I call this meeting to order. This is meeting number 111 of the Standing Committee on Finance.
Orders of the day are pursuant to Standing Order 108(2), continuing our study of tax evasion and the use of tax havens.
We're very pleased to have six witnesses before us this morning. From BMO Bank of Montreal, we have vice-president and senior consultant, Mr. Jean Richard. We have from the Canadian Imperial Bank of Commerce, Mr. Steven Blackburn, vice-president and chief anti-money laundering officer. From HSBC Bank Canada, we have Mr. Scott Bartos, senior vice-president and chief compliance officer. From RBC Royal Bank, we have Mr. Russell Purre, deputy chief anti-money laundering officer. From Scotiabank, we have vice-president Nanci York. From TD Bank Financial Group, we have the head of global anti-money laundering compliance, Carmina Hughes.
Welcome to all of you. Thank you so much for being here this morning. We will proceed in the order I introduced you. We'll have each witness present an opening statement of five minutes, and then we'll proceed to members' questions.
We'll begin with Mr. Richard, s'il vous plaît.
Distinguished members of the committee, Mr. Chair, on behalf of BMO Financial Group, I'm pleased to join my colleagues from other financial institutions to assist in your discussion of tax havens and tax evasion. As you know, my colleagues from the other financial institutions mainly focus on this issue from a perspective of Canadian and international compliance. I offer a different kind of expertise, which concerns our financial institutions wealth management advisory relationship with its individual clients who have domestic, national and sometimes international financial interests.
As you have already heard from the Canadian Imperial Bank of Commerce, the CIBC, and as you will hear from my other colleagues at the table, BMO, just like the other financial institutions, does not advise clients to fraudulently avoid the payment of tax, either in Canada or elsewhere. And of course, just like any other Canadian bank, we have policies and procedures that ensure that our employees comply with both the letter and spirit of the law they are subject to. My colleagues will be able to discuss that with you. That is why we believe it is important to tell you about the services we provide for our clients.
First, we are aware that as a financial institution, we must not give our clients legal or tax advice. We recognize that advice of that kind falls exclusively within the realm of the private practice of law and tax consultancy, a practice that is limited to lawyers and accountants. Only law firms and accounting firms may give opinions to their clients, be they private individuals, corporations or public organizations. We therefore never give our clients opinions on legal or tax matters. Our role relates to the management of our clients' high net value estates and focuses on matters relating to their family, protecting their lifestyle, investing for retirement, estate planning, business continuity, and philanthropy.
Our role is limited to identifying their needs and informing them about the difficulties and the rules and the strategies available in their particular situation. For each of these areas, tax issues are an unavoidable corollary to achieving maximum effectiveness. To that extent, our mission is to make sure that our clients are informed about the tax opportunities and risks they encounter and are therefore able to seek out the professional support that will enable them to improve their situation. It is inherent in my responsibilities to ensure that our clients obtain the advice they need in order to achieve their objectives effectively. This means that in my role at BMO, I bring together the knowledge and experience of our teams of experts to provide assistance to the bank's investment advisors, to help them create sound wealth management plans for their clients.
BMO's investment advisors don't just look at tax, of course. They draw on our resources, for the exclusive benefit of our clients, by tackling the questions we have described, in order to provide them with an integrated and multidisciplinary wealth management solution. This includes all aspects of managing, protecting and transferring wealth, investment strategy, insurance, estate planning, retirement planning, cash management, planned giving, powers of attorney, trusts and wills.
Our information includes the tax aspects. However, they are only incidental to the myriad of supports we offer our clients. We work exclusively within the laws that are in force and within the limits they impose. Our goal is to make sure that our clients are not the victims of bad advice or of the risky or improper use of tax rules. Our aim is always to protect our clients and not put their personal situation at risk, and thus destroy our relationship of trust.
This committee will know of the myriad of excellent programs that are in place to give Canadians the opportunity to be tax efficient within the fiscal policies decided by Parliament. The RRSP, for instance, has long been one of the most successful retirement savings tools ever developed in Canada. There are many other tools that operate alongside it.
