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Shedding light on new anti-money laundering legislation

A conversation with Ivan Zasarsky, national leader of the Anti-Money Laundering practice


Recent changes to Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) have significantly expanded the scope of this legislation. The law now applies to more entities in more sectors, includes provisions for broader types of civil and criminal punishment, and is being enforced by a wider range of government-sanctioned resources. We asked Ivan Zasarsky, national leader of Deloitte's  Anti-Money Laundering practice, for clarification on some of key implications of the updated Act.

What is money laundering?
Money laundering is the activity that results from taking funds that are proceeds from illegal activities and trying to conceal their origin and put them into the legal system so people can enjoy them in a so-called clean manner. It typically encompasses three major steps: getting illicit funds into the financial system, structuring them, and finally integrating them. Money laundering is often used by criminal and terrorist organizations to fund their ongoing operations.

How has Canada’s anti-money laundering legislation changed and why does it matter?
Canada’s original legislation, commonly known as C-22, has recently been updated to address perceived weaknesses in scope and enforcement. Effective June 30, 2007, the first wave of regulations corresponding to the C-25 Amendment has expanded the number and type of institutions that are covered under the Act. The legislation formerly required financial institutions to provide information to authorities to safeguard financial information and prevent criminals from reaping the rewards of their crime. Now the definition of financial institution has been made more specific. In addition to banks, the law requires trust companies, credit unions, broker-dealers, capital market entities and reporting entities to be compliant.

More notably, the new legislation extends beyond traditional financial services entities to include real estate organizations, insurance firms, the jewellery and precious metals and stones industry, some types of charitable organizations and money services such as cheque-cashing companies and foreign exchange dealers. Organizations in all these industries must now implement an anti-money laundering program and provide information to authorities.

How do these organizations comply with the newly upgraded legislation?
All entities covered by the Act must report suspicious and attempted suspicious transactions or otherwise questionable activities. To do so, they are required to maintain certain types of information about their customers and, in some cases, their customers’ customers. They also need to be mindful of the motivations of a transaction.

What happens if one of these firms does not comply?
Under the earlier legislation, the only money laundering charges that could be brought forward were criminal charges. This significantly constrained the government’s ability to monitor and respond to the full scope of money laundering activities.

The updated Act allows civil punishment in addition to criminal prosecution, and it extends enforcement to civil authorities as well. The   Financial Transactions and Reports Analysis Centre of Canada  (FINTRAC), which collects revenue on behalf of the Canadian government, is now monitoring and identifying questionable activities; it can also pursue violators with civil action. This new capability represents a major expansion of the government’s power to enforce compliance.

How soon must affected entities be compliant?
The legislation became law in January 2007, with regulations in force as of June 30, 2007, so all covered entities must address this now. Organizations in these industries are responsible not only to themselves, but also to their shareholders and other stakeholders to protect shareholder value and thwart any potential risk that would be forthcoming if they are found to be complicit or involved in money laundering. Organizations affected by these changes must put resources in place now to monitor, report and respond to these kinds of activities to ensure their infrastructure is not used in a questionable manner.

 

Penalties for non-compliance

Non-compliance with the terms of Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) could result in major fines and/or prison terms:

  • Failure to report a suspicious transaction: Up to five years in prison and/or a fine of up to $2 million
  • Failure to report a large cash transaction: A fine of up to $500,000 for a first offence and $1 million for subsequent offences
  • Failure to retain records: Up to five years in prison and/or a fine of up to $500,000

In all cases, punishments can apply to individuals as well as entities.