Good morning, members of Parliament. Thank you for the opportunity to participate in today's hearing.
My name is Claire Woodside, and I'm the director of Publish What You Pay Canada. With me is Mora Johnson, barrister and solicitor, who has been providing us with some legal advice.
Publish What You Pay Canada is part of an international coalition of more than 800 civil society organizations working to increase transparency and accountability in the resource extraction sector.
The public disclosure of beneficial ownership is critical to the global fight against corruption. It will provide governments, citizens, journalists, law authorities, financial institutions, and businesses with information that will help them detect and avoid corruption. It is the first step Canada must take to eliminate the practice of “snow washing”, discussed by Transparency International Canada at a previous hearing.
In the brief circulated this morning, Publish What You Pay Canada makes five recommendations for amendments and additions to Bill . Here I will highlight three of those recommendations.
Firstly, Publish What You Pay Canada recommends that the CBCA be amended to require that non-distributing corporations submit a form to the federal corporate registrar with details of their registered shareholders and beneficial owners. This information should then be included within Corporations Canada's online database.
Secondly, Publish What You Pay Canada recommends amending Bill to prevent the misuse of bearer shares. The elimination of bearer shares has been identified domestically and internationally as a key step in efforts to increase beneficial ownership transparency.
Regrettably, the current drafting of Bill will not prevent the misuse of existing bearer shares; nor will it eliminate the shares, as has been stated within government. The current text of the bill prohibits the issuance of new bearer shares and allows for the voluntary conversion of existing bearer shares but does not require that individuals who hold bearer shares register those shares before exercising the rights attached to them.
To prevent misuse of such shares, Bill should be amended to require that all bearer shares be registered in advance of exercising rights associated with those shares, such as selling or pledging shares. Please see page three of the briefing note provided to you for proposed wording of the amendment. This change will ensure that criminals are prevented from using existing bearer shares for nefarious purposes.
Publish What You Pay Canada's third recommendation proposes amending the CBCA to include higher sanctions for companies that wilfully fail to maintain records and disclose securities information. The current penalty of $5,000 is not sufficiently dissuasive to incentivize companies evading these requirements for tax evasion or criminal purposes.
We recommend increasing the penalty to a maximum of $1 million for companies acting in bad faith in not maintaining or disclosing adequate corporate records. A higher maximum fine will be an important tool in the hands of law enforcement. “Good faith” errors in reporting would not attract the maximum penalty. The higher penalty would be applied in those cases in which the controlling mind of the corporation intended to hide, destroy, or simply not collect legally mandated information.
The proposed amendments will have four important impacts. First, they will enable Canada to fulfill its international obligations. Second, they will help law enforcement detect and investigate crime. Third, they will help banks and other professions, such as real estate agents, comply with Canadian anti-money laundering requirements. Fourth, they will improve the business climate in Canada.
There is mounting global recognition of the critical role that beneficial ownership transparency plays in the fight against corruption and tax evasion. Simply put, beneficial ownership transparency makes it more difficult for individuals to use anonymous companies to commit crimes.
In June 2013, G8 leaders agreed to a set of principles on beneficial ownership transparency. These principles were then reflected in the G20 “High-Level Principles on Beneficial Ownership Transparency”, agreed upon in 2014.
Despite these commitments, a 2016 evaluation by the Financial Action Task Force found that Canada is only partly compliant, or non-compliant, with beneficial ownership transparency recommendations.
While improving beneficial ownership transparency in Canada will require action by both provincial and federal governments, the onus is on the federal government to lead by example and create a public, centralized register of beneficial owners for federally registered companies. The amendment proposed by Publish What You Pay Canada will allow Canada to meet its international commitments and join its peers, including the U.K. and the EU, who have implemented or are implementing public beneficial ownership registries.
Second, increased beneficial ownership transparency will help law enforcement agencies detect crime and pursue criminals. In 2016, the Financial Action Task Force wrote:
||Despite corporate vehicles and trusts posing a major [money laundering] and [terrorist financing] risk in Canada, [law enforcement agencies] do not investigate many cases in which legal entities or trusts played a prominent role or that involved complex corporate elements or foreign ownership or control aspects.
