My colleague, Hugh Adsett, and I are delighted to be here to support the committee's work, particularly given our respective responsibilities over policy and operations under SEMA and FACFOA. We recognize that the committee is interested in issues of sanctions, a matter that is quite horizontal and may go into areas beyond areas of our responsibility and may very well be interested in covering discussions around other statutes. I'd simply like to reassure the committee that Global Affairs Canada is willing and very much able to make officials available as your deliberations unfold.
Good afternoon. On behalf of Global Affairs Canada, I want to thank the committee for having us here.
The review of the Special Economic Measures Act and the Freezing Assets of Corrupt Foreign Officials Act comes at an opportune moment.
The Canadian government is revisiting policies and programs to ensure Canada’s international efforts are adapted to current global realities. This includes a number of policy reviews that were highlighted in ministerial mandate letters.
Internationally, the current conflicts have global dimensions. For example, the war in Syria has resulted in a refugee crisis spreading from the Middle East to Europe. States such as North Korea continue to challenge international stability and security. Given this context, a review of legislative instruments is important.
The Special Economic Measures Act was introduced in 1992 to improve Canada’s ability to join other states in promptly and effectively applying economic sanctions. This was done in the context of the increasing trend by the international community to use economic sanctions as a means of maintaining international peace and security while reducing the recourse to military force.
The act allows Canada to adopt regulations to restrict or control the activities of Canadians and persons in Canada by prohibiting their engagement in what would otherwise be lawful business or economic activities with a foreign state or with persons or entities associated with that state.
The act specifically allows Canada to impose economic sanctions through regulations in two situations: first, when an international organization or association, of which Canada is a member, calls on its members to take economic measures against a foreign state; and second, when a grave breach of international peace and security has occurred that has resulted or is likely to result in a serious international crisis.
Asset freezing—for example, the prohibition from dealing in any property held by a designated person—is one of the targeted tools that can be used to impose economic measures once an act criteria has been met. The determination of individuals and entities to designate for asset freezing is usually done in coordination with like-minded countries.
In the case of the Special Economic Measures Act, Canada typically imposes sanctions to complement existing UN-mandated sanctions, for example, in the case of Iran or North Korea, or when the United Nations Security Council is unable to reach a consensus, such as the case of sanctions against Russia for its actions in Crimea. Canada’s use of sanctions imposed under the act has increased over the past decade, growing from one regime in 2007 to nine in 2016. Canada currently has sanctions imposed under the act against Burma, Iran, Libya, North Korea, Russia, South Sudan, Syria, Ukraine and Zimbabwe.
With respect to FACFOA, I should first note that it was enacted in 2011 to response to the Arab Spring events. Accordingly, it provides a responsive tool for Canada to support a foreign state that is in political turmoil and seeks to transition towards democratic rule and governance. The FACFOA authorizes the Governor in Council to temporarily freeze the assets of allegedly corrupt foreign officials, at the request of a foreign state, to allow this foreign state the opportunity to seek the ultimate seizure and recovery of assets through mutual legal assistance frameworks. Canada currently has regulations freezing the assets of politically exposed persons in relation to Ukraine and Tunisia.
In closing, I note that while FACFOA is utilized on behalf of a foreign state, the SEMA authorizes the Governor in Council to take action against a foreign state. In this respect, FACFOA sits apart from Canada's sanctions regime.
With these considerations in mind, my colleague and I look forward to your questions.
I have a couple of matters.
First, I want to advise the officials that it is very likely you'll be called back. As you might imagine, this was fairly quick, and the beginning of a process. I want to remind you of what I call connecting the dots. When it comes to machinery of government, it's extremely important.
One of the issues that I know is going to be talked about significantly in this committee is the multilateral significance of these pieces of legislation. If you look at SEMA, and the nine sanctions that are still in place, I'll be interested in having you answer some questions at some point. Were these taken independently or were we following the lead of other countries that had already put sanctions in before Canada put its sanctions in? Are there any on the list at all that were done independently of other nations, or are these all connected multilaterally? Is the review based on information of other countries that are making these kinds of decisions as well? I think that's important to know and to keep in mind.
The other issue that we will be again exploring is to look at the differences. For example, I don't imagine the economic sanctions in Burma are the same as the economic sanctions of the other eight. There's a fairly broad context of how you arrive at economic sanctions. I wonder if you could categorize them for us, meaning there might be simple sanctions for certain countries, and much more complex and elaborate ones, especially on the financial side, for countries like Russia, Ukraine, and then potentially even Iran.
I want to get those differences because they would make the discussion flow a little simpler, I think, if we could do that.
On behalf of the committee, I want to give you the chance to say a last few words, and then we'll go on to our next witnesses. I want to thank you for this opportunity to begin the dialogue, and I want to stress “begin the dialogue”.
Thank you for your time today, ladies and gentlemen.
My name is Superintendent Steve Nordstrum, and I'm with the Royal Canadian Mounted Police.
I'll speak mainly in English since my French is very rusty.
