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The Big Questions FINTRAC’s Big Decision Has Raised

11/04/2016


Note: This blog was created by Jennifer Egelnick, Manager, National Anti-Money Laundering Practice.

Well the compliance community was certainly abuzz this week.

If you have not yet seen the news, the CBC published this article.

The long and short of it is that the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) has fined a Canadian bank for the first time in their 15-year history! So what’s the deal?

It has been reported that the $1.1M fine was levied and paid by the offending institution. FINTRAC has stated that the fine was levied against the bank for failing to report:

  • an attempted or actual suspicious transaction;
  • receipt of $10,000 or more in a single transaction;
  • an electronic funds transfer of $10,000 or more to a destination outside Canada;
  • receipt from outside Canada of an electronic funds transfer of $10,000 or more.

In addition, the bank was penalized for failing to apply written compliance policies and procedures that are kept up to date and approved by a senior officer.

A spokesperson for FINTRAC has indicated they are legally unable to disclose the details of the infractions and that they have chosen withhold the identity of the financial institution.

And here is where people start asking questions and the discussion begins.

First, given that other financial institutions in other countries, such as the U.S., pay fines in the billions for AML deficiencies, a million dollar penalty seems like a slap on the wrist. Second, if other reporting entities are subject to naming and shaming in the public notices section of the FINTRAC website after having incurred an administrative monetary penalty (AMP), isn’t it a double standard, if not entirely unfair, to withhold the name of this financial institution? Finally, while FINTRAC won’t release the name of the bank, someone knows which entity it is and it is only a matter of time before the cat is out of the bag.

While we wish we could answer all of these questions, we have no more information than anyone else. However, we can offer some additional questions for consideration.

Really? A Million Dollars?

Two recurring but contradictory themes that keep coming up through articles on this topic are that the move made by FINTRAC is both bold and significant, and that $1.1M is insignificant when discussing “bank money.” While these two sentiments appear to be at odds, there is truth in both.

The final amount of AMPs that are eventually levied against a reporting entity are typically negotiated down from the initial penalty. Having acted as advisors during exams, as well as having been involved in appeals processes, the team at MNP has seen significant reductions from initial penalties. Additionally, banks have lawyers. Lots of lawyers. Accepting responsibility and paying the fine without going through the lengthy appeals process suggests that FINTRAC has caught repeat offenses and that the financial institution does not believe the appeals processes would be beneficial to them. Perhaps the hand being caught in the cookie jar just can’t be argued. This may be a small first step, but it is definitely a first step. Kudos to FINTRAC.

The public appears to be suffering from corruption fatigue, and with good reason. The purpose of the legislation is to detect and deter criminal activity. Money that needs to be laundered comes from crime, and crime has victims. Any attempt to rationalize otherwise is simply naïve.

Who is it?

FINTRAC uses its discretion to publically name entities who have incurred AMPS. There is a table at the bottom of the page which identifies all of the penalties imposed by sector. If one were to do the math and cross-reference the publically named entities with the total amount of fines, the math would simply not work. Not every entity subject to the fine is included in the list. Therefore, FINTRAC’s choice to shield the bank, while frustrating, is not outside of their usual practices.

There seems to be a loud collective voice wanting to know which entity incurred the fine. To illustrate the extent of this curiosity, the Toronto Star posted this article in response to the Globe exposé. The article calls out FINTRAC for shielding the bank from exposure when the regulator publically names and shames other reporting entities. We will see if this indignation ends in the days ahead or if the Canadian public’s feelings towards the bank demands an answer. What we do know so far is that each of the big six Canadian banks has come out publically to say it wasn’t them who has received the fine.

The impact of the naming and shaming should not be underestimated. Small financial service businesses have been put out of business once they have been tarnished with an AMP. It is common knowledge that entities like money service businesses (MSBs) for example, are having a really tough time with their banking relationships in the current climate. Banking with an AMP is virtually impossible. What is the impact to a bank receiving an AMP without being named? Should the Canadian public not have the opportunity to decide if they want to continue giving this institution their hard earned money?

However, if anyone wanted to take the question further, Canadian citizens (with some exceptions) can make a request for most government information under the Privacy Act. These are known as ATIP requests and can be found here. Information which will not be disclosed includes Cabinet documents or information which may damage Canada’s security, provincial relations or international affairs. It does not appear that any of these exceptions apply here.

Don’t be in the situation. Full stop.

Typically, before a fine is levied, a reporting entity will be examined more than once. If you have been the subject of a FINTRAC examination and have received deficiencies, fix them. It’s as simple as that. If you don’t know how to fix the deficiencies, contact us and we’ll help you. The cost of being proactive and embarking on a look back to correct systemic deficiencies is less than the fine and reputational risk of being named. Being fined doesn’t mean you don’t still have to fix your deficiency! If you’ve already been through more than one examination with multiple deficiencies and are scheduled for another, you may wish to contract someone to advocate on your behalf. Finally, if you receive an AMP, there is an appeals process, but it’s imperative that you act quickly. Call a lawyer, call an advisor, but most importantly, fix your compliance program from the foundation!

To learn more, contact Jennifer Egelnick, PMP, Manager, National Anti-Money Laundering Practice, at 647.943.4077 or [email protected], or Greg Draper, MBA, DIFA, FCPA, FCGA, Vice President, Valuation, Forensics and Litigation Support Services, at 403.537.7679 or [email protected], or your local MNP Advisor.