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37th PARLIAMENT, 2nd SESSION

Standing Committee on Finance

EVIDENCE

CONTENTS

Tuesday, May 27, 2003

1545

The Chair (Mrs. Sue Barnes (London West, Lib.))

Mr. John Wiersema (Assistant Auditor General, Office of the Auditor General of Canada)

1550

The Chair

Mrs. Lynn MacFarlane (Deputy Director, Corporate Management, Financial Transactions and Reports Analysis Centre of Canada)

1555

1600

1605

The Chair

Mr. Richard Harris (Prince George—Bulkley Valley, Canadian Alliance)

1610

Mrs. Lynn MacFarlane

Mr. Richard Harris

Mrs. Lynn MacFarlane

Mr. Richard Harris

Mrs. Lynn MacFarlane

Mr. Richard Harris

1615

Mrs. Lynn MacFarlane

Mr. Richard Harris

Mrs. Lynn MacFarlane

Mr. Yvon Carrière (Senior Counsel, Financial Transactions and Reports Analysis Centre of Canada)

The Chair

Mr. Richard Harris

The Chair

Ms. Pauline Picard (Drummond, BQ)

The Chair

Mr. Roy Cullen (Etobicoke North, Lib.)

Mr. John Wiersema

1620

Mr. Roy Cullen

Mrs. Lynn MacFarlane

Mr. John Ossowski (Assistant Director, Government Relationships and Communications, Financial Transactions and Reports Analysis Centre of Canada)

Mr. Roy Cullen

Mr. John Ossowski

Mr. Roy Cullen

1625

Mrs. Lynn MacFarlane

Mr. Roy Cullen

The Chair

Mr. Yvon Carrière

Mr. Roy Cullen

Mr. Yvon Carrière

Mr. Roy Cullen

Mr. Yvon Carrière

The Chair

Mr. Shawn Murphy (Hillsborough, Lib.)

1630

Mrs. Lynn MacFarlane

Mr. Shawn Murphy

Mrs. Lynn MacFarlane

Mr. Shawn Murphy

Mrs. Lynn MacFarlane

Mr. Shawn Murphy

Mrs. Lynn MacFarlane

Mr. Shawn Murphy

Mrs. Lynn MacFarlane

Mr. Shawn Murphy

1635

Mrs. Lynn MacFarlane

The Chair

Mr. John Wiersema

Mrs. Lynn MacFarlane

Mr. Shawn Murphy

Mr. John Ossowski

Mr. Shawn Murphy

Mr. John Ossowski

Mr. Shawn Murphy

The Chair

Mr. Richard Harris

1640

Mrs. Lynn MacFarlane

Mr. Richard Harris

Mrs. Lynn MacFarlane

Mr. Richard Harris

Mrs. Lynn MacFarlane

Mr. Richard Harris

1645

Mrs. Lynn MacFarlane

Mr. Richard Harris

Mrs. Lynn MacFarlane

Mr. Richard Harris

Mr. John Ossowski

Mr. Richard Harris

Mr. John Ossowski

Mr. Richard Harris

Mr. John Ossowski

Mr. Richard Harris

Mrs. Lynn MacFarlane

Mr. Richard Harris

Mrs. Lynn MacFarlane

The Chair

1650

Mr. John Ossowski

The Chair

Mr. John Ossowski

The Chair

Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.)

Mrs. Lynn MacFarlane

Mr. Nick Discepola

Mr. John Wiersema

Mr. Nick Discepola

Mr. John Wiersema

Mr. Nick Discepola

Mr. John Wiersema

Mr. Nick Discepola

Mr. John Wiersema

Mrs. Lynn MacFarlane

1655

The Chair

Mr. Roy Cullen

Mr. John Wiersema

Mr. Roy Cullen

1700

Mr. John Wiersema

Mr. Roy Cullen

Mr. John Wiersema

Mr. Roy Cullen

Mr. John Ossowski

Mr. Roy Cullen

Mr. John Ossowski

Mr. Roy Cullen

Mr. John Ossowski

Mr. Roy Cullen

1705

Mr. John Ossowski

The Chair

Mr. Gary Pillitteri (Niagara Falls, Lib.)

Mr. John Wiersema

Mr. Gary Pillitteri

Mr. John Wiersema

The Chair

Mr. John Ossowski

The Chair

Mr. John Ossowski

The Chair

Mr. Richard Harris

1710

Mrs. Lynn MacFarlane

Mr. Richard Harris

Mrs. Lynn MacFarlane

Mr. Richard Harris

Mrs. Lynn MacFarlane

Mr. Richard Harris

1715

The Chair

Mrs. Lynn MacFarlane

The Chair

CANADA

Standing Committee on Finance

NUMBER 059

2nd SESSION

37th PARLIAMENT

EVIDENCE

Tuesday, May 27, 2003

[Recorded by Electronic Apparatus]

¹ (1545)

[English]

The Chair (Mrs. Sue Barnes (London West, Lib.)): Order.

Pursuant to Standing Order 108(2), we are considering the April 2003 report of the Auditor General of Canada, chapter 3, “Canada's Strategy to Combat Money Laundering”.

We have as witnesses, from the Office of the Auditor General of Canada, John Wiersema, Assistant Auditor General, and Richard Smith, who's a principal on that file.

From the Financial Transactions and Reports Analysis Centre of Canada, we're very pleased to have with us Lynn MacFarlane, the deputy director, corporate management; John Ossowski, assistant director, government relationships and communications; and Yvon Carrière, senior counsel.

Welcome to all of you. We're very happy to have one of our meetings with you today. We thought it was important as a committee to hear what you have to tell us.

I think we'll go in order of the agenda, with a presentation, first of all, from the Office of the Auditor General of Canada. We'd be pleased if one of you would commence the presentation.

Mr. John Wiersema (Assistant Auditor General, Office of the Auditor General of Canada): Madam Chair, thank you for this opportunity to appear before the committee to discuss combatting money laundering.

I have the overall responsibility for our audit work in the Department of Finance portfolio, which includes the Financial Transactions and Reports Analysis Centre of Canada, FINTRAC.

With me today is Rick Smith, a principal in the office, who assists me in our work with the Department of Finance and who is the author of our study, “Canada's Anti-Money Laundering Strategy”, which was released in April 2003.

I will talk first, briefly, about why we did the study, and then a brief summary of what we concluded.

I know the committee is very familiar with the issue of combatting money laundering and the federal government's efforts to combat it through the hearings held on the Proceeds of Crime (Money Laundering) Act in 2000 and when the act was amended in 2001. Members will recall, therefore, that the act contains a provision stating that Parliament must review the act and its administration within five years of coming into force--that is, by July 2005.

To assist parliamentarians in their review, the Office of the Auditor General has developed a reporting process on this issue with two parts. The study that was released in April sets the stage for a future audit of the federal government's strategy to combat money laundering. It describes money laundering and the key challenges to combatting it. The second stage is an audit plan for reporting in November 2004, in which we will address the issue of how well those challenges are being managed.

[Translation]

Members know that money laundering is a form of financial crime in which the proceeds from criminal activity are made to appear legitimate. The goal of many criminal acts is to make a profit for the individual or group that commits the crime. A strategy to fight money laundering seeks to reduce crime by making it harder for criminals to keep and use their profits.

International efforts to fight money laundering have been under way for more than 15 years. They were part of the war on drugs, expanded to include the proceeds of most other serious crimes, and most recently have included anti-terrorism efforts.

The building blocks of Canada's strategy against money laundering were put in place in the late 1980s and early 1990s. While the system that Canada put in place was broadly consistent with international standards of the time, those standards were changing. Canada was criticized for lagging behind.

¹ (1550)

[English]

Canada launched the national initiative to combat money laundering in 2000 to close these gaps. Its centrepiece was the new Proceeds of Crime (Money Laundering) Act. A total of $139 million was budgeted over the first four years to establish the Financial Transactions and Reports Analysis Centre of Canada and to help the centre's partners perform their roles. In 2001, both the act and the mandate of the centre were amended to include provisions to deter and detect terrorist financing. The centre received an additional $34 million over three years for that role.

