Thank you, Mr. Chairman.
Allow me to briefly introduce my colleagues: Glynnis French, Deputy Director, Strategies and Partnerships; Peter Bulatovic, Assistant Director, Tactical Financial Intelligence; and Yvon Carrière, our Counsel.
I'm very pleased to have the opportunity to make some opening remarks about FINTRAC and what we do. I will also say a few words about why the provisions set out in Bill are important to FINTRAC and to Canada's overall anti-money-laundering and anti-terrorist-financing efforts.
Following my brief remarks, I will ask Mr. Bulatovic to speak even more briefly to an example of a sanitized FINTRAC case disclosure. I think an illustrative case is perhaps the best way of showing how our intelligence product can capture the complexity of money laundering.
FINTRAC was created by the Proceeds of Crime, Money Laundering, and Terrorist Financing Act as an independent agency, and we are required to operate at arm's length from entities to which we can disclose information. I will touch upon the reasons for those arrangements a little later on.
FINTRAC is Canada's financial intelligence unit, or FIU. Our mandate is to analyze financial transaction information that a wide range of financial reporting entities are obliged to report to us. Upon analysis, and if there are reasonable grounds to suspect that information we have received would be relevant to an investigation of money laundering or terrorist financing, FINTRAC must disclose certain portions of that information to the police or to CSIS for investigation. In short, we provide financial intelligence leads to law enforcement and national security investigative agencies.
It's also worth noting what FINTRAC is not. We are not an investigative body and we do not have powers to gather evidence or lay charges. FINTRAC does not investigate or prosecute suspected offences. Instead, we are an analytical body that produces financial intelligence to be disclosed, if appropriate, to help further investigations conducted by law enforcement and security agencies.
On a day-to-day basis, FINTRAC receives reports on several kinds of financial transactions from financial reporting entities. We analyze these data in combination with information from other sources, such as law enforcement databases, commercially or publicly available databases, and sometimes, information from foreign financial intelligence units.
What we specifically look for are financial transactions or patterns that don't quite pass the sniff test and that give rise to suspicions of money laundering or terrorist financing. As you can imagine, the movement of illicit funds is often a well-hidden and complex affair involving hundreds of transactions as well as dozens of individuals and companies. Using state-of-the-art technology and excellent analytical skills, our analysts piece together the information and create a comprehensive picture of money flows. We draw a map that police or CSIS can use to examine the money flows and the suspected criminal activity.
Although we are required to operate independently and at arm's length from the police and CSIS, our objective is to support and facilitate their work by providing intelligence leads to them. We are one element in a larger constellation of organizations whose collective purpose is to combat money laundering and terrorist activity financing. Other elements include police at the federal, provincial, and municipal levels; security agencies; prosecutors; and the courts.
FINTRAC is situated near the front end of the process, and the information we provide is intended to assist other agencies to achieve the broader objectives of the act.
I'm pleased to say that the regime that has been put in place here in Canada is working. It's robust and successful and is widely recognized as such internationally.
I'm also pleased that FINTRAC makes an important contribution to that success. As we indicated in our annual report tabled a month ago, in 2005-06 we produced 168 case disclosures of suspect financial activity involving more than $5 billion in transactions. In fact, since FINTRAC began its operations five years ago, we have made a total of 610 case disclosures involving transactions valued at $8.2 billion.
The scope and complexity of our disclosures have also grown dramatically over the past few years, from an average of $3 million per case in 2003-04 to $30 million per case last year, and about 10% of our cases last year each involved transactions well in excess of $50 million.
Some 32 domestic law enforcement agencies and 10 foreign counterpart organizations have received disclosures from FINTRAC. I'm gratified that more and more financial intelligence contributed by FINTRAC is being reflected in investigations, charges, and prosecutions.
I'd also like to say a few words about the protection of privacy.
Our act was carefully crafted to provide the highest possible protection for personal information, while also making it possible for some information to be disclosed to law enforcement to facilitate the detection and deterrence of serious criminal activity.
The protections begin with the very nature of the institutional arrangements that establish FINTRAC as an independent and arm's-length entity that receives and analyzes reported financial transaction information and can only pass on such information if particular tests are met.
