FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Monday, May 28, 2001

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[English]

The Chair (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I'd like to call the meeting to order and welcome everyone here.

The order of the day is Bill S-16, an act to amend the Proceeds of Crime (Money Laundering) Act. Appearing is a member of our committee, the parliamentary secretary to the Minister of Finance, Mr. Roy Cullen.

We'll also introduce the officials from the Department of Finance, the Department of Justice, the Canada Customs and Revenue Agency, and the Financial Transactions and Reports Analysis Centre of Canada.

Welcome, Mr. Cullen. You may begin.

Mr. Roy Cullen (Parliamentary Secretary to the Minister of Finance): I was going to say we have to stop meeting like this, but I guess I won't say that, because we probably will.

Thank you very much, Mr. Chairman and members of the committee. Allow me to introduce the officials seated with me: Charles Seeto, director of the financial sector division, Department of Finance; Yvon Carrière, counsel for FINTRAC; Mr. Richard Lalonde, chief of the financial crimes division, Department of Finance; Patricia Smith, deputy director of policy, liaison, and compliance for FINTRAC, the new agency; Stanley Cohen, senior counsel, human rights law section, Department of Justice; Paul Saint-Denis, senior counsel, criminal law policy section, Department of Justice. From the revenue agency we have no one sitting here, but we have people from the Canada Customs and Revenue Agency.

Thank you for this opportunity to appear before the committee today on Bill S-16, an act to amend the Proceeds of Crime (Money Laundering) Act. I will keep my remarks brief, so that we have time for questions, Mr. Chairman.

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Honourable members will recall that this bill's predecessor, Bill C-22, was passed in the last Parliament. That bill introduced sweeping and much-needed changes to Canada's anti-money-laundering regime. At that time, the government was being pressured on two fronts to amend and update the previous legislation.

[Translation]

First, law enforcement agencies in Canada were lobbying for better enforcement tools. And second, Canada was under scrutiny internationally because of perceived “gaps” in our anti-money laundering arrangements.

[English]

As a member of the G-7 and the financial action task force, Canada had committed itself to improving its anti-money-laundering regime. It was important that Canada be seen by our international partners to be making progress on this front, particularly because the financial action task force was engaged in a process of publicly listing countries having deficient anti-money-laundering controls right around the time the legislation was passed. The government subsequently introduced Bill C-22, which put in place measures to improve the detection, prevention, and deterrence of money laundering in Canada.

[Translation]

Bill C-22 provided for the mandatory reporting of both suspicious financial transactions and large cross-border movements of currency, and established the new Financial Transactions and Reports Analysis Centre of Canada, which came into being on July 5, 2000.

[English]

This independent agency, usually referred to as FINTRAC, is mandated to receive and analyse reports and to pass on information to law enforcement authorities if it suspects the information would be relevant to a money laundering investigation or prosecution. Built-in safeguards, supported by criminal penalties for non-compliance, ensure strict control over the collection, use, and disclosure of information by FINTRAC. I should also mention that FINTRAC is subject to the federal Privacy Act and its protections.

[Translation]

That said, when members of the Standing Senate Committee on Banking, Trade and Commerce reviewed Bill C-22 last spring, they recommended certain amendments to further strengthen the legislation—and the government agreed to a number of these.

[English]

My colleague, the Secretary of State for International Financial Institutions, made a commitment to members of the committee to amend the act by including some of their suggestions. Bill S-16 fulfils that commitment.

Mr. Chairman, the amendments in Bill S-16 relate to four specific issues.

The first one deals with the process of claiming solicitor-client privilege during an audit by FINTRAC. The agency is authorized to conduct audits to ensure compliance with the act. The current statute contains provisions that apply when FINTRAC conducts a compliance audit of a law office. The agency must provide a reasonable opportunity for a legal counsel to claim solicitor-client privilege on any document it possesses at the time of the audit.

