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Speakers gathering for The Assembly Canada had plenty to talk about as they headed to the two-day annual conference in Toronto hosted by ACAMS, with a national beneficial ownership registry in the works and a new financial crime agency on the drawing board.

When they arrived, they got even more to discuss.

The head of Canada’s financial intelligence unit opened the conference Thursday morning by calling on financial institutions to aggressively speed up the reporting of “high-priority” suspicious transactions reports, or STRs.

“I think we can all agree that the status quo is not the answer,” Sarah Paquet, director of the Financial Transactions and Reports Analysis Centre of Canada, or Fintrac, told the audience of compliance officers, adding that banks and other reporting entities should leverage technology to alert Fintrac in near “real time” about transactions indicative of money laundering and terrorist financing.

For its part, Fintrac plans to leverage artificial intelligence to rapidly supply investigators with high-priority, higher-quality case leads and provide feedback to financial institutions on the quality of their STRs, Paquet said.

Compliance chiefs of several major Canadian lenders welcomed the initiative during a panel discussion Friday but noted that integrating AI tools into existing transaction-monitoring and STR reporting systems will be a heavy lift.

“It’s a great opportunity, but the question will be: ‘is my institution’s data structure ready to take advantage of it?,'” Michael Donovan, chief anti-money laundering officer at CIBC, told the audience. “At financial institutions I’ve seen adopt [AI], the installation itself was pretty straightforward.”

The task of transforming separate sets of historical transaction data into a uniform structure, linking them with records of past STRs and then making it all accessible to machine-learning applications poses a greater challenge, Donovan said.

Fraudsters and other criminals meanwhile are increasingly using AI to perpetrate sophisticated cyber-enabled scams, Chris Lynam, director general of the National Cybercrime Coordination Centre and the Canadian Anti-Fraud Centre of the Royal Canadian Mounted Police, warned.

By analyzing a short recording of a person’s voice, “deep fake” AI-powered applications can imitate the person well enough to fool friends and relatives—and deceive the voiceprint security systems that some banks and investment firms use to verify their clients’ identities, Lynam said during a presentation Friday.

“With a three-second clip from your voicemail they can generate a convincing computer-generated voice,” he said.

Beneficial ownership

Erin Hunt, director general of Finance Canada’s financial crimes and security division, told the conference that the government is seeing strong buy-in from provinces and territories to join a national registry of beneficial ownership scheduled to launch in January 2024.

Quebec has already launched its registry while British Columbia has enacted legislation to follow suit. Canada’s 13 provinces and territories register roughly 85 percent of legal entities active nationally, so their participation is key to enhancing the transparency of ownership of local corporations.

“If there are gaps in our beneficial ownership registry coverage, those gaps can be exploited,” Hunt told conference attendees Thursday. “I think there’s a recognition across the country that no jurisdiction wants to become the area that can be exploited.”

Nathalie Martineau, regional director for Fintrac’s Toronto office, warned attendees Thursday that the regulator will be quicker to penalize financial institutions for egregious or repeated AML deficiencies going forward, and will soon begin publicly revealing the specific nature of their lapses.

“There are more [penalties] coming,” she said, expanding on an earlier remark by Paquet.

The causes of serious AML deficiencies at banks are a “mixed bag” and include unreported STRs and flaws in governance and controls, particularly testing and quality assurance of first-line transaction monitoring, Martineau said. “If you don’t have that [testing] strength in place, you can be operating blindly.”

James Cohen, former executive director of the advocacy group Transparency International Canada, told the conference Thursday that monitoring the environmental, social and corporate governance performance of their customers can help financial institutions risk-rate those clients for AML purposes.

“There will be an AML component with environmental crime,” Cohen said. “With illegal logging, for example—where does the money go? Who was bribed to allow it?”

Nikil Chande, senior director of the supervision department of the Bank of Canada, said that many money services businesses already registered with Fintrac will face a new registration requirement in 2024 under legislation adopted last year.

Providers of payment services such as stored value cards used at multiple retailers will fall under the registration requirement, as regulators move to safeguard consumers’ identifying information and protect them from financial losses. Firms will face background checks and an annual reporting requirement to demonstrate their safe handling of customer funds.

“We don’t want a situation where a PSP [payment service provider] fails and holders of accounts lose all their money or wind up with five cents on the dollar,” Chande told the conference Friday.

Marie-Helene Levesque, director general of the Financial Crimes Coordination Centre of Public Safety Canada, told the conference that officials are still mulling the structure, function and launch date of the envisioned Canada Financial Crime Agency, which officials first proposed two years ago.

But its mandate is clear: to support investigations that lead to charges, asset forfeitures and convictions.

“We know we’re dealing with very sophisticated criminal organizations,” Levesque said, adding that law enforcement can only match the capabilities of crime syndicates by bringing together a broad range of financial investigators under one roof.

Meanwhile, financial institutions should focus more closely on the financial crime-related risks posed by crowdfunding platforms as they are increasingly being used by crime syndicates and terrorist groups to move funds, she warned.

Sanctions

Financial institutions struggling to cope with the rapid expansion of sanctions in the wake of Russia’s invasion of Ukraine in February 2022 will soon have more assistance from the government, as Global Affairs Canada is in the process of setting up a dedicated sanctions bureau, Mitchell Robitaille, special advisor for sanctions policy at the department, said during the conference’s closing session on Friday.

Starting in 2024, the bureau will provide guidance on the department’s sanctions regime and reduce a backlog of applications for permits that allow financial institutions to process transactions tied to humanitarian aid destined for sanctioned jurisdictions.

“We’re in a new normal,” said Robitaille. “Sanctions went from being a last resort to one of our foremost [foreign] policy tools.”

The aggressive expansion of financial and trade embargos targeting Russia may be only the beginning as new conflicts emerge globally, John Boscariol, a partner at the McCarthy Tetrault law firm in Toronto, told the audience.

“What’s happening with Russia may be a mere dress rehearsal of what could happen if Canada sanctions China,” he said.

If that, or any other significant financial-crime or sanctions developments occur over the next 12 months, they are certain to be the focus of The Assembly Canada in 2024.

Contact Fred Williams at fwilliams@acams.org