Canada's strategy to combat money laundering seeks to strike a balance among its various objectives. They are to strengthen law enforcement, protect personal information, and support international efforts to combat money laundering. The strategy also seeks to keep to a minimum the costs that organizations such as banks, trust companies, and foreign currency exchanges incur to comply with the requirements to keep records, identify clients, and report unusual or suspicious transactions. With the new law, the balance has shifted to give greater weight to strengthening law enforcement in Canada and abroad.

To meet its goals to reduce money laundering and terrorist financing, the federal government will need to deal with a series of challenges. These include the following: to protect the privacy rights that Canadians enjoy under the Canadian Charter of Rights and Freedoms; to develop financial intelligence that is high in quality and that assists law enforcement and other agencies in their investigations; to respond to the particular challenges posed by terrorist financing, such as following the trail of small deposits and withdrawals; to make financial organizations and the public aware of the new rules under the legislation and to ensure they comply with the rules; to establish and maintain effective working relationships across a broad range of partners and stakeholders; and finally, to measure how effective the federal efforts to combat money laundering and terrorist financing are. Each of these challenges is described in more detail in our report.

As I mentioned at the outset, the audit that we plan to report in November 2004 will focus on how well those challenges are being managed, and it should contribute to the parliamentary review of the act that is required by July 2005.

Madam Chair, we would be pleased to answer the committee's questions.

The Chair: Thank you very much.

Who is going to present?

Ms. MacFarlane, go ahead, please, on behalf of Financial Transactions and Reports Analysis Centre of Canada.

[Translation]

Mrs. Lynn MacFarlane (Deputy Director, Corporate Management, Financial Transactions and Reports Analysis Centre of Canada): Madam Chair, ladies and gentlemen, I appreciate this opportunity to speak to you today about the Financial Transactions and Reports Analysis Centre of Canada.

[English]

As you know, FINTRAC was created in July 2000 to collect, analyse, and disclose financial information and intelligence on suspected money-laundering activities. With the passage of the anti-terrorism legislation in December 2001, this mandate was expanded to include the detection and deterrence of terrorist financing activities.

FINTRAC was established without staff, without offices, without infrastructure, and without operating systems. Today we have 164 staff, a budget of $31.7 million, and small regional offices in Montreal, Toronto, and Vancouver, and we are a leader in e-government.

FINTRAC is unique among the world's financial intelligence units in that our regulations require reporting entities to submit their reports electronically if the reporting entity has the technical capacity. Over 95% of transaction reports come to us electronically. Getting this information electronically provides FINTRAC with a distinct operational advantage.

FINTRAC is part of Canada's national initiative to combat money laundering, which benefits from the participation of other federal departments and agencies, including the Canada Customs and Revenue Agency, the Canadian Security Intelligence Service, Citizenship and Immigration Canada, the Department of Justice, the Department of Finance, the Solicitor General of Canada, and the Royal Canadian Mounted Police.

As Canada's financial intelligence unit, FINTRAC, along with the other departments and agencies just mentioned, plays an important role in combatting both money laundering and the financing of terrorism activities.

[Translation]

Our role, which is at the front end of the initiative is to collect and analyze information and disclose it to law enforcement and CSIS if it is relevant to money laundering, terrorist financing and threats to the security of Canada. Once FINTRAC makes a disclosure, it is up to the receiving law enforcement agency or to CSIS to pursue the investigation. In short, FINTRAC connects the money to the crime.

I would like to use this opportunity to highlight some of the issues that we are working on. Many of these issues were already part of our work plan, and were reinforced in the most recent Auditor General's Report, including:

¹ (1555)

[English]

developing high-quality financial intelligence, responding to the challenges posed by terrorism financing, raising public awareness and ensuring compliance, establishing and maintaining working relationship across a broad range of partners and stakeholders, and measuring the effectiveness of federal efforts to reduce money laundering and terrorism financing.

Before speaking to these issues, I'd like to spend some time on the issue of privacy. FINTRAC's governing legislation has been carefully crafted to meet the needs of law enforcement while respecting the privacy of Canadians. Indeed, privacy is paramount in everything we do.

The significance of protecting the information we receive is reflected in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, which sets out what information may be disclosed and under what circumstances. It also stipulates that FINTRAC employees and contractors are subject to criminal penalties of up to five years in jail or a fine of $500,000, or both, for unlawful disclosure or use of information. In addition, FINTRAC is subject to the requirements of the Privacy Act and has established a physical environment, policies, and procedures that provide the highest degree of protection for the information we have in our possession.

FINTRAC is an independent agency that operates at arm's length from police and agencies to which it discloses information. In fact, the police and CSIS do not have access to our database and may only have access to our complete analytical files by court order.

As required by our enabling legislation, FINTRAC receives and analyses information for more than 100,000 financial entities and intermediaries across Canada. Each month we receive thousands of reports from these entities, including:

[Translation]

suspicious transactions related to money laundering or terrorist financing; terrorist property reports; international electronic fund transfers of $10,000 or more; large cash transactions of $10,000 or more; cross-border currency movements of $10,000 or more and currency seizure reports.

[English]

This data is combined with information received from a number of sources. Databases are maintained for the purposes of law enforcement where FINTRAC has assigned a memorandum of understanding with the holder of the information, databases that are commercially available, information voluntarily received from law enforcement, security agencies, or from the public, and information from foreign financial intelligence units with which Canada has signed information-sharing agreements.

Using technology and internationally accepted typologies, analysts sift through this body of information. They search for links and patterns that suggest money laundering and terrorism financing.

While we rely on technology to find the links, it is the skill of our analysts that provides high-quality financial intelligence. FINTRAC's analysts have a wide range of experience and expertise, with backgrounds in law enforcement, criminal and military intelligence, forensic accounting, tax auditing, law, econometrics, accounting, financial fraud detection, customs, and finance. We also have recruited staff with expertise and experience in banking, insurance, and investment dealings. This allows many different skill sets to be brought to bear on the complex analytical work to be done.

When this process reveals intelligence that the centre has reasonable grounds to suspect could be relevant to an investigation or prosecution of money laundering or terrorism financing, FINTRAC is required to disclose what is referred to as “designated information” to the appropriate police force. Where the centre has reasonable grounds to suspect the information would be relevant to threats to the security of Canada, FINTRAC is required to disclose designated information to CSIS. FINTRAC can also disclose designated information to a financial intelligence unit with which the centre has an information-sharing agreement, again where it has reasonable and probable grounds to suspect this information would be relevant to a money laundering or terrorism financing investigation or prosecution. This designated information includes the names of persons involved in the transactions, the size and value of the transactions, and where and when they took place.

To date, FINTRAC has made over 100 case disclosures. Just over two-thirds of these disclosures related to suspicions of money laundering.

º (1600)

[Translation]

With 17 months of operational data now accumulated, we are discerning patterns and trends. This information will contribute to strategic intelligence products, advice and analysis to enhance awareness and understanding of money laundering and terrorist financing. It will also inform the development of effective counter-strategies.

To meet this objective, we shall develop strategic intelligence products that can support law enforcement and the policy decision-making process.

[English]

After September 11, 2001, FINTRAC was given an additional mandate to provide law enforcement with financial intelligence related to terrorism financing. More specifically, the Proceeds of Crime (Money Laundering) and Terrorism Financing Act was amended to require those individuals and businesses who were required to report their suspicions of money laundering to FINTRAC to also report suspected terrorist activity financing.

Because of the challenge in detecting this type of financial activity through the analysis of financial transactions alone, FINTRAC also relies on timely and accurate intelligence that is provided by the police and national security agencies, as well as international financial intelligence units to augment its data holdings.

As you know, FINTRAC has a legislated responsibility to enhance public awareness and understanding of matters related to money laundering. Last year we targeted our communication efforts to reporting entities through guidelines, pamphlets, and website updates; to law enforcement through a video, which will be distributed shortly; and to clients of reporting entities so they better understand why they are being asked for identifying information. Surveys conducted in 2001, 2002, and 2003 have told us that nine out of ten Canadians recognize the term “money laundering” and have an understanding of what it is.

