Canada’s anti-money laundering agency struggles to implement reforms as employees work from home

The federal agency responsible for tracking and preventing money laundering and terrorist financing has struggled adapting to remote work, which has affected its compliance operations and delayed the implementation of amendments to anti-money laundering regulations.

Internal documents from the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC) obtained through freedom of information legislation paint a picture of substantial disruption at the agency, especially in the first few months of the pandemic, when hundreds of employees were abruptly forced to work from home.

One slide of an internal presentation states that employees had “no access” to the tools needed to implement updates to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act by the June 1, 2021, deadline.

A number of legislative changes were made to the act in mid-2019 to bring Canada’s anti-money laundering regime – which has long been criticized for containing deficiencies and being opaque – in line with international standards. Key among them was ensuring that all cryptocurrency exchanges that facilitate transactions for Canadians register as money-service businesses. Crypto companies will also have to submit reports to FinTRAC detailing transactions worth more than $10,000. Most of the changes were set to come into force in phases on June 1 last year and June 1 of this year.

But the pandemic “profoundly disrupted implementation targets,” according to the internal presentation made by members of FINTRAC’s strategic policy and reviews team last June. The presentation, apparently meant for senior officials, reviewed the impact of the pandemic on the department’s operations and proposed various options for delaying the application of the new rules. The conclusions of any discussions were shared with the Department of Finance on June 4, 2020.

The presentation and other documents were obtained by researcher Ken Rubin and shared with The Globe and Mail, but much of the content was redacted.

“Consistent with public-health directives, FINTRAC personnel have not had access to key tools for developing and testing systems since the Centre began remote work on March 16, 2020,” the presentation stated.

The agency was able to create temporary workarounds to meet certain legislative targets, but that created a “backlog” and caused “cascading delays to all aspects of implementation” to the anti-money laundering act.

For example, FinTRAC was supposed to modify forms used by cryptocurrency exchanges to report large transactions by June 1, 2020. The documents state that this work had been under way but could not be completed in time because it required tools accessible only from the agency’s premises.

It is unclear what those specific tools are or why FinTRAC did not allow employees to enter its offices at the time to access them. But as a result, the modification to the forms, and thus the reporting of large transactions by cryptoexchanges, has been delayed by a year.

In response to The Globe’s questions about the impact of such delays, FinTRAC spokesperson Erica Constant said the agency “quickly and effectively mobilized its operations” when the pandemic began.

“Since March, 2020, FinTRAC has vastly increased its remote and on-site system access capacity, including in relation to its development and testing tools, in order to continue implementing priority initiatives and deliver on its critical mandate,” she said.

Ms. Constant said employees can now access the tools they need to do their jobs effectively, but she did not say how long the remote work challenges persisted or how and when they were resolved.

Ultimately, it appears the pandemic forced the agency to stagger the implementation of changes to the anti-money laundering act, which will now be done in phases until April, 2024. “The staggered-implementation approach accounts for changes needing to be made to IT systems by both FinTRAC and reporting entities,” Ms. Constant said.

The internal documents indicate that companies under FinTRAC’s watch have also struggled with the “financial and operational burden of compliance” owing to COVID-19. Not staggering the implementation of amendments to the act, the documents said, meant FinTRAC could be perceived as “inflexible” by the media, which would “damage the relationships between FINTRAC and [reporting entities].”

The agency also pressed pause on on-site examinations last March and has not yet resumed them. Prepandemic, FinTRAC compliance officers would conduct assessments or enforcement operations at the offices of companies under their watch. These have mostly been converted to “desk examinations,” whereby reporting entities visit FinTRAC’s offices instead.

The on-site examinations will only resume when the pandemic situation has stabilized, Ms. Constant said, adding that the agency has not observed a decrease in suspicious-transaction reporting.

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