Opening Statement to the Standing Committee on Finance

Canada's Strategy to Combat Money Laundering
(Chapter 3 - April 2003 Report of the Auditor General of Canada)

27 May 2003

John Wiersema, CA
Assistant Auditor General

Madam Chair, thank you for this opportunity to appear before the Committee to discuss combatting money laundering. I have overall responsibility for audit work in the Department of Finance portfolio, which includes the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

With me is Richard Smith, a Principal in the Office who assists me in our work on the Department of Finance, and who was the author of our study Canada's Anti-Money Laundering Strategy that was released in April.

I will talk first about why we did the study, and then provide a brief summary of what we concluded.

This Committee is, I know, very familiar with the issue of combatting money laundering, and the federal government's efforts to combat it through its hearings held on the Proceeds of Crime (Money Laundering) Act in 2000, and when the Act was amended in 2001. Members will recall, therefore, that the Act contains a provision stating that Parliament must review the Act and its administration within five years of coming into force, that is, by July 2005.

To assist parliamentarians in their review, the Office of the Auditor General has developed a reporting process on this issue with two parts.

• The study that was released in April sets the stage for a future audit of the federal government's strategy to combat money laundering. It describes money laundering and the key challenges to combatting it.
• The second stage is an audit planned for November 2004, in which we will address the issue of how well those challenges are being managed.

Members know that money laundering is a form of financial crime in which the proceeds from criminal activity are made to appear legitimate. The goal of many criminal acts is to make a profit for the individual or group that commits the crime. A strategy to fight money laundering seeks to reduce crime by making it harder for criminals to keep and use their profits.

International efforts to fight money laundering have been under way for more than 15 years. They were part of the war on drugs, expanded to include the proceeds of most other serious crimes, and most recently have included anti-terrorism efforts.

The building blocks of Canada's strategy against money laundering were put in place in the late 1980s and early 1990s. While the system that Canada put in place was broadly consistent with international standards of the time, those standards were changing. Canada was criticized for lagging behind.

Canada launched the National Initiative to Combat Money Laundering in 2000 to close these gaps. Its centrepiece was a new Proceeds of Crime (Money Laundering) Act. A total of $139 million was budgeted over the first four years to establish the Financial Transactions and Reports Analysis Centre of Canada and to help the Centre's partners to perform their roles. In 2001 both the Act and the mandate of the Centre were amended to include provisions to detect and deter terrorist financing. The Centre received an additional $34 million over three years for that role.

Canada's strategy to combat money laundering seeks to strike a balance among its various objectives. They are to strengthen law enforcement, protect personal information, and support international efforts to combat money laundering. The strategy also seeks to keep to a minimum the costs that organizations, such as banks, trust companies, and foreign-currency exchanges, incur to comply with the requirements to keep records, identify clients, and report unusual or suspicious transactions. With the new law, the balance has shifted to give greater weight to strengthening law enforcement, in Canada and abroad.

To meet its goals to reduce money laundering and terrorist financing, the federal government will need to deal with a series of challenges. These include the following:

• to protect the privacy rights that Canadians enjoy under the Canadian Charter of Rights and Freedoms,
• to develop financial intelligence that is high in quality, and that assists law enforcement and other agencies in their investigations,
• to respond to the particular challenges posed by terrorist financing, such as following the trail of small deposits and withdrawals,
• to make financial organizations and the public aware of the new rules under the legislation and to ensure that they comply with the rules,
• to establish and maintain effective working relationships across a broad range of partners and stakeholders, and
• to measure how effective the federal efforts to combat money laundering and terrorist financing are.

Each of these challenges is described in more detail in our report.

As I mentioned at the outset, the audit that we plan to report in November 2004 will focus on how well those challenges are being managed, and should contribute to the parliamentary review of the Act that is required by July 2005.

Madam Chair, we would be pleased to respond to the Committee's questions.