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STANDING COMMITTEE ON FINANCE
COMITÉ PERMANENT DES FINANCES
[Recorded by Electronic Apparatus]
Tuesday, April 11, 2000
The Chair (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I'd like to call the meeting to order and to welcome everyone here this afternoon.
As you know, the order of the day is Bill C-22, an act to facilitate combating the laundering of proceeds of crime, to establish the Financial Transactions and Reports Analysis Centre of Canada, and to amend and repeal certain acts in consequence.
We have the pleasure to have with us representatives from the following organizations: the Canadian Institute of Chartered Accounts, the Canadian Bar Association, the National Criminal Intelligence Service from the U.K., and as an individual we have Dr. Mark Zoccolillo.
As you probably know, you have approximately five to seven minutes to make your introductory remarks, and thereafter we'll engage in a question and answer session. This afternoon's session will have a 10-minute round.
We will begin with the Canadian Institute of Chartered Accountants: Mr. Ian Murray, chairman, advisory group on anti-money-laundering legislation; and R. Simon G. Chester, legal counsel. Welcome.
Mr. Ian Murray (Chairman, Advisory Group on Anti-Money-Laundering Legislation, Canadian Institute of Chartered Accountants): Thank you and good afternoon.
Mr. Chairman, members of the committee, on behalf of the Canadian Institute of Chartered Accountants we would like to thank you for allowing us to appear and provide input to the government's proposed legislation to combat money laundering.
My name is Ian Murray, and I am a partner in the firm of KPMG. I chair an advisory group established by the CICA to examine this legislation. With me today is Simon Chester, who is legal counsel to the CICA.
As I think you know, we submitted a brief to the Department of Finance in February that comments on the government's consultation paper on Bill C-22. As the basis for that submission, the CICA drew on the work of the advisory group, which reviewed the consultation paper along with the draft legislation and regulations. Our brief broadly supported the legislation, but we believe it would benefit from some changes.
Our submission dealt with five areas that we want to focus on today: narrowing the scope of the proposed legislation, defining suspicious transaction, addressing the duplication of reporting requirements, restricting powers of access to records, and broadening available defences and protections.
The scope of legislation: I would like to repeat at the outset that the CICA is supportive of the government's proposed legislation and its focus on financial intermediaries. We recognize the importance of having an effective international regime to outlaw money laundering. We believe that financial intermediaries who have direct involvement in financial transactions should have primary responsibility for reporting suspicious transactions. We accept that when a chartered accountant acts as a financial intermediary, he or she should have the same reporting responsibilities as other financial intermediaries.
We understand that the legislation is intended to apply to professionals such as CAs only when they are directly involved in a financial transaction, such as CAs who handle cash for clients or who are in a general management position in a company. This focus is appropriate. Such CAs should know exactly where they stand.
We also understand that the reporting requirements of the legislation are not intended to apply to those who are directly involved in financial transactions within their companies, for example, internal auditors, strategic planners, tax accountants, and system managers. Nor are they intended to apply to CAs acting in an advisory capacity only, essentially those who act in a third-party role providing services to clients, such as auditors, forensic accountants, management consultants, business evaluators, and tax advisers. Notwithstanding the intention, we are concerned that the wording of the proposed legislation and regulations could be interpreted to suggest that the profession as a whole could be subject to these provisions.
Paragraph 5(i) provides for part 1 of the act to apply to persons engaged in a business, profession, or activity described in the regulations. An existing regulation, which we understand will be retained in the new legislation, indicates that the act applies to every person who is engaged in a business, profession, or activity in the course of which cash is received for payment or transfer to a third party. We are concerned that this wording can be read too broadly. It's not clear that the act would apply solely to these individuals who are directly involved in such transactions. It could be interpreted to apply also to all individuals who belong to a profession in which some individuals may engage in such transactions.
This concern is exacerbated by wording contained in clause 7 of the bill, which requires reporting by persons or entities of suspicious transactions that occur in the course of their activities. We believe this wording is so open-ended that it does not limit the reporting requirement to professional accountants who are directly involved in financial transactions.
We are therefore concerned that the broad wording of the existing regulation, taken together with clause 7, could be interpreted as applying the reporting requirements much more broadly to the accounting profession as a whole.
One simple example of the types of problems that would arise under this broad interpretation would be when forensic accountants are asked to assist a client to investigate a potential irregularity. Any forensic accountant would be placed in a position of conflict between assisting his client and reporting to the centre and may have to decline the engagement. The client would be deprived of any needed assistance. There are many other situations where, in the absence of clarification, CAs could be drawn into the scope of the reporting requirements.
However, the proposed legislation includes a provision, under paragraph 5(j), allowing for regulations to be made that will limit the application of part l to defined activities of businesses and professions. We recommend that a regulation be introduced to clarify that the scope of the legislation will apply only to those professional accountants who act as financial intermediaries.
We therefore propose that the regulation in paragraph 73(1)(b) that relates to paragraph 5(j) of the bill contain the following wording: part l of the act applies to every professional accountant who, in the course of engaging in a business or profession, receives cash for payment or transfer to a third party.
We believe that the intended subjects of the new law should be determined by activity, not status; not by the nature of our profession but by the activities we are involved in. This change would make it clear that the legislation will apply only to those directly involved in financial transactions.
We welcome the assurance provided this morning by senior officials regarding the intention to ensure that the legislation will only apply to professionals acting as financial intermediaries.
We were also pleased that officials this morning confirmed that the regulations will indicate very clearly that the reporting obligations will not apply to the auditing function of the accounting profession.
The second issue is the definition of suspicious transaction. Another significant concern is that neither the proposed legislation nor the regulations contain a definition of suspicious transaction. The success of the mandatory reporting regime will depend on the extent to which clear and unambiguous criteria can be developed. In their absence there will be unnecessary, unwarranted, and inconsistent reporting because all professionals will have to make a significant judgment call on what they believe to be suspicious.
Although the reporting centre will develop guidelines that help identify appropriate characteristics and circumstances, these guidelines would not have the force of law. We think clarity belongs in the law and not in the guidelines.
We therefore recommend that the regulations contain a prescribed definition of suspicious transaction, one that sets out clear criteria. A clear and unambiguous definition of suspicious transaction is a tall order. It should be supported by examples, situations, and case studies to illustrate when reporting is required and when it's not.
Should interim guidelines be put in place for any reason, they should ultimately be included in the regulations so that they are subject to public scrutiny and input and have the force of law.
Furthermore, we recommend that the effective date for commencement of reporting of suspicious transactions be deferred until criteria have been established, and examples, and so on.
Third, on duplication of reporting requirements, we are also concerned that there is a lack of clarity with respect to professionals such as CAs who may be working for entities specifically covered under clause 5 and who are directly involved in financial transactions.
On the one hand, such CAs have a reporting role as an employee working in an entity covered by the legislation. On the other hand, they have a responsibility to report suspicious transactions as a professional accountant. This is confusing and would appear to be a duplication of the reporting requirement that applies only to individuals who happen to be both employees of such entities and professional accountants.
Should such an individual report to their supervisor, they are protected by subclause 75(2) from punishment as an employee. However, they could still be open to punishment for failing to report to the centre as a professional accountant. We believe the protections afforded the employee should clearly apply to protect the CA, who is the same person in such situations.
Fourth, on restricting powers of access, the compliance measures in clauses 62 to 65 allow an authorized person from the reporting centre to examine the records and inquire into the business affairs of any person or entity referred to in clause 5 for the purpose of ensuring compliance. We are concerned that these appear to be very broad powers, allowing access to all records, not just those relating to financial intermediation activities, and without a warrant. If the applicability of part 1 of the legislation is not clarified as indicated earlier, we are concerned that these powers could be interpreted to apply broadly to all members of the profession, not merely those involved in relevant activities.
We therefore recommend that the proposed legislation be clarified to restrict the powers of access to only those records that relate to financial intermediation activities. We also think such access should be allowed only under authorization of a warrant.
Last, on defences and protections, we would like to make some comments about the defences and protections available under part 5 of the legislation.
Other jurisdictions include a defence for reasonable excuse—for example, where the fear of physical violence or other menaces makes it unreasonable for someone to report or to refuse to act for a client. There may be circumstances when third parties are able to deduce the source that gave rise to an investigation. While there may be certain defences under common law similar to reasonable excuse, this defence is not available under the proposed legislation. We are also concerned that the legislation does not provide protectional remedies to those who lose their job as a result of making a report in good faith.
Furthermore, the legislation is not clear as to how to deal with situations where the legislation conflicts with other legislation requiring confidentiality, such as the Quebec charter of rights and freedoms.
Therefore, we recommend a reasonable excuse defence be included in the proposed legislation, along with additional protection for reporters.
Finally, we recommend that it be amended to deal with situations where the legislation conflicts with other statutes requiring confidentiality.
