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Results: 1 - 15 of 20
Loretta Napoleoni
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Loretta Napoleoni
2015-04-30 10:32
I think we should analyze what has happened with the Islamic State, which has developed a new model for financing terrorism. I think the greatest risk is that this model will be emulated by other groups and then taken from country to country. The most important elements are the territorial control of areas with strategic resources, in regions which are plagued by war and political anarchy; constitution or joint ventures with the local population in order to seek consensus but also to maximize revenues; and finally, the creation of a fiscal structure whereby the Islamic State levies taxes upon the population for the use of infrastructure, and services such as electricity and water, but also for access to the judiciary system.
This is a system which is very difficult to alter when it comes to terrorist financing because it's completely self-funded. If we look at how it is structured, it is a closed economy that does not tread internationally. There is no movement of funds going through the Islamic banking system or the traditional banking system. Everything takes place at a local level. Often, the population of the neighbouring areas with whom most of the smuggling and trade takes place has no other choice. These are people who are not part of the Islamic State but they are, to a certain extent, conditioned by its economy. The only possible way of intervening in this new model of terrorist financing is through the small donations from the west that are still taking place, mostly from families and friends of the jihadists who have joined the Islamist State, or even the jihadist brides.
We can call these a sort of micro sponsorship. Transfers take place through the informal banking system, Western Union, the hawala, and from friends travelling to neighbouring countries. The transfers are always in very small amounts. We're talking about amounts below the $500 limit. Another way of micro financing is through electronic currency. This is something that Hamas has also used in the past. It is very difficult to monitor this kind of transaction because every single day there are so many taking place around the world. There are often communities that live on transactions of this kind from the diaspora of their own nations.
In conclusion, I have two recommendations.
The first one is that we absolutely prevent the success of the Islamic State model, because if it is successful, it is going to be the model for the 21st century. War or military intervention is not going to help, because as we've seen, this is a model that blossoms within that kind of environment. It would be much more effective to offer a choice, an alternative to the communities which are interlinked economically with the Islamic State, for example, those communities that trade and bordering countries. This of course requires a pacification of those regions. As long as we are in a war and there is political anarchy there is very little we can do about that.
The second recommendation is the screening of these micro sponsorships. This screening should take place through profiling. Many people regularly to send money to their families and friends. Through profiling we can create a database that will help us pinpoint when somebody is sending money for reasons unrelated to their family, but rather for sponsoring jihadists, or people joining the Islamic State or any other organization..
Thank you.
Tom Keatinge
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Tom Keatinge
2015-04-30 10:38
Thank you very much.
Good morning, everybody. I'm delighted to have this opportunity.
My name is Tom Keatinge, and I'm director of the Centre for Financial Crime and Security Studies at the Royal United Services Institute, a defence and security think tank in London. Prior to this I was an investment banker at J.P. Morgan for 20 years.
At the centre, we are dedicated to researching matters related to finance and security. We focus on two themes. One is financial crime policy, such as developing the relationship between governments and private sector banks in the fight against money laundering and terrorist financing. That includes enhanced information sharing. Then there are topical matters, such as ISIS financing, the role of financial intelligence in identifying foreign fighters travelling from the U.K., and the like.
Terrorist financing as it relates to ISIS has become mainstream news. The way, as has been indicated, that ISIS finances itself is from taxation, extortion, oil, and looting of antiquities. It has really become a mainstream news topic, but of course it's not a new phenomenon; it goes back for many years. Immediately following 9/11, the first shot that President Bush fired in his war on terror against al-Qaeda was to announce a strike on the financial foundations of the global terror network. From the U.K. perspective, obviously further back, the Provisional IRA created impressive financing models prior to that.
Those groups that want to move from a hand-to-mouth existence to a more planned and organized model need finance if they are to achieve their objectives. Finance is their lifeblood, but it's also their main vulnerability. Whilst individual attacks are cheap, building and maintaining an infrastructure and an enabling environment is not.
