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Results: 1 - 15 of 16
View Mark Adler Profile
CPC (ON)
View Mark Adler Profile
2015-05-12 10:06
In terms of the practitioners, presumably you're working with the professions to educate them on the value of encouraging their clients to disclose voluntarily. Could you talk a bit about what you do with the professions to educate them on that front?
Ted Gallivan
View Ted Gallivan Profile
Ted Gallivan
2015-05-12 10:06
We have a very close relationship from small to large, so with the CFIB, the Canadian Payroll Association and CPA Canada, the accounting community, with seven formal subcommittees, we have regular cross-communication. In other words, they push out communication messages to their members and they look to us for information.
We would provide them information regarding the VDP, as I mentioned, certainly around the timing. Again, back on January 1 we were starting to get new FINTRAC data. The time is right; we draft an article, and then they push it out to their members through their publications, through their websites, through their communication means.
Patrick Johnston
View Patrick Johnston Profile
Patrick Johnston
2015-05-05 9:03
Thank you, Mr. Chairman, and members of the committee for inviting me to testify today.
As terrorist organizations have marshalled unprecedented funding for their activities recently, the need to address counterterrorist finance policy is clear. Accordingly, my remarks today will focus on the Islamic State, also known as ISIS or ISIL, a group that I've been studying extensively since 2012.
Over the last year ISIS has risen to become the richest and most threatening terrorist organization in the world, and ISIS' recruitment of hundreds of Canadian and U.S. citizens makes it a special threat to North America.
I'm going to divide my testimony into three main parts. The first will look at how ISIS raises and spends its money; the second will examine the impact of current coalition efforts against iSIS' finances; and the third will offer steps that Canada, the U.S., and coalition partners could consider to enhance the effectiveness of these efforts.
Disrupting ISIS' financing presents a special challenge for western countries because its funding sources differ from most other terrorist groups of interest to Canada and the United States since 2001. Unlike groups like al Qaeda and Hezbollah, for example, ISIS finances its operations by raising the vast majority of its revenue internally from territory that it controls. It doesn't rely on deep-pocketed donors, Islamic charities, or state sponsors, which are vulnerable to traditional counterterrorism finance instruments such as targeted sanctions. This makes ISIS both unique and a very resilient financial adversary.
How exactly does ISIS make its money? It's established a diverse set of revenue streams that include extortion, oil sales, looting of rare antiquities and other stolen goods, and tax collection. It's also raised smaller amounts of money from kidnapping for ransom, foreign donations, and money smuggled into Syria and Iraq by foreign fighters.
The coalition's biggest success so far in disrupting ISIS' finances has been in terms of its oil revenues. Last summer the group was making between $1 million to $3 million U.S. per day, and this is just on top of all of its other revenue streams, as well as approximately $1.2 billion that it accumulated in existing assets.
After the coalition began a counterterrorist campaign against ISIS in September, air strikes on its oil infrastructure have helped to disrupt these revenues. The air strikes reduced ISIS' oil extraction capabilities to as little as 5% of what they were at last summer's peak rate. These production decreases coincided with the sharp decline in oil prices worldwide, so ISIS' oil revenues are now reported to have dropped from approximately $1 million to $3 million per day to about $2 million per week.
This represents a significant decrease in what was previously ISIS' main revenue source, but it hasn't been enough to meaningfully degrade ISIS' ability to operate and to fund these operations. The reason why is simple: ISIS isn't a petrostate. It retains lucrative internal revenue streams from which it continues to make an estimated $2 million to $3 million each day.
Compared to recognized nation states, ISIS' economy is small. It would be in the bottom 10% to 15% of all countries in terms of GDP, falling somewhere between Belize and the Gambia. But as a terrorist organization ISIS remains extremely rich.
The self-proclaimed Islamic State does have grand ambitions but its operating costs are relatively modest given these ambitions. It minimizes investments in service provision, infrastructure, and materiel, and most of ISIS' spending actually goes into one or two areas, which are wages and personnel costs, and running a Sharia-governed police state essentially on the cheap.
