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A New FINTRAC Director and AML Requirement Rationalization

19/12/2012


​At a recent Senate committee hearing looking into the effectiveness of Canada’s AML efforts, the new Director of Canada’s Anti-Money Laundering (AML) intelligence and compliance enforcement agency, FINTRAC, called for a reduction in the administrative compliance burden placed on financial institutions. Gerald Cossette – who was appointed to the top post in October – advocated that the legislation be refined to narrow the range of transaction and client information that financial institutions must send to FINTRAC, in the interest of more focused and forward-looking intelligence.

What Information do Financial Institutions Have to Send Now?

Financial institutions, including banks, credit unions, securities dealers, foreign exchange companies, and money services businesses (known as “reporting entities”), must send FINTRAC reports on large cross-border movements of funds, large cash transactions, and transactions they find suspicious. All these categories of reports involve many fields and pages of information. To complete those fields, reporting entities must have collected, and in some cases independently verified, much information about their clients and the transactions they conduct. Over the past four years, FINTRAC compliance examinations have involved increasingly detailed assessments of the technical adherence to information collection, and nuanced interpretations of the content required in each field. By way of example, AML legislation requires the collection of an individual’s occupation and information about the intended use of an account. FINTRAC examinations have in the past found deficiencies where occupations such as “Accountant” or “Retired”, and intended uses such as “Savings” or “Household expenses”, were declared too vague.

What Impact Could the Director’s Stance Have?

Mr. Cossette’s comments are consistent with the prevailing international sentiment on AML regimes: the focus should be on outcomes (e.g. is crime less profitable because of AML efforts), and less so on technical adherence to standards (e.g. are we collecting and reporting specific enough occupation information about our clients). That theme has prevailed in the questions posed by Senators of witnesses during the parliamentary review of Canada’s AML legislation – which is due to be completed in March 2013. During Mr. Cossette’s questioning, Senators asked how FINTRAC’s effectiveness should be evaluated, and how the outcomes could be enhanced, particularly as only one money laundering conviction in the five years under review could be directly tied to FINTRAC reports. Mr. Cossette pointed to surveys of the RCMP, who found FINTRAC’s disclosures useful in 88% of cases, and pointed to his new focus on outcomes.

Since there are two processes underway to change Canada’s AML Act and regulations, Mr. Cossette’s comments may be well timed to influence the nature and extent of record-keeping, identification, and reporting requirements in this country. Ideally, those drafting the legislation will work from the desired outcomes (a reduction in the profitability of crime, and therefore a reduction in crime itself) backwards to the information they require from financial institutions to achieve those ends. In that scenario, one might expect more rigorous demands and examination standards related to the risk-based approach and intelligence requirements placed on reporting entities, and less prescriptive and detailed information collection requirements. This evolution from prescriptive, to risk-based, and then to principles-based regulation is natural and desirable.

About Gerald Cossette and His Five Point Plan for FINTRAC

Gerald Cossette has logged more than 20 years in senior roles within the Department of Foreign Affairs and International Trade (DFAIT), as well as with the Privy Council and Treasury Board. His most recent assignment as the Assistant Deputy Minister and Prime Minister’s Personal Representative on G-8 was preceded by a three-year tenure as CEO of Passport Canada (where he drove the introduction of a risk-based approach to passport issuance and renewal).

Mr. Cossette’s five point plan for FINTRAC, articulated during his opening comments to the hearing, involves:

  1. deepening relationships with law enforcement partners – the users of FINTRAC’s intelligence;
  2. defining risk factors by sector, and aligning examination and intelligence efforts with them;
  3. convincing Parliament to address the limitations of the current legislation, particularly in respect of the information FINTRAC receives and ways it produces and discloses intelligence;
  4. implementing systems to facilitate intelligence analysis and information sharing among partners; and,
  5. upgrading employee training.

Director’s Prepared Comments
Biography