The information we hold cannot be accessed by any other outside body, except by a court-granted production order, and the act provides for serious criminal penalties to be applied to the unauthorized disclosure of information.
Our mandate entrusts us with a considerable amount of personal information from individuals and businesses across this country. Protecting it is a responsibility we take very seriously.
Members of this committee have expressed some concerns about the potential impact of the legislative changes on upholding privacy rights. I want to assure you that I share your preoccupation with privacy protection and firmly believe that safeguarding personal information is and must be the cornerstone of any effective regime.
Canada has a strong anti-money-laundering and anti-terrorist-financing regime in place, and we can be very proud of it, but we cannot rest on our laurels. Methods used to launder money are constantly changing. International standards that all countries are expected to meet are also rising. Adjustments are necessary to the legislative framework to keep pace with these changes.
In this regard, I want to note that there are three key thrusts to the proposed legislative package that are of importance to FINTRAC. They are: expanding the coverage of the act to new entities and professions; strengthening the deterrence provisions of the act; and expanding the range of information that FINTRAC may disclose.
will expand the coverage of Canada's anti-money-laundering/anti-terrorist-financing regime by bringing additional business sectors within the ambit of legislation and regulations; for example, dealers in precious metals and stones, and lawyers. These sectors have an identified vulnerability to money laundering, and their inclusion will strengthen Canada's efforts to combat both money laundering and terrorist activity financing.
Second, the bill will strengthen the deterrence component of the regime by creating a registry for money service businesses and establishing a system of administrative monetary penalties. These proposed measures will improve compliance with the reporting, record-keeping, and client identification provisions of the law. This will not only contribute to FINTRAC's analysis, but will greatly strengthen the general deterrence of money laundering and terrorist activity financing.
Third, will make it possible to enrich the intelligence product that FINTRAC can disclose to law enforcement and national security agencies by including some additional information in our disclosures while at the same time continuing to scrupulously protect the privacy rights of Canadians. This would respond to the needs of law enforcement and make FINTRAC's core product even more useful to them.
In conclusion, FINTRAC is very supportive of the amendments proposed in , which will ensure Canada's anti-money-laundering and anti-terrorist-financing regime remains strong and effective well into the future.
Thank you. I'd now like to ask my colleague, Peter Bulatovic, to give you a very quick presentation of a sanitized case that shows the work we do, how we do it, and what the results are from it.
Now, Mr. Chair and members, I'd like you to look at the first chart, entitled “Business Process Flowchart - FINTRAC”, which you have in hand. I'll briefly describe the chart, which will make it possible to summarize the information we receive and to explain who we receive it from, before focusing on the way we conduct our analyses.
I'd like to draw your attention to the left portion of the chart, in the box entitled “Receiving Information”.
We start with financial transactions, including deposits and fund transfers, when they are made by entities included in the list on the right, such as banks, savings and credit unions, foreign exchange brokers and casinos.
These entities must file reports with FINTRAC when they make electronic transfers to Canada or outside Canada, or deposits in the country of CDN $10,000 or more. They must also report dubious transactions, regardless of the amounts involved.
In the lower left corner, you see that we also receive reports of cross-border currency and monetary instruments of $10,000 or more, as well as reports of currency seizures.
Virtually all this information is forwarded electronically and entered in our data base. Our act also enables us to access information retained for law enforcement and national security purposes, as well as commercial and public access data bases.
We are also able to request information from foreign financial information units.
Lastly, any person may willingly provide us with information. Our partners at law enforcement agencies can also forward information to us on a voluntary basis.
How do we analyze that information? We very much rely on our staff and technology.
As regards technology, electronic reception of financial information enables us to use IT systems to sort reports and link financial transactions.
In the initial examination of these related transactions, we target trends in dubious financial activities and ask one of our analysts to pay special attention to them.
In developing a case, analysts look at partnership transactions. They then check the identities of individuals and businesses concerned by the transactions and the trends in dubious financial activities.
When an analysis shows reasonable grounds to suspect that the financial activity could be relevant to a money laundering investigation or the financing of terrorist activities, a report is prepared explaining the reasons for the communication.
I would now like to refer to the second graphic. It is what we call a link chart. It depicts a money laundering case.
