Ottawa is an unlikely place to inspire increased international co-operation to fight financial crime.
After all, the Canadian government has spent decades being blasé about the transnational risks posed by money laundering, terrorist financing and sanctions evasion. Hence, it was surprising to learn from U.S. officials that the “spirit of collaboration” captured our comatose capital city late last week.
Ottawa was the setting for the first-ever financial crime symposium jointly hosted by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network and the Financial Transactions and Reports Analysis Centre of Canada.
This inaugural FinCEN-FinTRAC summit also included officials from financial intelligence units in Australia, the Netherlands and Britain. Representatives from U.S. and Canadian banks joined the confab, too.
It’s curious that it took decades for FinCEN and FinTRAC to team up in this way.
FinCEN highlighted the importance of “close collaboration” between Canada and the United States. It also stressed “the power of reporting by financial institutions and the sharing of that information between governments.”
FinTRAC appeared deferential, reposting FinCEN’s statement on X, the social-media platform formerly known as Twitter. It then added “partnership has become a real strength of Canada’s regime.”
This new unity of purpose between FinCEN and FinTRAC is the latest sign that Washington will no longer tolerate Canadian passivity on financial crime in the wake of Toronto-Dominion Bank’s money-laundering scandal in the U.S.
American regulators have lost confidence in their Canadian counterparts – and with good reason. The only way for Ottawa to redeem itself is to close the yawning gaps between the U.S. and Canadian anti-money-laundering and anti-terrorist-financing regimes.
Ottawa must mirror Washington’s approach.
The U.S. is the main growth market for major Canadian banks. That means FinCEN, along with the Office of the Comptroller of the Currency and the Federal Reserve Board, are the de facto regulators for our domestic banks.
For all those reasons, the Canadian Bankers Association’s proposals to overhaul this country’s financial crime reporting regime make sense.
The CBA wants Canada to replace its system of suspicious transaction reports (STRs) with suspicious activity reports (SARs), similar to those used in the U.S. and Britain, because they provide more details of suspected illegal activity.
At present, banks and other companies are required to file STRs to FinTRAC when there are “reasonable grounds to suspect” that a transaction or an attempted transaction is related to money laundering or terrorist financing.
Bank staff must have more than just a hunch to file a STR, but not a firm belief that a crime was committed by a client. That requirement has caused confusion for some lenders, including TD Bank, The Globe and Mail reported in January.
SARs are not necessarily focused on individual transactions. Rather, they are used to flag patterns of suspicious activity that could be based on client behaviour and multiple transactions. That broader scope makes it easier for police to connect the dots and home in on financial criminals.
Improving Canada’s dismal track record on enforcement ought to be the goal.
Enforcement results, which include the number of investigations, charges, prosecutions, convictions and asset forfeitures, declined between 2010 and 2020, according to a 2023 report by the Department of Finance.
Total financial crime compliance costs for financial institutions, meanwhile, hit US$2-billion in Canada, according to a 2023 study conducted by Forrester Consulting on behalf of LexisNexis Risk Solutions.
“It is imperative to shift focus from extensive reporting and regulatory measures, to prosecutions of financial crimes to narrow the gap between regulatory compliance and actual law enforcement effectiveness,” the CBA stated in a prebudget submission.
Canadian banks that operate in the U.S. already file SARs to FinCEN. Transitioning to a SAR regime in Canada would create uniform reporting rules, helping banks keep their total compliance costs in check.
Critics claim using SARs would unduly compromise privacy rights for Canadians, but our current STR system is hardly a privacy-centric approach.
Nick Maxwell, one of the world’s top experts on financial crime, told the Cullen Commission on money laundering in British Columbia that on a per capita basis, the volume of reporting in Canada is actually 12.5 times that of the U.S. and 96 times that of Britain.
Canada has already taken steps to align itself with the U.S. This past April, for instance, Ottawa announced plans to increase permissible information sharing among financial institutions to prevent more criminals from switching banks. (U.S. banks have benefited from such enhanced legal protections for 23 years.)
Ottawa, though, has plenty of other lessons to learn from Washington: Our federal regulators need bigger budgets and the power to levy larger civil and criminal penalties, particularly for repeat violators.
The U.S. has also increased legal protections and rewards for whistle-blowers.
The Chartered Professional Accountants of Canada, for one, has called for a national whistle-blower reporting and protection framework that would offer informants consistent legal protection from reprisals across the country.
Canada spent years falling behind the U.S. in the battle against financial crime. Our government must catch up. Washington will no longer tolerate Ottawa being the weakest link.