Feds to impose larger financial penalties for anti-money laundering failures
Ottawa plans to sharply increase the amount that financial institutions and other companies can be fined for failures in their anti-money-laundering controls as the country faces growing pressure to tackle financial crime.
The federal government’s fall economic statement this week included a series of changes aimed at combatting financial crimes such as money laundering and terrorist financing, and proposes to increase financial penalties by as much as 40 times.
Under the proposal, for example, a bank could be penalized as much as $20-million for failing to report a suspicious transaction, up from $500,000 currently. Total penalties would be capped at $20-million or 3 per cent of a company’s annual worldwide revenue, whichever is higher. For individuals, the maximum penalty is to be set at $4-million for a single notice of violation.
Canada’s anti-money-laundering watchdog, the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC) levies such penalties and is to take into account the company’s ability to pay.
The changes, some of which would require the government to introduce legislation, were announced ahead of next year’s review of Canada’s anti-money-laundering regime by the Financial Action Task Force. The intergovernmental body sets standards to combat money laundering and terrorist financing.
Canada is under pressure to clamp down on money laundering through the country’s financial system, particularly in the wake of compliance failures at Toronto-Dominion Bank TD-T -0.62%decrease
.
Canada’s second-biggest bank is facing more than US$3-billion in fines as well as a host of non-monetary penalties after becoming the first lender in U.S. history to plead guilty to conspiracy to commit money laundering.
In Canada, TD was fined approximately $9.2-million for failures in its anti-money-laundering controls. While the penalty was significantly lower than those that the bank received south of the border, it was the largest-ever monetary penalty levied by FinTRAC.
Jessica Davis, president and principal consultant of advisory firm Insight Threat Intelligence, said the TD case highlights the differences between Canada and the U.S. when it comes to penalizing companies for failing to comply with their anti-money-laundering obligations.
“It’s going to be really important for Canada to be more proportional to the United States,” Ms. Davis said.
However, she added, Canada’s monetary penalty regime was not designed to be as punitive as the one south of the border. “It’s a totally different system. If we wanted to be more like the U.S., we’d have to probably design a new penalty system,” she said.
Currently, the largest penalty that FinTRAC is able to levy is up to $500,000 for each instance where a company such as a financial institution, a casino or a real estate broker has failed to report a suspicious financial transaction.
In addition to higher financial penalties, other proposed changes include requiring all companies that report to FinTRAC to register with the watchdog; allowing the agency to share information with election oversight officials to address foreign interference in Canadian elections; and closing an information-sharing gap by adding the watchdog to the Financial Institutions Supervisory Committee.
The group, which includes the Department of Finance, the Office of the Superintendent of Financial Institutions and the Bank of Canada, shares information regarding the supervision of federally regulated financial institutions.
Alana Scotchmer, a partner specializing in financial services regulation at Gowling WLG, welcomed the proposed changes, calling them “a long time coming.”
“A lot of the changes have to do with adding a lot of capability to actually investigate and receive information,” Ms. Scotchmer said.
However, she noted that the draft legislation has yet to be released.
“It’s one of those things where the devil’s in the details,” she said.
This article was first reported by The Globe and Mail
