New report: Anti-corruption group outlines hope for a new Canadian financial crime agency

On May 11, 2023, Canada’s division of the global anti-corruption non-government coalition Transparency International (TI) published a whitepaper on establishing a Canadian Financial Crime Agency (CFCA). The report follows Canada’s 2022 budget, which laid out plans to bolster Canada’s ability to respond quickly to complex and fast-moving financial crime cases by providing $2 million to develop and design a lead enforcement agency. 

Regarding the establishment of the CFCA, TI Canada recommends the government: 

1. Extend the scope of “financial crime” to include predicate offenses that create the impetus for money laundering 
2. Set up the agency as both an enforcement body and a coordination body.   

A Canadian Financial Crimes Agency (CFCA)

TI’s Corruption Perceptions Index for 2021 cites that between $43 and $113 billion is laundered annually in Canada, with the country ranking 13th in the global index – representing a five-place drop since 2017. Establishing a CFCA reflects the government’s intentions to combat this issue, stating that a CFCA would increase:

• Money laundering charges.
• Prosecutions and convictions.
• Asset forfeiture results.

For an enforcement agency to practically do this, TI notes that it should also be set up as a coordination body. This would increase collaboration by ensuring the facilitation of information between agencies in different levels of government and provide a unified voice to governments when identifying pain points within the financial crime landscape. 

From an operational perspective, TI said this could look like:

• Making it mandatory for other agencies that cover financial crimes to share information (subject to the consideration of highly sensitive investigations). 
• Creating an escalation mechanism to allow multiple agencies to share investigation progress, investigative techniques, and maintain specialized knowledge.

Key Questions

However, according to TI, to create an effective agency, three questions remain unanswered about the CFCA:

• What does “financial crime” mean?
  TI encourages the government to refine the scope of financial crime by, for example, publishing a list of enumerated offenses (regulatory and criminal), similar to Public Services and Procurement Canada’s “Ineligibility and Suspension Policy”. 

• What are the jurisdictional limitations of the CFCA operating in the Canadian federation to either lead enforcement and/or investigate financial crime?
  To ensure effective and standardized enforcement at the early stages of criminal non-compliance, TI suggests that the proposed enforcement agency could review the government-established agencies responsible for enforcing Canada’s legislation aimed at crimes listed in the United Nations Convention Against Corruption (UNCAC) and determine whether they have a role in combating financial crime.

• What is the rationale for a new agency as opposed to bolstering the resources of an existing agency?
  TI notes that for the new agency to be successful, the government should ensure the CFCA’s role is “carefully circumscribed” to avoid redundancy between existing enforcement agencies. 

The FATF and Canada

According to the 2023 budget, the new enforcement agency will bring together industry experts to address the key operational challenges identified in both domestic and international reviews of Canada’s anti-money laundering and anti-terrorist financing (AML/ATF) regime. The primary international review of note is the Financial Action Task Force’s (FATF’s) assessments of Canada’s measures to tackle money laundering (ML) and terrorist financing (TF). The country’s latest mutual evaluation report (MER) occurred in 2016. Since then, the country has been in an enhanced follow-up process. 

Canada’s latest follow-up report was published in October 2021, which highlighted the country’s progress in the following areas:

• Politically exposed persons (PEPs): Previously, Canada lacked laws that covered measures to identify and deal with PEPs. As of October 2021, the country was re-rated from ‘non-compliant’ to ‘largely compliant’ as amendments were made to regulations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) in 2019 and 2020. While new obligations were introduced for reporting entities, there is still no obligation to obtain senior management approval before establishing business relationships with PEPs.

• Wire Transfers: Since being rated ‘partially compliant’ in 2016, Canada has introduced requirements for intermediary and beneficiary institutions to identify cross-border electronic transfer of funds that contain inadequate originator information and take appropriate follow-up action.

• Reliance on third parties: To move from ‘non-compliant’ to ‘compliant’, Canada introduced explicit requirements on securities dealers and life insurance entities in relation to either necessary customer due diligence (CDD) information to be provided by the relied-upon entity or supervision of that entity’s compliance with CDD and record-keeping obligations.

• Reporting: Since Canada’s 2016 MER, legislative amendments have been made that require reporting entities to file suspicious transaction reports (STRs) promptly to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) after establishing reasonable grounds to suspect that the transaction related to the commission of an ML/TF offense. 
• CDD relating to designated non-financial businesses and professions (DNFPBs): Canada was initially rated ‘non-compliant’ concerning recommendation 22 because the country lacked certain obligations for DNFBPs, including information on beneficial ownership, PEP status, new technologies, and third-party reliance. Following some regulatory amendments approved in 2019 and 2020, Canada introduced DNFPB improvements regarding internal controls and reporting requirements, causing the country to be re-rated as ‘largely compliant.’ 

Regarding domestic reviews of the country’s AML/CTF regime, in April 2023, the government published an updated assessment of the country’s inherent risks of ML/TF, replacing the previous review conducted in 2015. The report said the government planned to use the assessment to further “enhance the country’s AML/ATF regime.” To learn more about the key ML/TF threats identified in Canada’s risk assessment, read our coverage here. 

For further details on the structure and mandate of the CFCA, compliance staff should keep an eye out for an economic and fiscal update due by fall 2023.