Thursday, February 24, 2011

Still stinging from an official rebuke that its banks and financial institutions were not meeting several key anti-money laundering standards – in particular failing to diligently check the backgrounds of their sometimes shady customers – Canada hopes to convince international authorities at an important Paris meeting this week that it is getting tough on dirty money. At a closed-door meeting that wraps up Friday, the Financial Action Task Force – a multi-government group responsible for setting anti-money laundering and anti-terrorist financing practices – heard Canada make the case that it “has made significant progress in strengthening its regime,” said Finance Department spokeswoman Stephanie Rubec. Ottawa says there are now tougher requirements to check on “customer due diligence” as well as stricter monitoring of everything from wire transfers to casinos and check-cashing companies – all favourite tools of money launderers. But experts warn that while Canada plugs some of the most glaring loopholes in its laws and regulations, the country is still vulnerable because of a lack of investigation, enforcement and prosecution. “You can change the laws all you want, if you don’t prosecute anyone no one gives a damn,” said Chris Mathers, a 20-year veteran of the RCMP who specialized in undercover proceeds-of-crime investigations and now runs his own consulting firm. “The last thing the bad guys laundering money in Canada are worried about is going to jail.” In 2008, the Financial Action Task Force found that Canada was “non-complaint” with 11 of 49 recommendations in its “basic framework for anti-money laundering efforts” – far behind the United States, Germany, and even Saudi Arabia and India. Canada fully met only seven recommendations and was partially or largely compliant with the rest. Of special worry to the task force was Canada’s failure to meet a core recommendation – the need to verify the identity and trustworthiness of banking clients. “Canada basically got a “D” when it comes to knowing who your client is,” said Tim Leech of Risk Oversight, a consulting firm that focuses on money-laundering. “If you want to stop the proceeds of crime, you are going to have to take a whole lot of efforts to find out who is putting money in your accounts.” Since that failing grade, Ottawa says Canada now requires financial institutions to run “enhanced” background checks, especially for “high-risk clients,” and dig deeper into “beneficial owners” – when someone may front for the real owner. Ms. Rubec said Canada has also addressed the other problems flagged by the task force. There are new rules for tracking wire transfers of $1,000 or more; registering sometimes dubious “money service businesses” such as cheque-cashing and money-order operations; expanding control over businesses not completely covered in the past such as casino operators, precious metal dealers and accountants; and ensuring that foreign subsidiaries of Canadian companies follow the task force’s standards. “Canada’s regime is comprehensive and compares favourably with that of other countries,” Ms. Rubec said. This will be Canada’s second follow-up report to the task force, which has acknowledged the progress made. But Canada may have a tougher time showing any improvement on another key failing: the low number of convictions for money-laundering in this country. The latest data from the Canadian Centre for Justice Statistics show that between 2004 and 2009, only 71 people in Canada were found guilty under the Criminal Code section for “laundering proceeds of crime.” Three times as many cases – 201 in all – were withdrawn, dismissed or stayed. By comparison, according the U.K. Under-Secretary of State, the number of defendants found guilty in all courts in England and Wales of money-laundering offences for each year between 2006 and 2008 was more than 1,200. “Successful prosecutions for money laundering in Canada verge on the pitiful,” said Kim Manchester, who runs a financial-crime risk-management firm in Toronto. Experts cite several reasons for the problem: privacy rules that prevent FINTRAC, the main money-laundering watchdog, from freely sharing information with law enforcement; complex investigations that can take understaffed police agencies years to finish, and overworked Crown prosecutors who often plea bargain away difficult money-laundering cases “We’ve put on a good show with all these rules and regulations,” Mr. Manchester said. “But it’s like the buildings down Main Street in an old Western movie: it looks imposing but it’s just a facade. And that’s embarrassing.” A task force official told The Globe the agency would issue a new report on Canada in about a year and “continue to monitor Canada, as it does other countries, until it has made sufficient progress to be removed from the follow-up process.”