BMO Financial Group is a strong supporter of the recent creation of new instruments that have the dual advantage of supporting Canadians who are saving for retirement, through tax relief, while helping to achieve an important social goal: financial security for our fellow Canadians in retirement. New tools such as the tax free savings account, or TFSA, the voluntary retirement savings plan, or VRSP, disability savings plans, and for some time now, education savings plans, have been added to the fiscal tools put in place to help achieve clear public objectives.
The function of our wealth management service is to make sure that our clients take advantage of the opportunities that Canadian tax policies offer and avoid the traps that can be hiding behind the shiny returns or the smoke and mirrors. Our function is to inform them and encourage them to explore the opportunities available to them with their legal and tax advisors.
At the international level, we also have to ensure that our clients do not fall into traps, whether because of double taxation when they hold assets or property outside Canada, estate taxes on their property if they have heirs who reside outside Canada, or any other complexity that arises when different legislation intersects, whether in relation to the personal nature of liability for tax, the economic basis of tax liability or conflicting rules. International tax advice is intended primarily to avert the dangers of double taxation.
The same is true for foreign nationals who invest in Canada...
Thank you, Mr. Chair, and good morning.
It's a pleasure to be with you this morning at this hearing of the Standing Committee on Finance. I commend you for undertaking this study on tax havens, which is clearly an issue for all members of Parliament.
My name is Steven Blackburn, and I am the vice-president and chief AML officer for CIBC.
As many of you know, CIBC is a Canadian-based financial institution. Through our three main business units—retail and business banking, wealth management, and wholesale banking—our 42,000 employees provide a full range of financial products and services to more than 11 million individuals, small businesses, commercial entities, corporate entities, and institutional clients in Canada and around the world. CIBC was recently named the strongest bank in North America, and the third strongest bank in the world by Bloomberg Markets magazine.
In my role I am responsible for all aspects of CIBC's anti-money laundering and anti-terrorist financing regime, including our AML program, our policies and standards, inherent risk assessment, AML training, effectiveness testing, and reporting to the Financial Transactions and Reports Analysis Centre of Canada, otherwise known as FINTRAC, as well as to law enforcement agencies.
CIBC has implemented procedures to ensure that all relevant regulatory obligations with respect to client identification and reporting of suspicious transactions, large cash transactions, electronic funds transfers, and cross-border movements of cash and monetary instruments are met in each jurisdiction in which we operate.
In addition to running CIBC's financial investigations unit, I provide advice to business units with respect to the application and interpretation of AML law, our policy and standards, and the application and interpretation of Canadian and American sanctions. I also assist individual business units with the development, implementation, and monitoring of policies and procedures under our AML compliance regime, including the regular testing of their effectiveness in partnership with CIBC's internal audit group.
I know that our appearance here today is a small part of your larger study, and I'm aware that the Canadian Bankers Association presented a broad-based financial services sector perspective to you a few weeks ago.
I look forward to answering your questions this morning, along with my colleagues, and I hope we're able to provide some clarity and useful commentary as you consider this important subject.
Thank you, Mr. Chairman.
Good morning. My name is Scott Bartos, and I am the senior vice-president and chief compliance officer for HSBC Bank Canada. I'm the senior executive responsible for the oversight of HSBC Canada's regulatory and AML compliance program.
Just to give you some context about HSBC, we are a Canadian chartered bank operating under Canadian law and regulated by the Office of the Superintendent of Financial Institutions. Our bank is a member of the global HSBC group, and a subsidiary of HSBC Holdings PLC, U.K., one of the largest financial institutions in the world.
HSBC Canada is currently the seventh largest Canadian bank with over 140 branches across the country and roughly 6,000 employees. HSBC Canada is a significant Canadian taxpayer, having paid approximately $252 million in federal, provincial, income, and capital taxes in 2012 alone.
Since my last appearance before this committee in February 2011, events have occurred that have reinforced the need to further strengthen our efforts to combat tax evasion and all other financial crimes. The entire HSBC group, including HSBC Bank Canada, is committed to implementing industry leading controls and best practices for combatting financial crimes and tax evasion.