This chart demonstrates our analysis of financial transactions and other sources of information that enabled us to link three separate clusters of suspect financial transactions into a larger financial network for investigators. These separate clusters are identified as boxes A, B, and C.
Let me begin by describing the activity in box A. A foreign financial intelligence unit advised FINTRAC of a money laundering investigation of four individuals and a business involved in wiring funds between a number of accounts within a bank in that foreign country. The individuals involved provided Canadian addresses and identification and were described as Canadian. The business would wire funds through several foreign countries, to and between accounts over which the Canadians held power of attorney. The FIU found this activity suspicious but had very little further information.
Upon receipt of this information, FINTRAC tasked an analyst to search our database for financial transactions to determine if there was any financial activity involving the individuals and the business identified. According to the financial transactions database, the company wired several millions of dollars to multiple companies in Canada, as can be seen on the chart between boxes A and B.
Searches of open sources conducted to obtain additional contextual information on the Canadian companies identified in box B yielded very little or no information. We found little or no information for the companies in the way of advertising, telephone directory information, or company websites. We were able to confirm that one of the companies was incorporated in Canada. However, the nature of the business was not identified and did not appear to justify the level of financial activity between the companies identified in boxes A and B.
Further analysis revealed a suspicious transaction report filed by a Canadian reporting entity on one of these companies. The reporting entity stated that the accounts were opened several years ago and were relatively dormant. The dollar value of the wire transfers received into the two Canadian business accounts suddenly began to increase. It further stated that over a short period of time, millions of dollars were wired to the accounts held by this business with no rationale as to why the increase occurred. Wires received from various foreign companies originated in a country with weak anti-money-laundering controls. In addition, the reporting entity indicated that the cheques were being issued from a foreign currency exchange and being deposited to the company's account, which was inconsistent with the company's business identified.
Several other companies were also found to be operating at the same address. Further, what is important, when the address changed for one of the companies, which occurred several times in the year, all the other companies followed suit with a change of address. Two of the companies shared the same directors and received wire transfers from the same country.
Our analysis then led us to another company, which enabled us to link the financial activity found in box C. It is this company, company 7 in the centre in the chart, that is key in our analysis of this case, and I will discuss it now.
A suspicious transaction report was filed on the company in box C involving the two Canadians originally identified by the foreign financial intelligence unit. The report stated that over a period of five months, two individuals received fourteen wire transfers from four different companies. Efforts had been made to contact the individuals, but the mail was returned unopened and the phone number provided was incorrect.
The reporting entity refused the receipt of several wire transfers. As a result, a male appeared at the reporting entity and claimed that funds were owed to him from his business overseas. When asked about the wires from the various foreign companies, he did not know the companies or why they were sending the payments.
It is unusual, indeed, that a customer would receive funds from multiple businesses and not know who these businesses were or why the funds were being sent.
We also received voluntary information from a Canadian law enforcement agency on the same two individuals. It was suspected that the individuals were using their personal accounts to launder proceeds of crime. As a result of our analysis, and all the information available to us, we suspected that the financial transactions identified in the chart would be relevant to investigation or prosecution of a money laundering offence.
The internationally recognized indicators of money laundering that follow were identified as applicable in this case.
In this particular case we had large and/or rapid movement of funds. We had large incoming wires on behalf of foreign customers with little or no explanation. We had unexplained disbursal of funds to multiple businesses. We had use of multiple accounts at a single financial institution for no apparent legitimate purpose. We had two ongoing investigations, one by the foreign financial intelligence unit, the other one by local law enforcement. We had reactivation of a dormant account where there was atypical business account behaviour.
If you look at the top right-hand side of the chart, you see that what was interesting in this case is that we were provided little information by the FIU when the information came in. In the bottom right-hand side of the chart is voluntary information from the law enforcement agency. Through analysis and looking at our records, we were able to identify the key company, which is company 7, in the centre of your chart, linking the three boxes.
Overall in this case, we received from eight different reporting entities in excess of 400 electronic transfer reports, several large cash transaction reports, as well as suspicious transaction reports. The case identified suspect financial transactions in excess of $21 million U.S. and $2 million Canadian.
