Stopping Illicit Financing & Financial Crime in Canada
Consultations on strengthening Canada's AML/ATF regime
A few months ago, the government launched a consultation on proposed changes to Canada’s anti-money laundering / anti-terrorist financing regime. There are ~many~ proposed amendments, some big, some small. In my response to the consultation, I focused on a few key areas, and thought I’d share my feedback here as well. It’s a big “inside baseball”, so feel free to ask for clarifications in the comments. Happy to explain further!
FINTRAC has two financial intelligence capabilities: the tactical side, which discloses tactical (named) information directly to disclosure recipients (primarily law enforcement and security services). The second capability is a strategic one, that includes analysis of networks, trends, and typologies. Currently, the Centre is limited to sharing strategic intelligence on money laundering and terrorist financing. FINTRAC should have the ability to disseminate strategic analysis relating to the financing of threats to the security of Canada. This new capability should specifically include espionage, foreign interference, and sanctions evasion. FINTRAC’s strategic capability is unique in government, and the insight from these strategic products will be critical to combatting these threats. Few other agencies have the capabilities or resources to create a coherent picture of these types of threats from a financial perspective, map networks, and identify trends. This type of analysis should be enabled, and shared broadly within government.
Further, FINTRAC should have the ability to share, in strategic analysis, the names of foreign individuals and entities. (Currently, their reports exclude this information, or are sanitized, or are written in such a convoluted way as to protect these identities.) This would bring FINTRAC’s legislation in line with other national security agencies. Consideration should also be given to sharing the names of Canadians in this intelligence, as is done (carefully) by other intelligence agencies. Without this information, FINTRAC strategic intelligence is often dilute, hard to understand, and frustrating for consumers. Consumers of this type of intelligence rightly also need to be able to identify actionable intelligence, which includes personal identifiers. Given the already restricted nature of much of this intelligence (through classification), this presents few serious privacy concerns and could greatly enhance Canada’s ability to combat illicit financing.
Expanding the basis of reporting to FINTRAC
The proposal asks whether reporting entities should be required to report to FINTRAC on issues beyond money laundering and terrorist financing, to include issues such as threats to the security of Canada, economic security, proliferation financing, and sanctions evasion. This proposed amendment presents an opportunity to strengthen Canada’s ability to combat all kinds of illicit financing. While reporting entities would require more information to effectively identify and report these types of activities, this could allow them to identify transactions where they are unable to demonstrate the suspicion of money laundering. (For instance, not all sanctions evasion, or espionage financing, involves any of the stages of money laundering, thus making it difficult, and sometimes impossible, to report.) This amendment would modernize Canada’s AML/ATF regime, and could greatly enable investigations of all types of financial crimes.
Unexplained Wealth Orders
There is, to date, limited information about the efficacy of unexplained wealth orders.1 The UK experience has been mixed, at best. There are also serious issues around the constitutionality of such an order at the federal level. However, these orders could potentially be useful in tackling serious organized crime, third party money laundering, corruption, and sanctions evasion. At the same time, the sophisticated actors that would be the target of these orders might easily adapt, creating false paper trails for their wealth before moving it into Canada. For those already resident in Canada, they have likely already created those paper trails in order to launder the proceeds of their crimes. At this time, I remain unconvinced that this tool would be worth the legislative wrangling that would be required, and suggest that our efforts are better spent elsewhere.
“Keep open” orders
It’s unclear from the consultation paper how often the closing of accounts is an issue for investigations. Generally speaking, the ability for law enforcement or security services to request that financial institutions “keep open” an account even after detecting suspicious or fraudulent activity would be beneficial. However, when considering this amendment, we must do so in the context of Canada’s general weak performance on financial crime. There’s the possibility that an investigation could take more than five years to come to completion; during that time, if an account is kept open, the criminal activity can continue, including moving money outside of Canada (and thus outside of our ability to freeze and ultimately seize it.) If this amendment proceeds, it should be time-limited. More effort should also be made to ensure that investigations are completed in a timely manner, and that they result in some disruption such as prosecution.
The Canadian Financial Crimes Agency
On the mandate of the CFCA, fraud is one of the most prevalent financial crimes in Canada, and is used by a variety of threat and criminal actors to finance their activities. There is a critical need for Canada to establish an organization with investigative leadership on this issue. Frauds are often outside the capabilities of smaller police forces to tackle, and are often trans-Canadian and trans-national in nature, requiring a federal response and resources. Similarly, sanctions evasion is equally complex, and requires dedicated resources and expertise, and remains something of a gap in our current regime, and therefore should be a focus for a future agency.
On the tax evasion issue, my understanding is that this is already something that is done, and done well, by the Canada Revenue Agency, meaning that there is no real benefit to moving this capability capability to a Canadian Financial Crimes Agency. However, any legislation creating a new financial crimes agency should enable information sharing with the CRA & other agencies, as well as expertise. Similarly, terrorist financing is currently under the RCMP’s mandate, and is better left within the INSETs, particularly as it is often closely related to other terrorist activity. (There should be some consideration given to a financial crimes agency stewarding, or taking over, large financial crimes files, including terrorist financing, once the agency is operational and has demonstrated some capability. This could be done on a consultative basis with the RCMP, and in consideration of resource allocation.)
In terms of tools and policies, the most important issue for the a future agency is that it needs to have enforcement capabilities. Without this, financial crimes will go unprosecuted in Canada and a financial crimes agency will simply become another policy centre in Ottawa. This is not what is needed to address financial crimes in Canada.
Private to Private Information Sharing
While the benefits of public-private partnerships, and even private-private partnerships, are often touted, the evidence supporting them is somewhat lacking. Further, the issue of sharing information between private sector entities (such as banks) raises serious privacy and de-banking concerns. The most compelling example that I’ve heard is the case of criminals who have their accounts closed at one bank, only to open them at another. While I agree that this is demonstrates inefficiencies in our ability to disrupt criminal activity, sharing information between banks on alleged criminal activity could have serious privacy concerns for Canadians. A better solution would be to investigate and prosecute that criminal activity. In this way, the information would automatically be shared between banks through our open courts.
Geographic and Sectoral Targeting Authorities
Geographic and sectoral targeting authorities enable greater reporting requirements in response to risks and threats. This type of tool creates flexibility and adaptability in AML/ATF regimes. This can be particularly useful in the context of emerging conflicts where geographic targeting orders can help pinpoint suspicious activity. For instance, geographic targeting orders might have been particularly useful in detecting terrorist financing activity in and around the border of Syria and Turkey in 2013-2017. Sectoral targeting authorities can also help AML/ATF regimes adapt to changes in technology. As new technologies emerge, these types of orders can be applied to sectors to help mitigate those risks or as illicit actors identify vulnerabilities.
These are a few of the areas that I commented on for the consultation process. There are many amendments being considered, and hopefully this will result in more in-depth discussions and consultations during the legislative process.
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