Moreover, the Report found that some of the $12.9 billion approved for fighting terrorism in Canada went to pay for projects like renovating the apartments for married personnel at the Shilo Canadian Forces Base in Manitoba. Funds also went to pay for a security expert to provide security services to a foreign country in connection with a sporting event. The use of funds for those two projects appears inconsistent with the five PSAT objectives listed below for which the $12.9 billion was approved.

In the fiscals years 2001 – 2009, the Treasury Board allocated $12.9 billion for counter terrorism activities, but federal departments and agencies reported spending only $9.8 billion and none of the relevant agencies can, it appears, as of the date of the Report, account for the allocation of the remaining $3.1 billion.

In 2001, after 9/11, the federal government put in place a Public Security and Anti-Terrorism (“PSAT“) initiative to fund measures to combat terrorism whose objectives were to:

• keep terrorists out of Canada;
• deter, prevent, detect, and prosecute and/or remove terrorists;
• facilitate relations between Canada and United States;
• support international initiatives; and
• protect Canada’s infrastructure.

Over the reporting period, agencies that were funded pursuant to the PSAT initiative reported receiving $9.8 billion to meet the PSAT objectives from a total of $12. 9 billion that was actually allocated by the Treasury Board.

No entity appears to know where the unaccounted for $3.1 billion went, however, three theories emerge in the Report: (a) $3.1 billion lapsed and was never spent; (b) $3.1 billion was spent as part of the PSAT initiative but no one is sure specifically on what or where; or (c) $3.1 billion may have been spent on other programs not approved pursuant to the PSAT initiative. No doubt in the coming weeks, the $3.1 billion will be located and accounted for.

On a going-forward basis, the Treasury Board will make policy changes in respect of the PSAT initiative and its funding to ensure that there are mechanisms in place that require the reporting of financing and non-financial information to the government.

The Auditor General audits federal government operations and provides Parliament with independent information, advice, and assurance regarding the federal government’s stewardship of public funds.

The Report can be viewed here.

The inaugural meeting of the Vancouver ACAMS chapter was held at River Rock Casino and explored ways that AML/CTF specialists could work towards detecting and preventing money laundering, closing money laundering loopholes and imposing tougher penalties. “This was about creating something in Vancouver’s back yard, a place where problems can be talked about and public-private networks created,” said Mr. Clement.

Mr. Clement highlighted the significant problem of cybercrime and said that he was aware of a case where two people were bilked out of $1.6 million from an online dating site.

The link to the Vancouver chapter is here.

You can read more from the article here.

Mr. Justice Hinkson, who wrote the decision for the Court, indicated that the Court of Appeal referred to the Financial Action Task Force (“FATF“) in rendering its decision, and to other anti-money laundering (“AML“) initiatives worldwide and in his reasons, wrote that money laundering is a “colloquial” term, which it is not, and incorrectly suggested that all the FATF primarily does is develop and promote policies to combat money laundering and terrorist financing.

Comments such as those above suggest that the courts may have some way to go in understanding anti-money laundering and counter terrorist financing issues, and the role of the FATF, including why Canada participates in, and was a founding member of, the FATF.

Interestingly, the last Mutual Evaluation of Canada by the FATF recommended, among other things, that Canada undertake to educate its judiciary on anti-money laundering and counter-terrorist financing law.

In respect of the decision, Canada is one of the only jurisdictions in which lawyers are exempt from AML legislation.  No word yet on whether the Crown will appeal the decision to the Supreme Court of Canada. My sense is that it has a good chance of being overturned on appeal.

The report, entitled “Follow the Money: Is Canada Making Progress in Combatting Money Laundering and Terrorist Financing? Not Really” (the “Report“) makes several findings and recommendations, the chief of which is that the Canadian federal legislation implementing the Financial Action Task Force (“FATF“) 40 Recommendations on combating money laundering and terrorist financing, namely the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its regulations are ineffective and need to be substantively changed.

You can read our thoughts on the Report at Duhaime Law here.

