On October 16, 2020, the Office of the Superintendent of Financial Institutions (OSFI) published an industry letter stating that, going forwards, the supervision of anti-money laundering/anti-terrorist financing (AML/ATF) programs for federally regulated financial institutions (FRFIs) in Canada will be the responsibility of the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).[1] This announcement comes after the OSFI initially met with FRFIs in June 2019 to set out a two-year incremental transition plan for the oversight of AML/ATF programs. This original schedule was derailed by the global COVID-19 pandemic, which in March 2020, necessitated a temporary pause on the policy development collaboration between OSFI and FINTRAC.
OSFI has now expressed the desire to accelerate the supervisory transition plan, stating in its letter that FINTRAC is now the primary agency responsible for conducting AML/ATF assessments of FRFIs, and ensuring FRFI compliance with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and associated regulations.[2] Henceforth, OSFI will be limiting its focus to prudential regulatory implications and policy development surrounding AML compliance. As part of this shift in focus, OSFI is re-evaluating whether OSFI Guideline B-8 (Deterring and Detecting Money Laundering and Terrorist Financing) has ceased to be relevant and should be rescinded accordingly.
This transition in responsibility for monitoring and enforcing compliance with anti-money laundering programs by FRFIs coincides with other changes and developments within the broader AML landscape in Canada.
From a regulatory standpoint, in July 2019, the Department of Finance introduced the Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, 2019.[3] Many of these amendments entered into force on June 1, 2020 and sought to impose increased disclosure, registration, and reporting obligations on FRFIs in the context of virtual assets and as virtual assets service providers. Similar increased disclosure, registration, and reporting obligations for FRFIs relating to prepaid payment products are set to come into force on June 1, 2021.
Also in the summer of 2019, a Criminal Code of Canada amendment came into force that lowered the mens rea component of the money-laundering offense contained in Subsection 462.31(1) of the Criminal Code from knowledge or belief of money laundering, to recklessness as to whether there is a danger or risk for money laundering activities associated with a transaction.[4] This legislative change creates potential criminal exposure on any transaction whose origins raise concerns and have a potentially problematic appearance. Notwithstanding that this lowered threshold came into force over a year ago, we have yet to see it applied in practice so as to cause a transaction to come under scrutiny at this standard. For more information, a detailed summary on the implications of this Criminal Code amendment can be accessed here.
Additionally, in May 2019, the BC Provincial Government established the Commission of Inquiry into Money Laundering in British Columbia (Cullen Commission) after several reports were published detailing money laundering concerns in various BC business sectors including real estate, luxury car sales, and gambling.[5] The Cullen Commission spent 2019 and the first half of 2020 amassing information relating to the typology, history, and evolution of money laundering generally, and its impact and prevalence in other jurisdictions, before beginning investigations into BC’s own money laundering issues. As the result of the COVID-19 global pandemic, many of the Cullen Commission processes were transitioned to remote work, and the first block of hearings in the Cullen Commission were held virtually between May 25, 2020 and June 16, 2020. The fall session of the Cullen Commission hearings have recommenced this week, and will likely draw past and current AML/ATF regulatory and enforcement mechanisms into the spotlight as the hearings progress into 2021. It is understood that FINTRAC’s historical levels of enforcement against FRFIs is a topic under review by the Commission.
In light of the changes to the regulatory framework surrounding AML compliance and enforcement and the resumption of the Cullen Commission hearings this week, FINTRAC is likely to be sensitive to AML/ATF program enforcement optics, and motivated to ensure the effective implementation of its monitoring and enforcement procedures. FRFIs should take heed.
For advice or more information about Canada’s anti-money laundering framework, please contact the authors as members of our Global Anti-Corruption and Regulatory practice groups.
[1] OSFI October 16, 2020 industry letter to FRFIs, Update and consultation on OSFI’s activities on AML/ATF supervision, available at: https://www.osfi-bsif.gc.ca/Eng/fi-if/in-ai/Pages/20200921-nr.aspx
[2] Ibid.
[3] Regulations Amending the Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, 2019, SOR/2020-112, available at: http://gazette.gc.ca/rp-pr/p2/2020/2020-06-10/html/sor-dors112-eng.html
[4] Criminal Code, RSC 1985 c C-46, s. 462.31(1).
[5] The Honourable Austin Cullen, Commissioner, Introductory Statement July 2019, available at: https://cullencommission.ca/comm-statements/. See also “Other Reports” considered in the Cullen Commission: https://cullencommission.ca/other-reports/.