In closing, let me stress again that we support the intent of this proposed legislation, that it's applied to those who are directly involved in financial intermediary transactions. However, we believe the wording of the legislation lacks clarity in prescribing who within the CA profession must report. We believe this is a significant issue and strongly encourage you to use clause 73 to clarify the activities to which the legislation would apply for the CA profession.
We also strongly urge you to include a clear, unambiguous definition of suspicious transaction in the legislation so that those with the obligation to report will do so under consistent criteria.
We appreciate the opportunity to discuss the bill with you, and we would be happy to answer any questions you have.
The Chair: Thank you, Mr. Murray and Mr. Chester.
We'll now hear from the Canadian Bar Association: Mr. Eugene Meehan, president; Greg DelBigio, member, national criminal justice section; and Ms. Joan Bercovitch, senior director, legal and governmental affairs. Welcome.
Ms. Joan Bercovitch (Senior Director and Lawyer, Legal and Governmental Affairs, Canadian Bar Association): Thank you. On behalf of the Canadian Bar Association, I would like to thank you for the opportunity to appear before you today.
The Canadian Bar Association represents 36,000 lawyers across Canada. The Association's objectives include improvement in the law and in the administration of justice. Our presentation today reflects these objectives.
Our proposals will be presented today by our president, Mr. Eugene Meehan, from Ottawa and by Mr. Greg DelBigio, from Vancouver. Mr. Meehan will start and Mr. DelBigio will present the last section. Both will be available to answer questions.
Mr. Eugene Meehan (President, Canadian Bar Association): As President of the Canadian Bar Association, I appreciate the opportunity to appear before you today.
We would like to make three preliminary but crucial points on this legislation.
First, cabinet security and confidentiality is important to you. It is important to how government works, it is important to how government should work, and it is in the ultimate interest of the public and their protection. I do not have to tell you the reasons that is important. For all of those same reasons, solicitor-client confidentiality is as important to lawyers and to clients, and likewise, it is in the ultimate interest of the public and their protection. If government and cabinet confidentiality is important to you, then treat solicitor-client confidentiality as important, as sacred, as sacrosanct, and also as protected.
Secondly, just as the state has no place in the confidentiality of the bedroom, the state has no place in the confidentiality of the solicitor-client privilege—no place. Both are sacrosanct, both are sacred, and both must be protected.
Third, the reason why all this is so important is that without an independent bar and without and independent judiciary, there is no democracy. It's that important, and also that simple.
If you look at any country in the world and ask, are they a democracy, you have to ask only two questions: do they have a completely independent bar, and do they have a completely independent judiciary? Everything else follows.
Canada is special. We have a bill of rights; we have an entrenched, written Charter of Rights and Freedoms. That means something to clients, to our democracy.
We therefore urge you not to pass Bill C-22. This is a dangerous and misguided effort. It is dangerous to Canadian society; it is dangerous to Canadian democracy.
Mr. Greg DelBigio (Member, National Criminal Justice Section, Canadian Bar Association): I also would like to thank you for the opportunity to be present to make submissions. Our summary of recommendations is set out in the brief.
Underlying that summary is the fundamental concern about protection of the solicitor-client relationship. That relationship is of course premised upon privilege, confidentiality, and the protection of privacy. We are of the view that the bill, as it stands, would seriously undermine those foundations of the relationship.
The bill as it stands has all of the earmarks of criminal law—that is, it has to do with criminal law enforcement, as evidenced in the objectives—but it offers none of the protections of criminal law. So we are of the view that within that context of criminal law enforcement, lawyers will be compelled to act in a manner that is directly contrary to the solicitor-client relationship. It will compel lawyers to act in a manner that is contrary to the law that recognizes the importance of that relationship. The law will undermine the right of Canadians to receive legal advice knowing that those communications are fully protected by privilege and confidentiality.
The Canadian Bar Association acknowledges international obligations in respect of money laundering, and that it is important to respond to money laundering within Canada and globally. However, effective law already exists in part XII.2 of the Criminal Code. Provisions within that part govern lawyers, govern others, and prohibit money laundering. So the conduct that is of concern is captured by already existing law.
We are concerned about the large cost that would be associated with the administration of the centre, and there's an associated cost that would attach to a legitimate business that is carried out on a day-to-day basis within Canada. The added cost can only serve to undermine the effort of Canadian business to effectively participate in a competitive international environment.
In summary of the introductory remarks, the Canadian Bar Association is very firmly and strongly of the view that lawyers must be exempt from the bill. Anything else will undermine the relationship that has been long recognized in law.
The Chair: Thank you very much, Mr. DelBigio.
Dr. Mark Zoccolillo.
Mr. Mark Zoccolillo (Individual Presentation): Thank you for inviting me here today. I'm going to talk about the results of a recent study we did on how common a problem drug use is among Quebec adolescents, which I suppose is one of the main reasons you would be considering a bill such as Bill C-22.
I would like to acknowledge my co-authors Frank Vitaro and Richard Tremblay from the University of Montreal. You have a copy of the study. I'm going to give you just a portion of it.
This is a sample of adolescents who are representative of the province of Quebec. They come from throughout the province. They were studied from 1995 to 1997. As you can see, they were mostly 15 to 16 years of age. Most of them were in secondary three or secondary four, which would be ninth or tenth grade. I want to emphasize that. We're not talking about college students, we're taking about adolescents.
As I said, they are representative of the province, they're not a particularly selected sample other than to be representative. It's around 900 boys and 900 girls.
What we did was ask them about their drug use, along with many other different things. The drug use was through a self-administered questionnaire. They filled out the questionnaire in the home, but away from their parents, and they were promised confidentiality. What I'm going to emphasize most are the drugs rather than the alcohol, except for comparison to alcohol.
I'd like you to notice that with regard to drug use, about half the adolescents have tried illegal drugs by this age in Quebec. Much more importantly, about one-third of the boys and girls have used illegal drugs more than five times. The more than five times was the cutoff that we used to ask the more important question, which was, how often and under what circumstances did you use these drugs?
I would also like you to notice, of course, the most commonly used drug of all is marijuana, and it's the drug I'm going to focus on. The second most common drug used by one in five adolescents was hallucinogens, which also includes phencyclidine, or PCP, a particularly dangerous drug.
Now I'm just briefly going to show this overhead on alcohol, because I'm going to compare it to drugs. These are adolescents who had drunk alcohol more than five times, which is about 60% of the sample by this time. I'd like you to notice two things.
The first is the third line, about ever being drunk while at school. Most adolescents have not gone to school drunk, even though they have drunk alcohol.
The second thing is the bottom set, which is the number of problems, the sum of the other things that we had above. These include playing sports and drinking alcohol, being drunk at school, getting into fights, driving a motor vehicle while drunk, having arguments with parents, having trouble with the police, having arguments with friends, and seeking help.
As you can see, most adolescents had either zero or one of those, and for those who had one, it was usually “while playing sports”. Very few had four or more. The importance of this is the comparison to drugs.
This is the pattern for drug use, which as you see is considerably different from the pattern for alcohol use. This is a third of all adolescents. I want to emphasize it's not a third of those who use drugs, but one in three adolescents in Quebec. The drug in question that we're largely talking about is marijuana, and you can see a very different pattern.
The most common thing they do is go to school high, go to school stoned. They play sports under the influence, and this includes riding bicycles, skateboarding, and swimming, and they use it in the morning. Now, this is quite important, because it means if you start off in the morning high, you're high all day.
Somewhat less common, but still worrisome, was driving a motor vehicle while stoned.
Now I want to also take you to the bottom, the number of drug problems. Remember, for alcohol most adolescents reported zero or one, and very few four or more. The pattern is very different for drug use. Here, the common way that adolescents use drugs, and again it's mostly marijuana, is to engage in a number of these behaviours, with almost half the boys having four or more, and about a third of the girls having four or more. So there's a big difference in how it's used compared to alcohol, and it's quite worrisome.
The next thing we asked was how often they were using it. Again, we can compare drugs to alcohol, and you can look just at the boys' column, because it's very similar for girls. We asked the question, at the time you used the most, how often were you using? Many of these adolescents, even though they were 15 or 16, had started using when they were 13 or 14, so there was a one- or two-year history of drug use. We asked about the peak, when they were using most frequently.
If you look at the alcohol column, you can see that most boys and girls reported that even at the time they were using the most, it was less than once a week or once a week—that is, weekend use. That is not the case, though, for drugs, for marijuana. In this particular case, very few reported that at the time of maximum use they were using less than once a week. The majority of boys and close to the majority of girls had progressed at some point or another to using three times a week or more.
This is particularly worrisome, because this means they are using it frequently, several times a week, and to repeat, they were going to school stoned, using it while involved with sports, and using it in the morning.
To conclude, the problem of the use of alcohol and drugs is relatively common in Quebec adolescents, and particularly worrisome with regard to injury at relatively higher rates when driving a motor vehicle while under the influence, and playing sports, including bicycling or rollerblading, while under the influence.
