FinTRAC vows review as Manulife admits to previous penalty

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The head of Canada's federal watchdog for financial transactions is promising a review of his agency's penalty policies after Manulife Financial Corp. disclosed that its banking subsidiary was disciplined for "administrative lapses."

The Financial Transactions and Reports Analysis Centre of Canada, or FinTRAC, promised the review on Monday, the same day Manulife revealed it was penalized. FinTRAC had faced criticism since last year for withholding the identity of the lone Canadian bank that has paid for failure to disclose suspicious transactions.

"I understand that it may not have met public expectations in relation to openness and transparency," Gérald Cossette, the agency's director, said in a statement. But he still did not name the bank, and broader questions remain about FinTRAC's obligation to name and shame companies that fail to follow the rules, as well as how successful Canadian financial institutions are at flagging suspicious transactions.

In its public disclosures, FinTRAC lists only one administrative monetary penalty against a bank since Dec. 30, 2008, for $1.15-million.

Manulife, the country's largest insurer, said in a separate statement released on Monday that it paid a penalty against its subsidiary Manulife Bank of Canada, imposed by FinTRAC, as punishment for what Manulife calls a series of "administrative errors." But it did not disclose the cost of the penalty.

Established in 1993, Manulife Bank serves clients across Canada, mostly with residential mortgage loans. For the first nine months of 2016, the bank posted a profit of $85.1-million.

Manulife said it remedied the errors in 2014.

One of the violations was a failure to file a suspicious transaction report, designed to help detect illegal activities under Canada's Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

In its statement, Manulife disputed media reports that suggested the bank might have facilitated money laundering as "inaccurate."

"They were purely administrative errors, there's no suggestion that any of them resulted in any financial misconduct. We operate the highest ethical standards anywhere in the world. But we are human and subject to making administrative errors," said Donald Guloien, Manulife's chief executive officer, speaking to reporters after delivering a speech in Toronto on Monday.

"I think what happened in this case is there's two interpretations someone could take about the guidelines," Mr. Guloien added. "We took an interpretation that was clearly wrong, or certainly not the one that FinTRAC wanted us to hold, and it was repeated a number of times."

Mr. Cossette confirmed Monday that "the penalty has nothing to do with money laundering or the financing of terrorism," and said he took the offending bank's efforts to identify the transactions into account.

"I exercised my discretion … in order to bring about improved compliance behaviour as quickly as possible and to send a message of deterrence," he said. "We have found that court proceedings may take many years with information often being sealed and outcomes uncertain."

In a report released last fall, the Financial Action Task Force (FATF), an intergovernmental body that sets worldwide standards for combatting money laundering and terrorist financing, gave Canada a lukewarm review, pointing to significant gaps in the country's efforts to stamp out illegal transactions. The FATF also said FinTRAC is hamstrung by an inability to request additional information.

Matthew McGuire, an anti-money laundering expert and advisor at the AML Shop, said FinTRAC's decision not to identify the bank "accomplished what they wanted it to at the time," but was "an opportunity lost" to send a stronger message with a stiffer fine.

"They wanted to get points on the scoreboard because [Canada was] being subjected to an international evaluation at the time," he said, referring to the FATF review.

A spokesman for FinTRAC declined comment on Manulife's statement on Monday, but said in an e-mail: "the Director's rationale for his decision – his entire rationale – is in his statement."