Crime proceeds crackdown looms

Nine years after enacting its money-laundering law, there are signs the federal government plans to get tougher with enforcement.

Earlier this year, funding for the money-laundering watchdog, the federal Financial Transactions and Reports Analysis Centre of Canada, or FINTRAC, was increased by $8 million.

On July 20, word emerged that FINTRAC had fined B.C. Lottery Corp. $670,000 for failing to properly monitor and report possible high cash transactions potentially related to organized crime.

It found the B.C. government's gaming agency had committed 1,000 violations of its obligations to report on suspicious transactions.

And one consultant who advises businesses on compliance said Canada's big banks might be next for large fines.

Matthew McGuire, the founder of Williams McGuire AML in Markham, Ont., told CBC News that Ottawa appears to be taking a sterner approach.

"They've switched their focus from education to enforcement," he said.

In the year and a half since FINTRAC was given the power to impose penalties on businesses for failure to comply, it has issued news releases saying it has assessed 10 fines averaging $12,080. So far, all the firms have been small ones.

But there were no news releases on seven other penalties of between $12,000 to $15,000 that FINTRAC also imposed, according to McGuire.

"Clearly, FINTRAC is getting their feet wet with these smaller reporting entities," he said, and moving up to the B.C. (Lottery Corp.) and the larger banks."

FINTRAC, after nine years of working with Canada's big banks on compliance, may soon turn to fines in the hundreds of thousands of dollars if it decides they aren't moving fast enough, McGuire said.

"I suspect that very soon we'll be seeing a fair number of significant published penalties," McGuire said.

Hurting overseas remittances

The crackdown may be having the unintended consequence of undermining the system that allows workers in Canada to send money home to support their families in poor countries.

Those workers use small financial institutions that, unlike the big banks, may charge only an exchange rate conversion fee.

FINTRAC has already fined some of those small money services businesses for failing to comply.

The violations range from failing to come up with and keeping up-to-date policies and procedures for staff to follow when they believe or suspect a client is engaging in a suspicious transaction to keeping records of such transactions as well as reporting them to FINTRAC. 

McGuire said FINTRAC's direct penalties are not hurting those small financial institutions as much as the fallout from the pressure it is putting on the big banks to comply with regulations meant to catch money laundering. Many of these small financial institutions depend on loans from the big banks for funds to continue operating while transactions clear.

The law requires large banks to list the ways in which they are exposed to possible money laundering and to assess that risk. Rather than wade into the complexities of doing that, McGuire said, the big banks "just cut them off."

The bigger problem, he said, is "all the pressure exerted on the large financial institutions is being pushed down to the smaller ones."

"So all these money services businesses … that are culturally based and help people send money home cheaply and quickly are being shut down because large financial institutions simply won't deal with them."

"Worker remittances from [overseas] are huge," he said. "In the Philippines, they represent a significant part of its GDP."

McGuire has some of these firms as clients.

"Even the ones that are compliant," he said, "are being booted arbitrarily. This is a very difficult trend to deal with."

Smaller businesses must also comply

The increasing scope of the law may affect businesses, especially small ones, that are unaware that they now need procedures in place to report possible suspicious sales to FINTRAC. These businesses include jewelers and real estate developers building as few as five homes.

Kenny said it's challenging enough for large firms that know the compliance rules.

"In the B.C. Lottery [case], they have programs in place. They have auditors," said Kenny.

"They've implemented a program for many years. But it wasn't effective. They weren't able to assess that their program was ineffective."

The increasing sweep of money-laundering enforcement, and the requirement for independent auditors, is creating a new industry for firms like Kenny's and McGuire's, however.

"My BlackBerry is pretty much driving me insane," said Kenny.