The House of Commons Standing Committee on Finance presented its report on November 8, 2018, entitled Confronting Money Laundering and Terrorist Financing: Moving Canada Forward.1 The report was prepared pursuant to subsection 72(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act 2 which requires that the administration and operation of the Act be reviewed by a committee of Parliament every five years. In this regard, the report provides 32 recommendations for consideration by the House of Commons and the government of Canada to improve Canada’s anti-money laundering and anti-terrorist financing regime. This article provides a summary of the recommendations in the report.
Recommendations
The report follows the outline of the discussion paper published by the Department of Finance Canada on Feb. 7, 2018, (previously reviewed in the February 2018 Charity & NFP Law Update3,) and, as such, the recommendations are classified in four chapters, namely: Legislative and Regulatory Gaps; the Exchange of Information and Privacy Rights of Canadians; Strengthening Intelligence Capacity and Enforcement; and Modernizing the Regime.
Legislative and regulatory gaps
Recommendation 1 is that the government of Canada should work with the provinces and territories to create a pan-Canadian beneficial ownership registry that would include details of individuals with “significant control” – defined as a minimum of 25 per cent share ownership or voting rights – in all legal entities, including trusts. The registry would only be accessible by law enforcement authorities, not the public.4
Noting that identification of politically exposed persons is troublingly inconsistent across jurisdictions, Recommendations 2 and 3 suggest that clarification is required for the Act’s definition of policitally exposed persons, and that the government should apply a risk-based model of compliance for these people.
Recommendations 4, 5 and 6 propose that the government should adopt a model similar to that of the United Kingdom’s Office of Professional Body Anti-Money Laundering Supervision, requiring that legal professionals and other self-regulated professionals also be subject to the anti-money laundering and anti-terrorist financing regime. With regard to solicitor-client privilege, the report recommends that the government request a reference from the Supreme Court of Canada, which decided on this topic in 2015, to require legal professionals to report on all non-litigious work they perform.
With recommendations 7 and 11, the report proposes amending the Act so that certain businesses, such as armored car companies and companies selling luxury items, are subject to the regime. Recommendations 8 and 9 suggest that the PCMLTFA also be amended to include the obligation of real estate brokers to identify beneficial ownership.
Recommendations 12 and 13 target small securities dealers and their employees, suggesting privacy laws in Canada be amended in order to permit provincial securities regulators to examine the professional record of registrants, as well as provide better training for regulators.
The exchange of information and privacy rights of Canadians
In considering the exchange of information between government entities and the privacy rights of Canadians, Recommendation 14 of the report suggests that the Canadian government should consider employing the United States government’s “third agency rule” which permits information sharing from one department to another under the condition that the receiving department does not release the information to any other department.
Recommendation 15 proposes that the mandate of the Financial Transactions and Reports Analysis Centre of Canada be expanded to allow for a greater focus on building actionable intelligence and a new model in which FINTRAC would go from only receiving information to also sharing information, including the release of aggregate data for statistical, academic or government purposes.
Recommendations 16 and 17 call upon the government to establish a round table partnership with industry leaders working on technologies to track suspicious activities and to promote best practices, as well as to take steps towards a Joint Money Laundering Intelligence Taskforce similar to that in the United Kingdom.
Recommendation 18 suggests that the government should consider tabling legislation that would allow information that is limited to anti-money laundering/anti-terrorist financing subject matter to be shared between federally regulated financial institutions, provided FINTRAC is notified of such sharing, while Recommendation 19 seeks to implement changes to banking in order to establish a “low-risk threshold” exemption to ensure the most vulnerable Canadians are not denied a bank account due to lack of identification.
Strengthening intelligence capacity and enforcement
In order to assist prosecutors and law enforcement agencies, Recommendation 20 suggests that amendments be proposed to the Criminal Code and Privacy Act, including stiffer penalties and the disclosure of offenders’ names, in order to facilitate investigations into money laundering and terrorist financing. As well, Recommendation 23 suggests that the government should amend the Act to enable law enforcement agencies to utilize geographic targeting orders for geographically specific high-risk sectors, similar to those used in the United States.
Recommendation 21 addresses the gaming industry and recommends that FINTRAC’s mandate be expanded to ensure that casino operators and their employees are provided with appropriate training in anti-money laundering/anti-terrorist financing legislation. Similarly, Recommendation 22 suggests establishing an information-sharing regime through FINTRAC and provincial gaming authorities.
Recommendation 24 suggests that the government provide a fixed period of time for bearer instruments to be converted to registered form before they are deemed to be void. Instruments such as bearer shares, bearer certificates and bearer share warrants were prohibited by Bill C-25, An Act to amend the Canada Business Corporations Act, the Canada Cooperatives Act, the Canada Not-for-profit Corporations Act and the Competition Act,5 assented to on May 1, 2018.
Modernizing the regime
Recommendations 25, 26 and 27 deal with crypto-exchanges and crypto-wallets and propose a regulatory regime that governs licensing, properly tracks transactions, identifies ownership of crypto-wallets and regulates money service businesses.
Recommendation 28 proposes that the government of Canada consider either prohibiting nominee shareholders or requiring nominee shareholders to be licensed and be subject to strict anti-money laundering obligations.
Recommendations 29, 30, 31 and 32 suggest clearer directions and enhancements for the reporting of suspicious transactions and suspicious activity to FINTRAC, including the reporting system of casinos and financial institutions.
Conclusion
While the report acknowledges that money laundering and terrorist financing may involve funds raised from legitimate sources, such as donations from individuals, businesses or charitable organizations, it does not identify any specific vulnerabilities in the charitable and not-for-profit sector. However, charities and not-for-profits may fall under the Canadian anti-money laundering/anti-terrorist financing regime in various circumstances and should, therefore, continue to monitor these developments as they make their way into legislation, regulation or public policy.
Nancy E. Claridge, B.A., M.A, LL.B., is a partner at Carters practicing in the areas of real estate law, corporate and commercial law and wills and estates. Terrance S. Carter, B.A., LL.B., TEP, Trade-Mark Agent, is the managing partner of Carters, and counsel to Fasken on charitable matters. Sean S. Carter, B.A., LL.B., is a partner at Carters practicing general civil, commercial and charity related litigation from the Toronto office of Carters. The authors would like to thank Luis R. Chacin, LL.B., M.B.A., LL.M., for his assistance in the preparation of this Alert.
End Notes
1. House of Commons, Confronting Money Laundering and Terrorist Financing: Moving Canada Forward: Report of the Standing Committee on Finance (November 2018) (Chair: Hon. Wayne Easter), online: https://www.ourcommons.ca/Content/Committee/421/FINA/Reports/RP10170742/finarp24/finarp24-e.pdf
2. SC 2000, c 17.
3. Terrance S. Carter, Nancy E. Claridge and Sean S. Carter, “Reviewing Canada’s Anti-Money Laundering and Anti-Terrorist Financing Regime” (February 2018), Charity & NFP Law Update: Anti-Terrorism/Money Laundering Update, online: http://www.carters.ca/pub/update/charity/18/feb18.pdf#tc3
4. Note that Bill C-86, A second Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018 and other measures, 1st Sess, 42nd Parl, 2018 (third reading 29 November 2018) already includes various proposed amendments to the Canada Business Corporations Act, RSC 1985, c C-44, requiring corporations to maintain up-to-date information with regard to beneficial owners.
5. 2018, c 8. The restriction on bearer shares were introduced to the Canada Business Corporations Act, RSC 1985, c C-44, s 29.1 and the Canada Cooperatives Act, SC 1998, c 1, s 142.1.