Some are welcoming the new law enforcement agency announced in Budget 2022 to help tackle Canada’s significant money laundering problem, while also expressing concern over its potential use to block crowdfunding for certain efforts if adequate safeguards aren’t in place—as they say occurred for the convoy protests against COVID-19 mandates.
The budget specifically promised FINTRAC $89.9 million over five years, followed by a permanent annual budget increase of $8.8 million, stating that this is a 24 percent funding hike and would add 13 percent more staff.
Budget 2022 went on to say, as the first of a list of highlights, “This increased capacity will enable FINTRAC to implement new anti-money laundering and anti-terrorist financing requirements for crowdfunding platforms and payment service providers.”
Matthew McGuire, an internationally recognized expert in anti-money laundering, counter-terrorist financing, and sanctions, says the government’s use of the Emergencies Act to freeze bank accounts in response to the trucker convoy was “unheard of.”
“It was an extraordinary mess with too few safeguards, and the fallout continues to this day,” he told The Epoch Times. “The way that was applied was just so damaging to the trust in the financial sector.”
Vanessa Iafolla, an assistant professor at St. Mary’s University and principal at Antifraud Intelligence Consulting, echoed McGuire’s sentiment.
Iafolla says the use of the financial sanctions with the Emergencies Act had major consequences for some people, which she said she finds “reprehensible.”
“We have tools available at our disposal to use, but what’s the guidance going to be? And what’s the limit on the use of those tools going to be? And how do we ensure that Canadians who are exercising at the time very legitimate rights that they have are protected in future? These are really important questions that the Canada Financial Crimes Agency is going to have to wrestle with before this gets implemented,” she says.
Redundant Regulations
McGuire noted that crowdfunding platforms deserve no special attention and that the new focus on them represent regulatory redundancy.“In none of the money laundering threat assessments I’ve ever read … have crowdfunding platforms even made it to the top 10 of money laundering risks in a country. It just isn’t. And second of all, a crowdfunding platform, by its nature, has to have the on-and-off ramps of financial institutions, and they’re regulated—even dealers in virtual currency,” he said.
“It’s a double set of regulations that’s unnecessary. It’s not proportionate to the threat. And [if it were to go ahead, it should] properly be put under the charities directives of the Canada Revenue Agency, an agency that’s used to looking at the money laundering threats and risks of charities and the not-for-profits.”
Although the Canada Revenue Agency (CRA) is expected to help the new Canada Financial Crimes Agency, Iafolla is unsure how that would practically work.
“I’m more curious as to how they plan to integrate CRA, FINTRAC, and the RCMP under one agency, given that those different institutions themselves have different kinds of mandates, operate according to different policies and procedures, have different kinds of legal thresholds,” Iafolla said in an interview.
‘Failure to Prosecute Financial Crimes’
McGuire says that when it comes to combating money laundering, establishing the new agency to centralize efforts against financial crimes is “a step in the right direction” although problems remain.“The countries that perform best around the world in defeating money laundering are those that do spend the money on a central coordination entity that is multidisciplinary and does look at the big picture problems like transnational organized crime,” he said.
“The problem that remains unaddressed by all of these budget measures is the perennial problem of our failure to prosecute financial crimes.”
In 2016, the Supreme Court of Canada ruled in R. v. Jordan that criminal cases had to be heard within 30 months of charges being laid. McGuire said inadequate numbers of judges and prosecutors, especially in Ontario, have resulted in almost-certain convictions being dropped as the deadline passes.
“There was a $14 million fraud that still irks me, where it was an open-and-shut case … and we didn’t have the resources to hear it [in time],” he said.
“We have just an extraordinary amount of fraud going on in this country—like the romance games, the other crimes of persuasion, the grandparents scams, the Ponzi schemes. Financial criminals [are] in this too. [They] get off the hook and actively look to commit frauds here, in part because they’re not prosecuted.”
McGuire says the added FINTRAC staff will help but will still leave much work undone.
“It’s well-needed because there’s roughly 60,000 entities that they have to regulate, and they have 130 employees. So it’s impossible to have great enforcement on the vast numbers of entities that you need to look after with so few people,” he said.
“In developed countries, it’s estimated that we catch about 1 percent of the financial crime that’s going on. I don’t think Canada is that good based on the seizure numbers that I’m seeing. Academics suggest that it’s somewhere between $40 billion and $130 billion that’s laundered through Canada every year. So if even $1 billion is seized in Canada every year, I would be shocked.”
McGuire says he believes more trained prosecutors, more judges, and minimum sentences must be put in place for FINTRAC’s new resources to have any impact.
Canada’s reputation for prosecuting financial crimes and recovering proceeds is so bad, he noted, that the “risk premium” levied by “hire-a-money-launderer” services has dropped. It was as high as 20 percent 15 years ago, but it’s just 3 percent today because chances are low that legal sanctions will happen, he said.
“Our system is so weak. … Professional money launderers are one of our biggest problems because our Criminal Code offence often requires knowledge and/or belief about the proceeds of crime [which is hard to prove]. So, it’s created this whole industry of intermediaries who launder money for others.”
