Anti-Money Laundering: The Federal Court Releases its First Decisions on Appeals From Administrative Monetary Penalties (AMPs)
FINTRAC started imposing AMPs in 2009, but it has taken until 2014 for the first appeals from the decisions of the FINTRAC Director reviewing AMPs to be heard and decided by the Federal Court. The first two appeal decisions provide substantial insight into how the Court may hear and treat appeals going forward.
In Max Realty Solutions, the appellant realtor appealed to the Court from $27,000 in AMPs imposed against it in 2009 for four violations contrary to s.9.6 of the PC(ML)TFA and s. 71 PC(ML)TFR. It was heard together with a second appeal, HomeLife/Experience Realty, wherein the appellant was alleged to have committed the same violations and had also been assessed in 2009 AMPs totalling $27,000. In both appeals the merits of the violations were upheld by the Court. But the matters were sent back to FINTRAC for a redetermination of the quantum of the AMPs imposed on the basis that there was nothing before the Court explaining how the total AMPS had been determined permitting it to review them to determine their reasonableness.
In both proceedings, the Court described the appeal process as a form of judicial review, limiting its role. Instead of reviewing the decision for correctness, the Court found that its function was limited to reviewing it for “reasonableness” or determining whether the decision falls within a range of possible, acceptable outcomes that are defensible in respect of the facts and law. As long as the process and the outcome fit comfortably with the principles of justification, transparency and intelligibility, the Director is entitled to deference and it is not open to the appeal Court to substitute its own view of a preferable outcome. In similar appeals under other other statutes, this limitation usually applies to questions related to (1) the interpretation of the tribunal’s enabling or “home” statute or statutes closely connected to its function, with which it will have particular familiarity; (2) issues of fact, discretion or policy; or (3) a question of mixed law and fact.
Over the past 5 years FINTRAC has become much better in setting out how it assesses AMPs. Consequently returning the decisions to FINTRAC for a redetermination of the quantum of the AMPs is probably not all that significant for future appeals.
However, restricting the function of the appeal Court to a form of judicial review is troubling. Penalties are not fines following a conviction, but they are reasonably close to it in that they follow only after FINTRAC has established a violation occurred and the regulated entity cannot establish due diligence or an exculpating excuse or justification.
In a prosecution, the defendant has the right to a trial by a justice independent of the Crown and law enforcement agency. In these decisions the Court is deferring to the expertise of the FINTRAC director who is joined at the hip with the FINTRAC officers who audit and penalize violators. That is particularly troubling when one looks at how the Director may assess due diligence. In compliance matters, the standard of care that the regulated must meet is in large part a function of what the industry as a whole is doing to remain compliant. Substituting its own conclusions as to what should be in a compliance program, as opposed to what is reasonable, measured by the accepted industry standard of care, puts FINTRAC in the position of being the arbiter of what is reasonable in the audit, review and appeal process. That is an unwelcome scenario because in law and practice due diligence does not demand perfection. An opinion as to what should be in a compliance policy may be completely correct on its face, but it may not reflect the practical circumstances at work in everyday business operations. The result may be theelevation of the standard of care to a point unattainable by many businesses, limiting the availability of the defence of due diligence contrary to Parliament’s intentions.
These are just the first two appeal decisions. They are not binding on other members of the Federal Court but certainly have persuasive importance and may very well be followed in future appeals. That underscores the importance of information sharing on acceptable standards of care. According to Matt McGuire, National Anti-Money Laundering Practice Leader of MNP LLP, “FINTRAC examinations are one of the principal reasons that anti-money laundering compliance practices have matured in reporting entities of all sizes and across most sectors.” He suggests that “greater information sharing and intelligent co-ordination among reporting entities – particularly within industry sectors will lead to more compliance programs that will meet FINTRAC’s standards.”