However, Canada is still a “major money laundering country” along with, among others, Afghanistan, Brazil, Cambodia, Dominican Republic, Guernsey, Jersey, Libya, Mexico and Macau. A “major money laundering country” is one whose financial institutions engage in currency transactions involving significant amounts of proceeds from international narcotics trafficking.

The key findings of Volume 1 on the drug trade vis a vis Canada are:

• Canada remains a major producer of precursor chemicals used in the production of illicit narcotics;
• Canada also remains a destination and transit country for precursor chemicals, especially crystal meth and ecstasy;
• Precursors in Canada are smuggled in from China and India and although some illegal imports are detected, the levels of seizures has decreased significantly, possibly a reflection of less resources allocated to CBSA;
• Canada remains a substantial producer of ecstasy for domestic use (from British Columbia) and remains the primary supplier to the U.S.;
• Canada also supplies ecstasy in large quantities to Japan, Australia and New Zealand;
• Cannabis is produced in significant quantities in Canada (British Columbia primarily) for domestic use and for export to the U.S.; and
• Canadians are among the heaviest consumers of opiates in the world and have a preference for diazepam, clonazepam, lorazepam, methylphenidate, pentazocine, oxycodone, and steroids.

The key findings in respect of money laundering and financial crime in Volume 2 for Canada are:

• Canada is a country of primary concern for money laundering, along with places such as Afghanistan and Argentina;
• Canada remains a major money laundering country because its banks continue to allow transactions from drug proceeds;
• Money laundering activities in Canada primarily are from illegal drug trafficking and financial crimes (securities fraud and credit card fraud);
• Trade-based money laundering is a concern in Canada;
• There were only 18 convictions for money laundering in Canada – one of the lowest worldwide rates;
• Canada continues to have a very weak enforcement capability for money laundering;
• Canada continues to have a weak conviction capability for money laundering;
• Prosecutors in Canada plea bargain away money laundering cases because they are perceived as “too difficult”; and
• Casino industry issues continue to be a problem and Canada should work to strengthen its AML/CTF measures for casinos.

Volume 1 Available here.

Volume 2 Available here.

A “user” of virtual currency is a person that uses it to buy goods or services. An “exchanger” is a person engaged, as a business, in exchanging virtual currency for real currency, funds, or other virtual currency. And an “administrator” is engaged, as a business, in issuing virtual currency and has the authority (and capability) to redeem or withdraw from circulation, the virtual currency. And as it relates to virtual currency, only those types that are convertible are subject to the Regulations, i.e., currency that has value in real currency or acts as a substitute for real currency.

The Guidance specifically deals with three scenarios that are triggered with exchangers and administrators, as follows:

• E-currencies & e-precious metals – the transfer of funds between a customer and a third party by permitting a third party to fund a customer’s account; the transfer of value from a customer’s currency or commodity position to the account of another customer; or the closing of a customer’s currency or commodity position with a transfer of proceeds to a third party;
• Centralized virtual currencies - having a centralized repository and allowing the transfer of value between persons or from one location to another; and any exchange that uses its access virtual currency services provided by an administrator to accept and transmit virtual currency on behalf of others, including transfers to pay a their party for virtual goods and services; and
• Decentralize virtual currencies – (e.g., bitcoin) with respect to decentralized virtual currencies (that have no central repository and no single administrator), creating units of virtual currency and selling those units to another person for real currency, or accepting decentralized virtual currency from one person and transmitting it to another person as part of the acceptance and transfer of currency, funds or other value that substitutes for currency.

You can read the Guidance here.

The Act creates a cause of action that allows victims of terrorism to sue natural and legal persons (and of particular interest, listed entities) and certain foreign states, in a Canadian court for loss or damages suffered as a result of acts or omissions that are punishable under Part II.1 of the Criminal Code (the terrorism offences). The cause of action is available to victims who are Canadian, permanent residents or if none of those, if they can demonstrate a real and substantial connection between their claim and Canada.

Claims are available whether the loss occurred inside or outside Canada after January 1, 1985, however, if the loss occurs outside Canada, there must be a real and substantial connection to Canada. With respect to prospective defendants, under the Act a defendant is presumed to have committed the terrorist act if the listed entity caused or contributed to the loss or damage and the defendant committed the act for the listed entity.