As a whole, the HSBC group invests approximately $500 million per year to ensure regulatory compliance and combat financial crimes. In addition, the HSBC group has taken a new approach in the industry, and they have appointed, or established, a financial systems vulnerabilities committee, which will be advised by subject-matter experts in money laundering, terrorist financing, organized crime, and tax evasion.
Our anti-financial crime strategy can be described as deter, detect, and disclose. To successfully execute this strategy, HSBC Canada has instituted the following controls and safeguards: to deter, we have instituted controls to ensure that we've verified the identities of our customers and that we understand the intended purpose of their banking relationship with us; to detect, we monitor account activity to identify transactions that do not match usual patterns, or stated customer purposes—any transactions that appear unusual are subject to further review or formal investigation by the compliance team; and to disclose, we file suspicious transaction reports, large cash transaction reports, and electronic fund transfer reports with FINTRAC, the federal government agency. To give you some idea of scale, in 2012 HSBC disclosed approximately 725 suspicious transaction reports, over 96,000 large cash transaction reports, and approximately 600,000 electronic fund transfer reports. In addition, we cooperate fully with Canadian legal authorities with respect to any formal investigations they initiate.
While we're confident that these measures will help deter, detect, and disclose financial crimes and tax evasion, we must always be vigilant. To quote our HSBC group chief executive, Stuart Gulliver, “There is no finish line when it comes to combatting financial crimes. Money launderers, tax evaders, terrorist financiers continuously implement new means of abusing financial institutions. Their efforts represent a threat to the integrity of the global financial system, and to national security. We must always be one step ahead of them. As a steward of the global financial system, we must play a full part in protecting it. In doing so, we will work side by side with governments and regulators.”
I would like to thank the committee for the opportunity to be here this morning, and to share our observations on this important topic. I would be happy to answer questions in due course.
Good morning. My name is Russell Purre, and I'm the deputy anti-money laundering officer for RBC. Prior to this, I was chief compliance officer for RBC Dominion Securities, and head of wealth management compliance here in Canada and for Latin America.
While many of you know RBC because of our presence in Canada, you may not be as familiar with our broader organization, which obviously is of importance to your committee's study. I will take a few minutes to tell you about who we are and what we do from a global perspective.
We are Canada's largest bank, as measured by assets and market capitalization. We are also among the largest banks in the world, based on market capitalization. We are one of North America's leading diversified financial services companies, providing personal and commercial banking, wealth management services, insurance, investor services, and wholesale banking, all on a global basis. We employ approximately 80,000 full-time and part-time employees who serve more than 15 million personal, business, public sector, and institutional clients through our offices in Canada, the U.S., and 49 other countries globally.
Our international activities are predicated on client service and exploring business opportunities. To use the Caribbean as an example, we've been active in that region since 1864. We actually had branches in the Caribbean before we had branches in most parts of Canada. The reason for this was that we followed the trading activities of our clients as they sailed from our original headquarters, which was based in Halifax, to pursue business opportunities to the south. Those same client services and business considerations motivate our international activities now. We are looking for competitive opportunities to service clients in our key business lines, wherever they may be.
Our goal is to have a positive impact on the economies of the communities and countries in which we do business by delivering shareholder returns, creating good jobs, paying our fair share of taxes, and purchasing goods and services responsibly from suppliers of all sizes.
To this end, last year RBC helped create economic prosperity by providing good jobs to our 80,000 employees with compensation and benefits of approximately $9.3 billion globally, by paying taxes of $3.1 billion, and by buying 5.9 billion dollars' worth of goods and services globally from 36,000 suppliers of all sizes.
We provided loans, services, and advice to businesses and organizations around the world, enabling them to operate, build, and grow.
Our reputation for trust is the foundation of our relationship with clients and the reason for our success both at home and abroad. We go to considerable lengths to ensure that we do not undertake activities that would compromise this reputation, by conducting ourselves with integrity in everything we do, guided by our comprehensive code of conduct. All RBC employees are governed by this code, which reflects our fundamental values and provides the integral foundation for the way we do business. Based on eight guiding principles, it is for all RBC companies and for all our employees globally.
