An end to snow-washing Canada considers its money laundering problem

Canada may have a reputation as a law-abiding and democratic nation, but it is also notorious as a place where it is easy to engage in money laundering. This has become so egregious that a special term has been coined to describe it: “snow-washing” – and Transparency International has issued numerous statements about the problem.

In response, Canadian federal and provincial governments have taken steps to combat money laundering. Businesses operating in Canada should take note of these recent developments relating to anti-money laundering (AML) regulation.

Amendments to federal regulations

The key AML legislation in Canada is the federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act(PCMLTFA).

In June 2021, the government passed extensive amendments to the regulations under the PCMLTFA. In April 2022, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), a financial intelligence agency established pursuant to the PCMLTFA, also issued updated guidance. These changes include:

1. Requirements for “crowdfunding platforms” to register with FINTRAC, implement a compliance program and Know Your Client (KYC) requirements, and comply with various legislative requirements, including reporting and record keeping.
2. Retraction of prior FINTRAC policy interpretations that had exempted merchant servicing and payment processing services from the meaning of a money service business (MSBs). With this retraction and further FINTRAC guidance, the scope of businesses required to register as MSBs has significantly expanded.

Beneficial ownership registration

Recent amendments to various provincial and federal laws have resulted in implementation of publicly accessible beneficiary ownership registries. These registries require corporations to register and verify the identity of their beneficial owners.

Some provinces have also started to implement regulations which require the true owners of real property behind trusts, partnerships, and other entities to be disclosed through transparency filings at the land titles registry.

British Columbia’s Cullen Commission report

In 2019, the British Columbia government launched a formal commission into the problem of money laundering in the province. The Cullen Commission was established to determine the location and means of money laundering, why it transpired, and how to prevent its occurrence. After three years of public consultation, interviews, and investigation, the Cullen Commission released its final report (on June 15, 2022).

The report concludes that neither the federal nor the British Columbia AML regimes effectively curtail the billions of dollars per year laundered through the province. In order to address the problem, the report said, strong and pivotal action is required by government, regulators and law enforcement.

The Report sets out a long list of recommendations addressing the need for a robust response to the inadequate handling of money laundering, provincially and federally. Among the key recommendations:

• Create an AML commissioner and investigative unit. Appointment of an independent AML Commissioner to oversee, monitor and provide strategic overlook of the provincial response to money laundering. This includes the formation of a dedicated provincial money laundering intelligence and investigation unit to address the inadequacies of federal agencies, specifically FINTRAC.
• More vigorous law enforcement. Law enforcement agencies should pursue asset forfeiture more vigorously. Further, the report recommends an unexplained wealth order regime.
• Provincial regulation of money services businesses. The report recommends that the British Columbia ‎Financial Services Authority develop ‎guidance and expand its directive to ‎encompass the regulation of MSBs through higher frequency auditing.
• More oversight of cryptocurrency and other virtual assets. The report recommends heightened ‎provincial legislation and regulation of cryptocurrency.
• Oversight of luxury goods spending. Due to challenges in defining luxury goods and regulating the luxury sector, the ‎report recommends that the province implement a record keeping and reporting regime in which cash ‎transactions over ‎‎$10,000 are reported to a central authority. This process would be performed through oversight and consultation with the AML commissioner.

We expect the Report and its recommendations to have impacts beyond the province of British Columbia. Other provinces will likely consider similar changes. This may result in AML regulation in Canada beyond the PCMLTFA instituted by the federal government, including active participation and oversight by each of the provincial and territorial governments.

In response to the report, the federal government reaffirmed its intent to establish the Canada Financial Crimes Agency. This new agency was first introduced in the 2022 Annual Budget. Its purpose will be to “bolster Canada’s ability to quickly respond to complex and fast-moving cases of financial crime.”

The federal government has reaffirmed its intent to establish the Canada Financial Crimes Agency.

Organizations carrying on business in Canada are best served by considering how these changes might impact their business. Carefully assessing and uplifting AML policies and compliance will be imperative for organizations seeking to operate within Canada. Furthermore, businesses should ensure that they keep up to date on further legislation and policy announcements, as we expect many more changes to follow in the coming years.

Jordan Deering is the chair of DLA Piper’s Canadian Corporate Crime Compliance and Investigations team. Learn more about these evolving changes by contacting her or your usual DLA Piper attorney.