FINTRAC fines Laurentian Bank of Canada for STR submission failings

Laurentian Bank of Canada has been sanctioned by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) in light of its breach of Part 1.7 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). Imposing a fine of $486,750, its second largest penalty to date, FINTRAC issued the fine for the bank’s failure to submit suspicious transaction reports (STRs) when there were reasonable grounds to suspect the transactions were related to money laundering. 

The fine comes as the Cullen Commission nears the completion of its investigation into whether systemic regulatory failures are allowing money laundering to take root in the British Columbian real estate market, and in casinos. While the Laurentian Bank of Canada is headquartered in Quebec, the bank does extend its coverage to British Columbia. As of May 4 2022, all evidence has been presented to the Commission and an extension was granted until May 20 2022 for it to deliver its findings.

The Proceeds of Crime (Money Laundering) and Terrorist Financing Act

Introduced to regulate the prohibition of laundering the proceeds of crime and to combat terrorist financing activities, the PCMLTFA and its regulations were amended in June 2018, and subsequently again in June 2019 and June 2020, following Canada’s last mutual evaluation report (MER) from the Financial Action Task Force (FATF) in 2016. 

The 2016 assessment found that Canada had a strong regime to combat money laundering and the financing of terrorism that achieved good results in some areas, but required further improvements to be fully effective. As a result, the 2021 PCMLTFA substantially reduced the time for submitting an STR from “within 30 days” of determining that the activity is suspicious to “as soon as practicable”.

STR filing guidance

To avoid similar substantial penalties, compliance teams in the region should note the STR filing guidance issued by FINTRAC and assess whether their AML programs meet its requirements. The guidance includes what measures to take when establishing if there are reasonable grounds to suspect if a transaction is related to the commission of a money laundering offense or a terrorist activity financing offense. These include:

• Screening for and identifying suspicious transactions;
• Evaluating the context surrounding a suspicious transaction;
• Connecting ML/TF indicators to an assessment of the context; and
• Explaining the grounds for suspicion in an STR, where the reporting analyst must  articulate how the facts, context, and ML/TF indicators allowed them to reach their grounds for suspicion
  

The FINTRAC guidance also reminds compliance staff that reporting an STR to FINTRAC does not prevent firms from contacting law enforcement directly. However, if firms do notify law enforcement of a suspicious transaction, an STR still needs to be submitted. Additional actions firms can take are:

• Initiating enhanced transaction monitoring;
• Closing the account(s) in question or exiting the business relationship; and/or
• Canceling, reversing, or rejecting the transaction.

Strengthening AML/CTF measures 

In 2021 the Financial Action Task Force (FATF) published an update on Canada’s progress in tackling money laundering and terrorist financing since its 2016 assessment, noting that the country had made progress on STR reporting, moving from ‘partially compliant’ to ‘largely compliant’. 

The FATF notes: “Since the MER, Canada has made legislative amendments to require reporting entities to report STRs promptly to FINTRAC, after establishing reasonable grounds to suspect that the transaction or attempted transaction relates to the commission or attempted commission of an ML or TF offense. The deficiencies identified in the MER in relation to the scope of the PCMLTFA remain a minor deficiency”.

The FATF also stated that FINTRAC had improved its compliance on politically exposed person (PEP) screening, wire transfers, reliance on third parties, and DNFBP management. 

For the Laurentian Bank of Canada, the compliance exam conducted by FINTRAC covered the period from January 2018 to March 2019. The bank has paid its penalty and the case is now closed.