By: Benjamin Aziza, Columnist
Photo Credit: Adrian Wyld/Canadian Press
Earlier this month, Canada announced plans to drastically change their existing anti-money laundering (AML) and counter-terrorism financing (CFT) strategies. In their latest report, the Financial Action Task Force (FATF), the international organization responsible for developing policies to combat terrorist financing as well as monitoring member states’ actions to prevent money laundering, exposed several weaknesses in the current Canadian strategy.[i] FATF argued that Canadian law enforcement’s approach to preventing money laundering is not up to date with existing international money laundering standards.[ii] FATF identified several factors hindering Ottawa’s ability to combat terrorist financing and what steps need to be taken in order to remedy them. If these reforms are carried out correctly, Canada could considerably improve their AML and CFT capabilities.
One of the most glaring issues with the current AML and CFT strategies is that Canadian banks often fail to provide information to law enforcement in a timely manner. In many cases, it can take several weeks for law enforcement to obtain basic ownership information and anywhere between 45-90 days for law enforcement to receive transaction records. Solving these types of cases requires the Canadian government to make large investments in time and money. However, due to the lag time between crimes occurring and financial institutions reporting them to authorities, it is often too late for the government to take action; money launderers have already executed a range of maneuvers to put their funds out of the reach of the feds.[iii] In the future, the Canadian government must require banks to provide them with all requested information in a timely manner, or face consequences. Without establishing definitive deadlines, banks will continue to take too long to provide the government with basic ownership information and transaction records. This, in turn, hinders the Canadian government’s ability to stop money laundering and the financing of terrorist organizations.
Like many other countries, Canada struggles with sharing information between its various governmental agencies — including federal law enforcement, financial regulators, and provincial government institutions — and actors in the private sector.[iv] Steps must be taken to improve intergovernmental communication. One possibility is the creation of a task force aimed at bridging current gaps between the various agencies and actors involved in AML and CFT. One proposal, which seeks to expand the number of organizations with whom the Financial Transaction and Reports Analysis Centre of Canada (FINTRAC) — the agency tasked with gathering and analyzing financial intelligence — is able to share information has the potential to substantially improve the fight against money laundering and terrorist financing.[v] Similar models have proven to be successful in the United States, Australia, and the United Kingdom.[vi]
Changes to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) aim to bring Canada up to FATF regulations. Ottawa recognizes that should they fail to meet FATF AML/CFT standards, they are subject to disciplinary action from FATF, which could include sanctions or losing their membership status within the organization.[vii] Additionally, Canada has a financial incentive to comply with FATF regulations. The Department of Finance noted in their report this past June that though reforms would require an upfront investment, they ultimately would save almost $2 million over the next ten years in administrative costs.[viii] Furthermore, the government believes that these reforms would greatly improve Canada’s reputation internationally, and would make it easier for Canadian businesses to operate transnationally, as the amendments could result in regulatory efficiencies with global AML/CFT policies.[ix]
In order to bring about meaningful reforms, the Canadian government should initially target banks to get them to comply with strict time limits on reporting money laundering to authorities; should they fail to comply, these financial institutions must face severe consequences. This one step alone would greatly improve the Canadian government’s capability to crack down on money laundering in a timelier manner. Moreover, the proposed changes to information sharing between government bureaucracies would make it easier for actors involved in AML/CFT to operate more harmoniously and effectively. It remains unclear if these proposed revisions to current Canadian AML/CFT policy will ever become a reality. But if implemented correctly, these reforms could lead to significant improvements in Canada’s ability to combat terrorist financing and money laundering.[x]
[i] Helen Chan, “Canada’s AML overhaul seeks to revamp financial intelligence flows,” Reuters, October 3, 2018, https://www.reuters.com/article/bc-finreg-canada-aml/canadas-aml-overhaul-seeks-to-revamp-financial-intelligence-flows-idUSKCN1MD240.
[iv] Andrew Liu, “Canada could be a leader in international anti-money-laundering efforts,” Policy Options, July 11, 2018, http://policyoptions.irpp.org/magazines/july-2018/canada-leader-international-anti-money-laundering-efforts/.
[v] Helen Chan, “Canada’s AML overhaul seeks to revamp financial intelligence flows.”
[viii] Government of Canada, “Part I, Volume 152, Number 23: Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, 2018,” Canada Gazette, June 9, 2018, http://www.gazette.gc.ca/rp-pr/p1/2018/2018-06-09/html/reg1-eng.html.
[x] Andrew Liu, “Canada could be a leader in international anti-money-laundering efforts.”