Presentations and Speeches

Remarks by Director Gérald Cossette
Financial Transactions and Reports Analysis Centre of Canada
at the University of Calgary

Calgary,
March 5, 2015


Check against delivery

Introduction

Good afternoon. I would like to begin by thanking Abu Rahaman, Director of the Centre for Public Interest Accounting, Barrie Nault, Director of the Informatics Research Centre at the Haskayne School of Business, and Calgary’s Centre for Military and Strategic Studies for hosting me today.

Your institutions are widely recognized for your expertise and influence in resource and security-related issues here in Canada and internationally. Through your diverse programs, innovative research and real-time collaboration with public and private sector stakeholders, you are leading the way in a number of areas of national interest.

This morning, I had the opportunity to meet with officials from some of your local security agencies and they mentioned how useful your university’s insight and engagement has been on the issue of radicalization and terrorism more broadly.

As the Director of FINTRAC—Canada’s financial intelligence unit—I’m delighted to have the opportunity to speak to such a diverse group of students in business administration, law, public policy, intelligence, national security and international relations about the threats posed by money laundering and terrorism financing.

Here at the University of Calgary, you understand better than most that these threats are real. You have seen Calgarians fighting with extremist groups overseas. You have experienced what this means for your community. And you recognize the impact that terrorism can have on the safety of Canadians across the country.

In his book, Treasury’s War, Juan Zarate documents how the United States Treasury Department took on a more aggressive role in combating terrorist groups and rogue states following the September 11 attacks. The former counter-terrorism advisor to the President of the United States says that “geopolitics is now a game best played with financial and commercial weapons.”

It’s a provocative idea and it means those of you studying international relations or security-related issues may also want to consider taking a few courses in commerce and financial regulation.

Regardless of your anticipated career paths, as future leaders, money laundering and terrorism financing will almost certainly have a bearing on your work. In the more immediate term, I encourage you to research and discuss these issues that are often overlooked and understudied in Canada.

I want to talk to you this afternoon 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:

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.

We know a number of individuals are now making their way through our criminal justice system for terrorist acts they were planning to commit here in Canada. I am sure you are aware of the ongoing case against two individuals who were allegedly plotting to explode pressure-cooker bombs outside the British Columbia Legislative Assembly.

Just a few weeks ago in Ottawa, the RCMP arrested one individual and charged two others with terrorism offences under the Criminal Code.

And, last September, an Ottawa resident, who had trained in Afghanistan, entered a guilty plea to terrorism charges in an Ottawa court, and 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 in Ottawa and Saint-Jean-sur-Richelieu last October, 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.

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 threat posed by foreign fighters and other violent extremists was felt earlier this year in France, where the terrorists who attacked that nation and its freedoms allegedly had deep ties to foreign terror groups. It is believed that at least one of them fought with, or was trained by, Al-Qaida in Yemen.

Just as terrorism is international so too is its funding. We know terrorism funding is obtained from illegitimate sources as well as 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 Islamic State of 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 Ontario and Quebec 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 has also acknowledged FINTRAC’s contribution to Project Smooth, which led to the arrest of two individuals for allegedly conspiring to carry out a terrorist attack against a VIA passenger train travelling from New York to Toronto. This case is also before the courts.

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 have supported terrorists at home or abroad.

Given the current threat environment, the Minister of Finance recently asked the House of Commons Finance Committee to study the issue of terrorism financing—in particular, the impact of the flow of illicit funds; how Canada can be a leader in freezing terrorist assets and cutting off their sources of funds; and how we can better co-operate and share information to confront and degrade the evolving global security threat through an economic and financial lens.

Again, in his book, Treasury’s War, Zarate writes that, for terrorists, money is both an enabler and an Achilles’ heel. When financial transactions are conducted within the legitimate economy, they leave a trail. The Government is looking to strengthen Canada’s ability to go after their Achilles’ heel—to go after their money.

Money Laundering

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

The connection between the activities of organized crime—in particular, drug trafficking, theft and fraud—and the laundering of criminal proceeds is obvious. 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.

In January, FINTRAC was recognized for its contribution to a significant organized crime investigation in Saskatchewan and Alberta, which resulted in 14 arrests and the seizure of narcotics, approximately 100,000 dollars in cash as proceeds of crime, approximately 200 firearms, tens of thousands of rounds of ammunition, and other material and property.

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

With the Charbonneau Commission in Quebec, 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 the dynamics of free markets and it 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.

Of course, when it comes to light, corruption is also incredibly damaging to reputations, making 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.

And we know corruption is not limited to the European continent. According to a 2014 Ernst and Young Global Fraud Survey, one in five business leaders believes that bribery or corruption happen widely in industries across Canada.

As organized crime infiltrates businesses, industries and public organizations, and corrupts executives and senior officials with its laundered proceeds of crime, it gains ever more power and influence over our democratic institutions.

Mr. Antonio Nicaso, an award-winning journalist on organized crime, 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 legitimate and illegitimate economies.

This criminal organization is present throughout Canada.

In fact, the Criminal Intelligence Service Canada has 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 this money moves through illegal channels as well as through 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.

