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Budget Aimed at Eliminating Financial Crime Control Deficits

13/02/2014


Job creation is a clear focus of the 2014 Federal Budget, although it seeks to deprive organized criminals of their vocations. The government proposes to take the profit out of crime by fortifying anti-money laundering measures, and to enhance the transparency of corporate ownership so that criminals (and would-be tax evaders) can’t hide behind layers of veils. To further constrain the efforts of terrorists, the government has also proposed to improve Canada’s economic sanctions program and to implement measures to prevent misuse of charities for terrorist support.

Anti-Money Laundering Rules Fortified
Canada’s anti-money laundering regime has been the subject of many amendments and proposals over the last five years, since the Senate’s critical review of the regime’s effectiveness and in the lead-up to the next peer effectiveness evaluation scheduled for 2015. Those amendments have imposed an additional burden on banks, credit unions, insurance companies and securities dealers of conducting ongoing transaction monitoring and client identification updates, as well as more diligence in obtaining and keeping fresh evidence about the ultimate ownership and control of accounts their clients open. The Budget promises new amendments, likely including those for which consultations were held in December 2011, to align with new international standards, integrate new sanctions standards and coordinate with new corporate transparency measures.

To respond to international pressure and money laundering risks, the Budget also proposes to expand anti-money laundering obligations to virtual currencies and to online casinos. Virtual currencies, such as Bitcoins, have been not been subjected to Canada’s regulations because they haven’t been recognized as a currency (despite being used for that purpose.)

Canada is also looking to commit additional funding to financial intelligence, by bumping the agency’s budget by CAD 2.2 million per year and allocating an additional CAD 22.5 million to implement the legislative changes and improve analytical abilities.

Transparency in Corporate Ownership
Governments around the world are focused on tax compliance and avoidance, through information sharing and transparency in corporate ownership. To that end, Canada has already commenced a consultation on making public the (human) beneficial owners of federal corporations. In addition, Canada has committed to considering the explicit ban on bearer instruments (those shares and debt instruments that are not ascribed to a specific person, but whose ownership and rights are based on possession).

This has significance for entities with responsibilities to anti-money laundering legislation in Canada, since regulations which 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 implement, in part because there are nine overlapping (and sometimes conflicting) lists which must be collected from five different websites and parsed. Additionally, the data quality and formatting is spurious. The government has been examining the issue for years. The Budget commits to the adoption of new administrative measures to improve the effectiveness of the financial sanctions regime, but specific measures (such as a consolidated list or screening tool) are not mentioned.

Charities and Terrorism
Terrorist abuse of charities in Canada is well documented. To mitigate the potential for that abuse, the budget would give the Minister of National Revenue powers to control the charitable status of those that do or would receive support from foreign states known to be supporters of terrorism. Canada Revenue Agency has committed to provide information about best practices to charities (and hopefully to financial institutions as well) for exercising due diligence when accepting gifts and for preventing terrorist abuse of the registration system for charities. Many of these initiatives can be credited to Alaistair Bland, Director of the Terrorist Financing Section of the Charities Directorate of the Canada Revenue Agency. Mr. Bland has been a stalwart advocate internationally for the study and prevention of charity abuse by and for terrorism. 

To read MNP's summary of the 2014 Budget, please click here.