Canada given lukewarm grade on anti-money laundering efforts

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Canada's anti-money laundering efforts have improved in recent years but significant gaps leave the country open to illicit financial activities, according to an evaluation from an organization that develops policies to protect the global financial system.

The importance of anti-money laundering efforts has risen in recent years, as authorities attempt to cut the financial lifelines to criminals and terrorists.

The Financial Action Task Force (FATF), an intergovernmental body that develops standards for combating money laundering around the world, gave Canada a lukewarm assessment – its first since a 2007 evaluation. It noted that while some improvements have brought the country in line with international standards, Canada has failed to make much progress on a number of fronts.

In particular, the FATF identified a significant concern, given that lawyers, law firms and Quebec notaries do not have to adhere to the same anti-money laundering obligations that govern banks and other financial institutions, leaving gaping holes in the reporting system.

As well, the FATF pointed out that the Financial Transactions and Reports Analysis Centre of Canada (Fintrac), the Ottawa-based financial intelligence unit, is hampered by the fact that it is not authorized to request additional information, which limits the depth of its analysis. It must also improve its co-ordination with other regulators.

Canada must "increase timely access to financial intelligence – authorize Fintrac to request and obtain from any reporting entity further information related to suspicions of money laundering, predicated offences and terrorist financing," FATF said in its report, released on Thursday morning.

A report from the U.S. State Department in March, 2016, identified Canada as a major money-laundering country, along with dozens of other developed economies.

"Obstacles to successful enforcement include privacy rules that prevent Fintrac from freely sharing information with law enforcement; complex investigations that can take understaffed police agencies years to finish; and overworked Crown prosecutors," the State Department report said.

A 2013 Canadian report from the Senate committee on banking, trade and commerce was also critical: "There is a lack of clear and compelling evidence that Canada's [anti-money laundering] regime is leading to the detection and deterrence of money laundering and terrorist financing."

Canada's large banks have dramatically increased the number of employees devoted to detecting unusual activity, and the FATF report acknowledges that the six biggest banks "have a good understanding of their risks and obligations, and generally apply adequate mitigating measures."

The same can't be said of a number of non-financial businesses, other than casinos, it said. The reporting of suspicious transactions by these firms is "very low," the report said, adding that the legal profession – especially lawyers who facilitate real estate transactions – is at a "high risk of misuse."

In 2015, the Supreme Court of Canada struck down certain provisions in Canada's federal anti-money laundering law pertaining to the reporting duties of lawyers and searches of their offices.

Lawyers are now exempt from reporting information to Fintrac about "suspicious transactions" involving their clients after these provisions were deemed unconstitutional and in violation of solicitor-client privilege, which protects communications between lawyers and their clients from being disclosed without client permission.

Instead, law societies that regulate lawyers across Canada have implemented their own anti-money laundering rules by barring lawyers from receiving more than $7,500 in cash on a particular file, in most cases, and by requiring them to obtain and verify their clients' identities and keep certain records on hand.

"In light of the risks," the FATF report said, the Supreme Court ruling "raises serious concerns."

It argues that subjecting all financial institutions and non-financial businesses to anti-money laundering obligations must be a priority for Canada.

The FATF report also said that Canada should ensure Fintrac develops greater expertise and "applies more intensive supervisory measures" to the real estate sector.