Convoy Finance: Emergencies Act Edition
In this edition of the convoy finance series, I look at the impact of the measures outlined in the Emergencies Act announcement. It’s a wild one, as this whole episode has been. Let me first warmly welcome the hundreds of new subscribers (!!) to this newsletter, and as always, a special thank you to the paid subscribers. Your support means a lot to me, particularly during the Ottawa occupation. Please note: this post was originally written before the regulations were published, and has since been updated.
Current as of 21 February 2022, 8:35 amImplementing the Emergencies Act
On Monday, February 14 2022, the federal government announced that it was implementing the Emergencies Act in response to the occupation of Ottawa and the border blockades. The Act gives the government broad powers not available in normal circumstances. As part of the announcement, Deputy Prime Minister & Minister of Finance Freeland announced that part of the measures being implemented would be financial: this is about “following the money”. (In fact, this is about stopping the money, since there is little money that actually needs to be followed here…)There were four main actions that Freeland outlined: bringing crowdfunding platforms (including those dealing in cryptocurrencies) under Canada’s anti-money laundering and counter-terrorist financing legislation (PCMLFTA) as reporting entities, authorized banks to cease the provision of financial services to protesters, giving banks the ability to freeze and seize funds affiliated with the protest, and expanding information sharing between federal government institutions and banks and other financial service providers. The regulations generally follow these highlights, so while this article has been updated based on the regulations, I’ve kept the original format. Let’s dig in.
Need to know more about convoy finance? Here’s what I’ve written so far.
Regulating Crowdfunding & Crypto
The first measure announced involved bringing crowdfunding platforms (like GiveSendGo and GoFundMe) and their payment processors under Canada’s anti-money laundering and counter-terrorist financing legislation (PCMLFTA) as reporting entities. This means that these entities would be required to register with FINTRAC (presumably as money service businesses), and would be required to keep records and report transactions in accordance with existing rules. This means they would have to report international transactions of CA$10,000 or more, suspicious transaction reports, large cash transactions of $10,000 or more, and other transactions.
It's important to note here that these mandatory reports are already covered under existing legislation, but the reporting entity is either the payment processor (PayPal, Stripe, WePay, etc), or the receiving bank, as I’ve outlined in prior newsletters. The big change I see here involves suspicious transaction reporting. Crowdfunding companies would be required to submit their own reports and establish their own grounds of suspicion, which might be different from those of the payment processor / banks / other financial institutions receiving the funds. There might be some duplication of the reports that FINTRAC receives (although I suspect this could be de-conflicted either in the regulations or in consultation with FINTRAC).
The announcement also specifically mentioned cryptocurrencies and digital assets. I take this as a direct reference to Tallycoin and the Bitcoin fundraiser that has raised over US$1 million for the protest. This essentially makes Tallycoin and other similar crypto-based crowdfunding platforms reporting entities as well.
Let me take a second and unpack how this works. To donate to a fundraiser on Tallycoin, you need to have a cryptocurrency wallet. You scan the QR code from Tallycoin with your phone / device, and transfer funds directly from your crypto wallet to Tallycoin. If you’re doing this with a wallet hosted on a regulated cryptocurrency exchange, there is a touchpoint with our existing regulations (and requirements to submit suspicious transaction reports, for instance). However, if you do this from an un-hosted wallet, for example, there is little (or no) existing touchpoints with regulated and reporting entities.
While the expansion of reporting entities to include crowdfunding platforms might create some duplication of reporting, expanding this to also include crypto crowdfunders addresses a gap that has clearly been revealed by the protest. However, as I outlined in my article on crowdfunding platforms and illicit financing, there is little evidence that this is a significant problem. But I suppose addressing gaps is better than not? Following the publication of the orders in council and regulations, Tallycoin removed the fundraiser from its website.
While the other measures announced on Monday have a thirty-day expiry, the deputy PM announced plans to make these changes permanent. Expanding FINTRAC’s reporting entities should be accompanied by an increase in compliance resources, specifically staff to monitor and examine those entities. Without an expansion of resources, FINTRAC’s ability to effectively monitor the sector is in doubt. (Some might argue that the number of reporting entities compared to the number of compliance officers already gives rise to this doubt.)
Cessation of Financial Services
The second measure announced on Monday requires banks to cease the provision of financial services to protesters (technically designated persons in the regulations).
Designated persons: any individual or entity that is engaged, directly or indirectly, in breaching the peace by seriously disrupting movement of goods or people or trade, interfering with the functioning of critical infrastructure, or supporting threats or the use of serious violence against persons or property. This includes people directly or indirectly using, collecting, providing, or making available, property to facilitate or participate in the activities outlined above for the purpose of benefiting any person facilitating or participating in such an activity.
