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Anti-Money Laundering 101: Mastering the Fundamentals


While the legislation around Anti-Money Laundering (AML) compliance has been in place for more than a decade, many businesses affected by the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) are still struggling to understand what the legislation and their regulators expect of them. Proposed changes to the legislation are further complicating that struggle.

Matthew McGuire, MNP National AML Compliance Leader, says that many operators are still caught off guard by deficiency letters issued by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) post-examination. “ FINTRAC spent the better part of the last 10 years working collaboratively with reporting entities without overt threats of sanctions for non-compliance. The new focus on monetary penalties has led to an adversarial environment, leaving reporting entities with less dialogue and clarity about FINTRAC’s expectations,” he says.

Reporting entities that wait until they receive their notice of examination to align their compliance programs with legislative requirements and regulator expectations may be too late to protect themselves from harm.

The true cost of non-compliance

“When you’re not meeting your regulator’s expectations, there is obviously a financial risk,” explains McGuire. “But you also risk your reputation. FINTRAC penalties can be made public and the implications of that are pretty severe. If you can’t get AML right, people are left to draw inferences about the other controls you may be letting slip.” FINTRAC penalties are hefty. Every time a business fails to appropriately identify a customer, they are facing a potential penalty of $1,000. Faults in a training program, risk assessment, or policies and procedures can each lead to a potential penalty of $100,000.

Six figure penalties for AML compliance deficiencies are becoming more and more common. Unfortunately for errant businesses, the financial toll doesn’t stop there. “In the U.S., where penalties have been monstrous—in the hundreds of millions of dollars—they’ve done studies that show the cost of remediation is usually triple the amount of the penalty, not to mention the huge cost of distracted organizational focus,” says McGuire. “OSFI also has the ability to order a cessation of operations, and remediation of reporting, which means the company is forced to look back at two years of reports that may have been misfiled and reconcile them, as well. FINTRAC can have that same influence through its action plan program, and is in line to receive formal powers through current regulatory proposals.”

The implications of non-compliance are even riskier for companies that operate internationally. As of 2008, FINTRAC has been allowed to enter compliance sharing agreements with financial intelligence units in other countries. That means that after a FINTRAC penalty is issued, the information could be sent on to U.S. regulators to deal with, possibly resulting in more penalties. American companies may also be wary to do business with your operation if they see you as increasing their potential risk.

In addition to fines, companies and their directors face the very real risk of criminal charges for non-compliance. FINTRAC may choose to refer a business to prosecution if they consider the negligence particularly egregious, and have done so more than 30 times since they were given that power. The people at risk for criminal fines and jail time are the directors and officers of the business.

The importance of an independent advisor who knows the regulator’s expectations

One way that operations, even with internal compliance officers, can manage their risk, is by using independent advisors to conduct AML compliance effectiveness reviews.

“At MNP, we have former regulators on staff, we have expert accountants and compliance specialists, and we deal with FINTRAC examinations every day in countless industries. So we know exactly what they’re looking for and what the greatest areas of risk are. As we conduct our evaluation, we don’t just look for the most nebulous requirements. We can target those things we know the regulators are looking for,” says McGuire. For those that have found themselves unprepared when they receive a FINTRAC examination notice, MNP has developed an urgent regulatory response approach. Our AML specialists work together with our network of specialized legal counsel to isolate significant risk issues and to minimize the potential harm from regulatory action. Kenny recommends that any compliance officer look into the specific requirements of their financial service providers before embarking on a relationship with an independent advisor. “MNP is one of only four preferred service providers for RBC. The bank wants large auditing companies that have insurance and established reputations. Unfortunately, if an evaluation is done by a provider who your bank or other lender doesn’t recognize, you will not only have to absorb that cost but the additional cost of a second review.”

Ensuring your business is AML compliant is about more than protecting yourself against penalties and reputational damage. It is about protecting the future of the business—and your bottom line.

MNP Anti-Money Laundering Consulting

MNP’s Investigative & Forensic services professionals can help you go beyond compliance by developing and implementing a program that is customized to the unique needs of your operation in order to mitigate risk and deter illegal activity. If your business has a compliance program in place, we can assess the effectiveness of your current program and your rights under FINTRAC regulations. We also have significant expertise in money laundering investigation and risk management.

To find out how MNP can help your AML program, contact Matthew McGuire, CA, CAMS, National AML Compliance Leader at 1.877.251.2922 or Iain Kenny, CAMS, CFE, CISSP, CCE, AML Compliance Leader for Western Canada at 1.877.500.0792