Global CTF policy, as I'm sure we know, is set at a multi-lateral level through the recommendations of the Financial Action Task Force, along with the raft of CTF-related UN Security Council resolutions, such as 1267, 1373, and the range of ISIS financing-related resolutions that we've seen in the past 12 months.
In general, terrorists can draw financing from two primary sources: internal and external. Internal financing occurs in places in which groups control territory and population. Funds are generated by taxing businesses, people, and transport, operating smuggling routes, and profiting from trade. As has been pointed out, ISIS is excelling in this regard.
Funding may also be provided from external sources: from donors, be they wealthy supporters such as those we've seen from Gulf countries, members of a diaspora community, or simply those who are inspired to support a particular cause.
Stemming the flow of external funding is clearly easier than disrupting internally generated funds, but even external disruption is challenging, if the international community fails to unite. Witness the extent to which the charcoal industry continued to finance al-Shabaab, despite international condemnation and UN Security Council resolutions to the contrary. Kidnap for ransom is another external source when international coordination has failed.
But if terrorist groups are to establish themselves, survive, and thrive, they need to develop reliable sources of financing based on the territory, population, and resources where they operate. Al-Qaeda in Iraq recognized the critical importance of finance. A declassified "lessons learned" document captured in Iraq following the 2003 invasion revealed that poor money management and irregular income were viewed as critical contributors to the group's failure.
But reporting regularly brings into question how effective global CTF efforts are. Donors fund more money to Syria; ransoms continue to be paid; trade flows, such as of oil, narcotics, and charcoal, continue to finance terrorist groups; and despite the evaluation work of the FATF and other multi-lateral organizations, the CTF regimes of many countries fall short of expectations. The extent to which terrorist groups appear to be proliferating suggests that groups are adapting to take advantage of what Osama bin Laden referred as the cracks in the western financial system.
So national and international CTF architecture must be constantly reappraised. Unlike money laundering, which represents a relatively consistent and static risk, terrorist financing risk fluctuates and evolves with geopolitical developments. It's not long ago that companies and banks were investing heavily in Turkey and Libya. Now they are exposing themselves to terrorist financing through those investments.
View Andrew Saxton Profile
CPC (BC)
What do you think is the most effective thing we can do as a government to combat terrorist financing?
Tom Keatinge
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Tom Keatinge
2015-04-30 10:56
As I mentioned, there are the internal sources that we have talked about already, the taxation and the like. It's very difficult to switch those off. I think what Canada as a government and other governments around the world can do is to make sure that the external sources are restricted to the greatest extent possible.
Now, as has been pointed out, the Islamic State benefits much more from internal funding, but nonetheless external sources have played a role. So making sure that the countries that surround Syria and Iraq are standing by their international obligations, that they have the necessary capabilities to monitor financial flows, to monitor informal systems—remittance companies, for example—all those things need to be done in a united fashion, and at the moment they are not.
View Nathan Cullen Profile
NDP (BC)
Okay.
Ms. Napoleoni, I'll start with you and then perhaps go over to Mr. Keatinge.
We've talked at some length in this committee about ISIS in particular. Do you have any sense of what proportion of the funds they are using to fight their war are coming through the sale of oil versus that from transfers from out of country, out of state, coming from Europe and North America?
Loretta Napoleoni
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Loretta Napoleoni
2015-04-30 11:25
I think the bulk of the money actually comes from their fiscal system. They're acting as a proper state, so people who need to access infrastructure pay fees to the Islamic State. We're talking about a very large number of people.
The smuggling is not as important, I think, because the smuggling is taking place through a joint venture with the local population. The people who are actually extracting the oil, smuggling the oil, and carrying it to the borders are not members of the Islamic State but are individuals who then pay a percentage of their profits to the local government.
The structure of the Islamic State is such that, very differently from other armed organizations, including the Taliban or the FARC or even the Red Brigades, we have a group—which is the military wing, let's call it, of the Islamic State—that only fights, and this is predominantly composed of foreign fighters. Then there is an administrative organization, a bureaucratic organization, which is generally composed of local people. At the end of the day we have a sort of interaction between the local population and whoever represents the Islamic State, and this is where the bulk of the money comes from. So it is run exactly as a state.