I'll begin today with an overview of the RCMP's role in relation to SEMA and the Freezing Assets of Corrupt Foreign Officials Act, FACFOA.
I'm also going to share some examples of a couple of investigations that were successful pursuant to those acts, and I'll briefly address some of the challenges that we face not just within the investigation prosecution of these acts, but writ large in the criminal justice area.
The RCMP's mandate is a multi-faceted one, and it includes preventing and investigating crime, maintaining peace and order, enforcing laws, and providing vital operational support services to other law enforcement agencies in Canada and abroad.
While the RCMP leads national security enforcement efforts, we can't do that without our partners provincially, regionally, municipally, and at the city level. We will refer to them as co-operative ventures. The RCMP also works in partnership with other federal government departments and agencies, predominantly in this area that we're going to discuss today, such as the Canadian Security Intelligence Service; the CBSA; Global Affairs Canada; Immigration, Refugees and Citizenship Canada; and FINTRAC. We also work with international law enforcement and industry, both from here and abroad, through our liaison officers, and we work within the Export and Import Permits Act, as well.
With CBSA, we work to address inbound and outbound breaches of sanctions and regulations at ports of entry, and we identify travellers who are ineligible for entry into Canada pursuant to the Immigration and Refugee Protection Act, or IRPA. The RCMP also has a shared responsibility with the CBSA to investigate cases linked to the proliferation of strategic goods and technology.
With FACFOA, the RCMP receives information from banks and other financial institutions reporting that they have blocked all financial services to someone subject to the act or its regulations. Financial institutions are also regularly mandated to search their records and inform the RCMP if they freeze assets and if they identify prohibited financial transactions pursuant to FACFOA.
While the RCMP's role with respect to sanctions has included enforcement and investigations, we also provide training, participate in industry outreach activities, and contribute to general policy development as it relates to sanctions and counter-proliferation. Any individual, company, or Government of Canada department can provide information to the RCMP relative to a possible federal offence. In the cases relating to sanctions, the referrals are often made by CBSA and our international law enforcement partners such as the Federal Bureau of Investigation or the immigration and customs enforcement branch, or ICE, in the U.S.A.
Specifically, the UN act, its regulations, and SEMA also require anyone in Canada, and Canadians abroad, to provide the RCMP with information they know pertaining to property that could belong to anyone on a sanctions list. This includes information about transactions or proposed transactions relating to such property.
When the RCMP receives information, it is assessed to determine whether it is within the law enforcement mandate and what the appropriate next steps may be. Within the national security arena, the RCMP utilizes the priority rating of operational files, or PROOF, which was designed to assess information to determine the next steps, the level of risk that may be incurred as a result of the information, and the level of governance that the federal policing criminal operations, national security, must exercise.
When it is a medium or a high risk, that is when our national security governance mechanism comes into play.
Matters that receive a low priority or a low PROOF get referred to other government departments, potentially CSIS or to the police of jurisdiction. That all depends on whether it relates directly to a national security criminal offence or another federal statute.
The RCMP relies on the expert controls division at Global Affairs Canada to determine whether a good or technology is controlled under the export control list. Such determinations are essential to investigations and even more essential to a successful prosecution.
Once the RCMP determines that it may commence an investigation and what degree of oversight is required, the mechanics of police work kick in. Federal statute investigations are complex, resource intensive, and onerous. It's very likely that they will meet the definition of what we call a major project and if that's the case, then we have a prioritization process for major projects.
Many of the major project investigative techniques require approval from national headquarters, so when an operational plan is written that includes such an investigative technique, it will come into the headquarters from the divisional level. My shop will then assess it and will move it up the line to the assistant commissioner for federal policing operations for approval.
At the same time, we have what we call a project prioritization scale. Within that scale, what we're looking for is the effective use of major case management techniques to enhance the likelihood of successful prosecution. The prioritization model results in the federal policing operations information management personnel looking at all of the factors surrounding that project and assigning to it some scores.
Then there's a standing committee within our national headquarters of personnel, such as myself and chaired by the director general of federal policing criminal operations, that will assign a tier to that file. Tier 1 are the highest priority files and they require significant oversight from federal policing criminal operations. Tier 2 requires less, and tier 3 won't require any sort of NHQ oversight.
This isn't a stop-start process. The investigators are still building a case, gathering evidence, and submitting their operational plans for assessment. Once the investigation is approved, the specialized investigative techniques are put into play, and it's deemed a priority one or a priority two, and that's really when the police work starts. We can't do that without good partnerships, particularly with our Public Prosecution Service of Canada personnel.
Many of our integrated national security enforcement teams have embedded crown prosecutors with them, which is very helpful. Not that we're led by the crown, but it's nice to have that specialized legal background to help us manoeuvre through some of the trickier areas of the law. Of course, at the end of the day, the attorney general has to give consent to many charges being laid pursuant to the Anti-Terrorism Act or some of these acts that we have here, SEMA, in particular.
