Bill C-25, An Act to amend the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and the Income Tax Act and to make a consequential amendment to another Act

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Submission to the Standing Senate Committee on Banking, Trade and Commerce

December 13, 2006


General Comments

In our June 2006 submission to the Standing Senate Committee on Banking, Trade and Commerce, as part of its Five Year Review of the Act, we emphasized that Canada’s Anti-Money Laundering and Anti-Terrorist Financing (AMLATF) regime is novel and precedent setting because of the degree to which it requires private sector entities to collect information on behalf of the state.

“There are other government initiatives in which private sector entities, airlines for example, are required to provide personal information to government agencies for investigatory purposes, but they are not required to collect personal information over and above what they need for business purposes solely for the purposes of providing it to the state. Nor are the airlines expected to make a judgment about what constitutes suspicious behaviour.

The regime is precedent setting because it creates a mandatory reporting scheme that allows government officials to obtain access to personal information for investigatory purposes without judicial authorization and without satisfying the standard requirement of reasonable and probable grounds.”

This comment is even more pertinent given that Bill C-25 is proposing to expand the AMLATF regime even further. Financial institutions and other covered entities will be required to collect more personal information from their clients and customers and keep more detailed records.  The Bill proposes to increase the type of organizations that have to report to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and it expands the range of transactions that can trigger reporting requirements. Regulations will be issued to extend the Act to additional businesses such as dealers in precious gems and metals and real estate developers and the transactions of foreign “politically exposed persons” will be subject to additional scrutiny.

In light of these proposals to expand the scope of the Act significantly we would have hoped that the Bill and the AMLATF regime in general, would have been subject to greater scrutiny and public debate.  However, the AMLATF regime has received surprisingly little public attention. While the Anti-terrorism Act, the Public Safety Act and even the former government’s proposed “lawful access” legislation have received a great deal of media and public attention, this legislation appears to be largely unknown to the public. This is surprising and unfortunate. 

Bill C-25 was, in fact, being drafted even before this Committee completed its Five Year Review.  We do not understand the apparent urgency in passing the legislation unless it is because Canada will be subject to a review by the Financial Action Task Force (FATF) in 2007.  If this is the case, this is not a compelling argument.  Witnesses from the Department of Finance and FINTRAC have told this Committee that Canada already has one of the strongest AMLATF regimes in the world and the necessity for these changes has not been concretely justified. 

Specific Concerns

Expansion of the Scope of the Act

The Bill expands the scope of the Act in a number of different ways: the number of businesses that will be required to report transactions will be increased; due diligence (“know your customer”) requirements will be strengthened; FINTRAC’s ability to share information will be expanded; an administrative monetary penalty (AMP) scheme will be added; and a registration scheme for money services businesses will be introduced.

However, the questions of proportionality (the extent to which the proposed measures are proportionate and commensurate with the risks at play) and necessity (the extent to which the measures are necessary based on empirical evidence) have not been appropriately addressed.

The threat of AMPs may result in over reporting. With respect to the matter of expanding the type of entities that are subject to the Act, our understanding is that some of these covered entities will be added through regulation.  We believe the covered entities should be listed in the legislation, as is currently the case, rather than in the regulations.  We believe that a change as fundamental as increasing scope of the Act by expanding the number of covered entities should require the approval of Parliament. 

Information Sharing

We support the comments made by the Canadian Bar Association during its appearance before the House of Commons Committee:

“Recent experience has shown that unchecked information sharing can lead to gross violations of the human rights of innocent Canadian citizens. This   experience highlights the need for effective independent oversight and accountability of all Canadian security forces. Our point simply is that there should not be expanded information sharing until effective independent oversight and accountability is in place.”

The Bill increases information sharing among agencies in Canada and with foreign entities.  For example, the Bill proposes to allow FINTRAC to share information with the Communications Security Establishment (CSE) if it determines the information is relevant to the mandate of CSE in paragraph 273.64(1)(a) of the National Defence Act, “to acquire and use information from the global information infrastructure for the purpose of providing foreign intelligence, in accordance with Government of Canada intelligence priorities.”

The Act allows FINTRAC to share information with the RCMP, CSIS, the Canada Revenue Agency, the Canada Border Services Agency and Citizenship and Immigration to investigate and presumably prosecute, money-laundering, terrorist financing, fraud, tax evasion and other offences.  CSE is not an investigation or enforcement agency and, unlike the agencies mentioned above, it cannot use any information it receives from FINTRAC for enforcement purposes.  CSE can, however, use this information to subject individuals to increased surveillance—over and above the surveillance inherent in the anti-money laundering regime—and any intelligence information obtained by CSE could then be disclosed to the RCMP, CSIS and even foreign agencies and potentially even fed back to FINTRAC via the RCMP’s ability to voluntarily provide information to FINTRAC. We question the need for this provision. If the RCMP or CSIS wants to provide information to CSE with respect to possible surveillance targets it should do so directly.

