Wealth One fined $676,500 for failing to comply with anti-money laundering law

Open this photo in gallery:

The country’s anti-money laundering watchdog has fined Wealth One Bank of Canada – a bank established to cater to Chinese-Canadians – for failing to comply with a federal law designed to stop terrorist financing and the illegal concealment of the origins of funding.

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) announced Monday that it had imposed an administrative monetary penalty of $676,500 on Wealth One on Feb. 15 for numerous failures to abide by the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and associated regulations.

The announcement comes more than 10 days after The Globe and Mail reported that Finance Minister Chrystia Freeland has been raising national-security concerns about Wealth One, telling three of its founding shareholders that they could be susceptible to Chinese government coercion. As The Globe previously reported, those individuals are also facing allegations from other Canadian financial institutions that they have engaged in money laundering, according to a letter sent to them by Ms. Freeland late last year.

FINTRAC said Wealth One’s violations included failing “to submit suspicious transaction reports where there were reasonable grounds to suspect that transactions were related to a money laundering offence.”

It also failed to assess and document the money laundering or terrorist activity financing risks of its geographic locations, its products and delivery channels; failed to develop compliance policies and procedures, including monitoring of business relationships; and did not apply proper recordkeeping policies and procedures.

FINTRAC said the penalty has been “paid in full” and added that the violations are not related to money laundering or terrorist financing offences.

Sarah Paquet, the chief executive of FINTRAC, said the agency “will continue to work with businesses to help them understand and comply with their obligations” under the law. “We will also be firm in ensuring that businesses continue to do their part and we will take appropriate actions when they are needed.”

Wealth One said the findings arose during what it called a “routine compliance examination” by FINTRAC in 2022.

“To be clear, this has nothing to do with money laundering and any allegation that the bank, or anyone who works here, may be involved in money laundering is completely unfounded,” chief executive and president Paul Leonard said in a statement.

He said the bank retained outside professionals – he did not name them – who conducted “extensive reviews” and concluded that Wealth One “is operating in a manner consistent with expectations of a Canadian bank in our highly regulated, compliance focused industry.”

The Globe reported last month that Toronto-based Wealth One and three principal shareholders have been under investigation by the Canadian Security Intelligence Service since 2021 and, most recently, by officials in the federal Finance Department who deal with national security, according to two sources. The Globe did not identify the sources because they risk prosecution under the Security of Information Act.

The bank was founded by Shenglin Xian, the president of Shenglin Financial Group Inc., wealthy real estate developer Mao Hua (Morris) Chen and grocery-store magnate Yuansheng Ou Yang. Shortly after receiving the letter from Ms. Freeland, the three men resigned from the bank’s board in December, with Mr. Xian stepping aside as vice-chair.

Wealth One was approved as a Schedule 1 bank – considered a domestic institution, not a subsidiary of a foreign bank – in 2016 and is authorized to accept deposits and provide mortgages. In a 2021 news release, it said it had grown into a financial institution “with over $400-million in assets.” It was established with an initial investment of $50-million.

The letter from Ms. Freeland expressed concern that the three founders “could be vulnerable to coercion” from China. It also said the government believes “you may have been involved in financial activities that other regulated institutions have assessed provide reasonable grounds to suspect such transactions are related to the commission of money laundering.”

Mr. Xian and Mr. Ou Yang have property and investments in China, according to information that was recently taken down from the Wealth One website.

The letter offered the three men an opportunity to respond to Ottawa’s national-security concerns.

One of the sources said the government was prepared to rescind the bank’s charter but would likely take no further action providing the three men sold all their shares or significantly reduced their holdings in Wealth One. It is not clear if they have done so.

Attempts to reach the three founders last month were unsuccessful. Barry Ferguson, the chief financial officer of Wealth One, declined to discuss the Finance Minister’s letter.

“We are not in a position to speak to any specific communications we may have with any regulatory authority but can confirm that the three shareholders you asked about are no longer directors of the bank and none of our shareholders have ever had a role in the bank’s operations,” Mr. Ferguson said in a statement.

“We are a Canadian bank, with an independent board of directors and an executive leadership team of banking professionals who have extensive experience in operations under the Canadian banking regulatory framework, and who are fully aware of the need for the highest standards of integrity and regulatory compliance.”

Alex Lawrence, communications director for Ms. Freeland, said last month that the government could not comment on its dealings with Wealth One.

“The Minister of Finance takes very seriously her responsibility for the security and stability of the Canadian financial sector. As Minister of Finance, she is empowered to act to address risks to any bank in Canada,” Mr. Lawrence said. “Given her role as a regulator, it would be inappropriate to comment on any specific institution or any specific regulatory process that may be under way.”

The Globe first reported on Mr. Xian in May, 2016, when he and 32 other business executives attended a private fundraiser for the Liberal Party of Canada where Prime Minister Justin Trudeau was the guest of honour.

At the time, Mr. Xian was waiting for final approval from federal bank regulators to launch Wealth One as a Schedule 1 bank.

Also attending the fundraiser at the Toronto home of Chinese Business Chamber of Canada chair Benson Wong was Chinese billionaire Zhang Bin, a political adviser to the Chinese government and a senior official in the network of Chinese state promotional activities around the world.

Mr. Zhang, along with a partner, later donated $1-million to the Pierre Elliott Trudeau Foundation and the University of Montreal Faculty of Law. The law school, from which the former prime minister graduated and later taught, received $750,000 for scholarships and grants for Canadian students to visit China. The foundation was pledged $200,000, and the remaining $50,000 was committed for a statue of Pierre Trudeau that was never built.

The Globe reported last week that the largesse was part of a Beijing-directed influence operation to curry favour with Prime Minister Justin Trudeau.

The day after The Globe report, the foundation’s chief executive, Pascale Fournier, said the non-profit charity is returning $140,000 of the $200,000 pledge, which was all the money it had ultimately received from the Chinese donors.

“We cannot keep any donation that may have been sponsored by a foreign government and would not knowingly do so,” Ms. Fournier said last week.