Jessica Davis
Jessica Davis spoke 24 times across 1 day of testimony.
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Jessica Davis, President (Insight Threat Intelligence)
I’d like to begin by thanking the Commission for inviting me to be part of this roundtable. I believe that this inquiry has a critical role to play in making Canada safer and more just. Today, I’d like to share four main points with you. 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 regarding regulating crowding platforms and some of the cost and benefits of this approach. Third, I want to raise the issue of unintended consequences of the global anti-money laundering counter-terrorist financing regime and Canada’s role in that. And then, finally, 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, though, I do want to emphasize one point. During my comments, I’ll be talking about money laundering and terrorist financing. This is 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, though, that the convoy protest financing falls outside of definition of both money laundering and terrorist financing, which is part of why some of these amendments were made. So let’s talk about foreign funding of the convoy. As we saw from this 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 transfers, or through cash donations. The uproar around potential foreign funding began early, as soon as people began to see other people who self- identified as from outside Canada donating on those 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 potential artificial amplification of convoy-related messaging on social platforms. Many Canadians expressed surprise that this was permitted under Canadian law. The strong from Canadians about foreign funding of the protests, real or imagined, is an opportunity for Canada. It tells that Canadians are concerned about this and that, for many, the idea of foreign or foreign individuals 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 toward dissuading the concerns of Canadians about foreign entities clandestinely, deceptively, or even overtly seeking to influence Canadian politics. I now want to briefly touch on the issue of crowdfunding campaigns and their regulations. The inclusion of crowdfunding platforms as reporting entities under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act was a somewhat curious response to the convoy. It was curious for a number of reasons. Because one of the platforms had already taken action to remove one of the main campaigns due to potential breaches of service -- terms of service, rather, because many of the funds were already frozen, because much of the funding of the convoy wasn’t even happening through those crowdfunding campaigns but rather through those email money transfers 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 those individual accounts at the same time, it remains unclear what the 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 I question whether it actually created 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, for example, some of the funds from the crowdfunding platforms would already have been reported to FINTRAC by entities already regulated under the Act, like banks, when those transactions reached reporting thresholds. Aside from those mandatory reporting thresholds, most of which have already been covered prior to the emergency measures, the new regulation of crowdfunding platforms requires these platforms to now file suspicious transaction reports. But 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, when we see crowdfunding platforms being used for this -- or crowdfunding, rather, it’s primarily off-platform campaigns, so basically social media calls that are more widely used, which of course falls outside the scope of the regulations. And back to the issue of creating 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 exams, for example, is a missed opportunity. Last year, the centre completed 151 compliance exams, but there are tens of thousands -- I believe 24,000 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, and there’s little point in creating more regulations without simultaneously enhancing FINTRAC’s ability to ensure compliance. I’ll move on to my third point, which is a little bit more about the unintended consequences and global implications of this. The international regulation of crowdfunding platforms -- so, since the convoy, there have been other calls for global standards to regulate these platforms as part of the global counter-terrorist anti-money laundering efforts. But these, again, are not based on much evidence of use for these platforms for illicit purposes but instead represent more -- something like more like low-hanging regulatory fruit. At a recent No Money for Terror Ministerial Conference, the host country, India, called for further regulation of the sector, something that Canada’s now leading the way on internationally, for better or for worse. As countries and multi-lateral bodies continue to regulate more and more sectors under these global anti-money laundering counter- terrorist financing rules, it’s important to keep in mind that there are plenty of intended consequences of these efforts. For instance, authoritarian regimes often use these laws and regulations adopted to conform to these global norms to crack down on dissidents in their own countries. As my colleagues from the Royal United Services Institute recently noted, these laws are used for a number of things, including politically motivated pre-trial detention, targeted audits, and asset freezes. Canada’s 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 cost and benefits, or even an articulation of what it’s meant to achieve. I’ll move on now to the role of asset freezing, seizures as a response to the 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 usual done with judicial authorization. This is no small measure.
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Jessica Davis, President (Insight Threat Intelligence)
When accounts are frozen, there are serious efforts, 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, et cetera. 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 raises a number of issues. The main issue was in the identification of individuals whose account 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 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 protestors, 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 -- I have mentioned in this commentary. So 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. So I recommend that 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 proceeds of crime, money laundering, Terrorist Financing Act, specifically with an eye towards unintended consequences and setting of international norms. These are powerful tools that are easily misused in 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. Thank you very much for your time today, and I'm pleased to answer any questions you have or expand on any of the points I've made.
