Pardon me, but is that clean or dirty money?
A key question once Canada’s new legislation comes into effect.
The deal is almost closed, so far everything has gone as planned and this will be a great account to add to your list. All you need to do is take receipt of the funds and invest as planned with your client. Your new client provides funds with two cheques from different third parties, unusual but once the funds clear, you are ready to move ahead. One month later after payment of penalties for early redemption, this client has cashed out and your organization has provided a cheque. A clean cheque. What are the chances that your organization was used to launder funds?
In Canada today the chances are pretty good, still the only member country of the international task force organized to combat money laundering without mandatory transaction reporting legislation, estimates of money laundering occurring within our borders tell us that it may be as high as $40 billion per year.
On December 15, 1999 the Department of Finance re-introduced into the House of Commons the new Proceeds of Crime (Money Laundering) Act as Bill C-22 (formerly Bill C-81). Designed to facilitate combating the laundering of proceeds of crime it will establish Canada’s mandatory suspicious transaction reporting system and the Financial Transactions and Reports Analysis Centre of Canada (the Centre), a new federal agency which will be responsible for managing the whole process. Once it becomes law it will replace the existing Act and be known by the same name.
This legislation will apply to all: banks, credit unions, life insurance companies, trust and loan companies, persons engaged in the business of dealing with securities, persons engaged in a business, profession (including accountants and lawyers), casinos, foreign exchange dealers, cheque cashers, money order vendors and transmitters across Canada and more.
Transactions where reasonable grounds exist to suspect a money laundering offence, certain transactions prescribed by industry and all cross border ones above a set amount will have to be reported to the new Centre. The idea is to create a central repository of intelligence on money laundering. Law enforcement resources can then be directed effectively and Canada can start to shut our open doors to the money launderers of the world.
Transactions Suspicious of Money Laundering:
All forms of transacting will be covered and organizations are going to have to pay attention to far more than just large amounts of cash. Impacted industries will have to now review transactions involving wire transfers, cheques of all forms, credit cards, money orders and the list goes on. It is not likely that the government will create a list of all suspicious transactions, organizations will have to make determinations themselves as to whether a transaction is suspicious and should be reported.
The government will require that all transactions clearly indicative of money laundering be reported. These will include transactions involving cash over $10,000; wire transfers over $10,000 (for some industries), the use of third party cheques (in the insurance industry) and safe betting situations at casinos. In addition, any series of transactions which accumulate to $10,000 or more in cash within a one day period on behalf of the same individual will have to be reported as well as transactions involving five or more $1,000 dollar bills.
Cross Border Currency Controls:
A threshold of $15,000 Canadian is proposed as the level at which all currency and monetary instruments crossing Canada’s borders must be reported. Monetary instruments will include traveller’s cheques, money orders, personal and cashier cheques and securities.
The reporting itself is expected to be brief and modelled on reports used by the Customs services of other countries. All persons moving funds across Canada’s international borders will have to report through this process. There are no planned exemptions at this time and the proposed penalties include on the spot fines for not reporting (even when no suspicion of money laundering exists!).
The existing Act requires a record retention period of 5 years and this will likely be maintained. Of note is that the new legislation will require records to be readily accessible (e.g. retrievable within 10 working days). This is a fairly short time frame and may force organizations to review their record retention and storage procedures.
Working in the Area of Security and Investigation:
This legislation is really all about knowing the individuals and organizations you are doing business with. Who are they and what is their background? What is the nature of their business? Do I understand the purpose of the transaction we are involved in together? If not, why not? If things are not happening as expected, questions should be asked and satisfactory answers obtained. Professionals working in the area of security and investigation can play a role to assist organizations with this due diligence. Many times expertise is brought in after the fact, or at the tail end, to conduct a review or an investigation into irregularities. This new legislation creates the opportunity for organizations to use the microscope very proactively. Working through the types of questions I have hinted at and having basic background and security checks completed – before transacting – will save the organization ten fold by avoiding regulatory and law enforcement issues down the line. Regardless of how organizations choose to transact in what will become a mandatory reporting regime within Canada, those impacted by the new legislation will have to assess the effect on their operations and put in place a due diligence compliance programme.
Jennifer Fiddian-Green is with the Forensic and Litigation Support Group of the Toronto office of Grant Thornton LLP