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General climate and recent developments
State of legal development
In general terms, how developed are the laws on money laundering, terrorism financing and fraud in your jurisdiction?
Canada’s money laundering, terrorism financing and fraud laws are highly developed. There are long standing prohibitions against money laundering and fraud in the Criminal Code of Canada, with a large body of jurisprudence interpreting their scope. Since 9/11, Canada has been aggressive in developing its anti-terrorism laws, including anti-terrorist financing laws. The anti-money laundering and terrorism financing provisions are supported by a robust record-keeping and reporting regime, administered by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).
Have there been any notable recent developments in relation to anti-money laundering, terrorism financing or fraud law and enforcement, including any regulatory changes, case law and convictions?
There have been recent changes to Canada’s anti-money laundering regime under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). This legislation designates certain entities as ‘reporting entities’ and obliges them to have in place a compliance regime which meets stipulated requirements, including certain ‘know your client’ (KYC) obligations, record keeping, reporting, risk assessment and risk mitigation programmes.
At present, reporting entities include accountants, departments or agents of Canadian federal or provincial governments, notaries in the province of British Columbia, casinos, dealers in precious metals and stones, financial entities (eg, banks, credit unions, trust companies), life insurance companies and brokers, certain money services businesses, certain participants in the real estate sector and securities dealers.
While long-known and available for use since June 2016, changes to KYC requirements in Canada became mandatory for use in January 2018. The new KYC regime is generally more flexible than Canada’s past approach. It allows for use of a broader range of reliable and independent sources of documents and information to verify identity through the ‘credit file’ and the ‘dual process’ methods. The credit file method allows identity verification by accessing a Canadian credit bureau identification product in order to confirm the name, address and date of birth given by a client (the credit file must have been in existence for at least three years). The dual process method allows two original, valid and up-to-date documents or information from two independent and reliable sources to be used to verify name, address and date of birth. The information or documents from each source must each confirm a different combination of two of these attributes.
In February 2018 the Canadian Department of Finance issued a consultation paper with respect to a review of the PCMLTFA. A number of issues have been raised that may result in changes, including:
- expanding the list of entities that must determine whether clients are politically exposed persons or heads of international organisation;
- facilitating information sharing between financial services institutions to identify and prevent fraud, money laundering and terrorist financing;
- further modernising client identification methods;
- developing a ‘sandbox’ that can facilitate exemptions for start-ups where anti-money laundering requirements may unduly inhibit the development of new business;
- implementing a more defined ‘name and shame’ regime to identify those subject to administrative monetary penalties; and
- expanding the list of reporting entities to cover more high-risk industries (eg, white label ATMs, certain forms of gambling, non-federally regulated mortgage lenders and the financing and leasing sector).
While Canada has for many years had legislation to make dealers in virtual currency and foreign money service businesses that do business in Canada reporting entities, those provisions will not come into force until regulations defining their implementation are in effect. Regulations defining the obligations of these entities are expected to be released in 2018 so that those entities will be captured by the PCMLTFA as reporting entities, likely after some delay period to allow for implementation of the new requirements by industry participants.
Legal and enforcement framework
What primary and secondary legislation applies to money laundering, terrorism financing and fraud in your jurisdiction?
The Criminal Code of Canada contains statutory prohibitions against money laundering, terrorist financing and fraud. The Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) creates record-keeping and reporting obligations for entities carrying on business in certain sectors, including accountants, departments or agents of Canadian federal or provincial governments, notaries in the province of British Columbia, casinos, dealers in precious metals and stones, financial entities (eg, banks, credit unions and trust companies), life insurance companies and brokers, certain money services businesses, certain participants in the real estate sector and securities dealers. Quebec also has legislation that regulates money services businesses through the Autorité des marchés financiers. That legislation imposes many obligations similar to those under the PCMLTFA, including licensing requirements for money services businesses operating in Quebec, among others. In addition, various Canadian provinces have civil forfeiture legislation which allows the state to freeze, take possession of and require the property owner to forfeit property that is found to be a proceed or instrument of unlawful activity.
To whom does the legislation apply? May both individuals and organisations be held liable under the legislation? Does the legislation have extraterritorial effect?
The Criminal Code prohibitions apply to both individuals and organisations. The legislation has an extraterritorial effect in two ways. First, notwithstanding that Section 6(2) of the Criminal Code provides that “no person shall be convicted… of an offence committed outside Canada” unless a specific provision provides otherwise, “outside Canada” was judicially interpreted in the leading Supreme Court of Canada case R v Libman as lacking a “real and substantial” connection to Canada. In other words, an offence committed outside the territory of Canada could be prosecuted in Canada if there remained some “real and substantial” link to Canada. Second, both the anti-money laundering (AML) and terrorism financing provisions in the Criminal Code contain specific language to give them extraterritorial effect. The AML provision prohibits dealing in property that was acquired as a result of the commission abroad of an act that would be a criminal offence in Canada. A terrorism financing offence is deemed to be committed in Canada where there is a nexus between the underlying terrorist act and Canada, either through the perpetrator or the victim, or if the person who commits the terrorist financing offence is linked to Canada.