We work hard to uphold the principles, policies, and procedures that promote integrity and ensure compliance with applicable regulatory requirements. Of interest to this committee will be our activities in 2012 to update our framework for managing regulatory compliance risk. We recently updated our anti-money laundering framework and related policies, and we'll continue to ensure our policies and procedures are updated to comply with new regulatory requirements, industry developments, and business processes. In the area of taxation, we fully comply with all domestic and international regulations, and we have extensive internal risk management and governance controls in place.
For any type of account opening, we follow know-your-client rules. This is the case anywhere we do business globally. This includes beneficial ownership of the funds, source of wealth, and the purpose of the activity intended in the account. We do other background checks as well, such as running our clients against a variety of global AML lists and checking to see if they are politically exposed persons.
There is an RBC enterprise-wide baseline policy that drives information collection, which derives from OSFI and FINTRAC. This is closely monitored and tested by OSFI, and we are always improving standards and procedures.
On top of our baseline policy, we also apply local standards based on local regulations in the markets in which we operate. The regulatory standards of all the jurisdictions in which we operate are very high, and the internal policies and procedures build on and enhance these global standards.
Thank you for your attention to these matters. I would be pleased to answer any questions from the committee.
Hello. My name is Nanci York. I am vice-president of enterprise regulatory projects at Scotiabank.
I am the bank's point person for the implementation of the Foreign Account Tax Compliance Act, or FATCA. In this role I am responsible for FATCA readiness and compliance across our global operations, and as a result, have experience with international efforts to address tax evasion and tax reporting. My hope is that this experience will be of assistance to the committee as it looks for practical approaches to addressing tax evasion and tax avoidance concerns in Canada.
In reviewing past testimony before the committee, we know that bilateral approaches such as the TIEAs as well as multilateral efforts such as the OECD's Global Forum have been discussed.
If there is one key lesson I can take from the U.S. approach with FATCA, it is how important it is for Canada to avoid the problems of this model and instead pursue a multilateral, government-to-government exchange, such as the Global Forum. The peer reviews within the Global Forum must lead to changes in order for the transparency and reporting to be enhanced. With G-20 and Canadian government attention, Scotiabank believes that the most effective way to address tax evasion and tax avoidance is through this mechanism.
I'd also like to quickly add that we believe recent efforts by the CRA around self-reporting and raising awareness around tax issues, such as tax avoidance, are helpful steps in enhancing a culture of compliance and transparency within Canadian businesses.
Our own experience in international markets and our success in meeting or exceeding the requirements of the jurisdictions where we operate hinge on Scotiabank's history and continued focus on our culture of risk management, governance, and compliance. We value our reputation tremendously, and it guides our actions across our global network.
I look forward to answering your questions.
Good morning. My name is Carmina Hughes. I'm very pleased to be here today representing the TD Bank Group.
At TD, I am the global anti-money laundering officer or, as we call it, the GAMLO. I am responsible for AML compliance in all the jurisdictions in which TD operates. I have the pleasure of leading a team that works to build and sustain a culture of anti-money laundering compliance, where all of TD's business partners understand the goals of AML and link them to their business objectives.
I have over 30 years' experience in anti-money laundering and compliance-related work in the financial sector, mostly in the U.S. I have served as a federal prosecutor, a regulator, a teacher, and a private consultant to the financial services industry, as well as working directly for TD.
As special counsel for enforcement and special investigations for the Board of Governors of the Federal Reserve System, I served on the front line of the U.S.A. Patriot Act and the Bank Secrecy Act implementation efforts and compliance. I represented the board at the Financial Action Task Force, FATF, an international standard setter, and at other international bodies, thereby gaining a broad understanding of other AML regimes, as well as commonly recognized money-laundering and terrorist financing schemes.
In my years as a federal prosecutor, I investigated and prosecuted many fraud and financial sector crimes, including money laundering and income tax evasion.
I'm happy to be here today to speak to the Canadian AML regime and the ways in which the AML rules help to prevent and deter the illegal use of tax havens, and to discuss any other topics to which my experience may be relevant or helpful.
Good morning, everyone. Thank you for being here today.
