The Decade-Long Failure of FINTRAC

As the sun rises on any given day in Canada, an average of $1 million in illicit cash is stuffed into hockey bags, to be exchanged for chips at local casinos. At least another $15 million in tainted money begins changing hands in cash purchases of luxury homes. Several dozen shell corporations also pop into existence, their owners protected by Canada’s unique privacy laws.

And as the sun descends over the horizon, tens of millions of dollars of dirty money finish entering the formal Canadian financial system, clean as a whistle.

The illicit nature of money laundering means there are no definitive statistics on its prevalence in Canada. Nevertheless, many legal observers consider this country to be such a hot spot that the term “snow washing” has become common in enforcement circles. In 2022, Transparency International released a scathing report detailing how money laundering professionals openly advertise Canada to their clients.

In 2020, Criminal Intelligence Service Canada estimated that anywhere between $45 billion to $113 billion is laundered every year across the country. That adds up to between 2 and 5 per cent of Canada’s GDP. It’s a percentage that’s significantly higher than in other developed countries.

The answer to why Canada has become such a desirable destination for money launderers is complicated, and blame doesn’t lie with any one agency or group.

Most money laundering cases begin with banks reporting suspicious transactions to the government, and end with the police doling out arrests. In between those two points is a flurry of filtering and analyzing, as millions of data points are crunched into a few thousand transaction reports.

But at the centre of that pipeline, its crucial node, is the Financial Transactions and Reports Analysis Centre of Canada, or FINTRAC. Launched in 2000, it’s through FINTRAC that the hundreds of thousands of yearly suspicious transactions are first analyzed and filtered into actionable intelligence. Any entity that primarily handles money, be it banks, casinos, or real estate agents are obligated to report large or suspicious transactions to FINTRAC.

For reasons inside and outside of its control, FINTRAC has not kept up with financial criminals. According to experts from across the country, FINTRAC is outmatched, under-resourced and not taken seriously by both criminals and foreign law enforcement agencies.

Nestled in the upper floors of a silver and black striped building in downtown Ottawa, FINTRAC rarely seeks the spotlight. Though it did receive some attention in 2022 when the federal government announced that the Proceeds of Crime and Terrorist Financing Act, which FINTRAC operates under, was expanding its reporting mandate to include crowdfunding platforms. That was in response to the 2022 convoy protests, when GoFundMe and GiveSendGo were used to funnel money to demonstrators.

That brought some attention to FINTRAC’s growing list of responsibilities. Currently, the agency requires roughly 30,000 entities to report suspicious transaction to it. In 2022, those entities submitted just under 600,000 suspicious transaction reports.

That number has been rapidly trending upwards. Five years ago FINTRAC was only getting 200,000 transaction reports per year, and received less than 80,000 in 2013.

Yet while the number of these reports climbed throughout the 2010s, FINTRAC’s budget and available resources did not. Its annual reports indicate that its budget hovered around $55 million a year throughout the last decade. Only in 2021 did the agency see a meaningful budget increase. Its annual spending now sits at around $90 million.

“It was maddening for me and lots of other professionals in the sector when we saw crowdfunding being added,” says Matt McGuire. He’s been advising businesses and governments on money laundering for decades, and wrote the anti-money laundering compliance guide for Canada’s Chartered Professional Accountants. “They certainly have not kept pace with the amount of resources that are being poured into money laundering.”

This mismatch has created severe backlogs, with leads going under investigated. As money launderers move relentlessly along, it now takes months for FINTRAC to provide policy interpretations and register new entities. For law enforcement officers, that’s translated to critical lost time in fast-moving cases. In an interview, one ex-RCMP officer, Calvin Chrustie, reported that he would get better direct intel on criminal groups operating in Canada from American agencies than he would from FINTRAC, if it got back to him in time at all.

A metric that parallels FINTRAC’s budget more closely is the number of reports it submits on to law enforcement, known as unique disclosures of financial intelligence. While the number of suspicious transaction reports it was receiving was doubling every three years, the agency was producing roughly the same number of reports for the Royal Canadian Mounted Police. The most disclosures FINTRAC ever submitted was in 2018, with 2,466. In 2022 it submitted 2,292, even though it received more than three times as many suspicious reports than four years previously.