[Translation]

The change introduced in Bill S-16 pertains to documents in the possession of someone other than a lawyer—for example, an accountant. It requires that person to be given a reasonable opportunity to contact a lawyer so that the lawyer could make a claim of solicitor-client privilege.

[English]

The second amendment, Mr. Chairman, ensures that nothing in the act would prevent the Federal Court from ordering the director of FINTRAC to disclose certain information, as required under the Access to Information Act or the Privacy Act. This change makes it clear that the recourse of individuals to the Federal Court is fully respected, which was the intent of the original bill, Bill C-22.

The third measure more precisely defines the kinds of information that may be disclosed to the police and other authorities. It clarifies that the regulations setting out this information may only cover similar identifying information regarding the client, the institution, and the transactions involved.

And, Mr. Chairman, the final amendment makes provision for all reports and information in FINTRAC's possession to be destroyed after specific periods.

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[Translation]

Information that has not been disclosed to police or other authorities must be destroyed by FINTRAC after five years; information that has been disclosed must be destroyed after eight years.

[English]

Mr. Chairman, Bill S-16 builds upon and strengthens the sweeping changes to Canada's anti-money-laundering regime legislated under Bill C-22. That bill was welcomed by all honourable members, irrespective of party—I thank you all for that. It responded to the needs of our domestic law enforcement community for additional means for fighting organized crime by more effectively targeting the proceeds of crime. It responded to Canada's need to meet its international responsibilities in the fight against money laundering, and it did so while providing safeguards to protect individual privacy. These four amendments contained in Bill S-16 will only serve to further strengthen, clarify, and improve the statute.

Mr. Chairman, I and the officials here today will now be pleased to answer any questions you may have about the bill. Thank you. Merci.

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

We'll now proceed to the question and answer session.

Mr. Epp.

Mr. Ken Epp (Elk Island, Canadian Alliance): Thank you.

Quite obviously, this is a very small bill, with only basically four clauses, because there's not much you can add here to the bill. But I have a couple of questions.

This FINTRAC, is it presently busy, or is it not busy? What are they doing? I'd like to get maybe a general statement from them.

Mr. Roy Cullen: Sure. Maybe I'll just kick it off.

First, Mr. Epp, this bill is small particularly because it amends Bill C-22, the bill that was passed in the last Parliament. So these are four amendments, but the bill itself is not a large bill on its own anyway.

FINTRAC has hired a number of people, I think up to about 70 people. They have computer hardware in place and software is being tested. So in general terms, it's getting organized. The draft regulations and guidelines have been gazetted and comments have been coming back. They closed on the comments in mid-May, so they're going over the draft regulations and guidelines. It's well on its way.

Ms. Smith, would you like to be more specific and tell Mr. Epp and the committee members where things are at?

Ms. Patricia Smith (Deputy Director, Policy, Liaison and Compliance, Financial Transactions and Reports Analysis Centre of Canada): Thank you.

That pretty much covers it. To date we have been engaged in the fit-up of our offices. Staffing has been a big push to date. We've hired 78 people, 27 from the private sector. We are in the process of acquiring our information technology. We have been working with Finance to draw up the regulations. We've also put out for consultation some guidelines on those regulations, to better help businesses know how we will conduct our business.

Mr. Ken Epp: I have a question with respect to how you operate. Do you work in isolation, or do you work with Canada Post, with CCRA? Do you work with CSIS, with the agencies in the United States, or do you work in isolation? Maybe you don't even want to tell us, because it's confidential.

Mr. Roy Cullen: The agency is at arm's length from government. There's a reporting regime that's been put in place, so that financial intermediaries report certain transactions. The objective of the agency is to address money laundering activities, and any other objectives are secondary. So if there were transactions that appeared to be suspicious and required perhaps some follow-up, certain tombstone information—if I can call it that—very profiled information, would be submitted to the RCMP. If the RCMP, based on their intelligence gathering from international law enforcement agencies and other sources, believed that the transactions warranted further review, they would then approach, if they wanted to, a judge to get an order to have more information, and FINTRAC, on the basis of a court order, would then provide that information.