FINTRAC takes its obligation to ensure compliance with the Proceeds of Crime (Money Laundering) and Terrorism Act and regulations seriously. FINTRAC continues its outreach to reporting entities and their representative industry associations to make sure they understand their regulatory responsibilities. It has published a total of ten guidelines to assist reporting entities to that end. FINTRAC has also developed a risk management framework along with a quality assurance program for reports received to provide an effective tool for compliance monitoring.

Amendments contained in Bill C-17 currently before Parliament will allow FINTRAC to share compliance-related information with regulators and supervisors of financial institutions and intermediaries covered by the act through memoranda of understanding. This will be more cost-effective and will minimize information and regulatory gaps. Another proposed amendment in Bill C-17 will allow FINTRAC to access national security databases.

[Translation]

As I mentioned earlier, FINTRAC is only one partner in Canada's National Initiative to Combat Money Laundering. As Canada's financial intelligence unit, it must work closely with all partners and stakeholders, from law enforcement agencies to reporting entities.

[English]

We meet regularly with disclosure recipients, including the police, the Canada Customs and Revenue Agency, the Canadian Security Intelligence Service, and Citizenship and Immigration Canada. FINTRAC is actively involved in a variety of federal interdepartmental committees; federal-provincial-territorial committees; and international multilateral fora such as the Canada-U.S. Cross Border Crime Forum, the financial action task force, and the Egmont Group of financial intelligence units.

The Egmont Group, established in 1995, is an international group of financial intelligence units that work together in an informal organization to provide a forum for financial intelligence units to improve support to their respective anti-money-laundering and anti-terrorism-financing programs. Finance was granted membership to the Egmont Group in the year 2002.

Over the last year or so, FINTRAC has established information-sharing agreements with financial intelligence units in the U.S., the U.K., Belgium, Australia, and Mexico. It will be proceeding with similar agreements with financial intelligence units in other countries in the near future.

FINTRAC also meets regularly with reporting entity sectors. We establish regular monthly meetings with the Canadian Bankers Association money-laundering working group. These meetings are a valuable forum for consulting with this group on a wide variety of issues, and we are establishing similar forums for other key reporting entity groups.

The image I would like to leave you with is that of a relay race. In the first leg of the race, the financial institutions and other entities that report transactions to FINTRAC carry the baton. FINTRAC's role is to carry that information forward by analysing the information and producing an intelligence product that can be forwarded to law enforcement and CSIS.

The last leg of the race is the investigation and the prosecution of cases. The success of the larger initiative is tied to the performance of each of the members. Our ultimate objective is to connect the money to the crime, thus supporting the overall mission we have with our partners to detect and deter money laundering and terrorism financing.

[Translation]

It is widely recognized that the extent and scope of money laundering and terrorist financing can never be truly measured. Therefore, assessing the effectiveness of the measures implemented to combat these activities is challenging. Nevertheless, we are meeting this challenge head on by developing performance indicators and regularly reviewing and evaluating our performance.

[English]

Finally, we will continue our efforts to enhance public awareness of money laundering by working closely with other partners in this important initiative.

º (1605)

FINTRAC has also undertaken a process to identify performance indicators that will help us track our results and will support a number of key deliverables, including the national initiative to combat organized crime evaluation, public safety and terrorism evaluation, reports on plans and priorities, and FINTRAC's own strategic plan.

The performance indicators are key to FINTRAC's success in meeting its mandate in delivering on its part of the national initiative to combat money laundering.

Fighting organized crime and terrorist activity demands the concerted effort of national and international intelligence agencies, law enforcement, and government. For its part in this fight, FINTRAC has two main concerns: one is to detect and to deter the operations of organized crime and terrorist activities, and the other is to protect the privacy of our information holdings. We recognize that FINTRAC's success depends on its resolute commitment to both of these important obligations.

As I mentioned earlier, FINTRAC was built from the ground up in a short period of time. We are committed to working with our partners to detect and deter money laundering by producing high-quality financial intelligence.

[Translation]

Thank you for inviting us to speak here this afternoon. And now I would be happy to answer any questions that you may have.

Thank you very much.

[English]

The Chair: Thank you for both of your presentations.

Now we'll go to a round of questions of up to ten minutes.

Mr. Harris.

Mr. Richard Harris (Prince George—Bulkley Valley, Canadian Alliance): Thank you very much, and thank you for your presentations.

I have not taken a long time to look at the activities of FINTRAC prior to this meeting, so I appreciate your explanations and I will read the material.

I have some questions. I see that FINTRAC was established in July 2000, and at the present time it has 164 staff and a budget of $31.7 million. That's pretty rapid growth over the last few years, and probably there was a lot of justification.

What means will be used or are being used to measure the effectiveness of the FINTRAC organization? How will the success and the value for the money invested be measured?

º (1610)

Mrs. Lynn MacFarlane: There are a number of measurements that we have, and as you correctly stated, building an organization from scratch and not pulling people from an already existing organization was a considerable challenge and a task for us to bring together from the ground up, as I said.

There are a number of initiatives in place that will be evaluating us. There is a five-year review of the legislation itself that has established us a five-year parliamentary review. As my colleagues from the Office of the Auditor General in their study have indicated, the Auditor General will be paying us a visit in the latter part of 2003-2004 to take a look at some of those issues that you mentioned. Then there are some overall government evaluation frameworks, which I've mentioned in my overall remarks, that will be looking at and evaluating not only the performance of FINTRAC but the performance of our efforts in money laundering generally speaking.

Mr. Richard Harris: As I understand it, FINTRAC is mainly reactive to the disclosures that are made to your organization from the sources that are listed in your annual report, like the financial institutions and foreign exchange. You react to the information that's fed to you?

Mrs. Lynn MacFarlane: I don't know if I would use the word “react”. Basically those reporting entities must report their information according to our legislative and regulatory framework. But what we are compelled to do is to have an independent review, an independent analysis, in looking at the types of information that we get from reporting entities, some voluntary information that we get, and information on some trends that are happening internationally.

At that point, what we do, based on our data and information holdings, is we do have an analytical job to do to bring the information together, which we didn't do previously, prior to our establishment in a very organized regulatory sense. In that sense, that is the quality and the extra product that FINTRAC provides, substantive financial intelligence information that law enforcement and security agencies need to have.

Mr. Richard Harris: So from the information, the data that you collect, it's analysed by your organization and then passed on to appropriate investigative branches, including CSIS or whatever?

Mrs. Lynn MacFarlane: Yes.

Mr. Richard Harris: I noticed that you also work with other international organizations, specifically financial intelligence units in the U.S., the U.K., Belgium, etc. I want to bring up the issue of the Hamas group.

It's well known that the U.S. and the U.K and some other countries around the world you work with identified the Hamas as a terrorist financing arm several months before our government made that declaration, and much to the bewilderment certainly of a lot of members of Parliament. Did you get information from the U.S. and the U.K.? Did they share with you regarding the activities of the Hamas group? And did you make an analysis of the information you may have received from Canadian sources regarding Hamas? And did you form an opinion that Hamas in its activities in Canada was, yes, in fact a terrorist financing organization? And did you pass that information on to CSIS and the proper investigative people?

I'm looking for some timeframes here, because we were way behind the other countries.

º (1615)

Mrs. Lynn MacFarlane: That's a lot of questions. What I'll try to do is to respond to the first part of your question, and then I'll ask my colleague, Yvon Carrière, if he can add to that.

Certainly in terms of Hamas in general, it's important for members to understand that FINTRAC is only the financial intelligence unit for Canada. FINTRAC is not the policy decision-maker to list or to delist. That authority rests with other parts of government. We're an independent financial intelligence unit. So in regard to the declaration or not declaration or timing thereof, really, we're not in a position from the FINTRAC point of view to comment on that particular question because it's really outside of our mandate to do so.

Mr. Richard Harris: If I could interrupt for one second, what you're saying is that no matter how pertinent the information would be, and no matter how damning the information would be as a result of your analytical investigation, and no matter how strongly you would see an entity or an organization as a possible terrorist financing arm, and no matter what your recommendations would be to an investigating unit, at the end of the day, it could very well be a political decision that was made not to pursue that group?