Because I have just five minutes, I'm going to try to get in three different questions.
I want to start by referring to a point made by Ms. York. You indicated that, given your experience with FATCA, you are in favour of multilateral rather than bilateral agreements. This is something that we have been looking at.
Could I get a quick yes or no from each of the witnesses as to whether you favour multilateral agreements or bilateral agreements? Multilateral, yes or no?
Thank you to all the witnesses for coming today.
This is a study that all parties agreed to. You can see the importance we place on it, because certainly, we all know that people are evading their taxes in Canada, to the detriment of all of us.
Does your organization have policies, procedures, or standards whereby the same information you would collect on someone opening a bank account in Canada is collected in your subsidiaries? I'm asking for a quick yes or no.
To the witnesses, thank you very much for joining us today.
I'll begin with Ms. York. Last week I was at a conference and met Omar Davies, a former finance minister in Jamaica. He reminded me that the Bank of Nova Scotia was in Jamaica before it was in Toronto. That just indicates the degree to which our banks in Canada are not only prudentially strong but are among the most global banks in the world.
Canada played a leadership role in the genesis of the G-20 as well.
Given that confluence of factors, could Canada be playing a leadership role in building global governance, with the operative vehicle being the G-20, to create a more effective vehicle than FATCA?
Thank you, Mr. Brison and Mr. Chair.
The approach by CIBC is twofold in that regard. First of all, we will ask, to the extent that we are asking the initial question and the answer is positive, the purpose of the investment overseas, the account overseas, to better understand the nature of the client relationship and better position CIBC to monitor whether or not there's any unusual activity.
If there is something identified that's unusual about the fact that this individual has an account overseas, an offshore account, then we would certainly, to the extent it's suspicious, report it to FINTRAC.
In the Canadian context, as well, if a client presented themselves and suggested that they were based in an offshore jurisdiction, our methodology for risk assessment would immediately put that client into a higher threshold for monitoring. We would monitor the activity of that client to a greater extent than we would a non-offshore jurisdiction.
Thank you, Chair, and my thanks to the witnesses for being here on this nice snowy morning in Ottawa. I'd like to ask a three-part question, probably to all of you.
I'm trying to understand how you go about identifying if somebody is a potential tax evader or terrorist. Once you've gone through the process of saying the person could potentially do that, what is the next step? Whom do you contact? Do you contact local authorities? Do you contact FINTRAC, or the RCMP? If it's a Canadian or non-Canadian, do you use a different process for different authorities, depending on where they originate from?
Based on that, as we see new technologies, creative ways of money laundering and different things, do you have any suggestions on improving the system and making it better that we could add to our report?
I would like to come back to something in your presentation.
You said that RBC, the Royal Bank, has established branches in the Caribbean, for example, to take advantage of business opportunities. When we talk about business opportunities, we are generally talking about emerging countries where there are opportunities to invest in rapidly developing economies.
However, if we look at places like the Cayman Islands, in 2011 alone, Canadians invested about $28.5 billion there. The Cayman Islands has a population of about 55,000 people, which is about the equivalent of the population of Rimouski, in my riding, and about half the population of my riding. I can imagine what the people of Rimouski might do with an investment of $25 billion. That is what they have in the Cayman Islands at present.
So I would like to know why you say you are simply following people's desire to invest in business opportunities in places like the Cayman Islands, for example, when, if we are talking about direct foreign investments, we are generally talking about countries where investments can be made in the economy when there is an indication that the economy is growing, such as in the emerging countries, for example.
I want to thank all of you for being here today. Today seems to be a very popular day for bankers in Ottawa. I don't know what's going on.
I want to preface my comments by saying that our government has been fairly active on the closing of tax loopholes since 2006. In fact, we closed over 50 of them, recouping about $2.5 billion annually in taxes owed, all measures and all initiatives which were opposed by the NDP and the Liberals, I may add.
I want to discuss with you the measures you take against terrorist financing. I first want to get an indication of how closely you evaluate potential candidates for employment within your organizations.
Carmina, I'll start with you, because you also have the U.S. experience to speak about. How closely do you evaluate before you hire someone, and then how closely do you monitor them during the course of their employment?
