Almost three years after Canada’s money laundering watchdog refused to release the name of a bank fined $1.1 million for failing to report hundreds of suspicious transactions, the federal government is changing the law to require the identity of money-laundering lawbreakers be made public.
And it is investing $163 million over the next five years to crack down on financial crime and fraud.
The changes to the proceeds of crime, money laundering and terrorist financing act were detailed in last week’s federal budget. They will eliminate the kind of discretion used by FINTRAC director Gérald Cossette to keep Manulife Bank of Canada’s name out of the headlines back in 2016.
At the time, FINTRAC announced only that a bank had been fined $1.1 million, but would not say which bank or what it did to merit the fine.
“The proposed measure would make naming of the reporting entity automatic,” said finance ministry spokesperson Marie-France Faucher. “This change would improve transparency.”
If an individual or organization appeals their fine, their name, the nature of their offense and the fine imposed would be carved out of any confidentiality order passed by a court, Faucher wrote in an email.
“The purpose of this measure is to deter non-compliance on the part of reporting entities and make the court proceedings more transparent,” Faucher said.
Forensic accountant Charles Smedmor welcomed the changes.
“No longer can a money laundering offence by a person or individual be papered over with a confidentiality agreement, as was apparently the case with Manulife Bank,” he said.
“With new laws and resources, Canada can be a less attractive place for recycling proceeds of crime and for stashing loot. Accountants, bankers, lawyers, real estate brokers and other financial professionals will be less willing to recklessly enable money laundering. They will think twice about transactions with the risks of moving from comfortable offices to cleaning prison toilets.”
Richard LeBlanc, a professor of corporate governance at York and Harvard universities, called the move “a very positive development.”
“We are getting a reputation of being soft on white collar crime. So the more disclosure the better.”
Of the $163 million promised for anti-money laundering enforcement in the budget, $21.7 million is earmarked for FINTRAC, the federal agency that investigates money laundering and other financial crime.
In a statement Friday, FINTRAC declined to comment on the new rules, which will become law once the budget is passed.
In 2017, a Star and National Observer investigation uncovered the details of more than 1,200 suspicious transactions that went unreported and pushed Manulife to admit it was the fined bank.
“The penalty essentially related to administrative lapses in reporting to FINTRAC,” the bank said in a written statement at the time. “Although we operate at the highest ethical standard, we are capable of administrative errors. They were remedied in the first half of 2014 . . . . Manulife did not enable or facilitate money-laundering and media reports to the contrary are inaccurate.”
FINTRAC director Cossette issued a statement after the disclosure saying his decision to withhold Manulife’s name, “may not have met public expectations in relation to openness and transparency.”
Leblanc says there was no justification for FINTRAC to ever keep the bank’s name secret.
“It shouldn’t take actions of the media to be the trigger for regulatory action,” he said.
Kenneth Rijock, a financial crime consultant who trains law enforcement agencies said, “Canada’s long-standing reluctance to name and shame its financial institutions … has contributed to a culture where violators know that they will not be named.”
“With the new requirement that the identity of the violating banks (is made public), they will no longer be able to hide behind the regulator. We welcome the change and hope that there will now be effective anti-money laundering compliance at Canada’s banks and broker-dealers.”
Documents released under freedom of information laws showed that Manulife failed to report more than 1,200 transactions of $10,000 or more — some in cash — that it processed for a convicted criminal in 2012 and 2013.
While the heavily redacted documents didn’t name the client, the Star and the National Observer determined that the dates and descriptions of his activities lined up with those of Manitoba online pharmacy entrepreneur Andrew Strempler, who had pleaded guilty to mail fraud charges in the U.S. after his drug shipments were found to contain counterfeit medication.
Some of the transactions occurred while Strempler was incarcerated in the United States. He was subsequently transferred to a minimum security prison in Manitoba and released in 2015.
Strempler did not respond to requests for comment at the time of the reports.
FINTRAC has used its discretion widely to name some companies that violated anti-money laundering law while keeping dozens of others secret. According to comments received by the agency, the Canadian public was outraged that a bank could violate the law, be caught and penalized, and not be named.
“I am outraged that you would withhold the name of the bank you recently fined for failing to report suspicious transactions,” one comment released under access to information laws read.
“I would want to know if the bank where I do my daily banking transactions is involved in criminal activities,” reads another public comment. “FINTRAC should be held accountable in disclosing all of the facts of this investigation and penalty.”
Even within government, officials worried about the optics of keeping the bank’s name secret.
“As soon as the penalty is published with no name, all the banks will want the same treatment if they are penalized,” read one of the emails shared between staffers in the Office of the Superintendent of Financial Institutions and their colleagues at FINTRAC.
Marco Chown Oved is a Toronto-based investigative reporter. Follow him on Twitter: @marcooved