This legislation creates obligations for financial services entities, money services businesses, casinos and certain other businesses subject to the Act to: establish a compliance program, identify clients, keep records and report certain types of financial transactions—including suspicious transactions and international electronic funds transfers of 10,000 dollars or more.

These obligations provide important measures for countering patterns and behaviours observed in criminals and terrorists in order to deter them from operating within the legitimate channels of our economy.

For example, the obligation for clients 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.

FINTRAC helps to ensure that businesses on the front lines of the legitimate economy meet their legal obligations. Last year, we completed 1,126 compliance examinations. In most instances, these examinations allowed for a discussion of how businesses could improve their level of compliance.

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

While enhancing deterrence throughout the system, compliance with the legislation 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 every year are the lifeblood of our analysis and make it possible for us to do our intelligence work and, ultimately, to help protect Canada and Canadians.

I want to emphasize that FINTRAC does not have direct access to Canadians’ bank accounts. We do not have any legal authority or the technical means to monitor the financial activities of individuals. We build our financial intelligence from the transaction reports we receive from reporting entities and our partners, as specified by the Act.

I am often asked what FINTRAC does with all of the financial transaction reports we receive. Under the legislation, our first priority is to safeguard them. For me, what we do not disclose to Canada’s law enforcement and national security agencies is just as important as what we do disclose. The protection of Canadians’ information and privacy is the key reason FINTRAC was created.

Some have described the protection of privacy as an obstacle to the regime’s effectiveness. For me, it is a clear priority and a critical result of our work. We understand very clearly that, in order to maintain our credibility and the confidence of Canadians, we need to demonstrate that we take the protection of private information and the limits of our mandate seriously.

Results through Financial Intelligence

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

Over the past twelve months, we were able to provide 144 disclosures of actionable financial intelligence in support of money laundering, terrorism financing and national security investigations being undertaken here in Alberta.

Across Canada in 2013–14, we provided 1,143 financial intelligence disclosures to Canadian law enforcement and national security agencies.

These disclosures often contain hundreds or even thousands of transaction reports from across Canada or around the world. 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.

For example, just last month, the Alberta Law Enforcement Response Team in Calgary recognized FINTRAC’s contribution to a year-long investigation into a Calgary organized crime group, which allegedly supplied drugs throughout the province. Twelve individuals are facing 66 charges, including offences related to organized crime, drugs, weapons and proceeds of crime.

The RCMP’s Calgary Integrated Market Enforcement Team also recognized the contribution FINTRAC made to their investigation of a Ponzi scheme that allegedly defrauded 350 investors of 27 million dollars. An individual was sentenced to four years in jail for fraud and ordered to pay 10 million dollars in restitution to his victims.

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 which 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.

Increasingly, our financial intelligence is also used by our regime partners to identify assets for seizure and forfeiture, reinforce applications for the listing of terrorist entities, negotiate agreements at the time of sentencing and advance the government’s knowledge of the financial dimensions of threats, organized crime and terrorism.

In terms of some broader, regime-wide results, I can report there were more than 400 charges related to money laundering laid under the Criminal Code and over 140 convictions in the past five years. The RCMP has also seized more than 80 million dollars in criminal assets as the suspected proceeds of crime.

Whether here or abroad, every money laundering or terrorism financing charge laid, every conviction obtained and every proceeds of crime seized 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?

In concluding, I hope I have increased your understanding of the threat 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, Canadian businesses, the government, police and intelligence agencies have a responsibility to work together to protect Canadians and the integrity of Canada’s financial system.

So what does this mean for you?

Well, for those of you potentially going into business—be it in the financial sector, real estate, accounting or life insurance, for example—you are going to be on the front lines of Canada’s fight against money laundering and terrorism financing.

You will 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. As the former Governor of the Bank of Canada, Mark Carney, remarked, “when bankers become detached from end-users, their only reward is money, which is generally insufficient to guide socially useful behaviour.” He was speaking about the global financial meltdown, but his comments apply equally to the efforts to combat money laundering and terrorism financing.

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

We need more Canadian studies, more research, more work in this field to ensure that we have a good understanding of the challenges and threats we face and may face in the future.

For example, how do we adjust to a terrorist threat environment that includes decentralized movements that draw in radicalized individuals, and involve relatively small amounts of money, sometimes gathered through web-enabled platforms?

What evolving new technologies are criminals using to launder their proceeds of crime? And how do we keep pace from a legislative and regulatory perspective?

How do we regulate decentralized businesses that only exist online and have no identifiable jurisdiction?

Can we do more to prevent, rather than react to, money laundering and terrorist financing?

Should Canada look to leverage financial intelligence to achieve its broader public policy objectives, beyond money laundering and terrorist financing? And would Canadians accept this from a privacy point of view?

These are questions of significant consequence and should have an impact on your studies and future careers. Money laundering, terrorism financing, economic crime and financial intelligence are largely untapped areas of scholarship for Canadian academics, researchers and thinkers and I hope this changes soon.

Thank you for your time this afternoon. I am pleased to take your questions.

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