Can I just say one thing about the Club de Madrid? I was the chairman of counterterrorist financing for the conference of the Club de Madrid 2005 and I wrote the section related to country finances in the proposal. I think the entire proposal that the Club de Madrid did in 2005 is still incredibly valid today. The problem is that in order to be implemented it required cooperation at a global level that, in 2005, we did not achieve. But even today, the entire proposal I think can still be incredibly valid.
View Dave Van Kesteren Profile
CPC (ON)
Okay, I guess I get to wrap up.
It's almost impossible to wrap up this conversation, because we have gone in so many different directions, all of them fascinating. I don't doubt your expertise, madame, on terrorism and financing and all of those things, but there are so many aspects that you left out and so many areas—the geopolitical for instance, including Islamism. We had testimony about a week ago about that radicalism. I really don't think we need to go any further on that.
What I'd like to do is bring it back home. The intent of this study was to examine how we as a nation, Canada, can stop the flow of funds so that terrorism—we're going to try to do as much as we can across the seas—will not grow here.
I'm just going to give you all chance in a really quick roundup to say whether the systems we are putting in place are effective and whether you have a suggestion regarding how we can become more effective.
I've used up about two minutes of my time, so I guess that means you have three minutes divided by four. So do the math; that's 45 seconds each.
Let's start with the professor.
Loretta Napoleoni
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Loretta Napoleoni
2015-04-30 11:32
I think one thing that Canada could do is to work on radicalization by preventing these young people from being seduced, because we're talking about true seduction from this Islamic anti-imperialist front.
On terrorist financing, I must stress that there is a big difference between money laundering and terrorist financing. Money laundering is always done with illegal funds. Terrorist financing is sometimes done with legitimate funds. Often the funds become dirty or illegitimate only when they are used to carry out a terrorist attack. The key issue we must address is how to deal with money that is earned legitimately and then sent somewhere and then used for terrorist financing or for carrying out an attack.
I did a calculation before 9/11 and the amount of legitimate funds within the total terror economy was about one third. We're talking about large sums.
In reference to Canada, the money that is sent by the diaspora, such as the Iraqi diaspora in Canada or the Somali diaspora, is money that is clean. It is earned legitimately by people. But when it gets there, part of this money is used for terrorist activity. That is an area that requires a lot of research to find the legal framework within which we can legally block these kinds of funds.
Gerry Gaetz
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Gerry Gaetz
2014-11-18 9:07
Good morning.
I'm Gerry Gaetz, the president and CEO. I want to thank the committee for inviting the Canadian Payments Association to contribute to your study of Bill C-43.
I have a very brief opening statement to situate the Canadian Payments Association and to explain the relevance and importance of division 26 contained in the bill.
The Canadian Payments Association is Canada's main financial market infrastructure. We design and operate Canada's national clearing and settlement systems for payments. Financial institutions rely on our systems to settle with finality their daily payment clearing balances on the books of the Bank of Canada. Canadians, businesses, governments, and financial institutions count on our systems to clear and settle payments, such as cheques, preauthorized debits, direct deposits, bill payments, payments made at point of sale, and wire payments. Last year, the CPA cleared and settled $44 trillion, or about $170 billion on average every business day.
We're guided by public policy objectives of safety and soundness, efficiency, and the interests of users, including Canadians. These objectives are enshrined in the Canadian Payments Act. Financial institutions that are engaged in the business of payments are required to be members of the Canadian Payments Association, and they completely fund our operations. Today our membership stands at 113 financial institutions.
Our focus at the CPA is ensuring that these financial claims between member institutions can be settled efficiently and without risk. In addition to technical infrastructure, we develop rules and standards that, together with the Canadian Payments Act, provide a strong legal framework for the payments of today and tomorrow.
Bill C-43 introduces important amendments to the Canadian Payments Act and the Payment Clearing and Settlement Act. Amendments to the Canadian Payments Act in particular bring about changes to the governance of the CPA. We believe that they will enhance the governance, overall functioning, and accountability of the CPA, thereby helping us to better fulfill our forward-looking strategy for the continued modernization of what is already a strong financial system and payment system in Canada.
