Archived - Year Five Evaluation of the National Initiatives to Combat Money Laundering and Interim Evaluation of Measures to Combat Terrorist Financing: 1

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Executive Summary

This is the final report of the Year Five Evaluation of the National Initiatives to Combat Money Laundering and the Interim Evaluation of Measures to Combat Terrorist Financing (the Initiative). The Initiative was designed to assist with the implementation of the Proceeds of Crime (Money Laundering) Act (PCMLA), introduced in 2000 to establish a system of mandatory reporting of suspicious and other prescribed financial transactions, and create the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). In December 2001, the PCMLA was amended to include measures to fight terrorist financing activities and re-named the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA).

In addition to FINTRAC, the organizations funded under the Initiative comprise: the Department of Finance, the Royal Canadian Mounted Police, the Canada Border Services Agency (Customs and Immigration), the Canada Revenue Agency, and the Department of Justice.

In addition to assessing the impact of the Initiative in relation to the anticipated outcomes identified, this study addresses issues of relevance, success, design and, where appropriate, cost-effectiveness and alternatives. These issues were addressed using two main lines of evidence: a review and analysis of a large number of documents supplied by partner organizations; and interviews with 56 individuals representing the partner organizations as well as representatives of international organizations and experts in the field.

The following are the conclusions of the evaluation.

Relevance

The Initiative is both relevant and necessary as Canada moves forward in fighting financial crime (as well as organized crime and terrorism), both domestically and internationally in cooperation with its partners. Money laundering (ML) and terrorist financing (TF) are complex crimes necessitating sustained, concerted action. There are social and economic benefits to the country in reducing crime as well as advantages for financial institutions of anti-ML/TF measures in better managing reputational risk. Further, implementation of the Initiative has enabled Canada to meet its international obligations in the area. Maintaining support for it will enable Canada to continue to meet these obligations and uphold its solid international reputation in the area. Moreover, ML and TF are transnational in nature, necessitating the participation of all countries for their successful detection and deterrence.

Finally, the Initiative is well aligned with the federal priorities to provide adequate tools to law enforcement to combat ML/TF, protect public security, safeguard personal privacy, and protect Canada's financial system.

Design and Implementation

The activities undertaken under the Initiative are comprehensive and appropriate for achieving its expected outcomes. All the necessary elements are in place under the Initiative for combating ML and TF - from the reporting of financial transactions and cross-border currency movements to the eventual prosecution of criminals. Likewise, all the appropriate stakeholders are involved in the Initiative, and there has been a high degree of cooperation among them in regards to the exchange of information.

The success of the Initiative depends critically on the reporting of certain financial transactions. Toward that end, FINTRAC has implemented a comprehensive compliance program to ensure reporting of transactions by financial entities, while the CBSA is responsible for compliance with respect to the reporting of cross-border currency movements. As the Initiative is only fairly recently in full operation, however, the complete range of activities needed to ensure its success and measure its performance was not fully in place during most of the review period. Nevertheless, early evidence suggests that the Initiative has induced greater numbers of reporting entities to submit financial transaction reports, the reports are improving in quality, and that large numbers of individuals crossing the border are filing reports on large currency movements. That this is culminating in cash seizures at the border and disclosures of both ML and TF suspected cases to law enforcement agencies for use in investigations, despite being in operation for less than two years, further indicates the effectiveness of these activities.

There has been progress made in terms of establishing mechanisms to monitor Canada's performance in implementing the Initiative. FINTRAC is implementing appropriate performance measurement practices for monitoring its own role and activities. The RCMP has also done work to build systems to track performance related to FINTRAC disclosures and other ML intelligence. Performance monitoring of some other partners is weak, however, with challenges related to a lack of resources dedicated to the activity as well as measurement and attribution issues.

The Initiative faces a number of resource pressures. One key pressure concerns technology at FINTRAC, for which there is currently no infrastructure "evergreening" (renewal) or disaster recovery support budget and only limited IT capital investment flexibility. The primary arguments for increased funding for technology renewal are to keep up with advancements in the technology used by both organized crime and financial institutions, as well as to replace outdated IT equipment, to acquire the newest computer security and spam control mechanisms, and to enable the maintenance of critical IT operations in the event of an incident.

The Cross-Border Currency Reporting program also faces resources pressures as it continues to build on the very successful progress it has made to date. The number of currency seizures and forfeitures has far exceeded initial expectations, owing to the work of CBCR Teams and Currency Detector Dog Teams funded by the Initiative, thus warranting future expansion to combat money laundering/terrorist financing. This success has also directly resulted in pressures faced within the CBSA Intelligence Division to collect, develop, coordinate, and disseminate tactical and operational intelligence, which are making a significant contribution to the Initiative and have resulted in the improved efficiency of regional offices. As well, CBSA Adjudication Division, which has not been funded under this initiative, faces resourcing gaps as it must conduct reviews on appealed seizure decisions.

Pressures for increased funding are also currently being experienced to enable federal law enforcement (ML and IPOC Units) to conduct more investigations related to CBSA intelligence, FINTRAC disclosures, and future compliance related investigations, as well as to support its intelligence gathering, performance measurement, and private sector education efforts.

Success

The Initiative has made good progress toward achieving its formal objectives. In accordance with the Act, measures have been successfully implemented to detect and deter money laundering and the financing of terrorist activities and to facilitate the investigation and prosecution of money laundering and terrorist financing offences. This includes the establishment of FINTRAC as Canada's Financial Intelligence Unit (FIU). In addition, the implementation of the Initiative and measures have enabled Canada to meet its international commitments with respect to the fight against money laundering and terrorist financing. In particular, during the review period Canada was able to meet 27 of 28 key operational FATF anti-ML recommendations (out of 40), and has met six of seven special TF recommendations that were assessed. Moreover, Initiative partners such as Department of Justice and the RCMP have contributed significantly to FATF activities (e.g., assisting with the development and revision of the 40 recommendations, review of international legislation and law enforcement practices, and delivery of presentations to the FATF) and FINTRAC has met the requirements to become a member of the Egmont Group, the international association of FIUs. The Initiative and related anti-terrorist financing measures have also contributed to Canada's ability to meet other international commitments (e.g., the country's responsibilities associated with United Nations conventions).

The Initiative and its measures have to date achieved an effective legislative balance, carefully struck by Parliament, between anti-money laundering and anti-terrorist financing goals on the one hand and privacy and Charter concerns on the other. In conducting its work, FINTRAC has sought to protect the privacy and Charter rights of Canadians, in compliance with its mandate and the provisions of the PCMLTFA, by implementing other strict internal security procedures and by providing only "designated information" in disclosures to law enforcement and national security agencies. Nevertheless, there are indications from law enforcement and national security agencies that insufficient information is being provided by FINTRAC in its disclosures, as the provisions of the Act and the Charter appear to limit the amount of information that can be disclosed. This being the case,amendments to the Act and its regulations on the amount of information that can be disclosed should be considered.

Overall, the Initiative, through the work of various partners, has contributed to enhanced understanding of ML and TF and enhanced investigations, seizures and prosecutions. Disclosures have assisted law enforcement and security agencies, and in some cases even the revenue agency, through the provision of information that they might not have otherwise had access to. The evidence shows that many disclosures have added value to and initiated several investigations. The evidence further shows that the cross-border currency reporting program has led to the seizure of significant amounts of currency and monetary instruments. Moreover, while it is too early in the life of the Initiative to measure its impact on the ultimate expected outcomes of reduced ML and TF (measurement difficulties notwithstanding), it is clear that the Initiative's reporting, client identification, record keeping and compliance regime requirements have resulted in an increasingly hostile environment for ML and TF activities in Canada and should in the long-run lead to reduced incidence of these crimes.

Cost-Effectiveness and Alternatives

The key elements of Canada's approach - such as electronic reporting, a risk-based compliance program, a variety of legislative tools, and the involvement of partners each playing a necessary role in addressing criminal activity - enhance the efficiency of the Canadian model. Moreover, the expenditure of $140 million up to March 31, 2004 is likely much lower than the reputational and economic costs that would have been incurred if the Initiative was not implemented and Canada was consequently judged to be non-compliant with international anti-ML/TF standards.

Although a comprehensive, quantitative approach to an assessment of the cost-effectiveness of the approach would be desirable, this is difficult because of the paucity of data and analytic tools, as well as the lack of information on costs and outcomes of comparative foreign regimes. With respect to reporting entities, costs of compliance have been significant, but there are no reported negative impacts on competitiveness and there are benefits to enhanced integrity of the financial system and individual organizations which are difficult to quantify, including the avoidance of reputational, operational and legal risks as well as increased attractiveness to customers and stakeholders.

In general, the Canadian model of addressing money laundering/terrorist financing is an effective one and compares well internationally. Moreover, features such as the use of electronic reporting and the rigorous compliance program, based on a risk-management approach, have been lauded and imitated by other countries.

Given the inability to quantify cost-effectiveness in this evaluation, largely due to measurement difficulties, it is clear that further work needs to occur to fill this gap in determining the value received for expenditures on this initiative. This additional work includes development of an updated logic model and evaluation framework, outcome measurement tools, and a performance measurement framework. These elements must be in place before the suggested evaluation takes place in five years, when there will have been sufficient time to have realized outcomes.

Recommendations

The following recommendations flow from the conclusions drawn from this evaluation.

RECOMMENDATION 1: Continue to conduct consultations with representatives of the financial services sector, including organizations at the national and other jurisdictional levels, to help representatives see the value of their contributions. Before implementing any future changes to regulations or compliance activities, ensure that timely input is obtained from these organizations and that the potential for compliance fatigue in the financial services sector is taken into account.

RECOMMENDATION 2: The Government of Canada should, at a minimum, consider maintaining current funding allocations to the Initiative's partners. In addition, it should consider responding over the short term to certain funding pressures, including:

• funding needed to finance IT renewal needs at FINTRAC;
• funding increases identified by the CBSA to expand the CBCR Teams and Currency Detector Dog Teams; to collect, develop, and to coordinate the dissemination of tactical and operation intelligence (CBSA Intelligence) and to deal with the high volume of appeals of currency seizures (CBSA Adjudication);
• increased funding identified by the RCMP to enhance its capacity for investigation of money laundering and terrorist financing intelligence, leads and tips provided by all sources; capacity to analyse and measure the impact of intelligence received; and delivery of educational programs for the private sector; and
• future funding pressures associated with the planning and conduct of the next full evaluation of the Initiative.

RECOMMENDATION 3: It is recommended that the Government of Canada assess the feasibility of increasing the amount of information that may be included in FINTRAC disclosures in order to improve their value to disclosure recipients.

RECOMMENDATION 4: Efforts need to be devoted to assessing the capacity of the existing evaluation model in demonstrating the outcomes and cost effectiveness of the Initiatives. These efforts need to occur at several levels:

• a) The existing logic model has not been revisited since its development several years ago. As logic models are not intended to be static, it should be revisited and updated to accurately reflect activities and intended outcomes of the Initiative.
• b) The evaluation framework for the Initiative will need to be updated in order to establish clear expectations around how the future success of the Initiative will be measured.
• c) Special studies to identify appropriate measurement tools and models to further assess current difficulties in determining outcomes or at least to understand the degree to which such tools and models can best be used.
• d) A continued focus on performance measurement is needed across partners to ensure that ongoing data collection tied to the revised evaluation framework occurs.