FINTRAC is heavily reliant on Canada’s large banks to send it timely and comprehensive transaction reporting. But what happens when those entities don’t meet their obligations? “FINTRAC’s biggest challenge,” wrote ex-FINTRAC team lead John Pyrik in a provocative section on his old employer in Top Secret Canada, “may be that it is not taken seriously by the major Canadian banks.”

American banks have been fined over US$7 billion in the last 18 years for failing to meet anti-money laundering obligations. Canadian banks in that same period? $6 million. The penalty set by the federal government for not reporting a suspicious transaction is $500,000, a drop in the bucket for institutions like RBC and CIBC.

In a statement, FINTRAC emphasized that its strategy is deliberately different from other countries. “Our penalty regime is set up completely different from the United States. [The Canadian system] is meant to be non-punitive, and to change compliance behaviour.”

Vanessa Iafolla teaches criminology at Wilfred Laurier University with a specialization in money laundering. She rejects FINTRAC’s explanation, and agrees with Pyrik’s assertion that FINTRAC is “toothless” relative to the banks. “I’m not suggesting that the banks are necessarily not following all the rules,” she says. “If you have that kind of power, you can use that kind of power.”

In the eyes of banking industry observers, that power dynamic is impossible to ignore. “Imagine trying with a staff of 100 to do compliance on just one of the big banks, and trying to come about meaningful results,” says Matt McGuire. “But if you’re not digging deep into their systems and data, you’re missing all of the story.”

Less than 500 people work at FINTRAC. The sum total of the agency’s staffing and budget is smaller than even a single large Canadian bank’s compliance division. Those power dynamics have reared their head many times. Iafolla has witnessed this dynamic first-hand, telling stories of meeting senior anti-money laundering workers who view it as a “checkbox exercise.”

University of Ottawa law professor Marc Tassé, who teaches corporate ethics and financial crimes, sees this leverage as especially problematic in light of FINTRAC’s backlogs. “If financial institutions really want to do their part of the job, they should stop doing business with people while FINTRAC investigates them,” he says. “But this is not what they do. They continue doing business with them.”

FINTRAC characterizes its relationship to banks as collaborative, not adversarial. In a statement, it touted a host of public-private partnerships it’s engaged in with major banks. Among them is Project Protect, an ongoing initiative between FINTRAC and the Bank of Montreal to prevent human trafficking.

FINTRAC doesn’t currently have the legal authority or the resources to dig deeper into the more troubling financial crime leads connected to banks, and those banks have wielded their lobbying power to prevent them from doing so relentlessly. A 2017 investigation by the CBC found that since Prime Minister Justice Trudeau had taken office, Canada’s six biggest banks had increased their lobbying efforts by over 50 per cent. The Canadian Bankers Association, which represents all Canadian banks, had increased their own lobbying by 74 per cent.

Canadian lawyers have also carved out their own loophole. Unlike their peers in other countries, Canadian lawyers do not have to report suspicious transactions FINTRAC. The result is one of the most opaque systems of laws when it comes to company ownership in the world.

On this issue Tassé is particularly frustrated. “You can incorporate a company within 15 minutes and you don’t need to give any personal information other than the name of the director,” he says. “If you want to hide some of your assets, take them to Canada.”

The consolation of Canada’s money laundering notoriety is the federal government is now paying more attention than ever to the issue. In 2022 it announced the creation of a new agency, the Canadian Financial Crimes Agency. In a statement, Public Safety Canada stressed that the agency will become “Canada’s lead enforcement agency in this space,” coordinating the efforts of FINTRAC, the RCMP and the CRA.

For Iafolla, it’s a question of whether it will be caught up in the same dynamics that FINTRAC is.

“Culturally and socially, things are always as they were. People are still getting raises, and everyone’s checking their boxes. I don’t want this to be an exercise in placating the Canadian populace.”