The CPA has been fully engaged in the process leading up to the drafting and tabling of the amendments. Let me highlight a few of the key changes. A smaller, more independent board of directors will support a broader, more inclusive representation of the payments ecosystem. The Minister of Finance will retain the power to disapprove rules made by the CPA, but the bylaw approval process has been made more efficient with a new category of administrative bylaws that require only CPA board approval rather than the current practice of requiring ministerial approval. As well, the act will contain a new accountability framework, including a five-year corporate plan approved by the Minister of Finance, an annual report, and directive power for the minister.
Since the first reading of Bill C-43 in the House on October 23, we've had a chance to examine the provisions in more detail and discuss next steps with the Department of Finance, particularly around the drafting of the regulations. I'd like to highlight a couple of important areas with respect to those regulations.
One area is that we believe the regulations should specify a timely process for the minister's approval of the CPA's annual submission. This is because the CPA operates systems and infrastructure critical to the day-to-day functioning of the financial system.
Finally, under the Canadian Payments Act, the minister has oversight and directive power over the CPA. Under the Payment Clearing and Settlement Act, the governor of the Bank of Canada has oversight over the CPA's systems. Under Bill C-43, this Bank of Canada oversight will be expanded to our second system's infrastructure, if the governor believes this to be in the public interest. It will be important to ensure that the potential duplication and oversight does not impede our ability to review rules and make changes required to respond to the interests of users.
CPA is working diligently to ensure a speedy and smooth transition to this new governance framework, which we believe will help the CPA be more effective overall in achieving its mandate.
Thank you very much.
Gerry Gaetz
View Gerry Gaetz Profile
Gerry Gaetz
2014-03-04 15:33
Thank you very much.
Good afternoon.
The Canadian Payments Association, as you know, is Canada's main financial market infrastructure. We design and operate Canada's national clearing and settlement systems for payments. While the CPA is a little-known commodity to most Canadians, it plays an essential role in their financial lives and in the day-to-day operations of financial institutions and businesses across the country.
The CPA systems ensure that payments between financial institutions, which represent the aggregation of payments made by Canadians and businesses and governments, are safely and securely completed each and every day. The value transferred across our systems each day is over $170 billion.
We're guided by the public policy objectives of safety, soundness, efficiency, and the interests of users. These objectives are enshrined in the legislation. Financial institutions that are engaged in the business of payments are required to be members of the Canadian Payments Association and they fund our operations. We're overseen by the Bank of Canada because of our importance to the stability of the overall financial system.
We do not operate at the retail end of the payments chain where the emerging digital payment technologies are conceived. Our focus is at the macro level and is concerned with ensuring that the financial claims between financial institutions can be settled efficiently and without risk. That's very important. However, in consultation with members and stakeholders we maintain a robust set of rules and standards that facilitate the deployment of emerging payment products and services, and existing payment products and services.
Obviously the national payment infrastructure needs to be responsive to the changing environment and the needs of users. If you'd permit me I'd like to offer a perspective of some of the trends from our vantage point. Like this committee, the CPA has been taking a hard look at the evolving payments environment. It is changing rapidly, creating both challenges and opportunities for industry, regulators, policy-makers, and of course the end user.
There are a number of emerging and important trends that certainly inform our view of the future and our direction. The emergence of online and mobile payments is a relatively recent phenomenon, although we're all talking about it a lot, and as such it represents a very small share today of overall payment volumes and value at the aggregate level. That said, the growth is there and certainly is expected. Most of consumer spending, as you know, is done using non-cash methods and consumers rely almost completely on electronic payment options at point of sale.
As an active global player, Canada is contributing to the harmonization of international payment standards. This is important because global standards for payment processing and payment messages will over time enhance Canada’s global interoperability and help better meet the needs of Canadian businesses for data to accompany a payment. Increasingly governments and central banks are becoming much more active in the payments ecosystem around the world as they seek to ensure greater levels of efficiency, safety, soundness, and the satisfaction of end-user needs.