However, ISIS has managed to increase its manpower on the cheap by attracting recruits who are more interested in its extremist ideology than the size of their paycheque. The reports on ISIS' salaries vary, but even if the high-end estimates are correct—which are about $500 per month—ISIS' personnel costs would still be less than one-quarter of its estimated revenues, leaving ample resources for it to fund its various religious, media, and military operations.
I have a few recommendations. The first is to support new and ongoing efforts to disrupt terrorist organizations' internal revenue-generating capacity. ISIS' wealth is inextricably linked to the territory that it controls. Building a local and regional security force capacity is going to be necessary in order to reclaim the territory that ISIS uses to fund itself.
The second is to find and to seize existing ISIS financial reserves and cash stores. ISIS' war chest is large enough right now that failing to seize it may enable the group to weather the storm of what otherwise might be successful efforts to target its finances.
Third and finally is for counterterrorism operations against ISIS to prioritize not only the group's high-level leadership, but also its administrators and financial facilitators who account for and distribute the group's money. Targeting these nodes, whether kinetically or non-kinetically, can disrupt the group's financial operations and provide valuable intelligence for further unravelling its financial networks.
Thank you very much.
Matthew McGuire
View Matthew McGuire Profile
Matthew McGuire
2015-04-23 9:02
Terrorism is not new.
My name is Matthew McGuire. I'm the national anti-money laundering practice leader of MNP. We're the fifth-largest accounting firm in the country. My professional life involves developing risk-based approach, anti-money laundering, and counterterrorist frameworks for financial institutions and other reporting entities across the country. Thanks to this government, I've also helped the governments of Panama and Trinidad to develop their capabilities.
I really appreciate this opportunity to provide input into terrorist financing threats, harms, and countermeasures. I'd like to talk about two main themes. One is the existing framework and how it might be improved in terms of reporting entities and their responsibilities. Second is the accounting profession as it relates to terrorist financing.
The fight against money laundering and terrorist financing is really a battle against crime, and lawmakers across the world have decided that the best way to go about this is to encourage criminals to abandon their craft by taking away the financial incentive and by making it too hazardous to conduct their activities.
To maintain a hostile environment, countries have adopted measures such as establishing financial intelligence units and dedicated law enforcement. They've also deputized reporting entities. They've asked reporting entities, such as banks, to maintain their own hostile environments. Because money launderers and terrorist financiers take refuge in anonymity and opaque and complex transactions, the environments in which they're required to surrender their identities and in which their transactions create trails and are subject to scrutiny are hostile to them.
International standards were leveraged, of course, after world events that highlighted the significance of the threats of terrorism. In the case of terrorist financing measures, they're principally designed to increase public safety by depriving terrorists of the means to support their wrongful aims and acts. Rather than diminishing financial incentives, these measures are designed to deprive terrorists of the means to pursue their objectives. More importantly, they provide intelligence into the networks, ways, and means of terrorists.
Deputized reporting entities, those that have responsibilities and have to create the hostile environment, have three main responsibilities. They have to screen names. They have to assess and manage terrorist financing risk. They have to report and freeze terrorist assets and transactions.
Continuous name screening is required of certain reporting entities because of the United Nations Act and the Criminal Code. It's arguably the most significant counterterrorist financing tool in a reporting entity's arsenal, but it's not well forged and it hasn't been all that effective. The lists that must be referenced lack sufficient details, have few details on associates, or are out of date, and the guidance is seriously wanting.
It's wanting because the legislation is ambiguous, and there's no comprehensive authoritative guidance on the frequency of screening. There is no identification of fields against which we should screen, of the algorithms that might be used, or of appropriate means for resolving false positives. Reporting entities therefore have inconsistent and uneven responses and, as Garry mentioned, there's no requirement for certain reporting entities, such as money services businesses, as financial intermediaries to conduct continuous monitoring of their transactions for terrorist financing.
I was glad to see that economic sanctions were one focus of the recent budget. I would suggest that those funds could be allocated to improving the quality of available data.
In terms of assessing and managing risk, reporting entities are universally required to assess and manage their risk of terrorist financing. To do that, they have to understand the threats they face and the significance of the realization of those threats. In our experience with reporting entities, they do not meaningfully assess and manage their risk of terrorist financing. At best, the topic is dealt with superficially. Neither do regulatory examinations draw attention to these weaknesses.
