Canadian government unveils proposal for major financial crimes investigative body

On June 6, 2023, the Department of Finance published their Consultation on Strengthening Canada’s Anti-Money Laundering and Terrorist Financing Regime (the “Consultation”). This white-paper serves numerous objectives, principally to provide information about the current status of Canada’s anti-money laundering and anti-terrorist financing regime (the “AML/ATF Regime”) and how it functions. The white-paper outlines the evolving risks of money laundering and terrorist financing faced by Canada and makes proposals on how the AML/ATF Regime can be adapted to address those evolving risks. It also seeks input from the public on the viability, development, and execution of proposed changes to adapt the AML/ATF Regime.

 In a recent article we focused on the Consultation in general, what it entails, and the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (“PCMLTFA”) framework. This article will focus on current legislative amendments underway intended to strengthen the AML/ATF Regime, provide additional powers to Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”), and create the Canada Financial Crimes Agency.

Current legislative amendments underway to strengthen the AML/ATF Regime

Since 2019, the Government of Canada has announced increasing measures to combat money laundering and terrorist financing in their annual Budget presentations. In Budget 2023, the federal government announced its intent to introduce legislative amendments to the Criminal Code and the PCMLFTA to strengthen the investigative, enforcement, and information sharing tools of the Regime.

The proposed legislative changes would, among other things:

• Give law enforcement the ability to seize digital assets that may be confiscated as the proceeds of crime, with prior judicial authorization;
• Improve financial information sharing between law enforcement and FINTRAC;
• Introduce a new offence for structuring financial transactions to avoid FINTRAC reporting;
• Strengthen the registration framework for Money Service Businesses (“MSB”) to prevent abuses and criminalize the operation of unregistered MSBs; and
• Provide whistleblowing protections for employees who report information to FINTRAC.

Additionally, in Budget 2023, the federal government announced its intention to make legislative changes to protect the integrity of the Canadian financial sector in response to evolving threats such as foreign interference. This includes changes to the PCMLTFA that would:

• Provide new powers to allow the Minister of Finance to impose enhanced due diligence requirements;
• Allow the Director of FINTRAC to share intelligence analysis with the Minister of Finance to help assess national security or financial integrity risks posed by financial entities; and
• Improve the sharing of compliance information between FINTRAC, Office of the Superintendent of Financial Institutions (“OSFI”), and the Minister of Finance.

The latest round of consultations for the proposed regulatory changes was concluded on March 20, 2023. Once those draft regulations are in force, they would:

• Impose AML/ATF obligations on mortgage lending entities and the armoured car sector;
• Enhance the MSB registration framework;
• Improve due diligence and ongoing monitoring with regards to correspondent banking relationships;
• Increase cross-border currency reporting penalties; and
• Prescribe a formula for FINTRAC to assess the expenses it incurs in the administration of the PCMLTFA against reporting entities.

Providing additional powers to FINTRAC to increase regulatory oversight

FINTRAC is Canada’s financial intelligence unit and the regulator of the AML/ATF Regime. Its mandate is (1) to ensure that businesses which are subjected to the PCMLTFA and its associated Regulations comply with them; and (2) to generate actionable financial intelligence for law enforcement and national security agencies to assist in their investigation of money laundering and terrorist financing offences or threats to Canada.

The Consultation proposes potential measures to enhance FINTRAC’s supervisory capabilities for ensuring compliance with the PCMLTFA and to broaden the AML/ATF framework to mitigate risks. For example, some recommendations to modernize compliance tools include:

• Instituting a compliance program review which allows FINTRAC, in circumstances of urgency or substantial non-compliance, to direct reporting entities to undertake a review of their compliance program by an independent external or internal reviewer and share their results with FINTRAC;
• Amending the PCMLTFA to:
  • include knowledge and competency requirements for a qualified compliance officer;
  • allow FINTRAC to use audio and video recordings during a compliance examination to increase efficiency during compliance proceedings;
  • enable FINTRAC to publish details regarding violations and administrative monetary penalties (“AMP”) to ensure transparency; and
  • enable FINTRAC to levy AMPs against individuals such as directors, officers, and agents of an entity that committed specific exceptional violations.

In addition to modernizing compliance tools, the Consultation also makes proposals on increasing the effectiveness of the oversight and report framework. For example, it suggests:

• Amending the PCMLTFA to create an offence against reporting entities for knowingly providing false or misleading information or omitting information, reported to FINTRAC;
• Exploring options to address non-compliance in the sector including vetting MSB applicants for compliance readiness prior to registration, and revoking a registration when a MSB fails to comply with an enforcement measure; and
• Requiring all reporting entities to register with FINTRAC (currently this applies only to MSB).

Creating the Canada Financial Crimes Agency

In addition to amending Canada’s AML/ATF Regime, the federal government also recognized that it must allocate expertise and resources to assist with complex money laundering investigations, prosecutions, and asset recovery. As such, the government announced they will create a new, dedicated lead enforcement agency called the Canada Financial Crimes Agency (“CFCA”). Presently, the proposed objective of this agency will be to investigate major financial crimes.

That said, the government is seeking input on the structure and scope of the CFCA. From an international perspective, Canada can take inspiration from numerous countries that have established financial crime units with enforcement and/or coordination functions. Some examples of other countries include:

• National Economic Crime Centre, United Kingdom - this centre is housed within their National Crime Agency. It coordinates national response to economic crime by bringing together law enforce and justice agencies, government departments, regulatory bodies, and the private sector.
• El Dorado Task Force, USA - this task force consists of over 30 officials from various law enforcement agencies in New York and New Jersey. This task force targets complex financial crimes such as securities and investment scams, cryptocurrency schemes, corruption, and fraud against the US financial system.
• Serious Crime Task Force, The Netherlands - This task force is a public-private partnership that seeks to target the financial facilitators that enable organized crime such as money laundering, tax evasion, and public expenditure offences.
• Federal Authority for Fighting Financial Crime, Germany - This new authority is an initiative to create a new anti-money laundering authority in Germany that will also be responsible for enforcing international sanctions. Germany’s current anti-money laundering agency will be integrated into this new authority.

Based on the examples above, the federal government must make two vital considerations regarding the CFCA. First and foremost, the scope of CFCA’s mandate must be determined. In other words, it should determine what kind of major financial crimes the agency will focus on. For example, the agency may focus on white-collar crimes, fiscal crimes, profit-motivated crimes, economic-based threats to national security, or perhaps something else. The second consideration must be the structure of the CFCA. Will it be a sub-agency model whereby a specialized section or office is created into an existing organization? Will it be a dedicated agency that has a separate, specialized department to achieve the desired outcome while having the adequate resources and authority to do so? Or will it be an inter-agency which seeks to incorporate resources and expertise from various organizations?

While further details on the mandate and structure of the CFCA will be provided by the fall of 2023, it is reasonable to assume that the CFCA’s mandate and structure will be driven by risks faced by Canada’s financial system and the resources available to combat such risks.