Budget goes after bad guys

One of Budget 2014’s aims is to take the profit out of crime. It fortifies anti-money- laundering (AML) measures and enhances transparency of corporate ownership so criminals (and would-be tax evaders) can’t hide. It also targets terrorists by improving our economic sanctions program and implementing measures to prevent misuse of charities.

AML rules

Canada’s AML regime has been amended several times over the last five years. The changes have imposed additional burdens on banks, credit unions, insurers and securities dealers to conduct ongoing transaction monitoring and client identification updates. They also require more diligence in obtaining and retaining fresh evidence on ultimate ownership and control of accounts clients open.

Budget 2014 promises amendments that are likely based on consultations held in December 2011. They’ll align our rules with new international and sanctions standards standards, and coordinate with new corporate transparency measures.

In response to international pressure and money laundering risks, the budget also proposes expanding AML obligations to virtual currencies and online casinos. Virtual currencies, such as Bitcoins, haven’t been subject to Canada’s regulations because they haven’t been recognized as a currency.

Canada also wants to commit more funding to financial intelligence by upping FINTRAC’s budget by $2.2 million per year, and allocating an additional $22.5 million to implement legislative changes and improve analytical abilities.

Transparency in corporate ownership

Governments around the world are focused on tax compliance through information sharing and transparency in corporate ownership. To that end, Canada’s already begun a consultation on making public the (human) beneficial owners of federal corporations. In addition, Canada’s committed to considering a ban on bearer instruments. These are shares and debt instruments that aren’t ascribed to a specific person; instead, ownership is based on possession.

It’s significant for entities with AML responsibilities because regulations that came into force on February 1, 2014 obligates them to collect and take steps to verify the beneficial ownership of account holders.

Economic sanctions

Financial institutions have long lamented that Canada’s economic and terrorist sanctions lists are difficult to act upon, partly because there are nine overlapping lists that must be collected from five different websites. Additionally, the data quality and formatting is sub-par. The government’s been examining the issue for years; the budget commits to adopting administrative measures to improve the effectiveness of the financial sanctions regime. But there’s no mention of specific measures, such as a consolidated list or screening tool.

Charities and terrorism

Terrorist abuse of Canadian charities is well-documented. To combat it, the budget proposes giving the Minister of National Revenue powers to control the charitable status of those receiving support from state sponsors of terrorism. CRA has committed to helping charities (and hopefully financial institutions as well) by providing due diligence best practices for accepting gifts and preventing terrorist abuse.

OSC sent more To jail in 2013

The Ontario Securities Commission closed cases against 170 individuals and companies in 2013, up from 100 in 2012.

Out of the cases closed, four were dealt with via court proceedings under securities legislation. As a result, OSC jailed four people for a total of 63 months, compared to two people for 21 months in 2012. The rest of 2013’s cases ended with either contested hearings before the Commission or settlement agreements. “We have a responsibility to protect investors and our capital markets,” says Howard Wetston, chair and CEO of OSC. During the last year, OSC says it’s also increased the number of sanctions hand down.

Matthew McGuire, DIFA, CAMS, AMLP, CPA, CA is National Anti-Money Laundering Practice Leader at MNP LLP in Toronto.