RECOMMENDATION 5: As the current evaluation occurred when the measures had been implemented for only a short time, and given the measurement difficulties cited above, a full evaluation of the Initiative should be conducted again within five years.

RECOMMENDATION 6: Canada should maintain its current strong level of commitment to combat money laundering and terrorist financing through the continued active support of this Initiative.

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1. Background

This document is the final report of the Year Five Evaluation of the National Initiatives to Combat Money Laundering and the Interim Evaluation of Measures to Combat Terrorist Financing. The National Initiatives to Combat Money Laundering were implemented to assist with the implementation of the Proceeds of Crime (Money Laundering) Act (PCMLA), introduced in 2000 to establish a system of mandatory reporting of suspicious and other prescribed financial transactions, and create the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). In December 2001, the PCMLA was amended to include measures to fight terrorist financing activities and re-named the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA).

This chapter presents a description of the National Initiatives to Combat Money Laundering and related Anti-Terrorist Financing Measures (henceforth referred to collectively as the Initiative) including its historical and legislative context, as well as the scope of the evaluation.

1.1 Introduction

a) Definitions

Money laundering (ML) is defined as any act or attempted act to disguise the source of money or assets derived from criminal activity. Targeting the proceeds of crime and money laundering is seen as an effective means of combating organized crime, by removing the means by which criminals profit by their criminal activity.

Measures to combat money laundering can also be used to combat terrorist financing (TF), which is the act of raising money through both legitimate and illegitimate means to finance acts of terrorism. When avenues for money raising and transmittal are shut down, terrorists lose their ability to commit future acts of violence and destruction.^[1]

b) Historical, Political and International Context

The Initiative must be seen as part of a series of initiatives in Canada to fight drug-related crimes and organized crime more generally, and, more recently, terrorism. It must also be viewed as one element in a wider effort to address these crimes.

Canada's legislative activity in the area began in 1989. This country has been a member of the Financial Action Task Force on money laundering (FATF) since its inception in 1989 at the G7 Economic Summit of that year. The FATF is the standard-setting international anti-money laundering and terrorist financing organization. In the same year, Canada enacted proceeds of crime legislation, which was consistent with the recommendations of the FATF and the UN at that time. In 1991, the Proceeds of Crime (Money Laundering) Act was proclaimed, establishing record keeping and client identification requirements in the financial sector to facilitate the investigation and prosecution of ML offences (through the preservation of financial trails for large financial transactions) under the Criminal Code. In 1993, cooperative arrangements were established between police and the banking sector in Canada under which the latter could voluntarily report any suspicions of money laundering activities.

In the late 1980s and early 1990s, some FATF members began to create Financial Intelligence Units (FIUs). These specialized agencies collect, analyze and disclose financial information about proceeds of crime and money laundering. In 1995, a number of these FIUs came together to form the Egmont Group, the purpose of which is to provide an international forum for cooperation and exchange of information on money laundering, and now terrorism financing, matters.

As a member of the FATF, Canada undergoes peer evaluations to assess the effectiveness of its anti-money laundering and anti-terrorist financing measures. In its second mutual evaluation report on Canada in 1997, the FATF noted Canada's lack of an FIU and that its reliance on voluntary (rather than mandatory) suspicious transaction reporting had not proved effective.^[2]

In response to this evaluation, Canada introduced the National Initiative to Combat Money Laundering. In 2000, the Parliament of Canada passed the Proceeds of Crime (Money Laundering) Act (PCMLA), which established a system of mandatory reporting of suspicious and other prescribed transactions, and created its own FIU: the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). Canada's FIU was accepted as a member of the Egmont Group in 2002.

In December 2001, the PCMLA was amended to include measures to fight against terrorist financing, in response to the events of September 11, 2001. As a result, the PCMLA was renamed the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). The amendments expanded FINTRAC's mandate to include the detection and deterrence of terrorist financing and the Centre gained the responsibilities to collect, analyze and disclose information where there are reasonable grounds to suspect a terrorist financing offence or a threat to the security of Canada.

To set the Initiative in context, the following is a brief historical review of key measures and legislation directed at proceeds of crime, money laundering, drug-related crime, organized crime, and terrorist financing:

• 1989: Criminal Code amendments made possession of proceeds of crime and money laundering-related activities criminal offences. The amendments dealt with all aspects of proceeds of crime including the identification of specific offences, special search warrants, restraint orders and a confiscation regime. The legislation provided the authority to seize or restrain the proceeds of certain crimes and provided immunity to people who voluntarily reported suspicious transactions to the police. Offences for possession and laundering of proceeds were "designated substances offences" which were also added to the Food and Drug Act (and the former Narcotics Control Act since repealed and replaced by the Controlled Drugs and Substances Act (CDSA)).
• 1990: Guidelines and best practices issued by the Office of the Superintendent of Financial Institutions for combating money laundering.^[3]
• 1991: Proceeds of Crime (Money Laundering) Act proclaimed.
• 1991: The Canada Drug Strategy funded the establishment of three pilot Integrated Anti-Drug Profiteering Units (IADP) within the Royal Canadian Mounted Police (RCMP).
• 1993: Memorandum of Understanding (MOU) between the RCMP and the Canadian Bankers Association (CBA) signed. This MOU called for voluntary reporting of all suspicious transactions that might indicate money laundering activities.
• 1993: Seized Property Management Act proclaimed. Offences of possession and laundering of the proceeds of certain crimes were added to the Customs Act and Excise Act.
• 1996: Implementation of the Integrated Proceeds of Crime (IPOC) Initiative which established 10 more integrated units, supplementing the three existing IADP units.
• 1997 and 1999: Amendments to the Criminal Code (Part XII.2) involving the Controlled Drugs and Substances Act (May 1997) and the Corruption of Foreign Public Officials Act (proclaimed December 1998), which involved two proceeds of crime offences. This addressed problems associated with corruption of foreign public officials for business advantage, an issue relevant to the OECD's Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
• 2000: National Agenda to Combat Organized Crime implemented. The National Agenda, adopted by federal, provincial and territorial ministers, recognizes that the fight against organized crime is a national priority with money laundering being identified as a specific priority in need of attention.^[4]
• 2000: Proceeds of Crime (Money Laundering) Act (PCMLA) enacted, which established FINTRAC and client identification, reporting and record keeping requirements for reporting entities.
• 2001: Amendments to the Criminal Code (and related statutes) in respect of provisions dealing with proceeds of crime and offence-related property with the enactment of An Act to amend the Criminal Code (organized crime and law enforcement) and to make consequential amendments to other Acts (Bill C-24). It replaced the 1989 Criminal Code "listing" of predicate crimes to all major indictable offences approach to proceeds of crime and money laundering. The same Act included additional consequential amendments to the Mutual Legal Assistance in Criminal Matters Act, permitting Canada to enforce foreign seizure, restraint, and forfeiture orders.
• 2001: An Act to amend the Criminal Code, the Official Secrets Act, the Canada Evidence Act, the Proceeds of Crime (Money Laundering) Act and other Acts, and to enact measures respecting the registration of charities, in order to combat terrorism, entitled the Anti-Terrorism Act (Bill C-36), proclaimed. This amended the PCMLA to include obligations in respect of reporting suspected terrorist financing activities as well as to enlarge FINTRAC's mandate to include detection, deterrence and prevention of financing of terrorist activities.^[5] This Bill amended the title of the Act; it was changed to Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). A requirement was introduced into the PCMLTFA for reporting entities to send a TPR (terrorist property report) to FINTRAC when they are in possession or control property that they know is owned or controlled by or on behalf of a terrorist or terrorist group.^[6] If FINTRAC determines that there are reasonable grounds to suspect that the information under its control would be relevant to threats to the security of Canada, designated information is disclosed to the Canadian Security Intelligence Service (CSIS).^[7]
• 2001: Immigration and Refugee Protection Act proclaimed. This act stipulates that a permanent resident or a foreign national cannot be admitted to the country if there are reasonable grounds to believe he or she has, is, or may engage in organized criminal activities, such as money laundering across national borders.
• 2003: Cross Border Currency Reporting Regulations came into force. The regulations made it mandatory for persons and entities to report the cross-border movement of currency and monetary instruments valued at $10,000 or more.
• 2004: Public Safety Act (Bill C-7) enacted. This act provides FINTRAC with the ability to collect information relevant to ML or TF that is stored in national security databases, and provides FINTRAC with the ability to share information with supervisory and regulatory agencies for purposes of ensuring compliance with Part 1 of the PC(ML)TFA . The Public Safety Act also allows the Office of the Superintendent of Financial Institutions with the ability to share information on how federally regulated financial institutions comply with the Act.

It should be noted that there are a number of other initiatives in Canada that would also be expected to contribute to the long-term expected outcomes of the Initiative, that of reducing money laundering and terrorist financing. Some of these are briefly described in Appendix A.

Canada's anti-money laundering/terrorist financing strategy includes participation in several international initiatives and organizations, such as:

• United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (Vienna 1988), to which Canada is a signatory;
• United Nations Convention for the Suppression of the Financing of Terrorism (1999);
• United Nations Convention Against Transnational Organized Crime, ratified by Canada in May 2002;
• United Nations Convention Against Corruption (2004);
• Organization of American States, for example, the Canadian government's ratification of the Inter-American Convention Against Terrorism (2002);
• FATF of which Canada has been a member since its creation in 1989, and of which Canada has adopted the 40 recommendations on money laundering and its eight special recommendations on terrorist financing; and
• The Egmont Group, an international partnership of FIUs, where Canada is engaged in the sharing of best practices and other activities.

1.2 Description of the Initiative

The Initiative is described in this section, including its founding legislation, its objectives, its partners and their roles, and funding. A summary of the Initiative's activities, outputs and expected outcomes (immediate, intermediate and ultimate) is provided in the Logic Model of the Initiative, presented in Appendix B.

a) Founding Legislation

As noted, the basis for the Initiative is the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). The PCMLTFA consists of five parts:

• Part I requires the keeping of records on financial transactions, client identification and the reporting of suspicious and prescribed financial transactions;
• Part II creates the obligation to report to Customs the importing or exporting of currency or monetary instruments of a value equal to or greater than $10,000 or its equivalent;
• Part III establishes FINTRAC as an independent agency to collect, analyze, assess and disclose designated information on financial transactions to assist in the detection, prevention and deterrence of money laundering and the financing of terrorist activities, while protecting Canadian's privacy;
• Part IV authorizes the Governor in Council to make regulations; and
• Part V creates offences, including the failure to report suspicious financial transactions and the prohibited use of information under the control of FINTRAC.