We do a number of things upon someone's application in order to determine whether they are worthy of being hired at TD Bank, whether in the U.S. or in Canada. One of the things we do for all employees is to run through the sanctions lists with them. There are multiple lists here as well as in the EU and the U.S.
We do background checks in both jurisdictions. In order to ferret out things like illegal drug use, etc., we take urine tests, and we take fingerprints. We do quite a bit of work to make sure at the outset that our employees are people who should be entrusted with these positions on a going forward basis.
I think TD worldwide has 83,000 or more employees, quite a large number, and to suggest that we monitor every single action of every one is, I think, impractical, but we do have other things in place to look at financial activity. Their accounts are monitored just as anyone else's accounts at TD would be. Certainly for trading and other activities, we have heightened types of processes to look at where they're trading and how they're trading.
I want to thank all the witnesses for being here with us.
I would like to thank you, Mr. Richard, for addressing the question of the agreements to avoid double taxation that have been signed with some countries. That principle is entirely valid, in essence. In addition to sitting on the Standing Committee on Finance, I have the privilege of being on the Standing Committee on International Trade. Unfortunately, I have been in a position to observe the very naive and very problematic approach this government takes to free trade agreements. I see that it takes the same problematic approach to these agreements.
On Tuesday, at our meeting on Bill C-48, we were able to demonstrate the problems that are inherent in the process that involves introducing a 1,000-page technical bill after a very, very long time has passed. Brigitte Alepin talked about the new rules for upstream loans. I will not ask you to comment on that subject, which is really very technical and very difficult to grasp. She said that in themselves, these new rules were perfectly valid, which was very interesting. However, she saw a problem, a potential contradiction, in putting these agreements to avoid double taxation in place with certain tax havens, or certain countries that might be considered to be tax havens. Obviously, this is a political issue. It is a matter of making decisions. I hope the government will hear what I am saying about this kind of problem someday. I will not ask you to voice an opinion on that, but do you and your colleagues think that every country in the world merits an agreement with Canada to avoid double taxation? Could we very well think that we might avoid entering into this kind of agreement with certain countries?
This is a very interesting topic. I want to carry on with what Mr. Côté was saying. We have been discussing this large bill that has to do with implementation of taxes. We've come to the conclusion that in a society, we have to trust institutions. Trust is a basic and essential part of any society that's going to move forward. The very fact is that none of us is able to understand those tax measures. We must look to the finance department, we must look to institutions that give us advice, and we must collectively then come.
I mention that because whenever I've been involved with moving forward in some type of project, I get together with people. I always ask everybody at the table, “What is the motivation?”.
I want to ask you that question, too. What is your motivation for doing the things that you're doing? In this committee, we've often quoted Adam Smith. One of my favourite lines of Adam Smith's, and I will paraphrase, is that the baker doesn't get up at five o'clock in the morning for the benefit of the butcher. That means there is his own self-interest. That's okay. We have to understand that. What is your motivation to make sure that you don't get involved? I don't want to lead the witness but I want to suggest that if we have banks that have proper assets, cash flow that's not necessarily looking for other areas, is that possibly something that will be a deterrent, as well, to not going after illicit funds?
I'll start with you, Ms. Hughes.
Thank you, witnesses, for coming out today. I really appreciate it.
Mr. Purre, I was startled to learn that RBC does not work in tax havens, if I understood you properly.
I would therefore suggest you must not agree with the Canada Revenue Agency's definition, in a study called “Using Tax Havens to Avoid Paying Taxes”, where it defines as a tax haven a jurisdiction with one of the following: no tax, or very low rates of taxation; strict bank secrecy provisions; a lack of transparency in the operation of its tax system; and a lack of effective exchange of information with other countries.
You seem to say that if there were a TIEA, or some information exchange agreement, that would be sufficient, but how do you account for places like the British Virgin Islands where there are more than 400,000 corporations and no financial records or personal information records need to be kept whatsoever?
If your definition is predicated on the existence of an exchange agreement where there's no information being exchanged, it seems a little odd and contrary to at least what our government appears to take as a tax haven jurisdiction definition.