So it's meant to operate fairly independently. It has a primary mission; that's what it's focused on. It's very cognizant of the privacy concerns of Canadians.

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Mr. Ken Epp: If I were to summarize, this is basically a snooping, fishing expedition organization to find information for other law enforcement agencies, but not just for itself.

Mr. Roy Cullen: I'm not sure I'd agree with the adjectives you used, Mr. Epp. Snooping is—

Mr. Ken Epp: You're watching transactions and you're monitoring exchange of money, as I see it. If something looks suspicious, you must have to, I would think, start interfacing with other law enforcement agencies, if you don't have that mandate yourself to go after these people.

Mr. Roy Cullen: To go back a bit, with the original bill's intent and the way it's enacted, there are certain transactions that by definition must be reported, over a certain amount. There is also a category called suspicious transactions, which is defined in guidelines. If they're suspicious at the level of the financial intermediary, details must be provided to FINTRAC as well.

Then FINTRAC would have certain procedures they would apply to that data. Perhaps someone could expand on that, but if there were any indications that there seemed to be some trend or it was married with other information at the disposal of FINTRAC, if they felt that it warranted further follow-up or at least a review by the RCMP, as I say, they would transfer certain tombstone information to the RCMP. But the FINTRAC itself is not a law enforcement agency.

Mr. Ken Epp: So what specifically happens here?

This is background, Mr. Chairman, I hope you don't mind.

Last week I received a cheque for one million dollars, and my bank said, thanks very much, we'll look after that for you. That has to be reported, right?

Mr. Roy Cullen: If you deposited it.

A voice: Not a cheque.

Mr. Ken Epp: Yes, I just deposited it in my account. Doesn't it have to be reported?

Mr. Roy Cullen: Not a cheque, no.

Mr. Ken Epp: Really. So that's a good message—we just start dealing with cheques, that's all.

Mr. Roy Cullen: Richard.

Mr. Richard Lalonde (Chief, Financial Crimes, Department of Finance): The short answer is that there would be no obligation for the financial institution to report that transaction to FINTRAC, unless, of course, the financial institution had some reasonable suspicion that it was related to money laundering. If the institution does, then it's obligated to report that transaction.

Mr. Ken Epp: Mr. Chairman, I need to get on to some other questions here, but let me just put on the record that that was a hypothetical—I didn't actually get the money.

Mr. Roy Cullen: I was going to say you could take us out for dinner.

Mr. Ken Epp: You never know. You can go and check—my bank balance is usually closer to the overdraft spot.

I want to ask about this client privilege thing specifically. If an accountant wants to have a client privilege, instead of giving that accountant the right to have the same type of privilege there is now between the solicitor and the client, why would we simply say to that accountant, go and see a lawyer? This is obviously an amendment designed to give more business to lawyers. Why don't we just give the authority directly to the accountants?

Mr. Roy Cullen: I think the purpose of this amendment is to provide additional assurance to people by way of the solicitor-client privilege. The way the act read before, if FINTRAC went to some financial intermediary, for example, to do a compliance audit in a lawyer's office, the lawyer, if they so chose, could claim solicitor-client privilege. But these days accountants and lawyers work very closely together. In fact, it's not restricted necessarily to accountants, but the lawyer might have given other professionals or other people, consultants or whatever, information that should be subject to solicitor-client privilege.

So this amendment ensures that if, let's say, they go to the accountant's office, and the accountant has some information, and he or she says, oh dear, that came from the lawyer, that may be covered by solicitor-client privilege, I need time to phone the lawyer to clarify that, they would have the opportunity to do that.

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Mr. Ken Epp: It seems to me, then, that putting this in gives considerable added protection to a person who is under investigation, who may in fact be guilty, and who, on this account, will now go scot-free. Is that accurate? It improves the protection for the “accused”, if I could put that in quotes.

