Opening Statement to the Standing Committee on Finance
3 February, 2005
Douglas Timmins, CA
Assistant Auditor General
Thank you Mr. Chairman. I am very pleased to appear before the Committee to discuss our recent audit of the implementation of the National Initiative to Combat Money Laundering. I am accompanied by Basil afiriou, the principal in the Office who led the audit team.
We appeared in front of this Committee in May 2003 to present the main findings of a study that described money laundering and identified key challenges to combatting it. This audit follows from that study and focusses on the National Initiative to Combat Money Laundering that the government launched in 2000.
Financial institutions and other providers of financial services are now required to report certain financial transactions to the Financial Transactions and Reports Analysis Centre (FINTRAC). FINTRAC analyzes these reports for links to money laundering or terrorist financing activities and discloses pertinent information to the police and other authorities. In 2003-04, FINTRAC received some 10 million transaction reports. It made 197 disclosures to law enforcement and other agencies, up from 103 the year before.
The audit found several factors that impede the National Initiative’s overall performance.
To safeguard privacy rights, the legislation limits the information that FINTRAC may disclose to so-called “tombstone” data: when and where the transactions took place, the value of the transactions, the account numbers, and the names of the parties involved.
We found that these restrictions limit the value of FINTRAC disclosures to law enforcement and security agencies. Law enforcement agencies told us that the “tombstone” information they receive is too limited to justify launching investigations. The exception is when a disclosure is related to an on-going investigation—in those cases, the information disclosed can help corroborate findings or provide new leads. This is a serious criticism of a system set up expressly to add value to the financial information provided by reporting organizations.
An additional limitation on the effectiveness of the National Initiative is the exemption from reporting requirements that lawyers obtained as a result of successful legal challenges to the legislation. It means that individuals can now do banking through a lawyer without their identity revealed, bypassing a key component of the anti-money-laundering system.
Insufficient co-operation is another impediment to the National Initiative’s performance. The National Initiative to Combat Money Laundering involves a partnership among several federal departments and agencies, provincial law enforcement agencies, and industry regulators. Co-operation among these partners is critical to the Initiative’s success. We found that the necessary co-operation was not always present. For example, we noted that FINTRAC and the Canada Revenue Agency had not agreed on criteria for identifying money-laundering transactions that could be related to tax evasion. We also noted that reporting organizations received little feedback on the quality of reports they submit to FINTRAC and on how or to what benefit the reports are used.
To improve co-operation, the audit report recommends that an effective management framework be established to provide direction and to co-ordinate anti-money laundering efforts at the federal level as well as with stakeholders at other levels of government and in the private sector.
Finally, the audit found that FINTRAC is using an incomplete system to measure and report the impact and performance of the National Initiative. Information needed to measure performance has been limited so far. The performance indicators FINTRAC currently uses are mostly measures of operations (such as the number of reports received, disclosures made, and memoranda of understanding signed). There is no formal mechanism for tracking the use of FINTRAC disclosures and measuring their effects. Without a comprehensive system for monitoring the use of its disclosure, it is impossible for FINTRAC to assess the value of the intelligence it provides and the impact it has on money laundering and terrorist financing.
The Proceeds of Crime (Money Laundering) and Terrorist Financing Act calls for a parliamentary committee to review the administration and operation of the Act this year. We hope our findings will be useful in that review.
Mr. Chairman, we would be pleased to respond to the Committee's questions.
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