6 days ago
Ottawa to overhaul financial-crime laws in new border security bill
The federal government is aiming to overhaul Canada's financial-crime laws, including new restrictions on large cash transactions to curb money laundering.
A border security bill tabled Tuesday by Prime Minister Mark Carney's Liberal government includes a number of measures intended to disrupt the flow of money from illicit activities through the financial system. The changes are the latest in a string of announcements from Ottawa aimed at reinforcing border measures with the United States after President Donald Trump said that Canada has not done enough to stop illegal crossings and fentanyl trafficking.
Among the measures is a ban on businesses other than financial institutions accepting cash payments of $10,000 or more. The new legislation also introduces significant increases to the fines that companies can face for failures in their anti-money-laundering controls. Those increases were first announced in the fall economic statement late last year, prior to the April federal election.
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The legislation was introduced ahead of a review of Canada's anti-money-laundering regime by the Financial Action Task Force (FATF) slated for this fall. The task force is an international, intergovernmental organization that sets standards for combatting money laundering and terrorist financing, and that seeks to ensure that those standards are effectively implemented through a process of mutual country evaluations.
'There is a spotlight because we have the FATF review, but now there's more of a spotlight because of the new U.S. administration that is very focused on their mandate on cross-border financial crime and the impact of money laundering,' Borden Ladner Gervais financial services lawyer Suhuyini Abudulai said in an interview.
Countries that are found to be deficient in managing financial crime risks are added to the task force's grey list, which can have serious negative consequences for a country, such as curtailing foreign investment into it.
Alana Scotchmer, a partner who specializes in financial services regulation at Gowling WLG, said the amendments to Canada's financial-crime laws will need to be implemented swiftly if they are to be factored in to the FATF review.
'Now that we are on the eve of the next evaluation, making a lot of these changes and cleaning up a lot of the things that need to be cleaned up is a more urgent exercise,' Ms. Scotchmer said.
Jessica Davis, president and principal consultant of advisory firm Insight Threat Intelligence, said legislation that prohibits non-financial-institution businesses from accepting large cash payments is intended to make it more difficult for criminals to introduce dirty money into the financial system – a process known as placement that is the first stage of money laundering.
'You can't do a $10,000 cash buy into the casino any more. If you have $10,000 in cash and you want to take it to a casino, you have to take it to a bank first,' Ms. Davis said.
The bank would then have to transmit the funds to a casino – through a wire transfer, for instance.
'Will this stop money laundering? Of course not, but it will push it so that the placement stage of money laundering is going to be happening in financial institutions, which in theory are best placed to be catching this kind of stuff, because they're going to have the full client history,' she said.
The European Union recently announced an EU-wide cap of €10,000 (about $15,600) for cash payments to make it more difficult for criminals to launder money.
Canada's new legislation also increases the administrative monetary penalties (AMP) for businesses that violate anti-money-laundering laws – a change that experts have long advocated. The maximum penalty for a violation would be $4-million if the violation is committed by a person and $20-million if committed by an entity.
Ottawa has become increasingly critical of Canada's anti-money-laundering practices, putting pressure on the Financial Transactions and Reports Analysis Centre of Canada to crack down on financial crimes.
'You've certainly seen in the last few years more public communication from FinTRAC with respect to their AMP activities and enforcement,' Ms. Abudulai said.
While Canadian regulators take enforcement seriously, certain U.S. regulators are known for their determination in levying fines, even for first-time violations, she said.
'Whereas here in Canada, we have some idea – in terms of certain violations – that there may be some flexibility that they may not necessarily receive an AMP immediately, and maybe it's just a matter of discussions with the regulator to address the matter,' Ms. Abudulai said.
In May, FinTRAC imposed its largest-ever monetary penalty on Toronto-Dominion Bank – nearly $9.2-million – after a compliance examination found the lender had gaps in its anti-money-laundering controls. In late 2023, the financial crimes watchdog also fined Canadian Imperial Bank of Commerce and Royal Bank of Canada for anti-money-laundering failings.
The penalties pale in comparison to the hefty fines and restrictions levied by U.S. regulators and law enforcement. In October, Toronto-Dominion Bank was fined more than US$3-billion and was dealt a host of non-monetary penalties after becoming the first lender in U.S. history to plead guilty to conspiracy to commit money laundering.
'I am interested to see, following all of these changes relating to FinTRAC enforcement powers, how FinTRAC actually uses these powers that it's being given,' Ms. Scotchmer said. 'The question for me is: Are all these added tools and added powers on the enforcement side going to lead to more enforcement activities, different enforcement activities? And I think we will need some time to see how that plays out.'