Mr. Roy Cullen: Solicitor-client privilege has existed as a long-standing rule of law. What this does is just make sure it's clear that a person would have sufficient time to exercise the rights that we all have in an office of an accountant or a consultant.

Would anyone else care to expand on that?

Mr. Stanley Cohen (Senior Counsel, Human Rights Law Section, Public Law and Central Agencies Portfolio, Legal Operations Sector, Department of Justice): I'll try to address that in some measure.

My function has been to give advice on the Charter of Rights insofar as it applies to this legislation and to indicate where there might be dangerous shoals, should the legislation overreach or go too far.

Solicitor-client privilege is protected in the legislation under section 11, and the addition that you have is not a great enlargement on solicitor-client privilege. However, solicitor-client privilege has long been regarded as relatively unique in terms of information that is to receive this kind of protection from the courts.

The relationship that is to receive this kind of protection from the courts is regarded as fundamental to the protection of the entire legal system. What can be said for other kinds of relationships is that they ought to be respected to the extent that's necessary or possible, but they will not necessarily be accorded the same degree of protection as the solicitor-client relationship. There are many other kinds of relationships and confidential exchanges that can, at common law, receive a certain amount of protection, but they don't receive the kind of entrenched protection that we find in our law with respect to solicitor-client privilege.

One can go on at some length to talk about the necessity for this privilege, but essentially it's to ensure that the relationship between people who are confronting the criminal process, but the legal process more particularly, are able to speak in complete confidence to those who are giving them legal advice. It has become necessary to recognize that, and, by this legislation, to extend it—at least, we've been urged to extend it—to cover other individuals who are essentially holding information or material in the context of what really is a legal investigation or a legal analysis that's taking place.

The extension is merely to cover accountants and others who hold information in the context of what is really a request by lawyers and others to do an analysis of that information. It merely allows for an opportunity for those individuals, if they are confronting an investigator or an inspector, to contact a lawyer who might be in a position to assert the privilege on behalf of a client. It's really quite a small step that's being taken here, rather than a large step.

Mr. Roy Cullen: If I can just add to that, Mr. Epp, if a lawyer or an accountant made such a claim, the documents would be sealed, as I understand it, and a judge would adjudicate as to whether or not they were subject to solicitor-client privilege. If someone claims it, it doesn't necessarily mean it ends there. You can't just fall behind the protection of solicitor-client privilege because it's a convenience for you. You have to be able to convince a judge that in fact it is a matter of solicitor-client privilege, which, as Mr. Cohen says, is a long-standing safeguard that all Canadians enjoy.

Mr. Ken Epp: It seems to me that everybody who is engaged in the business of money laundering...and obviously there are some, otherwise your positions here, along with this agency, would be redundant; you're there to identify and to catch them. It seems to me that the message is that all of these people should have all of their accounting work done by people who hold not only accounting degrees, but also legal degrees. That way, they'd be fully covered. I think that's the message.

Mr. Roy Cullen: Just to clarify, this is dealing with compliance audits. This is where there is information that suggests a financial intermediary may not be complying with the reporting provisions of the act. So in presenting themselves and in going through information to establish whether or not this financial intermediary is in compliance or non-compliance with the act, they would come across information. That's when this would trigger this type of transaction.

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Yes, sir, Mr. Saint-Denis.

Mr. Paul Saint-Denis (Senior Counsel, Criminal Law Policy Section, Assistant Deputy Minister's Office, Policy Sector, Department of Justice): If I could just add one other thing, not all the information that would be in the hands of a lawyer would necessarily benefit from the solicitor-client privilege. The type of information that is protected is a narrow band in the very broad range of information that may be held by a lawyer.