There are two investigations that I'll mention briefly that have been successful in these areas. The first is the Yadegari case. As I spoke to partnerships earlier, it was a referral from the U.S. immigration and customs enforcement and it came by way of CBSA. It resulted in a project called OWATCH in 2009 and it determined that a male named Mahmoud Yadegari, who was an Iranian-born Canadian citizen was using a front country to procure pressure transducers or a pressure sensor from manufacturers and distributors in the U.S.A and Canada in contravention of the Iran regulations, the Export and Imports Permit Act, the Canada Customs Act, the Canadian Nuclear Safety and Control Act, and the Criminal Code of Canada.
These transducers were to be exported from Canada to Dubai, but intended for use in Iran's nuclear program.
The investigation was an onerous one, as I said before. It gathered evidence to show that Mr. Yadegari had falsified export documents, removed identifying labels on the transducers, received large amounts of cash deposits and international money transfers, and contacted over 118 companies and exchanged more than 2,000 emails with suppliers and manufacturers, both domestically and abroad. This case was complex, resource-intensive, and dependent upon the co-operation of our other governmental partners.
At the conclusion, there were sufficient grounds to conduct the first-ever Canadian prosecution of charges pursuant to the United Nations Iran regulations and the Canadian Nuclear Safety and Control Act. That resulted in a guilty finding under the acts previously mentioned, and Mr. Yadegari was sentenced to a total of four years and three months in prison.
In another case, in May 2011 CBSA intercepted a shipment of highly specialized rubber rings with dual uses: for Alberta's oil fields, or oil fields generally, and in a nuclear program. In a joint investigation, the RCMP and CBSA investigated Lee Specialties Limited, a company in Red Deer, Alberta, that manufactures oil field equipment. The investigation determined that in fact Lee Specialties was exporting the rubber rings as a prohibited good in contravention of the United Nations Iran regulations, SEMA, and the Canada Customs Act. On April 14, 2014, Lee Specialties Limited pleaded guilty to charges under SEMA and was fined $90,000. This was the first successful charge and prosecution in Canada under SEMA.
Investigations into transgressions of the above-discussed and other federal acts require a sound, in-depth knowledge of Canada's export control lists, intersecting domestic and international legislation, close collaboration with domestic and international partners, and investigative expertise in what is a constantly evolving arena. The investigation of these statutes is dependent upon a number of determinations. Whether a good is allowed to be exported is a highly complex and time-consuming process that requires assistance from experts outside of the RCMP. Once major project investigations do commence, they are lengthy and resource-intensive, and require dedicated personnel across a spectrum of agencies and departments to work co-operatively to enhance the likelihood of a successful prosecution.
In conclusion, I'd like to highlight that the RCMP, as Canada's national police force, has a broad mandate to prevent, disrupt, and investigate some of the most serious criminal and federal statute violation activity in Canada and abroad. It relies upon its domestic and international partners to safeguard Canada, Canadians, and our allies.
Thank you for inviting me here today to discuss the role of the Office of the Superintendent of Financial Institutions as it relates to the Special Economic Measures Act, SEMA, and the Freezing Assets of Corrupt Foreign Officials Act, FACFOA.
The Office of the Superintendent of Financial Institutions, or OSFI, as we are known, is Canada's primary prudential regulator and supervisor of federally regulated financial institutions, such as banks, insurance and trust companies, and private pension plans. We promote financial stability by keeping a close eye on the solvency, liquidity, safety, and soundness of federally regulated financial institutions.
OSFI, like other major financial regulators, is a member of the Basel Committee on Banking Supervision and the International Association of Insurance Supervisors. We subscribe to these bodies' core principles of prudential supervision, which are recognized by the Financial Action Task Force, or FATF, the organization that sets international anti-money-laundering and anti-terrorist-financing standards.
OSFI's expectations are outlined in guidance that forms the basis of its anti-money-laundering assessment program. This program focuses on whether an institution has put in place the appropriate risk management systems and controls to detect and deter money laundering and terrorist financing.
Although OSFI does not have a legislative role under SEMA or FACFOA, it assesses the quality of controls in place at federally regulated financial institutions to comply with criminal anti-terrorist sanctions under the United Nations Act and the Criminal Code.
This work is included as a module in our general AML/ATF assessment program. We leverage this work to address similar controls that are required to comply with SEMA and FACFOA and require institutions to address weaknesses in this regard.
While OSFI is permitted to share certain information with FINTRAC, OSFI does not share information with those responsible for enforcing SEMA or FACFOA.
To help financial institutions, OSFI has published an overview of AML/ATF sanctions in an instruction guide on its website. Most federally regulated financial institutions subscribe to OSFI's email notification system alerting them to changes. This in turn enables them to implement the searching, blocking, freezing, and reporting obligations set out in regulations.
OSFI's AML and compliance group also acts as OSFI's liaison with other Canadian international stakeholders on financial crime-related matters. OSFI, for example, is a member of the advisory committee on money laundering and terrorist financing, which meets semi-annually under the leadership of the Department of Finance.
Today I've touched briefly on OSFI's role as it relates to the area of study by this committee, and I would be pleased to answer any questions that you have in due course.