Mrs. Lynn MacFarlane: I'm not suggesting that at all, but what I am suggesting is that when you go back to the ultimate mandate of FINTRAC, the mandate of FINTRAC is very closely prescribed. Our mandate is that when we have reasonable and probable grounds to suspect money laundering or terrorism financing, we must disclose that information to either law enforcement or CSIS. That is the beginning, middle, and end of our duty in this small organization called FINTRAC.

The kinds of responsibilities and assessments that you are suggesting lie with other organizations in government. And I think the example you're giving certainly goes well beyond the mandate of FINTRAC, but obviously CSIS has a very major role to play as our national security agency.

I would call on my colleague, Mr. Carrière, if there's something more that should be added to that.

Mr. Yvon Carrière (Senior Counsel, Financial Transactions and Reports Analysis Centre of Canada): All I can add is that the information FINTRAC receives and that FINTRAC discloses is protected by strong confidentiality requirements, so it's difficult to discuss any one case in particular. Besides that, I don't have much here.

The Chair: You have a minute if you wish.

Mr. Richard Harris: No, that's fine. Thank you very much.

[Translation]

The Chair: Ms. Picard

Ms. Pauline Picard (Drummond, BQ): Thank you Madam Chair, but at the moment I do not have any questions. I came in a bit late and I am not yet up to speed.

The Chair: I will come back to you later, then.

Mr. Cullen, 10 minutes.

Mr. Roy Cullen (Etobicoke North, Lib.): Thank you very much, Madam Chair.

[English]

Thank you, and thank you to the presenters.

I had a question for the Auditor General. In terms of your audit assignment, was it to go in there and establish some benchmarks so that you could come back later and evaluate results, or were you looking at the financial control and the management control issues? In answering that, how were you going to assess at the end of let's say a few years whether there's less money laundering going on in Canada or more? Could you enlighten the committee?

Mr. John Wiersema: As I indicated in my opening statement, we've approached this work in two stages. The initial stage is what we call the study part of the work, and at this stage Canada's money laundering legislation and FINTRAC, as has been discussed, are newly created and they're new to our audit sphere. So we needed, as an office, to get ourselves up to speed on what was happening there and to start thinking about how best to approach it.

Therefore, in discussions with Lynn and her staff we informed ourselves as to their operations, their mandate, and the challenges they're going to be facing. We thought it would be helpful if we summarized that information in our chapter for Parliament to tell Parliament that this is our take on this organization, the challenges it faces, and this is the basis upon which we'll carry out the subsequent audit. At this stage we haven't yet done the audit, Madam Chair.

º (1620)

Mr. Roy Cullen: Right. It was an orientation and getting familiar with FINTRAC.

If you look at the numbers that were thrown around at the beginning, when FINTRAC was established, on the extent of money laundering in Canada, the estimates were quite widely divergent. For anyone to measure results will be a challenge, but I wish you good luck with that. I had the opportunity to go and have a tour the other day, and the progress they've made in setting up their shop from a standing start is actually quite amazing.

Mrs. MacFarlane, in regard to the development we read about in the paper and press releases about the lawyers claiming solicitor-client privilege, to me, when I read it, I was somewhat troubled by this, in the sense that the original architecture was that you wanted to make sure you covered all the bases, and the minute you left a gap that's where the laundered money might go. We all know that lawyers on the main are honest people, but I'm sure there are a few of them who aren't, like any part of society.

Are you concerned about that development? Are you trying to work with the lawyers to reach a compromise? How are you going to respond if the lawyers win their day in court and they're able to go outside your purview, if you like, in terms of reporting?

Mrs. Lynn MacFarlane: I would ask Mr. Ossowski to address that.

Mr. John Ossowski (Assistant Director, Government Relationships and Communications, Financial Transactions and Reports Analysis Centre of Canada): Certainly.

First of all, it's up to the Department of Finance to establish the policy regarding lawyers. It was their determination that the current provisions in the act weren't sustainable, and they exempted them from part one of the act, so it does not apply to them, and they're working on an alternative solution.

I would just add that the Financial Action Task Force will be considering in June a revised set of 40 recommendations, and those will include countries to cover lawyers. I think we're going to in some way or another have to come up with a solution, but it really is up to the Department of Finance to determine the most appropriate way to work with lawyers to come to a solution.

Mr. Roy Cullen: That's a nice segue into the Financial Action Task Force. The 40 recommendations have been beefed up somewhat. Could you describe how they've been beefed up? I read in the press about the offshore accounts and putting more reporting into that. What else has come out of the 40 recommendations, and what will the implications be for FINTRAC and money laundering activities in Canada?

Mr. John Ossowski: The biggest thing on the international side is the increased emphasis on tracking wire transfers and electronic fund transfers. Certainly there are enhanced requirements for customer due diligence so that the financial entities have to know who they're dealing with before they get too far into the business relationship. The other emphasis I think was.... I'm drawing a blank here. It's really the customer due diligence.

In terms of some specific areas, we have really beefed up some loopholes--for example, bearer shares, which are a unique type of thing where instead of buying something over the stock exchange, and it's clear who the owner was and who the new owner of the share is, it's literally if you have it in your hand you own it. There are going to be new requirements to ensure that the company can identify who actually has possession of those shares.

It's really trying to close some loopholes that were discovered in the second review of the 40 recommendations. In addition to the 40 recommendations on money laundering, there are eight special recommendations on terrorist financing.

In terms of the implications for Canada, you've mentioned the lawyers issue, and there were some increased customer due diligence requirements put on accountants. We're a little bit ahead of the game, quite frankly, compared to most other countries because we made a decision to go with electronic reporting, so we're actually much more advanced than other countries in terms of quickly coming up to speed with the new recommendations.

One area of concern that we do have, though, is alternative remittance systems. These are the hawalas and the money service businesses, which are currently unregulated. The 40 recommendations are going to ask for us to come up with either a licensing or registration scheme for those types of reporting entities. The Department of Finance is currently determining the most appropriate way to do that in Canada.

Mr. Roy Cullen: Thank you.

Has September 11 changed the orientation of fighting money laundering activities in terms of terrorism? We all know that money is laundered for serious crimes like drugs and that there is corrupt money that is laundered. Has September 11 changed the focus on international money laundering? Is the fight focusing more on terrorism, or is the balance between the different parts of it pretty much the same as it was?

º (1625)

Mrs. Lynn MacFarlane: It's not that we didn't already know, prior to September 11, the global and transnational nature of money laundering and the resolve to tackle the fight against organized crime and money laundering, but certainly post-September 11, with the terrorist events, it was very obvious on the terrorism financing side that not only a national but a global approach had to happen. That collaboration that was very clear to us on money laundering remains crystal clear and so critical to all of our security interests around the world, that the global reach and global cooperation we have to have is even more important--if there's ever such a thing as it being less important--as a consequence of those events.

Mr. Roy Cullen: Thank you.

When I was over at your office I mentioned some work I'm doing with GOPAC, the Global Organization of Parliamentarians Against Corruption. One of the initiatives is to look at money laundering specifically as it relates to corrupt activities. In one sense, it is very clear what corruption is. In another sense, it's a pretty nebulous thing, because what is corrupt in one country might not be corrupt in another.

Let me give you an example. Let's say you have a company in Kenya, where there used to be President Moi, who was probably one of the most corrupt leaders in the world. Let's say that in Canada, suddenly $10 million landed in from Kenya, and it was pretty well established that this money was skimmed off from some activities in the tea and coffee sector in Kenya and was being salted away and laundered for the leaders of Kenya and not for the people of Kenya. What would FINTRAC do with that information?

The Chair: Yvon.

Mr. Yvon Carrière: The definition of money laundering in Canada includes money that has been generated from something that would be a crime if it had been committed in Canada. So if the money from Kenya came from corruption and was brought to Canada, it would be considered proceeds of crime, and anything that happened within Canada would be considered money laundering.

So if a financial institution suspected that this money came from corruption, they would be required to report their suspicions to FINTRAC. FINTRAC would of course analyse that information, and if we had reasonable grounds to suspect that it would help a prosecution or investigation of money laundering, we would be required to report it to law enforcement.

If we had a memorandum of understanding with the Kenyan FIU, if there is such an FIU, we could possibly also share it with them.

Mr. Roy Cullen: When you say “law enforcement,” do you mean the RCMP or Interpol, or both?

