Fintrac fines seen as 'warning shot' in fight against money laundering

TARA PERKINS

From Thursday's Globe and Mail
Last updated on Friday, Aug. 21, 2009 03:56AM EDT


FINANCIAL SERVICES REPORTER

Canada's financial intelligence agency has, for the first time, used its power to levy fines against businesses for not doing enough to protect themselves against being used as a tool for money laundering.

The agency said yesterday that it has fined two money services businesses - one in Toronto and one in Montreal - for failing to register with it. The penalties amount to less than $4,000 apiece, although Fintrac can impose penalties of up to $500,000.

The move signals that authorities are ramping up efforts to enforce laws that place a number of requirements, from record keeping to reporting, on banks, casinos, credit unions, remittance businesses, real estate, and life insurance agents and brokers.

"This is certainly a warning shot for everybody," said Robert Elliott, a partner at Fasken Martineau DuMoulin in Toronto who works with financial institutions.

The Financial Transactions and Reports Analysis Centre of Canada, or Fintrac, is the nine-year-old government agency tasked with detecting and preventing money laundering.

By uncovering money laundering schemes, it also aims to put a dent in crimes ranging from drug trafficking to fraud.

Since late last year, the agency has had the power to levy fines on businesses that don't comply with all of its requirements, as laid out in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. But many businesses still appear to be unaware of their obligations, and others grumble about the cost of compliance.

In addition to record keeping and reporting, money services businesses (often small shops that specialize in remittances or money transfers) are required to register with Fintrac and more than 850 have done so. Registration is free, but figuring out how to comply with the regulations is new for many businesses in the sector, which has been largely unregulated, said Peter Lamey, a spokesman for Fintrac.

While these first fines were against money services businesses, Fintrac is examining or auditing compliance procedures in all of the industries required to report to it.

Last month, Fintrac director Jeanne Flemming reminded a gaming association conference that, as of Sept. 28, casinos will be required to report to the agency any time they issue a cheque of $10,000 or more. (The goal of money laundering is to turn the proceeds - such as a bag of $20 bills - into something that looks more legitimate to a bank, such as a casino cheque, Mr. Lamey noted.)

Fintrac has helped police forces "follow the money trail" behind many investigations in the past few years, Ms. Flemming said.

"But to do this we need accurate and complete reporting from the financial entities required to send reports to us."

The agency conducted compliance examinations of 22 casino locations last fall, reviewing thousands of records and interviewing hundreds of staff.

"I will be frank. The casino sector needs to improve their compliance programs," Ms. Flemming said.

Nicolas Burbidge, a senior director in the compliance division at Canada's banking regulator, the Office of the Superintendent of Financial Institutions, noted in a recent speech that banks sent Fintrac roughly 3,500 suspicious transaction reports in fiscal 2002-03, but that number had risen to about 20,000 five years later and has increased since then.

The economic downturn has put pressure on executives in the financial sector to reduce expenses, but that should not come from anti-money-laundering programs, Mr. Burbidge said.

"Now is not the time to let down our guard," he said.

"As cash has become harder to launder, criminals have become more creative in their efforts to launder proceeds."

SOurce: The Globe and Mail