I call the meeting to order.
Pursuant to the order of reference on Thursday, April 14, 2016, and section 20 of the Freezing Assets of Corrupt Foreign Officials Act, which requires a statutory review of the act, I want to welcome everyone to our meeting here today. I want to also welcome those of you who are joining us via video conference from the east and west coasts.
Joining us from Switzerland but actually in New York today is Gretta Fenner, managing director of the Basel Institute on Governance. Gretta, welcome. We're glad to have you here today. We'll get your testimony very shortly.
Then, as an individual, we have Gerry Ferguson, distinguished professor of law, Faculty of Law, University of Victoria, via video conference from Victoria, British Columbia. Gerry, we're glad to have you here as well.
Our normal custom and procedure is to start with your opening testimony, and then we'll go around the room over the next hour to ask questions back and forth from the government and from the opposition, based on your testimony.
Mr. Ferguson, I'll have you start first. The floor is yours; we'll turn it over to you. We look forward to your testimony, and then we'll move over to Gretta after that.
Thank you very much for the invitation to be here. Since I'm a lawyer, it won't surprise you that I'm going to start with a disclaimer.
My disclaimer is that when I was initially asked to speak, I declined on the basis that I did not have any specific knowledge about the two acts that your committee is reviewing. When I responded in that fashion to your clerk, she persuaded me that you were interested in hearing from me because of my general interest and knowledge about global corruption. I just want to lay that disclaimer out to you. I'm not intimately familiar with the application of FACFOA or SEMA, which you are now about to review, but I do have a few comments on it as it fits into the larger picture.
I want to leave a main message with you. I'll start, however, by saying I have prepared a brief. The brief was just submitted this morning. It needs to be translated, so you don't have a copy in front of you. The clerk will be giving you that later. It's about 45 pages in a PowerPoint style. I won't be able to touch on a lot of the detail today, but that information will be there.
I did also just want to mention in terms of detail that much of my knowledge on global corruption, asset recovery, and all matters related can be found in a two-volume book that I wrote just a year and a half ago and am currently updating for another release in January. That book is called Global Corruption: Law, Theory and Practice. It looks at global corruption largely from the international perspective and then compares Canada, the U.S., Britain, and the U.K. in terms of how we have or have not implemented our convention requirements.
I mention that book to you because it is about 780 pages, and there is a lot of detail in it. I designed it so it would be available to all interested parties. It is free. It's open access. It's on five websites, one of which is Transparency International Canada, and it was done under the auspices of the United Nations Office on Drugs and Crime, so it's available there as well.
Going back to what I want to say, my main message is that I think creating and maintaining an efficient, fair, and effective system for both freezing and ultimately returning corrupt foreign assets that are situated in Canada to lawful owners is obviously both a moral and international legal obligation. I believe that Canada has to step up its game and take those obligations more seriously.
Creating such a system—efficient, fair, and effective—is easy to say and I know difficult to create, but it's not impossible. I want to emphasize for you why I think it's so important that we have this effective system.
I start from a proposition. My main interest is global corruption, the largest topic. To me, it's a pernicious evil in our society. In my paper and my book I spend a lot of time talking about why global corruption is such a concern and what the devastating consequences are. One has to start by being convinced that, yes, it is a big problem.
The second point is that if we get to the point of accepting that global corruption is indeed a pernicious and devastating concept or activity or practice, what flows from that is grand corruption of the sort that you're interested in and I'm most interested in. Grand corruption can flourish when officials from these foreign countries can launder the proceeds of that corruption in other foreign countries and convert those proceeds into things such as real estate or luxury items in our country. You all are aware of the fact that there are certainly allegations of this happening substantially in the Vancouver region in the housing market.
My point here is that money laundering is really the lifeblood of corruption. It allows corruption, this grand corruption, to flourish. It seems to me that of maybe 10 things that are essential to grappling with corruption, one of those is that we have to try to choke out the personal profit and gain that arises out of this grand corruption. One of several important ways of doing so is creating this effective and efficient money-laundering and asset recovery law.
As I understand it, FACFOA is a very small but nonetheless important piece in the creation of an overall effective system for the recovery of assets. However, with respect, it seems to me that reviewing just FACFOA is like swatting a flea while ignoring the elephant in the room. FACFOA is important, but the real elephant in the room is global corruption and the absence of a fair and efficient way of attacking it from several points of view, including a good asset recovery system.
