Presentations and Speeches

Remarks by Director Gérald Cossette
Financial Transactions and Reports Analysis Centre of Canada
at the Université de Sherbrooke

Longueuil, Quebec
February 12, 2015


Check against delivery

Introduction

Good evening. I would like to begin by thanking Professor Mathieu and the Université de Sherbrooke for providing me with the opportunity to speak to you tonight.

As Director of FINTRAC—Canada’s financial intelligence unit—I would also like to commend the Université de Sherbrooke for establishing this cutting-edge, multi-disciplinary program focused on the prevention, deterrence and detection of financial crime. This often overlooked field of study is critically important to the safety of Canadians and to the integrity of our financial system. It demands more research, more thought, more discussion—and I am pleased to see that you are leading the way here in Longueuil.

The simple fact is that the majority of crimes are committed for financial profit. And these crimes are as harmful to our businesses as they are to our citizens.

According to PricewaterhouseCoopers’ most recent Global Economic Crime Survey, 36% of Canadian companies reported being the victim of economic crime between August 2013 and February 2014, with 10% of respondents reporting a loss of more than 5 million dollars.

The survey also found that financial crime tended to erode the morale and integrity of employees, damaged business processes and relationships, and had a significant impact on brand reputation.

It is within this context that I want to talk to you about money laundering and terrorism financing: what’s at stake, why it matters and what we are doing to counter these threats. Beyond this, I want to leave you with three thoughts tonight:

What’s at Stake?

What’s at stake and why does it matter?

I will start with terrorism, where it is clear that the threat is present and not going away or diminishing.

We know a number of individuals are now making their way through our criminal justice system for terrorist acts they were allegedly planning to commit here in Canada.

This past September, an Ottawa resident who had trained in Afghanistan entered a guilty plea to terrorism charges in an Ottawa court, and he received a 24-year sentence for his crimes. The scheme involved 56 detonation devices that he had built with instruction from Taliban-aligned fighters and smuggled into Canada.

Following the attacks last October in Ottawa and Saint-Jean-sur-Richelieu, the Director of CSIS told a parliamentary committee that his organization had identified more than 130 Canadians who have gone abroad in support of extremist activities.

Setting aside, if you can, the damage these individuals are inflicting in communities abroad, we cannot lose sight of the fact that these very same individuals are being trained, equipped, further radicalized, and may return to Canada at any point in the future. In fact, the Director of CSIS has stated that at least 90 individuals have already done so.

The impact of this foreign fighter phenomenon was felt last month in France, where the terrorists who attacked that nation and its freedoms allegedly had deep ties to foreign terror groups. It is also believed that at least one of them fought with, or was trained by, Al-Qaeda in Yemen.

Just as terrorism has gone international so has its funding. We know terrorism funding is obtained from illegitimate sources but also from legitimate ones. We also know that some of the funds raised to finance these violent crimes originate in Canada or transit through our country. One only has to think of the case of Momin Khawaja, who was found guilty of, among other charges, providing funds to facilitate terrorist activities.

With the so-called Islamic State in Iraq and the Levant, or ISIL, terrorist group, we have seen very clearly the devastation these entities can inflict when they have access to substantial resources for training, logistics and weapons.

FINTRAC’s financial intelligence allows us to establish links between individuals and groups in Canada and abroad that support terrorist activities, thereby allowing us to detect the financing of these activities.

Last year, we provided 234 disclosures to our partners specifically related to terrorism financing and threats to the security of Canada. This is nearly one disclosure related to terrorism financing every business day.

In April 2014, the RCMP’s Integrated National Security Enforcement Teams in Quebec and Ontario recognized our contribution to a terrorism financing investigation on the International Relief Fund for the Afflicted and Needy-Canada (IRFAN-Canada), an organization allegedly linked to the terrorist entity Hamas.

The RCMP also acknowledged FINTRAC’s earlier contribution to Project Smooth, which led to the arrest of two individuals for conspiring to carry out an attack against a VIA passenger train travelling from New York to Toronto.

Financial intelligence has become a key component of our police and national security partners’ terrorism investigations. And FINTRAC has provided timely disclosures as part of the Government’s broader effort to combat terrorism and those who support terrorists at home or abroad.

In his book, Treasury’s War, Juan Zarate, a former counter-terrorism advisor to the President of the United States, writes that money is both an enabler and an Achilles’ heel for terrorists. When financial transactions are conducted within the legitimate economy, they leave a trail. With our police and national security partners, FINTRAC’s job is to go after their Achilles’ heel—to follow their money.

Money Laundering

The other threat to the economic health and security of the country is the presence of organized crime in our communities. This threat has featured prominently in media reports over the past couple of years.

