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Banks told to scrutinize Egyptian, Tunisian and Libyan transactions

A South Korean college student stands under photos of Tunisian President Zine al-Abidine Ben Ali, left, Egyptian President Hosni Mubarak and Libyan leader Moammar Gadhafi, right, during a rally to support the democracy movement in Libya, in front of the Libyan embassy in Seoul, South Korea, Wednesday, Feb. 23, 2011.

Ahn Young-joon/AP/Ahn Young-joon/AP

Ottawa is urging banks to apply heavy scrutiny to transactions involving Egypt and Tunisia, in addition to Libya, as uncertainty and unrest spread.

The uprisings that are transforming the political face of the region could create hassles for Canadian bank customers who have relatives or business in the affected countries. Banks here are being told to bolster their precautions and to consider flagging for anti-money laundering authorities any customers who transfer money to or from those countries.

A Canadian government source said that $2.3-billion in assets have already been frozen as a result of sanctions against Moammar Gadhafi's regime.

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Compliance officials and risk experts at Canada's largest banks spent the weekend electronically sifting through their customer databases for ties to the Libyan regime.

Considering the speed and scope of the international asset freeze, BMO chief executive officer Bill Downe described the process as "very orderly."

"It was very clear and easy to understand," he said. BMO has $135-million in exposure to the North African region, but the bank said its specific exposure to Libya and the asset freeze is negligible.

Officials at Royal Bank of Canada, the country's largest bank, and Canadian Imperial Bank of Commerce said their institution's exposure to Libya is insignificant. Toronto-Dominion Bank said it does not have any material exposure to Libya, nor to the asset freeze.

Bank of Nova Scotia similarly said that its loan exposure to Libya is not material, adding that it does not disclose information related to clients. "We comply with all Canadian government regulations with regard to sanctions," a spokesperson said.

Bankers said the freeze just means that the Libyan depositors cannot withdraw the funds. (The government will likely lift the freeze once a new regime is in place.)

A top official of one of the banks speculated that much of the frozen money might belong to the Libyan central bank. The Central Bank of Libya and the Libyan Investment Authority, the country's sovereign wealth fund, hold up to $140-billion (U.S.) in sovereign foreign assets, according to Fitch Ratings.

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On Saturday, the United Nations Security Council voted unanimously to freeze all assets owned or controlled by Mr. Gadhafi, his sons or his daughter, launching an international effort to starve the Gadhafi regime of funds to use in its counterattacks against protesters as the country heads into civil war.

The Canadian government, like the U.S., chose to go a step further and include Libyan government and central bank assets. The rules took effect Sunday, a rapid turnaround that sought to prevent withdrawals Monday. Ottawa said Monday that the Libyan regime had tried to withdraw sums from Canada in recent days, but the transactions were blocked.

The head of Canada's financial regulator had notified all major banks by late Sunday to search their assets and report anything that turned up to the RCMP and CSIS.

On Tuesday, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), a government agency set up to detect and prevent money laundering, alerted banks, securities firms and life insurers to the risks of doing business with all individuals and entities based in or connected to Libya, Egypt and Tunisia.

"There will be increased scrutiny," said Prema Thiele, a lawyer with Borden Ladner Gervais LLP who has worked with banks in this area.

Fintract suggested that banks would be wise to file a "suspicious transaction report" for all attempted or completed financial transactions to or from Libya. Fintrac also encouraged banks and others "to undertake enhanced customer due diligence with respect to all clients and beneficiaries involved in such transactions."

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The Proceeds of Crime (Money Laundering) and Terrorist Financing Act requires banks, foreign-exchange dealers and other financial businesses to file reports with Fintrac on any transaction they deem suspicious. A report from the Privacy Commissioner in 2009 found cases of suspicious transaction reports based on little more than the customer's ethnic origin or travel patterns.

In 2008, Canada adopted new rules requiring banks to keep close tabs on customers who are "politically exposed persons," essentially all foreign senior government officials and their families. The rationale was that politicians, ambassadors, and heads of state-owned companies have more opportunities than the average customer to engage in corrupt activities. The rules were not retroactive.

The need for such rules became apparent in 2005, when U.S. Senate investigators went to untangle the American money trails of the late Chilean dictator Augusto Pinochet. They uncovered a web of 125 U.S. securities and bank accounts the Chilean president had used to hide his fortune from tax authorities, and many of them were opened using fake names, his family members' names, or the names of Chilean military officers.

A handful of major Canadian companies, including engineering company SNC-Lavalin and oil firm Suncor Energy, have substantial projects in Libya. Oil ventures in Libya typically require foreign firms to pay cash bonuses and put up capital in return for a share of proceeds from a joint venture. Neither SNC-Lavalin nor Suncor have said if any of their transactions have been blocked by the sanctions.

"We are still not sure what the impacts of these sanctions will be on us yet," said a spokeswoman for SNC.

The U.S. has said it has frozen $30-billion in Libyan assets, and countries across Europe have frozen billions more.

The previous series of UN sanctions against Libya were lifted when Mr. Gadhafi allowed nuclear-weapons inspectors into the country in 2003. Western countries then sought to encourage him to renounce support of terrorism. Then-Canadian prime minister Paul Martin visited in 2004, one of several leaders to go, and the U.S. lifted its designation of Libya as a terror sponsor in 2006.

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Chief political writer

Campbell Clark has been a political writer in The Globe and Mail’s Ottawa bureau since 2000. Before that he worked for The Montreal Gazette and the National Post. He writes about Canadian politics and foreign policy. More

Senior Writer

Grant Robertson is an award-winning journalist who has been recognized for investigative journalism, sports writing and business reporting. More

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