The simple fact that you claim solicitor-client privilege with respect to a given document doesn't necessarily mean the privilege is extended to that document. That's why we have this whole process whereby the information or the documents in question are sealed. The material is then delivered to a judge, and the judge makes a determination as to whether or not the documents being targeted actually benefit from that privilege. If they don't, then the documents are handed back to the proper authorities for review.

Mr. Ken Epp: Thanks.

The Chair: Mr. Dubé.

[Translation]

Mr. Antoine Dubé (Lévis-et-Chutes-de-la-Chaudière, BQ): I share Mr. Epp's concerns about clause 4 and solicitor-client privilege. I have to wonder who stands to benefit from the proposed change.

I appreciated Mr. Cullen's response, but I would like to ask him where this provision can be found in the legislation. It is more a matter of the spirit of the legislation, as someone said. Surely criteria other than the argument that all matters are not privileged can be invoked to overturn the objection of a lawyer or other counsel. I am neither an expert nor a lawyer, but I see nothing in this bill that provides this kind of flexibility.

Mr. Roy Cullen: Which clause specifically in the bill refers to these measures?

Mr. Yvon Carrière (Counsel, Financial Transactions and Reports Analysis Centre of Canada): The bill does not define the scope of solicitor-client privilege. Over the years, common law has developed a series of criteria to establish when a document is or is not protected by solicitor-client privilege. For example, the courts maintain that from the moment legal counsel is involved in illegal transactions or participates in a crime, solicitor-client privilege absolutely does not apply.

This kind of case law is evolving over time and that's why it's impossible to codify it at a particular point in time. The courts for their part invoke very specific criteria to determine if a document is protected or not by solicitor-client privilege.

Mr. Antoine Dubé: Some argue that this type of privilege should be extended to accountants and to other professionals. Could you give me an example of other professionals who might benefit from such a move?

Mr. Yvon Carrière: For example, if I were facing charges under the Criminal Code, I would contact my lawyer and ask him to prepare my defence. If the charge pertains to fraudulent bankruptcy, my lawyer, who may not be an expert in accounting and bankruptcy matters, may consult a trustee in bankruptcy and ask for assistance in preparing the defence. In that case, the bankruptcy expert will request the documents that I have turned over to my legal counsel. It's possible that these documents, which were protected by solicitor-client privilege while in the hands of my lawyer, would continue to enjoy the same protection while in the hands of the bankruptcy expert. The latter could contact the lawyer and ask for the right to claim professional privilege.

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Mr. Antoine Dubé: However, there is always a link with counsel. Front line service, so to speak, is always provided by counsel.

Mr. Yvon Carrière: The accused or the lawyer's client can always claim solicitor-client privilege, but normally does so through counsel. Correct me if I'm wrong, but solicitor-client privilege is restricted to counsel's defence of an accused person.

Mr. Antoine Dubé: In Quebec, many professionals claim a form of professional privilege, be they doctors, psychologists or any number of specialists. That's why I'm concerned about how far this privilege extends. It's almost limitless.

Mr. Paul Saint-Denis: If I may, professional privilege, as it extends to... [Editor's note: Technical difficulty]

As Mr. Cohen stated, this enjoys a unique standing in our system of law. Obviously, other professions invoke confidentiality and privilege, but none to the same extent as solicitor-client privilege. Clause 4 of Bill S-16 extends the scope of the solicitor-client privilege that may be claimed in respect of a document so that when such document is in the possession of a person not being a legal counsel, that person may claim solicitor- client privilege.

In the case of a trustee, as my colleague cited, or in the case of an accountant working for a legal counsel, the trustee or accountant could claim solicitor-client privilege in respect of a document, on the basis that counsel asked him to do work on his behalf and that the client is represented by counsel. Obviously, neither the trustee nor the accountant in this instance actually benefit from solicitor-client privilege. This provision is merely one way of extending solicitor-client privilege in cases where documents are in the possession of a person other than counsel.

Mr. Antoine Dubé: [Editor's note: Inaudible]

Mr. Roy Cullen: Solicitor-client privilege is defined clearly in clause 64 of the former Bill C-22.

