Following the findings of the Federal Court of Appeal in Canada v. Kabul Farms in May, FINTRAC is undertaking an internal review of its AMP calculation policies.

Section 73.11 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (“PC(ML)TFA”) requires that penalty amounts, in each case, must be determined by taking into account: (1) that their purpose is to encourage compliance rather than punish; (2) the harm done by the violation; and, (3) other prescribed criteria. As to the latter, the AMPs regulations made under the PC(ML)TFA prescribe the entity’s compliance history.

In Kabul, the Court was required to review the method the Director had used to assess penalties of $6000 against the regulated entity for its failures: (1) to develop and apply compliance policies; (2) to perform a risk assessment and; (3) to develop a written training program. The Director attempted to justify the AMPs by reference to an unpublished formula he had relied on setting out criteria for determining what base amount to select from within the prescribed range of penalties. For each of the three violations the Director applied a specific percentage to the maximum amount of the range to determine the base amounts: for the failure to develop and apply compliance policies and procedures, 50 per cent of the top of the range; for the failure to perform a risk assessment, 75 per cent of the top of the range, and; the failure to develop a written training program, 25 per cent of the top of the range. These results would be the same in every case, regardless of the need to consider the penalty criteria “in each case”.

The unpublished formula was not before the Court in evidence. Consequently, it had no means to conclude that the Director had followed the formula, and, if it did, that the base amounts were reasonable. Moreover, the Court found that the Director’s reliance on the formula had denied procedural fairness to the entity. It could not be expected to fully and completely respond to the merits of the quantum of the assessed penalties without disclosure of the unpublished formula.

More importantly, the Court found that the Director’s reliance on the formula was inconsistent with s.73.11 in that it required him to follow a rigid formula instead of considering the harm caused in each case.

The review is good news for those regulated under the PC(ML)TFA in that it should result in some moderation in the size of penalties for deserving entities. To this point, Notices of Violation have presented as more a mathematical exercise and less a consideration of what size of penalty is required to encourage compliance while at the same time not straying into punishment. Without any consideration of mitigating factors (such as bona fide attempts at compliance that fall short of due diligence) and aggravating factors (such as no attempts to comply), everyone, good and bad actors, are thrown into the same category. That result certainly does not encourage compliance.