Duhaime's Financial Crime and Anti-Money Laundering Law

Canada apparently a worse terrorist financing and money laundering risk than Chile, Cyprus, Romania, Hungary, Israel and Egypt

By Christine Duhaime | June 14th, 2013

The Basel Institute on Governance has published an interesting compilation of its view of how countries rank as money laundering and terrorist financing jurisdictions of risk. To the extent the ranking may be accurate, it may be obviously helpful to businesses engaged in international trade and commerce and to agencies that are required to report suspected money laundering activities to financial intelligence units worldwide.

The Index may not be entirely reliable, however. According to the Index, Canada ranks as the 109th most risky state and unbelievably is listed as more of a money laundering and terrorist financing risk than each of Egypt, Taiwan, Israel, Cyprus, Saudi Arabia, the Czech Republic, Peru, Jamaica, Romania, Hungary, Slovenia, Chile, France and South Africa.

Canada’s score is close to the score given to El Salvador and Uruguay.

The top 20 worst jurisdictions (according to the Index) for money laundering and terrorist financing are as follows:

Afghanistan
Iran
Cambodia
Tajikistan
Iraq
Guinea-Bissau
Haiti
Mali
Swaziland
Mozambique

The U.S. Department of State produces a comprehensive set of reports on money laundering and terrorist financing risks as follows:

Terrorism Annual Country Reports on Terrorism

Money Laundering – International Narcotics Control Strategy Report

Canadian charged with failure to report importation of money concealed in underwear

By Christine Duhaime | June 12th, 2013

The US has charged a Canadian woman for failing to report the transportation of more than USD$10,000 cash in the country as required by US anti-money laundering legislation. The woman, Moura El-Asmar, is alleged to have sewn $39,000 into her bra and to have attempted to enter the US wearing that bra. She is also alleged to have sewn $20,000 into her daughter’s bra and to have convinced her to cross the border with it.

While there is no limit on the amount of money that can be imported into the US, or exported therefrom, any amount over $10,000 must be reported. The obligation applies to currency and monetary instruments.

A “monetary instrument” includes the following:

currency
travellers’ cheques
negotiable instruments (including cheques, promissory notes and money orders) if in bearer form
incomplete instruments that are signed
securities and stock certificates in bearer form

The requirement to report arises whether the monetary instrument is physically transported into the US or out of the US by a person, by mail or shipment and if the person causes the above to occur.

It also applies to persons who receive in the US, currency or monetary instruments exceeding $10,000 at one time that were transported, mailed or shipped to the person from outside the US.

Hong Kong woman sentenced for being a money mule for laundered Canadian funds

By Christine Duhaime | June 11th, 2013

Canadian funds carried by money mule to China

The Court of Appeal for Hong Kong has upheld the money laundering conviction of a woman who acted as a money mule to China, and increased her sentence to two years.

The decision, HKSAR v. Ngai Fund Sin Apple is one of a series of criminal money laundering cases in Hong Kong that have been prosecuted over money mules – people who are hired to transport proceeds of crime into other countries.

The defendant, Ngai Fung-Sin Apple, was born in Mainland China and moved to Hong Kong in 1989. In 2005, she opened an account at the Bank of China and almost never used it. Suddenly, in January of 2011, five transactions were wired into her account via the Internet from two Canadians from the Hong Kong and Shanghai Banking Corporation Limited totalling $243,869.

Subsequently, the HKSB reported that the transfers were completed without authorization and the remitters did not know Ms. Apple. However, Ms. Apple quickly withdrew the wired funds in cash and transported them to China where she remained for a year.

Ms. Apple was arrested upon re-entry into Hong Kong a year later and charged with money laundering.

She testified at her trial that she committed the offence, and that she did it because she wanted to help a friend, Chen Yan, who needed funds in China. According to Ms. Apple, Ms. Yan asked to use her bank account to receive the funds and then asked her to carry the funds to China. Ms. Apple agreed to do so, believing it was legal and that she was merely helping her friend.

She was found guilty at trial and sentenced to 10 months’ incarceration (DCCC 198/2012). The Secretary for Justice in Hong Kong appealed the sentence on the grounds that it was too lenient for international money mule activities.

The Court of Appeal agreed that a sentence of 10 months was too lenient for laundering proceeds of crime. Her sentence was increased to two years.

The Court of Appeal noted that Ms. Apple allowed others to use her bank account from Canada and then directly dealt with the funds by withdrawing them from the account and transporting them to China. The fact that she did not personally gain from the process was irrelevant. The Court of Appeal went on to note that money laundering is a “very serious crime because it indirectly furthers the commission of other serious crimes, especially international crimes; therefore, the court must deal with it seriously in order to produce a deterrent effect.”

US annual report on terrorism identifies terrorist safe havens

By Christine Duhaime | May 30th, 2013

US Terrorism Report Released

The U.S. Department of State released its annual Country Reports on Terrorism today (the “Report“), and interestingly, identified 10 key terrorist safe havens worldwide, namely Somalia, Mali, Iraq, Lebanon, Libya, Yemen, Afghanistan, Pakistan, Columbia and Venezuela.

On the specific country reports, the Report identified positive steps taken by Canadian courts in connection with counter-terrorism efforts, namely, the convictions which were upheld against Momin Khawaja for terrorism and the extradition of Suresh Sriskandarajah to face charges in the U.S. for money laundering and terrorist financing.

The Report noted also that 2012 marked an increase in Iranian state sponsorship of terrorism with incidents of terrorism at levels last seen in the 1990s.

The Report can be accessed here.

Canada imposes additional sanctions on Iran essentially prohibiting all transactions

By Christine Duhaime | May 29th, 2013

New Sanctions Against Iran

The government of Canada today announced the imposition of new sanctions against Iran as a result of the lack of progress with the reduction of Iran’s nuclear program.