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Jessica Davis, President (Insight Threat Intelligence)
Yes, I just have one quick question, and it’s actually for Michelle Gallant, about the not- for-profit corporations and if they have any restrictions or reporting requirements for foreign funding as well. You talked about the charities, but they’re different.
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Jessica Davis, President (Insight Threat Intelligence)
It's Jessica Davis. So I think you're right to argue that one of the risks is influence. I think another potential risk is compromise. So, basically, the way that I see it is if an individual or an organization were to accept foreign funding, that is probably intended to buy a certain level of influence with that individual or organization, but there's also the potential for the disclosure of that information to compromise their ability to do their job or that they won't want that information compromised in the future, which in turn can also have another level of influence. But I think it's a good question. And I would also take a moment to talk about the foreign funding issue. I think -- you know, I don't want to be prescriptive here in terms of what should or shouldn't be in any kind of legislation about limits to foreign funding. I think that needs careful study. It's a very sensitive topic, but I think it is reasonable to start thinking about that in terms of limiting political activity. That might also have some limits to religious activity, because it's very difficult to separate these things out. I don't see those -- that as necessarily a problem. I think that there could be a reasonable way of writing that kind of legislation to make that acceptable to Canada and Canadians, but it is a thing that we -- it's something that we need to consider as we talk about that.
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Jessica Davis, President (Insight Threat Intelligence)
Yes, I just want to come in a bit on the Cullen Commission information that Christian Leuprecht is presenting. So in my reading of the Cullen Commission, I found a number of factual errors and a number of errors of interpretation, so I think we should be cautious in citing that too closely and being too -- using that information too carefully here, because, you know, when we talk about 2,057 unique disclosures, that doesn't actually tell us anything, because there can be hundreds, if not thousands of individual transaction reports in each one of those disclosures. We don't know how many of the 30 million reports were actually disclosed to law enforcement or intelligence services in those reports. So there's some issues of interpretation around that. And I would also take issue with the idea that all of this FINTRAC intelligence is not useful. Law enforcement and security services have repeatedly told FINTRAC the opposite. In their annual report they share that information. I worked at FINTRAC. I worked in the Canadian Security Intelligence Service. I reviewed a number of FINTRAC disclosures, so they vary in terms of their usefulness, but they are not universally not useful. And I just want to come in on financial intelligence and the issue of intent. The problem is, when we're talking about financial intelligence, we're talking about financial transactions. They don't tell us anything about intent. It's literally just an information, a record of who's sending money to whom. You need an all-source intelligence picture to get that intent. But I also think that when we're looking at foreign donations, there is an implied intent behind that. It's to support the organization, political activity or individual there. So it kind of makes a whole argument about whether it's threat or risk moot.
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Jessica Davis, President (Insight Threat Intelligence)
I will come back on the issue of effectiveness and usefulness, because Professor Leuprecht did move the bar on that. So we were initially talking about usefulness of the FINTRAC disclosures, and then you talked about the usefulness of the -- or the effectiveness of the regime. I would agree that the regime has plenty of room for improvement. The regime, as a whole, is largely ineffective, in terms of the measurements we would normally associate with that, things like prosecutions of money laundering and terrorist financing offences. But that doesn’t mean that FINTRAC disclosures are not useful.
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Jessica Davis, President (Insight Threat Intelligence)
Yeah, I just want to say that FINTRAC was in a position to collect a lot of that information. When those transactions hit the Canadian side of the transaction, anything over 10 -- $10,000 or more would have been reported to FINTRAC. The gap is in the suspicious transaction reports, although institutions can absolutely file that as well. And I -- you know, looking at this whole convoy finance issue, I think I’ve made no secret that I’m not a particular fan of how things went in Ottawa, being a resident here, but I see -- I don’t see any way that enhancing these regulations in this way would have provided the government, or FINTRAC or law enforcement or security agencies, with any additional information that would have been particularly useful to countering the protest.
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Jessica Davis, President (Insight Threat Intelligence)
Yeah, so I'm trying to sort of pick out the pieces of your question there.
