Anti-money laundering watchdog gives failing grades to banks, real estate companies

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An internal report from Canada’s financial crimes watchdog found that most banking and real estate companies it audited last year are not following the country’s anti-money laundering laws, sparking calls for greater oversight and higher fines.

The 2022/2023 report, prepared by the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC), found that only 106 out of 237 financial institutions complied with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

Global News obtained the report under the Access to Information Act. It audited financial services and real-estate companies among other sectors but did not name any individuals or companies.

FinTRAC, which reports to the federal Finance Minister, works to identify and prevent dirty money from entering Canada by analyzing millions of documents submitted by reporting entities like banks, real estate businesses, casinos, and others.

More than 24,000 businesses currently fall under Canada’s anti-money laundering act, according to the agency.

Financial crime and terrorist financing experts warn that the high failure rates across the finance and real estate sectors have profound consequences: Money laundering can lead to corruption or help criminals use illicit cash to fuel other enterprises, such as fraud or firearms trafficking.

“If crime remains profitable, there will be more crime,” said Matt McGuire, a forensic accountant, noting anywhere from $40 and $130 billion a year is laundered through the Canadian economy.

“In the end, our communities are less safe.”

Here are some of the report’s highlights:

  • Of the 18 financial entities it examined, including 11 banks, 78 per cent had incomplete or absent anti-money laundering policies and procedures, such as  screening for potential criminals or sanctioned persons. (There are roughly 80 regulated banks in Canada, according to the Office of the Superintendent of Financial Institutions.)
  • Of the 88 money-service businesses examined, roughly 74, or 84 per cent, of them had incomplete or non-existent processes to detect dirty cash and the majority hadn’t completed proper risk assessment to determine whether the client or business had a link to criminal activity.
  • Of the 71 real estate firms, 61 businesses had incomplete or no anti-money laundering policies and nearly half of the businesses “did not meet client identification requirements.”
  • Of the 38 securities dealers reviewed 33, or 87 per cent, lacked the proper policies and procedures. Securities dealers, which help people buy stocks or investments, remain “susceptible to securities fraud, including investment misrepresentation and other capital market fraud-related misconduct, such as insider trading,” the agency said.
  • A smaller number of audits looked at B.C notaries, casinos, dealers in precious metals/stones, and life insurance companies. They found 12 firms were compliant, while 10 required follow up examinations.

The findings show an urgent need for more examinations across all sectors and a significant increase in fines for businesses that aren’t following the laws, experts said.

For years, alarming evidence has emerged showing billions in ill-gotten cash flowing through Canada’s housing market. A 2019 expert report in British Columbia estimated up to $5.3 billion had been laundered through real estate investments in the province, inflating housing prices by as much as 7.5 percent.

Given the negative attention the sector has received over the years, the failing grades from real-estate firms were the most “maddening,” McGuire said.

“This is a sector that [Canada’s] spent the last five to ten years pummeling,” McGuire added. “These failure rates are shocking.

“We’re just not seeing that increase in compliance that we would expect.”

The financial intelligence watchdog is also dealing with the fallout from a cyberattack last month, which has prevented businesses from sending updated transaction information to the agency.

Following the November 2023 FinTRAC report, the agency signalled a more gloves-off approach to those caught breaking the Canada’s anti-money laundering laws by levying some of the largest fines in its history.

In December, the Canadian Imperial Bank of Commerce was fined $1.3 million and Royal Bank of Canada was hit with a $7.4 million penalty over failing to submit suspicious transaction reports.

CIBC and RBC both said the fines were related to “administrative matters” with the Royal Bank saying, “there is no connection to money laundering or terrorist financing offences.”

FinTRAC told Global News that it’s “actively stepping up its enforcement action,” noting it handed out 12 penalties for violating Canada’s anti-money laundering laws, resulting in an increase of 100% over the past fiscal year 2023/24.

“The total amount of these violations was $26,115,999.50, an increase of more than 2,245% percent in value from last year,” the agency said in a statement.

In the 2022-23 fiscal year, FinTRAC issued six financial penalties, worth a combined $ 1.1 million.

The agency said it has also introduced new compliance measures, including a “Report Card” system, which allows businesses to correct errors related to anti-money laundering compliance as they occur.

Jessica Davis, president of Insight Threat Intelligence, said the fines currently being handed out are a “rounding error” for some of Canada’s largest banks.

“To really make [businesses] take these issues seriously, fines have to be in the tens of millions of dollars,” Davis said. “If they’re not, they really have no incentive to have a robust compliance regime.”

Davis said the results were especially concerning for Canada, which has an upcoming evaluation by the Financial Action Task Force, a global money laundering and terrorist financing watchdog group based in Paris.

“Money laundering and terrorist financing have real costs for us,” Davis said.  “They enable organized crime and terrorism.”

The FATF also periodically issues a report card-style evaluation, indicating  whether a country is compliant or non-compliant with measures to combat money laundering and terrorist financing. Countries that receive poor compliance ratings can end up on the “black or grey lists,” which can lead to economic actions from member countries.

Canada’s next evaluation could come as early as December 2025, according to FATF.

Davis said while Canada is far from being grey or blacklisted, companies that don’t follow Canada’s anti-money laundering laws make themselves “vulnerable to being exploited by criminals and terrorists.”

“In the very worst-case scenarios, they are actually helping them,” she said.

This article was originally sourced from