didn't have to report it. But I can honestly say we had a very good relationship with the CBA and the chartered banks. The difficulty was there was no way of collating it the way you have here.

• 1655

Yes, unusual is the way. These transactions come into this centre—and Mr. Griffin wasn't trying to say the church would have to report; it would be the bank or the financial institution that would see it and it would report it. That information would come into this centre and then it would be collated. Because it came in at such a low level, a low threshold of suspicion or unusualness, if there's such a word, then it would be built up by the centre and then passed off to the police once it got to a certain level of reasonableness. After that, of course, for the police, if that's not enough to lay charges or do a whole lot of things, then there has to be an investigation to see if there are reasonable grounds to go get court orders and to do their thing.

So it doesn't ever get to the police out of the centre until it's been built up by the centre. We would never see it. When we do see it, the first thing we see from the centre is very much like tombstone data. It's very basic data saying “Mr. Gallaway did such and such at such and such a place”. The reason they sent it to the police was it was built from a very unusual level up to another threshold—not at a criminal level, but approaching that, in-between that.

So that's the framework, which is based upon what's happened in all the other countries of the Financial Action Task Force as well. In my former position I was very much involved in the discussions around it with departments.

Mr. Roger Gallaway: This is your primary task, I assume, this file, in the sense of money laundering. That's one of your primary preoccupations.

A/Commr Tim Killam: It was, yes.

Mr. Roger Gallaway: Could you tell me of another country that has an agency that is designed along the lines of this one?

A/Commr Tim Killam: Yes, there's the Netherlands, Belgium. FinCEN is very similar.

Mr. Roger Gallaway: Let's pick one, then. How does the Netherlands differ from the Canadian model proposed here?

A/Commr Tim Killam: My colleague here is more familiar, but each country has differences depending on their charter and their domestic laws. But the basic premise is exactly the same.

Mr. Roger Gallaway: I understand the premise is the same. You've read the bill. You see how the centre is going to be designed and how the director will be appointed. Is there another jurisdiction, another country, that we have copied? I'm talking now about specifics, as opposed to general principles.

A/Commr Tim Killam: Yes, we have the acts for all the different countries.

Mr. Roger Gallaway: What I'm asking is whether there is one that we're taking as a template. Or is this a made-in-Canada solution?

A/Commr Tim Killam: No, it's not a made-in-Canada solution. It's a made-in-Canada solution considering our laws and our charter.

Mr. Roger Gallaway: All right.

A/Commr Tim Killam: As a matter of fact, in Canada, because of our charter and our privacy protections, it's much more difficult. It's much harder. We have to be very careful with it.

The question was asked, I think it was yesterday, by Mr. Abbott about why it wasn't in the police... The reason why it's not going to the police is because anything that comes in unusual to the police would be contrary to the charter, period. We can't use it. It would make it a lot easier if we had our own intelligence, and we'd put it all together and do something. Of course, that would be much easier. That's not the way it is in Canada. That's because of the framework we have with our charter and our privacy protections, which, obviously, is what we all want in this country. But this is a made-in-Canada solution because of that framework, but basically using the same principles.

As a matter of fact, when it comes to the regulations and the things that the bankers and H&R Block were talking about, we'll be looking at those to say there's a place to start on discussions.

Mr. Roger Gallaway: That's an idea, but our job here is to satisfy ourselves that the legal framework is not left to people who are not accountable to the public. When you set up a framework that is premised on regulation—and I'm accountable to the public and perhaps somebody working at the centre isn't, in the same sense. So we have a set of rules laid down by regulation that are going to govern such things as laid out in clause 6, amongst other clauses of this bill.

Having regard to that, can you tell me another jurisdiction, then, you having studied this, where the rules are laid down by regulation as opposed to defined in the legislative framework setting up the operations?

• 1700

A/Commr Tim Killam: I don't have other laws in front of me.

Mr. Roger Gallaway: Thank you.

The Acting Chair (Mr. Paul Szabo): Thank you.

On one of your points, Mr. Gallaway, clause 72 of the bill does call for the five-year review by Parliament or by a committee.

Mr. Roger Gallaway: I understand that, but it's still a five-year hiatus where it's—

The Acting Chair (Mr. Paul Szabo): A five-year hiatus is your concern, not that there isn't a parliamentary review. It's a one-time review, not an ongoing five-year review, which has been a subject of discussion with other bills, such as the revenue collection agency and others. That's important.

I think members probably have exhausted their list. Maybe the witnesses would like to comment on the concept of what constitutes a suspicious transaction. We've had others suggest to us that it's not a defined concept and that we should define it. Interestingly enough, we've had some difficulty having someone come forward with a definition. I think the frustration is that suspicion is in the eyes of the beholder in that setting and in that environment. Is there a consensus among the group that although it would be desirable to have some way to get out of this, it may not be pragmatic to try to define such a concept?

Mr. Warren Law: I think there are certain patterns of conduct that law enforcement agencies have identified, which would certainly lead you to suspicions about a transaction.

A/Commr Tim Killam: Yes, that's exactly it, and my colleague here has mentioned that what's suspicious in one part of the country, for instance, what's suspicious in Metcalfe, is not the same as what's suspicious in Ottawa versus Montreal. Not to trivialize it, but as well a number of the other financial intelligence units, in cooperation with the banks, have developed software that spits out things that are unusual. There are little blips that are pulled out. Those are the kinds of things...

S/Sgt Lou Goulet: Mr. Szabo, if I could add something, clearly it requires constant examination, as ways of doing business, record-keeping, retrieval systems, and methods of fraudulent transfers actually evolve.

One of the areas we looked at, for example, was the Netherlands, where they use objective and subjective indicators to come to a conclusion. By way of example, for cash transactions below a threshold amount, they will look at a series of identifiers, which include—and they are not in isolation, but say someone comes in below the threshold, along with identification problems, unusual conditions offered, it's an atypical transaction for the client, the transaction has unusual packaging, there are frequent deposits by other account holders, no explicable legal objective, outstanding turnovers, etc. Then they have a series of indicators that are collectively used to view that particular transaction.

This is, again, a work-in-progress, but there are examples out there that are in fact being utilized today by other units, in this case the Netherlands.

Mr. Jim Abbott: I have a quick point. It's unfortunate, but I think Mr. Gallaway has left. I'm looking through the bill as drafted, and clause 71 states:

71. The Director shall, on or before September 30 of each year following the Centre's first full year of operations, submit an annual report on the operations of the Centre for the preceding year to the Minister, and the Minister shall table a copy of the report in each House of Parliament on any of the first 30 days on which that House is sitting after the Minister receives the report.

It's unfortunate that Mr. Gallaway isn't here, but I find myself a little confused. I think this clause covers his concern.

The Acting Chair (Mr. Paul Szabo): Yes. The subtlety is that there's no undertaking on behalf of the minister to refer to the committee for study. It's there for their information, but whether clause 72 actually requires Parliament to conduct a review of the administration of the agency... In any event, I have a feeling that this will be discussed again tomorrow.

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Gentlemen, thank you very much for your input. It was helpful to the committee. I think you've touched on some important issues. There was a suggestion, a recommendation, about the word “all” in the due diligence, and in fact I'm advised that this amendment is going to be put forward. So thank you for picking it up, and we are certainly going to be responding to that.

I appreciate all of your input on this important act, and thank you for your time.

The meeting is adjourned.