Canada Addresses Money Laundering Late in Game

The Canadian government certainly isn’t the first to address money laundering, in fact, it is one of the last, but new regulations published last week have many commerce experts feeling that Canada may have written some of the best such regulations around.

Money laundering expert Jennifer Fiddian-Green admits that while Canada may be late to the game the right steps have been taken in enacting the regulation. Fiddian-Green is the lead consultant for forensic accounting and investigative services at Grant Thornton LLP. Her company has been working first hand with those wanting to get in line with the new law.

“We are the last country that is part of the FATF (Financial Action Task Force) to put these kinds of reporting measures into law,” she said. “Canada has not had reporting of money laundering transactions before this legislation.”

Late doesn’t always mean worst though, and Fiddian-Green credits the government for introducing regulations that are stringent.

“Canada has come so late to the game,” she said. “We are years behind the United States, but Canada is saying that suspicious transactions have to be reported, not just cash, not just the sort of the easy ones to report on.”

On June 29, 2000, the government introduced the Proceeds of Crime (Money Laundering) Act. In the months since its passage, the government undertook a thorough task of writing regulations to fit the law.

Last week, the Canadian Department of Finance published Part I of new guidelines for Canada’s Proceeds of Crime (Money Laundering) Act. These guidelines create a Mandatory Suspicious Transaction Reporting (MSTR), which will try to cut down on money laundering by requiring businesses to report suspicious transactions to FINTRACC (the Financial Transactions and Reports Analysis Center of Canada).

According to a spokesman with the Department of Finance the proposed regulations reflect input received during an extensive consultation process that began with the release of a consultation paper in December 1999. He said the government benefited from this process and looks forward to receiving written comments from stakeholders during the 90-day consultation period following the regulations' release.

“We are starting to get calls from groups who know they need to do something and are wondering if we can help them,” she said. “They know they need some kind of an automated solution, and they are wondering if we can help.”

After the 90-day comment period concludes the center will spend a month evaluating recommendations that are made. Considering how much time and effort that went into developing the guidelines in the first place, it's considered doubtful that any major recommendations will be made. Once the month is up, the center will then publish the final version of the regulations and after 30 days they will become law. The law will probably come into effect by late June or early July under that timeline.

“It has been very heavily pre-consulted so there won’t have to be any changes made to it,” Fiddian-Green said. “They have really been doing their homework on this.”

Fiddian-Green explained that while the Act was passed last year, the guts of the law are in the regulations that were made public for the first time last week.

“The Act says you have to report any transactions suspicious of money laundering, and you must report prescribed transactions,” she said. “The detailed rules say ‘here are the prescribed transactions you have to report,’ and the guidance says, ‘here is what we think a suspicious transaction is.’ Finally all the banks, all the casinos, know what they are dealing with.”

The Canadian law, once enacted, will be unique in the sense that while guidelines will be in place; the government is counting on some of the industries to police themselves.

“All along the casinos were saying, ‘OK, you want us to report a transaction suspicious of money laundering, well what does that mean?’ The Government is telling them that they are not going to tell them and that they (the casinos) have to figure it out,” Fiddian-Green said. “Their belief is that the casinos are the ones who are involved in the transactions, and they should know better than the government. But they aren’t leaving them out in the cold. The government is willing to provide some guidelines.”

Many agree, Fiddian-Green feels, that the right mix was accomplished with the guidelines. “It is not a definitive list. But it is not exhaustive either. But it is a little bit of guidance,” she said. “They provided a bunch of bullet points for casinos.”

There are two main transactions in which the government is hoping the gaming industry can address. The regulations call for “prescribed” transactions to be reported and for companies to be able to recognize “suspicious” transactions. According to Fiddian-Green the prescribed transactions is a cut-and-dry issue.

“Prescribed transactions are such, that the government is saying, ‘every time they happen we want you to report them, we don’t even want you to have to think about it,’” she said. “For casinos, that includes a cash transaction when the amount is $10,000. So if you see it, report it.”

A spokesperson for the Department of Finance said the $10,000 figure is a good one since that usually represents a red flag.

“We are looking for significant amounts of money changing hands,” the spokesman said. “When there is that kind of money moving through channels that is usually a good sign that there may be some laundering going on.”

Suspicious transactions are another story. Companies will be forced to institute training for employees to recognize what makes a suspicious transaction. Fiddian-Green said many of Canada's guidelines are similar to ones in the United States.

“Anytime a client is requesting a check in a third party name, acquaintances who are betting against each other on even-money games, all of these things are suspicious,” she said. “This is what the new center thinks is suspicious. If you have any clients who are known by multiple names, you have got to know that. We think you should probably be reporting those instances to us.”

Prescribed transactions have a $10,000 amount tagged to them to help casinos recognize possible problems, but no such figure exists for suspicious transactions.

“For the suspicious ones, there is no monetary threshold,” she said. “That means a $500 transaction could be suspicious and they are very clear in the legislation that there is no monetary threshold. So now you aren’t just looking at $10,000. It might be $2,500 or $1,500.”

The law will also require that employees be trained on an annual basis about money laundering procedures and anti-money laundering procedures.

“The list that is specific to casinos is going to require casinos to add on a whole component to their training course,” she said. “They will also have to add automated systems.”

Many casino operators are starting to seek out help realizing the regulations will come in to law by the end of summer.

“Because it is now available, groups are starting to take it seriously,” she said. “Casinos in particularly are realizing that the clock is ticking and they have to have their plan in place.”

Breaking this law is a criminal offense, and carries a penalty as high as $2 million and five years in jail.

“Does that make it easier to launder money into Canada versus the United States? Yes,” she said. “But do I think more money is being laundered through Canada than the United States? Of course not, Canada is a much smaller country and the United States has a much bigger banking system.”

Money laundering is the generic term applied to the process of concealing the illegal source of cash income. Criminals try to cover their tracks by converting the cash proceeds of criminal activities, such as drug trafficking, to "legitimate" assets, often through unwitting small businesses. Based on International Monetary Fund estimates, each year in Canada alone criminals could be laundering more than $17 billion.

Click here to read Part 1 of Canada's new guidelines for the Proceeds of Crime (Money Laundering) Act.