The Committee’s witnesses and submissions commented on a variety of topics related to detecting terrorist financing in Canada and abroad. In particular, they discussed the collection of financial information by FINTRAC, the role of FIUs and the usefulness of financial intelligence, and the responsibilities of the CRA in combating the use of charities and not-for-profit organizations by terrorists and terrorist organizations.

A. Collection of Financial Information

In mentioning Canada’s anti–money laundering and anti–terrorist financing regime, witnesses and submissions to the Committee focused on the reporting requirements for reporting entities, the specific reporting requirements for financial institutions and proposals for sharing information, the reporting of cross-border transfers, and expanding the regime to include additional reporting entities.

1. Reporting Requirements for Reporting Entities

The Committee’s witnesses commented on the reports that reporting entities in Canada’s anti–money laundering and anti–terrorist financing regime are obliged to submit to FINTRAC and assistance with filing those reports. FINTRAC noted that it receives approximately 20 million financial transactions reports annually from reporting entities. MNP LLP explained that the reporting entities in the regime have three responsibilities with respect to combating terrorist financing: identify accounts held by terrorists and terrorist organizations; assess and manage terrorist financing risks; and report and freeze terrorist assets.

As well, MNP LLP suggested that reporting entities lack guidance about the frequency of, and methodology for, screening transactions for terrorist financing risks. It stated that reporting entities do not assess or manage terrorist financing risks in a meaningful way, and that the FATF asks governments to provide reporting entities with a threat assessment so that they can design proper methods to address these risks. MNP LLP also emphasized that reporting entities need to have information about terrorist threats, receive guidance to assist them in identifying risks, and be able to receive intelligence from other entities in Canada’s anti–money laundering and anti–terrorist financing regime in order to make meaningful contributions to detecting terrorist financing risks.

Christine Duhaime suggested that FINTRAC should establish typologies for terrorist financing activities, and provide them to reporting entities; with this approach, the reporting entities most at risk, such as money services businesses, would be better able to comply with the PCMLTFA.

According to Fasken Martineau DuMoulin LLP, small businesses have fewer resources than large financial institutions and could find it more difficult to comply with the PCMLTFA. It suggested that any review of Canada’s anti–money laundering and anti–terrorist financing regime should consider the extent to which legislative and regulatory requirements are appropriate for the size and business practices of the various categories of reporting entities; as well, the cost of any new requirements should be proportionate to the benefits that would be received by FINTRAC and other entities in the regime.

Fasken Martineau DuMoulin LLP also said that consideration should be given to the types of businesses that should be considered as money services businesses, and to the extent to which these businesses’ obligations under Canada’s anti–money laundering and anti–terrorist financing regime stifle innovation in the payments sector.

According to the Egmont Group of Financial Intelligence Units, it is difficult to identify a money launderer or a person who finances terrorist activities; however, despite any difficulties in this regard, some reporting entities want to be able to simply check a box to identify such individuals on a suspicious transactions report.

The Clement Advisory Group proposed that reporting entities should be allowed to use biometric and facial recognition software, as well as such telecommunications technologies as Skype, in meeting the PCMLTFA’s identification requirements; as well, this software and these technologies should be available to border authorities to assist them in apprehending foreign fighters who are returning to Canada. It also highlighted the use of financial transaction-related metadata to investigate crimes.

2. Financial Institutions’ Reporting Requirements and Proposals for Sharing Information

The Committee was informed about the reports that financial institutions submit to FINTRAC and difficulties these institutions face in determining the types of transactions to report. The Anti-Money Laundering Association suggested that financial institutions are sending reports to FINTRAC without proper scrutiny of financial transactions, and that they need additional guidance from FINTRAC about identifying suspicious transactions. Similarly, the British Columbia Civil Liberties Association said that financial institutions over-report suspicious transactions to FINTRAC because the PCMLTFA imposes an onerous burden on these institutions, and FINTRAC provides limited guidance to them about how to identify these transactions and submit related reports.

According to Bill Tupman, compliance officers in financial institutions should be trained to do a better job in identifying suspicious transactions, so that genuinely suspicious transactions reports are sent to financial intelligence agencies, such as FINTRAC. Christine Duhaime also stated that compliance officers at financial institutions are not well trained.

Regarding the cost of complying with the PCMLTFA’s reporting requirements, Christine Duhaime suggested that financial institutions’ compliance costs are high when compared to the number of prosecutions of terrorist financing offences, which is low. TD Bank Financial Group indicated that the compliance requirements are not burdensome, and that it provides the Department of Finance, FINTRAC and OSFI with feedback about reporting requirements.

The Canadian Bankers Association and TD Bank Financial Group noted that Canada’s anti–money laundering and anti–terrorist financing regime does not permit financial intelligence to be shared among banks and other reporting entities, or between FINTRAC and reporting entities. Both the Canadian Bankers Association and TD Bank Financial Group advocated more two-way communication and information sharing among reporting entities, and between reporting entities and FINTRAC. TD Bank Financial Group said that FINTRAC does not provide feedback about the reports that it submits, and the Canadian Bankers Association suggested that such feedback could assist reporting entities in both implementing a risk-based approach to identifying their higher-risk clients and preventing these clients from obtaining financial services.