The regulations accompanying the PCMLTFA were implemented in stages. The first phase of these regulations, requiring the reporting of suspicious transactions related to money laundering to FINTRAC, came into effect in November 2001. In 2002/03, the remaining phases of the regulatory regime came into effect introducing new obligations for client identification, record keeping, maintaining a compliance regime, and making it mandatory for the other types of reports to be provided to FINTRAC including cross-border currency reports.

b) Objectives of the Act

The revised objectives of the Act (reflecting the addition of terrorist financing to the initial mandate) are:

• To implement specific measures to detect and deter money laundering and the financing of terrorist activities and to facilitate the investigation and prosecution of money laundering and terrorist financing offences, including:

• To respond to the threat posed by organized criminals and terrorists by providing law enforcement officials with the information they need to deprive criminals and terrorists of the proceeds of their criminal activities and funds to support terrorist activities, while ensuring that appropriate safeguards are put in place to protect privacy of persons with respect to personal information; and
• To assist in fulfilling Canada's commitments to participate in the global fight against money laundering and terrorist financing.

c) Initiative Partners

The Initiative involves a number of key partners, each of which is funded according to its role. The funded partners include FINTRAC, the Department of Finance, the Canada Revenue Agency (CRA), the Canada Border Services Agency (CBSA-Customs and CBSA-Immigration), the Royal Canadian Mounted Police (RCMP), and the Department of Justice (DOJ), in the implementation and delivery of the Initiative. The Initiative also has several non-funded partners, such as Public Safety and Emergency Preparedness Canada (PSEPC), the Canadian Security Intelligence Service (CSIS) and the Anti-terrorist Financing Group at the RCMP. The Minister of Finance holds overall responsibility for the PCMLTFA and its regulations. The overall success of the Initiative is dependent on the actions of all the partners. As well, each partner had direct input into legislative development through membership in the Mandatory Suspicious Transaction Reporting (MSTR) Working Group (now called the Interdepartmental Working Group), the primary working body with cross-Initiative membership.

i) FINTRAC

FINTRAC, Canada's FIU, is an independent agency operating at arms length from the police and federal departments and agencies to which it can provide financial intelligence. FINTRAC receives, collects, analyses, assesses and discloses information to assist in the detection, prevention and deterrence of money laundering and terrorist financing activities. The Centre reports to Parliament through the Minister of Finance. FINTRAC was established by statute as a separate employer.

FINTRAC occupies an important position among the Initiative partners and receives the majority of funding allocated to the Initiative. FINTRAC's work is situated near the beginning of a process that starts with the reporting of transaction information by reporting entities to the organization; proceeds with the organization's processing and analysis of this information and, in certain cases, the provision of disclosures based on this information to law enforcement and national security agencies which the latter may use to inform their investigations; and may culminate with the prosecution of perpetrators or with the confiscation of assets by law enforcement and other agencies. The discussion begins with a description of the reporting process and proceeds with a description of the analysis and disclosure process.

The PCMLTFA, Part I, establishes the legal obligation placed on particular persons and organizations to report specific types of financial transactions. Financial institutions and intermediaries must report large and suspicious financial transactions (defined below) to FINTRAC. Regulations require these organizations to submit reports electronically wherever possible.

The institutions and intermediaries, known as reporting entities, that report to FINTRAC are:

• Financial entities (e.g., banks, caisses populaires, credit unions);
• Life insurance companies, brokers or agents;
• Securities dealers, portfolio managers and investment counsellors;
• Foreign exchange dealers;
• Money services businesses;
• Agents of the Crown when they accept deposit liabilities and sell money orders;
• Accountants and/or accounting firms;
• Real estate brokers or sales representatives; and
• Casinos.

These organizations must report the following:

• Suspicious transactions related to money laundering;
• Suspicious transactions related to terrorist financing;
• Possession or control of terrorist property and any transactions or attempted transactions with regard to such property;
• International electronic funds transfers of $10,000 or more (only for money service businesses and deposit-taking institutions); and
• Large cash transactions of $10,000 or more.

The Act (Part II) obliges any individual or entity importing or exporting large sums of cash or monetary instruments ($10,000 or more) to report to the Canada Border Services Agency (CBSA),^[8] which in turn transmits the information to FINTRAC.

FINTRAC is mandated to ensure that all the reporting entities required to report under the PCMLTFA comply with the obligations set out in the Act and respective regulations. The Centre favours a cooperative approach in ensuring the compliance of reporting entities, working with them or their industry associations to help ensure obligations are understood and met. Towards this end, the Centre provides advice and assistance where needed, has developed a set of guidelines and report forms, and participates in outreach workshops with reporting entities and their representatives. The Centre also participates in quality assurance activities, whereby it verifies reports as to their completeness and has recently begun compliance examinations of specific reporting entities to ensure that they have appropriate processes and practices in place to detect money laundering and terrorist financing activities. In conducting its compliance activities, FINTRAC employs a risk-based approach, whereby it focuses on entities most likely to be in non-compliance or those whose non-compliance would have the greatest impact. Where necessary, the Centre refers cases of non-compliance to law enforcement.

Along with suspicious and prescribed financial transaction reports, the legislation enables FINTRAC to receive and use information that is voluntarily provided to it. This includes information from law enforcement and other agencies, as well as information from the public, about suspicions of money laundering or of financing of terrorist activities. Foreign FIUs may also provide information to FINTRAC. In many instances, voluntary information enables FINTRAC to focus its analysis and contributes significantly to disclosures that FINTRAC makes (see below for discussion of disclosures).

Analysis and disclosure are the core elements of FINTRAC's work. Specifically, FINTRAC conducts analysis of reported financial transactions as well as other information it has authority to access, to identify information that would be relevant to a money laundering or terrorist activity financing offence or a threat to the security of Canada. FINTRAC must disclose such information to the appropriate police force or CSIS, as appropriate. This is done in the form of a disclosure.

The PCMLTFA sets out numerous provisions specifically designed to protect the privacy of individuals and defines the circumstances under which FINTRAC may disclose personal information. Among these provisions is that only "designated" information can be disclosed. When FINTRAC has reasonable grounds to suspect that information collected and analyzed would be relevant to the investigation or prosecution of a money laundering or terrorist financing offence, the legislation provides that the Centre must disclose only designated information (defined in sections 55(7), 55.1(3) and 56.1(5) of the Act and the Regulations) to the appropriate law enforcement agencies, or to CSIS in the case of threats to the security of Canada. Designated information includes: information about the place where the transaction occurred (name and address of business); information about the transaction (type, date, amount, account number, name of all account holders, names of all parties); and information about the individual (name, date of birth, address) or corporation (name, address, date of incorporation, jurisdiction) involved in the transaction.^[9]

Furthermore, the PCMLTFA provides for strict guidelines regarding to which organizations FINTRAC must disclose designated information, as follows:

• to appropriate police forces, when it has reasonable grounds to suspect, based on its analysis of information, that it would be relevant to investigations or prosecutions of money laundering or terrorist financing offences (paragraph 55(3)(a)), or
• to CSIS, only when the Centre has reasonable grounds to suspect, based on its analysis of information, that it would be relevant to threats to the security of Canada within the meaning of section 2 of the Canadian Security Intelligence Service Act (paragraph 55.1(1)).^[10]

Disclosure can also be made to the CRA and CBSA-Customs when a two-fold test is met and to CBSA-Immigration when a three-fold test is met, specifically:

• to the CRA and CBSA-Customs, where FINTRAC has reasonable grounds to suspect, based on its analysis of information, that the disclosure would be relevant to investigating or prosecuting a ML or terrorist activity financing offence and if it determines that the information is relevant to a tax or duty evasion offence (paragraph 55(3)(b) of the Act).
• to CBSA-Immigration, where FINTRAC has reasonable grounds to suspect, based on its analysis of information, that the disclosure would be relevant to investigating or prosecuting a money laundering or terrorist financing activity, and if it determines that the information would promote the objective set out in paragraph 3(1)(i) of the Immigration and Refugee Protection Act and is relevant to determining whether a person is a person described in sections 34 to 42 of that Act or to an offence under any of sections 117 to 119, 126 or 127 of that Act.^[11]

FINTRAC works with law enforcement and other organizations receiving disclosures to increase skills and mutual understanding of ML/TF issues and information needs. The disclosure of information can assist new or ongoing investigations. In some cases, the disclosure can identify a new suspect and support the initiation of a new investigation; in other cases, the information can contribute to an investigation that is already underway. Moreover, if the police or CSIS require information from FINTRAC, in addition to the designated information, it must obtain a court order (Production Order) (according to the PCMLTFA,no one else can procure a Production Order).

As well, to contribute to Canada's international role and obligations in the fight against ML/TF activities, disclosures can be made to foreign FIUs with which FINTRAC has a signed information exchange agreement. This may occur if FINTRAC has reasonable grounds to suspect that the information may be relevant to the investigation or prosecution of a ML or TF offence. FINTRAC has agreements with a number of FIUs (e.g., Australia, Belgium, Mexico, and the United Kingdom).

Another part of FINTRAC's mandate is to make the public aware of the issues surrounding money laundering.^[13] To fulfill this mandate, the organization produces pamphlets and promotional materials, maintains a public website to disseminate information, and conducts annual public opinion research. FINTRAC also publishes Annual Reports and Performance Reports that provide details pertaining to the activities and the results FINTRAC has achieved during the year based on performance measurement systems that have been developed (e.g., financial entity reporting; FINTRAC disclosures; future priorities).

ii) Department of Finance

The Department of Finance is responsible for the development of anti-money laundering and anti-terrorist financing policy, including the Act and its regulations. Finance is responsible for coordinating activities under the Initiative, and has a key role in liaison with the public and consultations with stakeholders. The Department participates in key domestic and international activities in support of the government's commitments to combat money laundering and terrorist financing activities. The Department of Finance also supports the Minister in his responsibility for the oversight of FINTRAC. In addition, the Minister may enter into agreements with foreign governments for the exchange of information between FINTRAC and other FIUs and must approve the agreements FINTRAC enters into with foreign FIUs. The Department heads the Canadian delegation to the Financial Action Task Force and participates in other international money laundering assemblies.

iii) Royal Canadian Mounted Police (RCMP)

The RCMP, through its Money Laundering Units, is the major recipient of money laundering intelligence or disclosures from FINTRAC. In addition to these disclosures, the Units receive money laundering intelligence from a number of other sources. These sources include: intelligence in relation to cross-border currency reporting incidences from CBSA-Customs; voluntary information received from reporting entities; information from other RCMP units, law enforcement agencies and other sectors. When intelligence is received, an investigative assessment is conducted to determine if a criminal investigation is warranted. The intelligence may add information on existing targets or provide new leads. A performance measurement system is in place to enter all intelligence and track their disposition. In cases where further action is deemed to be appropriate, the ML Unit will refer the matter to the appropriate RCMP Integrated Proceeds of Crime (IPOC) Unit, whose primary objective is to identify, assess, seize, restrain, and forfeit illicit and unreported wealth accumulated through organized crime activities. The IPOC unit will conduct a comprehensive file review and prioritization assessment to determine if resources will be allocated to pursue the investigation. If approved, ML Unit resources may support the IPOC investigation for example by preparing requests for Production Orders, thereby possibly granting access to additional information held by FINTRAC. The RCMP also provides Voluntary Information Reports (VIRs) to FINTRAC to support its intelligence gathering process. Finally, the RCMP plays a significant training and awareness-raising role amongst Initiative partners, the private sector, the public and in international fora.

iv) Canada Border Services Agency (CBSA) - Customs

The PCMLTFA requires individuals and organizations to report on the importation/exportation of large amounts of currency or monetary instruments, including those transported by mail, to a Canada Customs officer. CBSA-Customs then transmits the information to FINTRAC. CBSA Customs officers are responsible for the enforcement of the cross-border currency reporting program, which includes conducting searches, questioning individuals, and seizing non-reported or falsely reported currency and suspected proceeds of crime. In particular, when a Customs officer suspects on reasonable grounds that the currency and monetary instruments may be proceeds of crime or terrorist financing they may seize the unreported currency or monetary instruments and as per the PCMLTFA, the ensuing intelligence may be passed on to the appropriate police force. CBSA also issues administrative penalties on non-reported currency and monetary instruments with a value of $ 10,000 or more in cases where it does not suspect ML or TF and where the currency is returned to the traveller. In addition, FINTRAC may pass disclosures on to CBSA-Customs Investigations where there is suspicion of ML/TF and evasion of federal taxes or duties. CBSA activities also include raising awareness of ML/TF in the general public, working with other partners and internally with staff to increase skills and understanding of ML/TF issues, and working with US counterparts.

