The federal agency that tracks money laundering and terrorist financing is answering calls for greater transparency by publishing guides detailing how it enforces laws designed to stem the flow of illicit funds.
The Financial Transactions and Reports Analysis Centre of Canada (FinTRAC) has spent the past two years reviewing and revising internal policies and practices to make them available to the public. Four documents released Thursday set out a framework and method FinTRAC uses to help ensure businesses both small and large disclose suspicious activity.
As Canada’s financial intelligence unit, FinTRAC received more than 25 million reports on large or potentially suspect transactions last year, and reported more than 2,400 pieces of actionable intelligence to law enforcement agencies. Much of that work is done in secret, however, and FinTRAC has attracted criticism for being too opaque – including from the Federal Court of Canada – when it levies fines against businesses for serious compliance failures. As a result, a drive toward greater transparency has been the primary focus for FinTRAC’s director, Nada Semaan, since she joined the agency last March.
But the new documents contain no dramatic changes to the way FinTRAC operates or its requirements on reporting businesses. Ms. Semaan describes their release as a “natural evolution” for an organization that, in the past, tended to announce its decisions first and answer questions later.
“I think we do have a lot of secrecy and information that we cannot disclose on the intelligence side. On the compliance side, we want to explain as much as possible how reporting entities must comply with the regulations so that they can give us the information that we need,” Ms. Semaan said. “We’re giving them, basically, a road map to our work, which should help make them a lot more compliant.”
Much of the criticism FinTRAC has faced was focused on the way it issues fines. In 2016, a Federal Court judge ruled that it was unclear how FinTRAC calculated a $6,000 penalty against Kabul Farms Inc., a family-run business, and should make its formula known. On the disclosure front, the following year the agency promised to review its policies after facing a backlash for refusing to name a bank it had fined $1.15-million over “administrative lapses,” even after Manulife Bank admitted it was the culprit.
Although FinTRAC has always had the authority to levy penalties, since the federal court ruling in 2016 it has used other means to try and enforce compliance until it could clarify its penalty policy. Over that span, some companies that broke the rules escaped fines due to a two-year statute of limitations for imposing penalties. Instead, those firms will receive letters detailing their faults, with the promise of a follow-up exam. FinTRAC will now resume issuing fines for those who run afoul of the rules.
On Thursday, FinTRAC released its new methodology for calculating administrative monetary penalties – the fines levied against businesses for serious cases of non-compliance with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. FinTRAC pored over 200 different types of violations to assign a level of harm done by each. The maximum penalties remain the same: For serious violations, up to $100,000 for individuals and $500,000 for larger entities, though when there are multiple infractions, the total fine can be much larger.
But the way penalties are calculated has changed. In a sample case, an entity that fails to report large cash transactions of $12,000 and $10,000 has committed a “Level 1” harm. Each such infraction normally carries a $1,000 fine, but in this case the sum is reduced by one-third because it’s the company’s second violation, resulting in a total $1,320 penalty.
FinTRAC’s new policy emphasizes that the main goal of monetary penalties is to encourage compliance, not to be punitive. “It’s not all about the big penalties, it’s not all about making sure you show that you’re tough,” Ms. Semaan said. “It’s really making sure you’ve got the right data.”
For now, FinTRAC’s policy on naming companies that receive fines hasn’t changed, pending the outcome of a continuing review of the federal anti-money laundering and anti-terrorist financing regime by Finance Canada.
The new resources also include a one-page Compliance Framework that gives an overview of FinTRAC’s key principles, obligations for reporting companies, and the pillars the agency relies on to assess and enforces compliance. There is a one-page summary of the process for self-declarations of non-compliance. And for the first time, FinTRAC is publishing a 65-page Assessment Manual that explains in layman’s terms how FinTRAC examines a business, to help companies ensure they are compliant.
The new guidelines are intended to improve both the quality and quantity of reports sent to FinTRAC. “These are complex issues and the beauty of this Assessment Manual is that it’s made in plain language,” Ms. Semaan said. “This isn’t work that is black and white. So the best we can do is educate, explain and make sure people do comply with the regulations.”