Ottawa sets sights on new financial crimes agency

While efforts to usher in a new Canada Financial Crimes Agency to crack down on illicit transactions are a longtime coming, several experts predict the devil will be in the forthcoming details of that “baby step.”

But with long-term funding for the agency an open question, it will likely be facing an uphill battle in navigating a high-profile and complex space, which could highlight the government’s lack of capacity to investigate activities like fraud, money-laundering, insider trading, organized crime and other financial crimes.

Vanessa Iafolla, a criminology professor with Saint Mary’s University, told Parliament Today that Ottawa’s goal to stand up the new entity is a welcome step as it looks to beef up “public sector resources” to deal with financial crime “on a broader scale,” but said the $200 million over four years the Liberals promised on the campaign trail is “not a huge investment.”

The agency would bring RCMP, CRA and FINTRAC resources together “under one roof” to guide its work. Given talk of financial fraud amid the pandemic and in recent months has heightened, she added the drop in the bucket is a “great step, but a baby step.”

“If you really want to prioritize it, you’ve got to put your money where your mouth is,” said Iafolla, expressing concern the agency could be “looking for quick wins” rather than going after more complex operations that likely require years of investigation.

Public Safety Minister Marco Mendicino’s mandate letter instructs him to speed up work to establish a “dedicated unit” to investigate “all forms of major financial crimes” by bringing forth a “proposal” to create the agency, whose “sole purpose” will be to probe these activities. His marching orders come with no timeline and little detail beyond that.

The minister has not publicly spoken about any potential forthcoming bill to deal with the matter, though illicit financing and regimes in place to monitor relevant activities came under renewed scrutiny last month, as the invocation of the Emergencies Act granted powers to freeze bank accounts of organizers associated with convoy protests.

Public Safety spokesperson Nic Defalco said Mendicino is working with Finance Minister Chrystia Freeland and Justice Minister David Lametti on a “proposal” but did not provide a timeline or say what form it would take. He touted other efforts to address financial crimes, such as $98.9 milion provided to the RCMP — $19.8 million of which has gone to “staff new positions” aimed at probing money laundering and crime proceeds.

Dedicated integrated money laundering investigation teams have been set up in B.C., Ontario, Quebec and Alberta with this cash, he said.

Iafolla said the feds could be faced with proving “the worth” of their initiative, which worried her that “we’ll be going after things that are, in the grand scheme, not particularly significant.” While there is scrutiny needed on ordinary citizens’ tax claims, for instance, there are “much bigger fish to fry” involving larger players stationed in other countries, she added.

Under the existing regime, Iafolla said it’s “great” that FINTRAC receives suspicious transaction reports from banks across Canada, but there has long been a recognition from experts that “they need to translate into real things — real arrests, real convictions and real intelligence that’s used intelligently.”

Per FINTRAC’s most recent annual report, the centre made 2,046 disclosures of financial intel to police, law enforcement and national security agencies in 2020-21.

Christian Leuprecht, a Royal Military College professor who specializes in security and defence, agreed results are lacking. While he noted there have been some convictions in Canada for money laundering over the years, which experts have decried in the past as being limited in numbers compared to cases pursued in the U.S. and U.K., they are sourced to domestic offences and not “transnational” ones.  That, despite “extensive reporting on the billions that get laundered through Vancouver casinos and real estate” alone.

Leuprecht compared FINTRAC to the Australian equivalent, AUSTRAC, which has doled out fines “in the hundreds of millions of dollars” to “huge offenders” over the years, including casinos that allegedly let customers use shoeboxes stuffed with money to gamble.

Given FINTRAC is not an enforcement entity but an administrative one — a fact its deputy director of intelligence Barry MacKillop stressed last month in committee testimony — “nobody is particularly scared in Canada of FINTRAC and of it having to do enforcement,” said Leuprecht, warning that sets up Canada to be a “global haven” for potential criminals, as the onus to take suspected bad actors to court lies with police.

Jessica Davis, president of Insight Threat Intelligence who has studied illicit and terrorist financing, said it remains unclear why the RCMP has “such a difficult time” probing fraud and money laundering activities, which result in few prosecutions.

She added that while the country has a “well-developed financial sector” with rules in place to guide the “detection” of financial crime, there remain gaps on the enforcement side. Details like the number of permanent staff, ongoing funding and the agency’s mandate will “really matter,” she noted.

Carleton University professor Stephanie Carvin, who studies national security and terrorism, added a lack of capacity is a big issue in monitoring illicit financing, and with the RCMP made up of a “series of generalists,” officers may be “sudenly assigned” to a file they may not have the adequate background in. “Ideally, an organization like this would bring the expertise of people at FINTRAC — who know how to follow the money — and give that expertise to law enforcement so they can then handle investigations and enforcement,” said Carvin.

Iafolla noted the RCMP shut down its financial crimes unit in Ontario in early 2020 — a move that signalled the force “deprioritized white collar crime investigations” and left experts worried cases would slip through the cracks.

Iafolla said “capacity issues” in enforcement have typically been “downloaded onto the private sector, so it’s the clients of financial institutions that have come under policing” by banks — much like what the revoked Emergencies Actorders allowed.

Ultimately, governments tend to be caught flat-footed in this space, said Iafolla. Leuprecht agreed Ottawa will need to ensure those tapped to serve in the agency are paying “undivided attention” to the file.

“It’s entirely doable if you get the right leadership, right people, right governance structure and think about what problem you’re trying to solve and how to address it — as opposed to, ‘Let’s get a bunch of Mounties and let them figure it out,’” said Leuprecht.

“We couldn’t possibly be doing a worse job than we’re doing now, so it’s always worth trying.”

While Mendicino works on his pitch, the government is also looking to crack down on illicit activities by ushering in a registry of beneficial owners of companies — an effort at transparency recently taken up by the U.K., noted Leuprecht.

While jailing people for financial crimes can be “very onerous,” he said there are “easier ways” to address the problem, through penalties like “asset forfeiture. The CRA can question somebody’s ownership of property based on their level of income if they suspect illegality.

There is also a problem of “numbered companies” that offer little transparency of ownership. The professor said it was “no mistake” that Prime Minister Justin Trudeau was in the U.K. on March 7, the same day its parliament was moving on its economic crime bill in response to Russia’s invasion of Ukraine. That calls for the creation of a registry of overseas entities and beneficial owners that have property in the U.K.

“It was a signal to the Canadians that we need to do a lot more,” he said.

The feds have outlined their ambitions on that front, with Freeland vowing in last year’s budget to set up such a registry by 2025, which Defalco said will help Ottawa go after actors who try to launder money, “evade taxes” and take part in other complex financial crimes.

For her part, Davis said her “cynical side” tells her that the “goal” of Mendicino’s marching orders is to signal “to our allies we’re taking crime seriously,” but there remain “doubts” about what the agency can achieve until Ottawa fleshes out the details.