As well, the Canadian Bankers Association supported the sharing of information among financial institutions, FINTRAC and law enforcement agencies about persons of interest; in this respect, real-time information about terrorist financing activities would be useful. In its view, an ability to share information would help banks to improve their detection of complex money laundering and terrorist financing schemes.

Similarly, the Clement Advisory Group’s submission to the Committee suggested that FINTRAC should take two actions in relation to financial institutions: make greater efforts to provide them with typologies of terrorist financing and organized crime activities; and consider developing real-time feedback mechanisms about terrorists’ and terrorist organizations’ use of financial institutions.

The Clement Advisory Group also proposed greater collaboration between law enforcement agencies and financial institutions, including through the use of specialists in cybercrime and terrorist financing in the financial services sector. In its submission to the Committee, it mentioned such organizations as the Association of Certified Anti‑Money Laundering Specialists, the Association of Certified Financial Crime Specialists and the Association of Certified Fraud Examiners as possible sources of information for regulators, compliance officers and law enforcement agencies that are focused on detecting terrorist financing. It also suggested that financial institutions’ chief anti–money laundering officers should have a security clearance, which would enable them to interact with law enforcement agencies.

3. Reporting of Cross-Border Transfers

The Committee’s witnesses discussed the threshold for reporting international electronic funds transfers, other methods of transferring funds across borders, and detecting cross-border transfers. In speaking about the $10,000 threshold for reporting international electronic funds transfers, FINTRAC noted that it is aware that terrorist financing occurs at amounts below the threshold, and that – in case the reporting threshold is reduced to $0 – it is working on acquiring the capacity to analyze reports on all such transfers. Christian Leuprecht proposed that this reporting threshold should be reduced, and that the amount should be set by ministerial discretion or by FINTRAC. The Canadian Bankers Association supported removing the threshold, as financial institutions face a burden in identifying instances where multiple transactions total $10,000 or more and must be reported. According to the Privacy Commissioner of Canada, reducing the threshold to $0 would result in FINTRAC storing information on law-abiding citizens, and reporting entities may discriminate among clients in determining the information to be reported.

FINTRAC indicated that, when funds are transferred from Canada to a foreign financial institution, it is able to determine the institution’s country of residence but cannot track subsequent transfers. It also said that, in recent years, reported transfers of funds to Syria have been of very small amounts and have fallen to $0; transfers to Turkey and Iraq have increased, but these transfers include those to humanitarian organizations.

In highlighting the ability of reporting entities to identify suspicious transactions involving low-value amounts, MNP LLP noted that one half of all suspicious transactions reports sent to FINTRAC are from Western Union, and that the average dollar amount of those transactions is $300.

Christian Leuprecht mentioned the physical transfer of funds and property for terrorist financing purposes, and proposed that Canada should learn from other countries, such as the United Kingdom, that have a system to search passengers on a plane; the CBSA lacks this power in relation to outbound flights. He also noted that the RCMP searches only cargo that is transferred through land-based modes.

In commenting on digital technologies and terrorist financing, FINTRAC said that its data do not suggest that transfers of virtual currencies, such as bitcoin, are occurring. The TD Bank Financial Group noted that it is challenging for financial institutions to monitor mobile financial transactions. Christine Duhaime mentioned that counterterrorism financing laws have not kept pace with fundraising using digital technologies, such as social media. She highlighted that the Islamic State uses Twitter, JustPaste.it, Asf.fm and PayPal to request and transfer funds, and advocated the development of a digital counterterrorism strategy.

4. Expanding Canada’s Anti–money Laundering and Anti–terrorist Financing Regime

Witnesses spoke to the Committee about other groups that could be added as reporting entities under Canada’s anti–money laundering and anti–terrorist financing regime. For example, the Canadian Bankers Association emphasized that the regime should apply to all entities that are vulnerable to money laundering and terrorist financing, and should include all payment services providers and new technologies that are unregulated.

According to the Canadian Bankers Association, there is a risk that Canada’s anti–money laundering and anti–terrorist financing regime will reduce the extent to which terrorists and terrorist organizations use the traditional banking sector for storing cash and moving funds across borders; instead, these activities will occur in the shadow banking and other unregulated sectors. It suggested that these activities could be monitored by requiring financial institutions to identify where foreign money services businesses are registered in Canada.

As well, the Clement Advisory Group said that operators of white-label automated teller machines (ATMs) should be subject to the obligations of Canada’s anti–money laundering and anti–terrorist financing regime. In its view, it is difficult to determine the sources of the cash that is loaded into white-label ATMs. It also suggested that ATMs in establishments that are owned by Hells Angels are typically used by that organization to launder money.

