Canada Targets Tax Abuse, Money Laundering in Crime Law Overhaul

Canada is poised to expand financial crime laws to tackle major gaps in enforcement and keep pace with fast-changing money laundering methods in a reform slated for the fall.

The Department of Finance’s proposals for the overhaul—detailed in a recent consultation paper—are comprehensive, ambitious and, in some places, controversial, according to lawyers, accountants, and experts who made submissions. The proposals would include more measures to fight tax-related crimes.

“There are a lot of elements that they want to push forward,” Eric Lachapelle, partner and national leader in financial crimes at KPMG LLP, said in an interview. “They want to enforce more and they want to increase collaboration.”

Canada wants to improve authorities’ methods to catch and penalize money launderers, force more businesses and professions to comply with reporting rules, and widen the scope of what authorities can pursue such as national security and economic sanctions evasion.

Many of the proposals, included in a consultation paper, would mean a significant increase in the workload of lawyers and accountants who work in the anti-laundering field in Canada, as well as higher compliance costs for companies, several practitioners said.

Canada proposes putting tax evasion within the financial crimes agency’s mandate and has legislation before Parliament to create a beneficial ownership registry, a key component of its push to catch tax cheats.

The anti-money laundering regime would also be expanded to new sectors like building supplies, dealers of luxury goods and fintech. New reporting obligations would also be imposed on those businesses.

“The government is trying to kind of cast a broader net to capture all of the potential ways in which proceeds of crime can be laundered in Canada,” Julia Webster, partner at Baker & McKenzie LLP in Toronto, said in an interview.

The department released its proposals in June and sought comments until Aug. 1.

‘Struggle to Be Effective’

The proposals come in response to domestic and international critiques of Canada’s anti-money laundering regime and the department’s own assessment that the regime “struggles to be effective” by some metrics. Charges, convictions and forfeitures of the proceeds of crime have all decreased in the past decade, according to the consultation document.

Comments on the proposals will inform a Parliamentary review this fall and the review will lead to legislative amendments, the department said this spring. The government has also pledged an update on a promised financial crimes agency and a review of anti-money laundering authorities’ mandates before the end of the year.

“The Department of Finance is currently reviewing the over one hundred submissions that it received on a wide range of topics including on how to reduce administrative burdens and how to strengthen information sharing processes in ways that preserve the privacy of Canadians,” Martin Begin, a department spokesman, said Sept. 20.

The Proceeds of Crime (Money Laundering) and Terrorist Financing Act, Canada’s main law for fighting money laundering, names certain companies and individuals as “reporting entities.” Such entities must report large or suspicious transactions, run compliance programs and perform due diligence on customers under the act.

Expanded Authority

One of the most significant changes proposed in the consultation paper would be to expand authorities’ powers to tackle criminal behavior, practitioners said in comments.

They include amending the Criminal Code to allow the seizure of digital assets like cryptocurrencies, making it easier to prosecute third parties to a money laundering transaction, such as lawyers, and criminalizing money services businesses like remittance companies that don’t register under the anti-money laundering regime.

Taken in tandem with proposals to increase information sharing between authorities and private groups, as well as among private entities themselves, the proposals point to the government’s interest in tackling money laundering more forcefully, Lachapelle said.

“It’s going one step further, not just reporting, it’s enforcing it,” Lachapelle said. “It’s using the intel to really arrest the criminals and freeze their assets.” The government’s intent to increase enforcement and information-sharing are steps in the right direction, he added.

The possibility of making third parties to money laundering criminally liable for those transactions have triggered pushback during the consultation from lawyers and accountants concerned they could be affected, Suhuyini Abudulai, partner in the banking and specialty finance group at Cassels Brock & Blackwell LLP, said.

“They don’t want to see the expansion of the act to them,” Abudulai said.

Expanded Scope

The paper suggests expanding the scope of the anti-money laundering regime to include new sectors like building supply and renovation companies, as well as dealers in high-value goods like artwork and luxury vehicles. It also floats a wide range of new obligations, including a requirement for all businesses and individuals in Canada to report any bulk cash transaction over a certain threshold.

“If they make very broad and onerous compliance requirements for new industries or existing regulated industries, that’s going to generate a lot of work for service providers,” Webster said. “But it’s not going to do any favors for companies who now have this compliance burden.”

The paper also points to fintech, a broad category of firms, as another area where anti-money laundering enforcement may be insufficient. Fintech firms do everything from help deposit checks, offer credit, transfer money and host accounts. The sector also includes digital “buy now, pay later” programs used by retailers, Abudulai said.

“If would be a significant cost for them to become a reporting entity,” Abudulai said.

The department also sought views on money laundering and terrorist financing risks from digital assets and technologies that are specifically designed to keep those involved in a transactions secret, like Anonymity Enhancing Coins, PrivacyCoins or crypto-mixers.

The government should fully study how these activities would interact with the anti-money laundering regime with the aim of tailoring any legislative or regulatory amendments to focus on specific criminal activity rather than sweeping entire technology types under the act, Eric Belli-Bivar, partner at DLA Piper’s finance group in Toronto, said.

“That would allow fintechs to structure their businesses in such a way that they wouldn’t bump against any of the activities that are considered to be high risk or questionable or suspicious,” Belli-Bivar said in an interview.

Accountant Responsibilities

Canada proposes several ways the government could expand obligations on accountants, like including uncertified accountants under the act. It also wants to expand the list of activities that trigger reporting obligations for accountants to cover gaps like when an accountant provides financial and tax advice to a client.

Several experts pointed to the imbalance between accountants’ responsibilities under the regime and dearth of rules for lawyers, due in part to a 2015 Supreme Court of Canada decision that ruled anti-money laundering laws unconstitutionally infringed on solicitor-client privilege.

Any work around the supreme court decision will be controversial, several experts said. They responded to the department’s request for solutions by pointing to other countries like the U.K. that have created specialized third-party bodies to examine solicitor-client claims.

“A privilege claim can’t just be blanket asserted,” Jennifer Quaid, associate professor and vice-dean of research at the University of Ottawa, said in an interview. “Someone has to go through them and assess whether they’re valid and that seems to be where the system is breaking down.”

“There isn’t a system to do it.”