Enforcement lacking in anti-money-laundering efforts

The WSJ looked at a report from the RCMP that estimated in 2011 that between $3.8 billion and $11.5 billion is laundered in the country annually.

Toronto lawyer Bruce McMeekin says there is a lot of finger pointing that goes on between organizations when it comes to laying blame, but, at the end of the day, it’s about investigators using the large volume of data already collected by regulators and putting it under the right microscope.

“We have in Canada a lacklustre record when it comes to the investigation and prosecution of financial crimes including money laundering,” says McMeekin, a corporate litigator who has experience helping clients with a number of regulatory bodies including the Financial Transactions and Reports Analysis Centre of Canada. “To me it isn’t because there’s an absence of information out there that can start an investigation — information, by the way, that is largely generated by the Fintrac regulations and the requirements they place on institutions.

“In order for the detection of money laundering to work, we have to have the financial institutions doing what’s required of them,” he says. “My real beef is what is happening with that information? I just don’t see the type of investigation and prosecution-type activity which should shake out of compliance with the Fintrac rules.”

There also appears to be a lack of political will to make that happen in Canada, in comparison to the United States; the resources are not available for such enforcement.

“We just don’t invest in the resources necessary to investigate and prosecute financial crimes. It’s a matter of political will,” he says.

McMeekin says there is also a confusion publicly about the role of Fintrac and the institutions that it regulates.

“When someone says an institution has breached the AML [anti-money-laundering] regulations,  it doesn’t mean the institution has engaged in money laundering. All it means is it has breached one of the numerous regulations that go to reporting/record keeping, that kind of thing,” he says.

“That breach may not be talking about reporting or that it failed to report, but that it failed to report properly and that can get so pedantic — it could involve a person’s date of birth or an address if talking about an individual.”

McMeekin says the federal government in combination with the provinces have to step up and pursue aggressively — whether it’s an institution or individuals — when they believe on the basis of reasonable and probable grounds that there has been one or more financial crimes committed, including money laundering, noting that money laundering is a derivative of financial crimes whether it be fraud or corruption.

“If I look at any of the institutions that I’ve worked with, they spend buckets of money to comply with the Fintrac regulations,” he says. “I don’t fault Fintrac for at least reprimanding at the lower end and at the higher end penalizing institutions when they do fall offside.”

The Canadian banking system is "more responsible" than the U.S. banking system or international bankers generally, and the Canadian legislative scheme is "consistent with other G20 nations," says white collar crime lawyer Norm Keith of Fasken, who has written a soon-to-be-published paper called International Anti-Money Laundering: The Canadian Legislative System.

"I do expect there is a fair bit of money laundering going on, some of which I expect the banks are aware of and try to shut down and some they are not aware of," says Keith. "Anti-money-laundering legislation is kind of odd because it says the marketplace players, not the criminals, are going to be caught and punished if they don't prevent the criminals from mis-using their financial/commercial system."

Meanwhile, criminals are constantly evolving their techniques, including using the banking system to launder their money.

Keith says the regulators in Canada are understaffed when it comes to AML and white collar crime in general because "it's not a government priority."

"There are other government priorities federally, such as legalizing marijuana, reconciliation and other things," he says. "We don't seem to, as a society and certainly with the present government, emphasize the importance of the issue."

The bigger worry for banks is likely losing money to security breaches and theft. 

"The banks are losing millions every year to cyber-thieves. I think they are probably more worried about that than compliance, but if you go to an AML conference on compliance, the banks are front and centre," he says. "By and large,  they take it seriously and they are doing a good job, but it's an odd concept that you create a law that makes the marketplace player — the business — responsible when criminals are mucking around with the system."

Jacob Frenkel, an anti-corruption lawyer with Dickinson Wright based in Washington says he "doesn't necessarily subscribe to the strong views of the report" because any report can reach findings using data that is consistent with the desired outcome of the report. He also notes that criminals are adept at finding holes in the system.

The issue, he says, turns on law enforcement agency prioritization and dedicating sufficient resources and expertise to pursue complex money-laundering cases.

"Canada's challenge is to balance even what international regulators recognize as an open and stable Western economy and accessible financial system with responding to the vulnerabilities that attach to money laundering threats," he says. "There are areas in money laundering enforcement where even the United States is viewed as technically non-compliant with aspirational international standards. No system is perfect."

Frenkel spent 10 years with the Securities Exchange Commission as a prosecutor working closely with the RCMP, Ontario Securities Commission and British Columbia Securities Commission on a "major manipulation." And in 2003 was hired by the Indonesian government to advise them on their anti-money laundering terrorist financing regulations. He says law enforcement, particularly anything around white collar crime is a function of resource allocation and enforcement will.

"There has to be a commitment and desire on the part of law enforcement officials to decide in what areas it wishes to prioritize and send deterrent messages," says Frenkel. "I remember when securities enforcement in Canada was considered at most to be of passing interest even to the regulators, which was 30 years ago. But overtime that resolve changed to where we have been seeing vigorous civil enforcement by many of the regulators but also criminal enforcement."

When it comes sanctions enforcement, on the other hand, often tied to money-laundering enforcement, Frenkel says Canada is strong.

"If the government has X dollars for enforcement and it's being applied to general fraud, corruption, bribery, smuggling, drug trafficking — how do you quantify the assignment of those resources to money laundering? It presents a conundrum for most Western markets because you're trying to balance the desirability and attractiveness to access and movement of capital with a need to prevent criminal elements from taking advantage of those same systems designed to protect compliance corporations and individuals."

He says what's been effective in the United States is the overlap of jurisdiction as opposed to the segregation of jurisdiction which enables the different regulators to pursue anti-money laundering enforcement actions on a measured or as called for basis.