Mr. Yvon Carrière: Our act refers to the appropriate law enforcement body. So depending on the circumstances, it might be provincial law enforcement or the RCMP.

Mr. Roy Cullen: What if you had, let's say in Russia, some corrupt money flowing from a privatization that was just bent, and you had some money flowing from Russia from a privatization that may have been sanctioned by the executive branch? Maybe in terms of the laws of the land it was illegal, but sometimes that doesn't mean much. What about something in a situation like that, corrupt money from a privatization--from Russia, let's say?

Mr. Yvon Carrière: Perhaps the case you're describing would be more difficult to deal with, because it would be more difficult to determine whether in fact it was an illegal act had it occurred in Canada. You said the executive approved it, but I guess the basis is, anything that happens abroad that would be illegal if it happened in Canada is proceeds of crime if it's brought to Canada and laundered here.

So again, I think in those circumstances, if we determine that in fact it was proceeds of crime, we could disclose it to law enforcement.

The Chair: Thank you.

Mr. Murphy, go ahead for up to ten minutes.

Mr. Shawn Murphy (Hillsborough, Lib.): Thank you very much, Madam Chair, and thank you, presenters.

Ms. MacFarlane, I'm going to follow up on an area that Mr. Cullen brought up, which is how we measure where we're going with this initiative. When the organization was created, obviously there was a determined need that there was money laundering in Canadian society and we wanted to get a handle on it. We wanted to combat it. Again, if we can't measure, we can't manage the thing, and Mr. Cullen has asked you the question, how much has it decreased since you took office or your organization was started? I know it's kind of a hard question to answer.

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Mrs. Lynn MacFarlane: It's an impossible question to answer, to be very honest. One of the things in our detect-and-deter mandate is that the fact we are finding significant instances of money laundering means we are fulfilling the detect part of our mandate—and hopefully the deterrence part of our mandate as we publicize the kinds of disclosures and financial information we have. It is part of our mandate to go out to the Canadian public and to talk about that.

I think it's going to be a very impure science in terms of how exactly you measure it. For us, we can measure the actual financial intelligence data we have and the number of disclosures we have, but at that point in this relay race I talked about in my opening remarks, when that financial intelligence unit information and disclosure is passed on to law enforcement or to the security agency or to a foreign FIU, FINTRAC is not an investigative body. We don't actually make cases and build and prosecute them.

The thing is, it really depends at what point you look at the financial intelligence part. There is a broader mandate within the federal government concerning detecting and deterring money laundering and terrorism financing. It's safe to say that from the time we disclose information to law enforcement or security agencies it takes a fair amount of time for investigations to unfold, and we will know in the course of time. But we are only accountable for the financial intelligence end of things.

Mr. Shawn Murphy: That leads to the second issue, and that is prosecutions. Obviously there are people committing the crime of money laundering. Your organization may not be the prosecutory body, but have the efforts of your organization led to successful prosecutions? Do you have some numbers?

Mrs. Lynn MacFarlane: I can't say yes. I think at this point a question like that would probably be better addressed to the RCMP, who are actually responsible for the investigations. That's not information we have at this time.

Mr. Shawn Murphy: I'll ask another question. Are you aware of anyone being successfully prosecuted over the last 24 months for money laundering?

Mrs. Lynn MacFarlane: Based solely on the information from FINTRAC?

Mr. Shawn Murphy: Based solely on any information.

Mrs. Lynn MacFarlane: I really couldn't say. I don't know.

Mr. Shawn Murphy: But wouldn't that be something you would normally be expected to be aware of?

Mrs. Lynn MacFarlane: In the normal course of time, as investigations flow, we will obviously have a better handle on that, in terms of getting feedback from law enforcement and security agencies about the value of the financial intelligence information we provide to them. Obviously, we have a key interest in knowing we're not just producing financial intelligence but financial intelligence is being used in the prosecution of those offences. But it is much too early to say, based on the pool of information we have, in the amount of time we have in our organization, how that correlates with investigations and prosecutions.

As you're aware, it's one thing to have an investigation, but to go through the whole criminal justice system and the court process takes many years before tangible results would be given.

Mr. Shawn Murphy: The next area, leaving aside prosecutions, concerns confiscation of money laundering proceeds. Has anything been confiscated that you're aware of? What I'm looking for are some data to indicate we're heading in the right direction, that there are prosecutions—maybe not successfully concluded, but in the system—or there have been proceeds of crime confiscated as a result of the information from your organization.

My point is, let's say we come back here in three years time, and you've gone through your five years, gone through your $134 million, and there are no prosecutions and there is no confiscation. It's going to be a difficult thing to—

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Mrs. Lynn MacFarlane: I'm hoping that in that three-year period the committee would be talking to the RCMP or other organizations, because unfortunately, as I explained when we were invited to attend this part of the appearance today, I'm really not in a position to speak to what results the RCMP or the Canada Customs and Revenue Agency are achieving as a result of our information. I'm simply not in a position to speak to it, I'm afraid.

The Chair: John, go ahead, please.

Mr. John Wiersema: Madam Chair, perhaps I can help a little bit on this.

The two members have indicated there are going to be huge challenges associated with trying to measure the effectiveness of Canada's money laundering strategy. That's one of the challenges we identified in our chapter, too. I'm sure Lynn and her colleagues in the Department of Finance are going to have to spend a lot of time thinking this one through.

Treasury Board ministers, when they approved the funding for the money laundering issue, required as a condition of that funding that there be an evaluation performed of the initiative after, or I believe in, the third year of operation. That will be available to members of Parliament when they conduct their five-year review.

When we do our audit of Canada's money laundering strategy, we will look at the efforts undertaken by the various players, in particular the Department of Finance and FINTRAC and the other players, to measure the effectiveness of this, and we will be in a position to comment to Parliament on whether, notwithstanding the difficulties associated with it, the government has undertaken reasonable efforts to try to measure what's happening here.

I guess what I'm trying to signal to the members is that this issue is on people's minds. Treasury Board is expecting an evaluation after three years. We will look at this as well and offer our comments on whether or not there have been reasonable measures undertaken.

The only other comment I'd like to make is the Office of the Auditor General in the first instance isn't going to try to measure whether or not this is producing results, but will be looking at whether the government has undertaken reasonable attempts to measure the impacts of Canada's money laundering strategy.

Mrs. Lynn MacFarlane: To give you a sense of what FINTRAC is producing and discovering in terms of disclosures, the value of the case disclosure we have averages between $3 million and $4 million, and the actual value of the disclosures we've made to date—and I talked in my opening remarks about over a hundred disclosures—is reaching over $470 million in the short existence we've had in our organization as a financial intelligence unit.

We are quite confident we are linking the money to the crime in our part of the mandate. I think we have found some pretty significant suspicious transactions and financial data that are leading us to believe we are fulfilling our mandate to detect and deter money laundering and terrorism financing.

Mr. Shawn Murphy: Just as a final comment, my point is if none of that $470 million is confiscated and none of those perpetrators are either investigated or prosecuted or convicted, we really haven't accomplished much in the whole exercise. That's the only comment I would make.

Mr. John Ossowski: Let me just add that what we're seeing is really just because of the benefit of the information we have reported to us, which is the unique reason why we were created: to add to the existing capacity that already existed in government, because certainly there have been many examples of confiscations and proceeds of crime successfully done in Canada before we came into being. What we're seeing with the information that is collected by us is incredibly complicated cases. This is not the small operation. We're seeing, by the benefit of this information, large complicated cases. These take a lot of time to investigate and they're going to take a long time to prosecute. They're not simple things.

Mr. Shawn Murphy: But if they have access to the lawyers' trust accounts, which I understand they have now, it's going to be almost impossible to prosecute, I would think.

Mr. John Ossowski: That's to be determined, I suppose.

Mr. Shawn Murphy: Thank you, Madam Chair.

The Chair: Thank you very much.

I understand Madame Picard has given her time over to Mr. Harris.

Go ahead, sir, for up to ten minutes.

Mr. Richard Harris: Thank you very much, and thank you, Madame Picard.

