Testimony at POEC
A little more on convoy finance...
I’m travelling this week, so my apologies for the delayed release of Insight Intelligence. At the beginning of the week, I participated in a roundtable for the Public Order Emergency Commission. If you weren’t able to catch it, I’ve provided my (lightly edited) opening statement here. There are four concrete proposals I have for the government and the commission. Hopefully they seriously consider them, since I think they’re critical to making Canada safer and more just.
Today I’d like to share four main points. I want to first address the issue of foreign funding of the convoy and why that was so contentious for Canadians. I will then discuss the issue of regulating crowdfunding platforms (and some of the costs and benefits of this approach). Thirdly, I will raise the issue of unintended consequences of global AML/CFT regimes (and Canada’s role in that). Fourth, I’ll discuss the role of asset seizure in response to a protest. I’ll conclude with a brief set of recommendations.
Before I get too far into this, I do want to emphasize one point. During my comments, I will talk about money laundering and terrorist financing: this is in the context of Canada’s anti-money laundering / counter-terrorist financing regime, and changes to FINTRAC ’s legislation and regulations. I want to be clear that the convoy / protest financing falls outside of definitions of both money laundering and terrorist activity financing, (which is part of why some of these amendments were made).
1) Foreign funding of the convoy. As we saw from the commission’s work, the majority of the convoy was ~not~ foreign funded. There were some foreign donations, particularly to the crowdfunding campaigns, but the majority of the money distributed to the convoy protesters came from Canada – either from the online campaigns, or through email money transfer, or cash donations.
The uproar around potential foreign funding began early, as soon as people began to see people who self-identified as from outside Canada donating on the public platforms.
These donations raised the issue of potential foreign influence (both overt and covert), relating both to the funding of the protests, as well as the potential artificial amplification of convoy-related messaging on social media platforms.
Many Canadians expressed surprise that this was permitted under Canadian law.
The strong reaction from Canadians about foreign funding of the protest (real or imagined) is an opportunity for Canada. It tells us that Canadians ~are~ concerned about this, and that for many, the idea of foreign countries being able to contribute funds to political causes in Canada is unacceptable.
We should take this as an opportunity to scope and legislate limits to foreign funding in Canada: including potentially limits on contributions to political causes, limits to donations to politicians (even outside an election cycle), and the creation of a registry of foreign agents
This would go a long way towards assuaging the concerns of Canadians about foreign entities clandestinely, deceptively, or even overtly seeking to influence Canadian politics.
2) I now want to briefly touch on the issue of crowdfunding regulations. The inclusion of crowdfunding platforms as reporting entities under thePCMLTFA [JD5] was a somewhat curious response to the convoy.
It was curious for a number of reasons: primarily because it was unclear what it was intending to achieve, or what issue it sought to address-- because one of the platforms had already taken action to remove one of the main campaigns due to potential breaches in terms of service-- because many of the funds were frozen; -- because much of the funding of the convoy wasn’t happening through these platforms, but rather through email money transfer and cash donations, as well as payments for expenses like hotel rooms from individuals not present in Ottawa; and finally, because the decision was also made to freeze individual accounts. It remains unclear what these regulations were meant to do, or how they helped bring about an end to the convoy protest.
The regulation of crowdfunding platforms created new reporting entities for FINTRAC. But did it create a new source of financial intelligence that could be used to counter the protest, or other potential threats to the security of Canada?
Prior to the emergencies act, some of the funds from the crowdfunding platforms would have been reported to FINTRAC by entities already regulated under the PCMLTFA (like banks), when transactions reached reporting thresholds.
Aside from mandatory threshold reports (most of which would have already been covered prior to the Emergency measures), the new regulation of crowdfunding platforms requires these platforms to file suspicious transaction reports. However, in the context of a crowdfunding campaign, I struggle to see how these entities will report suspicious transactions…particularly when that reporting is limited to suspected money laundering or terrorist financing. (As an aside: crowdfunding platforms are not widely used for either of these types of financial crimes…instead, informal, “off-platform” campaigns are more widely used, which of course falls outside the scope of the regulations).
