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FinTRAC’s decision to keep the name of the offending institution confidential raised questions about the effectiveness of its message of deterrence and whether the fine put all banks under a cloud of suspicion.Brad Wynnyk

The federal agency that levied a $1.1-million fine against a Canadian bank for failing to report a suspicious transaction had intended the hefty penalty to send a stern message to the financial sector. Instead, it has fuelled an outcry over why the name of the penalized bank has been kept a secret.

On Wednesday, all of the Big Six Canadian banks said they were not fined by Financial Transactions and Reports Analysis Centre of Canada, or FinTRAC, leading to speculation that the offending bank is a smaller entity or the Canadian branch of a foreign institution.

FinTRAC said that the fine, the first of its kind levied against a Canadian bank and paid two weeks ago, was supposed to act as a deterrent against taking a loose approach to reporting standards. Rules have been toughened up in recent years in response to money laundering and terrorism financing activities.

But it is unclear how this deterrent is supposed to work when the offender is granted anonymity and whether an unintended consequence of the fine is that it casts suspicions upon the entire financial sector.

"The uncertainty of who it is does not help the sector's reputation," said Janet Ecker, the chief executive officer of the Toronto Financial Services Alliance. "I would hope that there can be more clarity on this incident at some point."

Royal Bank of Canada's chief executive officer addressed the issue after the bank's shareholder meeting on Wednesday. "I can tell you that it is not the Royal Bank of Canada," Dave McKay said at a news conference.

The others – Toronto-Dominion Bank, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Bank of Montreal and National Bank of Canada – also said that they were not involved.

It is unclear if FinTRAC has the authority to name the bank involved before a lengthy appeals process is exhausted, but a spokesperson for the agency suggested that it could publicize bank names in future offences if it wanted to ratchet up the force of deterrence.

"We think it is in the public interest to send the message now, rather than wait for a potentially long appeals process," said Darren Gibb, a spokesperson at FinTRAC.

"That doesn't mean we won't name the next one," he added.

Nevertheless, FinTRAC's decision to keep the name of the offending institution confidential raised questions about the effectiveness of its message of deterrence and whether the fine put all banks under a cloud of suspicion.

Previous fines levied by FinTRAC, which was created in 2000 to collect and analyze transaction reports for thousands of businesses across Canada, have typically been directed at relatively small entities such as casinos and non-bank money-services businesses, which either convert or transmit money.

"This fine is a sign of even bigger things to come," said Bruce McMeekin, a Toronto-based lawyer with anti-money-laundering expertise. "I look at this within the context of FinTRAC as a maturing regulatory organization and getting its legs. I think you are going to see more of this."

The fact that the $1.1-million fine was directed at a bank for the first time is significant news that is reverberating throughout the financial sector, observers noted.

The timing of the fine's announcement is also significant, given that it follows increased scrutiny on global financial firms after leaked information from a Panama-based law firm exposed the extent to which some large banks are helping rich and powerful clients set up offshore tax havens.

Prime Minister Justin Trudeau was asked at a news conference in Montreal why FinTRAC has not released the name of the bank.

"I am continuing to look for ways to increase transparency and accountability across all businesses in Canada and around the world, and we continue to be open to suggestions," Mr. Trudeau said.

A spokesperson for Finance Minister Bill Morneau said: "FinTRAC enjoys operational independence in how they handle their cases. In the regular course of business, FinTRAC keeps the Department of Finance informed and, when warranted and not in every case, the department informs the minister's office of significant developments in a case like this one."

A number of observers believe that the offending bank is likely small, and possibly the Canadian-registered arm of a foreign bank, given the unlikelihood of a large domestic bank's sophisticated anti-money laundering processes failing.

Although FinTRAC emphasized that the fine was levied against a Canadian bank, some observers believe the definition of a Canadian bank can apply to a number of entities whose parent companies are headquartered outside the country.

According to the Canadian Bankers Association (CBA), there are 23 domestic Schedule I banks that are members of the association. Another 19 members are Schedule II banks that are foreign bank subsidiaries, but technically could be called Canadian banks, according to sources. Not all banks are members of the CBA.

With reports from Bert Marotte and Robert Fife

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