Presentations and Speeches

Notes for a presentation by FINTRAC Director Jeanne M. Flemming to the Third annual managing internal and regulatory investigations conference

Toronto
April 20, 2009

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Check Against Delivery

I want to thank Nigel Campbell and faculty members for the opportunity to be here today to provide FINTRAC's perspective on matters of regulatory compliance and money laundering.

I want to talk to you about FINTRAC's mandate and address some of the recent changes to our governing legislation, particularly the introduction of administrative monetary penalties, and provide some context for their use. What I won't be talking about today is the inclusion of lawyers in the anti-money laundering/terrorist activity financing regime. This issue is now under litigation so you will understand that I cannot comment on it.

FINTRAC is what is known as a financial intelligence unit with a mandate to assist the detection and deterrence of money laundering.

Clearly then as an agency we are strongly associated with the regime and the legislative requirements. I have often heard them called the FINTRAC rules. That sort of description obscures the point that we do not undertake this work alone. Our role is to assist a larger effort that includes the Department of Finance, the RCMP, the Canada Boarder Services Agency, Canada Revenue Agency, and Canadian Security and Intelligence Service, to name only a few of the departments and agencies involved.

Detection and deterrence does drive this initiative. Without delving too deeply into the genesis of our governing legislation, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, I do want to emphasize exactly what those two words, detect and deter, entail.

The cumulative effect of the recent legislative changes is to bring greater due diligence; to improve client identification; to enhance record keeping and to remove anonymity. This increased vigilance at the points of transaction ensures a paper trail where one may not have existed before. This due diligence brings a transparency and benefits both the detection of suspicious transactions and deterrence of those who might seek to abuse the system.

Among the legislative changes is the new power for FINTRAC to issue administrative monetary penalties, or fines, in order to enforce compliance. This new power has been viewed with some trepidation on the part of the businesses that have been identified as reporting entities under the Act.

As of December 30, 2008, FINTRAC has had the power to impose such penalties in instances of non-compliance with the Act and its regulations, where there has been a violation of the law.

This administrative penalty scheme does not replace the criminal penalties that have existed since 2001. Administrative monetary penalties are a tool for FINTRAC to ensure compliance. Criminal penalties will remain and will be in the hands of the police to decide when criminal charges may be necessary.

In considering this new administrative monetary penalties scheme, the notion of proportionality is fundamental. Violations are classified by the regulations pursuant to the Act as "Minor", "Serious" or "Very Serious", and carry maximum penalties of $1,000, $100,000 and $500,000 respectively.

FINTRAC is required to assess "harm" for each violation. This harm will be measured by the degree to which the violation obstructs Canada's ability to detect and deter money laundering and terrorist financing. The harm of a violation can vary from violation to violation. The level of harm is then used to establish the base penalty amount. The entity's compliance history will also be taken in the assessment of these penalties, which are designed to be non-punitive and proportional.

The use of the civil penalty regime is to encourage compliance and not for punitive ends. Those receiving a Notice of Violation would have had ample opportunity to take corrective action, but have chosen to remain non-compliant. The fundamental use of penalties and our whole compliance program --- for that matter-- is to bolster the detection and deterrence money laundering, terrorist financing and other threats to the security of Canada.

I should also note that there is an ability to seek a review of an administrative monetary penalty once it is issued. This review mechanism exists as a separate unit within FINTRAC. After all appeals and reviews have been exhausted, the name, the violation and the amount of a penalty may be published on the FINTRAC Web site. This will call public attention to the violation.

The legislative changes have made it much more difficult to launder money, in that client identification and record keeping requirements have created a better paper trail for investigations and greater scrutiny at the points of transaction. More business sectors have more responsibilities. This is what I referred to as a broadening and deepening of the existing obligations.

Vulnerabilities continue to exist, however.

Richard Deschenes, the director general of Sûreté du Québec, has commented that "certain players in the world of organized crime have demonstrated refined and sophisticated methods of infiltrating the legitimate economy. Their use of nominees and facilitators as a means of reducing the risk of detection complicates investigations into their activities."

This observation from Director General Deschenes identifies an observed behaviour of criminals, but also a frustration that investigators can experience when the money trail is obscured.

The response to this threat has been greater due diligence on the part of financial intermediaries, enhanced record keeping requirements and client identification. All with a goal of removing a measure of anonymity and ensuring a paper trail should the government need to look back on the transactions.

According to public opinion polls conducted in 2006, roughly 90% of Canadians indicate they have heard of money laundering and that they understand what it is.

Only 50% feel that it is a serious problem.

Perhaps most telling is that 80% of Canadians perceive that money laundering has an impact on the economy and on financial institutions, but less than half believe that it affects them, personally.

This where I think, as Canadians, we are being naïve.

As the Director of FINTRAC, I have had a unique perspective on investigations involving the proceeds of crime and the transactions that move those proceeds through the legitimate financial system. I do believe that money laundering is not a benign white collar activity, but something that does have consequences for all Canadians. If the laundering of criminal proceeds from drugs or fraud allows that criminal activity to continue and expand, there are certainly consequences.

We have the good fortune to live in Canada. As one of the most developed countries in the world, we can -- from time to time-- take for granted the many things that underpin our quality of life. I am thinking of peace, order and good government - those necessary preconditions for all other endeavours to succeed.

The very things that make Canada an admirably stable and safe place have also lulled us into a false sense of security. There are threats posed by organized crime and money laundering.

I don't mean to tell you that the sky is falling or that there is a wolf at the door. The problem that we face with money laundering is more like rust. It is a pervasive and persistent sort of rot. The rules that govern and shape our daily lives, whether it is the rule of law, or dealings with public officials, the function of our courts and our government, they can all be made weaker by the presence of criminal proceeds within the system.

Finance Minister Flaherty has pointed out the irony that efforts to maintain the stability and dependability of Canada's financial systems can pose risks because, like everyone else, criminals are drawn to financial systems they can trust. That a stable financial system may attract criminals is a poignant irony because their very presence and participation in the system often serves to undermine it.

To preserve the integrity of our financial system, we need to keep dirty money out. We need to put measures in place to detect it and to deter it from entering in the first place.

Some of you may act as financial intermediaries or as counsel to companies and individuals that have compliance obligations. As such, encouraging vigilance within your companies with regard to money laundering is an important contribution to the larger national initiative. Due diligence in carrying out transactions and effective record keeping go a long way to creating a hostile climate for those who would seek to abuse our financial system.

This sort of rigour and due diligence exists in many sectors already and it has existed long before FINTRAC was created. In some ways, the legislation formalizes what have been existing business practices.

As I have said, money laundering does have consequences for Canadian society because it allows criminal activity to expand and continue. As the criminals gain resources and power, the institutions of Canadian society - those that preserve law, order and good government can suffer. The Government considers the financial sector among those institutions. And as financial intermediaries, you can act as gatekeepers that facilitate entry into that system. We all have stake in upholding the system's integrity and ensuring that dirty money stays out.

Thank you again for inviting me to be here today.