Kabul Farms Inc. v. Canada, 2015 FC 628

• Judge: Fothergill, J.
• Court: Federal Court (Canada)
• Case Date: April 20, 2015
• Jurisdiction: Canada (Federal)
• Citations: 2015 FC 628;(2015), 481 F.T.R. 100 (FC)

Kabul Farms Inc. v. Can. (2015), 481 F.T.R. 100 (FC)

MLB headnote and full text

Temp. Cite: [2015] F.T.R. TBEd. JN.007

Kabul Farms Inc. (applicant) v. Her Majesty the Queen (respondent)

(T-1128-11; 2015 FC 628)

Indexed As: Kabul Farms Inc. v. Canada

Federal Court

Fothergill, J.

May 15, 2015.

Summary:

Kabul Farms Inc. (Kabul) was a family-run business, operating a grocery store, butcher shop and small restaurant. It also transferred funds on behalf of its customers to Afghanistan, Pakistan and Bangladesh through a "hawala" system. In 2008, Kabul registered with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) due to its business of "remitting/transmitting funds". FINTRAC carried out a compliance examination for the period from October 1, 2009, to January 15, 2010. Ultimately, three violations of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act were identified. An administrative monetary penalty of $6,000 was imposed. Kabul appealed.

The Federal Court allowed the appeal in part, returning the matter to FINTRAC to determine whether an administrative monetary penalty should be imposed and, if so, the penalty's amount.

Administrative Law - Topic 271

The hearing and decision - Right to a hearing - Re penalty - [See Criminal Law - Topic 1999 ].

Criminal Law - Topic 1995

Offences against property - Money laundering and terrorist financing legislation - Compliance offences - Defences (incl. due diligence) - Kabul Farms Inc. (Kabul) was a family-run business, operating a grocery store, butcher shop and small restaurant - It also transferred funds on behalf of its customers to Afghanistan, Pakistan and Bangladesh through a "hawala" system - In 2008, Kabul registered with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) due to its business of "remitting/transmitting funds" - FINTRAC carried out a compliance examination for the period from October 1, 2009, to January 15, 2010 - Ultimately, three violations of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act were identified - An administrative monetary penalty of $6,000 was imposed - On Kabul's appeal, the Federal Court found that, despite its small scale, Kabul's hawala business fell within s. 5(h) of the Act and was, therefore, subject to the Act and its Regulations - Kabul's policy that was in effect during the compliance examination demonstrated only rudimentary efforts to address the minimum requirements of a compliance policy as set out by FINTRAC, including reporting, record-keeping, client identification, risk assessment and risk mitigation - FINTRAC's conclusions regarding Kabul's noncompliance were well-founded and reasonable - Kabul's defence of due diligence was ineffective as it related to events that had occurred after the compliance examination - See paragraphs 29 to 42.

Criminal Law - Topic 1997

Offences against property - Money laundering and terrorist financing legislation - Compliance offences - Appeals (incl. standard of review) - [See Criminal Law - Topic 1999 ].

Criminal Law - Topic 1999

Offences against property - Money laundering and terrorist financing legislation - Compliance offences - Penalties - Kabul Farms Inc. (Kabul) was a family-run business, operating a grocery store, butcher shop and small restaurant - It also transferred funds on behalf of its customers to Afghanistan, Pakistan and Bangladesh through a "hawala" system - In 2008, Kabul registered with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) due to its business of "remitting/transmitting funds" - FINTRAC carried out a compliance examination for the period from October 1, 2009, to January 15, 2010 - Ultimately, three violations of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act were identified - An administrative monetary penalty of $6,000 was imposed - Kabul appealed - The Federal Court allowed the appeal in part, returning the matter to FINTRAC to determine whether an administrative monetary penalty should be imposed and, if so, the penalty's amount - FINTRAC applied an unpublished formula to determine the penalty that resulted from a particular violation - However, s. 73.11 of the Act required FINTRAC to impose a penalty "taking into account that penalties have as their purpose to encourage compliance with this Act rather than to punish, the harm done by the violation and any other criteria that may be prescribed by regulation." - The application of a rigid formula was inconsistent with the Act's plain language - Further, the use of a rigid formula was not disclosed and Kabul was not given an opportunity to make submissions regarding its application - As it was impossible to assess whether an intelligible, transparent and justifiable decision-making process preceded the imposition of the penalties, the imposition of an administrative monetary penalty in the amount of $6,000 was unreasonable - See paragraphs 43 to 51.

Cases Noticed:

New Brunswick (Board of Management) v. Dunsmuir (2008), 372 N.R. 1; 329 N.B.R.(2d) 1; 844 A.P.R. 1; 2008 SCC 9, refd to. [para. 28].

Max Realty Solutions Ltd. v. Canada (Attorney General) (2014), 458 F.T.R. 160; 2014 FC 656, refd to. [para. 28].

Homelife/Experience Realty Inc. v. Canada (Minister of Finance) et al. (2014), 458 F.T.R. 180; 2014 FC 657, refd to. [para. 28].

R. v. Sault Ste. Marie (City), [1978] 2 S.C.R. 1299; 21 N.R. 295, refd to. [para. 40].

R. v. Raham (J.) (2010), 260 O.A.C. 143; 99 O.R.(3d) 241; 2010 ONCA 206, refd to. [para. 41].

Mega International Commercial Bank (Canada) v. Canada (Attorney General) (2012), 407 F.T.R. 232; 2012 FC 407, refd to. [para. 47].

Statutes Noticed:

Proceeds of Crime (Money Laundering) and Terrorist Financing Act, S.C. 2000, c. 17, sect. 5(h) [para. 30]; sect. 73.11 [para. 43].

Counsel:

Habib Qaumi, for the applicant;

James Gorham, for the respondent.

Solicitors of Record:

William F. Pentney, Deputy Attorney General of Canada, Toronto, Ontario, for the respondent.

This appeal was heard at Toronto, Ontario, on April 20, 2015, by Fothergill, J., of the Federal Court, who delivered the following reasons for judgment at Ottawa, Ontario, on May 15, 2015.