Reporting suspicious transactions – when do you have reasonable grounds to suspect in law?

By Christine Duhaime | October 6th, 2019

LEGAL COMMENTARY

Proceeds of Crime (Money Laundering) and Terrorist Financing Act

Under Part 1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (“PCMLTFA”),[1] each person or entity subject to the PCMLTFA is required to report to the Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”) every financial transaction that occurs and every financial transaction that is attempted in the course of their activities if there are reasonable grounds to suspect that either: (a) the transaction is related to the commission or the attempted commission of a money laundering offence; or (b) the transaction is related to the commission or the attempted commission of a terrorist activity financing offence.

The requirements for suspicious transaction reporting are addressed in guidance from FINTRAC but such guidance is non-binding. There must, however, be not only reasonable grounds to suspect but also the grounds must be tied to a predicate offence. It is not enough in law to be suspicious, or to have a suspicion about a person or a transaction – to meet the legal threshold, there must be reasonable grounds to suspect in connection to the predicate offence (of which there are ~160 in Canada). If a person does not know the predicate offences, there is nothing to report because the person can make no connection in law between the reasonable grounds being raised in connection to an offence.

The author in A Guide to Canadian Money Laundering Legislation[2] states that the wording of s. 7 of the PCMLTFArequires that the reporting entity have “reasonable grounds” for suspicion before there is a reporting obligation, and provides:

“Reasonable grounds” is a difficult concept to deal with in law and there is no clear objective meaning to the phrase “reasonable grounds”. Canadian jurisprudence has considered the phrase in the context of its particular usage in statutory provisions raised by the litigation at hand. Still, Canadian legal dictionaries indicate that “reasonable grounds” may involve a bona fide belief in a serious possibility based on credible evidence or judgment of a person exercising his or her training and experience. Guideline 2states: ‘“Reasonable grounds to suspect’ is determined by what is reasonable in your circumstances, including normal business practices and systems within your industry.”

While an entity is only required to report if there are reasonable grounds, the law does not clearly define what reasonable grounds are. Does reasonable mean that something is apparent beyond a reasonable doubt, or is something reasonable when there appears to be a basis for concern? The legal definition as to what are reasonable grounds in the context of the PCMLTFA will evolve as the courts decide when a report should or should not have been made. The judgment that will need to be made in the meantime is whether the indicators are sufficient that you reasonably should have identified the relation to money laundering. This is in the drafting of the statute to require that a suspicious transaction be reported when there is something less than certainty that a transaction is related to the offence.

In the academic article, “Canada’s Laws on Money Laundering & Proceeds of Crime”,[3] the author alludes to the difficultly in proving knowledge in the context of proceeds of crime legislation:

[The Criminal Code] deals with any property or any proceeds of any property which is intended to be concealed or converted. There must be knowledge or belief on the part of the person who is doing the concealing or converting that the property was obtained from an offence. It is very difficult (for police) to prove this knowledge and that is why there are not a lot of prosecutions with respect to laundering activities. 

The authors of “Silence is Golden – Or Is It? FINTRAC and the Suspicious Transaction Reporting Requirements for Lawyers”[4] attempt to address the standard of reasonable suspicion to which lawyers were to be required to follow under s. 7 of the PCMLTFA before it was struck, stating:

Whether or not it is left to the subjective opinion of lawyers to determine what constitutes a suspicious transaction, it is nevertheless a debatable standard given the language of section 7. On the one hand, the word “reasonable” seems to suggest that an objective standard rather than a subjective standard applies. However, given that the offences under the Act are hybrid offences, and given the severe punishment that may result from committing such offences, it is questionable whether a purely objective standard should apply, especially since the PCMLTFA makes intent a necessary element for establishing that an offence has been committed.

If, on the other hand, the standard is indeed purely subjective, it would mean that entities are free to exercise their discretion in deciding whether or not transactions raise suspicion. In that case, the Crown could not argue that those entities that did in fact engage in suspicious transactions and failed to report it, ought to have been suspicious.

