FINTRAC – Back on Track?

Ted Sausen, Subject Matter Expert, NICE Actimize AML Line of Business

FINTRAC (Financial Transactions and Reports Analysis Centre of Canada) was established to assist in the detection and prevention of money laundering, but the past couple of years have been challenging for it to achieve its mandate.

Since May 2016, FINTRAC’s hands were tied because of the Federal Court of Appeals ruling the Centre’s method for calculating fines was unclear. This made it difficult for organizations to challenge fined amounts. As a result, six violation notices were repealed, leaving FINTRAC with an inability to assess fines on financial institutions for non-compliance. FINTRAC then commenced a comprehensive multi-year review of its policies around the issuance of administrative monetary penalties.

Complying with regulations is no small feat, and it comes with a price tag. Is non-compliance an option? Two significant drivers for compliance are 1) the avoidance of fines and 2) the fear of reputational risk. FinCEN was unable to have a substantial impact on either. They were left with the inability to assess fines, and they were not permitted to release the names of the institutions with violations unless there was criminal intent involved.

But in 2019, FINTRAC performed a reset. In February, a series of “tools” were released to help financial institutions meet their regulatory goals, starting with the revised Administrative Monetary Penalties policy. This allowed FINTRAC to resume assessing penalties for non-compliance. This policy was then accompanied by updates to the Compliance Framework. The framework provides a thorough description of all the tools and services available to financial institutions to aid in complying with regulatory requirements, as well as updates to the Assessment Manual, which outline the assessment process and the methods used to assess compliance.

In March, the federal budget announced an additional $29 million in AML spending each year, with an additional $50 million over the next five years to focus on high-risk regions in British Columbia and Ontario. British Columbia has seen its problems with the laundering of drug trafficking proceeds from China through casinos, real estate and underground banks.

Two months later, in June, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act was amended. Since then, FINTRAC is now required to make public all imposed administrative monetary penalties. FINTRAC updated their policy to reflect the mandatory publication of offenders throughout the penalty process. This took away the anonymity of offending institutions for gaps in the compliance programs.

The most significant change was announced in July when amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) were released. From the timing of Suspicious Transaction Reports, tighter restrictions on Pre-Paid products, and handling of Virtual Currency transactions, there was a significant amount of change to various sections. Many changes seem to align more closely with regulatory changes made to the Fifth EU Directive or the CDD Final Rule in the U.S. This is especially prevalent when it comes to matters like collecting Beneficial Ownership information. The list of circumstances in which Beneficial Ownership needs to be collected has expanded, and there are new requirements for maintaining the accuracy of the information throughout the relationship of the customer.

Canada’s regulatory agencies are moving in the right direction from an Anti-Money Laundering perspective. They have their targets on some critical problem areas, and it’s now up to financial institutions to implement these changes.

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