PROCESSING...

Unpublished FINTRAC Penalties

Jonathan Krumins, Vice President, vCAMLO

Today’s guest blogger is Jonathan Krumins, Vice-President, AML Risk & Compliance, at vCAMLO Solutions Inc. vCAMLO provides anti money laundering (AML) and counter terrorist financing (CTF) support to Canadian credit unions. You can learn more about vCAMLO at www.vcamlo.ca.

Background

Reporting entities (REs) often ask us about penalties, in particular when they are published publicly. Since 2009, The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) has issued Administrative Monetary Penalties (AMPs) against persons and entities that were found to have violated the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, and its associated Regulations. In many cases up to 2013, FINTRAC has published details on its website about each penalty, including the name of the person or entity, the dollar amount of the AMP, as well as the cited deficiencies. The AMP area of their website has two sections – a list of all published penalties, as well as running total of AMPs imposed since December 30, 2008, divided by sector.

As of June 26, 2013, FINTRAC changed its policy regarding public notice of AMPs, so that they would be published if one or more of the following criteria are met:

  • The person or entity has committed a very serious violation; or
  • The base penalty amount is equal to or greater than $250,000, before adjustments are made in consideration of the person or entity’s compliance history and ability to pay; or
  • Repeat significant non-compliance on the part of the person or entity.

AMPs can only be published once the appeals process is exhausted, which can take years to complete. This process can include an appeal to FINTRAC’s director, and a subsequent appeal to the Canadian Federal court.

Understanding this context is vital for RE Compliance Officers. While trend information related to published and unpublished penalties is not likely of interest to frontline staff, understanding these patterns is useful in fielding questions from Senior Management and the Board of Directors.

We have conducted an analysis of data published on the FINTRAC’s website which shows a trend of an increasing number of unpublished AMPs since 2013. These unpublished AMPs were primarily imposed on the Credit Union/Caisse Populaire and Money Service Business (MSB) sectors.

Methodology

We have made all calculations using information available as of April 20, 2015. We examined publicly available information on FINTRAC’s webpage, using the running total of AMPs by sector and the list of public AMPs. We also examined a summary of AMPs as of October 2014 obtained by Outlier through an Access to Information request. Our analysis focuses only on the sectors that have received AMPs, either published or unpublished: Credit Unions (including Caisses Populaires), MSBs, Real Estate Brokers, Securities Dealers and Casinos.

In addition, we accessed “cached” versions of FINTRAC’s website to review past versions in order to include six public AMPs that were issued between August 19, 2009 and April 26, 2010. In accordance with FINTRAC policy, these were removed from FINTRAC’s website after the five year public notice period had expired. We have included this historical data in order to provide a full view of the penalties issued. It is noteworthy that there are likely additional penalties in the process of being appealed (this information cannot be made available until the appeals process is complete).

Published AMPs vs. Unpublished AMPs

By analyzing the list of published penalties, compared to the running total of AMPs, it appears that there have been a significant number of unpublished penalties:

FINTRAC AMPs

Credit Unions

Credit Unions have received the largest number of unpublished penalties, both in terms of number and dollar amount. Credit unions have received 3 published AMPs, totalling $246,690. They have also received an additional 11 unpublished AMPs, totalling $405,855.

Trend analysis: This appears to be a significant increase in overall enforcement action by FINTRAC in the Credit Union sector. The total number of penalties against Credit Unions have increased sharply to 14, which means that Credit Unions now have the second largest number of listed AMPs (published and unpublished), behind MSBs. All penalties against Credit Unions since 2013 were unpublished. This data can also be interpreted to mean that FINTRAC’s enforcement efforts against Credit Unions have increased since 2013, however it is important to remember that AMPs are listed on FINTRAC’s website after they are finalized, which can mean a significant gap between when an AMP was issued and when it is listed, especially if there is an appeal involved.

Money Service Businesses (MSBs)

MSBs have received 22 published penalties, totalling $527,510. They also have received eight unpublished penalties, totalling $68,520. Interestingly, a $12,880 penalty that was published against an MSB on July 11, 2013 no longer appears on FINTRAC’s website.

Trend analysis: MSBs continue to be the leading sector in terms of receiving AMPs, although similar to the other sectors examined, the majority of AMPs that were against MSBs from late 2013 through to 2015 were unpublished.

Real Estate Brokers

Real Estate Brokers have received three published penalties totalling $40,520 compared to three unpublished penalties totalling $25,960.

Trend Analysis: Real Estate Brokers have received relatively few published and unpublished penalties in comparison to the Credit Union and MSB sectors. The number of unpublished penalties (compared the number of published penalties) is consistent with trends across all sectors.

Securities Dealers

Securities Dealers have received four published penalties totalling $565,180 compared to one unpublished penalty of $21,480.

Trend Analysis: Securities Dealers have received relatively few published and unpublished penalties in comparison to the Credit Union and MSB sectors.

Casinos

Casinos have never received a published AMP, however FINTRAC’s website shows an unpublished AMP of $56,700 issued against a casino. This may be surprising to anyone that has read about BC Lottery Corporation, however, AMPs are not part of these records until the appeals process has been exhausted (and there have been successful appeals).

Trend analysis: It is difficult to establish a trend based on a single data point, however this unpublished AMP shows that the Casino sector is no longer unaffected by FINTRAC penalties.

What Does This All Mean?

Screen Shot 2015-05-06 at 11.58.01 AM

Note: The dates on the above graph represent when FINTRAC’s website was analyzed to calculate the total number of penalties, with the exception of October 2014, which is the “as of” date of an AMP listing received in a Freedom of Information request. Data for unpublished AMPs is only available since 2013.

As of June 2013, FINTRAC began to apply the updated standard for publicly listing AMPs. Since this change, unpublished penalties comprise approximately 42% of all issued AMPs by amount and 43% by number. While this is excellent news for REs that are concerned with the negative media and other reputational risk related to published penalties, it will make it more difficult to assess the reasons that REs are receiving penalties. The specific violations that led to a penalty are only made public by FINTRAC when the AMP is published. In order to ensure that our Credit Union clients are well-informed about industry trends related to penalties, vCAMLO will be requesting additional information and performing trend analysis. Stay tuned!

Your Best Defence

To avoid AMPs, it is essential to constantly test for weaknesses in your compliance regime. Conduct rigorous effectiveness testing (this is required at least every two years), and consider more frequent testing. Finally, ensure that immediate steps are taken to remediate deficiencies received in FINTRAC exams. Deficiencies that re-appear in follow-up exams are taken seriously by FINTRAC, and can lead to penalties, published or not.

Need a Hand?

vCAMLO: If you are a credit union or MSB, and have any questions related to financial compliance, or if you are interested in AML Support Services, please contact us for a complimentary 30 minute compliance discussion.

Outlier: If you need assistance reviewing your technology solution or FINTRAC reporting to be certain that you’re meeting the standard described in this blog, or just someone to chat with to make sure that you’re on the right track please contact us.

 

 

 

Return to Blog Listing