Financial Intelligence: Connecting the Money to the Crime
Thank you for that introduction. FINTRAC has participated in this conference every year with substantial representation since it started and we are pleased to continue that tradition this year.
I would like to thank Chris Walker of ABC Solutions for putting this conference together. There are many conferences held around the world that deal with money laundering and terrorist financing. This one is different because it's Canadian. It's very valuable to us to have a conference that is focused on Canadian issues, Canadian laws, and Canada's effort to combat money laundering and terrorist financing.
It brings together the many players in Canada's anti-money laundering regime and it allows us to hear from each other both formally and informally. Information must flow more easily between the different parts of this initiative and coming together in this conference like this is a big step in that direction.
For those of you who are new to this subject, I will provide some context and background. FINTRAC was created eight years ago as Canada's financial intelligence unit, or FIU for short, and has counterparts in almost every country in the world. There are different styles and types of FIUs but they are all devoted to the simple proposition that something can be learned through the analysis of financial transactions and that these insights can benefit investigations of money laundering and terrorist activity financing. We are all in the business of financial intelligence.
I have been the Director of FINTRAC for six months and in that time I have had the opportunity to meet my counterparts from around the world at international meetings of the Financial Action Task Force and the Egmont Group of FIUs.
And what do they always remark upon? How well we have instituted our system of deterrence, which of course is largely thanks to the extensive and cooperative compliance regime Canada has. My counterparts in other countries envy the working relationship that we enjoy with many business sectors within Canada. Every head of a financial intelligence agency knows that an FIU can only produce financial intelligence because of the transactions that are being reported. It all begins with someone filing a report.
Over the last few years, a huge amount of work has been done in many business sectors to improve upon Canada's anti-money laundering regime. These efforts have bolstered the integrity of Canada's financial system. For many criminals seeking to gain access or to abuse the Canadian financial system, they are finding that the wickets are closed.
It is no small statement to say that it is now much harder to launder money in Canada because there is so much more scrutiny of financial transactions. More questions are being asked, client identification is being requested and suspicious and large cash transactions, as well as large electronic funds transfers are being reported. This is to the credit of many businesses that have taken up this responsibility and these legal obligations with vigour.
As many of you know, in December of 2006 Parliament adopted a bill, C-25, to improve the anti-money laundering and terrorist activity financing regime. These changes were extremely important to the regime and to FINTRAC. While I won't dwell on the mechanics of transaction reporting, I hope to provide an overview of these changes and some insight into the challenges I see ahead and what we, at FINTRAC, are planning to do.
In the 12 months since this conference was last held, most amendments to Canada's Proceeds of Crime (Money Laundering) and Terrorist Financing Act have come into force. Additional regulatory changes will come into force at the end of December and others in 2009.
Notably what came into effect in June 2008:
- A risk-based approach which has been introduced as a key element of a compliance regime. This allows reporting entities to assess their own businesses to determine their own vulnerability to money laundering and terrorist financing. Once they have identified their high-risk areas they are able to focus/allocate resources to help reduce these high-risk areas, allowing for a more efficient and effective use of available resources.
- New requirements for real estate agents and brokers as well as accountants were also introduced. These increased the client identification and record-keeping requirements for those sectors.
- A national registry of money services businesses was created. This will bring some transparency to which businesses are operating within that sector and help ensure compliance with the law.
What will come into effect next:
- At the end of December, FINTRAC will have the power to issue administrative monetary penalties, or fines. These are an addition to the criminal penalties that have existed since 2001 for non-compliance with the law. The new penalties will be more appropriate to use than criminal charges, in many instances of non-compliance. They will be proportional to the violation and the business or the entity that is subject to the fine.
- Also in December 2008, new sectors will be added to the list of businesses that have compliance obligations under the legislation: British Columbia notaries and dealers in precious metals and stones. Real estate developers in Canada will also all be added next February.
These legislative changes will make Canada's anti-money laundering / anti-terrorist financing regime even more robust. They will bring Canada more in line with international standards, such as those set by Financial Action Task Force. They will also serve to safeguard the integrity of our financial system and make it harder to launder money or finance terrorism.
For FINTRAC, I see a clear challenge on the horizon:
This challenge involves the flow of information between the different organizations involved. Information moves from reporting entities to FINTRAC and then onward to investigative bodies like the police or CSIS. The legislation has created a flow of information that moves one way, like the current of a river. The challenge that we all face is that information must also move the other way, if we are to be effective.
At FINTRAC we need to hear back from the investigators that receive our intelligence. How is it helping? Is it arriving at the right time to make a difference in the investigation?
