Canada’s Banks Brace for Post-Pandemic ‘Naming and Shaming’

By Daniel Bethencourt

Canadian financial institutions face the prospect of enhanced scrutiny and public enforcement after regulators lift an indefinite, ongoing suspension of exams they enacted in response to the novel coronavirus pandemic, sources told ACAMS

Canada’s Finance Department finalized several revisions to the nation’s anti-money laundering rules in June 2019, including measures that require institutions to vet the sources of income deposited by foreign politicos, their relatives and other politically exposed persons, and obligate cryptocurrency firms to register as money services businesses.

Most of the new framework takes effect in June 2021, with the exception of a rule that kicked in last month that directs banks, casinos, precious metals dealers and other firms to report suspicious transactions “as soon as practicable” rather than within 30 days as was previously the case.

Canadian regulators will probably give financial institutions an informal grace period to bring their AML programs in line with the updates, Jackie Shinfield, a Toronto-based attorney with Blake, Cassels & Graydon, said at an industry event last month.

“[But] when we’re back … you’re going to see a lot of hard questions asked,” Shinfield told attendees of the ACAMS24+ virtual conference on June 2. “It’s not going to be sufficient to say, ‘We didn’t have time because of the pandemic.'”

The country’s financial intelligence unit, the Financial Transactions and Reports Analysis Centre of Canada, halted AML exams in March in response to COVID-19, and in April disclosed plans to remain “flexible and reasonable” in scheduling future reviews.

However, despite the pandemic, regulators intend to enforce their original deadlines for financial institutions to comply with the new rules given that they will have had nearly two years to make most of the required changes, Fintrac Deputy Director Donna Achimov said during a separate session of ACAMS24+.

“Reporting entities and Fintrac—we’re both feeling the pressure of the upcoming deadlines,” Achimov said. “That’s a large amount of work.”

High stakes

Institutions that fall short of AML compliance risk paying a higher toll, at least from a reputational standpoint, than they did previously, as last year’s reforms also require Fintrac to disclose more details in future enforcement actions.

Fintrac has in the past enjoyed significant discretion in choosing whether to disclose the underlying facts behind findings of violations and even in naming the institution that committed them. In April 2016, for example, the agency announced that a $1.2 million fine had been levied in response to AML breaches but did not identify the firm in question, which CBC News later reported to be Manulife Bank.

A month later, Canada’s Federal Court of Appeal ruled that Fintrac’s de facto policy of saying little about its examinations and penalties unrightfully shielded the agency from legal challenges.

The secrecy surrounding the Manulife Bank penalty also drew public condemnation that probably drove lawmakers’ subsequent decision to force Fintrac to make enforcement actions more public going forward, a compliance officer at a Canadian bank told on condition of anonymity.

“I think FIs [financial institutions] have no choice but … to be named and shamed,” the compliance officer said, adding that the bank’s executives have shared that likelihood to the board of directors. “The best we can do is make sure we report what we should have reported.”

In August 2019, more than three years after the Federal Court of Appeal’s ruling effectively revoked Fintrac’s power to enforce AML rules, the agency outlined how examiners gauge the severity of seven types of compliance lapses, ranging from inadequate AML training to delays in filing suspicious transaction reports, or STRs.

Fintrac has yet to disclose an enforcement action since completing the review.

The eight previous enforcement actions still accessible from the regulator’s website consist of only a handful of sentences that outline the alleged AML breaches in broad terms. None of them exceed three pages in length.

One of them, a two-page summary of the $20,000 fine Fintrac levied against Bijouterie My Tan in May 2015, simply claims the Montreal-based MSB failed to flag “a large cash transaction” and adopt “written compliance policies and procedures,” among other failures.

But that approach will likely change, according to Marc Lemieux, a compliance attorney in Montreal.

“We expect more detailed and useful reasons for [penalties] that reflect lessons learned at the federal court,” Lemieux told in an email.

Pandemic STRs

Fintrac separately disclosed in a July 16 advisory that STR volumes appear to have remained stable amid the pandemic, with banks, MSBs and other financial institutions filing nearly 33,000 reports in May after submitting 30,000 in February.

STRs flagging large cash transactions or suspicious activity at gaming establishments, however, have almost entirely vanished after Canadian authorities shuttered casinos in March to prevent COVID-19’s spread.

Fintrac, like other financial intelligence units around the world, has also seen an uptick in suspected fraud schemes involving the peddling of sham tests and treatments for the virus, as well as phishing scams where perpetrators impersonate public officials to trick victims into providing personal data that they then use to illegally obtain government aid.

Fraudsters often use cryptocurrency to collect and launder the funds, according to the advisory.

STRs will likely play a greater role in Fintrac’s examinations under the new framework, Shinfield, the AML attorney, said during the ACAMS24+ conference last month.

“It’s not just, ‘We think it’s suspicious,'” Shinfield said. “They want you to go through these four steps, [such as] how you concluded it was money laundering. They want you to cite the statute if you know it. … It’s a much more wholesome requirement.”

Contact Daniel Bethencourt at

Topics : Anti-money laundering , Counterterrorist Financing
Source: Canada: FINTRAC , Canada
Document Date: July 27, 2020