Canada's defence department does not feel bound by the Privacy Act when conducting overseas military intelligence operations involving Canadian citizens, a parliamentary committee has found.

That revelation was disturbing enough for the National Security and Intelligence Committee of Parliamentarians to refer the findings of its special investigation to the federal attorney general for follow-up action.

The committee's special report was released Thursday as it also released its annual report, which looked at the ways foreign governments have tried to interfere in Canada's democracy.

The defence review examined the way the military intelligence branch — the largest intelligence section in the federal government — collected and handled the information it gathered on Canadians.

The committee said it has not uncovered specific instances of military intelligence operations breaking the law — but it's still concerned because the department has taken the position that privacy legislation does not apply to its overseas activities.

Report lands in Lametti's lap

"The committee formed an opinion that DND intelligence activities conducted as part of overseas operations may not be in compliance ... let me stress again, may not be in compliance with the Privacy Act," said the committee head, Liberal MP David McGuinty.

"Canadians should be concerned about the possibility because it speaks to their rights."

Minister of Justice and Attorney General of Canada David Lametti. (Adrian Wyld/The Canadian Press)

It will be up to Attorney General David Lametti to decide what, if anything, to do with the report — which pointed to a series of contradictions in the rules governing the covert activities of military intelligence officers.

A spokeswoman for Lametti referred those questions back to National Defence. Officials in Defence Minister Harjit Sajjan's office were not immediately available comment.

"We're not sure what the next steps are for the attorney general, but we've done our job," McGuinty said.

Unlike the Canadian Security Intelligence Service (CSIS) and the Communications Security Establishment (CSE), the Department of National Defence's intelligence branch has never faced external review or oversight.

The Liberal government, through its defence policy, has made strengthening the military spy branch a priority and the branch was a key player in the overhaul of Canada's mission in Iraq four years ago. The government withdrew fighter jets from the campaign against the Islamic State and increased the number of intelligence officers on the ground, tasking them with hunting down suspected extremists.

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Some of those extremists were Canadian citizens who volunteered to fight for ISIS — and much of the current speculation about the targets military intelligence might have been monitoring revolves around those individuals.

The committee found the defence department has "orally" shared its findings and tips on Canadian overseas with other security agencies in the country. The military denies sharing "actual or potential information about Canadians with international partners" — but insists that the Privacy Act would allow to do so, as long as the defence minister signs off on the action.

The parliamentary committee, made up of MPs and senators, expressed concern last year about the lack of legislative accountability in military intelligence activities beyond something known as the "Crown prerogative." That means that when the federal government decides to deploy the military, the intelligence branch has the legal authority to go about its business of protecting the military, both abroad and at home.

McGuinty said Thursday the committee is not convinced the prerogative is enough of a safeguard and there should be specific legislation to govern military intelligence.

Stephanie Carvin, a former national security analyst now a professor at Carleton University, said there needs to be a debate in Parliament about the role the intelligence agency plays and whether there should be a legislative leash.

"At the end of the day, the biggest concern is whether there [are] clear legislative lines that are put in place so the Department of National Defence knows what Parliament wants it to do and where those lines are so it doesn't accidentally cross them," she said.

"Sometimes this can be hard in the fog of war. If you're collecting a ton of information and suddenly you find you have information on Canadians who have travelled abroad to engage in violent extremists activities, do you know what you can do with that information? Can you share it?"