Penalties under the PCMLTFA apply generally to reporting entities. Certain individuals may also be subject to prosecution for violations of the PCMLTFA – including where they knowingly contravene that legislation – and officers, directors or agents of reporting entities who direct, authorise, assent, acquiesce or participate in breaches of the PCMLTFA.
Is your jurisdiction a party to any international cooperation agreements to combat money laundering, terrorism financing and fraud?
Canadian AML policy and the legislative framework, as well as domestic and international coordination, is led by the Department of Finance Canada. Canada is a founding member of the Financial Action Task Force (FATF), actively participates in its deliberations and is subject to FATF review for its AML and anti-terrorist financing regime. Canada is also a sponsoring member of the Caribbean Financial Action Task Force on Money Laundering (CFATF), a member of the Asia-Pacific Group on Money Laundering and a member of the Egmont Group, which is an informal network of financial intelligence units that collect information on suspicious or unusual financial activity to detect and deter money laundering and terrorist financing. Canada also participates in AML and anti-terrorism efforts through its participation in the United Nations, G7/G20 and the Counter-ISIL Finance Group. Canada implements all relevant United Nations Security Council Resolutions to freeze assets of persons and entities engaged in terrorism, generally through regulations under the United Nations Act. Canada has mutual legal assistance treaties in place with a number of countries to facilitate and coordinate the investigation of crimes, including money laundering, terrorist financing, tax evasion and fraud.
Which government authorities enforce the law on anti-money laundering, terrorism financing and fraud, and what is the extent of their powers?
Municipal and provincial police forces, as well as the Royal Canadian Mounted Police (RCMP), all have concurrent jurisdiction to enforce the Criminal Code prohibitions. The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) has the authority to impose administrative penalties on regulated entities for non-compliance and will refer cases where there is extensive non-compliance to a municipal or provincial police force, or the RCMP. The Autorité des marches financiers in Quebec also has relevant regulatory authority over money services businesses in the province.
Statute of limitations
What is the limitation period for bringing actions in relation to money laundering, terrorism financing and fraud offences?
There is no limitation period for offences under the Criminal Code. Under the PCMLTFA, certain violations are subject to a five-year limitation period. Administrative monetary penalties and remedies under the PCMLTFA are subject to a limitation period of two years from the time that FINTRAC – the primary regulator under the PCMLTFA – becomes aware of the basis for the proceedings.
How are ‘money laundering’, ‘terrorism financing’ and ‘fraud’ legally defined in your jurisdiction?
‘Money laundering’ is defined as dealing in property with the intention to conceal or convert it to another form of property, in the knowledge or belief that the property is the proceeds of crime.
‘Terrorist financing’ is defined as providing or collecting property with the intent or knowledge that it will be used for a terrorist activity.
‘Fraud’ is defined as the commission of a dishonest act that causes a deprivation to another.
Principal and secondary offences
What are the principal and secondary offences in relation to money laundering, terrorism financing and fraud?
The principal money laundering offence is set out in Section 462.31 of the Criminal Code, which makes it an offence to launder proceeds of crime. Part II.2 of the Criminal Code contains two separate terrorism financing offences: a collection or provision of property offence (Sections 83.02 and 83.03) and a use or possession of property offence (Section 83.04). There are numerous secondary offences relating to money laundering and terrorism financing contained in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), including knowing violations of core requirements of the PCMLTFA (Sections 74 to 77); knowingly providing false or misleading information or making false statements to the Financial Transactions and Reports Analysis Centre of Canada (Section 77.1); prosecution of officers, directors or agents who direct, authorise, assent to or acquiesce or participate in breaches of the PCMLTFA (Section 78).
The general fraud offence is contained in Section 380(1) of the Criminal Code, which makes it an offence to defraud someone by “deceit, falsehood or other fraudulent means” of any “money, property or valuable security or any service”. Section 380(2) contains a separate offence of fraud affecting a public market price of “stocks, shares, merchandise or anything that is offered for sale to the public”. There are numerous other fraud-related offences in the Criminal Code which are specific to certain kinds of transactions or contexts, including mail fraud (Section 381), market manipulation (Section 382) and insider trading (Section 382.1), fraudulent disposal of goods on which money is advanced (Section 389), disposal of property to defraud creditors (Section 392), frauds in relation to valuable minerals (Section 394) and falsification of books and documents (Section 397).
