Consultation to Update Canada's Anti-Money Laundering and Anti-Terrorist Financing Regime

The Honourable Jim Flaherty, Minister of Finance, has launched a consultation aimed at updating Canada’s regime for combating money laundering and terrorist financing. The consultation paper, “Strengthening Canada’s Anti-Money Laundering and Anti‑Terrorist Financing Regime,” puts forward several proposals that may be considered for future changes to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

The proposals in the paper are organized around the following key areas:

·       strengthening client due diligence standards;

·       closing gaps in Canada’s regime;

·       improving compliance, monitoring and enforcement;

·       strengthening information sharing in the regime;

·       introducing a list of potential countermeasures; and

·       updating reporting requirements.

The paper will also serve to inform the Parliamentary review of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act that will be conducted in 2012 by the Standing Senate Committee on Banking, Trade and Commerce. The deadline for comments is March 1, 2012.

Trends in Canadian Suspicious Transaction Reporting (STR) Part II – October 2011

This report (Trends in Canadian Suspicious Transaction Reporting (STR) Part II – October 2011) is the second in a series of FINTRAC publications that are intended to provide strategic financial intelligence and feedback to reporting entities about suspicious transactions reports (STRs). The first FINTRAC report on Trends in Canadian Suspicious Transaction Reporting, released in May 2011, presented a preliminary analysis of STRs submitted to FINTRAC between 2001 and 2010, using geospatial and text mining techniques. That report was the first FINTRAC attempt to use the text mining technique and served as the foundation to the current more sophisticated methodology.

This Trends and Typologies report on STRs is a continuation of the first one, and consists of an enhanced automated analysis of English and French STRs submitted to FINTRAC from January 1st, 2007 to December 31st, 2010. It provides a greater focus on select topics related to money laundering and terrorist financing that are described by reporting entities in the Part G narrative of STRs. In order to keep providing feedback to reporting entities in relation to STRs and keep highlighting interesting trends as FINTRAC’s text mining capabilities develop in sophistication, it is our intention to keep producing this series of analytical publications.

There are several sections in this report. Part 1 provides a broad overview of the material introduced in the first report and addresses the new methodology used to analyze STRs in the current report. Part 2 describes the trends observed in the Part G narrative of STRs, by specific sector, and contains the report’s main findings. Part 3 provides a brief overview of the dominant themes related to reasons for suspicion in STRs across all sectors. Conclusions are offered in Part 4.

Consultation Paper on Proposed Amendments to the Proceeds Of Crime (Money Laundering) and Terrorist Financing Regulations on Ascertaining Identity

The Minister of Finance of the Government of Canada is proposing amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (the Regulations) to strengthen the identification and customer due diligence (CDD) provisions of the Regulations. The proposed amendments are intended to assist reporting entities to better identify customers and understand their activities, thereby improving the ability of reporting entities to identify transactions and activities that are at greater risk for money laundering or terrorist financing.

Given that cooperation between the public and private sectors is critical to the success of Canada's Anti-Money Laundering and Anti-Terrorist Financing Regime, the Department of Finance would like to invite you to comment on a consultation paper setting out the proposed regulatory amendments.

The consultation paper (Proposed Amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations on Ascertaining Identity) is now available on the Department of Finance website (http://www.fin.gc.ca/activty/consult/pcmltfrai-rrpcfatvic-eng.asp).

Global Bribery and Corruption: Impact on Canadian Businesses

On July 1, 2011, the new Bribery Act 2010 came into effect in the UK, presenting many Canadian commercial organizations with new risks and challenges. The legislation can extend to any company which carries on any part of a business in the UK, regardless of where the company was incorporated. Canadian businesses with a connection to the UK need to carefully consider their existing anti-bribery procedures and whether their controls are up to the task.


To help you keep track of these developments, Deloitte’s advisory team has analyzed the new Bribery Act and has been carefully monitoring Canadian anti-bribery actions. Deloitte offers extensive anti-corruption advisory services helping clients manage bribery and corruption risks, and has been involved in some of the largest and most complex anti-corruption investigations and remediation efforts.

Download the Deloitte report (Global bribery and corruption and the impact on Canadian businesses) to understand the changing nature of anti-bribery legislation and enforcement, and how you can take steps to ensure your business is protected.

