Canada Parliament Building and clock tower at night

The Department of Finance Canada has released a discussion paper on the state of Canada’s efforts to combat money laundering in light of the growing popularity of cryptocurrencies, the emerging fintech sector, and offshore tax haven revelations.

The paper, Reviewing Canada’s Anti-Money Laundering and Anti-Terrorist Financing Regime, is designed to support the House of Commons Finance Committee’s upcoming statutory review of federal anti-money laundering (AML) legislation, while also helping to inform Finance Canada’s long-term policy vision for fighting money laundering and terrorist financing.

“The money laundering and terrorist financing environment has evolved since the last review was completed in 2013 and these crimes continue to pose a threat to national security,” the discussion paper says, and “there have been significant advancements in technology” since that review, including the emergence of cryptocurrencies, advances in fintech, and developments in digital identity recognition that, “can facilitate the customer due diligence process which is a cornerstone of the framework.”

In addition to technological changes, there have also been significant developments in the global AML environment, the discussion paper notes, including the revelations about the use of offshore tax havens in the Panama Papers and Paradise Papers.

Among other things, the discussion paper covers:

  • possible legislative and regulatory gaps in the existing AML regime;
  • enhancing information sharing;
  • improving enforcement; and
  • modernizing the AML framework.

The paper contemplates expanding the range of businesses that are required to report to AML authorities to potentially include the white-label automated teller manchine industry, mortgage insurers, and financing, and leasing and factoring companies, among others.

In particular, the paper examines bring lawyers into the AML regime, citing the “role lawyers can play in various questionable dealings including: setting up shell corporations; appointing nominee directors; and falsifying records as referenced in the Panama Papers; or the inappropriate use of trust accounts with or without offshore connections for corporate or real estate transactions here in Canada.”

“The lack of inclusion of the legal profession in Canada’s AML/ATF framework is a major deficiency that negatively affects Canada’s global reputation,” the paper says. “We look forward to further exploring with the law societies how we can address the issue of legal professionals being used to facilitate money laundering and terrorist financing,” it adds.

The discussion paper also highlights progress made at the latest meeting of federal, provincial and territorial finance ministers in December 2017. The ministers agreed to revise corporate laws to:

  • ensure that companies maintain accurate information on beneficial owners that will be available to law enforcement and other authorities; and
  • eliminate the use of bearer shares and bearer share warrants or options.

“Best efforts will be made to bring these amendments into force in all jurisdictions by July 1, 2019,” the paper says.

Finance Canada is also seeking feedback on, “how to improve corporate ownership transparency and mechanisms to improve timely access to beneficial ownership information by authorities while maintaining the ease of doing business in Canada. This includes considering different beneficial ownership registry models and whether information should be made public. The department is also seeking views on risks associated with legal entities that are not corporations, such as legal partnerships.”

Comments on the discussion paper are due April 30.

The Investment Industry Association of Canada (IIAC) will be looking to its AML committee to prepare a submission on behalf of investment dealers, the IIAC says in its latest newsletter.