My hope is that you will find some room in your committee report of FACFOA and SEMA to convince other parliamentarians and the public of the fact that global corruption is indeed a devastating plague, with disastrous consequences far greater than most of us appreciate here in Canada, or I dare say worldwide.
There is indeed a pressing need to tackle global corruption on many fronts, including effective anti-money-laundering and asset recovery systems. I think Canada needs to seriously re-examine how well it are doing on both fronts. My assessment is that it are not doing well at all.
Finally, to me, one of the most urgent aspects of improving our asset recovery system is to move towards a beneficial ownership registry, just as the United Kingdom has in April of this year. We talk about returning assets, and I want to also ask the committee for some specific information about FACFOA and its success, which seems to me to be pretty small. The point is that if we are attempting to ascertain whether corrupt officials own property when 70% of that property is held in shell companies and we can not even ascertain who the true beneficial owner is, it's little wonder that we're not returning many corrupt proceeds.
If there's a point that leads directly into what you're doing, although it's clearly not in FACFOA, I think it's that Canada has to very seriously—as a few other countries are, England especially—create a beneficial ownership registry. It would be open to the public, but more importantly to investigative officers, to ascertain whether Mr. Gadhafi or somebody else actually owns that property in the name of company X. His name would not appear, and it would be deeply hidden.
The rest of my presentation really goes in that direction. I'm not going to go through it. However, the first part of my presentation tries to convince you that global corruption is indeed a very serious problem with disastrous consequences. I don't think the Canadian public appreciates that fully; hence there is less motivation on the part of the public, and hence on the part of our parliamentarians. That's the first part: trying to convince you of the importance of taking action against global corruption.
As I said, one of the very important pieces of taking action is creating a system that helps to prevent foreign corrupt officials from laundering their money through Canada, and in fact parking their money here and converting it into luxury items such as houses, etc.
There are many things that need to be done with regard to that system, but I think the one most required at the moment is for Canada to start studying, hopefully quickly, the creation of a beneficial ownership registry so that we can better determine who in fact is in possession of these potentially corrupt proceeds.
I think I'll stop there. I'd be happy to answer questions on any aspects of my opening statement.
Thank you very much. Ladies and gentlemen, good afternoon.
I'm not a lawyer. My disclaimer, however, is the same, and I'm not even Canadian, so I'm certainly no specialist on the Canadian criminal law. I speak to you from the perspective of a not-for-profit organization based in Switzerland but working pretty much around the world with developing or transitional countries as well as financial centres in efforts to recover stolen assets through the hands-on law enforcement work we do with our partner countries, as well as at the Global Policy Forum, where we try to promote the issue.
This is really my perspective. I understand you're looking at two specific pieces of legislation, but I have been asked to give you a bit more of a broader perspective on asset recovery. I'm very pleased that I can speak to you today. It is nice to see that your committee, and I imagine the House of Commons, is interested in the topic of corruption and asset recovery. For me, it is still very important, and I think Gerry and I speak the same language in that we realize that it's not just the responsibility of certain countries. It is very much a product of globalization, as well as a threat to globalization, so it is very much an issue we should be concerned about and work together on globally.
I'd like to speak about two elements in my opening statement. First I'll give you a message that you might want to use or not in talking to your colleagues in Parliament and government about why returning stolen assets is important and why Canada should care. Then I'll say a few words about what I think Canadian lawmakers and politicians should do to improve Canada's track record in asset recovery and to make a more active contribution to the global efforts.
First of all, why is it important? You may or may not have heard of the estimates that between $20 billion U.S. and $40 billion U.S. is stolen every year from developing countries through corruption. If you consider the broader term of illicit financial flows, there are estimates that $1.1 trillion U.S. in illicit assets flows out of developing countries every year. These are mind-boggling figures that should alert everyone to the seriousness of this issue.
The most obvious reason that asset recovery is important is that these monies should not be stolen and taken out of developing countries. Instead, they should be invested for the purpose of development in these countries.
I would, however, like to point out that this objective in itself should not be overestimated at this point. Gerry said we're not very successful globally at this point in recovering assets in huge sums. Rather, asset recovery, in my view, has an importance because it gets across the message that impunity for corruption, even for those powerful and rich, is no longer accepted. We take, in a sense, a very preventive approach to asset recovery, because by taking away the stolen assets from criminals, we succeed in taking away the incentives for these crimes. If we are more systematic with asset recovery, we will also have a preventive and not just a law enforcement effort. Because the whole chain of law enforcement and the judicial system is involved in asset recovery efforts, we also succeed in strengthening the rule of law, particularly in developing countries, thereby contributing to global development and stability. I think this is really important to understand. We're not just talking about specific cases; we're talking globally about a much more systemic impact when we talk about asset recovery.
