Canada is falling further behind the United States in the battle against financial crime.
The Financial Crimes Enforcement Network, or FinCEN, an arm of the U.S. Department of the Treasury, recently issued new guidance that makes it easier for banks to share customer information with each other to identify suspicious activity linked to money laundering or terrorist financing.
It is urging banks to take a permissive view of certain provisions contained in the 2001 Patriot Act. Key sections of that landmark law, passed after the 9/11 terrorist attacks, offer banks a “safe harbour” – a provision that shields them from legal liability if they participate in data-sharing partnerships to catch criminals.
FinCEN’s latest advice, for instance, stresses that banks are not required to make a conclusive determination that an activity is suspicious to engage in protected information sharing. It also encourages lenders to offer details about attempted transactions that point to fraud and cybercrime. That’s because those offences often lay the groundwork for more serious crimes such as money laundering or terrorist financing.
Although it’s been 20 years since the United States first offered banks a safe harbour to share information, Ottawa still hasn’t offered the same protections to Canadian financial institutions. It’s a glaring gap in Canada’s anti-money laundering regime that hinders this country’s ability to stop financial criminals in their tracks.
Safe-harbour provisions are useful because they provide clarity to banks about what types of information can be lawfully shared about their clients. Currently, that type of protected information sharing is extremely limited in Canada.
The Personal Information Protection and Electronic Documents Act provides a safe harbour for information sharing in cases of fraud and terrorism. Oddly, though, those same protections do not apply in instances of money laundering, human trafficking and child exploitation. Even stranger: The federal government still hasn’t committed to making those changes even though it is updating our aging privacy law.
Ottawa’s fix-it list should also include an overhaul of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act to provide Canadian banks similar safe harbours as those offered to financial institutions in the United States. American-style information sharing prevents criminals from hopping from bank to bank and makes it easier to track illegal activity.
Safe harbours would also increase the effectiveness of public-private partnerships between banks, regulators and law enforcement. Unlike other countries, Canada does not allow the sharing of any specific information about individuals or entities as part of those collaborations. That means data swapping is limited to typologies or general information about potential red flags for criminal activity. Perpetuating a guessing game is silly; banks should be able to share specific information that readily identifies how criminals game the system.
Additionally, the Financial Transactions and Reports Analysis Centre of Canada, or FinTRAC, which largely functions as an information-gathering system, desperately needs teeth. Our financial crime watchdog has no ability to ask banks any questions about the suspicious transaction reports, or STRs, that they flag for review.
The current one-way flow of information creates blind spots because banks can send STRs to FinTRAC, but the regulator has no ability to respond or request additional information about shady customers.
It’s ridiculous. Law enforcement relies on FinTRAC. No wonder the system is broken.
Consider this: FinTRAC received 386,102 STRs from businesses across Canada last year. Wouldn’t it be more efficient if FinTRAC could tell companies how to refine those filings so that it receives relevant information rather than a large dump of disparate reports?
“The complaints about FinTRAC being a black hole have been there for a while,” said James Cohen, executive director of Transparency International Canada, a non-governmental anti-corruption organization.
“No one should be haphazard on the requirements to file STRs. But you’ve got to admit that if no one sees any results of filing all these STRs, that’s going to start creating lulls in the system.”
Better yet, Canada should replace STRs with suspicious activity reports, similar to those used in the United States, because they provide broader accounts of suspected illegal activity.
It’s not clear why Prime Minister Justin Trudeau is still dragging his feet on these issues. Such recommendations to improve information sharing were contained in a 2018 report of the standing committee on finance.
More recently, a briefing paper commissioned by the Cullen Commission of Inquiry into Money Laundering in British Columbia echoed the need for better information sharing.
Inertia isn’t a good look for Canada, especially if our closest ally is breaking new ground. FinCEN’s revamped guidance for banks is part of a broader push by the U.S. government to enhance information sharing to combat financial crime.
Last month, the Department of Justice received new powers to subpoena account information from foreign banks, including records managed in other countries. Washington is also creating a pilot program for cross-border data sharing between banks and their foreign branches.
Make no mistake, the Trudeau government’s inaction is putting Canadian banks in an awkward position as they seek more growth south of the border. Americans are keenly aware that criminals exploit our weaker laws.
Ottawa must play catch-up. Like it or not, Washington is the de facto regulator for our banks.
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