‘Our regime is now in a better place on the AML world stage’
On June 1, 2021, new rules came into effect that help put Canada on par with international AML regimes (Getty Images/mathieukor)
As one of the founding countries of the Financial Action Task Force (FATF), Canada has long played an active role in the international community’s efforts to combat money laundering. And, recently, the country’s regime has been updated to further align with international practices and developments.
“Canada needed to strengthen the regime to keep up with evolving issues such as virtual currency and other international practices,” says Michele Wood-Tweel, vice-president of regulatory affairs at CPA Canada. “We’ve seen a lot of momentum over the past four to five years and we’re now more on par internationally.”
AN ENHANCED APPROACH
In June 2021, new federal anti-money laundering (AML) regulations came into effect that are directly relevant to accountants. “Previously, when it came to the non-financial businesses and professions, which includes accountants, there were certain rules in place in other countries regarding record-keeping and reporting and knowing your client that Canada did not have in place. But now amendments have been made to address notable differences,” says Wood-Tweel.
One such advancement—which is part of new “know your client” rules—has to do with verifying the identity of heads of international organizations and politically exposed persons in certain circumstances. These individuals are considered to have potential risks associated with them because of the people they encounter and they may be targeted by those who have illicit objectives. For example, a member of an international sport committee or organization might be exposed to bribery or other corrupt activities. “If proceeds of crime are received and put into the financial system, then there is money laundering,” she says.
LACK OF PROSECUTION
One area where many say improvements still need to be made has to do with prosecution.
For example, as Professor Jason Sharman, an AML expert with the University of Cambridge, points out in a report that he presented at the Commission of Inquiry into Money Laundering in British Columbia (the Cullen commission), “Specific Canadian problems of disclosure and the need to finish cases within set times may mean that it is in practice impossible to bring cases in instances of grand corruption laundering in Canada. International asset recovery cases may go on not just for years but for decades after initial legal action is launched, and so these time limits may need to be changed if such prosecutions are to succeed.”
Still, some changes made in recent times might make a difference. As Wood-Tweel points out, the addition of a “recklessness” provision to the definition of money laundering in the Criminal Code lowers the threshold for law enforcement and prosecutors to pursue money laundering charges.
CHANGES TO BENEFICIAL OWNERSHIP
In his report, Sharman also points out that to bolster general AML effectiveness Canada needs greater transparency with regard to beneficial ownership, particularly in real estate. “In 2019 it was estimated that $28 billion in Vancouver real estate was owned via opaque corporate vehicles,” he says.
He adds that the Expert Panel on Money Laundering in BC Real Estate in 2019 endorsed the now conventional position that “disclosure of beneficial ownership is the single most important measure that can be taken to combat money laundering.”
According to CPA Jennifer Fiddian-Green, national partner in Grant Thornton’s forensics and dispute resolution practice, beneficial ownership is an area that continues to need improvement. “We don’t yet have a publicly available list or database of all the beneficial ownership of entities within Canada, although we do have this in some provinces. Other jurisdictions have a national database now, so we’re behind.”
That said, new requirements do make some progress with regard to increased transparency. The Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) requires reporting entities, (which now include accountants and accounting firms), to record beneficial ownership information in certain circumstances when dealing with entities, including corporations and trusts. “The federal government is also requiring trusts to report more information to the CRA,” says Wood-Tweel. Increased transparency is key, she says, to AML efforts nationally and globally.
THE ACCOUNTANT’S ROLE
Another area where our country’s regime still differs from others is in its scope of application regarding the accounting sector. In Canada, only CPAs are subject to AML requirements; unregulated accountants are not. In the U.K., however, unregulated accountants report to the government regarding AML, with the result that there are thousands of unregulated accountants who are actually part of their system.
“In Canada, that is not the way the regime was designed,” says Wood-Tweel. “But it would be a more comprehensive system if it were amended to include the same requirements for unregulated accountants carrying out triggering activities as those that already apply to CPAs.”
WHAT CPAS SHOULD KNOW
Overall, there tends to be a lack of understanding among Canadian CPAs about AML requirements, says Fiddian-Green. “I don’t think that our level of awareness in this country is high enough compared to other jurisdictions,” she says. “We need to be thinking about how this applies to us as professionals in the business community.”
In Canada, the federal government has been working to strengthen the regime and disseminate information about money laundering. “This hasn’t all been done through the money laundering legislation itself. It’s being done across various pieces of legislation and regulation,” Wood-Tweel says. Increasingly, CPAs need to be aware of money laundering risks and the entire regime that aims to prevent, detect and deter the activity.
Recent events have also brought new attention to the issue of money laundering taking place in this country. As Fiddian-Green points out, CPAs need to lean in and better understand the risk potential for money laundering in Canada and how it relates to the entirety of the work taken on by accountants.
“The benefit would be that we could spend our time and energy on the Canadian companies and entrepreneurs and organizations that really do need our help in building the Canadian community that we want,” she says.
MORE ON AML
CPA Canada has a wealth of resources on anti-money laundering rules and developments, including the Cullen commission, the new “know your client” requirements and reporting obligations.
Plus, advance your knowledge with our on-demand course, Anti-money laundering and ethics: A Canadian and global perspective, to get a high-level view of of the relevant information, tools and strategies you need to know to understand better the stakes and ethical challenges involved in addressing money laundering and terrorism financing risk.