Global Anti-bribery and Corruption Survey 2011

In Canada, managing bribery and corruption risks has not assumed the importance and urgency seen in other jurisdictions. To date, Canada’s Corruption of Foreign Public Officials Act (CFPOA), has received little attention from corporations and enforcement by officials. This is in stark contrast to the situation in the United States where the Foreign Corrupt Practice Act (FCPA) is robustly enforced. However, there have been important developments on the Canadian anti-bribery and corruption (AB&C) front. The new reality for Canadian companies is one of increased AB&C enforcement activity, both at home and abroad.

KPMG Forensic commissioned a survey of 214 executives (106 in the US and 108 in the UK) who consider themselves “one of the most senior persons in charge of day-to-day AB&C matters at their company.” The three most significant AB&C compliance challenges cited by both US and UK respondents are auditing third parties for compliance, difficulty in performing effective due diligence on foreign agents/third parties, and variations in country requirements and local laws on issues, such as data privacy and facilitating payments.

(Read the Global Anti-bribery and Corruption Survey 2011.)

FATF-XXIII Calendar of Events (July 2011 – June 2012)

The Financial Action Task Force (FATF) year begins in July and ends in June. During this period, the FATF holds three plenary meetings, a meeting of experts on typologies and, depending on the focus of current work, inter-session meetings and meetings of various ad hoc groups. The plenary meetings usually take place in October, February and June of each year.

Most FATF Plenaries take place in the conference facilities of the OECD in Paris. The meeting of experts on typologies takes place in November of each year and is usually now held jointly with an FATF-style regional body in the country chosen by that body. All of these meetings are only open to delegations from FATF members, observer jurisdictions and observer organizations. They are not open to the public.

The FATF Calendar of Events includes the major FATF meetings along with the meetings of other FATF-style regional bodies and some international organizations that also deal with money laundering issues.

Risks and Responses to Organized Crime: Moving Beyond Cash

(Presentation by Jeanne M. Flemming, Director, Financial Transactions and Reports Analysis Centre of Canada, to the International Symposium on Economic Crime, Cambridge, England, September 7, 2011)

“The world continues to turn, and organized crime continues to mutate. In its 2010 report on organized crime, the Criminal Intelligence Service of Canada noted the changing nature of organized crime in Canada. Traditionally, organized crime was understood as a hierarchical structure comprised of culturally homogeneous groups, citing the examples of Italian, Russian or Albanian mafia. The new reality they describe is one where many organized crime groups are loosely structured, competitive networks with fluid linkages between members and associates, with a diverse range of leadership structures. I can confirm that we are seeing increasing evidence of these fluid structures in our own cases.”

“What is more, organized crime once involved cash-based crimes almost exclusively. As a response, anti-money laundering regimes were developed to combat the illegal profits from the illicit narcotics trade and the organized criminal networks that rose to global prominence three or four decades ago. The infusion of that criminal cash into the financial system was a grave risk that demanded a response. It gave rise to the creation of financial intelligence units, like the one that I head. It also brought regulatory controls and compliance obligations that will be familiar to those of you who work in banking, insurance and securities. In essence, what we have now is a system that was built to address that particular risk. The rules, like the crimes they were meant to address, were largely focused on cash transactions.”

“The question that it begs is: how well does such a system address other risks? In practical terms, can a system of rules intended to keep drug money out of the financial system be effective in addressing the risks posed by offences such as fraud and corruption or any number of other profit motivated crimes loosely grouped under the rubric of “white-collar crime?”

Laundering the Proceeds of Corruption

The Financial Action Task Force (FATF) has prepared a study, Laundering the Proceeds of Corruption, to show the links between corruption and money laundering. This typology report differs from other such typologies previously produced by the FATF because it draws from publicly available work undertaken by experts. The goal of the project was to better understand corruption, its mechanisms and vulnerabilities, through an AML/CFT lens.


The report identifies key vulnerabilities within the current framework and discusses some of the obstacles to the recovery of corruption. In addition to providing the basis for further examination of related issues, the report will serve as the catalyst for future FATF work in developing guidance or best practices on measures relevant to combating corruption. The FATF will continue to work on issues related to the use of tools in the fight against corruption (also refer to the report on the FATF’s Focus on Corruption).