All right. The Government of Canada appears to differ.
May I ask Mr. Bartos a question.
You indicated, I think, in your anti-financial crimes approach, that the key elements are deter, detect, and disclose. You indicated as well that you had new models of compliance assurance, as you termed it. That is, there were policies in place that were simply not being enforced and now there's a better enforcement climate, if I can call it that, within your bank, if I'm understanding you properly.
Do you think it would be, for this committee's benefit, a good recommendation that there be whistle-blower arrangements put in place within the banks? I'll be asking other witnesses this as well. For example, it was only because of a whistle-blower that we became aware of the Liechtenstein tax evasion situation, where a disgruntled employee sold computer discs to German authorities, and that led to hundreds of millions of dollars being recovered, including more than $20 million in Canada alone, as I understand it.
Wouldn't that be a useful addition to your compliance objectives?
Yes, Mr. Chairman, we do in fact employ whistle-blower controls within our organization, on a couple of levels.
One is that the parent organization, HSBC Group, operates a compliance disclosure line, as we call it, which is in essence a whistle-blower line. That is staffed by people who are independent of the business line and monitored by the central compliance function.
I guess to have a sort of double check or a fail-safe system, in Canada we also operate our own disclosure line, which feeds in to me and our general counsel and our CFO. There are numerous people who are involved, independent people who are involved in the whistle-blower process to ensure follow-up and action.
I want to continue on Mr. Jean's line of questioning, if I could.
First of all, the premise is there's a lot of interest in going after individuals for tax evasion, but of course corporations are legal persons as well. I'm interested in what the CRA terms “abusive offshore tax shelters” or “abusive tax planning”, whereby corporations are using trusts and offshore corporations and subsidiaries, etc., essentially to go right up against the line of tax evasion, but probably trying to keep on the side of the angels.
Mr. Bartos, and others as well, in your subsidiaries in tax havens abroad, I wonder if you come across examples of where subsidiaries are going right up to that line, and you're suspicious. Does that trigger anything in any of your offices that you have to do something, that they may be over the line, but you're not sure?
Some of you have commented on TIEAs, the tax information exchange agreements, as if they were successful. We've had witness after witness tell us that these may not be as effective as we think in addressing the problem of tax havens. They tend to be one-off agreements which, once in place, are seldom used. The simple reason may be that we as Canadians need to know something to trigger a question seeking information exchange. That's why people have talked to us about the possibility of automatic tax information exchange agreements.
Ms. York, I know you're the expert on FATCA in your institution. I know we've certainly been well aware of the difficulties with FATCA as the United States implements it, but I'd be very interested in your views on whether or not we in Canada can craft a good automatic information exchange agreement to get around some of the problems I've mentioned.
I'm going to take the next round as the chair.
I want to follow up on that, because witnesses who have come before us previously have argued that we should have automatic exchange of information between tax authorities in Canada and tax authorities in other jurisdictions.
The one example that others bring up, and that your institutions have brought up, certainly, with many members of this committee, is the problems with FATCA and in terms of a bilateral agreement.
Perhaps as a follow-up, Mr. Purre, do you oppose automatic exchange between our tax authorities and other tax authorities unless it's done in terms of a multilateral framework?
I'll continue on from there.
I think when we look at the tool itself and how it's used, those are two separate things. I think the tool and the framework that's been established there are ultimately effective, especially when combined with the other information available to FINTRAC and other government regulators here in Canada.
This is a complex base, and ultimately, how we come to terms with putting together those various pieces of information to facilitate the finding of tax evaders, so to speak, is a challenging exercise, but an important one.
Let me drill down into that, because there are different actors at play here. There are individuals, there are individuals who may have companies, there are governments and government regulatory agencies, and then there are financial institutions.
In the past year, I went into one of your financial institutions to do an investment property. I was filling out a whole whack of forms and complaining about filling out all these forms, and the lady opposite me, who knew who I was, said, “Well, blame yourself, because it's your own laws that have caused you to do all this.”
Voices: Oh, oh!
The Chair: I said, “Okay, touché.”
