Last updated 03/02/2014.
CENTRAL AUTHORITY FOR REPORTING
The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) was established under S. 41 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (2000, c. 17) (PCMLTFA) .
FINTRAC is Canada’s financial intelligence unit, a specialized agency responsible for the collection, analysis, assessment and disclosure of financial information and intelligence. FINTRAC’s mandate is to assist in the detection, prevention and deterrence of money laundering and the financing of terrorist activities in Canada and abroad.
FINTRAC receives reports from financial institutions and intermediaries, analyzes and assesses the reported information, and discloses suspicions of money laundering or of terrorist financing activities to law enforcement and intelligence agencies as permitted by the PCMLTFA.
FINTRAC will also disclose to Canadian Security Intelligence Service information that is relevant to the security of Canada.
OTHER ANTI-MONEY LAUNDERING REGULATOR(S) AND SUPERVISORY BODIES
Office of the Superintendent of Financial Institutions (OSFI).
OSFI shares information with FINTRAC regarding the policies and procedures that Canadian financial institutions have in place in order to combat money laundering and terrorist financing. In turn, FINTRAC provides a broad range of information to OSFI that will help facilitate its risk assessment of financial institutions subject to PCMLTFA. Pursuant to subsection 83.11(2) of the Criminal Code, R.S., 1985, c. C-46, OSFI now also acts as a central reporting point for issues related to the financing of terrorist activities.
Royal Canadian Mounted Police (RCMP).
The RCMP conduct assessments of money laundering operations based on information received from FINTRAC, complaints from the general public or suspicious activity reported by other anti-money laundering partner organisations. These assessments form the basis of the voluntary information reports prepared by the RCMP for the benefit of FINTRAC and determine whether or not a criminal investigation is necessary. The RCMP is also involved in training and raising awareness of anti-money laundering issues among their partner organisations, some of which are listed below.
Anti-Money Laundering Partners
Canada Border Services Agency (CBSA)
Canada Revenue Agency (CRA)
Canadian Security Intelligence Service (CSIS)
Department of Finance
Department of Justice (DOJ)
Office of the Superintendent of Financial Institutions (OSFI)
Public Prosecution Service of Canada
Public Safety Canada (PSC)
RCMP Anti-Terrorism Financing Group.
ARE LAWYERS COVERED BY ANTI-MONEY LAUNDERING LEGISLATION?
By amendment to the PCMLTFA in December 2006, lawyers are exempt from the suspicious and prescribed transactions reporting requirements of the legislation. Regulations requiring verification of parties to financial transactions enacted under the legislation and in force December 2008 are applicable to lawyers. However, pursuant to a court order (interim injunction) obtained through litigation that challenged the constitutionality of the legislation, these regulations cannot apply to lawyers without the consent of The Federation of Law Societies of Canada (the “Federation”) and the other parties to the litigation.
The most recent judgment on this matter was handed down on 4 April 2013, where the five-member panel of the British Columbia Appeal Court upheld the B.C.'s Supreme Court ruling (of September 27, 2011)that removed the parts of the PCMLTFA that applied to lawyers and law firms. The legislation required lawyers to keep records on financial transactions, verify client identify, report suspicious transactions and register with financial intelligence unit in order to prevent AML/CFT offences from occurring. Leave to appeal to the Supreme Court of Canada was granted in October 2013 and the appeal is expected to be heard in 2014.
The Federation of Law Societies of Canada, representing the 14 Canadian law societies, challenged the legislation’s applicability to the bar. The Federation acknowledged that requiring lawyers and notaries to take measures to deter criminals from involving them in money laundering and finance terrorism is a valid societal goal, but the regime itself failed to comply with Canada's fundamental constitutional principles.
NAME THE LAWS REGARDING ANTI-MONEY LAUNDERING PROCEDURES
PCMLTFA (as described above);
Regulations under the PCMLTFA:
Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations – SOR/2001-317;
Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations – SOR/2002-184;
Cross-Border Currency and Monetary Instruments Reporting Regulations – SOR/2002-412;
Proceeds of Crime (Money Laundering) and Terrorist Financing Registration Regulations – SOR/2007-121;
Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations [Not in force] – SOR/2007-292.
IN ADDITION TO THESE LAWS, IS THERE ANY MONEY LAUNDERING GUIDANCE FOR LAWYERS CURRENTLY IN PLACE?
In October 2004, The Federation of Law Societies of Canada (the “Federation”) adopted a model “No Cash Rule”, pursuant to which each member law society has implemented rules restricting lawyers from receiving cash in amounts over $7,500.
All Canadian law societies have adopted local rules that mirror the substance of the new “know-your-client” model rule, which was adopted by the Federation in March 2008. This new rule describes the measures lawyers and Quebec notaries must take, and the records they must keep, to verify a client’s identity. The purpose of this rule is to help lawyers determine whether clients are attempting to use them as an intermediary for money laundering and terrorist financing.
