Closing the Gap: Converging Canada’s
AML Standards with Global Expectations
What does this mean for an exempt market dealer (EMD)?
By Candice Ramlogan
The global anti-money laundering (AML)
and counter-terrorist financing (CTF) compliance
landscape has been changing at a phenomenal rate
over the last 10 years. AML/CTF has moved from
being a mere second thought in the minds of Boards
of Directors at leading financial firms, to an issue that
now drives business decisions as organizations work
to find their way through the myriad of regulations to
meet their obligations.
Enforcement in many parts of the world is strict
and aggressive. Companies, as a result, face the
unpleasant risk of media headlines if compliance
with AML/CTF requirements is found wanting.
Besides the financial cost of potentially record fines,
damage to reputation is a very real and significant
cost. Witness the extraordinary press coverage and
other attention that has accompanied record fines
being assessed against global banks for breaches
of AML regulations particularly in the US and the
UK. In one case, a fine of US $1.9 billion was levied
by the US Department of Justice to settle a money
laundering case as a result of alleged AML regulatory
breaches and inadequate controls.
In addition to unwanted attention in the world’s
media, other potential fall-out may include litigation,
regulatory hearings and remediation costs.
But how does this all relate to Canada? It is
important to set the international scene in order to
see how Canada has had to up its game in the fight
against money laundering and terrorist financing. One
might argue that since the maximum administrative
monetary penalty that the Canadian regulatory body,
Financial Transactions and Reports Analysis Centre
of Canada (FINTRAC), has the capacity to issue is
$500,000, that the financial cost of lax compliance
does not justify the expense of a robust, thorough and
complete AML/CTF program. However, Canadian-based organizations are operating in an environment
where non-compliance will not be tolerated. And,
the real cost of exposure of non-compliance will
be greatly in excess of regulatory fines or penalties
and include serious reputation damage, potential
litigation and other remedial costs. As a result, it is
in the interest of securities dealers to protect their
firm reputations and profit margins by establishing
and maintaining effective AML/CTF regimes.
But the situation in Canada is anything but
static and the tide continues to turn. The general
consensus is that it is only a matter of time before
the prevalence and size of administrative monetary
penalties increases within Canada. In addition, we are
seeing increased focus on regulatory enforcement.
Our clients have responded to the changing
environment with increasing requests for
effectiveness testing of AML/CTF regimes,
implementation of training programs, general
support for identifying money laundering and
terrorist financing concerns and recommending
controls to mitigate this risk. They are responding
to the serious call for accountability required by
Canada’s History with The Financial Action Task Force
The Financial Action Task Force (FATF) is an
international standard-setting AML/CTF organization.
It was established in 1989 at the G7 Summit in
Paris with the purpose of maintaining integrity in
the global financial system by working to ensure
member firms implement regulatory infrastructures
to impede abuse by money launderers and terrorist
financiers. Canada has been a member of The FATF
since its creation in 1989 and enacted proceeds of
crime legislation that same year.
As a member of the FATF, Canada undergoes
peer evaluations to assess the effectiveness of its
anti-money laundering and anti-terrorist financing
measures. In its second mutual evaluation report
on Canada in 1997, FATF noted Canada’s lack of a
Financial Intelligence Unit (FIU) and that its reliance
on voluntary (rather than mandatory) suspicious
transactions reporting had not proven effective.
In response to this evaluation, Canada introduced
the National Initiative to Combat Money Laundering.
In 2000, the Parliament of Canada passed
legislation that established a system of mandatory
reporting of suspicious and other prescribed
transactions and created its own FIU, FINTRAC.
With this, Canadian federally regulated financial
institutions (FRFI) operate under the supervision the
Office of the Superintendent of Financial Institutions
(OSFI) as the main regulatory body, but all market
players also answer to FINTRAC with respect to
complying with reporting requirements aimed at
facilitating the detection and deterrence of money