The other side of this coin is that FINTRAC must do a better job of providing information to reporting entities. I recognize that businesses need to receive feedback that is meaningful to their work. A credit union that is dutifully filing suspicious transaction reports may never know which of those transactions becomes part of a criminal investigation but there are mechanisms to provide relevant feedback. The credit union needs to have a sense that its contribution is producing results, and those results, in the form of investigations and prosecutions, are often two or three steps removed.
In order to close the gaps that have developed in this unidirectional flow of information, FINTRAC will have to take what it learns from the investigators and use it to provide businesses with a meaningful account of what is happening at the end of the line.
Sharing information among each other does have built-in limitations when it comes to protecting the personal information under FINTRAC's control. I take those protections very seriously and they are very much part of FINTRAC's operations and its corporate culture. Respecting the privacy rights of those named in financial transaction reports does not limit us, however, from having a frank discussion about results. They should not diminish our ability to work together and to communicate in way that would better guide our own efforts. In my view, this would bring more coordination to the whole initiative.
One of recent legislative changes takes a step in this direction, improving the information that is exchanged. I do not want it to go unnoticed. I am pleased that one of the C-25 amendments has made it possible for FINTRAC to provide more information to investigators and has significantly improved the product that we are able to offer them. This will make for a richer, more detailed intelligence product.
Financial intelligence can and does improve decision-making for investigators. It can identify individuals previously unknown in an existing criminal investigation, it can identify assets and it can reveal connections between individuals, businesses and accounts that may not have been visible through any other means. It is the sort of intelligence that can take an investigation in new directions, it can provide grounds for obtaining warrants, and it can help establish the timeline for the activity.
FINTRAC is producing better intelligence than it has in the past, not only because of the changes to the legislation, but because we are more experienced and knowledgeable in our work. After 8 years, we have improved our processes and we have developed our ability to analyze transactions. It is also worth noting that we have more financial transaction records from which to work.
FINTRAC's financial intelligence disclosures make good use of our centralized collection of reports. We receive our information from various business sectors and from every province in Canada. The intelligence we are able to produce from this extensive collection of information can allow us to draw a map of financial activity that spans many financial intermediaries, many individuals and often, financial transactions to other countries. Half of all the financial intelligence cases we produced last year, involved money laundering spread out over six or more reporting entities. The lesson here is that criminals do not seem to limit themselves to one institution.
It just isn't possible for any single reporting entity or law enforcement agency to have the view of the extensive financial activities of a criminal network because their perspective will be limited to the activity that is within their view. That is where an FIU like FINTRAC comes in, tracing the money movements and connecting the money to the crime and the suspected perpetrator.
We have an incredible analytical capability and I want to build on it.
I am moving the agency in a direction that will see us producing more case disclosures annually. We will seek to be of greater assistance to a greater number of investigations. I hope that our intelligence reaches a wider audience and that it is of value to a larger number of people. Increasing our output is one step toward that goal. Ensuring that it is accessible and that it finds its way to into the hands of more investigators is another equally important step toward that goal.
In the last year, 65% of all our case disclosures were generated by checking information volunteered to us by Canadian law enforcement or CSIS. This does reflect that FINTRAC is responsive to the needs of investigators as they approach their existing case work. Another 21% of these case disclosures were initiated by queries from our international partners, the FIUs of other countries. This does leave 14% that were generated through FINTRAC's own analysis of information at its disposal. Over time, I expect the proportion of cases that FINTRAC generates though our own analysis will grow.
I want to assure any of the investigators who might be here today that this shift will not come at the expense of helping you with your existing investigations.
We will endeavour to produce more across the board. If you are investigating a crime and criminal proceeds are involved, we would like to find a way to help you. If your investigation extends into threats to the security of Canada or terrorist activity financing, the same is true. I believe in the product that we are producing and that it can shed light on these types of investigations. My goal for the coming year is to contribute to an even larger number of investigations than we have in the past and to have a greater impact with our work.
Going forward, I realize that producing more intelligence is an important step. It will also be necessary to produce it faster. If we are to be of assistance, the currency of the intelligence is critical, it must arrive at the right time within the investigation. The old adage that timing is everything is as true of our work as it is anything else I can think of. I am pleased to report that we are making progress in this regard as well, as we move to improve our own operations and processes. Our success in the coming years will be measured by how much assistance we have been to our partners, rather than a scorecard of our outputs of financial intelligence. How much help have we been is the question that should frame our results, and it reflects the true value of FINTRAC's contribution and the contribution of those that file transaction reports.
Again thank you very much for asking me to open this conference. The agenda is chock-full of timely and interesting presentations and panels. Enjoy yourself and if you are from outside Ottawa, please enjoy our nation's capital.
