The United Nations defines money laundering as “any act or attempted act to disguise the source of money or assets derived from criminal activity.” Essentially, money laundering is the process when “dirty money” - produced through criminal activity - is transformed into “clean money,” the criminal origin of which is difficult to trace.
Under Canadian law, a money laundering offence involves various acts committed with the intention to conceal or convert property or the proceeds of property (such as money) knowing or believing that these were derived from the commission of a designated offence. In this context, a designated offence means most serious offences under the Criminal Code or any other federal act. It includes, but is not limited to, those relating to illegal drug trafficking, bribery, fraud, forgery, murder, robbery, counterfeit money, stock manipulation, tax evasion and copyright infringement.
The extent of money laundering activity
No one knows the actual amount of money laundered each year. However, it has been suggested by the International Monetary Fund to be between two and five per cent of global GDP. In Canadian terms, this would suggest that approximately $28 billion to $70 billion is laundered annually. Financial institutions are prime targets because they may provide a variety of services and instruments which permit launderers to conceal the sources of dirty money.
The risk of money laundering in Canada
Canada is considered an attractive jurisdiction for money laundering and terrorist financing because of its stable currency, relatively strong economy, its long un-defended border, and huge volume of commercial and financial trade with the U.S. Also, according to forensic accountants, it’s significantly cheaper to launder a dirty dollar here compared to the US.
There are 3 stages in the money laundering process.
Life insurance companies are most likely to be victimized at the layering stage of the money laundering process.
There are as many methods to launder money as the imagination allows, and the schemes are becoming more complex as technology advances. Two common money laundering methods you might encounter are:
Terrorist financing refers to supplying funds for terrorist activity. Terrorist activity has, as its main objective, to intimidate a population or compel a government to do something. This is done by intentionally killing, seriously harming or endangering a person, causing substantial property damage that is likely to seriously harm people or by seriously interfering with or disrupting essential services, facilities or systems.
To generate and launder funds, a terrorist organization must develop sources of funding and means of obscuring the links between those sources and the activities the funds support. It needs to find a way to make sure that the funds are available and can be used to get whatever goods or services are needed to commit terrorist acts. The fundamental aim of terrorist financing is to obtain resources to support terrorist activities. The sums needed to mount terrorist attacks are not always large and the associated transactions are not necessarily complex.
There are 2 main methods of financing for terrorists:
For more examples of terrorist financing techniques, see What is Terrorist Financing.
As the banking system makes it harder to launder the proceeds of crime, the professional launderers may turn to insurance and investment-type products. Life insurance and investment products can be attractive to money launderers for several reasons. For example:
Insurance transactions also allow the launderers to change the form of funds, not just from cash in-hand to cash on-deposit, but from cash to a secure and liquid asset in an entirely different form, such as a big refund cheque issued by and bearing the name of the insurance company.
Non-compliance with Parts 1 and 1.1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act may result in criminal or administrative penalties.
Administrative monetary penalty
Since December 30, 2008, FINTRAC has legislative authority to issue an administrative monetary penalty (AMP) to reporting entities that are in non-compliance with Canada's Proceeds of Crime (Money Laundering) and Terrorist Financing Act. Refer to FINTRAC: Penalties for non-compliance for administrative monetary penalties policy.
Harm done assessment guides
Visit FINTRAC’s website, Penalties for non-compliance. You will find:
FINTRAC must make all administrative monetary penalties imposed public.
FINTRAC may disclose cases of non-compliance to law enforcement when there is extensive non-compliance or little expectation of immediate or future compliance. Criminal penalties may include the following:
You must report as soon as practicable a suspicious transaction (either attempted or completed) when there are reasonable grounds to suspect that it is related to a money laundering or terrorist financing offence.
To complete a suspicious transaction report, you will need information about you, as the reporting entity, and details about the person conducting or attempting to conduct the transaction and the transaction itself. If your suspicion was raised due to a series of transactions, you will need to include information on each transaction within the report (the report allows for information on more than one transaction to be included).
You will be asked for information about the following aspects of the transaction:
For expectations on completing an STR refer to: Reporting suspicious transactions to FINTRAC
You must also provide these details to Sun Life by emailing firstname.lastname@example.org.
Who has to report suspicious transactions?
You do. The regulations apply to:
Since reporting a suspicious transaction is everyone's responsibility, more than one person might report the same transaction. That's expected - don't let a concern about multiple reports stop you from filing your report.
For more details on reporting suspicious transactions see Suspicious transaction reporting under the PCMLTFA.
It's the most effective weapon against being used unwittingly to launder money. The need to report suspicious transactions makes it more important than ever that you take the time to get to know Clients. Establish each new Client’s identity when you start the relationship. Get to know each Client’s business, background, family and financial situations, objectives and patterns. Above all, be alert for any sign that should arouse suspicion.
We must create Client information records and keep these records up to date. This means, we require completion of the application form or signature page for all new accounts and policies.
For every new account or policy, you will have to:
You will receive follow-up emails from head office if any required documents or information is outstanding.
You will also have to keep certain records, verify the Client’s identity, and report suspicious transactions (completed and attempted), as well as certain other financial transactions, to FINTRAC:
Stiff penalties will applyif someone fails to follow the regulations (see section on penalties for non-compliance above).
These measures will help maintain the integrity of Canada's financial infrastructure. They also represent sound business practices for reducing your risk of being drawn into money laundering or terrorist financing schemes and facing the serious consequences.
Canada's legislation supports initiatives by the Financial Action Task Force on Money Laundering (www.fatf-gafi.org), an international organization of which Canada is a member, to establish international standards aimed at strengthening international co-operation in the fight against money laundering. The measures will help detect and deter organized criminal and terrorist activities in Canada and help ensure Canada is not used to facilitate money laundering for criminals and terrorists.
The money laundering process usually involves a complex series of activities aimed at turning criminal profit into legitimate assets. In most cases, this involves a trail of financial transactions which can be unusual. Red flags tend to emerge.
Through reports to FINTRAC, a store of information is established for analysis by specialists trained in the detection of money laundering and terrorist financing. Links to known criminal/terrorist groups and active investigations often surface during the analysis. Or the police might inform FINTRAC about current investigations and ask that data be searched for transactions linked to suspects. In both cases, information from the reports provides law enforcement agencies with an additional tool for building a successful case.