Canada Falling Behind the US in Battle Against Financial Crime

The United States has taken a significant step forward in its efforts to combat financial crime, issuing new guidance that makes it easier for banks to share customer information with each other to identify suspicious activity linked to money laundering or terrorist financing. This move is part of a broader push by the US government to enhance information sharing and prevent criminals from hopping from bank to bank.

A Glimpse into the US Approach

The new guidance urges banks to take a permissive view of certain provisions contained in the 2001 Patriot Act, which offers banks a “safe harbour” - a provision that shields them from legal liability if they participate in data-sharing partnerships to catch criminals. This move aims to prevent criminals from exploiting weaker laws and making it easier to track illegal activity.

Canada’s Lagging Behind

However, Canada still lags behind the US in terms of protecting financial institutions from legal liability when sharing information about their customers. Ottawa has yet to offer similar safe harbour provisions to Canadian banks, despite a glaring gap in its anti-money laundering regime.

The Current State of Affairs

The Personal Information Protection and Electronic Documents Act provides a safe harbour for information sharing in cases of fraud and terrorism, but not in instances of money laundering, human trafficking, and child exploitation. While the federal government is updating the aging privacy law, it has yet to commit to making those changes.

The Impact on Public-Private Partnerships

Experts say that providing Canadian banks with similar safe harbours as those offered to financial institutions in the US would increase the effectiveness of public-private partnerships between banks, regulators, and law enforcement. It would also enable data swapping, allowing banks to share specific information about individuals or entities that readily identifies how criminals game the system.

The Need for Improvement

The Financial Transactions and Reports Analysis Centre of Canada (FinTRAC), which largely functions as an information-gathering system, desperately needs teeth. FinTRAC has no ability to ask banks any questions about suspicious transaction reports (STRs) that they flag for review, creating blind spots in the system.

The US Model: A Better Approach

Experts say that replacing STRs with suspicious activity reports (SARs) similar to those used in the US would provide a broader account of suspected illegal activity. SARs would allow FinTRAC to request specific information from banks and provide a clearer picture of criminal activity.

The Call for Action

The Canadian government has been slow to implement changes, despite recommendations contained in a 2018 report by the standing committee on finance and a briefing paper commissioned by the Cullen Commission of Inquiry into Money Laundering in British Columbia. The inaction is putting Canadian banks in an awkward position as they seek more growth south of the border.

The Pressure Mounts

The US government’s new powers to subpoena account information from foreign banks, including records managed in other countries, will also put pressure on Canada to play catch-up. Ottawa must take action to protect its financial institutions and prevent criminals from exploiting weaker laws.

Conclusion

Canada needs to take a proactive approach to combat financial crime by providing safe harbour provisions for Canadian banks, improving the effectiveness of public-private partnerships, and enhancing the reporting system. The time to act is now, as the US government’s new powers will only increase the pressure on Canada to play catch-up.