Criminal Code

In analyzing s. 462.31 (offence of laundering) of the Criminal Code,[5] the author in Proceeds of Crime and Money Laundering[6] commented that:

The laundering offence vastly increases the reach of criminal law to include a broad range of conduct not previously considered criminal. Shortly after it became law, Alan Gold warned of the implications of the laundering offence:

… the provisions … are expressed in language so broad that anyone dealing with any form of property or proceeds thereof, from anywhere in the world, that may be viewed as derived from acts that would arguably be criminal under Canadian law with knowledge or even merely suspicions concerning these suspect origins is a potential accused for violation of the provisions.

. . .

The definition of laundering in s. 462.31(1) is a 107 word sentence, which does not include the word “launder”, or any derivative. The mens rea is complex, compounded by specific intent and specific knowledge requirements, as follows: 

  • an act,
  • property or proceeds,
  • intent to conceal or convert,
  • knowing or believing its illegal origin, and
  • a nexus to a predicate offence, act or omission.

. . .

(d) ”knowing or believing” its illegal origin

The word “believing” was added by the Criminal Law Improvement Act, 1996 to the definition of laundering in the Criminal Code, the Customs Act and the Excise Act. 

The knowledge requirement can be satisfied by an accused person choosing to remain wilfully blind to the source of funds. The leading case on wilful blindness is R v. Sansregret.[7]

In discussing the element of “knowledge” in the context of criminal liability, Assistant Professor Julian Hermida at Algoma University, states:[8]

The concept of knowledge entails an awareness that defendant is committing an act that is considered an offence. It does not require any knowledge of the unlawfulness of such act or omission. A person acts knowingly when the person is aware of the nature of his conduct or that the circumstances then surrounding the conduct exist; or when he is aware that the conduct is reasonably certain to cause the result. The main distinction between intention and knowledge is that the former entails a conscious desire to cause a particular result by one’s conduct and the latter entails an awareness that the result is practically certain to follow from such conduct. 

JURISPRUDENCE

Suspicion and Reasonable Grounds to Suspect

In Sellathurai v. Canada (Minister of Public Safety and Emergency Preparedness),[9] the Federal Court considered the meaning of “reasonable grounds to suspect” in the context of seized funds that were proceeds of crime under s. 462.3(1) of the Criminal Code or were to be used in the funding of terrorism. The Court in reviewed the Supreme Court of Canada’s interpretation of the phrase “reasonable grounds to believe” in Mugesera v. Canada (Minister of Citizenship and Immigration),[10] where the Supreme Court of Canada stated that:

  • the “reasonable grounds to believe” standard requires something more than mere suspicion, but less than the standard applicable in civil matters of proof on the balance of probabilities”; and
  • reasonable grounds will exist where there is an objective basis for the belief which is based on compelling and credible information.

In attempting to describe this “lesser but included standard”, the Federal Court clarified:

[70]     … In my view, even reasonable grounds to suspect must involve more than a “mere” or subjective suspicion or a hunch. The suspicion must be supported by credible objective evidence…

[71]     If credible objective evidence is required to support a suspicion, the question becomes where does the lesser standard appear. To this point, both reasonable grounds to believe and suspect have been treated identically. In my view, the difference must appear in the characterization of the evidence. In Mugaserasupra, the Court said that “compelling” evidence was needed to support reason to believe. In my view, this is where the distinction is made. Evidence to support a suspicion need not be compelling, it must simply be credible and objective.

[72]     With regard to the burden of proof on an applicant who wishes to dispel a suspicion based on reasonable grounds, it is my view that such an applicant must adduce evidence which proves beyond a reasonable doubt that there are no reasonable grounds for suspicion. Only in such circumstances will the evidence be sufficient to displace a reasonable suspicion.