v) Canada Border Services Agency (CBSA) - Immigration

CBSA-Immigration, the former enforcement branch of Citizenship and Immigration Canada (CIC), plays a key role in denying the use of Canadian territory to criminals and persons who pose security threats to Canada. As noted above, if FINTRAC determines that information has relevance with respect to certain provisions of the Immigration and Refugee Protection Act, it will disclose information to CBSA-Immigration (see previous sub-section for details). CIC continues to conduct the activities of issuing visas and granting permanent residence and visitor status in close cooperation with CBSA-Immigration. In this way, CBSA-Immigration and CIC work closely together to prevent the entry into or effect the removal from Canada of those non-citizens who engage in money laundering or terrorist financing activities. Other activities include raising public awareness and exchanging information and lessons learned with other partners.

vi) Canada Revenue Agency (CRA)

One of the CRA's responsibilities is to ensure that each person pays taxes and duties associated with all income and activities. As noted above, FINTRAC discloses information to CRA when it suspects, through analysis, that the information would be relevant to an investigation and/or prosecution of money laundering or terrorist financing activities offences and if it determines that the information is relevant to a tax or duty evasion offence. Subsequently, the information received from FINTRAC may serve as a lead for the Agency to possibly initiate a new investigation or as additional information for regulatory purposes and in support of an ongoing investigation. Conversely, the CRA may also provide disclosures to FINTRAC. The CRA works with international partners on common issues and with Initiative partners, providing forensic accounting and financial analysis expertise to RCMP IPOC units.

vii) Department of Justice (DOJ)/Attorney General

The Attorney General is responsible for undertaking prosecutions, specifically, in the case of the Initiative, those arising out of investigations to which FINTRAC disclosures have contributed. As well, in cases where law enforcement agencies desire, through Production Orders, additional information from FINTRAC (over and above that included in disclosures forwarded to them), the DOJ Federal Prosecution Service (FPS) provides templates as well as legal advice to police forces and takes the application for the Order to court to obtain approval. Also, with respect to ML issues generally, DOJ trains prosecutors and provides legal advice and important input into the policy development exercise in both domestic and international fora. Further, the Department is responsible for prosecutions related to new offences created under the Act, such as failure by reporting entities to report suspicious transactions, though it should be noted that provincial governments are responsible for about 75 per cent of prosecutions.

viii) Non-Funded Stakeholders in the Initiative

Other non-funded government stakeholders in the Initiative include:

• Canadian Security Intelligence Service (CSIS): CSIS has a mandate to collect, analyze and retain information or intelligence on activities that may on reasonable grounds be suspected of constituting threats to the security of Canada and in relation thereto, report to and advise the Government of Canada. CSIS also provides security assessments, on request, to all federal departments and agencies, with the exception of the RCMP. CSIS is unique in its role as the Government of Canada's principal advisor on national security. CSIS's role under the Initiative is to receive FINTRAC disclosures regarding suspected threats to the security of Canada and to open up (or continue) an investigation if its own analysis of the disclosed information warrants such actions.
• Anti-Terrorism Financing Group (ATFG), RCMP: The RCMP ATFG receives disclosures regarding terrorist financing and continues or opens up investigations using this information, where warranted. This group receives monies under the federal government's Public Safety and Anti-Terrorism (PSAT) initiative. The ATFG was established to detect and identify those persons and entities involved in raising and moving terrorist funds, obtain evidence for prosecution, provide support to national security investigations, detect gaps or weaknesses in the financial system and develop practices, and make recommendations to prevent any abuse.
• Provincial/Territorial/Municipal Police Forces: As noted above, provincial/territorial and municipal forces may be recipients of FINTRAC disclosures, where deemed appropriate.
• Public Safety and Emergency Preparedness Canada (PSEPC): PSEPC is responsible for protecting Canadians and helping to support the Minister in giving effective direction to the agencies responsible for policing and law enforcement, national security, corrections and conditional release. PSEPC's lead role with regards to organized crime and the priority of money laundering for the National Agenda to Combat Organized Crime necessitates an ongoing interest in the Initiative. In addition, the Department's role in the Initiative is to monitor the activity of three funded partners under the Initiative - the RCMP, CSIS and CBSA - as well as to reflect its ongoing interest in policy development and coherence with initiatives under the National Agenda.
• Seized Property Management Division (SPMD), Public Works and Government Services Canada: The SPMD's role is to act as a holding facility for currency and monetary instrument seizures.
• Office of the Superintendent of Financial Institutions (OSFI): OSFI is the primary regulator of federally chartered financial institutions and federally administered pension plans. Its mission is to supervise and regulate all banks, as well as all federally incorporated or registered trust and loan companies, insurance companies, cooperative credit associations, fraternal benefit societies and pension plans. In its efforts to ensure compliance with PCMLTFA requirements, OSFI conducts examinations assessing federally chartered deposit-taking institutions' and life insurance companies' compliance with prescribed standards by reviewing the self-assessment material prepared by the institution. As of July 2004, OSFI is providing FINTRAC with compliance monitoring information as per an MOU signed between OSFI and FINTRAC. A similar MOU has been signed between FINTRAC and the Gaming Policy and Enforcement Branch of British Columbia.

d) Funding and Human Resource Levels

Table 1.1 presents figures on expenditures over time under the Initiative, by partner department/agency. Table 1.2 presents figures on the number of human resources (in full-time equivalents, FTEs) assigned to Initiative activities by each of the partners. The increase in the number of FTEs at FINTRAC from 150 in February 2003 to 183 as of March 31, 2004 reflects priorities set out in the 2002/03 Annual Report of FINTRAC to increase staffing in the 2003/04 fiscal year.

Table 1.1: Funding Expenditures by Initiative Partners, 2001/02 to 2003/04 ($ millions)

Partner	2000/01	2001/02	2002/03	2003/04	Total
Anti-Money Laundering
FINTRAC	18.0	25.5	26.3	22.2	92.0
Department of Finance	0.3	0.3	0.3	0.3	1.2
RCMP-ML Units	2.6	4.9	4.9	4.9	17.3
CBSA-Customs and CRA*	5.3	6.0	6.0	6.0	23.3
CBSA-Immigration**	0.4	0.7	0.7	0.7	2.5
Department of Justice	0.6	1.2	1.2	1.2	4.2
Total ML	27.2	38.6	40.4	35.3	140.1
Anti-Terrorist Financing
FINTRAC - TF***	--	10.0	14.7	9.5	34.2
Total ML and TF	27.2	48.6	55.1	44.8	174.7
* Recently, Customs was split from the Canada Customs and Revenue Agency (CCRA) to be part of the CBSA, with a new agency, the Canada Revenue Agency (CRA), retaining responsibility for only revenue (taxation and duties). ** Formerly part of CIC. *** These monies are being provided under the Public Security and Anti-Terrorism (PSAT) initiative. Other PSAT partners, such as the Department of Finance and the RCMP's anti-TF group, also received funds under the PSAT initiative, but these monies are not being assessed under this evaluation and so are not shown here. Source: Figures for FINTRAC were provided to EKOS in a FINTRAC Presentation Deck: Overview of FINTRAC. Slides 17 and 18, July 29, 2004. Figures for other partners were obtained from Office of the Auditor General (2003). Canada's Strategy to Combat Money Laundering April 2003 Report - Exhibit 3.1. Available at http://www.oag-bvg.gc.ca/domino/reports.nsf/html/20030403c-eng.asp. Accessed August 2004.

Table 1.2: FTEs of Initiative Partners, as of February 2003 and March 2004

Partner	As of February 14, 2003*	As of March 31, 2004*
FINTRAC	150	183
Department of Finance**	2	2
RCMP-Proceeds of Crime ML Units	34	34
CBSA-Customs (formerly with CCRA)	50	50
CBSA-Immigration (formerly with CIC)	5	5
CRA (formerly with CCRA)	24	25.5
Department of Justice	9.7	9.7
Total	247.7	309.2
* Source: ABC Solutions Inc. (February 14, 2003). The National Initiative to Combat Money Laundering: Year Three Evaluation, plus information received from the partners for this evaluation. ** The Department of Finance received PSAT funding for 10 additional FTEs in FY 2003/04 for its expanded ML & TF responsibilities.

1.3 Evaluation Background, Objectives and Issues

As part of the Initiative's original accountability structure, an evaluation framework was to be developed and both an interim (Year Three) and full (Year Five) evaluation were to be conducted of the money-laundering component. An evaluation framework was developed and approved in March 2001, and an interim evaluation completed in 2003.^[14]

As a result of an amendment of the PCMLTFA in 2001 to include anti-terrorist financing measures, many of FINTRAC's resources and capabilities are now used for combating both money laundering and terrorist financing. Consequently, an implementation assessment (interim evaluation) of FINTRAC's terrorist financing work is being included in the full evaluation of the Initiatives to Combat Money Laundering. It is expected that a full evaluation of FINTRAC's anti-terrorist financing mandate will be carried out in 2007.

The purpose of the present study is to conduct a full, Year Five evaluation of the Initiative (involving all funded partners), as well as an interim evaluation of Measures to Combat Terrorist Financing (specifically the implementation of FINTRAC's anti-terrorist financing mandate). The Year Five evaluation of the Initiatives is focused on assessing the extent to which they have succeeded in meeting their objectives. In addition to assessing the impact of the Initiative in relation to the anticipated outcomes identified, this study also addresses issues of relevance, success, design and, where appropriate, cost-effectiveness and alternatives to the Initiatives. In addition to these issues, the Terms of Reference for this evaluation identified a number of specific evaluation questions. These questions are presented in the Matrix of Issues and Indicators in Appendix C. The interim evaluation of Measures to Combat Terrorist Financing is focused more on the implementation of FINTRAC's terrorist financing mandate. This includes the appropriateness of the program design in supporting the achievement of the objectives.

The evaluation methodology is briefly described in Appendix D, and more details on the documents reviewed and key informants interviewed are provided in Appendices E and F respectively. This evaluation was overseen by an Indepartmental Evaluation Committee composed of representatives of Initiative partners (i.e., the Department of Finance, FINTRAC, RCMP, CRA, CBSA, DOJ, and CIC).

2. Evaluation Findings

This chapter presents the evaluation findings for each of the four issue areas that were addressed - relevance, design and implementation of activities, success, and cost-effectiveness and alternatives.