Her argument was that it was Canadian domestic law, it was FINTRAC, that was then compelling the financial institutions in Canada to put all this onus on me as an individual to prove that what I was doing was a valid investment.
So that's what you have: individual, financial institution, government, regulatory agency. Some may argue that in certain countries, and I think you're hearing some of that at the committee today, other governments are not as diligent as the Canadian government. FINTRAC obviously does not exist in every country. The regulatory agencies are not as active in other countries in terms of making sure that individuals are doing valid investments, that they're not tax evading.
Can any of you address that question or concern that people would raise?
Ms. York, or Ms. Hughes.
Panama and Costa Rica are both on the G-20 and OECD lists, as are, in fact, a number of other countries within which Canadian banks operate.
First of all, I make the assumption that Canadian banks operate at the highest legal and ethical standards. The challenge is how you discern which is a legitimate investment. A Canadian may own a home in one of these tax havens, for example in Montserrat, hopefully not too close to the volcano, or a Canadian may invest in infrastructure in one of these countries. I go back to this: the existence of investment in a tax haven does not mean that it's tax-evasive investment.
That's where I'd like to have a clearer understanding in terms of your organization's processes to determine what is legitimate investment. These are fast-growing economies in many cases, with a lot of need for Canadian capital, expertise, and infrastructure, as an example.
How do you discern, and I guess the question is—we need your guidance—how do we discern ways to prevent a tax-evasive investment or offshoring and legitimate investment? We could benefit from your guidance on that. It may start with this: how do you do it?
There are two areas I want to touch on in terms of my specific questions.
One, which follows up on my initial line of thinking, is on the whole question of reporting. I understand that if you're in a jurisdiction you do your own investigation and you report to local authorities, but if there are bank secrecy laws in those local authorities, do you actually do the reporting? Again, I'm going back to where I was originally questioning. Do the bank secrecy laws in those jurisdictions.... Even though you said that when you have suspicious transactions you sort of follow them through and then you would report them to local authorities, is there anything in those laws that preclude you from doing that reporting?
Maybe Mr. Blackburn and Mr. Bartos could respond.
I asked Mr. Purre this question before, but I would also like to have the opinion of the other witnesses who are here with us.
I quoted a definition given by Geoffrey Colin Powell, who is a former economic advisor to the island of Jersey. That island has been recognized as a tax haven. His definition of what constitutes a tax haven is a tax structure established deliberately to exploit a worldwide demand for opportunities to engage in tax avoidance.
I would like to know from each of you, except for Mr. Purre who has already answered, whether you think this is a good definition. Otherwise, what is your own definition? It seems there is no agreement at present on what constitutes a tax haven.
Perhaps we could go from left to right, starting with Mr. Richard.
Thank you, Mr. Chair. I'll be sharing my time with Ms. Glover.
I just have a couple of questions. I think we can all agree that the integrity of the global financial system is of paramount importance.
The first of my very short questions is, could any of you tell me if you've ever identified a sovereign state behind an illegal financial transaction? Is there anybody from any of the financial institutions who has ever identified a sovereign state? No? Yes? No?
A voice: [Inaudible—Editor]
Mr. Mark Adler: Okay.
My second question, before I turn it over to Ms. Glover, is that I read an article recently that the Pentagon in the U.S. doesn't import any of its software. They manufacture their own software because they have identified bugs in software that has been manufactured overseas, and it's the ability, perhaps, of foreign governments or foreign entities to trigger certain mechanisms within the software at particular times to infiltrate the computer systems of the Pentagon. Is that a practice at all within the financial institutions that any of you are aware of? Do you import all of your software, or don't you know?
You can move it at any meeting. It's a notice of motion, so the 48 hours requirement has been fulfilled.
Mr. Murray Rankin: All right, thank you.
The Chair: You can move it at any meeting in the future.
I want to thank all the individuals and organizations for appearing here today, for responding to our questions. If you can respond to those specific questions and provide any further information you wish the committee to consider in its deliberations, please submit it to me as the chair and I will ensure all the members get it.
Thank you so much for being with us here today.
Thank you, colleagues. The meeting is adjourned.