I want to follow on Shawn's and Roy's questions. It would seem to me that just as a matter of process, there would be some sort of quite natural follow-up to information you have analysed and passed on to an investigative branch--that you would want to know yourselves what eventually happened to that information down the road. Was there indeed a further investigation? Was there an arrest made? Was there money seized? Was there a terrorist organization's financing arm put to bed?

Is there anything like that? Is there a follow-up to your own information to know whether the information you're giving is in fact being useful?

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Mrs. Lynn MacFarlane: Absolutely. I hope members aren't left with the impression that we're there with our blinders on, and that we only deal with financial intelligence, and no matter what we send out it's just going to be dealt with by someone else. That's not how we do business. We have to work with our partners and stakeholders.

We have significant outreach with law enforcement and security agencies. We had senior officials last week at the Canada-U.S. cross-border forum. We have significant outreach with the Canadian Association of Chiefs of Police. We have gone to a very large number of conferences, attending and promoting what our role is.

We are very interested in not only being proud of the fact that we have released so many disclosures to those police forces or intelligence agencies, but we also need to ensure that the quality of the information is actually enhancing the ultimate objective to detect and deter. Obviously, we have a very strong interest in that, because as you said, if we were only looking at this with our own blinders, it would be wonderful to have fantastic financial intelligence information, but if it's not useful to the investigation and prosecution of money laundering and terrorism financing, yes, it would be very problematic for us and many other people.

Mr. Richard Harris: You responded to Mr. Murphy's question about whether there have been any arrests or money seized or any operation stopped. Is what you're saying that there is a follow-up process, but your organization is too new to report any hard final consequences of information you've passed on?

Mrs. Lynn MacFarlane: That is one part of the answer, but the other part, in terms of criminal investigations, is that the financial intelligence information is just part of a kit of information police authorities use to do their investigations.

Mr. Richard Harris: I realize that.

Mrs. Lynn MacFarlane: There may never be a one-on-one comparison of a disclosure from FINTRAC equalling a prosecution, because the police may have our financial intelligence information and other information and evidence that they are gathering from other sources. I don't know if there's ever going to be a one-on-one showing that our financial intelligence leads to a prosecution. Our financial intelligence rounds out the kind of shape and scope an investigation needs to have in order to be successful.

Mr. Richard Harris: I appreciate that. We're not trying to be critical here. I'm going to have to explain, probably, some day to my caucus what your organization is about, or to constituents. Surely, one would think if you passed on information to another organization that you suspected entity XYZ of terrorist financing or money laundering because of the supporting information, somewhere down the road you would expect to get a response from somewhere to know that in the case of company XYZ, on which you passed information to another arm, something had happened or not happened to that organization.

If there's a process in place to find that out, I have to assume that in the two years and more you've been in operation you've passed on a lot of information and nothing has happened, because you haven't found out about it. There have been no final consequences to any information you passed on. That's what I'm getting at. That's what I'm understanding.

º (1645)

Mrs. Lynn MacFarlane: I'm misleading you, then, if that's the impression you're left with. It's not that nothing has happened. There are investigations that are ongoing right now as a consequence of our information.

Mr. Richard Harris: No, I'm talking about a final consequence to information you've passed on. If investigations are ongoing, that means everything you've passed on is still ongoing. Has there never been, to your knowledge, a final consequence to anything you've passed on?

Mrs. Lynn MacFarlane: One thing—and I certainly didn't speak to this in our opening remarks—is that there is an extremely important organization in place called the integrated proceeds of crime unit. There are integrated proceeds of crime units across the country that include the RCMP, provincial, and municipal police forces. To get specific answers to those specific questions, I think you would probably have much more satisfaction from speaking to the RCMP to get some of the specifics. They're ultimately accountable and are part of the partnership of integrated proceeds of crime units that exists from one end of the country to the other. I think they would probably be able to provide you with a much better picture from one end of the country to the other than I could do today.

Mr. Richard Harris: I guess the point is that in an investigative body such as the RCMP, there are several different groups that perform specific parts of an overall investigation. In an overall investigation from start to finish, in your chain of events you would form one part of an investigation that would ultimately lead to an end. But the RCMP have their forensic people who provide their piece of information, then you have their commercial fraud section that provides.... At the end of the day, when you put all these together, hopefully something happens. You either get a prosecution or the thing is dismissed for lack of evidence.

In that case, the people who participated in gathering evidence in their own field of specialties ultimately, I think, follow the investigation to see if what they've contributed has resulted in anything. That's what I'm trying to get at. And I think some of my colleagues want to know, are you able at the end of the day to find out whether your contributions have resulted in anything for the money that's being spent?

As I say, I'm not being critical; I'm just going to have to explain this some day. It would have been wonderful if you had told us today that 17 of the last 427 groups of information you passed on had in fact resulted in prosecution and/or shutting down of a financial.... I think that's what we're looking for.

Mrs. Lynne MacFarlane: I understand.

Mr. John Ossowski: Maybe I could just add a little bit to this. We have received very positive feedback from law enforcement about our product and how it's helping them with their investigations. But what I said before is true: these are very complicated cases. What we're seeing are things they've not seen before, because of our unique ability to look at such breadth of information.

It's not simple stuff. They have to investigate sometimes several dozens of people. It's very complicated networks of money laundering that we're discovering.

Mr. Richard Harris: Oh, I realize that, and I realize the—

Mr. John Ossowski: It's early days. I think the thing you're looking for we're ultimately looking for too, but we've only been making disclosures for about 17 months now, and they're all big.

Mr. Richard Harris: So all these investigations are still ongoing, then?

Mr. John Ossowski: We believe so.

Mr. Richard Harris: Oh. Well, I guess that's what I wanted to know.

Mrs. Lynn MacFarlane: Oh, absolutely. The police—

Mr. Richard Harris: There's been nothing concluded from what you've passed on?

Mrs. Lynn MacFarlane: The study the Auditor General has published lists on page 5 all of the key departments and agencies in the federal family that are basically focused on the detect-and-deter mandate. We all have parts to play in that, but our ultimate objective is to detect and to deter. Part of a detect-and-deter mandate includes successful prosecutions, but that broader detect-and-deter role fits the whole federal family—the CCRA, CSIS, all of the organizations that are listed here in the federal family—as well as municipal and provincial police services across the country. It is very broad in nature.

The Chair: Thank you.

I have Mr. Discepola and Mr. Cullen again on my list.

I just want one clarification before I go. In your information to us, Madame, you said you have financial intelligence unit sharing agreements with five countries. Five countries out of all the countries in the world is not very many. I wanted to know whether it's because the other countries themselves haven't set up these comparable units; or is it because you just haven't had enough time in 17 months to negotiate the agreements; or is it a combination of both?

º (1650)

Mr. John Ossowski: It's a bit of both. We have been focusing initially in the early days of the establishment of the agency on producing case disclosures for law enforcement. We started to negotiate international MOUs probably about eight months or so ago. These were the first five.

In the short term, we probably will have another ten or so within the year. They've been focused, though; we're targeting them. We're looking for countries where we're seeing traffic flows, either electronic fund transfers or, based on intelligence from law enforcement and CSIS, countries we think we should be starting to have information-sharing agreements with.

But the country has to have a similar organization. It has to have a financial intelligence unit like ourselves, and it is a lengthy process to negotiate to make sure that the privacy concerns are addressed and that we're going to have the same understandings, quite often with different languages, about how the information's going to be used.

The Chair: Do you have the number of countries that have similar units right now?

Mr. John Ossowski: Currently, the Egmont Group, which is the recognized international association of financial intelligence units, has I believe about 85 members.

The Chair: Thank you.

Mr. Discepola, and then Mr. Cullen after.

Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.): Thank you, Chair.

I'm a bit perturbed with some of the responses or lack of clarity in the situation. Is FINTRAC a separate agency, or do you report to a particular department?

Mrs. Lynn MacFarlane: We are a separate agency. We are part of the finance portfolio. We are an arm's-length organization from law enforcement and others; we're a special financial intelligence unit. We are also a separate employer, so we're not a traditional federal department such as you would find. We have a special separate-employer status as well.

Mr. Nick Discepola: I guess my question, then, is more for the Auditor General: Why do you think it was set it up like that? It doesn't make sense to me, in hearing some of the concerns they have.