Because of the very broad range of information that the act makes it possible for us to receive from reporting entities, it was determined at the original passage of the legislation that protections had to be built, so it would not be construed that there was a flow-through of massive amounts of personal information directed to law enforcement agencies. For that purpose, FINTRAC was created as a sort of intervening analytic body, and its responsibility is to analyze the information and make disclosures.
We are also allowed to receive voluntary information from any quarter, including from law enforcement. We are required to operate at arm's length from law enforcement, so that they cannot query us directly and say, please give us everything you have on Joe Blow. But they do provide voluntary information to us, saying, “Joe Blow and his sister-in-law Martha are the subjects of an investigation for drug trafficking and money laundering, and we just thought you should know that.”
This information is then part of the information holding, against which we analyze and check all our data. If there is a connection or a hit, that would then trigger a further investigation to determine whether the information we have is relevant to their investigation, in which case we are then required to disclose certain identifying information about transactions, parties to the transactions, and so on.
So it's not actually fully random, but we cannot be directed by law enforcement agencies, yet we are kept informed by law enforcement agencies and other bodies. We receive in the neighbourhood of 600 voluntary information reports per year from a variety of sources, and probably 70, 80, or maybe 100 of those ultimately figure into the disclosures we make.
Not all of the voluntary information that comes to us is relevant to the information we hold, or we're not able to make a connection with it, or we don't hold the information on it.
We can also disclose spontaneously. We don't need to rely on voluntary information from any other source, but we do receive voluntary information, and it often figures in our cases. So we are able to make disclosures that link to the investigative priorities of the police.
Let me describe the process we go through in determining whether we will establish a memorandum of understanding for information exchange with another organization.
We undertake a fair bit of due diligence. We look at questions of integrity and corruption. We look at whether the entity has the capacity to protect information physically if we provide it to them. We look at whether they have the legislative capacity to provide protection if we share information with them. If we satisfy ourselves that those things are in place, then we will undertake to negotiate an MOU. In the MOU we expressly have provisions that require that the information be protected and that it not be further disclosed without our prior concurrence.
This is what is called in the jargon the third-party rule. Intelligence organizations, law enforcement organizations, and financial intelligence units subscribe to that as the basis on which information is exchanged, whether or not they have MOUs in place.
In our case, we expressly state it in the MOU, and periodically we will also have bilateral sessions with FIUs with whom we have exchanged information, partly to get feedback on the usefulness of the information, but partly to inquire and to satisfy ourselves that the information is being protected and is not being passed on to any other parties without our concurrence.
In some cases, we might make a disclosure to a financial intelligence unit that a month or two later might come back, tell us that this particular police organization or this particular prosecutorial office would be interested in this information, and ask for permission to pass it on. If the question were to be stated as broadly as that, we would probably say no, but if they could assure us that the investigation or the prosecution would be related to either money laundering or terrorism financing, then we would probably say yes, but in each case--
Not millions a day, but there are millions a year. There are about seven million a year of those transactions reported, and similarly about seven or eight million wire transfer reports of $10,000 or more.
We've invested quite heavily in technology, and we've trained our analysts very extensively. Through a combination of those efforts, we are able to sift through a lot of that information to match it, contrast it, look for anomalies, and so on.
Of course, our work is easier if there has been a suspicious transaction report filed. Then there's already a basis for suspicion. Or if we have voluntary information from the police, it's easier. But in many instances, we discover these ourselves, even without others' reported suspicion.
There's also anomalous behaviour, and I'll give you kind of a hypothetical example to illustrate this. If a business purports to be an import-export business and it's regularly making wire transfers in and out of the country in sums that look reasonable in terms of invoice settlement—in other words, they're not rounded sums—they wouldn't attract our attention.
But if a business is identified, say, as a fast food franchise and it's making large cash deposits, this also is not unusual; it happens regularly. But if three or four times a month that same fast food franchise makes substantial wire transfers out of the country to Malaysia, Indonesia, Dubai, or somewhere like that, it would catch our attention. It would catch our attention in two ways. One is that this kind of transaction behaviour is not characteristic of that kind of business. The other is that the money is probably being transferred to jurisdictions that are either of concern to us in money laundering terms or have very poor money laundering controls.