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Jessica Davis, President (Insight Threat Intelligence)
So I think that there is two things, and I'll use a framework for this. So I see the way that the government sought to counter the financing of the protests and the occupation in two different ways. One was organisational. So by targeting the crowdfunding campaigns, which were drawing in those large sums of money, the foreign funding piece largely came from those crowdfunding campaigns, they were seeking to address that organisational piece because it was -- the movement piece I think is a better way to frame that. And the concern for Canadians really came from that movement level funding that was happening, from people who were identifying as being outside of Canada. And I use that term -- that language very specifically because there was no identity verification being done on who was actually donating and where they were located, it was just what they were saying, so I think we need to be quite careful about that. So that was the first piece. The operational funding is what I would consider to be on-the-ground funding, and that's where we get into questions about the -- sort of the effectiveness of the measures. To my mind, telling people that you're going to freeze their bank accounts unless you leave Ottawa could facilitate a peaceful conclusion to a situation, and it indicates a level of seriousness on the part of the government. I'm leaving aside all questions about proportionality and whatnot there. And I think that that's quite a useful way to think about it. The thing that bothers me, though, about what I've heard from the Commission so far is the Government's assertions about its effectiveness with no evidence. I've heard repeatedly from Government officials saying that, you know, in public statements and at this Commission that these measures were effective, but we haven't seen any evidence about whether or not, you know, why were they effective. Whose money was frozen that really spurred people to leave Ottawa? The process tracing of that activity. And I think that's what concerns me.
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Jessica Davis, President (Insight Threat Intelligence)
Yes, I just want to come in on this question about how banks, if they’re not told who the designated people are, very specifically how they identify them, and it comes through social media and media monitoring, so identifying people through that means, and then also through accounts, so if they’re conducting transactions in Ottawa and they’re not normally residents here, withdrawals, purchases, et cetera. So there’s a couple of different ways that that happens, which I think raises some issues in terms of whether or not, outside the context of money laundering and terrorist financing because we are talking outside of that context -- whether that kind of surveillance of the population should be taking place. And then my next issue for us to consider, of course, is, then what happens with that information? When banks have this information that individuals were designated people, or they determined that they were designated people under the measures, they don’t forget that. They remember, and that becomes part of their de-risking process. And banks are risk- averse institutions, so does this continue to impact the ability of these designated people to obtain financial services and financial products? I don’t think that we’ve explored that in any real way. I don’t think that there’s been a lot of information about that, but I think that there’s a real risk and very probable implications for the individuals who were designated.
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Jessica Davis, President (Insight Threat Intelligence)
Okay, if I may, I’ll start, and then hopefully there’s plenty of room for others to come in on this. My understanding of bank process is that it’s individual banks that are making those determinations about how much information they’re keeping on their clients for any given time. The remedy is actually on the critiques of our system, which is that banks -- there’s strict privacy regulations around what banks can share with each other. So if an individual were to be banked by one bank, that information could not be shared with another bank, so the individual in question could, you know, in this example, go to another bank and that bank wouldn’t have the information about them having been designated, et cetera. So the remedy is actually in one of the critiques of the system.
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Jessica Davis, President (Insight Threat Intelligence)
Jessica Davis here. So I think that that’s a question for the banks about how they handle that internal information and whether or not they'll be considering that going forward in their client decisions.
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Jessica Davis, President (Insight Threat Intelligence)
Thank you for that.
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Jessica Davis, President (Insight Threat Intelligence)
Yeah, so just on that, I think I'd have to go back to the regulations because I think that there was an interesting provision about financing other protests, but I can't answer that without looking at those again. And then just on the example that Christian Leuprecht brought up, I just want to bring up the idea of profit motive for banks though as well. So you know, Westpac and some of these big organizations that have been fined these huge amounts, there's a significant profit motive for the banks in continuing that financial relationship that does not exist for individuals. So I think that the risk for individuals is far far greater than for those kinds of large entities.
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Jessica Davis, President (Insight Threat Intelligence)
Oui. Généralement, pendant une crise, je dirais que les opérations financières sont soumises à CANAFE rapidement, alors, généralement, je dirais que ça se rend dans les opérations douteuses, en général, 24 heures ou moins.