Stupid fraud tricks

“It’s not uncommon to glamorize fraudsters. They are often clever, charming and cunning. Their schemes are frequently brilliant and breathtakingly bold. Even the words “con artists” used to describe them bestow a degree of respect and admiration for their accomplishments, immoral and illegal though they may be. Not all fraudsters, however, are deserving of our reluctant praise. In fact, for every Frank Abagnale, the master of fraud and false identity portrayed in the film Catch Me If You Can by actor Leonardo DiCaprio, there are myriad examples of bungling, clumsy and downright stupid fraudsters. In fact, the inept ones are more common than the inspired schemers. Nonetheless, they do evoke a certain response from fraud investigators — comic relief.”

(Read the article “Stupid fraud tricks” in the August 2011 issue of CAmagazine online.)

Money Laundering in Canada

Some authorities, including the Royal Canadian Mounted Police (RCMP), have found that money laundering is often related to organized criminal and/or terrorist activity. In recent years, the issue of money laundering has been highlighted as an emerging problem both in Canada and internationally. In Canada, it is estimated that the amount of money laundered on an annual basis is somewhere between $5 and $15 billion. Worldwide, it has been estimated that this figure may be $900 billion to $2.25 trillion (RCMP – Money Laundering, 2011).

According to the Criminal Code, money laundering, also referred to as laundering proceeds of crime, occurs when an individual or group uses, transfers, sends, delivers, transports, transmits, alters, disposes of or otherwise deals with, any property or proceeds of any property that was obtained as a result of criminal activity. This is done with the intent to conceal or convert illegal assets into legitimate funds.

An example of money laundering would involve a person who sells illegal drugs, and then uses the profit to purchase legal goods to sell through a legitimate business. Previous research suggests that money laundering schemes are often associated with the illegal drug trade or the defrauding and manipulation of Canada’s financial institutions.

(To learn more, see the Statistics Canada website and the June 2011 publication Money laundering in Canada, 2009.)

Money Laundering and Terrorist Activity Financing Watch

The Money Laundering and Terrorist Activity Financing Watch presents a quarterly review of news articles summarizing relevant group-based, activity-based and country-based money laundering and terrorist activity financing issues, and alerts readers to new financial mechanisms or technologies that could possibly be exploited for money laundering or terrorist activity financing purposes in Canada. (Caveat: The content is a summary of news articles and does not include any FINTRAC analysis. The views expressed are those of the authors. FINTRAC is not responsible for the accuracy, currency or the reliability of the content. References are provided to the respective articles at the end of this document.)

Read: Money Laundering and Terrorist Activity Financing Watch:January-March 2011

History of the FATF (1990-2010)

In response to mounting concern over money laundering, the Financial Action Task Force on Money Laundering (FATF) was established by the G-7 Summit that was held in Paris in 1989.  Recognizing the threat posed to the banking system and to financial institutions, the G-7 Heads of State or Government and President of the European Commission convened the Task Force from the G-7 member States, the European Commission and eight other countries.

The Task Force was given the responsibility of examining money laundering techniques and trends, reviewing the action which had already been taken at a national or international level, and setting out the measures that still needed to be taken to combat money laundering.  In April 1990, less than one year after its creation, the FATF issued a report containing a set of Forty Recommendations, which provide a comprehensive plan of action needed to fight against money laundering.

In 2001, the development of standards in the fight against terrorist financing was added to the mission of the FATF.  In October 2001 the FATF issued the Eight Special Recommendations to deal with the issue of terrorist financing.  The continued evolution of money laundering techniques led the FATF to revise the FATF standards comprehensively in June 2003.  In October 2004 the FATF published a Ninth Special Recommendation, further strengthening the agreed international standards for combating money laundering and terrorist financing - the 40+9 Recommendations.

To learn more, read the publication 20 Years of the FATF Recommendations 1990-2010.

FATF's Focus on Corruption

The Financial Action Task Force (FATF) attaches a great importance to the fight against corruption: corruption has the potential to bring catastrophic harm to economic development, the fight against organized crime, and respect for the law and effective governance. The G20 called upon the FATF to address the problem of corruption in the framework of its work on combating money laundering and terrorist financing.  Corruption and money laundering are linked.  Corruption offences, such as bribery or theft of public funds, are generally committed for the purpose of obtaining private gain.  Money laundering is the process of concealing illicit gains that were generated from criminal activity.  The FATF Recommendations were designed to combat money laundering and terrorist financing, but when effectively implemented they can also help combat corruption, by:

·       safeguarding the integrity of the public sector;

·       protecting designated private sector institutions from abuse;

·       increasing transparency of the financial system;

·       facilitating the detection, investigation and prosecution of corruption and money laundering, and the recovery of stolen assets.