How are predicate offences defined?
The proceeds of crime must relate to a “designated offence”, which is any offence that may be prosecuted as an “indictable offence” under the Criminal Code or any other federal penal statute. An indictable offence is roughly equivalent to a felony in the United States and generally involves a right to trial by judge and jury.
Certain offences involving aircraft and ships are deemed to be a “terrorist activity”, which is also generally defined in Section 83.01 of the Criminal Code as:
- an act for a political, religious or ideological purpose that is intended to intimidate the public or compel a person, government, domestic or international organisation to do or refrain from doing something; and
- that intentionally causes death or serious bodily harm, endangers life, causes a serious risk to the health or safety of the public or any segment of the public, causes substantial property damage likely to result in death, bodily harm or a risk to public safety or which causes a serious interference with or a serious disruption of an essential service, facility or system.
De minimis rules
What de minimis rules apply to money laundering, terrorism financing and fraud offences?
The common law principle de minimis non curat lex has been successfully raised as a defence generally for criminal charges before some Canadian trial courts, but its application has not been firmly endorsed by Canadian appellate courts and its availability remains uncertain.
Penalties and plea agreements
What penalties may be issued for money laundering, terrorism financing and fraud offences?
Money laundering and terrorism financing are both punishable by up to 10 years’ imprisonment. The general fraud offence is punishable by up to 14 years’ imprisonment, although some specific fraud-related offences have lesser punishments.
Breaches of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) can result in either administrative monetary penalties or criminal prosecution. Administrative penalties may be as high as C$500,000 if the breach is deemed to be a very serious violation of the legislation. Criminal penalties under the PCMLTFA include fines (of up to C$2,000,000) and imprisonment (of up to five years) and vary depending on the offence. Violations of Canadian economic sanctions laws are also punishable by fines or imprisonment.
Are plea agreements available? If so, how often are they used and what rules, standards and procedures apply?
Plea agreements can be entered into at the prosecutor’s discretion. Apart from ensuring that plea agreements are informed and entered into voluntarily, judges have no role in approving plea agreements. In addition, judges have very little discretion to depart from a sentence jointly recommended by the prosecution and the defendant. Entering into a plea agreement is a mitigating factor for the purpose of sentencing. For violations of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, non-compliance may also be addressed in some cases by entering into a compliance agreement with the Financial Transactions and Reports Analysis Centre of Canada.
What defences are available in your jurisdiction to parties accused of money laundering, terrorism financing or fraud?
One possible defence is that the defendant committed the offence under a mistake of fact (which negates intent). Proceedings under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act are generally subject to a due diligence defence.
Record keeping, disclosure and compliance
Record-keeping and disclosure requirements
What record-keeping and disclosure requirements apply to companies and relevant individuals under the anti-money laundering, terrorism financing and fraud legislation?
Reporting entities under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) must keep certain records relating to their compliance regime. The specific record-keeping requirements vary for each reporting entity. In general, they include:
- requirements to keep records relating to know your client verification;
- the clients’ intentions with respect to the purpose of entering into a business relationship with the reporting entity;
- the intended use of accounts that a client has with a reporting entity;
- efforts to undertake ongoing monitoring to identify suspicious transactions;
- beneficial ownership, control details and business structures for clients that are entities;
- records of efforts and details of third parties for whom transactions are undertaken;
- determinations of politically exposed persons or heads of international organisations;
- related risk assessments and decisions to do business with such persons;
- a documented risk assessment of the business assessing money laundering and terrorist financing exposure;
- steps taken to mitigate identified risks relating to foreign branches or subsidiaries or correspondent banking relationships;
- reports filed with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), the primary anti-money laundering regulator in Canada; and
- information relating to account openings, relevant terms and conditions and certain transactions and – where the PCMLTFA requires that “reasonable efforts” be undertaken to obtain or verify certain information – records of the efforts taken, when they were taken and, if unsuccessful, why.
Reporting entities under the PCMLTFA must generally file with FINTRAC:
- suspicious transaction reports where there are reasonable grounds to suspect a transaction or attempted transaction of any value is related to money laundering or terrorist financing;
- large cash transaction reports for transactions of C$10,000 or more in cash in a single transaction or multiple transactions within a 24-hour period.
Terrorist property holdings must be reported to FINTRAC, and generally to the Royal Canadian Mounted Police (RCMP) or the Canadian Security Intelligence Service (CSIS). This requirement applies regardless of the value of the property.
International electronic funds transfers of C$10,000 or more must be reported to FINTRAC and to the Canada Revenue Agency when conducted in a single transaction or multiple transactions within a 24-hour period. Casino disbursements of C$10,000 or more in a single transaction or multiple transactions within a 24-hour period must also be reported to FINTRAC.