If you look at why Canada should care, my personal view is that if the assets flow out of developing countries, they have to flow into some other country, and these are typically well-developed financial centres like Canada and Switzerland—my own country—as well as the U.K. and others. As a consequence, asset recovery, in my view, is very much is a shared responsibility between developing countries and financial centres. We can always blame the poor developing nations for having bad governance, having a lack of control over corruption; our financial centres, however, and the banks in our financial centres, contribute just as actively to these horrendous cases of money laundering and corruption as the badly governed regimes, so I think it is really the responsibility of every country with a significant financial centre to contribute to global asset recovery.
I'd also like to point to one last issue, and that is very much something that has been coming out in the last couple of years.
Corruption—and asset recovery really is just one measure against corruption—significantly is seen to lead to political instability and undermines economic development. These are direct threats to security that don't stop at borders. They do lead to immigration issues. They lead to terrorism. They have negative consequences on global trade. Again, when we talk about asset recovery, I would just like us all to realize we're talking about something much broader, something that affects many interests and issues at the core of Canadian foreign policy and domestic policy interests. This is the global context.
Now I have just a few words about what I believe a country like Canada—again, I'm not a Canadian and I'm not a Canada expert—should do.
On the preventive side—which, of course, I think should always be our preferred way of operating—it is absolutely essential that Canada fully implement and especially enforce a very strict anti-money-laundering regime.
In this regard, your committee should look at what has come out in the September 20, 2016, report of the Financial Action Task Force on Money Laundering. The report finds that Canada has a relatively adequate legal framework, but that there is one particular significant loophole, which I recommend you look at. It is that the money-laundering regime in Canada excludes in many respects legal counsels and legal firms. We all know that in large corruption deals legal counsel, legal firms, play a very important role as intermediaries.
What is also very significant in the asset recovery context is that the report also finds quite serious shortcomings in relation to investigating and prosecuting financial crime, especially money laundering and corruption. Canada does not have the level of investigative prosecutorial activity in relation to financial crime that it should have when you compare this activity to the significance of Canada as a financial centre.
I absolutely join Gerry—and I don't have to say more than that, really—in encouraging Canada to set up beneficial ownership registries that are publicly accessible. This also is a preventive measure. It is also, however, an important measure to strengthen law enforcement activity and thereby asset recovery.
Canada has made significant commitments in the context of the G20, in the context of the Cameron anti-corruption summit in May this year, and it will be great to see Canada follow through with these efforts.
I believe something that is very positive in the Canadian context and globally, comparatively speaking, is the fact that you have a form of administrative freeze. I believe this is in the FACFOA law, which is really considered internationally good practice. Together with Switzerland and the European Union, Canada is one of the few countries that provides an opportunity in law for administrative freezes. We have seen in the context of some of the Arab Spring cases and in the Ukrainian cases that I'm very personally involved in that this has meant Canada was able to act more quickly than other jurisdictions, and I encourage you to maintain and ideally to strengthen this provision and follow-up activity.
I'm jumping a little bit ahead here. I think that a country like Canada, which has significant capacity to investigate complex international financial crime, should help international efforts by itself more proactively investigating financial crime and corruption cases. That is one thing that should be encouraged through legislation or policy.
Oftentimes I see that investigators and prosecutors in countries like Canada are not very proactive. I understand why. These cases are extremely complicated, very slow, and success rates are very low. On top of that, you're supposed to co-operate with law enforcement agencies in other countries and developing countries, which are oftentimes much less efficient, and potentially with judicial systems that are very corrupt themselves.
There is not a huge incentive for law enforcement agencies in many countries, and I believe in Canada too, to actually follow through with what seems to be a government policy that anti-corruption governance is important. I emphasize that we need to find a way—you as lawmakers, as politicians—to translate these government commitments down to the actual enforcement level much more proactively, giving this tone from the top and setting the scene for Canada to be one of the leaders in this domain.
I would like to make two more points in relation to asset recovery, the first one more technical and the other more policy-oriented.
The first point relates to the fact that today we agree internationally that proceeds of corruption, assets that have been stolen from the state, do need to be returned to the country of origin that they have been stolen from. That is codified in an international treaty, the UN Convention against Corruption. What is more debated is whether proceeds of other forms of corruption—in particular, foreign bribery—should also be subject to potential repatriation or asset recovery.