An understanding of these threats comes from experience and knowledge transfer. Reporting entities understandably have very little experience and, therefore, they depend on knowledge transfer. The financial action task force calls on us as a country to provide a threat assessment in order to be able to inform our assessment of risks and the tools we design. Without that information, it is nearly impossible to design the tools we need for this fight.
As I say, terrorism and terrorist financing are not new. Knowledge transfer must begin and must continue unabated.
I'd also like to comment on the remarks of Professor Bill Tupman to the committee on March 31. For reference, he suggested that accountants were instrumental in terrorist financing operations. I agree that any large organization could benefit from accounting skills, but let's go after the bad apples, not the tree.
To conclude, terrorism is not new: think Belfast, Oklahoma City, Air India. The maturity of our regime of countermeasures cannot be blamed on the novelty of terrorist financing and should not continue to be arrested. For the contributions of reporting entities to be meaningful over the long term, they must benefit from rigorous education and intelligence regarding the threats that face us; comprehensive guidance to identify risk, detect nefarious actors, transactions, and assets; and intelligence sharing.
View Mark Adler Profile
CPC (ON)
View Mark Adler Profile
2015-04-23 10:10
Okay, thank you.
Mr. McGuire, do we need some kind of international...? You mentioned Mr. Tupman's testimony a couple of weeks ago here at the committee. He also brought up the whole issue of the accounting profession. Do we need to deputize accountants to...?
Matthew McGuire
View Matthew McGuire Profile
Matthew McGuire
2015-04-23 10:10
Well, fortunately we have. Let me qualify that and say that professionally designated Canadian accountants are covered. Accountants with some letters from somewhere else, who aren't professionally designated, are not covered by our legislation, and neither are bookkeepers.
I don't think the scope is big enough in the legislation at the moment, but professional accountants are covered by the legislation.
Bill Tupman
View Bill Tupman Profile
Bill Tupman
2015-03-31 9:12
Thank you, Chair.
The first point I'd make is that if you really want a longer presentation from me, I did a lecture tour of Australia a couple of years ago and you can see a YouTube video of my doing a 40-minute presentation, with jokes, on the mix of terrorist financing, but I'm going to spare you the jokes and the 40 minutes. For the sake of the interpreters, I'm going to try to make six or seven quick points.
The first point is that my present interest is the increasing overlap between terrorism and organized crime, that they are engaged in very similar sorts of activities, that they are both networked and organized as networks rather than as Weberian pyramids, and that they are primarily cellular.
My second point is that we need to remember that most terrorist operations now are self-financed. The cell finds its own financing for the particular operation. There is seed core financing for what we might call spectaculars, and for setting up an organization for the purposes of recruitment. If we're going to talk about terrorist financing, we need to recognize those differences.
My third point is that states are back as terrorist financers. There was a period when it appeared that we were dealing with organizations that were non-state actors. As things have changed over the past five years, increasingly the big organizations are being funded by states. I'm not going to name them because I don't know whether I'm under the Chatham House Rule or whatever, but they're fairly widely known, and if you're going to stop terrorist financing you need to address the question of those states.
My fourth point mirrors something one of the earlier speakers said. We're dealing with a series of new technologies. Social media represents one of those technologies, but we also need to remember there are alternative forms of payment, such as bitcoin, and there are all sorts of money substitutes used in games, like Second Life. An awful lot of attention by the security services is focused in the wrong place. We don't need gathering of general social media. The bad guys have now gone to Tor; they've gone to the deep web where the pedophiles are and where all sorts of dissidents hang out. We need to know a lot more about how to investigate what's going on there.
My fifth point is that again over the last five years we've seen the rise of the terrorist accountant. It sounds like a contradiction in terms. Accountants are supposed to be terribly dull people and terribly worthy, but accountants are now very important in assessing businesses for the tax or extortion they're going to pay to the terrorist organization. We need to remember that not just banks lend money, but also accountancy firms and firms of solicitors. We need to pay more attention to the accountancy profession.
