Author: Norm Keith

Anti-Money Laundering & Terrorist Financing

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.

Analysis, Canada, Environmental, Health & Safety Enforcement, Health & Safety Enforcement

Safety violation results in contractor getting 18 months in jail

On Sept. 18, Sylvain Fournier, a Quebec based contractor, was sentenced to 18 months in prison followed by two years of probation.[1] Fournier had been found guilty of manslaughter under the Criminal Code relating to a workers death by means of a breach of Quebec safety code. The case is the first of its kind in Canada and raises serious concerns about the use of criminal law to enforce provincial regulatory safety standards.

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Analysis, Canada, Sentencing & Deferred Prosecution Agreements

Features of Canada’s New DPA Scheme

The Canadian Government has announced that it will be moving forward, albeit slowly, with a Deferred Prosecution Agreement (DPA) system. The recent announcement from the Government of Canada came on March 27, 2018, in a “Backgrounder” under the heading “Remediation Agreements and orders to Address Corporate Crime.”

Canadian DPAs will be known as the Remediation Agreement Regime (“RAR”). The federal government’s long awaited move towards DPA’s have several specific but not unique features. First,  a RAR would be a voluntary agreement between a prosecutor and an organization accused of committing a criminal offence. A corporation cannot be force into. RARs would set out an end date and would need to be presented to a judge for review and approval.

Second, before approving the remediation agreement, the judge would need to be satisfied of the following:

  1. The agreement is in the public interest; and
  2. The terms of the agreement are fair, reasonable and proportionate.

Third, when these criteria are met, the judge would issue a judicial order approving the RAR. While an agreement is in force, any criminal prosecution for conduct that is covered by the agreement would be suspended. If the accused organization complied with terms and conditions set out in the RAR, the prosecutor would apply to a judge for an order of successful completion when the agreement expires.

The legislation is proposed to have the following terms and conditions: the corporation has accepted responsibility for, and stop, their alleged wrongdoing; it has agreed to pay a financial penalty; it has been disgorged of any benefit gained from the wrongdoing; it has enhanced its  compliance measures; and has made restitution to any victims, including overseas victims, as deemed appropriate in the circumstances.

Fourth, the criminal charges would then be stayed in Court at the request of the prosecutor, and no criminal trial or conviction would follow. The stated purposes of the RAR include the following:

“a. To denounce an organization’s wrongdoing and the harms that such wrongdoing has caused to victims or to the community;

b. To hold the organization accountable for the wrongdoing;

c. To require the organization to put measures in place to correct the problem and prevent similar problems in the future;

d. To reduce harm that a criminal conviction of an organization could have for employees, shareholders and other third parties who did not take part in the offence; and

e. To help repair harm done to victims or to the community, including through reparations and restitution.”

Fifth, however, if the accused did not comply with all of the RAR, the criminal charges would be revived and the accused could be prosecuted and potentially convicted. In other words, all bets are off and the corporation will be prosecuted to the fullest extent of the law.

Sixth and finally, the RAR program will come into effect 90 days after the Budge Implementation Act, is passed into law and given Royal Assent (yes, the Queen’s representative still have to approval all Government of Canada’s new laws. Strangely, the RAR legislation is already being considered by Parliament as part of the Budget approval process, internally and without public hearings.

Analysis, Canada, Health & Safety Enforcement

Jail Term for Construction Superintendent Upheld by Court of Appeal

On January 20, 2018, the Court of Appeal for Ontario released its decision in the Appeal of Vadim Kazenelson (“Kazenelson”) both his conviction and sentence appeal.  Kazenelson was the Project Superintendent/Manager for the Metron Construction Incorporated (“Metron”) project in Toronto that went terribly wrong on December 24, 2009.  Tragically four workers died, and one was seriously injured, when two swing stage scaffolds broke apart, and five out of the six workers who were not attached to a lifeline that was anchored to the building, fell to the ground, over 100 feet below.  Kazenelson had been at the project at the time of the accident and allegedly aware of workers not using fall arrest lanyards at the time of the accident.