2.1 Relevance

A priority of this evaluation is to assess the degree to which the Initiative continues to be relevant and necessary in the Canadian context. In order to assess this, five arguments for a continuing Initiative are considered:^[15] responding to the wishes of the law enforcement community; reducing social and economic costs; international obligations and leadership; combating complex and transnational money laundering (ML) and terrorist financing (TF); and alignment with federal/partner priorities.

a) Response to Law Enforcement Needs

The implementation of the Act and the Initiative is a direct response to needs expressed by the Canadian law enforcement community to take action against organized crime, specifically calling for mandatory reporting of large financial transactions and cross-border movements of currency. In 1994, the Canadian Association of Chiefs of Police recommended to the federal government that financial institutions should be required to report transfers, deposits, and withdrawals of negotiable currency of $10,000.^[16] As well, they sought mandatory reporting of movements of negotiable currency of $10,000 into or out of Canada. Voluntary reporting of currency transactions and movements was seen as ineffective in producing sufficient financial intelligence to combat organized crime. This gave rise to law enforcement's demands for mandatory reporting, which became part of the anti-ML legislation being considered in this evaluation.

b) Reducing Social and Economic Costs

Though it is difficult to measure the exact cost of ML/TF crimes, there is much anecdotal evidence of their impact and the need for efforts like the Initiative to combat them.^[17] ML can distort and destabilize the market, as legitimate businesses find it difficult to compete with companies that are laundering ill-gotten assets and thereby enjoying an unfair advantage (Harvey, 2004). ML's predicate crimes (most indictable offences, including fraud, embezzlement, stock market manipulation, drug offences, and arms trade) can also have deleterious effects on those who are victims of these crimes. The funding of terrorism and terrorist acts can have tragic consequences, including the destruction of property and the loss of life, as demonstrated by the destruction of the World Trade Centre in New York on September 11, 2001. Not removing sources of financing for terrorism and ML can therefore impose a serious economic and social cost on a country and its international reputation. The implementation of the Initiative is expected to contribute to the reduction of these major social and economic costs.

An effective framework for anti-money laundering and anti-terrorist activity financing has important economic and social benefits internationally, for a country. Foreign financial institutions may decide to limit their transactions with institutions from countries seen as money laundering havens; subject these transactions to extra scrutiny, making them more expensive; or terminate correspondent or lending relationships altogether. Even legitimate businesses and enterprises from a country considered to be a money laundering haven may suffer from reduced access to world markets or access at a higher cost due to extra scrutiny of their ownership, organization and control systems. As well, a country known for lax enforcement of anti-ML/TF measures is less likely to receive foreign investment.

Domestically, the failure of a financial institution to implement and adopt procedures to detect and deter ML and TF can have a negative effect on its bottom line. Though a compliance regime such as that which has been implemented under the Initiative imposes an immediate cost on individual institutions arising from the need to report transactions and improve their record keeping, by complying institutions are likely to avoid a number of risks that could negatively affect profit margins. These include reputational risk in terms of adverse publicity regarding their business practices and associations, and the resulting loss of confidence in their integrity; operational risk in terms of potential for loss resulting from inadequate or failed internal processes, people and systems or external events; legal risk in terms of potential for lawsuits, adverse judgements, unenforceable contracts, fines and penalties generating losses, increased expenses for an institution, or even closure; and concentration risk in terms of potential for loss resulting from too much credit or loan exposure to one borrower.

Further, a reputational risk arises from the potential sanctions that may be imposed upon countries that do not meet international anti-ML/TF standards. The FATF is engaged in a major initiative to identify non-cooperative countries and territories (NCCTs), in the fight against money laundering, that fail to implement measures according to internationally recognised standards (based on the FATF's recommendations). Being labelled as NCCT could impose severe costs to that country in terms of lost business.

c) Meeting International Obligations

As described in section 1.1(b) of this report, international obligations have been a major consideration in Canada's response to combat ML and TF to date. During the evaluation period, Canada was compliant with 27 of 28 FATF anti-ML recommendations^[18] and six of seven special (anti-TF) recommendations that were assessed. However, the FATF recommendations were revised in June 2003 and Canada will now have to amend its legislative and regulatory framework to meet these new recommendations, particularly with respect to client due diligence and record keeping. This indicates a continued need for action on the part of Canada in this area.

Anecdotal evidence, particularly that gathered from representatives of the FATF and foreign FIUs, indicates that many countries see Canada as a model for ML/TF detection and deterrence measures. Federal partners of the Initiative are frequently asked to provide advice to international partners and participate in international fora on the subject of preventing ML and TF, including presenting and demonstrating Canada's approach abroad. The federal government's continued funding of the Initiative enables Canada to preserve its solid name in the field.

Given the transnational nature of money laundering and terrorist financing, the participation of countries like Canada that depend heavily on international trade and immigration for their prosperity, is essential. Canada's open economy and status as a significant trading partner make it potentially vulnerable to ML and TF activity. Similarly, Canada's policy of accepting large numbers of immigrants and refugees with ties to areas of conflict around the world, it is also susceptible to potential fund-raising abuses.^[19] In general, individuals and organizations participating in organized crime and terrorism will seek out countries where the anti-ML/TF legal framework is least rigorous. This being the case, failing to uphold the measures implemented under the Initiative could leave Canada seriously susceptible to these activities.

The fact that the Initiative enables Canada to meet its international commitments and world standards with respect to fighting ML is a strong rationale for continuation of the Initiative. This rationale to maintain Canadian efforts in the area is also supported by the country's signing on to several United Nations conventions against transnational crime, terrorism and corruption as well as its membership in the Egmont Group of FIUs.

d) Combating Complex and Transnational ML/TF

Countering ML and TF schemes necessitates concerted, sustained efforts such as the Initiative. These crimes can be very complex and difficult to stay abreast of and often span international borders. This requires continuous participation of domestic and international organizations in all stages of the detection and deterrence process, including handling and reporting financial transactions, collecting and analyzing the reported information, providing disclosures to the relevant authorities, and investigating and prosecuting where appropriate. At the same time, money launderers and terrorist financiers are continually finding new ways to carry out their illegal activities. The ML and TF typologies developed annually by Canada and its FATF partners demonstrate how innovative and resourceful ML and TF criminals can be.^[20] The evolution of ML/TF techniques and the migration of these activities to new sectors made it necessary to revise and strengthen FATF's 40 ML Recommendations in June 2003. Thus, there is an ongoing need for Canada to maintain the Initiative's measures which depend critically on long-term domestic and international co-operation to reduce the profitability of, and create an hostile environment for, ML and TF as a means to reducing these criminal activities.

e) Alignment with Federal/Partner Priorities

The federal priorities that the Initiative addresses comprise providing adequate tools to law enforcement to combat ML/TF, protecting public security, safeguarding personal privacy, and protecting Canada's financial system.

The Initiative is well aligned with the federal government's concern with fighting organized crime and maintaining public security. This is illustrated by the federal government's National Agenda to Combat Organized Crime, a main focus of which is money laundering,^[21] the Anti-Terrorism Act, as well as the Ad Hoc Cabinet Committee on Public Security and Anti-Terrorism (PSAT), which was tasked to develop a Canadian response to the events of September 11, 2001 and to strengthen federal security policy.^[22] Fighting crime and enhancing public security are enunciated in the roles and mandates of Initiative partners, including the Canada Border Services Agency, the Royal Canadian Mounted Police, the Canadian Security Intelligence Service, and the Department of Justice.

Safeguarding the privacy and Charter rights of ordinary Canadians is demonstrated through the rules governing the handling of personal information specified in the Act and the accompanying regulations. Striking a balance between the need for accurate and full information for law enforcement and security agencies, on the one hand, and the privacy rights of individual Canadians, on the other hand, demonstrates that the Initiative is aligned with this priority of the federal government.

Protecting the integrity of Canada's financial system from abuses is a priority of the Government of Canada. The fact that the Initiative is concerned with the integrity and security of the financial sector by requiring a variety of transaction reporting, record keeping and due diligence by financial institutions indicates that the Initiative is driven by both federal and international priorities/commitments to safeguard Canada's financial system. These have been concerns of the federal government, specifically federal banking regulators, since high-profile anti-ML lapses in banks, such as the Riggs Banks, in the US. Protecting Canada's financial system from such potential abuses requires that proper authority be granted to an organization like FINTRAC to enforce compliance and to law enforcement agencies and prosecutors to pursue cases of wilful non-compliance. The Initiative's legislative and regulatory framework gives FINTRAC the appropriate powers to protect the system from ML and TF abuse.

2.2 Design and Implementation of Activities

The focus of this section is on the activities associated with the Initiative. The concern in the first sub-section is the appropriateness of the activities as a whole. Because of the importance of awareness raising, inter-partner cooperation and information exchange, compliance monitoring, and performance measurement to the overall success of the Initiative, each of these activities receives separate treatment in the subsequent four sub-sections. The section concludes with a consideration of the appropriateness of Initiative resources.

a) Appropriateness of Activities and Partners for Attaining Objectives

The relationship between the Initiative's activities (as a whole) and expected outcomes is logical and appropriate. As indicated in the previous section on the Initiative's relevance, the legislative and regulatory framework aligned with federal priorities is in place and Canada has met past international commitments and is working toward meeting new commitments. The necessary elements are in place for contributing to the ultimate expected outcome of reducing money laundering and terrorism financing. The activities undertaken under the Initiative are comprehensive and appropriate for achieving its expected outcomes other than the absence of measures for the legal profession. Finally, comparing the Initiative to those of other countries further reinforces the view that Canada has developed appropriate measures.

The appropriate partners to carry out the necessary activities are also in place. They comprise: organizations involved in carrying out due diligence, appropriate record-keeping and reporting certain financial transactions, where ML and TF can potentially take place (financial institutions and other reporting entities); an arm's length agency that is concerned with both the receipt, collection and analysis of the reported information, culminating possibly in disclosures and ensuring compliance with financial intermediaries' reporting and record-keeping obligations (FINTRAC); law enforcement and national security agencies (police forces, CRA, CIC, CBSA, and CSIS) that receive the disclosures and conduct investigations, culminating possibly in recommendations for prosecution; the organization that carries out the federal prosecutions (Department of Justice/Attorney General); and foreign organizations, for purposes of analysis and investigation of transnational cases (foreign FIUs).

In addition, improvements by CBSA-Immigration have been made in response to a recommendation made in the Year Three (interim) Evaluation of the Initiative.^[23] That evaluation recommended (recommendation no. 5) that CIC further develop its action plan for implementation of its Initiative responsibilities. A review of the plan indicates that CBSA-Immigration has made progress in the areas of communications, case management, improving intelligence, continuous learning, partnerships with other federal organizations, measuring performance and security. See Appendix G for a complete list of the recommendations from the Three Year (Interim) Evaluation.

The evidence presented in the sub-sections that follow demonstrates that the Initiative's activities are generally being implemented as intended, though some areas of weakness are also identified.

b) Contribution to Increased Public Awareness of ML/TF

Initiative partners have undertaken considerable efforts to increase public awareness of money laundering and terrorist financing. There is widespread awareness and increasing understanding of money laundering and, to a lesser degree, terrorist financing in Canada, though the extent to which the actions of the Initiative have contributed to this public awareness is unclear from the available evidence.

The major efforts of partners to increase public awareness are as follows:

• FINTRAC and other Federal Partners: The websites of FINTRAC and other Initiative partners make mention of the Initiative and provide periodic press releases about it (see media analysis below). In accord with its mandate to promote public awareness, FINTRAC has developed promotional materials which are available on its website and implemented a toll-free telephone line in 2001/02. FINTRAC also publishes an annual report and has produced three pamphlets that are distributed to reporting entities for use with their customers.
• RCMP: The RCMP participates in the promotion of the Initiative through it's national and regional outreach programs. Activities in this regard include programs such as Merchants Against Money Laundering, presentations to reporting entities, the private/public sectors and to the general public.
• CBSA-Customs: In order to help ensure that members of the public understand the reporting requirements and proper completion of forms when crossing the border, this agency provides posters and signage (e.g., at ports of entry), offers a 1-800 help line, offers the cross border currency or monetary instrument reports on their website, and translates brochures and instructions into numerous foreign languages. In addition, as part of its client services initiative, this agency delivers information sessions and distributes brochures/forms to embassies, Canada Post, and Canadian travelers (as well as to American and international travelers, importers, exporters, tourism associations and business associations).