Banks / financial institutions will likely do this based on a suspicion that an account is being used to further the protest (blockade or convoy) and applies to both business and personal accounts. It’s unclear what information is needed to establish this suspicion, but it likely gives banks a broad remit to establish their own grounds. This information is likely to be obtained in a number of ways such as:
open source information / adverse media reporting
information sharing from law enforcement, as we saw in the case of cryptocurrency wallet addresses1
identification of unusual account activity; this could include geographic anomalies like account activity in Ottawa or unusual email money transfers
Let’s look at this provision using scenarios:
A) The not-for-profit entity established by the convoy organizers
Under this measure, the Freedom Convoy 2022 corporate entity will no longer be able to access financial services (like transferring funds, withdrawing funds, paying bills, etc). There is little doubt that this measure will directly affect this entity; if it has received a significant influx of funds (it was the designated beneficiary for the GiveSendGo fundraiser), those funds are effectively frozen, and this could have a serious impact on the convoy’s ability to reimburse participants and fund further activities.
B) The organizers of the convoy
As above, this will almost certainly affect every individual who has been publicly associated with the protest as an organizer. There is little doubt that grounds of suspicion will be met here. This will also apply to individuals receiving funds through email addresses, even if they haven’t been publicly named. As those direct transactions are likely an important part of what is sustaining the protest, this could also have a serious impact on the convoy’s ability to function.
C) Protest attendees
If a protest attendee is publicly identified, or receives funds indicating it’s for the protest, then banks / financial entities will be required to cease providing financial services until such a time as they determine that the individual is no longer engaging in this activity.
D) Protest supporters
As above, individual donors could be affected by this order, particularly if they continue to donate funds to the convoy, and their account is deemed to be furthering the blockade. This can apply to companies as well as individuals, which means if an employer has provided support through their corporate account, it might impact their ability to pay their employees. I suspect that this is one of the last actions that banks will take — they will likely focus their attention on the most visible participants first, and perhaps following direction / advice from law enforcement.
Freezing / Suspending Accounts
This measure requires that banks and financial entities freeze or suspend the accounts of businesses or individuals (designated persons) involved in the protest / blockade. This includes prohibiting the transfer of funds, the payment of bills, and the provision of other property (perhaps including things like chemical toilets or hot tubs).
Information Sharing
The fourth measure also expands the information-sharing capabilities between federal government institutions and banks and other financial service providers. Financial entities are required to disclose to CSIS and the RCMP (notably FINTRAC is absent from this requirement, but reporting suggests that they are receiving reports) any property in their possession belonging to a designated person and any information about transactions or attempted transactions by designated persons.
Unintended consequences and negative externalities
These measures greatly expand the government’s financial powers in relation to financial surveillance, and the freezing and seizing of funds and financial services. While most are temporary in nature, they certainly raise the prospect of similar future action against other protest movements. And while they do prevent the foreign funding of the protest through the freezing and seizing of accounts of protesters and organizers, they do nothing to address the actual issue in law relating to the foreign influence of Canadian politics that my colleague and I discuss here.
These measures also raise a number of potential unintended consequences. For instance, there is the possibility of non-protest participants being affected by these measures. Employees of companies involved in the protest could see their paycheques frozen; rent and child support might go unpaid for individuals involved in the protest; spouses of protesters might have their accounts and financial services frozen as well. Given how many Canadians live paycheque to paycheque, this could have serious consequences.
The proportionality of these measures is essentially a matter of personal opinion. For those of us who live in downtown Ottawa and have felt the first-hand effects of the protest, this might seem a reasonable reaction to encourage the departure of the protesters. Similarly, people who have had their businesses affected by blockades might also be supportive of these measures. I urge all of you reading this to consider these effects and their proportionality – I certainly don’t have a firm answer on the topic, but I do think these measures are powerful and could set an uncomfortable precedent
What will this achieve?
At the end of the day, will these measures end the occupation and blockade? I think in the short-term, the answer to that question is no. Many protesters are entrenched, both in terms of their beliefs, and in a physical sense, in the protest. The organizers have significant supplies and provisions that will likely enable them to remain in place for at least a few days. Over the medium term, these measures will weigh on individual protesters and their families and businesses, which might incentivize them to leave. In the long term, this action will likely be a galvanizing force for the protest movement, further demonstrate the government over-reach that the protesters claim and are so vehemently opposed to, and risks further mental entrenchment and radicalization among the protesters.