My sixth point again mirrors something somebody else has said. The most important thing is better trained investigators. We have enough laws. We don't need more laws; we need more competent investigators to produce evidence and prosecute. One of the big traces you need to follow is, who is now dealing with the suspicious activity records? Is anything being done with them? Are they genuinely being analyzed, or are they just piling up on a computer somewhere?
My seventh point is that we should remember the objective of countering terrorist financing is the same as the objective of all counterterrorism. It must reduce the number of terrorists.
If we use blunt instruments that hit non-terrorist targets that hit spectators, we will end up increasing the number of terrorists.
My final point is the Islamic State point. The Islamic State since it captured Mosul has access to large funds and doesn't really need to raise a lot of money elsewhere, but it's also able to sell oil. We need to know where that oil is going, we need to track it, and we need to make sure the money is not getting back to them.
Those are my eight points. Thank you very much for listening. I will enjoy taking questions.
View Mark Adler Profile
CPC (ON)
View Mark Adler Profile
2015-03-31 10:06
Thank you.
I want to follow up with Mr. Tupman.
You talked about the accounting profession. We have this impression of accountants as being rather cerebral and boring kind of people, but I was intrigued by your comment that we should be paying more attention to the accounting profession. Could you speak a bit more about that?
Bill Tupman
View Bill Tupman Profile
Bill Tupman
2015-03-31 10:06
We know that in the areas where the al Qaeda offshoots and the Islamic State operate, one of the ways in which they fund the operation is by asking for a per cent of turnover from the individual businesses within those areas, and there are teams of accountants who go into the businesses and work out what their annual turnover is. This appears to have come out of al Qaeda's operations back in Afghanistan after an Egyptian ran off with $10 million from the central fund. From that moment onwards, they've gone for auditing and accounting, and as they developed a team, that team has gone out and looked at other branches of the organization and estimated what their turnover is so that if you signed up to al Qaeda, whether it be al Qaeda in Yemen, al Qaeda in Mali, or whatever, you are supposed to repatriate money to the central organization. That money is audited. That money is accounted for. Those accountants will also look at the companies operating within the area.
What I'm trying to say is, the relationship between organized crime and terrorist organizations over a certain size needs to be understood in the same sort of way that organized crime can sometimes just be another business. It's just an illicit business and it's expected to pay its share of turnover as a revolutionary tax, or whatever you want to call it, in the same way as legitimate businesses.
If you're interested in this, just this week my colleagues and I produced a special issue of the journal Global Crime, which covers a number of case studies in different countries on the interface between organized crime and terrorism. We've done quite a bit of work on this and encouraged other people.
Matthew McGuire
View Matthew McGuire Profile
Matthew McGuire
2014-05-15 15:42
Thank you very much.
My name is Matthew McGuire, and I am the chair of the anti-money-laundering committee of the Chartered Professional Accountants of Canada. I'm a CPA, a member of the Department of Finance's public-private advisory committee on AML and ATF, and a partner and the national anti-money-laundering practice leader at MNP LLP.
We appreciate the opportunity to provide input on the amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act proposed by Bill C-31. My comments today focus on the issues relevant to accountants and accounting firms arising from the proposed amendments and certain areas where there are amendments that we hope to see.
The Financial Action Task Force, of which Canada is a member, released its updated recommendations in February 2012. We're concerned that the proposed amendments would not completely align the PCMLTFA with the expectations of accountants and accounting firms articulated in those recommendations. In particular, FATF recommendation 22 sets an expectation that anti-money-laundering obligations for accountants should be triggered when they prepare for or carry out transactions for their clients concerning the following activities that we believe should be covered: the organization of contributions for the creation, operation, or management of companies; and the creation, operation, or management of legal persons or arrangements.
One of the greatest challenges in complying with the anti-money-laundering legislation is the determination of “reasonable grounds to suspect” in the case of a suspicious transaction report for money laundering or terrorist financing. Reporting entities need information to confirm whether their basis for suspicion of money laundering or terrorist financing is valid in order to develop meaningful processes for risk and transaction monitoring following the submission of those reports. The amendment in the bill that provides FINTRAC the ability to make public their involvement in cases where they make disclosures and there was a prosecution is laudable, but we think it could be expanded to make public any details of suspicious transactions and the indicators that supported the disclosure and their characteristics, of course without identifying the person who submitted it. That intelligence would surely help reporting entities, from accountants to banks to credit unions, improve their monitoring and reporting practices.
