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Vaughn Palmer: German takes aim at toothless crime watchdog, hoping Ottawa has a fix

Opinion: Fintrac priorities are flagging suspected connections to terrorist financing, human trafficking, child sexual exploitation and fentanyl, not criminal money laundering.

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VICTORIA — Canada’s official watchdog on the proceeds of crime is little more than a collector of information — and not a very effective one at that, according to money-laundering expert Peter German.

“The great preponderance of stakeholders that we met during the review were critical of Fintrac,” says German in the second volume of his report on money-laundering, released Thursday.

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“Despite its specialist resources and technical systems, Fintrac is wrapped in a legal framework that resembles a straitjacket. The result is that its effectiveness is blunted and criticism results.”

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At bottom, says the former senior RCMP officer, is a misperception about the role of the financial transactions and reports analysis centre, to give Fintrac its full name.

“It is widely believed that Fintrac is in the business of catching financial criminals,” says German. This is not quite correct. Fintrac is not a law enforcement body. In fact, law enforcement officers are not permitted to work in its premises due to charter of rights and privacy concerns.

The agency was crafted to operate in isolation from the outset, reports German, and that sets it off from equivalent financial intelligence units in the United States and other countries.

“The inability of law enforcement officials to work within Fintrac is a huge disconnect,” says German. “Unless the intelligence in its data banks is readily available to law enforcement and other security agencies, Fintrac is simply a collector of information.”

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Not that it doesn’t collect a lot of information. In 2016, it received 27 million reports of financial transactions across all sectors. For casinos alone, there were almost 172,289 filings on cash disbursements.

Peter German talks about his latest report on money laundering as Minister of Finance Carole James, Attorney General David Eby and chair of the expert panel Maureen Maloney look on Thursday.
Peter German talks about his latest report on money laundering as Minister of Finance Carole James, Attorney General David Eby and chair of the expert panel Maureen Maloney look on Thursday. Photo by CHAD HIPOLITO /THE CANADIAN PRESS

All that is stored, analyzed and eventually disseminated to designated law enforcement and security agencies, albeit in carefully vetted form.

But Fintrac priorities are flagging suspected connections to terrorist financing, human trafficking, child sexual exploitation and fentanyl, not criminal money laundering.

The agency has contributed little in recent years to successful prosecutions of financial crimes.

“A belief has developed among many reporting entities that their compliance dollars are being wasted,” says German. “In some cases, there is actual disdain for the work of Fintrac.”

Ironically, given the complaints coming from B.C. about the agency, Fintrac levied one of the largest penalties in its history against the B.C. Lottery Corporation.

The amount was $670,000. The accusation was a failure to meet filing deadlines and other instances of non-compliance over a period of years. But the provincial gambling overseer refused to pay up and instead spent six years fighting Fintrac in court.

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“The challenge incurred considerable expense to the public, due to federal counsel exchanging blows with BCLC lawyers,” reports German. “In the end, the result was a draw, with no winners. BCLC did, however, avoid paying a fine.

“The challenge ended after Fintrac’s entire scheme of administrative penalties was struck down by the Federal Court of Canada.”

Given the somewhat disappointing results from Fintrac, it is not surprising that banks, realtors and other regulated entities have called for reductions in reporting requirements.

But German says “if reporting entities were permitted to stop reporting, the complaints would become a self-fulfilling prophecy. Rather we must ask why the results are relatively poor.

“It is due in part to the fact that Fintrac, unlike most of the world’s financial intelligence units, is not a law enforcement body and simply does not have a window on what law enforcement wants and needs. Likewise, the police have little idea what actionable intelligence may be contained in Fintrac’s data banks.”

German suggests improving the lines of communication, toughening enforcement and broadening reporting requirements to include all cash (and cash-equivalent) transactions of $10,000 or greater.

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But making that happen won’t be easy.

For as he explains, responsibility for Fintrac is buried “deep in the labyrinth of the federal Ministry of Finance” and the ministry itself “is not a law enforcement body.”


IN THE HOUSE PODCAST

Host Rob Shaw with guests Vaughn Palmer and Richard Zussman examine the Green Party’s win in the Nanaimo-Ladysmith byelection, money laundering in B.C.’s luxury-car sector, Premier John Horgan’s actions on gas prices, “photo radar 2.0” at intersections, and forestry issues.


Nor is Ottawa in general or the federal finance department in particular inclined to take advice on these matters from uppity provincial governments.

A generation ago, B.C.’s finance ministry was one of the first to flag the federal government’s scientific and research tax credits (SRTCs) as a racket that was draining the treasury of millions with little to show in terms of viable research.

But despite repeated and well-documented pleas, it took several years before federal finance wised up (on its own, of course) and put a stop to the obvious tax dodge.

Asked Thursday about the prospects for reforming Fintrac, Attorney General David Eby conceded “it has taken a long time to get Ottawa’s attention on this issue.”

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I’ll say. It has been more than a year since Eby first presented his concerns to the House of Commons committee on finance.

“An anti-money laundering system that rigorously enforces compliance with reporting, but then has inadequate action on those reports, puts a sheep’s mask on a wolf’s face,” the B.C. AG said at the time.

The consequences of such lax enforcement were dramatized Thursday in the latest report from German, plus one from the province’s expert panel on money laundering.

Together they estimated that money laundering, far from being confined to B.C., was a $47-billion problem for the entire country last year.

If that doesn’t get Ottawa to sit up and take notice, it is difficult to imagine what would persuade the feds to fix their toothless watchdog on the proceeds of crime.

vpalmer@postmedia.com

twitter.com/VaughnPalmer

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