On July 28, FINTRAC, Canada’s anti-money laundering (AML) and anti-terrorism financing (ATF) regulator, published on its website the details of sizeable administrative monetary penalties (AMPs) it has recently levied against two Canadian businesses for violations of Canada’s AML & ATF regulations:

Altaif Inc., a money services business (MSB) in Ottawa, was penalized $42,600 on May 14, 2014, for the following violations:

failure to report electronic funds transfers and incomplete and inadequate electronic funds transfer reports;

incomplete assessment of risks related to money laundering and terrorist financing; and

incomplete and inadequate record keeping; and

failure to update its money services business registration.

Bendix Foreign Exchange Corporation, also operating as Bendix Foreign Exchange, a MSB in Toronto, was penalized $194,300 on April 1, 2014, for the following violations:

failure to report electronic funds transfers and incomplete and inadequate electronic funds transfer reports; and,

failure to report large cash transactions and incomplete and inadequate large cash transaction reports.

Businesses such as banks, credit unions, real estate brokers, insurers, casinos, chartered accountants and MSBs, are strictly regulated by FINTRAC to ensure their compliance with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR). The legislation is onerous, requiring regulated businesses to have written AML & ATF compliance policies and procedures in place, approved by senior management. Businesses are also required to appoint an AML & ATF compliance officer. A written risk assessment must be completed that identifies the AML & ATF compliance risks to the business and sets out reasonable compliance procedures the business has adopted to address those risks. Businesses must also provide ongoing AML & ATF training for employees and undertake a bi-annual independent review of the effectiveness of the firm’s AML & ATF compliance program.

FINTRAC undertakes annual or bi-annual inspections of regulated businesses. Depending on the compliance history of the inspected business, violations identified during inspections may lead to the levying of AMPs that in the aggregate can quickly lead to a substantial five or six figure financial liability.

AMPs, including the name of the penalized business, can and will published on the FINTRAC website if: a very serious violation has been committed; the base penalty amount is $250,000 or more; or, repeat significant non-compliance has been committed.

Publication can be a far greater “liability” for businesses like MSBs that necessarily rely on the banks to facilitate their transactions. Many banks will decline business from penalized businesses out of a concern for their own AML & ATF compliance.

Penalized businesses have the statutory right to require FINTRAC to review assessed penalties towards revocation and/or a reduction in size. The legislation provides for a right of appeal to the Federal Court if the business is dissatisfied with the results of the review. Reviews and formal appeals until completed effectively stay the requirement to pay AMPs and FINTRAC’s authority to publish the AMPs on its website.

Unlike many other regulatory AMP regimes in Canada, the PCMLTFA provides due diligence as a complete defence to alleged violations subjected to AMPs. This underlines the importance of businesses having high quality written policies and procedures, effective and regular employee training and documented, robust internal testing and supervision to ensure written procedures are being followed.