Determining the beneficial owner behind a corporation often poses an insurmountable problem for law enforcement agencies, yet anonymous companies are frequently at the heart of corruption and money-laundering schemes. A World Bank study of over 200 cases of grand corruption found that 70% included an anonymous shell company. Furthermore, the UN Office on Drugs and Crime estimates that between $800 billion and $2 trillion U.S. is laundered each year. Improved beneficial ownership transparency is critical to effective investigations involving corporations. This is likely why beneficial ownership transparency has, internationally, been supported by law enforcement bodies.
Third, under Canadian anti-money laundering laws, financial institutions, and other professions such as real estate agents, casinos, and accountants are required to exercise “know your customer” due diligence and report suspicious transactions to authorities. They are not just on the front lines of crime detection, but in many transactions, represent the best, or only, opportunity available for the state to detect suspicious activity. Banks and others are required to ask companies if they are representing third parties, but currently, there is no mechanism for them to verify beneficial ownership information and properly fulfill their due diligence obligations.
For banks and other professions, failing to fulfill anti-money-laundering obligations can result in regulatory fines and reputational costs. This has been seen in other markets, with HSBC, BNP Paribas, Raymond James, and others facing steep fines for violating anti-money laundering rules. Just recently, closer to home, FINTRAC fined an unknown bank $1.1 million for failing to report a suspicious transaction.
A central registry will allow financial institutions and other professions to fulfill their anti-money laundering obligations in a more efficient and less costly manner.
Fourth, beneficial ownership transparency will help mitigate business risk and create a better business climate by enabling those transacting with corporations to know with whom they are really doing business, who the real person is behind the corporation. The CBCA, in allowing for the creation of limited liability companies with separate legal personalities has the benefit of encouraging people to create businesses. At the same time, it actually increases business risks.
While limited liability protects shareholders and business owners from risking their personal assets, it also limits the pool of money available to creditors, employees, and others if the business should run into trouble. In 2015, there were over 4,000 insolvencies filed by Canadian businesses, amounting to net liabilities of over $5 billion, which have to be borne by unpaid creditors and unpaid employees. Creating public access to legal and beneficial owners of corporations will allow companies and financial institutions to know with whom they are really doing business, thus allowing them to reduce risk and make better business decisions.
Despite the numerous benefits, Canada has not joined the global efforts to address beneficial ownership. Instead, we have accepted the risks posed by an opaque system. This must change.
By accepting the amendments proposed by Publish What You Pay Canada, the federal government will demonstrate international and domestic leadership and ensure that Canada is not a magnet for tax evaders, money launderers, and those who finance terrorism.
Thank you. I will be very brief on this.
I'm coming at this from a totally different part of the bill and from a totally different perspective as I was asked to do. Just to let you know, the centre works on advancing women's leadership in all sectors through research programs for advancing women, looking at barriers and opportunities, and creating awareness and partnerships. We are not an advocacy group. We will not put forward positions but look at what the possibilities are in different circumstances given what's being presented.
We have done a number of pieces of research, including recently “A Force to Reckon With: Women, Entrepreneurship and Risk“, looking at how women entrepreneurs look at risk, which is very important for the advancement of women in entrepreneurship, and I would also say, in terms of advancing women on boards, because these are a feeder group for potential participation on boards. We will now be looking at how women entrepreneurs look at innovation, because this is key to the Canadian economy.
One of the things we also did in 2012 was a benchmark study of women's leadership in Canada, and this looked at where women were across the various sectors in terms of senior leadership. When we looked at it, it came out that there was 29% of women, but only when you added in the public sector. When you looked at the private sector, it was 26%, and when you looked across the public sector, it varied from very low percentages in mining, resources, and construction to much higher in the financial sectors and the service industries. That continues to be the case as we look at what's happening in terms of board participation.
I've also been part of the Canadian Board Diversity Council, assisting with its founding through a grant from Status of Women, and I've also been part of their advisory board. One of the things the Canadian Board Diversity Council has been doing is mapping the changes in board representation. We know that we have a comply or explain regime in Ontario, and in a number of other provinces now, 10 other provinces, I believe they're now looking at whether that's been successful.
Just as an example, in 2015, looking at the Financial Post 500, there was 19.5% female representation on boards, and in 2016, 21.6%. Progress is slow at this rate. It will take quite a long time to reach that goal of 30% to 50%, which is what most people would say is appropriate representation.
When I was asked to come here, I took a look at Bill , and this kind of legislation is designed to be a nudge to nudge corporate boards forward, as I'm reading it, without the imposition of quotas. I know that this committee has looked at various options, including quotas. There will be some who say quotas don't work. I think that we have evidence that quotas do work in some countries, depending on the length of time those quotas are given. If you have only a short period of time and corporate boards don't turn over very quickly, then it's not likely to be successful.