As an example, a Canadian company—a fictitious case, of course—is found guilty of bribing a minister in another state to obtain a construction contract. The company in Canada is made to pay a fine to pay back the profits it made out of this case. These assets will stay in Canada at this point, and I'm not saying Canada is any different; other countries deal with it the same way.
However, the damage that was created by the bribery of this company is not so much in Canada; it's actually in the country where they have bribed someone and obtained a construction contract under dubious circumstances.
I strongly encourage Canadian lawmakers and politicians, as I do with other countries around the world—this is very much being debated at the moment—to consider recovering and returning or giving some of these assets that the companies have acquired through bribery in another jurisdiction to the victim states. That's one of the points.
My last point is one that I'm particularly passionate about. Anti-corruption and asset recovery oftentimes are seen as responsibilities of the judicial system, of law enforcement agencies, and in your case, of your development agency, because you do contribute significant amounts of money to governance and corruption programs. If, however, anti-corruption and asset recovery isn't understood as a whole-of-government agenda in the Canadian context, it can only be effective to a certain point, because additionally it will potentially hurt foreign trade objectives, foreign policy objectives, etc.
I see that over and over again. I really encourage you to be consistent and coherent in the implementation of an anti-corruption agenda as a whole-of-government approach, rather than just outsourcing it to justice and development.
I'm happy, obviously, to take any questions. I tried to give a bit of context here about the global agenda, and I hope that was, in some form or another, useful.
Thank you very much for the question.
I'm all in favour of greater enforcement, including naming and shaming and every other possible way that we can attempt to keep corrupt funds from being processed or laundered through our Canadian financial institutions. As well, in many cases the money is not just passing through our institutions on its way elsewhere but is actually being parked in Canada by the buying of real estate or other luxury items.
As you've heard, I'm not familiar with the Magnitsky Act, but it sounds very much like it's part of prevention of money laundering at the international level. For me, the problem in Canada is our lack of enforcement of the mechanisms that are already in place.
Let me just take two examples. Financial institutions are required to do reporting to FINTRAC. FINTRAC gets a lot of information, but has very few resources to actually do anything with that information. Secondly, we're told that the financial institutions' reporting, other than maybe the big six banks, is very thin.
You probably know that the Federation of Law Societies of Canada avoided being brought into the proceeds of crime act or the money laundering act in the Supreme Court of Canada on the basis of privilege, etc. Those law societies now feel.... British Columbia, for example, has a set of regulations that lawyers are supposed to follow. The problem is not that the regulations are terrible, but that the law society is not proactive in ensuring that those things are happening.
In the case of the real estate market, there were lawyers in British Columbia who were obviously facilitating those huge purchases of luxury houses in Vancouver, and to my knowledge at least, there has been no policing of that. Now that it has hit the news, we might find a little, but, basically the law society is not proactive.
I see the enforcement side of this as a bigger problem than the legal framework side.
Good afternoon. Thank you for taking the time out of your busy schedule to meet with us. We would also like to thank you for your continuous support for the human rights situation in China and for showing concern for the human rights situation in China and Hong Kong.
I feel very honoured to be the recipient of CJFE's 2016 international media award. I would also like to take this opportunity to share with you my observations and analysis of the recent developments in China and Hong Kong.
My family and I have been under suppression from the Chinese government for a very long time. However, I must say that our case is not really the worst, because there are worse cases in China. In China, a lot of people have been arrested and put in jail, not because of what they do but because of what they say when they are only exercising their freedom of expression.
Freedom of expression is just the beginning of any other action, but in China it's almost impossible for you to take any action. We consider speech to be a freedom itself.
Because the Chinese authorities realize the importance of freedom of expression, the suppression of freedom of expression is not confined only to China domestically, but they also crack down on the movement in Hong Kong. They've also tried to manipulate the election in Taiwan. They have also extended this influence overseas, through a campaign amplifying their propaganda work abroad.
I think Chinese authorities, the Chinese government, is actually very good at understanding the importance of freedom of expression. Therefore, they know that they cannot just suppress freedom of expression domestically, within China, but they also need to capitalize on the globalization of freedom of expression elsewhere so as to exert their influence elsewhere as well, including in Canada.
I would like to take this opportunity to urge all our friends here to pay attention to four areas.
I would like to, one, urge all of you to be concerned about every single incident of the suppression of freedom of expression by Chinese authorities. The silencing of the voice of any media, the threat imposed to any journalist, the censorship of any social media, is a global incident with global impact. Twitter's recruitment of Kathy Chen, who has co-operated with the Chinese security department as their China regional manager, and Facebook's development of software to satisfy China's need for censorship of social media all imply China's capability to get access to and censor global users, including Canadian users' expression and personal data.