Reference Guide and Information note on the use of the FATF Recommendations to support the fight against Corruption – This information note sets out why compliance with the FATF Recommendations creates an environment in which it is more difficult for corruption to thrive undetected and unpunished.

Money laundering involves more than just cash transactions

Banks and other financial institutions required to report to FINTRAC need more sophistication and variety in their reporting of suspicious transactions, FINTRAC Director Jeanne Flemming recently told an anti-money laundering conference. “...on the issue of communications, what struck me when I took over as Director was how little we showed reporting entities why effective reporting was crucial to our output of high-quality intelligence and therefore to the police who undertake investigations and the Crown prosecutors who take cases to court.”

“We told them but we didn't show them. There is a big difference and it is why I wanted us to conduct workshops to bring together compliance officers, police and prosecutors with us to show just how we analyze and disclose intelligence and what happens to it. In other words, show how good reporting is a crucial factor in a continuum that finally ends with convictions of criminals. We held two workshops, in Toronto and Montreal, in the last two years. We were pleasantly surprised at the positive feedback we received.”

(See the Keynote Address by Director Jeanne M. Flemming, Financial Transactions and Reports Analysis Centre of Canada to the Canadian Institute's Annual Anti-Money Laundering Forum –Toronto. May 10, 2011.)

Trends in Canadian Suspicious Transaction Reporting

Trends in Canadian Suspicious Transaction Reporting represents an ambitious undertaking—the first time FINTRAC has made an in-depth analysis of 300,000 suspicious transaction reports (STRs) received over the last ten years from across the country.  STRs provide valuable information allowing FINTRAC to assist partners in their investigations of money laundering (ML), terrorist financing (TF), and other threats to the security of Canada. They also feed into strategic intelligence which informs various stakeholders about current and emerging ML/TF trends and patterns, as well as support high-level policy decisions. Since new compliance obligations came into force in 2008, reporting entities are required to expend more effort in identifying their highest ML and TF risks. The purpose of FINTRAC Typologies and Trends Reports is to provide strategic financial intelligence feedback to help reporting entities conform to these new obligations.

Review of the FATF Standards

The Financial Action Task Force (FATF) develops and promotes global standards for combating money laundering and terrorist financing, which are set out in the FATF 40 Recommendations and the 9 Special Recommendations on Terrorist Financing. Now at the end of its 3rd Round of Mutual Evaluations, the FATF is conducting a review of the 40+9 Recommendations to ensure that they remain up-to-date and relevant and to benefit from lessons learned from implementing and evaluating the current standards. The current review is a focused and balanced exercise, aiming at maintaining the necessary stability in the standards while addressing any deficiencies or loopholes.

Between October 2010 and January 2011, the FATF undertook a public consultation on the first phase of its Review of the FATF Standards.  The responses received were published on the FATF website in February 2011. In summary, 51 written submissions were received from representatives of the financial sector (available as Part 1 and Part 2); 18 from representatives of the non-financial businesses and professions; and 6 from other respondents, including non-governmental organisations.

The FATF has begun to consider the issues raised during the initial consultation. In particular, it continues to review certain aspects of the proposals relating to the risk-based approach, customer due diligence, wire transfers and politically exposed persons, taking into account comments received during the consultation process.

Royalty fraud

Certain industries are more susceptible to royalty fraud, but investigating and proving it is a challenging process. Whether a client wants to call it a fraud investigation or just a review, the key to this kind of assignment is to know how payments are supposed to be recorded and every possible trick or mistake that can result in underpayments. In other words, give every file the royal treatment. Read the article “Royal Treatment” in CAmagazine online.

A steep price - taking bribery more seriously

With the OECD pressuring Canada to get tougher on improper payments, days of bribes to foreign public officials may be over. While it seems apparent that countries such as Canada and the UK are finally following the US’s lead and taking bribery more seriously, this comes at a time when companies that are affected by the legislation may not be ready. A survey of UK companies released by Grant Thornton LLP in June 2010 found that more than three-quarters of companies surveyed have not invested in anticorruption strategies to deal with the Bribery Act, leaving many UK companies at unnecessary risk of the act’s harsh penalties. In addition, results “from a recent survey performed by a global business consulting firm discovered that only 50% of senior corporate executives are ‘highly confident’ that their business control systems are managing their organizations’ business risks effectively,’ ” says William Olsen, a principal of Grant Thornton LLP in the US and author of The Anti-Corruption Handbook: How to Protect Your Business in the Global Marketplace. The survey also showed that fewer than 10% rated their control systems “excellent” in providing early warning signs to catastrophic risk. (Read the full article called "A steep price" in CAmagazine online.)