Clearly payment methods are increasingly complex and they can create risk exposures for participants and users. Today we see, for example, new non-traditional and unregulated players in the payments space. We see the demands for faster payment processing, faster settlement and funds availability, and new delivery mechanisms, such as the mobile phone. All of these need to be carefully considered.
I'd highlight four interesting challenges for Canada, again from our vantage point: consistent and comprehensive user protection, understanding and managing risks, concerns with security and cyber-risk, and ensuring continued innovation in payments.
The digital revolution is transforming almost all industries and businesses today. These transformations have brought about significant efficiencies and capabilities. However, they introduce new challenges for policy-makers, regulators, and the industry.
As the payments industry undergoes this transformation, there will be an increased reliance on industry collaboration and coordination. By working together, we can ensure that the public policy objectives underpinning the Canadian payments system are respected.
Thank you.
View Glenn Thibeault Profile
Ind. (ON)
View Glenn Thibeault Profile
2014-03-04 15:56
In terms of business to business payments, we've been hearing about some concerns and some hope for some action on this. Does Interac offer an online solution for businesses looking to transfer payments?
Caroline Hubberstey
View Caroline Hubberstey Profile
Caroline Hubberstey
2014-03-04 15:56
Interac e-transfer is the P2P solution. That's how it started. It is taking off. It started at Interac about six years ago and I think there were about 40 financial institutions offering it. Today there are over 200. It is near ubiquitous. We're seeing a lot of particularly smaller businesses using it for a P2B, sometimes a B2B solution for transferring funds. We've seen financial institutions really gravitating towards the product where some of them are offering it and extending it out to their business clients. We're seeing a good change there and we continue to look at options to enhance the functionality, particularly for the small business sector.
View Andrew Saxton Profile
CPC (BC)
I look forward to your presentation. Thank you.
This next question is for Blackberry.
We're all familiar with BBM; but BBM money, how will that work?
Frank Maduri
View Frank Maduri Profile
Frank Maduri
2014-03-04 16:01
The way it works is that essentially—we're not involved in the financial transaction directly, so we don't want to get into a regulated industry—we're leveraging that channel as a method to initiate the transfer. Indonesia is where we launched it first. I think last week one of our presidents mentioned that we'll be expanding that globally.
Let's say you're in a conversation with your child at university, you ask how it's going, and they say, “I'm okay, but I ran out of money.” Instead of having to log out, go to your banking application, and send them a message, you could actually do it from the messaging application. The idea is that if you use BBM—and now that it works on iPhone, Android, and Windows, it's not limited—your child could be on an iPhone, you could be on an Android device, and you could be speaking back and forth.
So if your child says, “Hey, Mom, can you send me some money?”, you could click on the menu and see an option. Instead of sending a picture or sending an emoticon, you could actually send money. It would reach into your account—in the case of Indonesia, it's PermataBank—get the amount of funds, enter a pin code, and then send it to your child. They would get a confirmation that they'd received the money, and they could reply back, “Thank you”.
The idea is that we're trying to keep this concept of keeping the flowing going—no pun there—instead of your perhaps saying you'll do something, leaving the conversation, and then, chances are, forgetting to do it. We're trying to do it “in-band”, as we call it, rather than “out of band”.
So we're going to take that concept.... I can't really comment on it, but it's doing well enough that we want to expand it. We're seeing people use that person to person, friend to friend—i.e.,“Let's split the bill”—and also consumer to business. As a small-business person, you might want to pay your bill that way. Or maybe you went to a yoga instructor and they don't accept cheques or cash; you could actually BBM them money.
Richard Montroy
View Richard Montroy Profile
Richard Montroy
2014-02-26 15:39
Thank you, Mr. Chair.
I am here today with Ms. Gina Jelmini, who is our director of the offshore compliance division in our branch.
The CRA is pleased to have the opportunity to come before the committee today to speak about the Auditor General's report, chapter 9, “Offshore Banking”, which dealt with the Liechtenstein list received by the CRA. We appreciate the opportunity to highlight the CRA's efforts in combatting offshore tax non-compliance and to once again thank the Auditor General for his recommendations.