Attending school while high from drugs is common, with one in four students having been to school high at any time, and one in six in the past six months. The pattern of drug use, particularly cannabis, marijuana, is quite different from that of alcohol use. Alcohol use is more common but appears limited to weekend use, and most alcohol users report no or one problem.
The normal pattern of marijuana use is to use it several times a week to go to school high, to play sports high, to spend much of the day high. The most commonly used drug is marijuana, and it's a myth that most drug use by teenagers nowadays is experimental and limited to occasional marijuana use at parties.
I'd also like to add that there have been a number of monitoring studies here in Canada and in the United States where they look every year at the prevalence of use. There's been essentially a doubling of prevalence of use of marijuana over the past decade. Ten years ago, these figures, in terms of having ever used marijuana, were about half; instead of being about half of the population, it's about 25%. So there seems to have been a considerable increase over the last decade.
It's a serious problem. We see it at the Montreal Children's Hospital. Adolescents are using drugs quite commonly. They are cheaply available and easily available. Their possession is infrequently prosecuted by the police, and the adolescents know this. It seems to be quite tolerated.
I would just end by saying we certainly have a considerable problem. There are probably a number of different ways this can be addressed. You have a copy of the paper there, and I'll be glad to answer other questions later.
The Chair: Thank you very much, Dr. Zoccolillo.
We will now hear from the National Criminal Intelligence Service, the deputy head of the economic crime unit, Martin Comley, welcome.
Mr. Martin Comley (Deputy Head, Economic Crime Unit, National Criminal Intelligence Service (U.K.)): Thank you. I think I'm distinctly privileged, Mr. Chairman and members of the committee, to be invited here. It's a long way from my home, and I hope I have something very useful to contribute to you.
I will first give you some terminology changes, because I will refer to an FIU, a financial intelligence unit, as your centre is often referred to around the world. So if you can indulge me on that, it will be helpful.
I have prepared a copy of my presentation. I hope it's been made available to you. I apologize, there is only a copy in English. You may find it useful because there are some statistics in there I will refer to as I go through it.
I'd first like to put the U.K.'s FIU into context. Ours is not a stand-alone organization, it forms part of the National Criminal Intelligence Service. This service has been functioning for some eight years and was reconstituted two years ago. We've moved away from government; we're an independent body now, not a police service.
We have approximately 650 staff to look at serious crime intelligence as it affects the United Kingdom. Of that, we're drawn from 17 different agencies. We're truly a multi-agency functionality. We also house the United Kingdom's response to INTERPOL, and for our European parts, Europol as well. We're split into different functions. We have an international division, intelligence development, and the United Kingdom division.
I'm going to focus primarily on the United Kingdom division, of which we're a part. We've split the country up into geographical regions, where our serious crime is looked at on a criminal basis. In the strategic and specialists intelligence branch, we look at things the other way round. We look at it from the crime back toward the criminal. So we link two functions of intelligence together to focus on serious crime.
The strategic and specialist intelligence branch has many specialist functions. We look at organized crime, immigration crime, vehicle crime, West African crime, drugs, counterfeit currency, serious sex offenders, and kidnap and extortion. We have a football section, which unfortunately deals with our football hooligans, Turkish intelligence, and cocaine intelligence.
I only mention all of these departments because the main basis or the underlying cause of this is money, so there's a great overlap with what my unit, the economic crime unit, does—the FIU for the United Kingdom. We are the central receiving point for suspicious transactions within the United Kingdom. We research these and disseminate them. We disseminate them to designated investigators around the country, a point I'll come back to.
Looking at our legislative approach, we criminalized money laundering through various acts over many years, acts that we've had to redraft and amend as the years go on. We're still undertaking those amendments today.
Out of the criminalization of money laundering come the disclosure provisions. Those disclosure provisions affect everybody. There are no exemptions in relation to the disclosure provisions. We have a suspicion-based reporting regime through which we do not define suspicion itself; we rely on guidance notes for the particular industries to identify what may be suspicious.
Having heard from your colleagues in the law society here, I'd say there is one exemption: we do have a specific exemption in relation to legal privilege, and that is clearly defined within the act. We have a secondary law that goes on and looks at the systems, the anti-money-laundering systems that financial institutions should invoke within their premises as a secondary way of policing this.
I'll come back to staffing with our unit now. The economic crime unit itself is multi-agency, like the organization. We draw staff from primarily six separate agencies: the police; the customs service; the benefits agency, or welfare; the Financial Services Authority, or the regulators; the gaming board; and Inland Revenue. We also have a support staff, an analytical staff, within that. The current staffing of the unit is 27, but is being reviewed at the moment and is likely to increase in the near future.
The need for multi-agency has been highlighted over the years. That's a recent innovation for us. To evaluate suspicion-based reporting, you need a broad experience. I have a broad policing experience, but that doesn't give me customs experience and it doesn't give me revenue experience, etc. To combine those tools helps us to evaluate that intelligence and place it with its correct investigative body.
I'll very briefly, then, go on to say that there is a need to interface at the domestic level among the various government departments, that being the Treasury, the Ministry of the Interior, and the like, not only for bringing forward legislation but for seeing that legislation goes forward and goes forward properly. Currently we are subject to a review by a cabinet office in order to see that we are correctly on course and are still proceeding in the direction our government sees fit.
Financial services authorities themselves must play an important role in this, because they're involved daily in the financial sector and the policing of that sector.
Last but not least, there is the financial sector itself. I think the only point I stress out of this is that it's not a policing function alone. The police cannot tackle this by themselves.
I'll now trouble you with some statistics, I'm afraid. At the bottom of page 4, you see the bar chart that shows the disclosures as they've been made in the United Kingdom. In our early years, we started with about 600. Then, we spoke directly to the directors of the four main High Street banks. That was the limit of our knowledge of money laundering and financial crime as it involved this sector at the time. Our experience grew and so did the experience of the financial sector.
In 1990 we formed something called the Joint Money Laundering Steering Group. This was as a result of pressure from the financial sector, which was asking questions like, “What is suspicion?” and “Can you help define suspicion?”, in order to make the appropriate reports.
This round-table body got together and formed the first guidance notes in 1990. I must say in hindsight that they were somewhat naive, but they were naive based on the experience we had at that time. Those guidance notes now fill an A-4 ring binder about one inch or two and a half centimetres thick. Again, they're continually evolving as we gain more experience in this.
You'll see two significant changes in the bar charts: 1990 to 1991, where we went from 2,000 disclosures to 4,500 disclosures; and then a significant rise from 1991 to 1992, from 4,500 to approximately 12,000. These rises were caused by proper training taking place within the financial sector. They were directed properly toward the staff who have an interface with the customers, either directly or through a backroom function. You can see a significant rise that really hasn't tailed off ever since, and we've averaged about 14,000 disclosures since then. We break them down by sector on the following charts.
Another function the FIU really undertakes is not just to see who's disclosing, but, most importantly, who's not disclosing. Here we have a close interface with the financial service regulator.
There is room for improvement in most jurisdictions—and I include mine in that. It's only with correct analysis of statistics that you can see where there is the room for improvement. And by “improvement”, I don't necessarily mean the prosecution of particular offenders. If they're criminal in their intent, yes, of course they should. It may be by way of education training, and that needs a joint dialogue.
As I said, the economic crime unit itself receives, researches, and disseminates intelligence from all parties, including regulators and others, including the lawyers, accountants, and insurance agents. We disseminate that information to designated bodies within the police customs crime squad, which is a national function in the United Kingdom. Each of the staff has been specially trained to undertake that function. It's very different from the normal policing function. A report of suspicion is not an allegation of crime, so it needs to be handled differently, and the staff need to be aware of that to handle those disclosures.
We have special arrangements with other bodies that have an interest in crime. In particular, I've listed here the Benefits Agency, or the welfare system, and the Inland Revenue. This is not an open, direct dialogue. We have to assess whether or not there is a criminal intent within this and that these are criminal proceeds before we have a dialogue with these agencies.
Last but not least, I include on there our foreign counterparts, a growing part of our work.
If you'll allow me, I'd like to make reference to the Egmont Group, a non-political group that set about in 1995 to see where the FIUs were going. Are we functioning properly? Can we communicate? Many of us, as we've gone into these laws, have looked quite domestically—and rightfully domestically—at our own problems. But the problem we're dealing with in crime is international, so we have to look at the legislation and make sure we have adequate and proper gateways where necessary in order to communicate with our counterparts.
I think it's important for my point here to stress the difference between the sharing of intelligence, defining what intelligence is, and proper judicial process. What I'm talking about here is not to usurp proper judicial process that will go before a court. This is to make the centres or the FIUs able to do their job properly in evaluating suspicion and making that available to the proper law enforcement agencies in order that they can gather the evidence correctly.
The first meeting in 1995 looked to 24 jurisdictions and 7 international organizations. At the time, 14 could have been defined as FIUs.