Mr. Antoine Dubé: It is?

Mr. Roy Cullen: Yes.

Mr. Antoine Dubé: The privileged relationship between counsel and the client?

Mr. Roy Cullen: Yes.

Mr. Antoine Dubé: I have a question for you. Quebec has notaries who operate somewhat differently. How would this provision apply to notaries?

Mr. Paul Saint-Denis: The former Bill C-22 contained a definition of “legal counsel” and a specific reference to notaries practising in Quebec. It defined “legal counsel” as follows:

“Legal counsel” means, in the Province of Quebec, an advocate or notary and, in any other province, a barrister or solicitor.

Therefore, this provision extends to notaries in Quebec.

[English]

Mr. Stanley Cohen: If I might address the underlying concern behind your questions and the questions previous, I think it had to do with a feeling that there might be sheltering behind lawyers, to a certain extent, in that people would be able to take advantage of the system.

Just to clarify that point, advice that is given by lawyers on matters outside of the solicitor-client relationship is not protected. That's the first exception to the general rule about solicitor-client privilege, but then there are a number of others.

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There are at least three well-known exceptions that are additional to that, and they are also important. One of them is called the “future crimes” exception. Here it is well-established that there is an exception to the principle of confidentiality of solicitor-client communications where those communications are criminal, or else made with a view to obtaining legal advice to facilitate the commission of a crime. That, too, falls outside of the privileged area, and one could therefore not take advantage of a lawyer's position, nor could a lawyer participate in the commission of a crime.

Another one is called the “full answer in defence” exception, and this can arise when adherence to the rule would have the effect of preventing an accused person from making full answer in defence. This sometimes comes up when a case is ongoing before the courts and the individual must get information in order to be able to establish his or her innocence. In that circumstance, the privilege must yield to the need to make full answer in defence. This is also sometimes spoken of as the “innocence of the accused” exception.

The final one is called the “public safety” exception, which occurs when public safety is involved and death, serious bodily harm, or injury is imminent. In that case, the privilege again can be set aside.

So one should not view solicitor-client privilege as somehow erecting an absolute barrier behind which neither the courts nor law enforcement will ever be able to go.

I think that addresses the larger context of the kind of suspicion one might have of the over-reliance on lawyers. Normal lawyers especially want to become subject to a great deal of supervision and regulation, so it's really addressing those circumstances in which the lawyer is acting as a lawyer, not those in which the lawyer is acting as a businessman or a business intermediary. Where the lawyer acts in that capacity, the scheme applies and the auditors can come in and can ask to see what is necessary in order to ensure compliance with the reporting requirements of the scheme.

The Chair: Thank you.

I see no further questions, so we'll proceed now to clause-by-clause.

You officials should stay where you are.

Mr. Cullen, perhaps you might want to sit on the other side.

Mr. Roy Cullen: I'll move to the other side.

(Clauses 1 to 4 inclusive agreed to)

The Chair: Shall the title carry?

Some hon. members: Agreed.

The Chair: Shall the bill carry?

Some hon. members: Agreed.

The Chair: Shall I report the bill to the House?

Some hon. members: Agreed.

The Chair: Thank you very much.

On behalf of the committee, I would like to thank the officials, as always, for their hard work and for their expertise. We certainly appreciate that.

And obviously our thanks go out to everybody involved, from the researchers to the clerk.

Very quickly, we have two meetings tomorrow. The second meeting, the one with the officials, may be cancelled. They can come back later, if that's okay.

Mr. Ken Epp: Are we going to have a general discussion on what we're going to do with that bill?

The Chair: We can have that after the meeting tomorrow if you like.

Mr. Ken Epp: Yes.

The Chair: So tomorrow's afternoon meeting is cancelled, but we'll get a notice out. Tomorrow morning is still on, and the officials will be available tomorrow morning if needed.

The meeting is adjourned. Thank you very much.