Effective today, Canada banned all exports from and imports to Iran, and added more entities and individuals to the list of designated persons with whom transactions are prohibited.

The sanctions are imposed under the authority of the Special Economic Measures Act, S.C. 1992, c. 17 (the “Act“). It authorizes the Governor-in-Council to make orders and regulations to implement decisions, recommendations or resolutions of an international organization of a state or states when there are, or may be, grave breaches of international peace or security.

Under the authority of the Act, the Special Economic Measures (Iran) Regulations, SOR/2010-165, were amended to prohibit wholesale, any person in Canada from exporting, selling, supplying, shipping goods to a person or entity in Iran or to any person or entity for the purposes of a business in or operated from Iran. A person or entity is also now prohibited from importing, buying, acquiring, shipping or transporting any goods that are exported, supplied or shipped from Iran.

Previous to the amendments announced today, the sanctions in respect of trade were more limited and covered certain prescribed goods and services. The amendments today operate as a global restriction against economic engagements with Iran.

Continuation of Financial Prohibitions Involving Iran

The prohibitions in respect of financial services involving Iran, and Iranians, remain in place and they generally prohibit Canadians from having any financial dealings whatsoever with Iran.

Under the Regulations, banks, credit unions, insurance and trust companies, securities brokers, investment advisors and money services businesses must continue to determine whether they have in their possession, money or other property of a designated person or entity from Iran and must report such property to the RCMP immediately in addition to taking certain steps to freeze the assets.

FATF Rceommendation on the Proliferation of Weapons of Mass Destruction

The Financial Action Task Force (“FATF“) Recommendation 7 requires that Canada, and reporting entities under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, S.C. 2000, c. 17 to the extent enacted, freeze, without delay, the funds and assets of designated persons and entities listed under the Act and therefore, compliance officers should ensure that the new designated lists are included in their compliance procedures.

The FATF Recommendation 7 is targeted at the prevention and disruption of the financing of the proliferation of weapons of mass destruction.

UN Act Continues to Apply in Respect of Sanctions

The requirements under the Regulations are in addition to the economic sanctions required by Canada’s implementation of the UN Security Council Resolutions on Iran pursuant to the United Nations Act, R.S.C., 1985, c. U-2 and the Regulations Implementing the United Nations Resolutions on Iran, SOR/2007-44.

Auditor General of Canada says $3.1 billion in funding to combat terrorism unaccounted for

By Christine Duhaime | April 30th, 2013

The Auditor General of Canada, Michael Ferguson, released his Spring 2013 Report (the “Report“) today and among the key findings, found that $3.1 billion in funding to programs to combat terrorism in Canada is unaccounted for.

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 Report can be viewed here.

Two UK men convicted of money laundering in connection with carbon fraud in one of first green collar convictions

By Christine Duhaime | April 18th, 2013

Two men in the U.K. were convicted this week of money laundering and fraud in one of the first green collar crime cases, and certainly one of the first cases involving Canada.

The two men, David John Downes and Ian David Macdonald, sold shares in entities which claimed to own carbon credits, raising upwards of $9 million from investors and subsequently transferred the funds to Canadian and US banks. They operated a boiler room, an office in which several hundred persons cold-call prospective investors over a period of several months to raise funds. The investments were made to several unregistered entities including North American Charter Inc., Fidelity Capital Management, North Pacific Charter LLC, Hampton Capital Management Inc., and North Pacific Escrow.

Downes and Macdonald were sentenced to eight years in jail and 4.5 years for money laundering and fraud, respectively.

Court of Appeal in British Columbia rules that anti-money laundering and counter terrorist financing laws applied to lawyers infringe fundamental freedom

By Christine Duhaime | April 4th, 2013

Anti-Money Laundering Laws Infringe Independence of Bar

The Court of Appeal for British Columbia ruled today that the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, as it applies to lawyers in that province, interferes to an unacceptable degree with the independence of the Bar as a principle of fundamental justice, and as a consequence, held that the legislation does not apply to lawyers. The decision can be read here.

Canada still a major money laundering country in 2013 International Narcotics Control Strategy Report

By Christine Duhaime | March 27th, 2013

The 2013 International Narcotics Control Strategy Report (“INCSR“) published this month by the U.S. Department of State, particularly volume I on the drug trafficking trade, is more favourable of Canada than the last two years, primarily as a result of the enactment in Canada of the Omnibus Crime Bill C-10, know as the Safe Streets and Communities Act.

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.

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Bitcoin and other digital currency transactions subject to Bank Secrecy Act in U.S.

By Christine Duhaime | March 18th, 2013

The US Financial Crimes Enforcement Network (“FinCEN“) has issued its interpretive guidance on the applicability of digital (or virtual) currencies, the most popular of which is Bitcoin, to the Bank Secrecy Act (“BSA“).

Pursuant to the Guidance, a person or entity that: (1) exchanges; or (2) administers digital currency or Bitcoin, is a money services business (“MSB“) and is therefore subject to the registration, reporting and record-keeping obligations under BSA regulations (the “Regulations“). A mere “user” of digital currency, however, is not subject to the Regulations.

A “user” of digital currency is a person that uses it to buy goods or services.

An “exchanger” is a person engaged, as a business, in exchanging digital currency for real currency, funds, or other digital currency.

And an “administrator” is engaged, as a business, in issuing digital currency and has the authority (and capability) to redeem or withdraw from circulation, the digital currency.

And as it relates to digital currency, only those types that are convertible are subject to the Regulations, i.e., digital currency that has value in real currency or acts as a substitute for real currency and that is convertible.

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