The Egmont Group splits itself really primarily into three areas, and now maybe four: legal, technology and training, and the last is outreach, or who's next and who else we should be communicating with. The U.K. chairs the training subgroup. For that, we have meetings with our counterparts at which we're not swapping the detail of legislation but are sharing with each other how we can share intelligence, what our confines are, what our powers are, and how we can make the best of financial intelligence on a world scale.
I include at the bottom of this page a little overview of how the Egmont Group has seen it. We want an exchange of information, increased effectiveness, and greater coordination. We don't make any distinction as to who oversees the FIU. For me, arguably we are a policing FIU. Others come under ministries. Others come under central banks. Others come under a ministry of the interior or ministry of justice. The importance is what function they fulfil. Are they specialized in anti-money-laundering? Are they the central receiving point for suspicious transactions or unusual transactions? Do they process and evaluate, and do they disseminate or investigate that intelligence?
When you're looking at your own, it's very important to remember the national context. I say that because it's very easy for countries to visit other countries and to say this is the way you should do it because it works for them. That doesn't mean it will necessarily work for you. You have to adapt it to your local circumstances. The importance is that all agencies must work together, and there is no right location for this.
In 1995, 14 units met the definition. In 1999, 48 units met the definition of a required FIU. There are 17 still currently under consideration.
Thank you for listening to me. That was a very quick talk round on the U.K.'s and the internationals' approach.
Thank you very much.
The Chair: Thank you very much for that, Mr. Comley, and for taking the time to give us your perspective on this particular issue.
We will now proceed to the question and answer session, and I believe we'll start with Mr. Abbott, for a ten-minute round.
Mr. Jim Abbott (Kootenay—Columbia, Canadian Alliance): I found the data presented by Dr. Zoccolillo to be very compelling. I think it perhaps answers one of the questions that was raised on page 3 of the Canadian Bar Association's submission. Reading from the second paragraph on that page, the Canadian Bar Association says:
The large and intrusive state apparatus being proposed
and the cost to taxpayers for the establishment of the
Financial Transactions and Reports Analysis Centre to
address a problem that we believe reflects a
relatively minor portion of business activity in Canada
lead us to conclude that the possible salutary
results of Bill C-22 are outweighed by its predictable
I would like to suggest to the people making the presentation on behalf of the Canadian Bar Association that, indeed, what we saw on this screen is just a very small part, and an exceptionally important part: the young people of our nation. I'm not saying it's not important, but this is just a small part of what we're attempting to get at here.
While I find myself having some feeling of sympathy for the position of the Canadian Bar Association, particularly in dealing with the principles involved, I don't want to cut you off and not give you an opportunity to respond to me, but I think Mr. Comley might be able to give us some help—or at least give me some help—in understanding. If we go to page 5 of his presentation, he shows that there is disclosure and feedback between accountants and lawyers and the economic crime unit. I think he did refer to the fact that there is some kind of organization or some kind of arrangement between his organization and the legal profession.
I certainly would like to have a response from the Canadian Bar Association, but I'm also very interested in what Mr. Comley might be able to add to this dialogue in terms of how the problems that are seen by the bar association have been overcome in a practical way in the U.K.
Mr. Eugene Meehan: I also found Dr. Zoccolillo's remarks very interesting, and I found them interesting in this particular context. The questionnaire that was put out by Dr. Zoccolillo and his colleagues was filled out by the individuals away from home, and complete confidentiality was promised to those individuals. This bill is now, like Dr. Zoccolillo, going back to those teenagers and saying “Yes, I know we promised you confidentiality, and I know you only gave us those answers, at some personal risk, on the basis of guaranteed confidentiality by me and my colleagues. But I am now going to tell your parents and I am now going to fill out a form and give it to the police, and you will be charged with a criminal offence.” That's exactly what this bill does. It breaches the confidence that clients, Canadians, have in their lawyers.
Take yourself back to your own childhood or to the childhood of your colleagues. There are youth who have experience with marijuana. There are also youth that have experience with sexual intimacy. When a young woman decides to have intimate sexual relations with a young man, she trusts that physically that is between them. Imagine her horror to find out that he has videotaped their escapades and played them back later to his friends. It's like a nuclear bomb going off in her head. That's exactly what this bill does. It blows away solicitor-client privilege and confidentiality. Canadians cannot have confidence where they should have confidence.
I pass now to my colleague, Mr. DelBigio.
Mr. Greg DelBigio: If I may, just briefly, with regard to the recognized importance of the solicitor-client relationship, the question is, should it be displaced? Is there good and compelling reason to displace it in favour of a better objective? While those statistics are of interest, the question then becomes, will those statistics be in fact affected by including lawyers within this bill? Conversely stated, I say there's certainly no basis to think that those statistics will be affected by exempting lawyers. Indeed, there's no empirical data to suggest that those statistics will be affected if lawyers are specifically excluded. Having regard to very recent law, a bill, such as it is structured, runs the very great risk of being struck down, at least in part, to the extent that it runs afoul of the solicitor-client relationship.
So having regard to that, the question is, is it necessary to include lawyers? I say no.
Mr. Jim Abbott: How does Mr. Comley and his organization get around this thorny problem?
Mr. Martin Comley: First, the law's already there. I have to be blunt about that.
Mr. Jim Abbott: Yes.
Mr. Martin Comley: We went through similar problems in the early nineties and started a dialogue in about 1993 with the Law Society for England and Wales. Having had the law introduced, we agreed that the only way to take this forward was to act jointly.
The law society produced guidance notes of its own for its own profession. Guidance notes in themselves are actually quite dry and quite meaningless unless you follow them up with some intent. What we did after that was engage in a series of road shows with regional law society associations within the country, making joint presentations in relation to this. These are usually staffed by a member of my office, a member of the law society, and a practising lawyer. So you have a balanced view across the spectrum of where this should stand.
This equally applies to the accountancy profession. We engaged in the same way.
This has been a continuing dialogue. In fact, last month we finished a series of three presentations with the Law Society for Scotland, and we will be engaging in another series of those later in the year for England and Wales. So it's by dialogue and acceptance.
There is a need to protect legal privilege. I would never disagree with that. I say that what privilege is is clearly defined in the legislation. However, confidentiality is overridden with our legislation.
Mr. Jim Abbott: Would the law society see that there might be some advantage in working with the drafters of this legislation to arrive at a position not too dissimilar to that?
With respect, I'm not crazy about the examples you've used. I find them a little inflammatory. I think that if the client is apprised of your reporting responsibility, unlike the example you were using of the videotaping, it is the “Here's the camera, so now let's get on with it” kind of approach. Surely to goodness there's a way to work around this problem.
The reason I refer to the statistics is to say that the whole issue of money laundering directly relates to international organized crime and the scourge it is becoming in even the smallest centres in Canada. We have to get serious about this, and we have to give our law enforcement officers the ability to strain out the necessary information in order to be able to get the job done.
I would feel a whole lot more charitable toward the Canadian Bar Association if you were sitting here saying, this is the principle, and we want to get as close as we can. Here are some ways in which we can do it. What I'm hearing you say is, forget it. I'm not sure that's really helpful to this process.
Mr. Eugene Meehan: Let me respond in two ways. First, the examples I gave are not inflammatory. They are real. They have occurred. There is a breach of confidentiality.
Second, your question to Mr. Comley was, can we go along with the U.K. position? The answer is no. The reason is this. From my accent you may accurately take it that I am originally from there. I'm a graduate in law from the University of Edinburgh. The U.K. does not have a bill of rights. The U.K. does not have a charter of rights and freedoms. The U.K. has no entrenched guarantee of charter democracy. Canada is special. Canada has a Charter of Rights and Freedoms. If you want, there's a mirror image to that. Not only is there a charter of rights and responsibilities, but also there's a charter of obligations and responsibilities behind the freedoms. Canada is different. We are the envy of the world in terms of our democracy.
Third, the criminal court deals with this appropriately. We have heard no indication that the criminal court is not sufficient, not proper, and not sufficiently far-reaching. We believe the criminal court provisions do work—we are not told otherwise by anybody here—and that the criminal court provisions as presently drafted sufficiently protect clients.
This isn't about lawyers. I am in the public service. I serve Canadians. It's about them. If, as you suggest, Mr. Abbott, clients are advised, “You understand I'm under some reporting provisions here”, let's be realistic, they are out the door. They're not going to come to my office or anybody else's office. They will go elsewhere outside of Canada.
I would ask you to consider that Canada is special and has a Charter of Rights and Freedoms. Let's protect that, let's protect democracy, and let's still maintain the Criminal Code and let the Criminal Code do its work.
The Chair: Thank you, Mr. Abbott.
Mr. Richard Marceau (Charlesbourg, BQ): I'd like to thank all our witnesses for appearing today. Welcome to the Finance Committee. I am particularly pleased to welcome Mr. Chester with whom I had the opportunity to work in Toronto. Mr. Chester, welcome.
Mr. Meehan, I found your presentation quite interesting. As I understand, if you had a choice, first, you would eliminate Bill C- 22. Second, you would perhaps agree with Bill C-22, if it didn't apply to lawyers. Third, you would perhaps agree with Bill C-22, if it included the twelve amendments you mentioned. Is that correct?