UNDER WHAT CIRCUMSTANCES IS A LAWYER UNDER THE OBLIGATION TO REPORT
Under Part 2 of the PCMLTFA, specified persons are required to report the importation or exportation of amounts of CAD$ 10,000 or more of currency or monetary instruments in bearer form. The Federation indicates that it is the client and not the lawyer that has to report when involved in a reportable cross-border transaction under ss.12(3)(b)-(e) of the PCMLTFA. However, if instructed the lawyer may do so on behalf of the client. Lawyers will be required to report a cross-border transaction under section 12(3)(a) of the PCMLTFA only if they physically carry currency or monetary instruments across the border on behalf of the client. In all other cases, reporting is the client’s obligation.
In December 2006, Part I of the PCMLTFA was amended to exempt lawyers from reports under that Part. As noted above, lawyers may have an obligation to report under Part 2 of the PCMLTFA (cross-border currency importing and exporting). Cross-border currency reporting requirements apply whenever monetary instruments (including securities and negotiable instruments) in amounts of $10,000 or more are being taken out of or brought into Canada.
Also noted above, lawyers in Canada are prohibited by law society regulations from accepting cash in amounts of $7,500 or more, with limited exceptions. These law society regulations are based on the model rule developed by the Federation and also impose specific record-keeping requirements on lawyers. These rules of the independent regulators of the legal profession may have the effect of placing a more stringent onus on lawyers than is required by the federal government.
CLIENTS IDENTIFICATION AND VERIFICATION
The “know-your-client” model rule adopted by the Federation in March 2008 provides steps that lawyers and Quebec notaries must take and the records they must keep to ensure a client’s identity. According to the Federation, the rule was created to assist members of the legal profession in determining if a client is attempting to improperly transfer funds.
The Federation’s model rule has been implemented by all Canadian societies. Under the rule, lawyers and Quebec notaries are required to obtain the following information with respect to the entity or person retaining the lawyer:
The client’s full name;
The client’s business address and business telephone number, if applicable;
If the client is an individual, the client’s home address and home telephone number;
If the client is an organization (other than a financial institution, public body or reporting issuer), the organization’s incorporation or business identification number and the place of issue of its incorporation or business identification number, if applicable;
If the client is an individual, the client’s occupation or occupations;
If the client is an organization, (i) other than a financial institution, public body or a reporting issuer, the general nature of the type of business or businesses or activity or activities engaged in by the client, where applicable, and (ii) the name and position of and contact information for the individual(s) authorized to provide and give instructions to the lawyer with respect to the matter for which the lawyer is retained;
If the client is acting for or representing a third party, information about the third party as set out in paragraphs (a) to (f) as applicable.
The model rule also imposes obligations to verify the identity of a client when the lawyer or Quebec notary gives instructions in respect of or engages in the receipt, payment or transfer of funds on behalf of the client (with limited exceptions).
LAWYERS PROSECUTED FOR MONEY LAUNDERING OFFENCES
R. v. Rosenfeld, 2009 ONCA 307 - The accused, a lawyer, agreed to launder large amounts of money that he understood to be the proceeds of a drug cartel's international cocaine trade for a fee of 8 per cent. He was charged with two counts of laundering the proceeds of crime and one count of attempting to possess money obtained by crime. On appeal, his sentenced was increased to 5 years imprisonment from 3 years. Hismoney laundering operation was significant and showed some degree of complexity and sophistication. His only motive was financial gain. His status as a lawyerwas a significantly aggravating factor for two reasons. First, lawyers are duty-bound to protect the administration of justice and enhance its reputation within their community. Criminal activity by lawyersin the course of performing functions associated with the practice of law in its broadest sense has exactly the opposite effect. Second, lawyersare exempt from the reporting conditions applicable to other professions and financial institutions, which deal in cash transactions, and the communications between lawyersand their clients are protected from disclosure by solicitor-client privilege. The accused was ready and willing to abuse those specific privileges available to him because of his status as a lawyerto enhance his money laundering services.
USA v Marc Dreier, (May 11, 2009) - Marc Dreier, a New York lawyer, was sentenced by the United States District Court for the Southern District of New York to 20 years in prison after pleading guilty to money laundering and securities fraud. Nevertheless, he also faced charges in Canada and was arrested in Toronto for impersonating an in-house lawyer of the Ontario Teachers’ Pension Plan when he attempted to sell financial instruments worth $44.7 million USD to an investor. While in prison in Toronto, he directed his now dissolved law firm to transfer US$10 million from the firm’s escrow account to a personal account offshore.
In January 2009, the Canadian lawyer, Stanko Grmovsek, reached a settlement agreement with the Staff of the Ontario Securities Commission and was sentenced to 39 months in prison after pleading guilty to fraud, money laundering and insider trading in Ontario. Material information was revealed about an illegal insider trading scheme that Grmovsek used to generate $10 million in illegal profits.