The connection between the activities of organized crime—drug trafficking, theft, fraud and others—and the laundering of criminal proceeds is obvious. As I mentioned earlier, the majority of crimes committed against Canadians are done for financial gain. And criminals must launder the money from these crimes to enjoy its benefits without having the money traced back to its criminal source.

Last June, the RCMP arrested dozens of individuals in connection with an organized crime investigation in the Montréal area. The RCMP described these individuals as belonging to well-structured networks aimed at controlling the trafficking of drugs in specific territories. Through the use of intercepted electronic communications and FINTRAC’s financial intelligence, investigators were able to dismantle two alleged crime cells and identify suspects in relation to a series of violent crimes committed in the area, including arson, forcible confinement, drug trafficking, gangsterism and conspiracy.

These are real crimes, creating real victims and causing real social harm—for profits that must be hidden and moved in order to be used in the legitimate economy.

With the Charbonneau Commission, we have also seen how organized crime threatens us on a broader, systemic level by corrupting and corroding the very institutions they infiltrate.

Organized crime can influence how we do business, how we enter into contracts, which businesses succeed and which fail, who wins and who loses.

This distorts market dynamics and offends our sense of fairness—particularly when an even playing field is no longer the norm.

At the same time, when contracts are awarded outside of the legitimate process and competition is replaced by a closed and corrupt system, we all pay a price.

Closed and corrupt systems tend to smother the type of innovation that keeps businesses, industries and economies competitive and prosperous. And stagnancy has disastrous consequences in a dynamic, globalized market.

Of course, when it comes to light, corruption is damaging to reputations, and makes it more difficult to generate investment and access new markets.

A report from the European Commission estimated that the cost of corruption to the European Union economy is 120 billion euros a year.

We know that corruption is not limited to the European continent. According to the Ernst & Young Global Fraud Survey, one in five business leaders believes that bribery or corruption happen widely in industries across Canada.

When members of organized crime groups infiltrate businesses, industries and public organizations and corrupt executives and senior officials with their laundered proceeds of crime, they gain ever more power and influence over our democratic institutions.

Mr. Antonio Nicaso, an award-winning journalist, told us of one global crime organization that has annual revenues of more than 43 billion euros from its drug and arms trafficking, extortion, prostitution and public contracts. This is a staggering sum of money and it shows how effectively organized crime can navigate between the illegitimate and legitimate economies.

And this criminal organization is present throughout Canada.

In fact, the Criminal Intelligence Service of Canada identified up to 1,200 organized crime groups that could be operating in Canada—nearly 30% of which have significant international connections.

We know the proceeds of crime generated by criminals and criminal organizations are being laundered here in Canada. And we know that this money moves through illegal channels as well as legal ones.

This is where Canada’s anti-money laundering and anti-terrorism financing regime comes into play.

A Comprehensive and Effective Response

Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, FINTRAC, police, intelligence and national security agencies, prosecutors and 31,000 businesses across the country all have a role to play in creating a hostile environment for those who seek to abuse our financial system and threaten the safety of Canadians.

The legislation creates obligations for financial services entities, money services businesses, casinos and other businesses subject to the PCMLTFA to establish a compliance program, identify clients, monitor business relationships, keep certain records and report specific types of financial transactions.

These obligations provide important measures of deterrence and detection that aim to counter patterns and behaviours observed in criminals and terrorists.

For example, the obligation for a client to identify themselves when doing a transaction or opening an account is a measure of deterrence as it eliminates the anonymity of the customer. Furthermore, because the transaction or account opening is documented, it can be traced later, if necessary, for evidentiary purposes.

Deterrence is one of the primary goals of Canada’s anti-money laundering and anti-terrorism financing regime because it changes the behaviour of those who seek to abuse the system.

In this regard, the regime is having a real impact on criminal behaviour and it is imposing a real cost, ranging from inconvenience to the enhanced risk of detection by police.

We have seen that large cash transaction reporting has forced criminals to ‘structure’ their deposits, to break them into smaller sums for deposit to try and avoid having them be reported to us in accordance with the Act. At a minimum, this means they have to hold on to large sums of money longer than they would like, in addition to having to make several visits to their financial institution which, in itself, increases their likelihood of being detected.

Businesses fulfilling their compliance obligations is the single most critical factor in the deterrence and detection of money laundering and terrorism financing here in Canada.

Through our compliance program, we help to ensure businesses meet their legal obligations. Last year, we completed 1,126 compliance examinations. In most instances, these examinations allow for a discussion on how reporting entities can improve their level of compliance.

However, when very significant non-compliance is identified during an examination, we may issue an administrative monetary penalty.