Mr. Eugene Meehan: That's correct.
Mr. Richard Marceau: You want lawyers to be exempted from the application of this legislation?
Mr. Eugene Meehan: It's not so much for lawyers as for their clients. It's the clients who are important, not the lawyers themselves.
Mr. Richard Marceau: Okay. I often say jokingly that, as professionals, lawyers are a bit like Quebeckers in Canada: they always want to be distinct.
I would be interested to know why you come before us to tell us that this legislation should not apply to lawyers. Tomorrow, chartered accountants could very well come and tell us that, according to the same principle, the bill should not apply to their clients.
Mr. Eugene Meehan: It's completely different because accountants don't have the same responsibilities. In fact, accountants are bound by a disclosure requirement. We are not. We are bound by a confidentiality requirement.
Mr. Richard Marceau: Yes.
Mr. Eugene Meehan: Whatever happens is between us and our client. It's completely different. It's not that, as lawyers, we are special. It's just that when a client decides to consult a lawyer, not an accountant, he or she expects the confidentiality of such a relationship to be preserved.
Mr. Richard Marceau: Fine. But if the client is forewarned about doing something foul, about laundering money, wouldn't it be appropriate for him to know that the door would be closed and that, if he does consult a lawyer, such a transaction will be reported to the Center or the government—whatever we might call it?
Mr. Eugene Meehan: Every bar in Canada, be it in Ontario, in Manitoba, in Saskatchewan or elsewhere, has regulations to that very end.
Mr. Richard Marceau: Okay.
Mr. Eugene Meehan: It's covered either by the bar regulations, or by the Criminal Code.
Mr. Richard Marceau: Yes. In fact, as an aside, between you and me, this is a very boring course, especially in Ontario. Indeed, if the requirement is already there, if the requirement is already in the lawyers' code of conduct, what is the... As I understand, what you are saying is that if the requirement is already in the code of conduct, its inclusion in the bill can be questioned. Is that what you are saying?
Mr. Eugene Meehan: That's it.
Mr. Richard Marceau: Okay. So, conversely, if it does not add much, if the requirement is already there, what risk is there to include it in the bill?
Mr. Eugene Meehan: There is a difference. According to the code of conduct, we are required to disclose such things to the Bar Association. We are not required to go to the police.
Mr. Richard Marceau: Fine, but the Bar Association is a large bureaucracy. God knows it's slow and there is a lot of wasted time there. Papers are lost. The last time I registered as a member of the Law Society of Upper Canada, I had to call three times before getting my bill. I'd say this is not the most dynamic bureaucracy. Once the bar is advised, what happens? Who is informed?
Mr. Eugene Meehan: A lawyer is under two obligations, one vis- à-vis the bar and the other vis-à-vis the Criminal Code. Our position is that the Criminal Code and the bar's code of conduct are enough. We don't need the government in the office when we meet our clients. A lawyer-client relationship, be it professional or sexual, is their business. It's not the government's business. We see this as an intrusion of the federal government in that relationship.
Mr. Richard Marceau: I find it rather difficult, like my colleague, Mr. Abbott, to associate a professional and a sexual relationship for several reasons, particularly because in the second case, it can be more pleasant.
I'd like to come back to another subject you have raised, the issue of confidentiality. You said that one the problems with Bill C-22 is the issue of confidentiality, not only the lawyer-client privilege, but also in a general way. It would send a few shivers down your spine. Are you telling me that as far as you are concerned, it's not enough that the bill stipulates that the Protection of Privacy Act applies?
Mr. Eugene Meehan: It's not enough because it's indicated that it applies only to this section. Now, that applies also to the remainder of the legislation.
Mr. Richard Marceau: Very well.
This morning, we heard officials from the Finance Department who came to make a presentation. I asked them a question which I'm going to ask again to Mr. Comley. I said that the protection granted to Canadians would be guaranteed, through the Protection of Privacy Act and because of the fact that the Access to Information Act would apply to the proposed Center. However, inasmuch some information given to the Center could be passed on to a similar entity in another country, isn't there a risk that what can't be done through the front door would be done through the back door? Indeed, some protections which exist in Canada do not necessarily apply or exist in other countries.
Mr. Martin Comley: I have a brief reading of your law, and you make specific reference to cooperation with outside agencies and with others by way of memoranda of understanding.
I have to say that's a preferred method of communication for us, because the memorandum of understanding stipulates who, how, what, and what will be done as a result of the communication of this data. It's important that is done, because the laws of each country differ widely. I look particularly within Europe at that, where we're supposed to have a common standard—far from it, I'm afraid.
Explicit MOUs do help in guaranteeing that the information that's provided by one jurisdiction will be honoured by the second jurisdiction. In order to turn this suspicious transaction into something operational, you don't necessarily have to transmit the full detail of the information. That's something that can be discussed at an operational level in order that you guarantee as best you can the protection of individuals in each jurisdiction and respect the confidentiality within that jurisdiction.
Mr. Richard Marceau: Do I still have time?
The Chairman: One minute.
Mr. Richard Marceau: Mr. Murray or Mr. Chester, in your brief, you raised the possibility that Bill C-22 may contravene article 8 of the Canadian Charter of Rights and Freedoms. Why do you raise this possibility? Knowing the way you work, Mr. Chester, I also know that you rarely ask a question if you don't have a ready answer. So what's your answer? If the bill contravenes article 8, how would you rewrite it so that the requirements of the Charter are met?
Mr. R. Simon G. Chester (Legal Counsel, Canadian Institute of Chartered Accountants): Mr. Marceau, I have two answers. One of them is slightly flippant, which is that the brief you were quoting from is the brief of the Certified General Accountants Association of Canada. My second comment is that I'm more than happy to answer the question.
Mr. Richard Marceau: It's because your name was here along with...
Mr. Simon Chester: We are the Canadian Institute of Chartered Accountants.
Mr. Richard Marceau: I'm sorry.
Mr. Simon Chester: To give you a serious answer, we think the bill should probably distinguish between two types of circumstances in which the centre is seeking information. For instances where there is specific inquiry into a breach of the legislation, where specific financial information is going to be carted away, we believe the same safeguards should exist as exist in the rest of the criminal justice system—that is, you would go before an independent authority and seek a warrant.
That warrant constitutes an objective assessment of whether there are reasonable grounds to believe the circumstances exist for the legislation to be triggered. That objective assessment does provide a check on the centre.
If you look at clause 62, it provides that an authorized person may from time to time enter into any premises at any reasonable time. That authorized person is simply anyone the director of the centre stipulates under subclause 45(2). There are none of the safeguards that would exist if the police were doing this, or that would exist in the rest of the criminal law. We believe this legislation should respect the same sorts of safeguards that exist in the rest of the legal system.
That's my facetious answer. I'm more than happy to ask the Certified General Accountants whether they would agree with that assessment.
Mr. Richard Marceau: Thank you.
The Chair: Ms. Bulte.
Ms. Sarmite Bulte (Parkdale—High Park, Lib.): Thank you very much, Mr. Chair.
I thank you all for coming here today.
I'd like to address my questions, Mr. Chairman, through you to the members of the Canadian Bar Association. I do so as a member of the Canadian Bar Association—Ontario and as a member of the Law Society of Upper Canada. I practised law for 18 years. So the people who are sitting around this table are quite aware of solicitor-client privileges. Mr. Marceau is also a lawyer.
I have to start by saying that as a lawyer I agree with my colleagues Mr. Marceau and Mr. Abbott in that I found your sexual analogy, Mr. Meehan, regarding solicitor-client privilege quite offensive. So let me state that for the record.
Let me go on further to state that I also believe, and I will challenge you on this, that there is no absolute client-solicitor privilege whatsoever. There are exemptions to the common law privilege.
You have also, gentlemen, not spoken about clause 11 in the bill, which clearly states—and I will read it into the record: “Nothing in this Part requires a legal counsel to disclose any communication that is subject to solicitor-client privilege.”
Fourth, the regulations do not address those that deal with the fact that sums of money received on account of fees or on account of bail are exempt from the regulations. That was not mentioned at all here today.
Fifth, right now we have before the courts the Murray-Bernardo case. We are determining the extent of solicitor-client privilege. Again, I find you're saying there is absolute solicitor-client privilege, and to compare that to a sexual analogy is quite offensive.
So I'd like you to comment specifically on clause 11 and also on the regulations.
Before I finish, if you'll indulge me, Mr. Chairman, I did not practise criminal law. That was something I chose not to do during my practice. But I did practise real estate law and I was very wary of solicitor-client privilege. But there were times when I received cash payments on real estate transactions, which was not unusual in the late 1980s when there was a lot of influx of Hong Kong money. At that time money appeared, U.S. dollars in paper bags, from young people from their relatives from Hong Kong.