FINTRAC Presentations and Speeches - March 8, 2011

With the recent adoption of Bill C-9, FINTRAC is now permitted to use tax evasion as a predicate offence from which to build a case disclosure. The Criminal Code regulations were amended to make tax evasion a predicate offence to money laundering when determining whether to send a case to the Canada Revenue Agency (CRA). But equally important, pursuant to the coming into force of the regulations to the Bill, the threshold for disclosing information to CRA was lowered from "determining" to "reasonable grounds to suspect" that the information being disclosed is relevant to tax evasion. Read the full text of Notes for remarks by Denis Meunier, Assistant Director, Financial Analysis and Disclosures Directorate, before the House of Commons Finance Committee (Ottawa, March 8, 2011).

Insolvency Practitioners Providing Trustee in Bankruptcy Services

FINTRAC Interpretation Notice No. 7 - Insolvency Practitioners Providing Trustee in Bankruptcy Services (paragraph 5(j) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and subsections 34(1), sections 35 and 36 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations). The purpose of this notice is to clarify the application of the PCMLTFA relating to insolvency practitioners offering bankruptcy services. Insolvency practitioners provide trustee in bankruptcy services. These services are not triggering activities for any obligations under the PCMLTFA. Trustee in bankruptcy services or insolvency practitioners are not covered as services or as an entity under thislegislation. However, if you are an insolvency practitioner and you are an accountant or an accounting firm, you may have obligations relating to other activities.

FINTRAC ANNUAL REPORT 2010 - Ten Years of Connecting the Money to the Crime

During 2010, FINTRAC, as Canada’s financial intelligence unit, celebrated its tenth anniversary. (Refer to the publication FINTRAC ANNUAL REPORT 2010 - Ten Years of Connecting the Money to the Crime.)

FINTRAC made 579 (up from 556 in 2008-09) disclosures of information suspected to be relevant to investigations of money laundering, terrorist financing, and/or threats to the security of Canada. Turnaround time on cases improved 17%, and requests for assistance went up 36%. By using electronic media for case disclosures, it sharply reduced delivery times, and provided a more flexible product for law enforcement and intelligence partners to work with.

FINTRAC published a new series of strategic intelligence assessments focusing on terrorist groups and countries arousing national security concerns, as well as reports informing partners about current and emerging typologies and trends in money laundering and terrorist financing. It was also the Canadian lead for the FATF typology project about the use of new payment methods for money laundering purposes.

The Office of the Privacy Commissioner (OPC) issued a report praising the Centre's management of personal information, and recommended the appointment of a Chief Privacy Officer. FINTRAC was pleased to implement this and other OPC recommendations.

(See Highlights from FINTRAC's 2010 Annual Report.)

Egmont AML/CFT Awareness Video

The Egmont Group of Financial Intelligence Units has released a short animated video to advance awareness and understanding of money laundering and terrorist activity financing. The Egmont AML/CFT Awareness Video is available in English, French and Spanish versions. For more information, read the Egmont News Release online.

Prepaid cards can be fenced for up to 80% of their value

Drug traffickers, terrorists and other criminals have found a simple and ingenious way to launder their dirty money. Prepaid cards, especially gift cards, can be fenced for up to 80% of their value, according to Canada's FINTRAC. Popular sites such as eBay, Craigslist and various card-exchange sites have made “e-fencing” an incredibly easy way to launder dirty money for about a 20% cost, much less than what traditional, human fences would charge. FINTRAC cites one ring of thieves who were caught in Florida in 2007 after buying US$24,000 worth of gift cards from one Wal-Mart and US$18,000 from another Wal-Mart. FINTRAC also reports that British experts allege that prepaid cards have been used to move terrorist funds around the world and finance terrorist attacks. (Read the article "Card Tricks" in the January-February 2011 edition of CAmagazine, also available online.)