We are also concerned about proposed section 68.1 of Bill C-31. It would permit FINTRAC to file with the court suspicious transaction reports and other voluntary reports in the case of any action, suit, or legal proceedings brought or taken under the PCMLTFA. We submit that in the case of such filings, the details about the reporting entity—the folks who submitted the report—should be sealed so as to not discourage suspicious transaction reporting volumes and quality for fear of public scrutiny of those reports.
We'd also like clarity on the ministerial countermeasures with regard to the regulations that support those countermeasures. The full range of possible countermeasures is not known; therefore, we're concerned about the practical extent to which our members will be able to design systems and processes quickly to adhere to them, and the agility they require in that respect. We would ask that any regulation supporting these measures would provide sufficient lead time for compliance with the directives.
Common among reporting entity sectors, from banks to real estate brokers to dealers in precious metals and stones, is a frustration with identification standards, particularly in cases where the client does not present themselves physically for identification. Altogether, the program of client identification is not proportionate to risk, is burdensome compared with the regimes in other countries, and doesn't appear to be addressed in this bill. We understand, however, that the Department of Finance is addressing it in the course of regulations. We fully support a move towards a more practical and risk-based approach to knowing who we're dealing with.
In closing, we'd like to outline some of the changes we'd like to see as time moves on. Under the current regulations of the act, an “accountant” means a chartered accountant, a certified general accountant, or a certified management accountant. When the unification of the profession is complete across the provinces, we would like the act to reflect that renaming as well as the change from the CICA handbook to the CPA Canada handbook.
View Mike Allen Profile
CPC (NB)
Okay. So that's a good alternative.
Mr. McGuire, I'd like to go to you. You talked a little bit and I was intrigued by your comment with respect to proposed section 68.1, regarding FINTRAC and how they would seal details regarding a reporting entity. You talked a little bit about being able to protect the reporting entity on that. I wondered what specifically were you thinking about. Did you have a specific amendment in mind on that, which would protect that reporting entity? What was your thought there?
Matthew McGuire
View Matthew McGuire Profile
Matthew McGuire
2014-05-15 16:34
Thank you.
The idea is simply that a suspicious transaction report happens when a financial institution or accountant gets to the point where they suspect the client they are dealing with is involved in money laundering or terrorist financing. There's a threshold they get to, and they describe in fair detail within the suspicious transaction report what they found suspicious, the basis of suspicion, and what they've done about it.
It also can reveal a fair bit about the mechanisms the institution used to detect the behaviour in the first place. In my view, having that information become public could be detrimental in a whole number of ways. In the U.S. we've seen lawsuits started by the subjects of the reports against the institutions that filed them.
I think there must be a mechanism to either summarize the information in the suspicious transaction report, or otherwise redact or anonymize it for the purposes of those proceedings.
View Murray Rankin Profile
NDP (BC)
View Murray Rankin Profile
2014-05-15 16:39
Thank you.
My next question is for Matthew McGuire of the Chartered Professional Accountants of Canada.
In the written paper you presented, you say:
Common among reporting entity sectors is a frustration with identification standards, particularly in cases where the client is not physically present at the time of identification. Altogether, the program of client identification is not proportionate to risk, is burdensome compared to the regimes in other countries, and that situation does not appear to be addressed in this bill.
I wonder if you could elaborate on those comments.
Matthew McGuire
View Matthew McGuire Profile
Matthew McGuire
2014-05-15 16:39
Certainly.
Increasingly, as you might expect, interactions for financial services and otherwise take place without meeting the client face to face and pressing palms. They happen in online environments, over the phone, and in any number of other ways.
