Dirty money flows freely in the dark – and the Trudeau government is finally taking the first step to shine more light on this growing problem.
Following years of international pressure, Ottawa is on the cusp of creating a corporate registry to unmask the owners of millions of shell companies. Those anonymous corporate entities, which can be used to access the banking system, are routinely exploited by criminals to launder illicit profits.
Bill C-42, which recently received royal assent, lays the foundation for a federal corporate database that will be searchable, free to use and accessible to the public. Its data will also be verified to prevent fraud, which has been a failing of corporate registries in other countries. (Fingers crossed that Ottawa’s database will actually be operational in 2024.)
A beneficial ownership registry will certainly help repair Canada’s reputation as a “secrecy jurisdiction” that facilitates “snow-washing” through shells. However, it is only one of many solutions needed to combat financial crime.
“A publicly accessible and searchable registry can deter billions of illicit funds from entering Canada through federal companies each year,” said Sasha Caldera, beneficial ownership campaign manager at Publish What You Pay Canada. “It’s a really good starting point.”
Still, the success of the federal database hinges on the participation of the provinces, since the vast majority of shell companies are incorporated at the provincial level. British Columbia and Quebec are signalling a willingness to participate in a pan-Canadian registry, but questions remain about other provinces, including Ontario and Alberta.
Canada, of course, struggles to complete national projects because of the dysfunctional nature of our federation. Provincial squabbling and turf wars are the reasons that Canada remains the only industrialized country without a national securities regulator.
The federal registry also has other limitations. It’s not clear, for instance, whether trusts or partnerships fall under the new legislation, Mr. Caldera said.
Similarly, it’s uncertain whether foreign corporations obtaining a licence to “carry on” a business in a province would need to disclose beneficial owners, he added, noting that process is different than registering a company in a province.
It’s imperative that Ottawa, provinces and territories collaborate to solve these outstanding issues. The Financial Transactions and Reports Analysis Centre of Canada (FinTRAC) estimates that 70 per cent of money laundering and 50 per cent of terrorist financing cases involve the misuse of corporations and other legal entities.
“Beneficial ownership systems need to be comprehensive and pick up entities beyond corporations (trusts, partnerships, limited partnerships …),” wrote Jeffrey Simser, a lawyer and former legal director with the Ontario Ministry of the Attorney-General, in an e-mail.
“The original system in the U.K. missed a form of Scottish limited partnership and subsequently there were misuses of that vehicle to avoid transparency.”
The Financial Action Task Force (FATF), an intergovernmental body, has previously identified beneficial ownership secrecy as a gap in Canada’s anti-money-laundering regime. Canada is currently preparing for another FATF evaluation, so having an effective registry ought to be a priority.
Canada is also overdue for an update of its Proceeds of Crime (Money Laundering) and Terrorist Financing Act. There is already worry that Ottawa will opt for more tinkering instead of a comprehensive overhaul of that law.
Our legislators, though, are in luck. A new book entitled Dirty Money: Financial Crime in Canada is chock full of solutions for Ottawa to implement as next steps.
Edited by Christian Leuprecht, a professor at the Royal Military College and Queen’s University, in Kingston, and Jamie Ferrill, lecturer and head of Financial Crime Studies at Charles Sturt University in Australia, the book contains 16 chapters authored by leading financial crime experts.
“Canada is a preferred destination to launder ill-gotten gains with impunity,” Ms. Ferrill, Mr. Leuprecht and Mr. Simser write in the introduction. “Numerous investigations that ultimately went nowhere have revealed weak legislation and an under-resourced enforcement regime that is manifestly not fit for purpose.”
In an interview, Mr. Leuprecht and Ms. Ferrill said Canada’s current approach to combatting financial crime is largely performative. Compliance costs in Canada are $6.8-billion a year, but few criminals are actually convicted.
“That’s where I sympathize with the banks,” said Mr. Leuprecht said. “We’ve created a very expensive compliance system that is actually surprisingly ineffective.”
Ms. Ferrill argued that Canada must move beyond tick-box compliance, stressing that FATF regulations should be the “bare minimum” of its aspirations.
“There’s just concern that there hasn’t been enough consultation with the people who actually make these things happen,” Ms. Ferrill said.
As I’ve argued in previous columns, Ottawa should finally allow banks to engage in protected information sharing to catch money launderers.
FinTRAC also needs new powers for sanctions enforcement. Additionally, the forthcoming financial crimes agency requires a robust mandate.
Provinces and municipalities must also do their part to follow the money because illicit finance is inflating home prices, and fuelling the opioid crisis and human trafficking.
“If we actually went after the money, it would have positive consequences on a number of things that deeply trouble us in Canadian society,” Mr. Leuprecht said. “But we’re always treating the symptom rather than positing financial crime as the cause.”