International tax evasion and aggressive international tax avoidance using offshore accounts are worldwide concerns and Canada is among the many countries taking action to fight this complex problem.
In 2007 the CRA was provided with a list containing information on individuals identified as potentially having undeclared income in offshore accounts in Liechtenstein. This was the very first time that such a list had been received by the CRA. Through its management of the list the CRA gained valuable intelligence about these types of offshore investment structures. This intelligence will assist the CRA in further detecting taxpayers who may have undeclared offshore income.
The Auditor General's report stated, “Overall, the Agency managed the Liechtenstein list as intended, with the information and tools it had.”
The report listed three recommendations, all of which were accepted by the CRA. The agency is taking a number of steps to address the issues identified in the report including establishing and communicating timelines to both staff and taxpayers involved in carrying out audits related to offshore accounts, analyzing its use of agreements with taxpayers under audit to ensure that their use reflects agency offshore project and program objectives, and ensuring that its objectives and audit procedures for offshore accounts reflect lessons learned and are documented, communicated and understood by staff.
In addition, new measures announced in the Economic Action Plan 2013 will provide the CRA with additional tools that will further build the CRA's capacity to combat international tax evasion and aggressive international tax avoidance.
These new measures include the following ones.
There is a new Offshore Tax Informant Program, or OTIP, which was launched in January of this year. The OTIP will pay individuals with knowledge of major international tax non-compliance between 5% and 15% of the federal tax assessed and collected as a result of the information provided.
We will require financial institutions and others to report information on international electronic fund transfers greater than $10,000 to the CRA.
We will also introduce enhanced reporting requirements for Canadian taxpayers with foreign income or properties, as well as extend the amount of time the CRA has to reassess those who have not properly reported this income.
The Canadian government has also committed $30 million over five years in support of these new measures to increase compliance efforts.
To oversee the implementation of these new measures, the CRA has established the offshore compliance division, which is a dedicated team that will be composed of 70 CRA employees with expertise in the fields of data analysis and auditing. This division will work with specialized teams whose focus will be on identifying individuals who engage in international non-compliance, developing and implementing effective strategies and program activities to counter offshore non-compliance, and increasing the CRA's overall ability to pursue cases of international tax evasion and aggressive tax avoidance.
Information sharing and international cooperation are key. The CRA has significantly improved its ability to obtain tax information from other jurisdictions through revised tax treaties and tax information exchange agreements, otherwise known as TIEAs, with non-treaty countries. Canada has one of the most extensive tax treaty networks in the world, with 92 tax treaties and 18 TIEAs now in force. All 18 TIEAs, it is important to know, have entered into force since 2008, as did four new tax treaties and eight updated tax treaties.
On November 21, 2013, Canada ratified the Convention on Mutual Administrative Assistance in Tax Matters. This convention is a multilateral instrument, whose purpose is to improve international tax cooperation and exchange of information between taxation authorities, in accordance with international standards, with a view to combatting international tax avoidance and evasion.
The CRA has a solid record in finding and resolving cases where individuals were participating in or promoting aggressive offshore tax avoidance, and we are seeing results. Since 2006 the CRA has audited nearly 8,000 cases suspected of having an aggressive international tax component and has identified approximately $4.58 billion in additional federal taxes from these compliance activities.
Through the CRA's voluntary disclosures program, taxpayers have an opportunity to correct their tax affairs prior to being audited by the CRA. It is the most efficient way for the CRA to address unreported income. Since 2006 the CRA has seen a dramatic increase in the use of this program, including those involving offshore accounts or assets, from 1,215 disclosures in 2006-07 to close to 4,000 in 2012-13. Total unreported income for this period was $1.77 billion, with just over $470 million in federal taxes owing.
Whether it’s a complex corporate scheme or individuals using tax havens to avoid or evade paying tax, the CRA is committed to ensuring that non-compliance is identified and addressed through education, research, international collaboration, supporting legislative change, communication, audits, and other compliance activities.
Thank you, Mr. Chair.
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