I had no problem at that time reporting to those clients that when I deposit that into my local branch of the Royal Bank, because it is a cash transaction, I will have to fill out a sheet of paper that tells the bank where it came from and what I will use it for. I don't believe I did anything wrong or that I breached any solicitor-client privilege, but this was something that was inevitably going to happen to us. I would think that all lawyers have had to deal with this, even on a voluntary basis.
So again, please comment on clause 11, the exemptions under the regulations.
Mr. Eugene Meehan: I would like to unreservedly apologize to my colleague in the profession. Unreservedly, I apologize for what was taken as an offensive remark. I apologize. It was not meant to be offensive. It is a true occurrence that occurred. Fortunately, solicitor-client privilege forbids me from saying anything about it other than that it occurred, because it did, and it is a serious and continuing trauma to that young woman.
However, I do apologize, colleague in the profession, for the offence taken. I accept that it shouldn't have been put forward in that way. I apologize; it was made to make a point. And the point was that solicitor-client privilege, including matters of intimacy, is important and should be protected. But I apologize for the offence taken. None was intended, I assure you.
I pass to my colleague, Mr. DelBigio, in regard to clause 11.
Mr. Greg DelBigio: In attending today, we have assumed familiarity with the bill, so a specific reference to clause 11 or any omission was not intended to be deceptive. We assumed that you're all familiar with that. It is there of course. It refers to privilege.
But the Canadian Bar Association takes the position that the inclusion of this provision is not good enough. Privilege and confidentiality must both be recognized. Confidentiality of course is broader than privilege.
The second concern is that even with clause 11 there is going to be, as of necessity, uncertainty at times as to how privilege operates. Those of us who have ever had to deal with an issue of privilege will be well aware that it can be complicated and it's rarely straightforward.
There are penal provisions within the bill. There is a possibility of overreporting. In other words, if a lawyer is uncertain as to whether or not something is privileged in the face of possible penalty for failure to comply, there's a risk that the lawyer will err on the side of reporting rather than not reporting. It would be very useful if there was a mechanism by which a lawyer who is uncertain with respect to a privilege claim could attend before a judge or some other forum in advance to have that privilege issue determined. In that way the outcome is determined through a proper hearing and independent authority, and it eliminates uncertainty. It lets a lawyer know that he or she is truly authorized in making the disclosure that is being requested.
The final point I would like to make is that the recommendations of the CBA do not undermine the objectives of the bill save for one point. Because lawyers are presently captured by both their codes of professional conduct and the Criminal Code, lawyers are already not permitted to engage in money laundering. The only objective of the bill that would not be furthered if lawyers were excluded is the collection of information. It only means that one piece of information, that being the information from lawyers, will not come forward. The bill would otherwise operate in its normal way and the objectives of the bill would not be undermined or threatened in any way whatsoever. So our proposals do not do damage to the objects of the bill.
The Chair: I have three names: Cullen, Szabo, and Gallaway.
Mr. Roy Cullen (Etobicoke North, Lib.): Thank you, Mr. Chairman.
Thank you for all the witnesses and to Mr. Comley for coming all this way.
I have a few questions for Mr. Comley, and then I'd like to come back to the privilege issue. I'm not a lawyer, but I would like to come back to that.
Mr. Comley, this bill defines certain transactions as being de facto reportable over a certain amount, and then other transactions will be a judgment call in terms of whether they're of a suspicious nature. Do you have such an arrangement in the United Kingdom, where certain transactions are de facto reportable and then there are others that would be seen as suspicious and would need to be reported as well? How do you actually define that in the U.K.?
Mr. Martin Comley: There is no de facto reporting. The closest you get to it is out of the European Union directive that is reflecting our money-laundering regulations, which talks of ECU limits, which means certain actions should then be taken. It doesn't then mandate that it's particularly suspicious and necessary for reporting to us. Ours is purely a suspicion-based reporting regime.
Mr. Roy Cullen: So your criterion, then, is solely that if a transaction appears suspicious, then it would be reported as defined or as best one can judge?
Mr. Martin Comley: Correct.
Mr. Roy Cullen: The other question has to do with how this bill focuses on financial intermediaries. There's been some discussion that perhaps it should be expanded to retailers, for example, and to make it broader than financial intermediaries. I'm wondering what your experience has been in that particular domain and what your advice would be.
Mr. Martin Comley: I have a two-part answer. First, our primary legislation covers all people, whether you're a retailer, a lawyer, or whatever else. In answer to that they're already covered.
The second part of the answer is that the regulations stipulate that there should be systems in place in certain institutions, so having systems heightens the level of awareness inside that institution. And that's primarily directed toward the financial sector. There is debate within the European Union at the moment on the second money-laundering directive that looks at these similar issues, as to whether you should enlarge this to these greater sets. That it is a very interesting concept is my honest answer to it. However, I'm not sure how you enforce it. The debate has been, is it a jeweller you're directing this toward? If it is, who will regulate the jeweller? Should it be reflected in the reporting regime, i.e., that they should report, or is it that you're asking them to have systems? We already ask them to report, we just don't ask them to have systems.
I don't know if there's a direct answer for your second question. I'm not sure that by taking this too far away from the main financial sector you can actually have an infinite amount of success in it, because if you can't police it, what is your objective when you set out to do it? I'm not saying that you can't do it in all sectors.
For me, money transmission is an unpoliced sector at the moment. But it is of high concern to us, so we would devote a lot of resources to policing that sector in a different way.
Mr. Roy Cullen: Okay. Thank you.
The agencies and centres are different, and you described yours. One of the issues the committee was asking about this morning was the kinds of resources needed to adequately install a centre and the magnitude of that effort. Can you give us any advice on that at this point?
Mr. Martin Comley: I could bluntly say to resource it properly. It is the greatest criticism that has been levelled against us in how we've gone about this. When I started in the unit, there were five staff members. Some years later, we now have 27. As this year goes on, that is likely to double in strength. That's bearing in mind that I have the resources of the rest of the National Criminal Intelligence Service to draw on, from within its tentacles. So there's quite a vast organization. With that you also need correct IT resources to do the job properly, because you don't envisage your centre or mine to be a post box. They should be doing something more toward it.
Mr. Roy Cullen: Okay. Thank you.
I said I would come back to the privilege issue. Mr. Comley, in the United Kingdom, if someone comes into a lawyer's office or an accountant's office with, let's say, an amount or a transaction that appears to be suspicious, is the lawyer or accountant required under your law to report that to the centre?
Mr. Martin Comley: Yes.
Mr. Roy Cullen: I'd like to come back, if I may, to the Canadian Bar Association. First of all, as my colleague pointed out, the act does respect solicitor-client privilege. But isn't it acknowledged that for activities around trust accounts the question of privilege is not the same as for other types of activities?
I'm reading a 1985 report of the Ontario Canadian Bar Association, which says:
Some lawyers mistakenly believe that whatever
they do, and whatever they are told, is privileged
merely by the fact that they are lawyers. This is
simply not the case.
They go on to talk about trust accounts being part of the activities that are not covered necessarily by privilege. I'd like you to comment on that.
Mr. Greg DelBigio: First, the report you have referred to is a 1985 report from the Ontario CBA. It does not reflect the official position, then or now, of national... Our position is as set out in the recommendations we made today.
Second, while it might be that certain aspects of a trust account are not privileged, it's important to take a broader perspective. In order to determine suspicion, it might well be that sometimes questions have to be asked. It might be that without an inquiry there is not going to be suspicion, but a lawyer might nonetheless feel inclined toward making an inquiry in order to determine whether or not the suspicion exists. It's the questions and answers of that inquiry in order to determine whether or not there's suspicion that might well be and would be privileged.
So it is not the simple matter of a deposit into a trust account that we can limit ourselves to in considering the issue. It's much broader. Who is the person? What is his or her occupation? What is his or her source of income outside of the occupation? How long has he or she participated in that occupation? It's questions such as those that will give rise to or eliminate suspicion.
The Chair: Thank you, Mr. Cullen. Do you have another question?
Mr. Roy Cullen: I have a lot of questions, but I'll defer to my colleagues, and if we have a chance, I'll come back.
The Chair: Okay.
Mr. Paul Szabo (Mississauga South, Lib.): Thank you, Mr. Chairman. Mr. Cullen is a CA, and so am I, and we have a lawyer over there and another lawyer there, so now we're balanced.
The Chair: Good. Thank you, Mr. Szabo.
Voices: Oh, oh!
Mr. Paul Szabo: The brief from the CICA was interesting to me because it did raise probably the one aspect that really is a theme in a lot of the testimony, and that has to do with what constitutes a suspicious transaction, the definition. I suspect that around the table we could find all kinds of frustrations to a definition. It's almost like trying to nail Jell-O to the wall. It just isn't going to happen.
But I'm intrigued by the debate about the role or the positioning of lawyers and accountants. It seems to me that in the over 30 years I've spent in either public practice or corporate life, lawyers and accountants can occupy almost any position at any time. It's not just auditors and people in court. They can be agents, advisers, or consultants. They can be involved directly in financial transactions. They can hold absolutely any position possible and still be part of a firm or acting in the capacity as a professional.