The Canadian economic sanctions regime also requires certain businesses to monitor for property held by or on behalf of designated persons within their possession or control and report that property to the CSIS or the RCMP – and, in some cases, the primary regulator for their business.
What internal compliance measures are required and/or advised for companies in relation to the anti-money laundering, terrorism financing and fraud legislation?
It is prudent for any party engaged in material international business to have a policy to comply with Canadian economic sanctions to ensure they are not dealing in property of designated persons with whom they are prohibited to deal. Certain businesses are required by law to monitor for such transactions. This obligation typically applies to banks, cooperative credit societies, credit unions and caisses populaires, certain insurance businesses, fraternal benefit societies, trust and loan companies regulated by Canadian law, participants in the securities sector and money services businesses.
Reporting entities under the PCMLTFA must also:
- appoint a compliance officer responsible for their compliance programme;
- develop, apply and keep up to date written compliance policies and procedures, including enhanced measures to mitigate high-risk business;
- conduct and document a money laundering and terrorist financing risk assessment of their business activities and relationships;
- develop and maintain a written ongoing compliance training programme for employees, agents and others authorised to act on their behalf; and
- complete an effectiveness review of their compliance programme no less than every two years.
Money service businesses must also register with FINTRAC and comply with requirements of similar applicable laws in the province of Quebec if they carry on business in that province.
What customer and business partner due diligence is required and/or advised for companies in relation to the anti-money laundering, terrorism financing and fraud legislation?
Sanctions screening of business partners and assessment of money laundering or terrorist financing risk is prudent risk management practice for all businesses. However, only certain stipulated entities have strict obligations to implement an anti-money laundering, anti-terrorist financing or sanctions screening and compliance regime. Outside these businesses, such policies are valuable to ensure compliance with anti-money laundering, terrorism financing and fraud legislation of general application. Whistleblower programmes are prudent and facts that are identified or reported through these should be investigated and addressed. Ignoring signs of criminal activity may establish ‘recklessness’, which can be sufficient to support findings of knowledge or intent to commit criminal acts.
Can private actions be brought in your jurisdiction for damages arising from money laundering, terrorism financing or fraud? If so, who may file such actions and what filing procedures apply?
Neither the Criminal Code nor the Proceeds of Crime (Money Laundering) and Terrorist Financing Act provide for private actions. A private action can be brought by a victim of terrorism against a foreign state deemed to be a sponsor of terrorism, a listed terrorist entity or any organisation or individual alleged to have committed a terrorism offence under Part II.1 of the Criminal Code (including terrorism financing) pursuant to the Justice for Victims of Terrorism Act. In the absence of a statutory provision authorising a civil action expressly, breaches of Canadian statutes alone generally cannot be relied on to support a civil action for damages. However, statutes can be relied on to help to define or establish appropriate standards of care.
Criminal conduct can be pursued where the conduct breaches contracts between parties, or in negligence or as intentional torts. In the case of fraud, claims for damages can be pursued for losses suffered, including the actual fraud loss, investigation costs and, in some circumstances, opportunity costs for loss of use of funds. Funds obtained through fraud are also generally subject to rights of tracing in Canadian law, to search for and recover the proceeds of the fraud and assets traceable to them. Civil claims for fraud are not based in breach of statute but are pursued under general legal or equitable principles.
Claims against fraudsters may include claims for losses arising from fraudulent representations, unjust enrichment, to recover money had and received without justification, and courts will often declare that the funds were received and held by the fraudster pursuant to a constructive trust for the victim’s benefit. Third parties who did not commit but facilitated the fraud may be exposed to claims as well (eg, for knowingly assisting in breaches of trust or knowingly receiving funds in breach of trust). The standard of knowledge for assisting in a breach of trust is generally actual knowledge or recklessness. Where a third party receives funds, ‘knowledge’ has a lower threshold; this could include the negligence standard, where the recipient of funds “ought to have known” the funds were received in breach of trust.
There are many tools available under Canadian law to facilitate the recovery of fraud losses, including injunctions freezing assets (Mareva injunctions) and injunctions, obtained without advance notice, requiring that the alleged fraudster allow access to their home or business premises so that representatives of the victim can search them, identify relevant evidence and seize and secure that evidence in order to prove their claim (Anton Piller orders).
How are damages calculated?
Under the Justice for Victims of Terrorism Act, a victim may recover an amount equal to the loss alleged to have been suffered plus any additional amount that a court may allow.
What other remedies may be awarded to successful claimants?
The only remedy available under the Justice for Victims of Terrorism Act is monetary damages.