In addition, WeChat, the popular social medium under China's full control, which is also commonly used by many Chinese Canadians, never shies away from admitting that it has incorporated the Chinese government's strict censorship of expression in its operation.
Number two, I urge all of you to become concerned about the situation of political detainees in China, especially the 709 lawyers case. Since July 9, 2015, over 300 human rights lawyers and legal assistants, as well as their family members, have either been arrested or harassed by Chinese police. Three of the lawyers have been sentenced, 10 of them are still under arrest, and the rest have been forced to agree to remain silent or forced to admit their crimes on TV while they are waiting for the court hearing.
Many of them have been made to disappear or have been abducted by the police without any due legal process. The most recent case is Jian Tianyong, the renowned human rights lawyer. He has been disappeared for over 15 days now, after he visited his client in jail. Prior to this, he was beaten up by police and made to disappear a number of times.
Number three is to support the Hong Kong people's movement to protect their freedom rights. The lack of a response from the international community has induced the Chinese government to further suppress freedom in Hong Kong. The five publishers and staff of Causeway Bay Books have been illegally abducted back to China by Chinese police from Hong Kong just because they published books criticizing Chinese leaders. The courageous sharing of truth by one of the abducted publishers, Mr. Lam Wing-Kee, has not been positively echoed by the international community, where there has not been much progress of any kind. The recent brusque interpretation of Hong Kong Basic Law by the Standing Committee of the National People's Congress of China has caused tremendous damage in the independent judicial system and also the rule of law in Hong Kong.
Number four, I would like to call for all of you to take concrete actions to ask for the immediate release of Canadian political detainees in China, including Mr. Huseyin Celil and Mr. Wang Bingzhang, given their deteriorating health conditions in jail. Wang was abducted back to China from Vietnam. He was charged in China and sentenced to life imprisonment. He was severely tortured in jail. His mental and physical health are in jeopardy. His family members have been advocating for the Canadian government's concern, but in vain. Actually, just last night I talked to his family members over the phone. His family members also urged me to pass the message to all of you to take immediate action to get his immediate release.
Last but not least, I would like to make a few recommendations.
First, China superficially appears to be very strong, but actually it is very concerned about international opinion and it does respond to international pressure.
Second, human rights are key to the resolution of many of the problems in China. A lot of countries have been talking about the separation of economic and trade agendas from the human rights agenda. I personally consider these two to be integral parts of the entire package. They are inseparable.
Therefore, if we advocate strongly on the human rights agenda, we will also be able to get a better deal and also be able to enjoy bargaining power when we deal with China in any commercial or government-to-government agreements.
There is also one last point I would like to make. It is also of utmost importance for Canada to establish a comprehensive human rights strategy and protocol, and have it factored into all policies and agreements involving China.
I would like to end my deposition here, and I welcome questions from all of you.
I have three questions. They are pretty short.
Thank you very much for coming in. I note our agenda says “Human Rights Situation in China”. It should be “Human Rights Situation in China and Hong Kong”. That should be specifically laid out in the meeting agenda.
I know your presentation today doesn't tie in directly with the study we have, but I do have a question that relates to the study and to the situation in Hong Kong.
Senator Tom Cotton and Senator Marco Rubio have tabled legislation in the United States Congress calling for asset freezes and travel bans against individuals involved in the decisions to abduct, kidnap, prosecute, and oppress certain members of the Hong Kong assembly and also the booksellers involved. One of them was kidnapped directly from Hong Kong, one from Thailand, and three from PRC.
Thus, that's my first question. Would it be effective to sanction the officials involved in these actions, yes or no?
My second question is regarding the two legislators who were barred by the judicial court and disqualified. I'm talking about Yau Wai-ching and Sixtus “Baggio” Leung. What will be the effect on the democracy movement and the rule of law movement in Hong Kong? Will they accept their disqualification from taking their seats in the assembly, or will there be further protests and demonstrations? Will other legislators as well dissent and then not take their seats?
My last question has to do with the report of the committee from the previous Parliament, which had three recommendations. Although it reiterated its support for the “one country, two systems” principle as well, it had the following recommendation:
||The Committee recommends that the Government of Canada state its support for the democratic aspirations of Hong Kong people, including the need for genuine universal suffrage in the election of their political leaders.
I would like to get your comments on that and your viewpoint on what that means to you in the activism you do.