Canadian AML Law

by Jeffrey R. Simser and Robert G. Kroeker*

Introduction

... The AML regime in any country is apt to be vexing and complex. Canada's is no exception..

 Overview of AML Law in Canada

Canada is a country of immense size, bordered by the Atlantic, Pacific and Arctic oceans as well as by the United States to the south. [General information about Canada can be found on the federal government website: http://www.canada.gc.ca/ (last viewed April 21, 2013).] In 1867 Canada evolved from a colony of Britain to an independent country. There are 34 million people in Canada: Toronto is the largest city, with over 5 million people; Vancouver has over 2 million inhabitants and Montreal has close to 4 million. Politically Canada is a federation consisting of one federal government, ten provinces and three territories. Canada's political system is built on parliamentary democracy in the British tradition, with an elected House of Commons federally and elected legislatures at the provincial level. Ties to the monarchy remain: the head of state in Canada is the Governor General (appointed by the Queen at the recommendation of the prime minister). The head of government is the prime minister who generally chooses a cabinet from members of his or her party elected and sitting in parliament. The federal legislative branch is bicameral consisting of an unelected Senate (members are appointed by the sitting prime minister) and an elected parliament. Provinces have unicameral legislatures. The Canadian economy is vibrant and modern. The nominal gross domestic product of Canada was $1,720.7 billion in 2011. Our banking system is well-capitalized, profitable and remarkably stable. [In addition to quantifying GDP, the International Monetary Fund (IMF) noted that Canada's banking system was well-capitalized and profitable: IMF Canada 2012 Article IV Consultation IMF Country Report 13/40 (Washington: IMF, February 2013) at p. 13.]

One study estimates annual Canadian money laundering activity at between $5 billion and $15 billion (figures in this paper are in Canadian dollars)...

 Money Laundering Risk in Canada

... In 2012, Canada's FIU, FINTRAC (the Financial Transaction and Reports Analysis Centre of Canada) produced a typology report based on a review of disclosures between 2007 and 2011. FINTRAC reported that fraud and drug offences were the largest categories of predicate offences for money laundering, although there were a significant number of cases with an unknown predicate. [FINTRAC Money Laundering and Terrorist Financing Trends in FINTRAC Cases Disclosed Between 2007 and 2011 (Ottawa: FINTRAC Typologies and Trends Reports, April 2012) at p. 5]...

Canadian Compliance with the 40 FATF Recommendations

In 2007,... the Financial Action Task Force (FATF)... examined Canada across seven areas: legal system and related institutional measures; preventative measures respecting financial institutions; preventative measures respecting designated non-financial businesses and professions (DNFBPs); legal persons and arrangements as well as non-profit organizations; national and international co-operation; finally, resources and statistics...

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FATF Evaluation: Preventative Measures (DNFBPs)

Designated Non-Financial Businesses and Professions (DNFBPs) are a category used to capture actors who may be caught up in money laundering, either as gatekeepers (for example accounting firms) or business entities like casinos. At the time of the evaluation, some entities, like dealers of precious stones and metals, weren't covered by the Canadian AML regime. Other entities, like lawyers, fought vigorously in the courts and ended up resolving their issues in a Canadian spirit of reconciliation (although the battle continues in the courts). The evaluation did note that FINTRAC lacked the resources to adequately oversee DNFBPs and self-regulatory organizations in Canada were insufficiently involved in AML oversight.

FATF Evaluation: Legal Persons, Arrangements and Non-Profit Organizations

Like many countries, Canada's corporate information and registry system is not designed to permit authorities to determine, at least in the case of private companies, the beneficial owner or corporate controller of an entity. Some information, for example, is provided at the time of incorporation but little is done to verify its accuracy. Further, a federally incorporated entity can issue bearer shares, although this is not a widespread practice. [Canada Business Corporations Act 1985, c. C 44 ss. 48(6) and 54.] The evaluation noted that there can also be gaps in the identification of information respecting trusts (or in Quebec, the fiducie). [Most Canadian provinces apply common law systems based largely on British law. Trusts operate in this context, as abetted by statute (see for example the Trustee Act, RSO 1990 c. T-23). Quebec has a continental law system which applies a similar concept, the fiducie, as applied by statute (see The Civil Code of Quebec LRQ c.C-1991.] The evaluation was quite positive respecting Canada's not-for-profit sector, and in particular Canada's regulation of charities.

FATF Evaluation: National and International Co-operation

The evaluation noted that Canada needed to increase cooperation between its FIU and law enforcement agencies within Canada. This is an area that has improved, although if an evaluation were to occur tomorrow, important gaps would still be found. Canada's system for international cooperation, largely through the Mutual Legal Assistance in Criminal Matters Act was largely compliant, although the evaluation noted that the effectiveness of the current regime could be improved as could data collection...

* Robert G. Kroeker, B.A., LL.B., MPA is a lawyer, Vice President of Compliance for a major gaming company and former head of the Civil Forfeiture Agency in the Province of British Columbia, Canada; Jeffrey Simser, B.A., LL.B., LL.M. is a lawyer who works for the Ontario government and created the first civil asset forfeiture program in Canada. He is a co-author of Civil Asset Forfeiture in Canada (Canada Law Book -- Looseleaf).The views expressed in this paper are strictly those of the authors and not of their respective employers.


Information referenced herein is provided for educational purposes only. For legal advice applicable to the facts of your particular situation, you should obtain the services of a qualified attorney licensed to practice law in your state.

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