I want to paraphrase your relay analogy. It seems to me you've passed on the baton in the first leg of the race, but the other three people to run the balance of the race are not even in the same stadium as you are, and you'll never even know if they finish the race.

Would it not make more sense to have that agency be a direct branch of the RCMP? Why was it set up separately? What's the rationalization?

Mr. John Wiersema: I don't know that I'm in a position to respond on behalf of the government on why the government chose to set--

Mr. Nick Discepola: Well, let me ask you, are Canadians getting their bang for their buck, $139 million?

Mr. John Wiersema: That's a question I'd be prepared to respond to more fulsomely in November 2004, when we've done--

Mr. Nick Discepola: After we've wasted it all, possibly...?

Mr. John Wiersema: Well, I think we have to give the agency a chance, and as Lynn has pointed out, there isn't just one agency involved in Canada's money laundering efforts; there's a broad spectrum of agencies involved.

The Auditor General's office is in a unique position to be able to look at the roles of each of them, particularly focusing on the role of the Department of Finance, because the Department of Finance does have the overall policy and coordination leadership role here. So we will be considering all of this when we do our audit work.

In terms of why it is a separate agency--

Mr. Nick Discepola: I'm surprised by your response, because the Auditor General has never been shy to criticize the government in the past. So I guess I'll wait for your comments in two years' time.

Maybe it should be a separate agency, but to my mind they would be better placed with the RCMP, where they can work hand in hand. It seems to me there has to be more of a cross-sharing of information--which certain laws may prohibit them from doing right now; I don't know. But if I don't know that my information that has been gathered through techniques that are developing at this present time has led to anything, then I don't know if my techniques are worth doing. So there has to be some sharing of information. We have to know that somehow maybe had they only followed another track or supplied another piece of information, it would have led to something, but right now I think there's a big black hole in there.

Granted, we're in the process of setting up certain parameters. We're in the learning process. But if I were a taxpayer looking at $139 million, I'd be concerned.

I think, quite frankly, an awful lot of initiatives resulted out of a political necessity to react to September 11, but I'm not sure we're getting our bang for our buck.

Mr. John Wiersema: As the member points out, Madam Chair, given the way the government has chosen to address the money laundering and anti-terrorism initiatives in Canada, there are going to be challenges about coordinating among the different players. This is one of the challenges we've identified as facing government in implementing this strategy.

It's a challenge we will address in our audit work in terms of how effectively the government is establishing and maintaining those working relationships across the different players, both within government and outside the Government of Canada, and we'll comment on whether the government has taken reasonable steps to address those challenges in our audit report.

I take the committee's interest in that challenge, and we'll be in a position to respond to our sense of how the government is addressing it when we conduct our audit.

Mrs. Lynn MacFarlane: Perhaps I could add, in terms of the chart I had referred to on page 5 of the Auditor General's report, the $139 million was not an investment the federal government made as a consequence of September 11. This was an investment that was made and put in place in the year 2000 for money laundering.

The $139 million you refer to is in relationship to the money the federal government has invested over and above existing reference levels as it relates to money laundering. This $139.2 million is not related to terrorism financing or September 11 events.

º (1655)

The Chair: Mr. Cullen, go ahead, sir.

Mr. Roy Cullen: Thank you, Madam Chair.

I suspect one of the challenges is on the whole question of privacy and the agency being arm's length. I'm sure that FINTRAC is very careful, and rightly so, to be somewhat circumspect. I suspect there are informal mechanisms to get the feedback. Law enforcement agencies are saying--as I understand from what you said--that the kind of information they're getting from FINTRAC is excellent and is helping them in their jobs, and that's saying a lot, but how do you measure that?

My recollection is that putting it in at arm's length was very much by design. I think if it were part of the RCMP.... Even as it was, the privacy challenges were enormous. In fact, if they want to get the information, the only way is they have to go to a judge and make the case that there is enough suspicion. So there's a very conscious effort to keep the privacy intact. In fact, that's one of the challenges in terms of the lawyers. So I think it's a fine tightrope to walk.

I was curious, Mr. Wiersema, when you said that you're going to be doing your audit and you're going to be asking questions along the lines of whether the government has put in place the mechanisms to ask the right questions, as opposed to the Auditor General doing value-for-money audits. I know the Russian Accounts Chamber and deputies come here and they marvel at the value-for-money audit work the Auditor General does.

What would preclude you from, however daunting the task, doing a value-for-money audit and saying that the government is getting some value for money, or not, from this initiative, as opposed to saying yes, they've asked the right questions, they set up the right kinds of mechanisms, which is an operational focus or control focus rather than looking at whether they're actually getting value for money? Why wouldn't you do that?

Mr. John Wiersema: In fact we do intend to do a value-for-money audit. We will be looking at how FINTRAC and the government have managed the complex challenges associated with combatting money laundering and terrorism in Canada.

But I would remind the committee as well that our mandate is to determine if government programs are managed with due regard for economy and efficiency, and whether or not the government has measures or means in place to measure its effectiveness. So in normal circumstances we don't do that measurement in the first place. It's expected of government managers in terms of measuring whether or not these programs are achieving what they're designed to achieve. We comment on whether or not the government has those measures in place, or those means to perform that measurement.

Mr. Roy Cullen: That was why I asked the question, because that's the way you phrased it. I was wondering, if you conclude that the government has made best efforts but it's really difficult and daunting to measure the effectiveness, what I hear you say is that you'll try to jump in there a bit and try to make some assessment of that. Will you?

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Mr. John Wiersema: If we conclude that government has undertaken some efforts but there are further efforts that are possible, then we might undertake some of that work just to be helpful to Parliament. But if we conclude that the government has undertaken best efforts, and those are reasonable in the circumstances, then we will so report.

Mr. Roy Cullen: But you would also have the advantage then of looking at it more holistically, whereas FINTRAC is more constrained in what they can do in terms of linkages because they are an arm's-length agency.

Mr. John Wiersema: Absolutely, Madam Chair, and that's in fact our intent. We will look at it holistically, including the role of the Department of Finance and its policy and leadership capacity.

Mr. Roy Cullen: I had a question to follow up.

I know, Mr. Ossowski, you said this was in the Department of Finance, but I want to ask you about the question of the FATF coming out with a position that lawyers have to be included in the regime, and the lawyers in Canada arguing that they shouldn't--I guess it's under the charter, I'm not a lawyer--on the basis of solicitor-client privilege. This seems to me to be a very difficult thing to bend. The lawyers are likely to say, “Who's the FATF? I'm really not too concerned.”

Can you give any sort of guidance as to how this might come together, or is it going to be manageable?

Mr. John Ossowski: There are other regimes around the world that currently have lawyers covered and it's working quite well. So it's a matter of coming up with a Canadian solution that works in our context with the various legal parameters we have to work with. It really is up to the Department of Finance to find that Canadian solution. I can tell you that there are other countries around the world that do cover lawyers and it's working.

Mr. Roy Cullen: There are other countries, I'm sure, that cover lawyers, but the lawyers in Canada, I would suspect.... If I were a lawyer in Canada I would say “That's interesting, what they're doing at the FATF is interesting stuff, but here's the charter, or here are my solicitor-client privilege rights and responsibilities, and that's what I'm taking to the bank.”

Mr. John Ossowski: This is my personal view, but I don't think solicitor-client privilege is going to be sufficient. That seems to be a universal concept in terms of lawyers around the world, and I don't think that's going to be sufficient. But that's my personal view.

It's important to understand that the FATF is establishing an international standard. They're saying this is the minimum of how countries should be responding and developing appropriate regimes. So it's up to the Department of Finance to come up with a solution, and I'm sure they will.

Mr. Roy Cullen: Oh, I know, they're great, aren't they—sometimes?

If I have time, I'll ask just one more quick question, Madam Chair.

On the question of piercing the veil or trying to get past the veil of secrecy and transparency as it relates to offshore operations, I know there was an OECD initiative with respect to harmful tax competition that tended to be focused on tax evasion, but there were still the Switzerlands of the world, the Luxembourgs, etc., very much involved.