At the moment, the way things are set up, the non face-to-face measures require reliance on, for one thing, six months of Canadian credit history. You can imagine a new Canadian coming in not having that credit history and not being able to satisfy that requirement. The necessary condition is some sort of reliance on a Canadian credit history. The second thing is the sufficient condition. The sufficient condition is that you have to prove you have a Canadian deposit account or you have to clear a cheque. These combinations of methods rely on old systems. They are slow, and sometimes they can become frustrated. In the case of a credit check, if there is not an exact match of the address, for instance, the whole identification can be frustrated.
Carole Presseault
View Carole Presseault Profile
Carole Presseault
2013-11-05 12:56
Thank you, Mr. Chair.
Honourable members, thank you for the opportunity to participate in the pre-budget consultations leading up to Budget 2014.
I am pleased to be here today to deliver remarks and recommendations on behalf of the Certified General Accountants Association of Canada. CGA-Canada is currently working with the Chartered Professional Accountants of Canada to integrate operations under the CPA banner. My colleague to my left will go into this unification initiative in a little more detail. We think unification will enhance the influence, relevance and contribution of the Canadian accounting profession, both at home and internationally.
I'm very pleased to present to you today alongside my colleagues from CPA Canada. You will note that this is the first time that the accounting profession, comprising the three legacy bodies of CGA, CMA, and CA, has joined forces to deliver a coordinated message on the making of the federal budget. We really wanted to make your life easier, didn't we?
My comments will be brief and will be focused on two specific issues, taxation and internal trade, both of which are important to Canada's fiscal sustainability and economic growth. We support, as part of our co-branded brief with CPA Canada, the recommendations regarding standard business reporting and the patent box.
Let me talk about tax simplification. As a committee, you've acknowledged that the tax system needs to be simplified by recommending in your last two pre-budget reports that an expert panel or a royal commission be established to undertake a comprehensive review of the income tax.
Tax reform is like the weather. Everyone talks about it, but we can't do very much about it, or nothing very much is done about it. But in this case, we think a lot could be done.
We know that Canadians want a simpler, fairer, and more efficient tax system. We've asked them. These are some of the data that we have in a recent survey: 62% say that having a simple tax system is important; 81% of people surveyed ranked having a fair system a top priority; and 68% of Canadians favour eliminating some special tax credits to have their overall personal income tax lowered.
Canadians want tax reform, and we need to start the process. What a better place to start building consensus, we think, than here in Parliament and in this committee. We submit today that the Commons finance committee ought to consider setting the stage by undertaking a study that could examine how tax reform could be moved forward.
We know the benefits of tax simplification: lower compliance costs, higher compliance rates, less admin costs for the government, and a strong tax system with a more secure tax base and predictable revenue. The cost of a complex tax system? It's a barrier to jobs, growth, and long-term prosperity.
One last comment I want to make on tax is that we were very pleased with the passage of Bill C-48, the Technical Tax Amendments Act, 2012, because it helped clear a backlog of unlegislated tax measures that had accumulated over 12 years. But we know that more work can be done in this respect. Going forward, we need to prevent legislative backlogs from developing. We very strongly feel that a process needs to be established to deal with these technical tax amendments in a timely manner, such as incorporating them in legislation on an annual basis, and parliamentarians have the ability to improve the process.
Last, but not least, permit me to say a few words about internal trade.
CGA-Canada is pleased a comprehensive economic trade agreement with the European Union has been signed in principle. But we caution that, here at home, unfinished business remains. The federal government must work with its provincial and territorial partners to eliminate internal trade barriers to ensure that Canadian companies have the same access to local markets as our European competitors.
This means removing unnecessary and duplicative regulations that overlap from one jurisdiction to another, inhibiting trade. And it means establishing an effective dispute resolution mechanism that is more accessible to Canadians.
Governments must make progress on this issue. Persistent internal trade barriers and the ongoing perception of a fragmented economic union continue to hurt consumers, discourage investment and damage Canada's reputation as a place to do business.
The next meeting of the Committee on Internal Trade, which is comprised of the federal/provincial/territorial ministers, is fast approaching. CGA-Canada urges all governments to use this opportunity to work together to strengthen Canada's economic union.
Mr. Chairman, I thank you for your time. I would be pleased to respond, of course, to any questions the committee may have.
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