Whenever there's talk about there not being adequate feeder groups, we know that is not the case. There are more than enough very highly qualified women to serve on the boards that have positions in Canada. That is something that has been looked at through the Canadian Board Diversity Council, through Catalyst, and through other organizations that have ongoing lists of already pre-qualified women who have gone through.
When I looked at the bill, I looked at how it was put forward. It was put forward as a bill with, as one of its objectives, increasing gender participation on corporate boards that are under the Canadian Corporations Act. But when I looked at the actual legislation, there is no mention of the word “gender” in it. The word is “diversity”, and diversity is not defined as it stands in the current legislation; it's left to regulations.
I tell corporations and others all the time that lumping diversity and gender together without articulating the need to have the larger participation of women on boards does not always work, because we know that women are not a diversity group; they are 50% of the population. As for diversity, yes, bringing women on boards will bring diversity, but if it's left only under the rubric of diversity, you may not get the numbers you're attempting to get.
One of the things the Canadian Board Diversity Council has advocated is aspirational targets. I'm not sure if there have been discussions at this table, but I think aspirational targets are very useful.
I'm not sure the legislation, as I read it, really requires an explanation. Did you actually look at diversity candidates? Did you actually look at women when you were choosing your board members? If you didn't, why didn't you?
Just to put it on the table, I am a lawyer. I practised law with the federal government for many years, and taught it, so I come at the bill from a lawyer's perspective as well. There are some things in the existing legislation that I see as challenges that may not achieve the goals of the legislation, which I think are very positive goals that we need to be moving forward with.
I'll leave it at that. I know you have lots of questions, and we can have a good discussion as a result.
Thank you very much for being here today to speak to this very important issue. Ms. Beckton, your centre studies women in politics and public leadership. I go back to something I mentioned earlier in this committee. Being involved with ParlAmericas, we would often have discussions with groups of women in politics about how to encourage more women to get involved. At that particular point in time, it was a snapshot where I believe somewhere between 80% and 90% of Canadians had female premiers.
When I speak with them—and I've known some of them—they definitely got their jobs because of talent. When they look at it, they say, “You don't need quotas; you just need to go with it.” But I understand, certainly on the corporate side, that we haven't seen any kind of real push that is going to encourage more women. Again, we've heard in testimony that there is a certain pool and some people might be on four or five different boards, and when they leave, they just keep recycling the same people.
How do we encourage more women to get involved on the board side in publicly traded companies? The women I know who are engaged in business are busy running them. I've talked to many of them, saying, “Why don't you expand or why don't you look into these things?” They say, “My interest is in the business that I'm starting and the businesses that I'm running.”
How do we encourage more women to be part of this other pool that seems to be recycling the same people?
Obviously, there are a number of choices when you're looking at legislation.
In many of them, like in Australia, they use a combination of reporting and then the legislation to back it up. When you require “comply or explain”—which is not clear in this legislation—you are required to give an explanation if you do not have the diversity on your board. It requires you to explain where you looked, who you looked for, and really put forward the kinds of searches you did in coming forward.
If you don't have that and you simply state the figures in an annual report, it doesn't tell you what's going on behind.... You need to change the way that you recruit. You need to ensure that when you send out your recruiters you're asking them to have women put forward as possible candidates on the boards.
I think another thing that's important is that if you do not have board terms, then it makes it very difficult. The turnover can be very slow, and some members can be there for longer periods of time. I'm a great believer in aspirational targets. I think it sends a message that there is a percentage you should be aiming for. Once you start getting more women on your boards, then it starts to change the dynamic on those boards. I think it's very hard to encourage women if they're not seeing the change. It's no fun if you're the only woman on a board with 11 men. It's nothing to do with the men; it's simply to do with the approaches and the way that business is normally conducted.
I think there are a number of things that governments can do. We look at the Ontario Securities Commission, the comply or explain. I think you look at recommendations around term limits and what you are going to do with your boards. I think it's good governance. The leading practices on good governance now would say that term limits are important. Those are a number of factors.
We can certainly go out of our way, and there are a number of lists of women who would like to get on boards.
