Anti-Money Laundering: a Comparative Review of Legislative Development

The historical background of money laundering legislation began with the drug trade.  Initial AML efforts were introduced primarily to curb the ability of drug cartels to use the proceeds of their crimes to process money from illegal drug activity and build larger drug businesses. The key historical turning point of AML legislation was the Vienna Convention of 1988 (“Vienna Convention”), where 43 countries agreed on an approach to address money laundering rather than solely focusing on the drugs trafficking and related monetary issues. Shortly thereafter, the Financial Action Task Force (“FATF”) of the G-7 issued a report specifically addressing money laundering, citing 40 recommendations which needed to be implemented by the international community to effectively address this issue. These recommendations have driven the structure of the AML regimes of Canada the U.S. and the U.K. to date.

The current Canadian AML legislative system was originally designed to address drug offences but underwent two major changes. The initial change occurred with the adoption of Part XII.2 into the Criminal Code (“Code”), which specifically criminalized laundering and possessing the proceeds of crime. This Part also granted powers to law enforcement to detain, search, and seize property from anyone thought to be in possession of the proceeds of crime, expanding the scope of enforcement powers available in Canadian law against money laundering. The second major change occurred in the early 2000’s with the adoption of the current Proceeds of Crime (Money Laundering) and Terrorist Financing Act.[1]  This law is Canada’s current AML regime and implements various tools such as reporting obligations, recordkeeping obligations, additional offences, and administrative monetary penalties to strengthen enforcement against money laundering. Furthermore, this legislation also created Financial Transactions and Reports Analysis Centre (“FINTRAC”), Canada’s special intelligence unit, which has responsibility for reviewing reports and conducting preliminary investigations into money laundering investigations.

Currently, the focus of money laundering prevention efforts has centered on increasing international cooperation and addressing terrorist financing. The FATF and World Bank have constantly advocated the need for international unity in addressing organized crime and money laundering by terrorist organizations as a necessary precursor to making any significant change in this global issue. Although there is some harmonization amongst countries such as Canada, the U.S. and the U.K., there are various other countries, such as the Cayman Islands, whose legislative system are not harmonized.

It has been 28 years since the FATF’s initial 40 recommendation report, and as can be seen from this review of the Canadian legislation, the international harmonization in money laundering protocol sought by the report is starting to take form.  Although the AML regimes of all these countries do have various nuanced differences, the structural similarities have made cooperation between agencies such as FINTRAC, the Financial Crimes Enforcement Network (“FinCEN”)[2], and the Serious Organised Crime Agency (“SOCA”)[3] both more feasible and more seamless.  Although money laundering is still a serious problem that totals in the billions of dollars worldwide, the integration of regulators, enforcement regimes and standardization of detection protocols has made it much more challenging for criminals and terrorists to launder the proceeds of their criminal activity.

The new reporting-based approach adopted by Canada, the U.S., and the U.K. since the early 2000’s has marked a significant and effective shift in AML strategy from a reactionary approach to a more proactive one.  By creating regulators, thresholds, and reporting systems for transactions at a higher risk of being related to laundering the proceeds of crime, these countries are able to attack money launderers in the early placement stage when they are most likely to be caught, as tracing proceeds during the layering and integration stages consumes more resources and time.  In addition to this reporting-based shift, the criminalization of more activities related to money laundering, such as tipping, possessing the proceeds of crime, and money laundering itself, and the stiff penalties associated with these offences has helped to deter this behaviour.

The key next steps in the fight against money laundering will revolve around both improving the current AML regimes of these countries, and gaining more buy-in from other countries to improve and somewhat harmonize their money laundering policies.  Due to the nimbleness of criminal organizations as compared with slower moving government processes, the legislation required to address money laundering is often a step behind the techniques developed by money launderers.  Larger economies such as Canada, the U.S., and the U.K. will have to continue to review and update their AML policies at a faster pace to keep up with criminal organizations which are constantly evolving.  Furthermore, these countries will have to engage in diplomatic efforts to bring countries without sound AML legislation on board, which will be no easy task.  The inherent focus on confidentiality in offshore jurisdictions is not something many of these offshore jurisdictions will want to forego, largely due to the positive impact these regimes have on their national economies.  However, since money laundering removes funds that could otherwise be legitimately spent to grow the economy, leaders in the field of AML will have to advance this message, but will also have to be careful to not infringe the national sovereignty of these other jurisdictions.  Although the challenge to stop money laundering is still an uphill journey, the vast improvements made to the AML regimes of Canada, the U.S., and the U.K. since the mid-20th century may make the climb a little less steep.

[1] Proceeds of Crime (Money Laundering) and Terrorist Financing Act, SC 2000, c 17 (the “PCMLTFA”).

[2] The Financial Crimes Enforcement Network (FinCEN) is a bureau of the U.S. Department of Treasury and the American equivalent to FINTRAC.

[3] The Serious Organised Crime Agency (SOCA) is the United Kingdom equivalent to FINTRAC.

Norm Keith

Norm Keith

Mr. Keith is a senior partner and member of the White Collar Defence practice group in the Toronto office of Fasken Martineau and the author of 12 books, including Insider Trading in Canada (Lexis Nexis, 2012). Contact him at +1 416 868 7824 or nkeith@fasken.com.

Norm Keith

About Norm Keith

Mr. Keith is a senior partner and member of the White Collar Defence practice group in the Toronto office of Fasken Martineau and the author of 12 books, including Insider Trading in Canada (Lexis Nexis, 2012). Contact him at +1 416 868 7824 or nkeith@fasken.com.