Category Archives: 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.

London Calling – The case of Skansen and UK Jurisdictional Reach for Corporate Bribery

The is a guest blog post by Nick Johnson, Q.C., from Exchange Chambers & Bright Line Law, London.

Southwark Crown Court is a designated centre for many of the UK’s serious fraud and white-collar crime jury trials. It is a drab building in a stunning location. There’s a spectacular view of Tower Bridge and the Tower of London over the river, obscured only by HMS Belfast, a WWII cruiser permanently moored as a museum and which, last Christmas, flew the Canadian flag in tribute to the participation of the Royal Canadian Navy in the Battle of North Cape. Hundreds of Canadian sailors served on British ships in the north, including eighty on the Belfast.

As the Maple Leaf flew, I acted for the MD of Skansen Interiors Ltd, a London based fit-out and refurbishment contractor, in a bribery case which concluded last April. The company itself and two of its directors faced charges under the Bribery Act 2010 (“UKBA”), relating to making improper payments in order to secure contracts for two City of London office refurbishments worth about £6m.

The case was a legal first in the UK in that the company, despite having carried out an internal investigation and self-reported to the UK National Crime Agency, then faced a Section 7 UKBA prosecution before a jury in the Crown Court. Section 7 has an unusually wide reach. A company itself is guilty of a criminal offence where a person associated with it bribed another, even where management might be completely unaware of the bribe. It is a rare form of corporate criminal strict liability, subject to a defence where the company can prove, on a balance of probabilities, that it had in place adequate procedures to prevent such conduct. Of course, the legislation is aimed at compelling a change in corporate culture when it comes to effective anti-bribery measures. Quite apart from the interesting questions the case posed as to what may amount to “adequate procedures” and why it was that an entirely co-operative company was not offered a UK Deferred Prosecution Agreement, the focus upon the Section 7 requirements was a clear reminder of how even a non-UK corporate could well end up in a UK criminal dock.

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Panama Papers: CRA getting tougher on tax evasion

We are beginning to see the legal enforcement fallout from the now infamous Panama Papers.  Canada Revenue Agency’s (CRA) concerted efforts to find undeclared offshore money and assets is moving into full gear. In addition to pursuing typical civil audits, the CRA is now executing search warrants and launching criminal investigations for tax evasion.

The CRA is actively gathering information from domestic and international sources to identify and charge offenders criminally. Since 2015, the Canadian government has required domestic financial institutions to report to the CRA all international electronic fund transfers of $10,000 or more.  In addition, as of March 2016 the CRA has analyzed over 41,000 transactions worth over $12 billion dollars, involving four jurisdictions and particular financial institutions of concern, and has initiated risk assessments on 1,300 individuals named in the Panama Papers. This has resulted in approximately 122 CRA audits to date and counting. However, it is not just taxpayers who are subject to the CRA’s scrutiny and who may be criminally charged. The CRA is also investigating the enablers and advisors, including the lawyers and accountants, who facilitated the hiding of taxpayer money and assets offshore.

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Guest Post: Panama Papers and the emergence of anti-corruption compliance

This week, White Collar Post features a guest post from internationally known compliance and anti-corruption expert Marc Y. Tassé.

While the leaks continue from the “Panama Papers”, continuing to make headlines around the world, and as the related scandals intensify, there have been numerous articles written on the whole topic. My following comments and remarks take under consideration and outline some of those and my own comments.

The International Consortium of Investigative Journalists obtained millions of documents showing heads of state, criminals and celebrities using secret hideaways in tax havens.

  • Files reveal the offshore holdings of 140 politicians and public officials from around the world
  • Current and former world leaders in the data include the prime minister of Iceland, the president of Ukraine, and the king of Saudi Arabia
  • More than 214,000 offshore entities appear in the leak, connected to people in more than 200 countries and territories
  • Major banks have driven the creation of hard-to-trace companies in offshore havens

Offshore banking is not in itself illegal, and those named in the “Panama Papers” should not automatically be presumed to have done anything wrong, but history has shown that secrecy attracts those with something to hide. The offshore banking system is being abused for illicit purposes such as tax evasion and money laundering resulting from corruption.

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FINTRAC fines Canadian bank with no name a fistful of dollars

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), the federal agency responsible for the detection, prevention and deterrence of money laundering and terrorist financing, has, for the first time, imposed an administrative monetary penalty on a Canadian bank. The penalty of more than $1.1-million comes at a time of increased scrutiny of Canadian financial institutions and financial transactional crime as a result of the publication of the Panama Papers.

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