07/18/2012 05:15 EDT | Updated 09/17/2012 05:12 EDT

Canada's electronic spy watchdog eyes Five Eyes intelligence sharing

OTTAWA - The watchdog that keeps an eye on Canada's electronic eavesdropping agency wants to be sure key foreign intelligence partners are not misusing Canadian secrets.

In his annual report tabled Wednesday, Communications Security Establishment Canada watchdog Robert Decary highlights the close relationship the spy agency maintains with shadowy counterparts in the United States, Britain, Australia and New Zealand.

Decary says the decades-old co-operative alliance — known as the Five Eyes community — may be more valuable now than at any other time, given increasingly complex technological challenges.

The Ottawa-based CSE — whose chief John Forster reports to Defence Minister Peter MacKay — monitors foreign computer, satellite, radio, telephone and fax traffic for information of interest to Canada.

The CSE has long been prohibited from directing its surveillance at Canadians or anybody in Canada. However, the Anti-Terrorism Act of 2001 gave the agency authority to tap into conversations and messages even if those communications begin or end in Canada.

As a result, the CSE could intercept a phone call from a member of the al-Qaida network somewhere in Asia to a residence in Montreal.

"The need for information sharing is vital," says the watchdog's report. "However, information must be exchanged in compliance with the laws of Canada and must include sufficient measures to protect the privacy of Canadians."

Decary, a former judge, says his inquiries to date show the CSE does take steps to protect the privacy of Canadians in what it shares with international partners.

"In addition, open and ongoing communications among the partners helps to limit the potential to affect the privacy of a Canadian," says the report.

However, he intends to take a deeper look at how the spy agency assures itself that the allies abide by "long-standing agreements and practices" that provide a foundation for the CSE's intelligence sharing.

Decary's review is expected to be complete some time before next spring.

Intelligence produced by the CSE helps support Canadian crime-fighting, defence and trade activities.

Military listening posts assist the agency's efforts to intercept the communications of foreign states and organizations, as well as the phone calls and messages of suspected terrorists, drug traffickers and smugglers.

The agency, which has more than 2,000 employees and an annual budget of $400 million, played a role in gleaning intelligence of value to Canada’s troops stationed in Afghanistan.

The CSE also lends technical support to the Canadian Security Intelligence Service, the domestic spy agency. As a result, Decary proposes to work more closely with the watchdog over CSIS with the aim of better scrutinizing joint CSE-CSIS operations.

Overall, the CSE's activities complied with the law in 2010-11, Decary said. He made no new recommendations but offered a number of suggestions to improve policies and practices.

In some ways, it was "a frustrating year due to delays" caused by insufficient support from the spy agency to Decary's office, says the report. Forster has committed to correcting the situation.

CSE spokeswoman Christine Callahan did not respond to a request for comment.

Decary was also waiting for MacKay to respond to a recommendation he made in last year's report that he feels would help the minister in his accountability for the CSE.

In addition, Decary said he was "deeply disappointed" that the Conservative government has yet to clarify provisions of the National Defence Act, ambiguities that have caused headaches for the watchdog's office for years.

Decary, officially known as CSE commissioner, says he has asked the government to change the name, since it gives the impression he is part of the spy agency when, in fact, he is independent.