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Jessica Davis, President (Insight Threat Intelligence)
Oui, c’est…
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Jessica Davis, President (Insight Threat Intelligence)
Oui, c’est…
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Jessica Davis, President (Insight Threat Intelligence)
Même chose. Certainement, avec… s’il n’y a pas beaucoup d’opérations financières, cela ne prend pas beaucoup de temps pour faire l’analyse et déterminer si ça peut être donné à… si c’est sous autre agence. Alors, je dirais que oui, c’est rapide encore à CANAFE, ça peut prendre quelques heures, quelques jours dépendant des circonstances.
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Jessica Davis, President (Insight Threat Intelligence)
Dans une situation urgente, mais…
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Jessica Davis, President (Insight Threat Intelligence)
…c’est aussi une question à poser à CANAFE.
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Jessica Davis, President (Insight Threat Intelligence)
Yes, I think that you're right to consider those things and some of the consequences of the asset freezing. The issue of there being a lack of redress I think is also well worth considering. I mean, you know, how do you go to a credit agency and fix that? The only thing that I will say that -- on this is that the measures were in place for a short period of time. So I think that reduces some of those potential consequences because five days is -- in some cases might make a difference for some people, but it's -- you know, it's not a full pay cycle. It's not a full month. So I think that there's some considerations there as well.
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Jessica Davis, President (Insight Threat Intelligence)
Yeah, so it's a very complicated scenario that you've painted for us, but I think that this points to one of my recommendations, which was that the government and FINTRAC and Department of Finance, as policy centres, should be conducting public consultations on these kinds of things because this is the kind of scenario they should be test driving. You know, how are we reasonably going to enforce these regulations? And then, you know, just a little bit on the client issue, there is increasingly -- crypto exchanges are increasingly regulated and there are know your customer requirements. Not all crypto exchanges are as good at that as others. And there's still, of course, the wallet-to- wallet issue that, you know, unhosted wallets can conduct these transactions across borders and attributing those wallets to any individual is exceptionally difficult unless you have quite good access to the individual's devices or other sources of intelligence. So I think that there's a lot of holes in this regulation, but not a lot of benefits necessarily.
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Jessica Davis, President (Insight Threat Intelligence)
Most Hawalas are actually meant to be regulated under anti-money laundering legislation in different countries, they're meant to be money service businesses. A lot of them are not regulated because they don't register or they just operate outside of those regulated channels. The International Anti-Money Laundering Counterterrorism Financing regime has been trying to address this issue for many years. Hawala is an Informal Value Transfer System that's been -- you know, there's a lot of myths around it I think, but it's basically just a way to send money. It's less expensive, it's faster, it has greater access anywhere in the world than most -- banks would aspire to that. The issue, of course, comes in terms of the reluctance to report. Has the tremendous value in terms of moving remittances from the developed world to the developing world. The issue, of course, becomes when illicit actors take advantage of those same benefits to move funds, and that's sort of where the issue is. But you know, in Canada, I'll just conclude by saying Hawalas, they exist. They should almost exclusively be registered as money service businesses, but that's also part of FINTRAC's remit is to figure out who is not registering and get them to register or fine them or refer for criminal compliance.
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Jessica Davis, President (Insight Threat Intelligence)
Yeah. So I think to address your broader question about whether this could force or encourage people to move away from our formal financial system, I think that the benefits of decentralized finance, including cryptocurrency, are overblown at the moment. There are not sufficient offramps for cryptocurrencies and other forms of decentralized finance to make them viable for operating in a modern economy. That can change, but I’m more of a 30 to 50 years kind of person, not five years kind of person. But that will happen for some people. I think seeing these emergency measures was a bit of an education for Canadians. I don’t think that a lot of Canadians realized that even with judicial authorization, that your account could be frozen or you could have your assets seized. I think that was new information for a lot of people. And that will certainly undermine some people’s trust in the system, probably people who are already distrustful of the situation, which we should be wary of further pushing people to the margins on that. I think that that’s a serious concern. But I definitely agree with Gerard Kennedy on this, that, you know, the measures might have been proportionate, they might have been effective. Those questions are not necessarily for us to determine here. But the problem was really in the application of those measures and deputizing the banks to make those decisions was probably the biggest problem I saw with them.