CRIME: Review faces tough choices on money laundering

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If anyone ever needed proof that money laundering goes on in Canada, they’d only have to look at the scrutiny Quebec’s corrupt construction industry is facing: task forces, hearings, trials, shady payoffs to bureaucrats. It’s like the Sopranos moved to La Belle Province.

And our national record for fighting money laundering over the last decade? More than $1 billion spent, 936 charges … and 194 convictions, a success rate of 21%, lower than almost every other category of crime; nearly all of those convictions involved subjects pleading down to lesser charges and forfeiting their proceeds of crime, and only one resulted in a conviction for the most serious charge of money laundering.

The numbers appear damning … but statistics can be like that. The tough job facing a senate panel reviewing the efficacy of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act is to figure out whether a conviction rate is even important, or whether the issue is deterring the crime from taking place to begin with.

Peter Lamey, with Canada’s financial tracking and analysis agency, FINTRAC, says it’s an important point to weigh: convictions look great, but they come after the crime has been committed.

“We would hope that people would look at the full context of what’s been done in the areas of asset forfeiture and seizure and realize that $200 million … well, if losing that’s not a deterrent, I don’t know what is. There’s no more deterrent for someone than to have engaged the system and lost money.”

And Canada has made a lot of seizures, more than three for every conviction. Much of that was cash seized from people attempting to physically smuggle it over the border.

peterlameyThe $200 million is still a drop in a vast ocean, given that RCMP believe it represents a $5 billion-to-$15 billion market annually, including in Alberta’s oil patch, one of several high-income areas particularly sensitive to the problem. Lamey concedes the issue of criminals pleading down when the case does go to court is disturbing to some. “It’s always a contrast to the Americans, who are quicker and more aggressive to prosecute. I’m characterizing things a little perhaps, but we do seem to see charges brought more often there and in circumstances where we wouldn’t necessarily see them progress here.”

The low conviction rate isn’t the only issue; the system costs a fortune, and that’s not just tax dollars. Businesses have spent millions of dollars complying with the Act’s regulations, first introduced in 2001. For example, financial transactions involving over $10,000 have involved mandatory reporting; when coupled with other suspicious transactions flagged by financial and gaming industry workers, that amounted to about 126 million reports in a decade.

Despite that, as recently as 2010 20% of FINTRAC’s tips to RCMP were not followed up, because the Force’s money laundering division did not have the resources to add new cases to its existing load. That’s left FINTRAC’s latest request – for even lower dollar reporting levels, perhaps zero in some cases – a bit perplexing to numerous stakeholders, even though the move is  aimed not at generating more reports, but at identifying the smaller transactions that help fund modern cell-based terrorism. Most of the agency’s work involves figuring out complex webs of financial transactions that can prove people are working together.

Still, when compared to the 194 convictions, 126 million pieces is a lot of paperwork. Said Sen. Paul Massicotte (Lib.),  during a session with the RCMP, “I have the sense that we are only nudging at the problem. We have to allocate many more resources, expertise and more competent people.”

Some of those before the panel pointed to Britain’s success in fighting illicit transactions using a similar system. Britain’s Alan Hislop, of the Financial Intelligence Unit, Serious Organised Crime Agency, testified his nation has developed guidelines for recognizing suspicious activity at any level in conjunction with the businesses tasked with the tracking. But unlike Canada, it hasn’t forced mandatory minimum reporting levels for the value of transactions.

“Perhaps worthy to point out, there is no automatic de minimis limit, nor is there a requirement for the report to contain only transaction data. Rather, (financial transaction submissions) should contain details of suspicious activity, thus ensuring the widest possible scope for reporting,” he said.

That’s a far preferential way of handling the issue, according to Stephen Harvey, with CIBC, one of several banking sector witnesses. “In terms of effectiveness, is the most effective way to move, for example, reporting of wire transfers from $10,000 to $1? I would submit probably not, because it clogs up the system then with a lot of information that probably does not serve any use. Does it serve any useful purpose to know that I sent a wire transfer to Reader’s Digest for $50? I do not think so. Similarly, I would think it might be appropriate for us to question the very $10,000 threshold even on large cash transaction reporting.”

He was also realistic enough to note that given the volume of crime in the world and how much time can be spent by police and financial agencies fighting it, eventually the criminals always find a way.

“We will not get ahead of the criminals. If they see us, they will just go around to the other side. The reality of life is that our job is to make it as physically difficult for them as possible and as expensive as possible. I read some estimates that 30 years ago you could launder for maybe 10 cents on the dollar and now it is 40 cents. That means we are eroding their profit margin by making them spend more money to launder the proceeds. I suspect that when they hit 100 cents on the dollar they will just double the price and start all over again.”

That’s a common refrain from police in dealing with organized crime, which may explain why the RCMP’s budget for proceeds of crime manpower hasn’t increased since 1996 … long before the era of online banking, gaming and auction houses, all of which are used to launder proceeds. As with the cross-border narcotics trade, it’s hard to know how much of a dent is being made because police simply can’t catch everyone.

Suzanne Johnson, an expert in suspicious transactions from the accounting giant KPMG, suggested that 43 investigators simply aren’t enough, based on available evidence. “This unit does not have the resources to deal with case disclosures that deal with unrelated ongoing investigations,” she told the committee. “I question some of the value FINTRAC is putting here if it is not being used by the RCMP and other agencies.”

Several witnesses noted the same issue, but also questioned when additional spending might become investigative over-saturation, relative to the level of deterrent. They also mentioned the “gross-up factor” of several policing and enforcement agencies working together.

Gunter Rochow, president of the consultancy Capra International, commissioned by the federal government o review the legislation after 10 years, conceded that further gains against money laundering likely would not be made “without adjustments to regime funding.”

But he also testified his company’s mandate was to consider whether the anti-money laundering regime was good value for money, and compared to the gains expected of it – particularly by international partners – it has done well.

“The regime indeed created a hostile environment to anti-money laundering and terrorist financing. This is one of these things that cannot be quantified in ever-so-many terms. However, by creating a hostile environment, the regime has made it a lot tougher for criminals to peddle their wares or to bring in money. They have to fight a lot harder, being criminals.

“Our conclusion about this activity is that we consider that a very major achievement. If we make it tough for them, then less money will be laundered and less terrorist financing will occur. If you ask us the question ‘By how much?’, we cannot tell you. However, we know the environment is a lot rougher and I am glad I am not one of them. It would be a hard time to do the job.”

The senate’s report is expected to be released by March 28.

More on this subject:

From the CBC: How money laundering works:

Information on Canada’s rules and regulations

An outline of why Canada may amend its legislation

Senate testimony pages