Budget 2023 updates: Addressing money laundering and financial crimes

In the recently released 2023 federal budget, the Canadian federal government included several measures intended to strengthen protections against financial crimes across the country, which build on Canada’s existing Anti-Money Laundering and Anti-Terrorist Financing Regime (the AML/ATF Regime). 

The proposed changes come partially as a response to the gaps in the AML/ATF Regime highlighted in the Cullen Commission’s final report issued in June 2022, a provincial inquiry in British Columbia into money laundering activities in the province. In the report, the commission states the federal regime’s main issues include: a lack of a strategic vision, an inability to share intelligence between law enforcement and financial industry regulators, and insufficient law enforcement resources to address money laundering offences. 

Discussion on proposed legislative changes

To resolve these current issues with the AML/ATF Regime, the government proposed several changes in the 2023 federal budget, including: strengthening provisions of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), updating a number of other acts that apply to participants in Canada’s financial sector, and increasing oversight of Canada’s financial sector by the Office of the Superintendent of Financial Institutions (OSFI), the Financial Transactions and Reporting Analysis Centre of Canada (FINTRAC), and other regulatory agencies.

One of the major changes proposed is to criminalize the operation of an unregistered money services business in Canada, through amendments to both the Criminal Code and PCMLTFA. Another key proposal is to improve financial intelligence information sharing between various organizations that may have information useful for prosecuting financial crimes, such as the Canada Revenue Agency and FINTRAC. There are also several proposals specifically relating to FINTRAC in order to increase its oversight and ability to respond to financial crimes, such as adding increased reporting obligations between members of the financial sector and FINTRAC, increasing whistleblower protections for employees reporting to FINTRAC, and broadening the use of non-compliance reports by FINTRAC in criminal investigations. 

Some of the other legislative changes referenced in the budget to improve Canada’s AML/ATF Regime include:  

• Increasing law enforcement’s ability to freeze or seize virtual assets with suspected links to crime; 
• Introducing a new offence for transactions structured to avoid FINTRAC reporting; and
• Strengthening the regulatory framework generally, including through criminal record checks for currency dealers and other money services businesses.

Changes for Financial Institutions 

The federal government also referenced several changes that will apply specifically to financial institutions and their role in supporting Canada’s AML/ATF Regime. These changes are intended to do the following: 

• Expand OSFI’s mandate to include reviewing policies and procedures of federally regulated financial institutions (FRFIs) to ensure they are adequate to protect against threats to security and integrity of FRFIs, including threats posed by foreign interference; 
• Expand situations in which OSFI can take control of FRFIs to include: (a) when the FRFI’s integrity and security are at risk, (b) when shareholders are precluded from exercising voting rights or (c) when national security risks are faced;
• Increase the powers of the minister of finance under the PCMLTFA to require enhanced due diligence when the minister feels it is necessary to protect against national security threats, and allowing the director of FINTRAC to share intelligence with the minister of finance to assess such threats; and
• Improving the way compliance information is shared between FINTRAC, OSFI, and the minister of finance, and designating OSFI as a recipient of FINTRAC disclosures relating to threats to Canada’s security if such disclosures are relevant to OSFI’s responsibilities.

Other related changes proposed to address the risk of financial crime in Canada

Other proposals in the 2023 federal budget to help address the risk of financial crimes in Canada include creating a corporate ownership registry, increasing disclosure requirements for FRFIs, creating a new regulatory entity for financial crime, and increasing funding for law enforcement involved in prosecuting financial crime.

A Corporate Ownership Registry

The federal government proposed creating a federal beneficial ownership registry, which will be a public searchable registry that lists the beneficial ownership of all corporations governed by the Canada Business Corporations Act (CBCA).

Initially, this registry will be limited to CBCA corporations, but the budget mentions that the registry may be expanded to include data on provincial and territorial corporations in the future, should the government of the relevant province/territory agree to participate. Using anonymous Canadian shell companies can conceal the true ownership of property, businesses, and other valuable assets and they can be used by those seeking to launder money, avoid taxes, evade sanctions, or interfere in our democracy. This registry will allow authorities to determine true ownership of shell companies.

Increased Disclosure Requirements

Following the recent turbulence in the crypto-asset markets, the federal government is proposing to create new disclosure requirements for FRFIs and federally regulated pension funds, requiring public disclosure of their exposure to the crypto-asset space. OSFI will launch a consultation process with federally regulated financial institutions on proposed guidelines for providing crypto-asset disclosure.

A New Regulatory Entity and Increased Funding for the Fight Against Financial Crime

The federal government also reaffirmed its commitment to establishing the Canada Financial Crimes Agency, a new regulatory agency that will be the lead agency combating financial crime, bringing together expertise from several law enforcement agencies to increase money laundering charges, prosecutions, convictions, and asset forfeitures in Canada. The federal government also committed to increasing funding for the RCMP to increase protections for Canadians from interference, harassment and intimidation by foreign actors.

Conclusion

Many of these changes, while not yet implemented, may have implications for those operating in the financial services industry in Canada. We will continue to monitor these developments closely as they develop over the coming year.