A Guide to Anti-Money Laundering for Crypto Firms

The Cullen Commission Releases Report on the State of Money Laundering in British Columbia

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On June 15 2022 the long-awaited Cullen Commission Report was released, detailing the findings of an inquiry into money laundering in the Canadian province of British Columbia. Led by Supreme Court Justice Austin Cullen, the findings are based on years of research, evidence and testimony from almost 200 witnesses.

Among the issues covered in the report are:

  • The extent, growth, evolution, and methods of money laundering in various sectors of the economy
  • The acts or omissions of responsible regulatory agencies and individuals that contributed to money laundering in the province
  • The effectiveness of the anti-money laundering efforts by these agencies and individuals; and the barriers to effective law enforcement.

The report argues that the federal anti-money laundering regime in Canada is “not effective”, citing the disparity between the 31 million reports received by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) from reporting entities in 2019-2020 and the 2,057 intelligence reports the agency disclosed to law enforcement during the same period. 

Following this, the report outlines several recommendations that the Canadian government has welcomed, saying they “will closely examine the report and continue working with all partners, including the Government of British Columbia, as part of its efforts to review and improve Canada’s Anti-Money Laundering and Anti-Terrorist Financing (AML/ATF) Regime.”

Independent AML Commissioner 

The Commission argued that the move to disband the Integrated Proceeds of Crime (IPOC) units by the federal government in 2012 effectively resulted in no enforcement body having primary responsibility to investigate money laundering in the province. 

Despite the units being re-engineered in 2013 under the Federal Policing Program and renamed Federal Serious and Organized Crime (FSOC), the report recommends the creation of a dedicated money laundering investigation unit for British Columbia. Through such a unit, the Commission argues that British Columbia could begin to combat the “high-volume, low-value reporting” that is being submitted to FINTRAC due to a prevailing culture of “defensive reporting” among reporting entities.

In addition to a dedicated unit, the Commission recommends the appointment of an independent AML Commissioner to provide strategic oversight of the provincial response to money laundering, regularly report new legislation and fundamentally ensure money laundering receives an increased amount of attention and monitoring. The report also argues that an independent Commissioner would ensure that the people of British Columbia and the government have “accurate, current, and reliable information about how public agencies, law enforcement and government are doing in coming to grips with and responding to money laundering”.

Money service business regulation

The Commission recommends that money service businesses (MSBs) should be regulated on a provincial level to increase the level of scrutiny. 

Currently, only FINTRAC monitors MSBs under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), and they are not examined by FINTRAC until they have been operating for at least two years. To increase the frequency of MSB audits, the report suggests an updated regulatory scheme that would require more involvement from the British Columbia Financial Services Authority (B.C. FSA). The B.C. FSA’s involvement is proposed to include identifying unregistered MSBs, sanctioning them and introducing a compliance process that applies to the first two years of an MSBs existence.

The report also highlighted that an applicant registering as an MSB can currently only be denied registration by FINTRAC if the applicant has a criminal conviction for a specified offense. In part 5 of the report, this regulatory gap is illustrated through the case of Silver International Investment Ltd., which was registered by FINTRAC as an MSB during the time it was under investigation for an alleged money laundering scheme. 

Beneficial ownership transparency

While the Commission notes that the federal government has recently made a strong commitment to establishing a national beneficial ownership transparency registry, the report urges British Columbia to work with “its federal, provincial, and territorial partners to ensure that an effective, publicly accessible, pan-Canadian corporate registry is created and implemented on schedule” – by the end of 2023.

The $89.9m in funding set aside from FINTRAC over the next five years in Canada’s budget includes recognition of the need for a corporate beneficial ownership registry.

Mitigating trade-based money laundering (TBML)

To further mitigate the threat of trade-based money laundering (TBML), the Commission recommends that British Columbia implement a trade transparency unit. Through “advanced data analytics” and global information sharing, the report advocates that such a unit would be able to identify anomalies in Canadian trade data and “detect and measure the flow of illicit funds without needing to examine every shipment of goods into and out of the country”. 

Next steps

Compliance teams should note that the impact of this report is likely to reach beyond British Columbia as the federal government and other provinces consider the Commission’s recommendations. 

While it remains to be seen which recommendations the Canadian government will implement, compliance staff should consider how the AML deficiencies identified by the Commission relate to the services they offer. In particular, they should explore and identify any specific risks or regulatory deficiencies they are exposed to.

 

Anti-Terrorist Financing and Anti-Money Laundering Canada

Learn more about Canada’s Anti-Money Laundering and Anti-Terrorist Financing (AML/ATF) regime, including enforcement and penalties.

Read the guide

Originally published June 24, 2022, updated June 24, 2022

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