The Federal Court’s approach to the standard of proof in relation to “reasonable grounds to suspect” was affirmed on appeal and followed in subsequent federal decisions.[11]

In the recent case of R. v. Kang-Brown,[12] the Supreme Court of Canada considered what constitutes “reasonable suspicion”, which essentially equates to “reasonable grounds to suspect” according to the Federal Court of Appeal in Sellathuraisupra. The Supreme Court of Canada stated:

[75]     The “reasonable suspicion” standard is not a new juridical standard called into existence for the purposes of this case. “Suspicion” is an expectation that the targeted individual is possibly engaged in some criminal activity. A “reasonable” suspicion means something more than a mere suspicion and something less than a belief based upon reasonable and probable grounds. As observed by P. Sankoff and S. Perrault, “Suspicious Searches: What’s so Reasonable About Them?” (1999), 24 C.R. (5th) 123:

[T]he fundamental distinction between mere suspicion and reasonable suspicion lies in the fact that in the latter case, a sincerely held subjective belief is insufficient. Instead, to justify such a search, the suspicion must be supported by factual elements which can be adduced in evidence and permit an independent judicial assessment.


[1] PCMLTFA, as amended, S.C. 2006, c. 12.

[2] Terence D. Hall, A Guide to Canadian Money Laundering Legislation, 2009 ed. (Markham: LexisNexis, 2008).

[3] Tim Tapley, “Canada’s Laws on Money Laundering & Proceeds of Crime” (2004) Asper Rev. of Int’l Bus. And Trade Law 35, online: <http://robsonhall.ca/faculty_public_data/asperweb/conferences/2003/papers/003%20Canada%27s%20Laws%20on%20Money%20Launder%20&%20Proceeds%20of%20Crime.pdf>.

[4] Paul Waller and Katrin Roth von Szepesbela, “Silence Is Golden – Or Is It? FINTRAC and The Suspicious Transaction Reporting Requirements For Lawyers” (2004) Asper Rev. of Int’l Bus. and Trade Law 85, online: <http://robsonhall.ca/faculty_public_data/asperweb/conferences/2003/papers/006%20Silence%20is%20Golden%20-%20Or%20is%20It.pdf >.

[5] The provision reads:

462.31 (1) Every one commits an offence who uses, transfers the possession of, sends or delivers to any person or place, transports, transmits, alters, disposes of or otherwise deals with, in any manner and by any means, any property or any proceeds of any property with intent to conceal or convert that property or those proceeds, knowing or believing that all or a part of that property or of those proceeds was obtained or derived directly or indirectly as a result of (a) the commission in Canada of a designated offence; or (b) an act or omission anywhere that, if it had occurred in Canada, would have constituted a designated offence.

[6] Peter German, Proceeds of Crime and Money Laundering (Carswell: Ontario, 2010) at 6-3 and 6-6.

[7] [1997] 2 S.C.R. 462. Discussed below.

[8] “Canadian Criminal Law” at 30, online: <http://julianhermida.com/algoma/canadacrimlawiel.pdf>.

[9] 2007 FC 208, aff’d 2008 FCA 255.

[10] [2005] 2 S.C.R. 100 at para. 114.

[11] Ondre v. Canada (Minister of Public Safety and Emergency Preparedness), 2007 FC 454 (F.C.); Hamam v. Canada (Minister of Public Safety and Emergency Preparedness), 2007 FC 691 (F.C.); Yusufov v. Canada (Minister of Public Safety and Emergency Preparedness), 2007 FC 453 (F.C.); Majeed v. Canada (Minister of Public Safety and Emergency Preparedness), 2007 FC 1082 (F.C.); Tourki v. Canada (Minister of Public Safety and Emergency Preparedness), 2007 FC 746; Dag v. Canada (Minister of Public Safety and Emergency Preparedness), 2007 FC 427; and Yang v. Canada (Minister of Public Safety and Emergency Preparedness), 2008 FC 158 (F.C.).

[12] 2008 SCC 18.

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