The previously confidential algorithms Canadian regulators use to calculate penalties for anti-money laundering infractions shines more light on their enforcement strategy but will not prompt significant compliance overhauls, sources told ACAMS moneylaundering.com.
On Aug. 29, more than three years after a court deemed its enforcement policies too opaque to allow for legal challenges, the Financial Transactions and Reports Analysis Centre of Canada, or Fintrac, published its system for assessing the harm from seven types of compliance failures, from personnel-related deficiencies to lapses in filing suspicious transaction reports, or STRs.
Fintrac uses a tiered system to assess the seriousness of each type of violation and levy fines, the disclosure shows. Hiring an unqualified compliance officer, for example, constitutes a “Level 4” violation with a maximum penalty of only $25,000, while failing to appoint one at all triggers a “Level 1” violation—the most severe possible—and penalties as high as $100,000.
“Level 2” within the same category covers financial institutions that do not ensure that their compliance officers perform all required duties, while firms that do not give their officers enough authority and resources to do so would draw a “Level 3” violation.
The penalty system in and of itself carries significant consequences for banks and other financial institutions as most are cited for at least some violations during any given examination, according to Jackie Shinfield, a Toronto-based attorney with Blake, Cassels & Graydon.
“It’s clear they’re trying to ramp up the enforcement regime,” Shinfield said.
Industry’s new familiarity with that system, however, qualifies as only a minor development in comparison to Fintrac’s release of its heretofore unpublished 66-page examination manual in February, Shinfield said.
Fintrac claims in the manual that examiners focus on the “overall soundness” of an AML program rather than on the “technical aspects of compliance.” But examiners confirm that soundness in part by reviewing flagged transactions that institutions choose not to report, a policy that may prompt more filings of low-quality STRs for defensive purposes.
Compliance violations involving STRs fall into six levels of severity, with the largest possible penalty of $500,000 triggered by a failure to file a necessary report.
An incomplete account of all parties to the suspicious transaction would trigger a Level 4 violation, while a failure to include “information that identifies relationships” could qualify as a “Level 5” violation, with a maximum $50,000 penalty.
Any fines for STR violations might be lessened by several mitigating factors, such as whether law enforcement ultimately obtained the information despite the absence of a report.
Fintrac’s apparent focus on resources and training is noteworthy because neither are legally required, Shinfield said.
The compliance manual and Aug. 29 disclosure also do not clarify how Fintrac measures resources and training, nor list any mitigating factors that could reduce penalties for violations in either area, she said.
Other infractions, including those pertaining to currency-transaction-reporting, know-your-customer, recordkeeping and registration requirements, are also assessed by their level of severity and penalized accordingly.
“Assessing the amounts of penalties has become more mathematical than before,” Marc Lemieux, a compliance attorney in Montreal, told moneylaundering.com. “It’s a positive step that they’re making guidelines available, but by putting a spotlight on these criteria, there’s a risk that Fintrac gets lost in the application of formulas and loses track of the other criteria.”
Other factors Fintrac must continue considering: a financial institution’s history of violations and the agency’s stated priority of encouraging compliance rather than respond to violations solely with an enforcement action, Lemieux said.
Contact Daniel Bethencourt at firstname.lastname@example.org
|Topics :||Anti-money laundering , Counterterrorist Financing|
|Source:||Canada , Canada: FINTRAC|
|Document Date:||September 13, 2019|