Given that that's the case, and given that both professions have codes of conduct in which reports would have to be made to their bar or to their institute, is there a parallel there that has to be taken into account, that there is a reporting requirement in place professionally? Should it not also apply with regard to at least some of the activities of both professions as it relates to this legislation?
Mr. Ian Murray: From the accounting profession's point of view in the legislation, you're exactly right. As accountants, we get involved in numerous ways in business, not just in a professional way. A very large percentage of our members are involved outside the profession in business. It's for this reason that we are concerned with the scope of the legislation and see a need to have the legislation make it very clear that the scope is in fact only aimed at those who are involved in specific financial transactions, and not those who are peripherally involved, either in the profession advising or outside the profession.
So that's our main concern as accountants responding to this proposed legislation, to narrow the scope so it's very clear that it relates only to those who are directly involved in financial and intermediary activities. Beyond that, our responsibility under a professional code of conduct is that we are required to respect confidentiality. However, if there's legislation that overrides, that does require us to report, then we are required to comply with that legislation.
Mr. Paul Szabo: With regard to one of your principal recommendations, about a definition of suspicious transactions, maybe we'd better find out whether or not there's any consensus here. You haven't suggested one. You certainly made it clear that there should be a definition. Are you aware of a definition in another jurisdiction, or are you prepared to suggest a criterion or two that would be included in such a definition?
Mr. Ian Murray: We are not aware of a definition we could just pick up and use for purposes of this legislation. In our discussions throughout this process and in our discussion paper submission, we've suggested that we would be pleased to be involved in consultations on this issue.
As Mr. Comley has indicated in his presentation, this is a very difficult issue to articulate clearly and on which to establish criteria that will result in consistent reporting. It's going to take a lot of time and experience, I believe, to get to a definition that will be workable.
Mr. Paul Szabo: I have one last question, and maybe Mr. DelBigio can help me. I appreciate what he believes to be the position of the legal profession. What would happen if a lawyer, in discharging his or her responsibilities as a lawyer, does in fact become aware of a clearly suspicious transaction under any definition? In terms of reporting either to the bar or to the authorities, is there anything...
Mr. Greg DelBigio: Right now?
Mr. Paul Szabo: Right now.
Mr. Greg DelBigio: There is a prohibition upon any reporting except if the information a lawyer comes to be in possession of indicates that there is going to be imminent bodily harm.
Mr. Paul Szabo: Just to follow that, if you had personal knowledge of a colleague, another lawyer, who had been involved in an action you believed to be... Maybe you didn't have absolute proof or it wasn't established in law, but you suspected or believed it to be... Is there obligation on your behalf, under your professional rules of conduct, to report that lawyer to the bar for follow-up on the allegation?
Mr. Greg DelBigio: I stand to be corrected, but I am not aware of such an obligation in British Columbia.
Mr. Eugene Meehan: In Ontario there is. If one is of the belief that a colleague in the profession has committed professional misconduct, there's an obligation to report that individual to the bar. The bar will deal with it appropriately, including taking that matter to the authorities.
Mr. Paul Szabo: And the CICA?
Mr. Ian Murray: Within the provincial institutes, certainly those in Ontario and I believe most of them throughout Canada, we do have a similar requirement to that of the lawyers in Ontario. You'd be required to report it to the institute.
Mr. Paul Szabo: Thank you.
The Chair: Thank you, Mr. Szabo.
We'll now go to Mr. Abbott.
Mr. Jim Abbott: I'll try to be very quick here.
First, the witnesses should realize that it's not normal... It happens from time to time, but it's not a normal practice that a piece of legislation will come to the House of Commons and be passed from the House of Commons on second reading, which is agreement in principle, on division—in other words, without a vote. To my mind—and I think my colleagues might agree—that basically says that the persons elected by the people of Canada have said we want to see this kind of legislation in place. So there is a very strong mandate for this legislation to be going forward.
If it were to go forward, therefore, with the exception for the bar, please explain this to me why, if I were a person of nefarious means, would I ever choose CGAs or CAs to conduct my professional activities. I might have something sufficiently hidden that it wouldn't contravene the bar rules and so on and so forth. Why would you guys not be the agents of choice of people of nefarious means? It's a loophole big enough to drive a Kenworth through.
Mr. Greg DelBigio: I don't think my faith in the integrity of the profession is improperly founded. I don't believe there would be a vacuum such that people would go to lawyers and have lawyers then facilitate criminal transactions on their behalf.
First of all, it presumes a body of knowledge that would be disseminated amongst a suspect community. Even if that dissemination of knowledge does occur and people do flow to lawyers, the presumption is that lawyers might then engage in these transactions. There's no evidence to suggest they will or they have. The transactions, if suspicious, would be stopped at the doorway of the lawyer's office.
Mr. Jim Abbott: Then why shouldn't we also exempt the accountants, the CAs and the CGAs? They're a professional body.
Mr. Greg DelBigio: Well, it's not just the codes of professional conduct. While the codes of professional conduct overlap, the law has very clearly and for many years, not just in Canada, recognized the relationship between lawyers and clients as being different from the relationship between accountants and clients, doctors and clients, or many other professions and clients. It is recognized as a privilege in law, which is different from the relationship that exists for other professions, and that's an inescapable legal factor that needs to be taken into account.
Mr. Jim Abbott: I'll go on the record as having listened to your answer and remained skeptical.
Mr. Greg DelBigio: I'm sorry to hear that.
Mr. Jim Abbott: Thank you.
The Chair: Is that your final question?
Mr. Jim Abbott: That's it.
Mr. Richard Marceau: Is that your final answer?
I'll be very quick, since the briefs were only given to us when you arrived. At least, that's when I got them. Do you believe, Mr. Comley, Mr. Murray and Mr. Meehan, that there should be in the bill a description of the reasonable grounds to suspect that some transactions are related to the commission of an offense? Do you think that should be defined, either in the legislation, or in the regulations?
Mr. Eugene Meehan: I'll answer first. We need to have a universal exemption in the legislation and also to add that the confidentiality is secured to protect our clients, to protect Canadians.
Mr. Richard Marceau: I understand that, but what are reasonable grounds? It's rather vague. Do you think we should say that reasonable grounds could be a, b, c or d, to at least give...
Mr. Eugene Meehan: We have a problem with the terms "reasonable grounds" because it's a standard expression used in criminal law.
Mr. Richard Marceau: I see.
Mr. Murray, it's up to you.
Mr. Ian Murray: We strongly believe the criteria and guidance established for suspicious transactions should be embraced and documented in the legislation.
Mr. Richard Marceau: Okay.
Mr. Martin Comley: I have to go with the U.K. model for my answer, and that's in the guidance notes. If you seek to put it in the legislation, I'm not sure how long your legislation would be and how you'd have to amend it. That's the dilemma we've always come up against.
Mr. Richard Marceau: Merci.
The Chair: We'll go back to you, Mr. Cullen.
Mr. Roy Cullen: Thank you, Mr. Chairman. I'll be brief.
First of all, I understand the issue around CAs or CGAs involved normal accounting or audit work and that they might come across a transaction that looks suspicious, but the intent of this bill is only to capture those situations where accountants, CAs or CGAs, would be involved in a transaction. I know the department has been indicating that to you, and if it's not clear from the legislation, maybe we need to deal with that in the legislation or quickly provide the regulation.
Coming back to the Canadian Bar Association for a moment, Mr. DelBigio, you talked about, let's say, an initial encounter with a client or a potential client who has brought in a lot of cash. If this law is enacted, there will be certain prescribed amounts over which it will be obligatory to report. So what would stop a lawyer at that point from saying “Do you realize that if you give me this money to put in a trust account, I'll be obliged to report it, and I may not even have to tell you when or how or whatever?”
By the same token, if someone comes in with $100,000 in cash, and there are some suspicions in your mind, what would prevent a lawyer from saying “Do you realize there is this act in place whereby, if I ask you some questions and after that I have suspicions, by law I'm obliged to report it?” What would be the great hurdle in doing something like that?
Mr. Greg DelBigio: I don't think there's a great hurdle. Indeed, if this passes, I think it would be a lawyer's obligation to advise a client or a potential client in that way.
Having advised the client or potential client of that fact, it is nonetheless inconsistent with the relationship as it presently exists to report upon a client in a manner that might well have penal consequences for the client. That is simply inconsistent with the lawyer's obligations to his or her client as they presently exist. So advising the client of the first step does not erase the damage that would potentially flow from the subsequent reporting.
Mr. Roy Cullen: I'm sure we could pursue this question at some length, but I—
The Chair: Please do. I'm kind of interested.
Mr. Roy Cullen: I must say I don't quite follow that. Given that, the client at that point has some decisions to make and the lawyer has made it pretty clear what's required. If they're not guilty of a money-laundering offence or will not be, then presumably they'd say “I have nothing to hide, so let's go to it.” If they are concerned about the act they will commit or are about to commit, then presumably they'd be more guarded and they'd enter into an arrangement where they absolutely know the rules.