B. The Role of Financial Intelligence Units and the Usefulness of Financial Intelligence

According to the Committee’s witnesses, the responsibilities of FIUs – including FINTRAC – are based on international standards for combating terrorist financing and on the role of financial intelligence in detecting terrorism. In the view of the Egmont Group of Financial Intelligence Units, jurisdictions should meet international standards for combating terrorist financing, share information in a timely manner, and have effective – and not just technically compliant – anti–money laundering and anti–terrorist financing regimes. It proposed that FIUs should receive additional resources to combat terrorist financing, as there is a growing recognition that financial intelligence is a vital tool in tracking terrorist financing. It also mentioned that the “Egmont Secure Web” allow its members to share financial intelligence in a secure manner. As well, it believed that FINTRAC and other FIUs are working together to identify the manner in which ISIL and foreign terrorist fighters are being financed.

The Egmont Group of Financial Intelligence Units highlighted two types of FIUs, noting that some are overseen by a department of finance or a central bank, while others are supervised by law enforcement agencies or the judiciary. It said that, as these two types can have different philosophies and types of employees, they may have difficulties in communicating with each other.

FINTRAC noted that it works with FIUs in other countries to share intelligence and expertise, and mentioned its proactive research on identifying potential targets that it initiated following the hostage-taking incident in Sydney, Australia and the Charlie Hebdo attacks in France. It also stated that it is a member of the Egmont Group of Financial Intelligence Units and has memoranda of understanding with 90 of the Group’s members for the sharing of information.

In the opinion of MNP LLP, it is difficult to detect a terrorist financing transaction, as these transactions cannot be identified until the funds are used to finance terrorism. Anthony Amicelle indicated that financial intelligence is more effective when investigating suspects in a particular terrorist attack than it is in preventing terrorist attacks. He proposed that sociological or criminological research on terrorist financing should be undertaken to improve the identification of such financing.

C. The Canada Revenue Agency, Charities and Not-for-profit Organizations

The Committee’s witnesses mentioned the CRA’s role in combating terrorist financing, and the responsibilities of charities and not-for-profit organizations in reporting certain financial information to the CRA. The CRA commented that the risk of terrorists and terrorist organizations using the charitable sector and not-for-profit organizations to raise and transfer funds has been recognized internationally since the late 1990s. It noted that one of its three main responsibilities in relation to terrorist financing is protecting the charity registration system from abuse by terrorists; the others are sharing information with other federal departments and agencies to support the detection and suppression of domestic terrorist financing activities, and assisting Canada in meeting its international obligations related to combating terrorist financing.

The CRA explained that its Charities Directorate is responsible for ensuring that Canada’s 86,000 registered charities meet the requirements for obtaining and maintaining charitable status. According to it, the Charities Directorate has four main activities: review charitable applications; receive and analyze intelligence related to national security; audit registered charities to assess their potential risk for terrorist financing; and share relevant information related to charities with the RCMP, CSIS and FINTRAC. Regarding charitable registrations, it noted that 1% of applications are deemed to be of high risk for terrorist financing; these applications are subject to a detailed review and possible denial of registration. It also stated that the intelligence it receives and analyzes in relation to national security comes from various sources, including the media, classified intelligence, the public and annual reports submitted by charities.

Vivian Krause, who appeared as an individual, highlighted that Canada requires charities to report less information than is the case in some other countries; for example, the U.S. Internal Revenue Service requires charities to list the names of their five highest‑paid employees and contractors, indicate the purpose for which funds are granted to recipients, and provide information on investments and donors. In her view, there are several ways in which charities can receive, and not disclose, funds on their income tax returns, including through accepting funds from intermediary and shell organizations. She advocated greater transparency in the charitable sector to ensure that charities are not being used to launder money in Canada.

Carters Professional Corporation indicated that federal guidance is lacking about the manner in which charities can best comply with the PCMLTFA and the Criminal Code. It requested made-in-Canada guidelines for charities regarding terrorist financing; these guidelines should include practical recommendations regarding donations and additional support given to other entities, and should be developed in collaboration with the charitable sector. The Royal United Services Institute felt that charities should be supported, given guidance and regulated to avoid being used by terrorist organizations.

Regarding the compliance burden imposed on charities and not-for-profit organizations for purposes of detecting terrorist financing, the Canadian Bar Association requested increased support from the CRA regarding compliance and direct federal funds to help defray compliance costs.

FINTRAC highlighted that it discloses information to the CRA if it is related to money laundering, terrorist financing or tax evasion; as the CRA focuses on not-for-profit organizations rather than on the entities that must send reports to FINTRAC, the CRA does not disclose information to FINTRAC.

The CRA mentioned that it has participated in a number of UN and FATF projects, and has contributed to reports that discuss terrorists’ and terrorist organizations’ use of the charitable sector and not-for-profit organizations.

In MNP LLP’s view, the CRA has made significant contributions to combating terrorist financing, but it should not have an FIU that is separate from FINTRAC.