Really quickly, with regard to the diversity issue, we haven't even talked about persons with disabilities. Fifty per cent of the population who are registered and who want to work are not able to find employment. Those are the ones who are registered. It's a serious problem for this country.
With regard to that issue and also with regard to reviews—because I believe those are important when we start looking at mandates—are you aware that, if we went through this, and we walked the other groups through this, for this review right now that's been offered, five years has popped up, but nothing is in the bill right now? As it stands right now, this was presented in the House of Commons and to this committee with no amendment to this review. A five-year review would probably take about seven to eight years at a minimum to actually get back to a parliamentary committee, by the time you factor in elections and all the different anomalies that will take place along the way.
In the past, for newer legislation, I've introduced amendments to legislation that were for two years followed subsequently by five years and so forth. If we didn't review this legislation for another, I guess, seven or eight years, which is the quickest turnaround time for it, would that be a disadvantage for Canada, for our business community, and for our international obligations?
I'll ask both Ms. Beckton and Ms. Woodside to comment on that.
I'll be quick just to make sure that even the committee understands this. If we get a review period, it could be spent as a matter of moments in a committee, it could be another full hearing, it could be an hour, and it could be scoped down to any particular item.
This committee has dealt with previous legislation. I've passed many amendments to legislation that have been basically a two-year review. It then gives the opportunity, say, for example, for the main body to come back or for interests from the government to give an update so to speak.
We could literally spend a half an hour on something, we could pass it in moments, or we could have full hearings. It's now a choice and it gives the minister some powers—and I think there were some people critical of my description of the minister's powers in this. It's like a carrot and stick approach. We're watching, and if there's some good behaviour that comes along in front of us, we'll get a chance to review that.
I want to quickly transition, though, over to the effects of what we could do against organized crime in this bill. I had a single-event sports betting bill that narrowly failed in Parliament. It was less about betting on single sports than it was about getting rid of organized crime. In fact, we had ex-Interpol agents, ex-RCMP, ex-provincial police, in a series, who couldn't testify in their jobs but outside their jobs they were and had been working on it. The bill would have taken about $10 billion away from much of the organized crime that was going to human trafficking, including the sex trade. That would eliminate money laundering for a series of different issues related to everything from drugs to anything under the sun. The most lucrative aspect for organized crime is single-event sports betting, and it's a global phenomenon in a sense that it is being addressed.
I'll turn to Ms. Woodside here.
Considering that Canada just signed the EU trade agreement and that the EU is well-advanced on this, we're described as an outlier. Now there's a term called “snow washing” related to Canada. By taking these steps and others that you're proposing in front of this committee, do you think the legislation would remove Canada's stigma of at least being, I guess, in the doldrums of an advancement of getting to organized crime?
Beneficial ownership opacity has been identified by the Toronto Star
, which I think, had a part in coining the term “snow washing”, by many groups in Canada, and internationally at different global forums, as the key issue in tackling organized crime, money laundering, and tax evasion.
This is the critical piece of information that authorities are missing, that people can't find out. Who is actually controlling a company? The evidence supporting this is very strong. The model that Canada has adopted or has decided to not change, to continue with, is one that relies upon financial institutions and other bodies to collect information and do the best they can to verify it, which they largely can't do. Then if authorities need that information, they access it from financial institutions and they share it internally.
One of the documents that has received insufficient attention in Canada is the Financial Action Task Force evaluation, which was released in October of 2016. In this evaluation, they called on Canada to give priority action to beneficial ownership, and they pointed out some important problems.
First, they found that Canada does not have mechanisms to verify information, so financial institutions can't do this. Financial institutions in other jurisdictions that have been engaged in these conversations have said they need this information and that they cannot verify this information independently. BMO, for example, has been a global supporter of a global beneficial ownership registry, which was launched last year by many different civil society organizations including the B Team, which is a business civil society organization.
This has been recognized by financial institutions in that it's very difficult for them to fulfill this obligation.
One of the things that could be done would be to look at the FATF evaluation, which points, firstly, to the verification of information. Secondly, it says that when that information is shared, the legal hurdles to sharing the information make it so slow that the RCMP is not getting information in a timely fashion, which is hampering investigations. We are pushing for a public registry and that will overcome all those legal hurdles. The evaluation points to that.
The third thing is that they're not investigating them at all, and you have to ask why. It's very difficult to investigate something when you don't have the information. In Canada, we do not want our authorities to give up investigating companies, because that's how the label of “snow washing” sticks.