Mr. Greg DelBigio: A client might walk out the door, and that—
The Chair: You'd report him then as well, right? If somebody walked out the door after you said you might have to report them, an alarm bell should go off, shouldn't it?
Mr. Greg DelBigio: One of the questions in the interpretation of clause 7 is that if consultation of that sort constitutes financial transactions... It seems to be limited to the financial transactions. I don't know if clause 7 would capture that sort of initial consultation or not.
Again, it is that uncertainty of interpretation that might well cause a lawyer to decide to err on the side of saving their own skin and make the report. It causes a lawyer to be, on one hand, trying to serve the interests of a client or a potential client, or determine whether or not interest can be addressed within law, and also protecting his or her own interests.
The Chair: In fairness, I wasn't trying to be humorous there. If that were to happen to you, if Mr. Y were to approach you with $50,000, $100,000 or whatever, you would probably say “Look, I may have to report you, because I'm kind of suspicious about this.” What would you do, responsibly? Would you in fact report this person or not?
Mr. Greg DelBigio: Well, I think the fact of a large amount of cash, coupled with more information, might well give rise to a suspicion. It might even give rise to something stronger than a suspicion. But as I read it, mandatory reporting of suspicion is to occur for every financial transaction.
I don't mean to answer your question with a question, but one of the questions is how clause 7 is to be interpreted. It is certainly the case that the lawyer should tell the individual that he or she cannot handle their case. The lawyer cannot accept that money as a retainer or as part of a business transaction.
Ms. Sarmite Bulte: I think you can accept it as a retainer, can you not? Cash on account of fees is exempt under the regulations. One of the ways around it would be for someone to come and say “Here's $100,000 on account of fees”, and it's a non-reporting requirement.
Mr. Greg DelBigio: It is true that fees are exempt, but that kind of transaction might well be captured by the existing provisions of the Criminal Code. That might well constitute money laundering, and indeed I would argue that it would.
Ms. Sarmite Bulte: But isn't the bank going to catch it anyway, whether you report it or not, when you put that $100,000 into the bank or if you, let's say, put $9,000 in one trust account, $9,000 in another trust account, and you have 10 trust accounts all with whatever? At some point, some other financial institution is going to catch that, whether you report it or not.
Mr. Greg DelBigio: Maybe, and hopefully. And if that is so, if the information is otherwise going to be gathered, then there is no reason to require that lawyers be gatherers and disseminators of information.
Ms. Sarmite Bulte: Okay.
The Chair: Mr. Szabo.
Mr. Paul Szabo: Just to get this straight, and maybe Mr. DelBigio could advise lay people, when does a client become a client with regard to lawyer-client privilege?
Mr. Greg DelBigio: The privilege and confidentiality is triggered as soon as the communication occurs, as soon as a person is seeking legal advice and that communication occurs for the purpose of attaining advice and within the structure of their relationship. Your talking to a lawyer in passing about baseball scores is neither privileged nor confidential. Your going to a lawyer's office and seeking advice with respect to a business transaction—and you're going to that lawyer because he or she has expertise within that area of business—is very clearly both privileged and confidential.
Mr. Paul Szabo: So it doesn't have anything to do with fees. It could be pro bono as long as it's legitimate legal business.
Mr. Greg DelBigio: Yes.
Mr. Paul Szabo: Then on that basis it means that in your view, or at least in the position of the bar, everything lawyers do is subject to lawyer-client privilege and therefore should not be covered or captured in any way by this bill.
Mr. Greg DelBigio: No, it is not every communication. It might be that every communication is confidential, but not every communication is privileged.
Mr. Paul Szabo: I have a last question. With regard to the question I asked earlier, is there any event you could see occurring related to a financial transaction whereby you could imagine that a lawyer would be in a position... and the legal profession would agree that it should be reported where it was suspicious or in fact appeared to be illegal?
Mr. Greg DelBigio: No, I think the considerations of privilege and confidentiality demand that there be no report, but also that the lawyer not participate in the transaction. Once again, all the CBA is asking is that the lawyers not be required to pass the information along. Lawyers are not going to participate in the transactions, and they cannot.
The Chair: Mr. Cullen.
Mr. Roy Cullen: Thank you, Mr. Chairman.
Not to belabour this, but to come back to Mr. Comley, if I may, switching gears from client-solicitor privilege, the way this bill is struck, first of all, there's a reporting requirement to the centre. If the centre, by collaborating with other information... was of the view that there was a suspicion of money laundering, they would pass certain high-level aggregated information to the police. If the police then, using a lot of tools at their disposal, came to the conclusion that, yes, they concurred and in fact they had a strong suspicion but they'd like more information, under our law they actually have to go to a judge and get a court order to require the centre to give additional information. And this is designed that way to deal with privacy concerns.
How does it work in the U.K.? I know you are independent, and yet you're aligned or attached to the police forces in the U.K. How would that work in the U.K.?
Mr. Martin Comley: There are similar provisions, except they wouldn't be coming to me for the information, because the information on which the suspicion is based is held by an institution, whether it be the bank, lawyer, or anybody else. And then they would equally have to go in front of a judge and satisfy the judge that an order or warrant was necessary in order to bring that material available, so that institution would be compelled to bring forward that material.
Mr. Roy Cullen: So in practice in the U.K., then, what has happened, what's happening, or what does happen is that the police go directly to the financial institution and not necessarily to your unit for a court order.
Mr. Martin Comley: Correct. They go directly to the judge. It must be a circuit judge, not a lower court.
The Chair: I have a final question for you, Mr. Comley. Looking at page 4 of your handout, you have “suspicious disclosure made to NCIS”. You went from 600 to 14,500, with an all-time record in 1996 of 16,125. Are economies of scale kicked in with these cases in the sense that... I mean, you've only doubled your staff since 1967, is that correct?
Mr. Martin Comley: Yes, roughly.
The Chair: That's quite a caseload, isn't it?
Mr. Martin Comley: Absolutely, and the office is currently suffering a backlog at the moment. We're devoting what could be considered a huge amount of resources too, compared to the size of our organization. That's why I can accurately predict that in our next budget for the organization we will be looking to increase our staff. That has already been discussed at directorate level. We're not adequately staffed to undertake the function for which we are set aside.
The Chair: That's good. When you look at the staff you started with, it's phenomenal that you can deal with all these cases.
Mr. Martin Comley: We're not doing the investigation. We'll be somewhat like the centre. We're only doing an assessment of those, and passing them on to the correct investigative body.
The Chair: But still... okay. That's the question again.
Ms. Albina Guarnieri (Mississauga East, Lib.): Mr. Chairman, just to piggy-back on your point, this is for the criminal lawyers' association.
In your brief, you mentioned that you're trying “to address a problem that we believe reflects a relatively minor portion of business activity in Canada”. How would you substantiate this observation?
Mr. Greg DelBigio: Nothing that I have seen demonstrates or suggests that lawyers are, in any widespread way, either as a profession or individually, engaged in money laundering.
Ms. Albina Guarnieri: So you're simply offering a personal observation rather than a—
Mr. Greg DelBigio: No, I have looked at reports, I have looked at the data, and nothing I have seen proves it.
Ms. Albina Guarnieri: You have solicitor-client privilege, so lawyers wouldn't be sharing or pooling their information.
Mr. Greg DelBigio: Lawyers would not be pooling their information, but as I think Mr. Comley would be able to indicate, the police have very effective ways of watching and listening to and determining who is doing what. One source of data is simply arrests or charges or convictions. Precious few lawyers have become ensnared in prosecutions, and that is a very effective data source.
Ms. Albina Guarnieri: But that's essentially an assumption on your part.
Mr. Greg DelBigio: No, it's not an assumption. That's based upon data for all of us to see.
Ms. Albina Guarnieri: So then it wouldn't be a big problem if this bill were to become... It wouldn't put lawyers in an awkward position, then, if it's a relatively minor problem.
Mr. Greg DelBigio: No, it would put lawyers in a very awkward position. Although there is no evidence to support any contention that lawyers are engaged in money laundering, on a day-to-day basis lawyers receive information that is privileged and confidential, and this would compromise that. It would be very awkward.
Ms. Albina Guarnieri: Thank you.
The Chair: Thank you, Ms. Guarnieri.
On behalf of the committee, I'd like to thank you very much.
Mr. Comley, once again, thank you very much for making the flight to Ottawa. We certainly appreciate your input.
You've all given us something to think about, lawyers and all. We'll have decisions to make in the very near future, and we want to thank you.
Mr. Greg DelBigio: Mr. Chair, if I might make a final comment, the Canadian Bar Association would like to thank you for the opportunity to be present today. To the extent that further input might be useful, we would invite that opportunity.
The Chair: We'll take you up on that. Thank you.
The meeting is adjourned.