Foreign Politically Exposed Persons (PEPs)

The notion that individuals and their families will be subject to additional scrutiny simply because of their position is troubling.  (Keeping in mind that many officials are already subject to background checks and reporting requirements in their own countries.)  Our understanding is that this provision has been introduced to address FATF recommendations.  Assuming other countries adopt similar measures, Canadians officials conducting certain transactions in other countries will be subject to additional scrutiny.  Given the number of information sharing agreements that FINTRAC has with similar bodies in other countries we are concerned this provision could be used as a back door way for countries to obtain information about their own officials.

This is one of several provisions in the Bill that seems to be based on a “one size fits all” approach to combating money laundering and terrorist financing.  This global approach to dealing with money laundering and terrorist financing fails to recognize that different countries have different values and different approaches to privacy and the protection of personal information. Some of the members of the FATF have relatively weak or even non-existent privacy/data protection laws.  Canada, in comparison, has a recent and comprehensive privacy law, the Personal Information Protection and Electronic Documents Act (PIPEDA) that applies to the private sector including financial institutions.  As well, the federal Privacy Act applies to government departments and agencies, including FINTRAC.  A more flexible “made in Canada” regime would better reflect our values; at the same it could be tailored to address the actual threats that exist in Canada. 

We recognize the need to ensure that Canada does not become a safe haven for money launderers, but Canada should not be expected to adopt every measure proposed by the FATF without asking whether it is really necessary and appropriate to Canadian circumstances.

Oversight

We were pleased that in its Report, Stemming the Flow of Illicit Money: A Priority for Canada, the Standing Senate Committee on Banking, Trade and Commerce recognized the need for greater oversight over the operations of FINTRAC. The Committee recommended that periodic reviews should be conducted by the Security and Intelligence Review Committee (SIRC) and it went on to recommend that SIRC should receive adequate resources to enable it to fulfill this broader mandate.”

Bill C-25 now requires the Office of the Privacy Commissioner to conduct a review every two years of measures taken by FINTRAC to protect information it receives or collects under this Act and submit a report to Parliament.

We should mention that we were planning to conduct an audit of FINTRAC in 2007-08 in any event pursuant to our authority under the Privacy Act. While we welcome the requirement for mandatory review of FINTRAC’s measures to protect personal information, we question the feasibility of doing so every two (2) years. Unfortunately, we were not consulted on this amendment, and given the impact on resources and other equally compelling priorities, we would ask this Committee to revisit the frequency of the mandatory review. 

Our support for additional oversight should not be interpreted as a negative reflection on FINTRAC’s commitment to the protection of personal information. Protecting personal information is essential, but it is only one part of a privacy sensitive regime.  A privacy- sensitive regime also requires transparency, openness and effective oversight. 

Given that Bill C-25 will increase the amount of information that FINTRAC can disclose and expand the number of government bodies to which it can disclose information, it is even more important to ensure that this information is not disclosed inappropriately. At present, FINTRAC can disclose designated information to law enforcement agencies and CSIS based on “reasonable grounds to suspect” that the information would be relevant to investigating or prosecuting a money laundering or terrorist offence.  However, the determination of when these criteria have been met is made internally by a disclosure committee, which consists of the senior executives and is chaired by the head of FINTRAC. If FINTRAC is going to be given more freedom to share more information with more organizations, it might be appropriate to ask whether additional measures are needed to ensure that these disclosures are justified.  For example, two obvious alternatives exist: raise the threshold for disclosure from “reasonable grounds to suspect” to counterbalance the risk arising from the increased disclosures, or, alternatively, establish an independent process to review FINTRAC’s decisions to disclose.

Conclusion

We understand that money laundering both rewards and supports criminal activities and we are not questioning the need to combat money laundering and terrorist financing. 

The comments we made in our June 2006 submission to this Committee bear repeating.  The Proceeds of Crime (Money Laundering) and Terrorist Financing Act is an inherently intrusive Act that is at odds with the protection of privacy. The Act treats everyone as a potential suspect.  The Act weakens existing privacy protections. The Act enlists a wide range of businesses and professionals in the fight against money laundering and terrorist financing by requiring them to monitor the activities of their customers and make judgments about their behaviour. 

We would ask the Committee to consider carefully whether the proposals to expand Canada’s AMLATF as set out in Bill C-25 are necessary and proportionate.  It is important given the inherent intrusiveness of the regime and the object of the Act as set out in section 3 of the Act is to ensure “that appropriate safeguards are put in place to protect the privacy of persons with respect to personal information about themselves.”

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