Kazenelson was prosecuted for five counts of criminal negligence under the Criminal Code Amendments, often referred to as the Bill C-45 or Westray Mine Disaster Amendments to the Criminal Code.  Kazenelson argued at trial that he was not guilty because he was not the direct supervisor of the crew, he had ensured that the workers had been properly trained and provided with fall arrest protective equipment, that he did raise the concern of workers not being provided with lanyards, when he was on site prior to the accident.

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Analysis, Canada, Health & Safety Enforcement

Radiohead stage collapse victims let down by the justice system

On September 5, 2017, Justice Nelson of the Ontario Court of Justice stayed all quasi-criminal charges against the three corporate and one individual accused in the deadly stage collapse at the Radiohead concert in Downsview Park on June 16, 2012.  These charges under the Occupational Health & Safety Act (“OHSA”) are some of the latest in a series of serious regulatory and criminal charges, that have been stayed for unreasonable delay as a result of the Jordan decision of the Supreme Court of Canada.

Radiohead, a British rock band, was scheduled to perform at a concert in Toronto at Downsview Park.  Just hours before the start of the concert, the stage superstructure collapsed.  Scott Johnson, a drum technician, and resident of the United Kingdom,  was fatally injured.  Others were also seriously injured.

On June 6, 2013, the Government of Ontario’s Ministry of Labour laid charges against a number of parties under the OHSA, including but not limited to, Live Nation Canada Inc., Optex Staging & Services Inc., and the professional engineer who provided advice and engineering drawings and certification, Domenic Cugliari.

The case was factually and legally serious and complex.  It proceeded to trial in November 2015, before Justice Nakatsuru, of the Ontario Court of Justice.  Although during that trial, there had been an Application for Delay, after the Jordan decision was released by the Supreme Court of Canada on July 8, 2016, it was rejected by the trial judge.  The trial proceeded, the prosecution and defense evidence was completed, and the lawyers were in the process of making final, written submissions on the merits of the prosecution.

However, on April 12, 2017, before all the final arguments were made, Justice Nakatsuru was appointed to the Ontario Superior Court of Justice, by the Federal Attorney General, Jody Wilson-Raybould.  As a result, and under instructions from the Department of Justice not to do any further work on any matter, including the completion of the Live Nation case, Justice Nakatsuru ruled that he had no jurisdiction to continue the trial, and declared a mis-trial.

The  policy and practice of the Department of Justice did not permit Justice Nakatsuru to complete the trial, after his appointment to the Superior Court of Justice in Ontario.  Justice Nelson, was appointed to be the second trial judge. On a pre-trial Charter delay motion, to stay the OHSA charges for a breach of s. 11(b) of the Charter, said the following at paragraph 70:

“[70] Both Cugliari and Live Nation submit that Justice Nakatsuru’s appointment should not be treated as a discrete event because although unforeseen by the Crown in this case, it was not unforeseen by the state.  Further, the state failed to take reasonable steps to mitigate any delay that did ensue.  Specifically, counsel point to the following:

  • The Provincial government failed to pass legislation which would have permitted Justice Nakatsuru to complete the trial;
  • Justice Nakatsuru would have known that he was presiding over this trial when he applied to the Superior Court bench thus risking the mistrial;
  • Justice Nakatsuru could have deferred his appointment until after he completed this case;
  • The Federal government should have ensured that Justice Nakatsuru was not appointed until this trial was completed.[1]

Although the Crown prosecutor persuaded Justice Nelson that the judicial appointment was a discrete exceptional event, it still did not permit this type of overall delay that occurred in this case.  The trial justice held that even if one was to give thirty (30) months to complete this type of trial, rather than the presumptive eighteen (18) months, that the delay still far exceeded that period of time;  the case having been in the judicial system for almost five (5) years.

The charges were stayed for breach of the constitutional right, under the Charter, to a trial within a reasonable period of time under section 11(b).

[1]       Ibid., para. 70.