The regulation of crowdfunding platforms creates new reporting entities for fintrac. This means that FINTRAC now needs to ensure that they comply. Adding more reporting entities without significantly enhancing FINTRAC’s ability to conduct compliance is a missed opportunity: last year, the centre completed 151 compliance exams….but there are tens of thousands of reporting entities.
So this regulation might not have achieved much, further stretched FINTRAC’s compliance function, and contributed to over- and duplicative- reporting to FINTRAC. There is little point in creating more regulations without simultaneously enhancing FINTRAC’s ability to ensure compliance.
3. The emergency measures did set some unfortunately precedents globally that I’ll outline here;
The international regulation of crowdfunding platforms. Since the convoy, there have been other calls for a global standard to regulate these platforms as part of the global counter-terrorist / anti-money laundering efforts. But these efforts do not appear to be based in much evidence of use of these platforms for illicit financial purposes, but instead represent low-hanging regulatory fruit. At a recent “no money for terror” ministerial conference, the host country (India) called for further regulation of this sector…something that Canada is now leading the way on internationally, for better or for worse.
As countries and multilateral bodies continue to regulate more and more sectors under global AML/CFT rules, it’s important to keep in mind that there are unintended consequences of these efforts. For instance, authoritarian regimes often use laws and regulations adopted to conform to global norms against money laundering and terrorist financing to crack down on dissidents in their own country. As my colleagues from RUSI recently noted, these laws are used for a number of things including politically-motivated pre-trial detention, targeted audits, and asset freezes.
Canada is now leading the way on regulating crowdfunding platforms, something that can easily be misused by authoritarian states, all under the guise of compliance with international norms…and that regulation has been adopted without consultation, public analysis of costs and benefits, or even an articulation of what it is meant to achieve.
4. I’ll move on now to the role of asset freezing / seizure as a response to a protest. This is probably the most contentious element of the emergency measures because it directly targeted Canadians and their financial wellbeing, without judicial authorization.
The freezing of accounts and financial assets in Canada is usually done with judicial authorization. This is no small measure: when accounts are frozen, there are serious effects not only for individuals directly targeted by the asset freezes, but their family, employees, and business associates. There are serious implications for individuals who might not be able to pay mortgages, child support, rent, groceries, etc.
At the same time, when these measures are used in a targeted manner, they can be highly effective at encouraging people to cease and desist illegal activity and can facilitate a peaceful resolution.
However, the way these emergency measures were implemented raise a number of issues. The main issue was in the identification of individuals’ whose accounts should be frozen. While the RCMP provided a list of influencers to financial institutions, financial institutions were also enabled to use their own internal processes to identify individuals whose accounts should be frozen.
When such extraordinary powers are used, there should be a clear list of individuals to whom these measures apply. Deputizing banks to make their own determinations about freezing of accounts created the possibility of mistakes, uneven application of the measures between banks, and allowed the spreading of misinformation that further fuelled anti-government sentiment.
The emergency financial measures served as a lightening rod for the convoy protesters, enhancing their distrust in government, and lacked sufficient guidance, oversight, and transparency. While the measures might have been a justified and proportional response to the Ottawa occupation and border blockades (something for this commission to consider), their implementation raises serious concerns.
Let me now conclude by summarizing the recommendations that have been mentioned in this commentary:
There are a number of issues that I’ve raised here today that require legislative, regulatory, or other policy responses to make Canada safer and more just.
I recommend we limit foreign funding of political activities in Canada (both overt and covert) through legislation, including a registry of foreign agents;
I further recommend that the government of Canada undertake consultations on crowdfunding regulations, and any future expansion of the PCMLTFA, specifically with an eye towards unintended consequences, and setting of international norms. These are powerful tools that are easily misused on the wrong hands.
Canada should also enhance its ability to examine the compliance of reporting entities under the regime; our compliance regime is already stretched, and adding more reporting entities does not improve the situation.
And finally, any future use of the emergencies act, and financial measures, should include provisions to clearly specify the scope of financial targeting, enhancing transparency around that financial targeting and reporting, and direct financial institutions in a more concrete way. Such sweeping financial powers should not be left to individual financial institutions’ judgement.