Concerning the financial action task force, when you look at countries such as Switzerland, Luxembourg, the Caymans, some of the Caribbean countries, or whatever, some of them don't really claim to encourage or support money laundering activities, but other cases are not quite so clear. How are you going to get these countries to be more transparent, to lift the veil of secrecy, when in some cases it's their very raison d'être? Or are they being less cooperative on tax evasion and more cooperative on money laundering activities? How is that proceeding?

Mr. John Ossowski: First of all, what's happening is that once the new 40 recommendations are vetted and approved in June by the FATF, they will be used for country evaluations. Currently the IMF, the World Bank, is going around and evaluating countries on the regimes they have put in place—or are about to put in place, for some of the newer countries on the scene.

If they're found to be deficient, they run the risk of being put on a list called the non-cooperative countries list, and you don't want to be there. That would essentially mean there was something from the governments that are not on the list saying “Don't do business with that country”. So you run a risk.

There are countries right now that are on that list, that are non-cooperative, and trust me, they are doing everything they can to get off that list, because it's potentially crippling economically to be told the outside world is not doing business with you until you clean up your act.

So I think there's a fair bit of force behind the FATF recommendations and these international standards.

Mr. Roy Cullen: That would apply to those tax havens or offshore countries that are trying to attract clean money, but are countries that have decided they can make their pile with not-so-clean money going to really care if someone says “don't send your money there”?

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Mr. John Ossowski: One of the classic examples of a country that is on the list is Nauru, which uses correspondent banking facilities. They're using other countries' banking facilities to perform the transactions. The FATF is forbidding that. Countries that are providing the correspondent banking facilities will suffer the wrath of the international view that they're participating, that they're complicit with it.

I think, once again, the FATF will have considerable persuasion over these countries supporting those regimes that are turning their noses up to the FATF. I think you'll find that list is getting very small.

The Chair: Mr. Pillitteri.

Mr. Gary Pillitteri (Niagara Falls, Lib.): Thank you, Madam Chairman.

At the moment I'm sure you are reporting quite a lot of sums of money of legitimate businesses and transactions. I'm pretty sure, as I understand the bill, that if anyone deposited over $10,000 cash, there was a paper trail behind it, and some of those could be very legitimate businesses.

Doing the same as you're doing in paper transactions, I just wonder: the determination eventually will be from that arm's length group you have examining you—one year from now, did you say?

Are you going to have success enough to say that this group should exist because it has uncovered so much? Will we be able, as a basis for our expenditure as a government, to say we have uncovered so much? Or is it just going to be another ongoing group that, as bureaucracy and government develops, without any substantial evidence of its worth, says it is money well invested because it has uncovered so much laundered money?

Mr. John Wiersema: Will it be too early for the government to have undertaken reasonable measures to evaluate it in time for the 2004 report? Perhaps. We haven't done the work yet, so I don't know what the government will have done at that point, including what evaluations they will have done. They haven't undertaken the evaluation yet, and they won't have established some of the follow-up procedures referred to in earlier testimony. So it may be early.

We will look at what the government has done at the time of our audit, and comment on whether or not we think it's reasonable in the circumstances. The conclusion may well be that in many respects it is still early to evaluate the effectiveness of the government's efforts in this regard. But it's really up to the government to decide how far it can go in its evaluation at that point in time.

Mr. Gary Pillitteri: Would it be the government's evaluation or the Auditor General's response to it? It is through the Auditor General that this analysis was born, so would you eventually report to the government, or would the Auditor General in essence exercise its powers to see if the government has done its work? Which way will it be done?

Mr. John Wiersema: My understanding, Madam Chair, is that when the Treasury Board ministers approved the financing for the money laundering initiative, they also required that the government undertake an evaluation of that initiative in time to feed into the parliamentary review for 2005.

What we will do in our capacity as auditors is to look at that evaluation to see if it meets appropriate standards of evaluations. It's reasonable in the circumstances, given the length of time the program will have been in existence at that point in time. The government will be doing the evaluation, and we will audit that evaluation.

The Chair: Thank you.

Mr. Ossowski, of the five countries you have arrangements with right now, do any of those particular countries have the exemption for lawyers, or do they all include their lawyers in their reporting requirements?

Mr. John Ossowski: I would have to get back to you on that.

The Chair: Okay. If you could just send a letter to that effect to the clerk, we'll circulate it among members.

Mr. John Ossowski: Certainly. I'll be glad to do that.

The Chair: Mr. Harris has one more question.

Mr. Richard Harris: Thank you. I just had one final, brief question.

Probably the driving force in any organization is the people that operate it. When we see government agencies being set up, many times we get a list of all the people who are going to be responsible for making something work, but we never really know the backgrounds of the people. We just get names and we don't know where they came from or what their backgrounds are.

I'm just looking at the top three here, including the director, Mr. Intscher, and the deputy directors of money laundering analysis and terrorist financing analysis. Those will be really important functions. Could one of you give me a very short bio on each one of these people, where they came from and how they qualify for these jobs?

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Mrs. Lynn MacFarlane: I can give you a very brief background on the director of FINTRAC.

Mr. Intscher is a long-term public servant. He worked abroad for Canada earlier in his career and has a substantial background in the security intelligence area. He was a former assistant deputy minister in the Solicitor General's department, and he also headed the RCMP complaints commission. At one point in his career, he had experience in the Ontario provincial government. So he is a very well known and highly regarded person, not only in Canada but also internationally. He has a very good reputation in security intelligence.

Mr. Richard Harris: What about Mr. Desjardins and terrorist financing analysis?

Mrs. Lynn MacFarlane: Mr. Desjardins is a lawyer by background. His substantive background is with the Department of Justice. He was a member of the transition team that actually set up the infrastructure, working on the legal parameters around the setting up of the organization. So he has a very, very strong legal and legislative background, as well as obviously having a lot of background in the privacy and charter aspects of the law.

Mr. Richard Harris: I guess what I'm looking for is are there people in the organization who have an investigative background with CSIS or the RCMP?

Mrs. Lynn MacFarlane: Yes.

Mr. Richard Harris: And where are these people? Are they among the 133—

Mrs. Lynn MacFarlane: Yes, they're among the 164 staff members.

In my opening remarks, I did say that we actually have former RCMP officers who have worked in the integrated proceeds of crime area. We do have former senior-level CSIS personnel in our organization. And in our first annual report that we tabled, we do have a summary on page 19 of the staff expertise that we brought to bear as of that point, and also a little bit on their demographics.

As a separate employer, one of the interesting things we have tried to do is to make sure that both our recruitment and retention strategies balance out people from the private and public sectors. So presently our demographics are showing about a 50% private sector background and a 50% public servant background. It makes for a very interesting combination. Because of the multidisciplinary nature of the work, and the different kinds of expertise we have, we're very, very pleased with the complement of staff we have. As you can see from the listing of the expertise of the people we've had, it's quite far-reaching.

The other very rewarding thing for us as a very petite organization, without a huge track record, has been from a recruitment and branding point of view. When we advertise jobs for our organizations, we have no difficulty attracting some of the best and brightest across the country. We've been extremely fortunate to be able to attract the huge interest of thousands and thousands of people who want to come to work for our small agency. With that huge interest, we've really been able to pick some of the finest talent existing across the country.

Mr. Richard Harris: Thank you very much.

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The Chair: In follow-up to that, don't you also have a large expertise in computer modelling?

Mrs. Lynn MacFarlane: Oh, yes. The IT part of our business is absolutely critical. For modelling, we have artificial intelligence experts as well, because of the complexity of the type of information we have. As I mentioned in my opening remarks about our being a leader in e-government, there are certainly many financial intelligence units around the world who are very envious of the IT talent pool we've been able to bring to bear to the challenge we face in our organization.

The Chair: I want to thank you on behalf of my colleagues around the table. This is a first for you, the first time FINTRAC has appeared at the finance committee or any committee, and certainly it is for the Auditor General to go into a brand-new organization. I think you've seen some interest here.

We agree that it's early days yet, so it's pretty difficult, but I and all of my colleagues around the table thought it would be a good introduction just to see you. The Auditor General obviously felt the same way. So I think that down the road at some point in time, you may be hearing from us again. We'll let you get on with your work in the meantime, and wish you well with that.

Thank you very much.

Ladies and gentlemen, we'll see you tomorrow afternoon at 3:30.

We are adjourned.