The Act also suspends certain limitation periods where the victims are incapable of commencing an action because of physical, mental and psychological conditions, or when the victim is unable to ascertain the identity of a perpetrator.

The Act amends the State Immunity Act to create a new exception to state immunity, the general rule that prevents states from being sued in Canada’s domestic courts. The exception removes state immunity only if the state in question has been placed on a list established by Cabinet on the basis that there are reasonable grounds to believe that it has supported or currently supports terrorism.

The relaxation of state immunity is somewhat controversial. Under international law, states have customarily enjoyed complete immunity from being sued in the domestic courts of other states. This arises from the international law principle of the sovereign equality of states, which includes the principle that no one state be subject to the courts of another. This principle has been modified for years in the context of maritime law as a result of commercial necessity.

The Act is of questionable constitutionality because it allows victims to recover for tortious conduct which is a matter of provincial, not federal, competence under §92(13) of the Constitution Act, 1867. No doubt the first defendant will challenge the constitutionality of the Act.

The U.S. is the only other country with similar legislation – the Anti Terrorism and Effective Death Penalty Act of 1996.

According to this article in the Vancouver Sun, the Vancouver airport tops the country with the most seizures of unreported currency by travellers, with over $15 million intercepted in one year. Most of the persons entering or departing the country with undeclared currency originate or are travelling to, China.

Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (“PCMLTFA”), every person must report without delay to the Canada Border Services Agency (“CBSA“) the importation into Canada or exportation out of Canada of currency or monetary instruments equal to or that exceed $10,000.

Monetary instruments include shares, bonds, debentures, bank cheques or bank drafts, promissory notes, travellers’ cheques and money orders, provided they are in bearer form and title passes upon delivery.

On average across the country, approximately $8.2 million is seized from Canadians and travelers to Canada by the CBSA because of a failure to report the importation or exportation of currency or monetary instruments. Most of the funds seized are forfeited to the government. A person may import into Canada or export from Canada any amount, however, amounts equal to or greater than $10,000 must be reported to CBSA.

When a person is suspected of importing or exporting currency or a monetary instrument equal to or greater than $10,000, the CBSA officer may search the person, their luggage and any conveyances.  If funds are located, the CBSA may seize them if the officer has reasonable grounds to suspect that the reporting requirements of the PCMLTFA have not been complied with. The CBSA uses “sniffer dogs” at airports and other points of entry that can detect money.

Several recent cases have confirmed that a person can be convicted of a failure to report under the PCMLTFA without having formed the intent to commit the act.

For example, in 2004, a truck driver, Van Phat Hoang, was driving across Canada and mistakenly exited to the U.S. border in the middle of the night in his truck. He had $70,000 cash with him. He turned around before reaching the U.S. checkpoint and upon re-entering Canada, his funds were seized and forfeited to the Crown because he had failed to complete a report with CBSA.

The Federal Court of Canada held, based on numerous previous cases, that there is no requirement to establish intent for the offence to be proven.  It is also irrelevant who legally owns the currency or monetary instrument – the person in possession of the currency or monetary instrument is the person who is subject to the PCMLTFA reporting obligations.

With respect to a conveyance, the person who controls the conveyance is the responsible party for the purposes of reporting. Several recent cases have dealt with private jets entering Canada with unreported currency. The funds are routinely seized and the controller of the jet, usually the captain, is unwittingly implicated in an unreported importation of currency into Canada.

Between 2003 and 2007, most of the seizures at the border involved undeclared currency, followed by travellers cheques, bank drafts, regular cheques, money order and share certificates.

Cross border currency reports are shared between Canada and the U.S. In the U.S., over $107 million is seized from travelers or Americans in undeclared or illicit currency every year.

• From 1994 – 2011, Russia lost US$211 billion in illicit cash outflow;
• Most of the illicit outflows appears to be from mis-invoicing of trade (trade-based money laundering);
• Bribery and kick-backs appear to be underlying problem;
• Russia’s underground economy is thriving and supports the illicit flow of funds; and
• Better legal controls are needed to combat bribery, terrorist financing and money laundering.