The public awareness efforts of Initiative partners are varied, reaching public audiences directly such as through websites, media or 1-800 lines, as well as indirectly, through third-party organizations (e.g., reporting entities, industry associations). The Year Three Evaluation of the Initiative recommended (recommendation no. 2) the value of more traditional venues for sharing information with the public (e.g., pamphlets, posters, advertisements) to gain greater immediate impact. Several of the partners have developed promotional materials in the form of pamphlets and posters, making them available, where appropriate, in regional offices. To date, there is little evidence of more active strategies, such as a broad media-based or advertising campaign targeted to the general public. FINTRAC indicates that such a broad-based media campaign was considered but rejected because it was the public at large was not seen as the main target of its efforts. It was determined that the Centre's communications efforts be tied in with its compliance program and targeted at reporting entities, in line with larger corporate objective of ensuring reporting and record-keeping by these organizations. The communications in this regard have included the development of pamphlets, guidelines and a website to ensure obligations are well understood, as well as the placement of articles in the newsletters and journals of the financial sectors covered under the Act.

There is some indication of increased awareness in ML/TF issues. Visits to the FINTRAC website have increased substantially from 107,519 in 2001/02, to 201,104 in 2002/03, to 246,122 in 2003/04. A further indication of increasing awareness and interest in money laundering/terrorist financing issues is provided by data on the calls to FINTRAC's toll-free telephone number. The number of calls from the general public to this call centre increased from 543 (21 per cent of 2,587 calls) in 2001/02 to 896 (35 per cent of 2,549 calls) in 2003/04.

Public opinion polls provide further evidence of rising awareness of ML. Trends in public awareness, as indicated by public opinion polls commissioned by FINTRAC, indicate that there has been increasing awareness of some money laundering issues from 2001 to 2004 (Table 2.1). A very high proportion of Canadians (88 per cent) have a basic awareness of the term "money laundering", though this proportion has not changed much over the last four years. There has, however, been an increase in the proportion believing that they have a good or very good understanding of ML (from 36 per cent in 2001 to 46 per cent in 2004). A majority of Canadians currently believe that ML has an impact on the Canadian economy (85 per cent), and 54 per cent regard it as a serious problem. Moreover, 80 per cent of Canadians believe that ML has an impact on banks/financial institutions (which suggests that there may be public support for the importance of monitoring suspicious financial transactions in banks/financial institutions). Just over half of Canadians (56 per cent) correctly believe that money laundering is associated with drug trafficking, though only 25 per cent believe it is associated with organized crime. Awareness of this latter point has increased substantially since 2001 and 2002, however, when only about one-tenth of Canadians indicated an understanding of the link between money laundering and organized crime.

Table 2.1: Selected Trends in Public Awareness: Percentage Indicating Response, 2001-2004

Issue	August 2001	March 2002	March 2003	March 2004
Public Awareness of Money Laundering
Awareness of money laundering (n=2113)*	89	90	86	88
Good** understanding of money laundering (n=1868)	36	42	42	46
Money laundering is a serious problem (n=1868)	50	52	44	54
Money laundering believed to be associated with: drug trafficking (n=1868)	56	48	58	56
Money laundering Believed to be Associated with: organized Crime (n=1868)	10	12	25	25
Money laundering Impacts on Canada's economy (n=2113)	83	82	81	85
Money impacts on banks and other financial institutions (n=2113)	76	78	80	80
Public Awareness of Terrorist Financing Activity
Money is being raised or moved through Canada to finance terrorism activity (n=2113)***	-	79	78	75
Terrorist financing is being raised/moved through: crime (n=1603)***	-	29	27	30
Terrorist financing is being raised/Moved through: Charities (n=1603)***	-	17	22	19
*The number of survey respondents (n) is an average based on samples obtained at four different points in time. These averages were obtained from the Ipsos Reid documentation. ** This percentage is a combination of responses indicating "very good" and "good" understanding of money laundering. ***Terrorist financing activity was not addressed in the August 2001 survey as it was conducted prior to September 11, 2001. Source: Ipsos Reid (April 2004). Tracking Public Perceptions Surrounding Money Laundering. FINTRAC document provided to EKOS.

Public opinion data also indicate that 75 per cent of Canadians believe that terrorist financing is occurring in Canada (Table 2.1). Only a minority believe that terrorist financing is being raised or moved in Canada through crime (30 per cent) or charities (19 per cent), however. There has been little change in any of these indicators from 2002 to 2004.

Although there has been very little media coverage of the Initiative, our analysis of media coverage (see Table 2.2) reveals that there have been increasing references to FINTRAC over the last three years, from six in 2002, to 35 in 2003, to 53 in 2004 (up until August), out of a total of 94 articles located. Most of these references (71 per cent) were in the front section of the newspaper (as opposed to less prominent coverage in the business or local section), with this proportion increasing somewhat from 2003 to 2004 (66 and 74 per cent, respectively). The proportion of articles providing considerable or in-depth treatment of FINTRAC has also increased somewhat, from 43 per cent in 2003 to 51 per cent in 2004. Regarding specific topics, most articles mentioned terrorist financing (39 per cent), money laundering (20 per cent), or both issues (21 per cent). There has been a notable increase in the coverage of terrorist financing issues, from 17 per cent in 2002, to 31 per cent in 2003, to 47 per cent in 2004.

Table 2.2: Media Coverage of FINTRAC, 2002-2004

	2002	2003	2004*	Total
Type of Coverage
National newspaper	1 (17%)	8 (23%)	6 (11%)	15 (16%)
Front section of newspaper	5 (83%)	23 (66%)	39 (74%)	67 (71%)
Considerable or in-depth treatment of FINTRAC	3 (50%)	15 (43%)	27 (51%)	45 (48%)
Positive coverage of FINTRAC	-	1 (3%)	1 (2%)	2 (2%)
Negative coverage of FINTRAC	1 (17%)	4 (11%)	5 (9%)	10 (11%)
Neutral coverage of FINTRAC	4 (67%)	30 (86%)	46 (87%)	80 (85%)
Topic
Money laundering (ML)	1 (17%)	6 (17%)	12 (23%)	19 (20%)
Terrorist financing (TF)	1 (17%)	11 (31%)	25 (47%)	37 (39%)
Both ML and TF	1 (17%)	9 (26%)	10 (19%)	20 (21%)
Total	6	35	53	94 (100%)
* From January to August 2004. Source: Canadian newspapers and radio and television transmissions.

The media analysis does not indicate any positive impacts on the degree of support for the Initiative's efforts at combating money laundering and terrorist financing. Only two of 94 articles clearly provided pro-FINTRAC coverage. The majority of articles (85 per cent) provided a neutral coverage of FINTRAC, with most of the rest (11 per cent) being negative. The negative articles focused on the view that FINTRAC was not being properly monitored (4 articles) and on personal privacy issues (3).

In conclusion, the efforts of Initiative partners appear to have had some positive impacts on public awareness of money laundering and terrorist financing issues.

c) Contribution to Increased Cooperation and Coordination Among Stakeholders

This section is concerned with the issue of cooperation and coordination, which is necessary for attaining the Initiative's long-term objective of reducing crime. Cooperation and coordination, including information exchange, takes place for purposes of enhancement of both skills of individual partners and the effectiveness of the Initiative's operations.

Cooperation at four levels is necessary. Specifically, cooperation is required (1) with the financial sector and other financial intermediaries which report large and suspicious financial transactions and its industry associations; (2) within the federal government, specifically among the funded and unfunded federal departments and agencies under the Initiative; (3) with other agencies in other levels of government, specifically provincial regulators and lottery and gaming corporations as well as provincial and municipal police forces; and (4) with international stakeholders with respect to cross-border crime, terrorist financing and transnational investigations.

The implementation of the Initiative has contributed to significant cooperation, across all four levels. Findings are presented for each of the four groups identified above.

First, there is a high degree of cooperation with the financial services industry. FINTRAC participates in a number of activities indicative of cooperation with reporting entities.

• FINTRAC has participated in over 500 outreach activities with reporting entities and their industry and regulatory representatives, in 2003-04, to make them aware of their obligations and to negotiate information-exchange MOUs. Efforts are being directed at the regional level as well.
• FINTRAC leads an Issues Working Group and ongoing structured consultation with the Canadian Bankers Association and other stakeholders on policy and implementation, and these efforts have been successful in developing regulatory packages with the input and support of reporting entities.
• FINTRAC has held sector-specific workshops to provided feedback to reporting entities on the quality of reports and their contribution to disclosures.

The Year Three Evaluation of the Initiative (recommendation no. 1) noted that consultations with reporting entities could be more beneficial by considering which level of consultation - national, provincial, regional - would best serve intended outcomes. To date, consultations have been extensive at the national level (e.g., with the Canadian Bankers Association, Canadian Real Estate Association and others), but there is growing recognition of the value of engaging regional and provincial organizations. Regional and provincial organizations often have greater connections with practitioners in their sector and can facilitate more active information sharing with organizations and individuals covered by the Act.

FINTRAC suggests that the rising volume of reporting to the Centre can, to some extent, be attributed to increased cooperation among financial entities. While some of the reporting volume and growth (reaching 9.5 million in the last fiscal year from all sectors of the industry) is due to the fact that transactions must be reported under the terms of the Act and its regulations, anecdotal evidence suggests that this is also due to genuine cooperation on the part of the financial services industry. FINTRAC indicates that it has detected, in information and feedback sessions that it has held with financial businesses, that there is a genuine air of cooperation and indications of widespread and growing acceptance of the reporting, client identification and record keeping requirements under the law. Representatives of financial institutions confirm that in their consultations FINTRAC has proven to be open and receptive, and these representatives are generally pleased with the improving level of consultation.