R. v. Root, 2008 ONCA 869 – the Ontario Court of Appeal ordered a former federal prosecutor to stand trial for a second time on allegations of money laundering, which stemmed from a lengthy RCMP investigation. In 2006, the defendant was found not guilty on five charges relating to money laundering. However, the Crown successfully appealed the acquittals with respect to four of the five charges: conspiracy to commit an indictable offence of laundering proceeds of crime, conspiracy to commit an indictable offence of possession of proceeds of crime, attempting to launder proceeds of trafficking in cocaine and attempting to possess proceeds of crime. The Ontario Court of Appeal dismissed the appeal on the fifth charge of counselling a police officer to commit the offence of laundering proceeds of crime.
R. v. Shoniker, 2006 O.J. No. 5368 – An Ontario lawyer was sentenced to fifteen months in prison after pleading guilty to one count of money laundering in the sum of $750,000 contrary to s.462.31 of the Criminal Code of Canada. As well he pleaded guilty to one count of theft over $5,000 involving the sum of $50,000 contrary to s.334 of the Code.
R. v. Rosenfeld, unreported judgment, 30 March 2005 (O.S.C.J.) – An Ontario lawyer was sentenced to three years in prison and fined $43,230 for two counts of money laundering and attempting to possess the proceeds of crime.
USA v. Martin G. Chambers, Federal Circuits, 11th Cir. (June 24, 2005) – A Vancouver lawyer was sentenced to just over 15 years in a Florida state prison following his conviction in 2003 for laundering $700,000 U.S. in purported cocaine trafficking money.
HAS THE FINANCIAL ACTION TASK FORCE (FATF) OR RELEVANT SUB-REGIONAL ORGANIZATION CONDUCTED A MUTUAL EVALUATION OF THIS COUNTRY, AND, IF SO, WHAT WERE THE FINDINGS CONCERNING LAWYERS’ COMPLIANCE WITH THE FATF 40+9 RECOMMENDATIONS?
The FATF conducted a mutual evaluation in February 2008 based on the Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CTF) measures in place in Canada as of June 2007. The evaluation categorized Canada’s AML regime for non financial institutions to be “Not Compliant” with the 40+9 recommendations. The report specifically highlighted the PCMLTFA’s failure to apply the politically exposed persons, customer due diligence, record keeping, unusual transactions, and certain other requirements to lawyers.
In March 2013, the Canadian Senate Standing Committee on Banking, Trade and Commerce has also published a report entitled “Follow the Money: Is Canada Making Progress in Combatting Money Laundering and Terrorist Financing? Not Really”on the Canadian AML/CFT efforts. The report found that the PCMLTFA and its related regulations are ineffective in combatting money laundering and terrorist financing and, consequently, need substantial reform.
Some of the material recommendations made under this report, which are welcome and based primarily on the FATF Recommendations, are considered below:
The establishment of a supervisory body that aims to develop priorities for AML and CFT and that only implements the FATF Recommendations that are compatible with the Canadian legislative framework. However, such a body would have no actual legal authority to enact any laws in Canada as it is only the Governor General that retains such entitlement.
The employment of AML experts by the FINTRAC in order to facilitate its understanding of financial crime and to encourage its legislative initiatives.
Provided that privacy rights are not breached, giving direct access to CBSA, CRA, CSIS and RCMP to the FINTRAC databases in order to facilitate investigations of Canadian citizens.
The amendment of the PCMLTFA by focusing on a risk-based approach and on reporting duties, by eliminating the $10,000 reporting threshold for international electronic fund transfers which is extremely onerous and expensive on reporting entities.
The development of an AML/CFT “awareness” program in line with the FATF’s 2008 mutual evaluation requirement of promoting AML/CFT education to the Canadian judiciary and citizens.
In view of strengthening its compliance in this area, the Government of Canada published on 13 February 2013 certain amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations - SOR/2013-7 -(the Revised Regulations) in Part II of the Canada Gazette. These amendments enter into force on February 1, 2014. In particular, the amendments deal with deficiencies identified by the FATF in the Regulations with regard to the customer identification and due diligence requirements.
Information supplied by:
Director of Legislation and Law Reform
Canadian Bar Association
Canadian Bar Association
Previous contributors include:
Frederica Wilson, Director of Policy and Public Affairs, Federation of Law Societies of Canada;
Diana Yeung, J.D., M.B.A., Aird and Berlis LLP, Toronto, Canada.
Morli Shemesh, LL.B., LL.M., Aird and Berlis LLP, Toronto, Canada.
Anti-Money Laundering Regulation - What Can be Learned From the Canadian Experience, by Ronald J. MacDonald, Q.C President, Federation of Law Societies of Canada, IBA Annual Conference Dubai, November 2011
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