Yahoo Finance What is FINTRAC and why is it fining some of Canada's biggest banks?
Financial penalties totalling more than $8.5 million were levied against two of Canada’s largest banks by the national watchdog tasked with keeping tabs on suspicious transactions that could be linked to money laundering and terrorist financing. Two days after the Nov. 5 announcement that Royal Bank of Canada would pay a nearly $7.5 million administrative penalty, the Financial Transactions and Reports Analysis Centre of Canada, or FINTRAC as it’s more commonly known, said Canadian Imperial Bank of Commerce, too, had failed to fully comply with the Proceeds of Crime and Terrorist Financing Act and would pay a $1.3-million penalty. Here’s what you need to know about FINTRAC and its mandate.
What is FINTRAC?
FINTRAC is Canada’s primary financial intelligence unit, reporting to the minister of finance. It is also the country’ anti-money laundering and anti-terrorist financing supervisor. Based in Ottawa, with three regional offices across the country, its mandate is to ensure the compliance of businesses subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and associated regulations. FINTRAC also collects financial intelligence for police, law enforcement and national security agencies to assist in the investigation of money laundering and terrorist activity financing offences or threats to the security of Canada. It can impose administrative financial penalties, as it did with the two banks, or make a non-compliance disclosure to law enforcement. “Proceeding in one manner prevents proceeding in the other,” according to FINTRAC’s website.
Is FINTRAC part of the police?
No, it is independent and operates at “arm’s length” from police and others to whom it discloses financial intelligence. FINTRAC is one of 13 federal departments and agencies that play a role in Canada’s anti-money-laundering and anti-terrorist-financing regime.
Are the fines for laundering money?
No, the banks did not launder money and are not accused of doing anything criminal. These are civil penalties FINTRAC has at its disposal to make sure the banks are doing all they can to sniff out and report suspicious transactions that might indicate money laundering or terrorist financing. Under FINTRAC’s mandate, the financial penalties are not meant to be punishments but, rather, inducements to bring banks and individuals into compliance with the act, which is aimed at stopping money laundering and terrorist financing. FINTRAC only needs “reasonable grounds to believe” that requirement has been violated.
What did FINTRAC say the banks did wrong?
Among other things, FINTRAC said RBC failed to submit 16 suspicious transaction reports where there were reasonable grounds to suspect that transactions were related to the commission or attempted commission of a money laundering or terrorist activity financing offence. CIBC also failed to submit a suspicious transaction report when there were grounds to suspect it was related to money laundering or terrorist activity, and also failed to report information related to large money transfers from outside Canada.
How serious are the issues at the banks?
It’s hard to know exactly because FINTRAC looks at the history of compliance and the harm done, and has a sliding scale to mete out financial penalties. RBC had three separate categories of infraction and, of the two banks, paid the far larger penalty. It was also much larger than many levied in the past by FINTRAC, which has had the power to mete out administrative monetary penalties since 2008. However, an RBC spokesperson said in a Dec. 5 statement that the bank chose not to appeal FINTRAC’s penalty even though “the fine is not at all commensurate with an administrative matter where there is no connection to money laundering or terrorist financing offences.”
The seriousness from FINTRAC’s perspective can be gleaned, in part, from its sliding penalty scale. Penalties of between $1 and $1,000 per violation can be imposed for minor infractions all the way up to $500,000 per infraction for an entity that commits “very serious violations.” For individuals, the cap for very serious violations is $100,000 per infraction. FINTRAC also has build-in mechanisms to impose bigger penalties for repeat occurrences of the same violation. This is done by reducing the tally if it is the first or second occurrences of a violation — by as much as two thirds for a first instance and one-third for the second occurrence.
Why wouldn’t the banks report these suspicious transactions?
There’s no detail on this in either FINTRAC’s report or statements from the banks. However, FINTRAC’s review found shortcomings in RBC’s methods for developing, updating and implementing policies and procedures to guard against money laundering and terrorist financing, so it’s possible some of these transactions were missed. In addition, banks walk a fine line when it comes to client relationships, and standard inquiries aimed at rooting out money-laundering can disturb wealthy clients who aren’t engaged in such activities. This could be at play in instances where internal investigations were closed citing that no report to FINTRAC was required without an adequate review of the client activity. Another factor that could be at play is that there is much more focus on money laundering in the United States, where authorities regularly and harshly crack down on financial institutions for lapses. Toronto-Dominion Bank, for example, disclosed in August that it was responding to both formal and informal inquiries from regulators and law enforcement including the U.S. Department of Justice concerning its Bank Secrecy Act and AML (anti-money-laundering) compliance program. However, Canadian banks and authorities dispute that it isn’t taken as seriously in Canada.
Was FINTRAC involved in the crackdown on crowdfunding during the trucker protests?
Yes. Crowdfunding and certain other payment service providers became subject to FINTRAC registration and reporting requirements under the Proceeds of Crime and Terrorist Financing Act, which they hadn’t been before. This meant they had to report suspicious and large value transactions just like banks. The increased scope gave FINTRAC access to more financial information, which, as part of its mandate, could be provided to law enforcement.
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Why are we just hearing about this?
In the past, FINTRAC would impose administrative penalties but without naming the bank or financial institution involved, which led to complaints the fines were too small and that any facilitation of potential money laundering by the big banks was being shrouded in secrecy. The added transparency now may be a result of earlier criticism or due to the fact that other watchdogs for Canadian financial institutions such as the Office of the Superintendent of Financial Institutions are stepping up their scrutiny of related matters, such as foreign interference and openly discussing more transparency when it comes to the stress tests they conduct on banks, said Robert Colangelo, a vice-president and senior credit officer in the financial institutions group at Moody’s Investors Service. He said FINTRAC naming names brings Canada closer to the transparency exhibited by authorities in the United States when it comes to cracking down on money laundering.
• Email: bshecter@postmedia.com
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