Second, there is much evidence of cooperation among federal partners within the Initiative. Cooperation and coordination within the Initiative occurs for purposes of increasing understanding of the issues and information needs, addressing issues as they arise, and facilitating investigations. In this regard, it should be noted that the Department of Finance plays the chief coordination role for the Initiative (as noted below). Partners engage informally in much consultation among themselves. Concrete examples of cooperation and information exchange among the partners include the following (see Appendix H for a longer list of examples):

• Finance Canada, in addition to participating in a number of intra-governmental committees concerned with policy and operational issues of relevance to the Initiative, leads an Interdepartmental Working Group with federal partners to discuss ML and TF issues as they arise, including those related to the coordination of activities within the Initiative as well as internationally. The Working Group includes all partners, with flexibility to include other external partners as needed. OSFI, for example, is increasingly involved at this working level. Sub-groups have been established within the Working Group to address policy issues as they arise. There is also an ADM-level committee on these issues, which acts as a steering committee to ensure effective coordination among the Initiative partners. The interdepartmental groups respond to a recommendation in the Year Three Evaluation (recommendation no. 3) regarding establishing a forum through which Initiative-wide and operational issues can be dealt with.
• Finance Canada also routinely conducts consultations with affected reporting entities on new policy proposals.
• RCMP initiated programs such as Merchants Against Money Laundering where over 500 businesses were visited and sensitized to ML issues.
• RCMP conducted 173 outreach information sessions to reporting entities and other private sector businesses.
• RCMP provided training sessions in the identification of ML indicators for CBSA border personnel in Ottawa, Toronto, Niagara, Windsor, Vancouver and Victoria.
• RCMP provided ML training to CBSA Adjudication personnel.
• RCMP opened up its basic and advanced proceeds of crime/ML training courses to all partners.
• RCMP shared its strategic intelligence/analysis with partners with respect to new ML trends and typologies.
• RCMP ML analysts provided tactical support to IPOC ML cases.
• CBSA-Immigration organized 14 information sessions, workshops and training sessions. with partners to facilitate networking and collaboration.
• CBSA-Immigration conducted 15 training sessions^[24] to increase skills, including an FS Course (for Foreign Service Officers), MIO Course (for Migration Integrity Officers), Basic TF Workshop (as part of an interdepartmental training session held at the RCMP), and a training module on immigrant security screening including ML at the Canadian Police College (CPC) as well as conferences.
• FINTRAC has conducted 140 information sessions with its law enforcement partners and other recipient organizations regarding the disclosures it makes to them.
• FINTRAC is a standing member of the National Coordinating Committee on Organized Crime (NCCOC), a federal/provincial/territorial committee of senior government and law enforcement officials,^[25] to which the Centre has contributed information on patterns and trends. As well, FINTRAC is currently chairing a working group under the auspices of the NCCOC with participation from the law enforcement community for the purpose of ensuring better tracking of its disclosures.
• CSIS, CBSA-Immigration, the RCMP, other law enforcement agencies, and other organizations have provided FINTRAC analysts with feedback on disclosures to broaden understanding of what information is most useful to them for investigations.
• FINTRAC has participated in over 500 outreach activities with reporting entities and their industry and regulatory representatives, up to March 31, 2004, to make them aware of their obligations and to negotiate information-exchange MOUs.
• FINTRAC has concluded an information-exchange MOU with the federal regulator of financial institutions (OSFI) (as well as a provincial regulator, as noted below), which has enabled the exchange of information between FINTRAC and OSFI for purposes of compliance. More MOUs are currently being negotiated with provincial regulators.
• CRA and FINTRAC have a steering group, which meets twice yearly, to coordinate research activities and discuss issues of mutual concern.
• PSEPC heads up several committees (either federal or federal/provincial) directly concerned with issues of prime relevance to the Initiative: the NCCOC, the ADM Public Safety Committee, the FPT ADM Policing Issues Committee, and the ADM IPOC Steering Group.
• PSEPC monitors the activities of Initiative partners it is responsible for, namely the RCMP, CSIS, and CBSA.
• RCMP, other police forces, CSIS, CBSA and other agencies (including foreign FIUs) have provided FINTRAC with a large amount of voluntary information,^[26] which in turn contributes to the disclosures FINTRAC forwards to these organizations, and, subsequently, the investigations they conduct.
• FINTRAC has negotiated access to the Canadian Police Information Centre (CPIC), the national database maintained by the RCMP and used by all law enforcement agencies to enhance the Centre's analytical capability. As well, negotiations have begun to sign MOUs for access to other key police databases, as well as national security databases pursuant to the authority FINTRAC was granted through the Public Safety Act.

Noting that the timeframe to finalize agreements in this area can be protracted, these efforts address a recommendation (no. 7) in the Year Three Evaluation of the Initiative for FINTRAC to develop mechanisms, where legally possible, to access information and expertise available from partner agencies. FINTRAC has negotiated access to police databases and concluded information MOUs with two regulators of financial entities. Access to expertise from partners has, to some extent, been gained through mutual workshops and working groups. Access to partners' expertise via secondments is considered in section 2.2(f) of this report on adequacy of human resources.

Third, there has been cooperation with other levels of government under the Initiative. Examples of this cooperation are the disclosures that FINTRAC has made to provincial and municipal police forces, as well as the MOU it has signed with a provincial regulator of casinos (BCPEB), with several more MOUs with provincial-level industry regulators about to be signed. As noted, FINTRAC and PSEPC sit on the NCCOC, which has provincial representation.

Finally, there is cooperation and information exchange between Initiative partners and international organizations. Examples of this level of cooperation (see again Appendix H for a longer list) include the following:

• Canada is a charter member of the FATF and plays a key role in that organization, specifically in revising the 40 ML Recommendations, assessment of other countries' implementation of the 40 Recommendations, and the typology exercises (led by Finance with input from the RCMP, FINTRAC, Justice and other partners as required).
• Finance has participated in a number of other international fora tasked with the implementation of international standards with respect to fighting ML and TF.
• FINTRAC is a member of the Egmont Group of FIUs (one of 94 such members), playing a significant role in the organization, particularly by participating in the steering committee that oversees the Group's work as well as several working groups, by mentoring prospective members, and by contributing strategic information on patterns and trends.
• FINTRAC signed information-exchange MOUs with the FIUs of 10 countries - Australia, Barbados, Belgium, Italy, Mexico, the Netherlands, Portugal, South Korea, the United Kingdom and the United States - and has exchanged voluntary information, disclosures and information requests with many of them.^[27]
• FINTRAC has provided training to representatives of a number of foreign countries.
• RCMP responds to foreign agencies' requests for training and assistance regarding detecting and deterring money laundering and terrorist financing. This includes working with the Caribbean Anti-Money Laundering Program to improve conditions in Caribbean nations. As of June 2004, the RCMP mentored 18 Carribean investigators for "hands on" investigative duties. In addition, since 2000, training has been provided to representatives from Anguilla, Australia, Bahamas, Belize, Columbia, Dominica, Dominican Republic, France, Jamaica, Cuba, Austria, Guyana, Ireland, Mexico, New Zealand, Pakistan, Czech Republic, Russian Federation, Peru, Spain, St-Vincents and the Grenadines, Trinidad, Venezuela, Hong Kong, Kenya, Panama and Guatemala.^[28]
• CRA is involved in the OECD Committee on Fiscal Affairs Working Party 8 sub-group special sessions on ML and tax-related crimes.
• CBSA-Customs is in discussions with US Customs Border Protection (CBP) about the possibility of sharing certain financial reporting information and CBSA currency seizure information, and more generally to share cross-border reports.^[29]

In conclusion, cooperation among the partners of the Initiative has contributed to skill enhancement of employees of individual organizations by increasing their knowledge of what information is needed or what to look for when detecting criminal activity. Cooperation between partners has also more actively contributed to detecting crime through the provision of information needed for developing policy, building cases and in working together on cases or seizures. This cooperation has therefore made an important contribution to the attainment of the Initiative's objectives.

d) Appropriateness and Effectiveness of Compliance Measures

The success of the Initiative depends critically on the compliance of reporting entities and individuals with the reporting, record-keeping and client identification provisions of the Act. For reporting entities, compliance means not only the full participation, but also provision of high quality reports and maintenance of sound client identification and record keeping procedures. Toward these ends, FINTRAC has instituted a compliance program to ensure submission of accurate and complete reports from reporting entities and sound internal processes in these organizations. While compliance is mainly a FINTRAC issue, since the Centre is responsible for ensuring that compliance takes place, the perspective of reporting entities, in terms of compliance costs and benefits experienced, is also considered at the end of this sub-section.

While FINTRAC compliance measures are the focus of this section, it must be noted that ensuring the reporting compliance of individuals crossing the border is also important to the success of the Initiative. Towards this end, CBSA has developed, distributed and posted information notifying individuals of their obligations under the Act. In addition, CBSA, as well as the RCMP, have provided customs officers with the training and tools (e.g., indicators and dogs) to ensure compliance as well as detect illegal activity.

i) FINTRAC's Compliance Program

FINTRAC has in place a comprehensive, cooperative compliance program that has all the key ingredients necessary for increasing the reporting incidence of financial entities (see below for more details on these ingredients). Two noteworthy features of FINTRAC's compliance program are that it is a cooperative and risk-based approach to the enhancement of compliance. Being risk-based means activities are focused on and tailored to areas thought to be at greatest risk, which is an efficient and cost-effective use of funds. Being cooperative means FINTRAC works closely with the reporting entities to improve compliance, rather than imposing a regime from above. The key activities of the compliance program are the following:

• Provision of policy interpretation;
• Provision of assistance and information to reporting entities, including outreach activities, guidelines, pamphlets, presentations and provision of feedback to reporting entities;
• Risk assessment;
• Quality and quantity assurance of reports;
• Examination of entities, including working with industry regulators; and
• Referral of non-compliance cases to law enforcement.

There is much evidence of the effort FINTRAC has exerted with respect to its compliance program over the 2001/02 to 2003/04 period, as follows:

• All of the compliance officers have been provided training in compliance, and a handbook with 19 policies and procedures has been developed which covers different aspects of compliance.
• There has been an increase in the number of reporting entities seeking assistance or information from the FINTRAC help line, from 647 in 2002/03 to 813 in 2003/04. Note that this could indicate one of two things: either that there is greater awareness among reporting entities, or that they increasingly need help in understanding their obligations.
• FINTRAC has participated in a large number (500) of outreach exercises in the last fiscal year. The fact that all banks have been reached in some way by FINTRAC outreach activities and that banks represent 63 per cent of reports in FINTRAC'S database indicates that FINTRAC's key "clientele" has been reached.
• FINTRAC has approached over 50 regulators of financial service firms, all of which have indicated interest in collaboration. To date,^[30] FINTRAC has signed MOUs with two of them (Office of the Superintendent of Financial Institutions (OSFI) and the British Columbia Gaming Policy and Enforcement Branch (BCPEB)), and continues to work on completing more MOUs.
• Up to 2003/04, FINTRAC has followed up on or monitored the reports of about 375 organizations that it found deficient in some way in their reporting. Of these, 35 had their reports returned because of missing information or other errors (retrospective follow-ups); 161 were informed of minor problems and asked to correct them for the future (prospective follow-ups); and 177 were being monitored (because of concerns that did not warrant contact with the organization). The number of prospective follow-ups declined from 85 to 33 from 2002/03 to 2003/04, while the number of retrospective follow-ups increased from two to 34 and the number monitored from 38 to 68.
• Since January 2004, FINTRAC has examined the reporting procedures of approximately 100 reporting entities, starting with, as a kind of pilot, money service businesses (MSBs) and foreign exchange dealers (FSXs), a group thought to be potentially prone to deficiencies. The examinations were done with two groups of such organizations, the second of which was considered more at risk for non-compliance as It was found that the average number of deficiencies in meeting prescribed compliance requirements was 2.6 for the first group and 3.6 deficiencies for the second, higher risk group of organizations.

There is evidence that FINTRAC's compliance efforts are reaping benefits in terms of increased reporting. The volume of reports to FINTRAC has increased exponentially, from 3,870 in 2001/02 to over 9.5 million reports in 2003/04 (see Table 2.3). In total, there have been almost 11.7 million reports, with the largest number being non-SWIFT electronic funds transfer reports (4.0 million), and SWIFT electronic funds transfer and large cash transaction reports having similar numbers (2.7-2.8 million). It must be pointed out, however, that the increase in reporting volume is likely not due just to the FINTRAC cooperative compliance program, but also to an expansion in the types of reports that must be submitted under the Act (large cash transactions, and SWIFT and non-SWIFT international electronic funds transfers).

Also, note the decline in the number of Suspicious Transaction Reports, from 17,197 in 2002/03 to 14,794 in 2003/04 (Table 2.3). This decline in the number of suspicious transactions could in part be attributed either to increased learning on the part of financial institutions to what constitutes suspicious, or, possibly, to reduced criminal activity.

