Notes for remarks by Jeanne M. Flemming, Director, Financial Transactions and Reports Analysis Centre of Canada, to the OSFI Conference

INTRODUCTION

Toronto
April 27, 2010

Thank you for that introduction.

I would also like to thank Nick Burbidge of the Office of the Superintendant of Financial Institutions for inviting me to speak today.

This morning, I will focus on the future; to do that let me begin with the past to capture some of the arc, or trajectory that we are on. I will describe the factors that I believe are going to shape our collective efforts to strengthen Canada's anti-money laundering and anti-terrorist financing regime.

It has been ten years since Canada adopted the proceeds of crime legislation that created FINTRAC and established Canada's anti-money laundering, anti-terrorist financing regime that exists today. In those ten years, there have been amendments and changes to the original framework legislation. The addition of measures to deal with terrorist activity financing, in 2001, was one notable change. In many instances, the changes have been part of Canada's efforts to move in-step with international standards to deal with money laundering, terrorist activity financing and the global movement of illicit funds.

I want to tell you that the months ahead will bring further adjustments and amendments to the existing legislative framework that governs this regime. These incremental changes will not alter the course of this initiative but rather will strengthen it. Our collective purpose remains. We will ensure that Canada's financial system is hostile to those that would seek to launder money, move illicit funds, or otherwise abuse it.

As FINTRAC and the legislation reach a tenth anniversary, there is an expectation that those businesses that have been subject to the law for almost a decade should have well developed compliance programs. The policies, procedures and training programs should be in place, the quality of the reports should be high, with good data being sent to FINTRAC. There is an expectation of greater maturity and development in what a compliance regime should look like.

On FINTRAC's side of the ledger, we will be moving from outreach and awareness building to more enforcement action.

We have issued 15 administrative monetary penalties and publicly named seven of the recipients since December 2008, when we gained the power to issue such penalties and to publicize names. We will publish more once the individual review and appeal processes are complete.

I would like to call your attention to three anti-money laundering / anti-terrorist financing measures which were announced by the Minister of Finance in the recent federal Budget.

Relevant legislative amendments to implement Budget 2010 measures are included in the first Budget implementation Act, Bill C-9 – Jobs & Economic Growth Act, which was introduced on March 29th and is currently before the House of Commons.

Each of these three Budget measures will have some bearing on the administration of the Proceeds of Crime Money Laundering and Terrorist Financing Act and the work that we undertake together. I will outline these measures in broad strokes with the caveat that they have yet to become law.

When he announced the Royal Assent of Bill C-25, in late 2008, Finance Minister Flaherty indicated that "the government will be relentless in its efforts to combat money laundering and terrorist financing and that it will do what must be done to protect the interests of Canadians and ensure a safe and strong market for investors here and around the world."

An expression of that commitment came in the 2010 Federal Budget. FINTRAC's operating budget was increased by eight million dollars to improve our compliance function and expand FINTRAC's work to include cases of tax evasion.

These are the first two changes to which I would like to call your attention. The first is the budget increase. These new resources will mean FINTRAC will be able to increase the amount of compliance enforcement that we are able to conduct. It will allow us a greater ability to ensure compliance with the law and give us a greater presence in all sectors. For example, FINTRAC will be conducting enhanced compliance activities involving federally regulated financial institutions (FRFIs) which will be independent of the OSFI reviews. We intend to increase the examination coverage of this sector with a focus on the data quality of the reports. Chantal Jalbert, Assistant Director of Regional Operations and Compliance at FINTRAC will be providing more details during her presentation later this morning.

Last year, FINTRAC increased its examination coverage rate by more than 50%. This was partly in response to feedback FINTRAC received in Canada's Mutual Evaluation by the FATF, but more importantly it is a reflection of FINTRAC's maturation with respect to compliance. As we continue to focus on improving the quantity and quality of reporting, FINTRAC will continue to explore ways to increase its coverage rate with respect to enforcing Canada's AML/ATF legislation.

The second notable measure put forward in the 2010 Budget would amend regulations under the Criminal Code, in order to make tax evasion a predicate offence for money laundering. This will enable FINTRAC to provide financial intelligence to police in cases where money laundering is suspected in relation to tax evasion. It will increase FINTRAC'S disclosures of information to the Canada Revenue Agency.

The third Budget measure is included under Part 14 of Bill C-9, which is now at the second reading stage in the House of Commons.

This contains several amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. The amendments are intended to safeguard the Canadian financial system from threats posed by jurisdictions and foreign entities to have inadequate or insufficient controls to combat money laundering and terrorist activity financing. The proposed change would also increase Canada's compliance with international standards, and help us to keep pace with similar measures undertaken by Canada's G7 and G20 partners.

The proposed amendments in Bill C-9 would give new authorities to the Minister of Finance to issue directives, directives to advise the financial sector of foreign jurisdictions and entities that pose a money laundering or terrorist financing risk, and to require appropriate countermeasures. Under the proposed new authorities, the Government could also limit or prohibit financial transactions with designated foreign jurisdictions or entities of concern. This would address vulnerabilities in the international system when it comes to countries and foreign entities that are at high risk of facilitating money laundering and terrorist financing. What is proposed will provide legally enforceable measures to protect the Canadian financial system from threats emanating from outside Canada. These new powers and how they will be enforced are found in the budget bill, but there is still some detail yet to come in the regulations before we will have a full view of what obligations this may create for financial institutions.

The combined results of the changes will be to build on what already exists and will ensure Canada remains at the forefront of the international effort to deal with illicit funds and that our financial system remains resilient to the incursions of criminals and terrorists.

RESULTS

Let me turn now to an aspect of FINTRAC's work that I feel you should know more about and that is, our financial intelligence product. During the last year FINTRAC disclosed 556 cases to investigators, more than any previous year in its past. This intelligence was supplied to assist investigations of drug trafficking, fraud, smuggling of contraband, terrorist activity financing and a variety of criminal activities that can generate the proceeds of crime.

This is where the transaction reports that are filed are turned into meaningful assistance for a diverse number of investigations. From large frauds to small drug trafficking networks, having more information concerning the financial transactions and the relationships that they can reveal is becoming an essential part of investigations.

Of FINTRAC's 556 case disclosures:

• 68% went to the RCMP
• 27% went to the Canada Revenue Agency
• 27% went to municipal police services
• 17% went to foreign financial intelligence units
• 14% went to Canada Border Services Agency
• 10% went to Canadian Security Intelligence Service
• 10% went to provincial police services
• 1% went to Communication Security Establishment Canada

These numbers do add to more than 100%, and that is because we often send the same package of intelligence to more than one police force or investigative agency at a time.

ANTICIPATED RESULTS FOR THE COMING YEAR

We expect to continue to improve as we move into our tenth year. We expect to assist even more investigations. And, as an organization that runs on information, our success will be tied to the ability of the financial institutions present in this room to deliver good quality financial transaction reports. Compliance with the reporting obligations set out in the law ultimately serves the production of financial intelligence. Good and timely information at the front end of this process can make all the difference. That is the essential message I want to leave you with, the work that we are already doing is vitally important and it is making a difference.

Thank you again for the invitation to speak and thank you for listening.