His nickname was "Wiz." As the financial crisis raged, American trader Tim Wiswell was making his mark in Moscow. In 2008, at the tender age of 29, Wiswell was named head of Deutsche Bank's Russian equities desk. For the next seven years, he lived a life of excess, replete with fast cars and alcohol-soaked parties.
But in 2015, it all came to a halt. Wiswell was fired after Deutsche Bank notified regulators about a trading scheme that enabled Russian investors to launder $10 billion (U.S.) over four years. The so-called mirror trades were designed to move money out of Russia without typical money transfers. A client would ask the bank's Moscow office to buy Russian stocks using rubles. Then another customer in New York or London would sell the same number of shares for the same value in dollars, pounds or euros.
When U.S. and U.K. regulators slapped Deutsche Bank with nearly $630 million (U.S.) in fines this year for lax anti-money-laundering controls, they put the industry on notice. The message was clear: If regulators were prepared to smack down Germany's largest bank for lapses in oversight, then no lender would be spared.
So why is it that here in Canada, regulators are sending the opposite message? Instead of naming and shaming banks that break money laundering rules, they're cutting deals to keep the violations secret.
When Manulife Bank paid a $1.15-million penalty to Canada's money laundering watchdog, it took almost a year before the bank's name was revealed. It was only in February, after it was outed in a media report, that Manulife Financial disclosed that its banking arm was reprimanded by the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC), for "administrative reporting lapses."
That has left Canadians guessing why FinTRAC levelled a record financial penalty, but cut a deal to keep Manulife Bank's name secret. The agency identifies other companies that break the rules, and it may name the next bank that trips up—but it's unfair to play favourites.
FinTRAC's original rationale for withholding the name was to send a message of deterrence as quickly as possible by assigning a big penalty, rather than waiting out an appeals process. But suppressing the name cast a pall over the entire industry. Other banks were forced to issue repeated denials, while their representatives grumbled about being tarred with the same brush as the unnamed lender.
More concerning is that FinTRAC's decision to withhold the name set a dangerous precedent for the industry. It would appear that Manulife's violations were relatively minor. But what would stop other banks from seeking the cover of anonymity for more serious transgressions?
Although Canadian banks are said to have a good record of compliance, they're not all squeaky clean. The federal banking regulator, the Office of the Superintendent of Financial Institutions, recorded 72 failures of anti-money-laundering controls at Canadian banks between 2009 and 2014 alone, according to The Wall Street Journal. OSFI, though, won't release any of the details, including bank names, because it's governed by the Bank Act, which stipulates secrecy (FinTRAC operates under a different act).
Canadians should find this troubling. Money laundering is a growing threat, with the RCMP estimating that as much as $15 billion (U.S.) was laundered in 2011 alone. There's little evidence that Canada is successfully combatting the crime, according to a Senate report. The U.S. considers Canada a country of "primary concern" when it comes to money laundering, and a recent international evaluation also poked holes in our regulatory regime.
Increasingly, Canadian regulators appear out of step with their international peers. If it weren't for foreign regulators, Canadians would know even less about our banks' compliance failures. For instance, both Scotiabank and Bank of Montreal were ordered by U.S. regulators to fix deficiencies in their anti-money-laundering controls in recent years. Neither bank was fined, but U.S. regulators made public disclosures.
It all leaves the impression that Canadian regulators are either too close to the industry or lack the teeth to get tough with banks.
For its part, FinTRAC is promising a review of its penalty policies. Finance Minister Bill Morneau should force the agency to make the results of that review public in their entirety. He should also use the upcoming Bank Act review to compel OSFI to improve its public disclosures.
Canadians are heavily exposed to domestic banks through direct stock ownership, mutual funds and their pension plans. They have the right to know about risks to their investments. Investors, after all, are the ones who pay the price when a bank's controls fail.
Want to interact with other informed Canadians and Globe journalists? Join our exclusive Globe and Mail subscribers Facebook group