Compliance with the law also ensures that businesses provide us with the reports we need to develop actionable financial intelligence for our police and national security regime partners. We refer to this as ‘compliance for intelligence’.

The 20 million financial transaction reports we receive from Canadian businesses across the country every year are the lifeblood of our analysis and make it possible for us to do our work and, ultimately, to help protect Canada and Canadians.

Results through Financial Intelligence

I would like to take a moment to talk about the financial intelligence we produce and the impact it has.

Last year, we provided 1,143 disclosures of actionable financial intelligence to our regime partners to assist them in their investigations of money laundering, terrorism activity financing, and threats to the security of Canada. If you quickly do the math, this represents about five disclosures every working day.

These disclosures often contain hundreds or even thousands of transaction reports from across Canada or around the world—they are extensive and revealing. And they are used by police to follow the money trail in order to confirm existing information, to expand the scope of their investigations and, ultimately, to get search warrants and production orders to gather evidence. Our disclosures help point law enforcement in the right direction.

This financial intelligence is used to assist money laundering investigations in the context of a wider variety of criminal investigations, where the origins of the suspected criminal proceeds were linked to drug trafficking, fraud, corruption, and other criminal offences.

Based on information provided by our police and national security partners, drug offences were identified in 33% of our financial intelligence disclosures last year. Fraud was identified in 28%, tax evasion in 9% and both corruption and theft were identified in 5% of our disclosures.

Let me give you three examples to illustrate some of these numbers.

First, in 2014, the Canada-U.S. Centre of Operations Linked to Telemarketing Fraud recognized FINTRAC’s contribution to the investigation of a mass telemarketing fraud network operating in Canada and the United States. The network allegedly defrauded 16 million dollars from American seniors who were promised medical discounts and protection against identity theft. The investigation resulted in the arrest of 23 individuals in the Montréal area.

On the strategic side, we have published a report on mass marketing fraud. According to the Canadian Anti-Fraud Centre, this criminal activity resulted in losses in Canada of more than 76 million dollars in 2012. From the financial transaction reports in our database and information provided by law enforcement to FINTRAC, we have observed that Quebec and Ontario are the bases of operations for 73 % of the mass marketing fraud cases in Canada.

As a second example, FINTRAC’s assistance to the Unité permanente anticorruption’s projet Lauréat was recognized by the Sûreté du Québec in 2013, when five people were named in arrest warrants citing charges of fraud, bribery and money laundering in connection with a contract to build the McGill University Health Centre. Later that year, two more individuals were arrested and further charges of conspiracy and money laundering were brought forward.

As a final example, at a more systemic level, the Sûreté du Québec recognized FINTRAC’s contribution to opération Marteau, the investigation of corruption in the Quebec construction industry that led to the creation of the Charbonneau Commission.

Demand for our financial intelligence has increased significantly—roughly doubling in the past five years—and it has benefited a large number of money laundering and terrorism financing investigations as well as a myriad of other criminal investigations.

Whether here or abroad, every money laundering or terrorism financing charge laid, every conviction obtained and every seizure of the proceeds reinforces deterrence throughout the system, a key element in protecting the integrity of our financial system and the safety of Canadians.

What Does this Mean for You?

I hope I have added to your understanding of the threats posed by money laundering and terrorism financing. They are not harmless, victimless crimes—they make it possible for criminals and terrorists to undertake and even intensify their illicit activities.

I also hope you have a better understanding of Canada’s anti-money laundering and anti-terrorism financing regime—as a collective enterprise, the government, police, intelligence agencies and Canadian businesses have a responsibility to work together to protect Canadians and the integrity of Canada’s financial system.

For those of you currently working in a regulated business sector or hoping to work in one—be it in the financial sector, real estate, accounting or life insurance, for example—you must understand that this is the front lines of Canada’s fight against money laundering and terrorism financing.

You have a critical role to play in keeping the criminals, money launderers and terrorism financiers out of the legitimate economy—and in ensuring that FINTRAC gets the information needed to help protect Canada and Canadians.

And as you take on positions of more responsibility—including as future board members and leaders of our economy—your broader societal responsibilities will only increase.

For those of you pursuing additional studies in the area of financial crime or work in public administration, law enforcement or national security, we need your help in staying one step ahead of the money launderers and terrorist financiers, who are often sophisticated and innovative—constantly looking to leverage new methods and technologies to exploit the legitimate financial system.

Financial crime, money laundering and terrorism financing are largely untapped areas of scholarship for Canadian academics and researchers—I am glad that the Université de Sherbrooke is working to change this.

Thank you for your time this evening and I would be pleased to take your questions.

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