Canada's financial system: international contexts

• Author: Robert Hubbard; Daniel Murphy; Fergus O'Donnell; Peter De Freitas
• Pages: 225-251

CANADA'S

FINANCIAL

SYSTEM:

INTERNATIONAL

CONTEXTS

A.

Introduction

In

order

to

conform

to its

international obligations, Canada

has

enacted leg-

islation

requiring

the

mandatory

reporting

of

suspicious transactions.

Consis-

tent with this obligation, Canada

has

also created

a

financial

intelligence unit,

the

Financial Transactions

and

Reports Analysis Centre

(FINTRAC).

In

order

to

appreciate

how

Canada's mandatory reporting system

and

FIN-

TRAC

evolved, this chapter examines

the

international background

to

these

events,

including similar reporting legislation

in

several other countries.

Chapter

5

reviews Canada's laws requiring

the

reporting

of

suspicious

and

prescribed

financial

transactions,

as

well

as

FINTRAC.

Ideally, this chapter

should

be

read

in

conjunction with Chapter

5.

This

chapter reviews Cana-

da's

domestic legislation regarding mandatory financial record keeping

and

the

reporting

of

suspicious transactions. However, Chapter

4 can

also

be

read

alone

as a

historical backdrop

to

Canada's introduction

of the new

Proceeds

of

Crime

(Money

Laundering)

and

Terrorist

Financing

Act}

The

complexity

of the

world's financial system constitutes

a

roadblock

to

many

proceeds-of-crime

investigations.

The

financial

community

and

state

governments slowly began

to

understand that

a

more

efficient

and

co-opera-

tive

means

to

investigate

the

criminal money trail

was

required. (See Chapter

i.)

As a

result, through concerted

efforts

and

co-operation,

the

international

community overcame some obvious impediments

to a

successful

criminal

investigation

of

proceeds

of

crime.

One

impediment

in

Canada

was

that

there

was no

framework

for

seizure

and

automatic

forfeiture

of a

criminal's

property

or

proceeds

of

crime.2

This impediment

was

addressed

in

1989

when

the

Criminal

Code

was

amended

to add

Part

XII.2,3

which created

a

1

Proceeds

of

Crime

(Money

Laundering)

and

Terrorist

Financing

Act, S.C.

2000,

c.

17,

as am.

S.C.

2001,

cs.12,

27, 32, and

41,

(accessible

at

time

of

writing

at <

http://canada.gc.ca/gazette/part2/pdf/

g2-i36i2.pdf>).

The Act

received

royal

assent

on

29

June

2000.

Subs.i-4,

38,

40-44,45(1),

46-53,

para.54(fe)-(,

subss.55(i),

(2)-(6),

55.56-61,

66-82,

84, 85, 90, and

91

came

into

force

on 5

July

2000

(see

51/2000-55).

Ss_5,

7, 8,

10,

and

n,

the

portion

of

5.54

before

para.(fc),

subss.55(3)—(5.1)

and

(7),

and

5.89

came

into

force on 28

October

2001

(see

SI/2OOI-88).

85.9.1,

55.1,

56.1,60.1,

60.2,

and

para.55(5.1)

came

into

force

on 24

December

2001

(see

81/2002-16).

8.7.1

of the Act

also

came

into

force

on

12

June

2002

(see

SI/2OO2-86).

2

Forfeiture

had

been

abolished

in the

Criminal

Code,

S.C.

1892,

c.29

by

5.964.

The

current

iteration

of

that

provision

is

found

in the

Criminal

Code,

R.S.C.

1985

(ist

Supp),

c.

C-46,

s. 8.

3

Proceeds

of

Crime

Act, S.C.

1988,

0.51.

CHAPTER

FOUR

[225]

FOUR: CANADA'S FINANCIAL SYSTEM: INTERNATIONAL CONTEXTS

new

money-laundering

offence,

provisions

to

seize

or

restrain proceeds

of

crime,

and

post-conviction criminal

forfeiture

provisions. (See Chapter

2.)

Part

XII.2

of the

Code

gave

the

state essential provisions

to

attack

the

profits

from

crime. Still,

the

state

can

only

forfeit

assets

that

it can

identify

and

locate. From

a

practical perspective, forfeiture

of

proceeds

of

crime will very

often

be

dependent

on

investigators' ability

to

find

and

follow

a

money

or

property trail. This

led to the

realization that banking

and

other financial

institutions' co-operation

was

essential

to

curb money laundering

and

proceeds

of

crime.

B.

Record

Keeping Obligations

The

development

of

Part

XII.2

of the

Criminal

Code

did not

occur

in a

vacuum. Experience demonstrated that

the

ability

of the

state

to

take control

over property obtained

by

crime, particularly so-called intangible property,

was

not

easy.4

The

addition

of new

proceeds-of-crime

procedures

in the

Criminal

Code

addressed

the

most obvious requirement that

the

state

have

the

authority

to

take control

of

targeted

assets

as an

investigation continued.

However,

two

related problems remained: Canada

had to

provide

the

ability

to

track money

and

other suspicious transactions

and

Canadian legislation

had

to

satisfy

international standards.

An

essential solution

to

both

problems

was

the

implementation

of

mandatory national

financial

record-keeping

and

reporting obligations.

The

Canadian Bank

Acf

was

regularly updated

but was

silent

on

customer

record-keeping obligations;

the

nature

or

scope

of

customer records

and

identification

requirements

are not

included

in the

Act.6

In

addition, until

the

recent enactment

of the

Personal

Information

Protection

and

Electronic

Docu-

ments

Act,1

it was

difficult

to

find

any

statutory bank secrecy provision; that

obligation

was

found

in the

common

law.8

In

light

of the

Supreme

Court

of

Canada's decision

in R. v.

Plant,9

the

ability

of a

bank

to

provide

its

cus-

tomer's information

to law

enforcement

is

open

to

significant doubt. Indeed,

in R. v.

Desai,10

the

judge went

as far as to

conclude that

a

defrauded bank

4

The

decision

of the

Quebec Court

of

Appeal

in R. v.

Banque

Royale

du

Canada

(1985),

18

C.C.C.

(3d)

98

illustrated

that

the

seizure

provisions

of

the

Criminal

Code,

R.S.C.

1985,

c.

C-46,

s. 487 did

not

adequately cover bank accounts.

5

BankAct,S.C.

1991,046,

ss.238(2)(c).

6

M.H. Ogilvie,

Canadian

Banking

Law,

2d ed

(Toronto,

ON:

Carswell,

1998)

at

203—20,

describes

obligations under

the

Bank

Act,

ibid.,

to

keep records

in

Canada.

7

Personal

Information

Protection

and

Electronic

Documents

Act, S.C. 2000,

05.

8

See

Tournierv.

National

Provincial

&

Union

Bank

of

England,

[1924]

i

K.B.

461

(C.A.).

See

also

Stan-

dard

Investments

Ltd.

v.

Canadian

Imperial

Bank

of

Commerce

(1985),

22

D.L.R. (4th)

410

(Ont.

C.A.).

9

(1993),

84

C.C.C.

(3d)

203

(S.C.C.).

10

[2001]

O.J.

No.

2914

(S.C.J).

[226]