Table 2.3: Number of Reports Received by FINTRAC, by Type of Report, 2001/02 to 2003/04

Report Type*	2001/02**	2002/03	2003/04
Suspicious Transaction	3,718	17,197	14,794
SWIFT**** Electronic Funds Transfer		226,271***	2,724,849
Non-SWIFT**** Electronic Funds Transfer			3,964,777***
Large Cash Transaction		1,879,708***	2,792,910
Voluntary information and foreign FIU requests	152	712	864
Cross-border currency and seizure reports			29,375
Total	3,870	2,123,888	9,527,569
* Regulations requiring reports other than suspicious transactions reports came into effect in 2002/03. ** November 2001 to March 2002. Only suspicious transactions had to be reported during this period. *** Regulations requiring the respective type of reports came into effect during the respective fiscal year when the reports were first received by FINTRAC. **** Society for Worldwide Inter-bank Financial Telecommunication (SWIFT). Source: FINTRAC (July 2004). Presentation on Mechanisms and Methods to Inform, Produce and Disseminate Quality Financial Intelligence, and Obtain Feedback on it. PowerPoint presentation deck, Slide 2 and FINTRAC 2002/03 Annual Report.

There is evidence that the compliance program is producing other positive outcomes. According to FINTRAC, as noted above, reporting entities are on the whole satisfied with the compliance program and express a high degree of interest in working cooperatively with FINTRAC on this issue. Representatives of reporting entities confirm acceptance of these measures. There is some evidence indicating that outreach is reaping benefits in terms of increasing the quality of reports (in addition to the quantity of reports, as indicated above). Financial service sectors where FINTRAC has been more active in increasing awareness of the Initiative, and obligations under it, have a lower incidence of errors in reporting by reporting entities. While it is currently not possible to track report error rates by sector and type of error over time, FINTRAC has commissioned Statistics Canada to develop a robust methodology that will assist in this endeavour. Finally, it should be noted that the growth in reporting provides FINTRAC analysts with access to more information from which to assess the competency of MF and TF schemes and develop sound disclosures to law enforcement and other agencies.

Compliance assurance with respect to client identification requirements, it should be noted, has been beneficial to law enforcement agencies, which later receive FINTRAC disclosures containing such information. Ensuring that there is proper identification when clients set up accounts and conduct financial transactions (as required under the legislation) has provided law enforcement and national security agencies with a useful piece of information for their investigations, which they would not have otherwise had without the Act.

It must be re-iterated that the compliance program is not yet fully operational, at least in two areas. First, the compliance examination process has not reached all sectors of the financial services industry. Second, certain performance information was not available for this evaluation to enable a quantitative assessment of the compliance program's success, specifically data enabling the measurement of the quality of reports by sector and over time, and the measurement of the degree to which reports are used in disclosures by sector and over time. To some extent with the passage of time, and the amassing of sufficient amounts of data, FINTRAC will be able to properly measure the contribution to disclosures that reports make.

To a large extent, the delayed roll-out of the compliance program can be attributed to a number of challenges that FINTRAC has encountered along the way. These include the following:

• early on, the expansion of the Initiative's mandate to include terrorist financing activities;
• the large reporting volume, necessitating greater monitoring activity; and
• legislative restrictions on FINTRAC's sharing of information with industry regulators.

FINTRAC has been able to overcome some of these obstacles, or at least attenuate their consequences. The primary way it has been able to do this is by employing a risk-based approach to compliance assurance. As noted, this means the Centre carries out compliance activities where they are most needed, which is cost-effective and time-efficient. Other factors helping FINTRAC to address implementation obstacles have been designing the FINTRAC reporting system to easily connect to systems already in place in financial institutions (e.g., the SWIFT reporting system) and the implementation of the Public Safety Act, which has enabled agreements with industry regulators as a means of reducing compliance and information-collection burden on FINTRAC.

Key informants identified a few types of financial service entities as current and potential barriers to full compliance. Current barriers include money exchange businesses and alternate remittance houses (because they are small and not currently registered or licensed). Expected problems in the near future are mortgage and deposit brokers representing large entities (because of difficulties in ensuring proper identification); "informal" accountants (i.e., bookkeepers); and cross-border cash couriers (who cannot currently be prosecuted for not reporting to the CBSA).

The conclusion from this section is that FINTRAC's compliance program is appropriate, based as it is on a risk-based and cooperative approach. While it is still early, the program has realized some real gains in terms of reporting volume and quality. This has undoubtedly increased the ability of the Centre to analyze information and produce disclosures. When the program is fully operational, this capability will be even stronger, and appropriate systems will be in place to quantitatively measure that performance. Ensuring effective compliance enforcement in the unregulated sector (specifically money service businesses and foreign security exchange dealers) remains a challenge and, in future, may need to be addressed through regulation and/or registration of these entities.

ii) Perspective of Reporting Entities

Representatives of the financial services sector and regulators indicated few difficulties with the compliance program. Representatives are supportive of the Initiative and view activities as relevant. Some entities have suggested they would like feedback on the number and kinds of suspicious transaction reports generated by their sector and the degree to which their reports figure in disclosures, so they can be assured their efforts are providing a benefit. Though FINTRAC indicates providing such information in workshops, it will continue to strive to provide more specific feedback and strategic information. In addition, some representatives of financial institutions would like to see improvements to guidelines in terms of user-friendliness, tightening of language and definitions that are open to interpretation, and greater specificity or tailoring for individual sectors.

Beyond these delivery difficulties, there is little doubt that implementation of the regulations has proven arduous and costly to financial institutions. According to representatives, the regulations have resulted in the need to alter computer systems and record keeping processes to accommodate both the regulations and the need to submit reports to FINTRAC electronically. However, it should be noted that these costs do not cause a competitive disadvantage since all financial institutions in FATF member countries are subject to similar reporting requirements. Compliance with the regulations has also increased the workload for, and the need to train, employees of financial institutions. However, there is little or no quantitative evidence of the actual cost to financial institutions of these activities (KPMG, 2004 and Harvey, 2004). These apparent costs, moreover, must be balanced against benefits to the institutions, acknowledged or not, in mitigating reputational, operational and legal risks. Much of the evidence presented by financial institutions has so far been anecdotal.

RECOMMENDATION 1: Continue to conduct consultations with representatives of the financial services sector, including organizations at the national and other jurisdictional levels, to help representatives see the value of their contributions. Before implementing any future changes to regulations or compliance activities, ensure that timely input is obtained from these organizations and that the potential for compliance fatigue in the financial services sector is taken into account.

e) Appropriateness of Performance Monitoring Mechanisms

Progress in partners' implementation and use of performance measurement systems, in response to a recommendation of the Year Three Evaluation of the Initiative, is considered in this section. The Year Three Evaluation report recommended that partners review data collection capabilities to ensure efficient capture and retrieval of information for the current evaluation. Such systems are important to be able to demonstrate effectiveness, ultimately in terms of increasing ML/TF prosecutions and reducing their incidence, and therefore continued or enhanced public spending. However, it must also be borne in mind that, even with proper tracking systems in place, it is very difficult to measure the contribution of the Initiative's activities to expected outcomes, owing to the long-term nature of the investigation-prosecution exercise and the plethora of factors contributing to the expected outcomes of reduced money laundering and terrorist financing, and ultimately reduced organized crime and terrorism. The existence of multiple other public initiatives with similar expected results exacerbates attribution difficulties. Moreover, it would be difficult to adequately measure attainment of the deterrence objective of the Initiative, i.e., the benefits of organized crime and terrorism not occurring.

Monitoring of the implementation of the Initiative overall is partly based on FATF self- and mutual assessments. The 40 Recommendations originally drafted and subsequently revised by the FATF have been recognized as the international standards for anti-ML programs. Like other member countries, Canada is subject to two methods of assessment to monitor the implementation of the 40 Recommendations: a mutual evaluation process, which is a periodic third-party analysis of the entire anti-money laundering system, and a self-assessment process, which is used to provide an annual update of FATF members' progress in implementing the Recommendations. Canada's participation in these processes and results have been discussed elsewhere in the report and fulfil responsibilities for Initiative-wide implementation monitoring. In addition, the Initiative is subject to value-for-money audits by the Auditor General of Canada, a Parliamentary review of the PCMLTFA (expected to take place in 2005^[31]), and a full mutual evaluation exercise by the FATF (scheduled to take place in late 2006).

The evaluation research indicates that, at a gross national level, there are currently appropriate mechanisms in place to monitor Canada's performance in implementing the Initiative and thus, meeting FATF recommendations. Progress made by Initiative partners in the area of performance monitoring includes the following:

• FINTRAC: FINTRAC is able to track trends in the number of reports it receives by type of reporting entity and report as well as the number and transaction dollar value of disclosures it makes by type of recipient organization, contribution of particular reporting entities to those disclosures and other relevant variables. However, as noted above, there have been some delays in fully implementing compliance performance measurement capability, specifically to measure the quality of reports by sector and over time, and the degree to which reports are used in disclosures, by sector and over time. Also, FINTRAC finds it difficult to track disclosures (e.g., usefulness to law enforcement cases, and supporting justice operations such as adjudication) once they are distributed.^[32]

• RCMP: The RCMP's Money Laundering database has been functional since February, 2004 and is designed to capture and track information related to FINTRAC disclosures (and the disposition of disclosures), voluntary disclosures to FINTRAC, and CSBA cross-border currency intelligence. All FINTRAC disclosures have been entered into this data system. An objective for 2004/05 is to integrate other sources of data and to have a fully operational system capable of analyzing and producing strategically and tactically sound intelligence end products for distribution to clients (such as other law enforcement agencies). A comprehensive ML Unit review has been conducted across the country on program implementation, the work being performed and results achieved. In addition, the program is planning to develop an accountability framework to be implemented across all units.
• CBSA-Immigration: An intelligence database/tracking system, the Secure Tracking System, has been established that enables (among other things) the capacity to track activities, intelligence and cases related to ML and/or TF. Through this database, officers can download information on cases and issues in their area of expertise allowing analysis of inadmissibility for reasons related to ML or TF. Information from FINTRAC disclosures is also integrated into the database, as benefits from intelligence gathering cannot be quantified. The Field Operations Support System (FOSS) database is being worked on so that specific codes for ML and TF can be incorporated into it.
• CBSA-Customs: Internal agency data collection systems are based on the cross-border currency reporting program. Cross-border currency reports are transmitted to FINTRAC on a daily basis (though some connectivity issues have been identified and are being addressed). Databases further capture information related to searches and seizures, and data related to the work of the Currency Evaluation Teams and the Currency Detector Dog Teams. Information is also available to distinguish investigations and prosecutions related to ML/TF. CBSA is continuing to improve its data collection systems.
• DOJ: Existing department-wide case-specific databases are used to track prosecution activity in the areas of ML and TF. However, because of inconsistent data entry across the regions, data collection efforts have been difficult using the current system (CaseView), which would cause difficulties for measurement of the contribution of FINTRAC disclosures to prosecutions, should these occur. This system will soon be transformed into a new more flexible database (Icase). Lack of compatibility of data systems across partners was identified as inhibiting the tracking of ML/TF cases from start to finish at DOJ.
• CRA: In September 2002, CRA established a detailed monitoring and tracking system for FINTRAC disclosures. Headquarters maintains an electronic tracking ledger of all FINTRAC disclosures received and referred to field offices. Field offices set up these disclosures in the centralized Audit Information Management System (AIMS). Accordingly, CRA can provide data on the number of FINTRAC disclosures received and the enforcement actions undertaken as a result of these disclosures.

In response to the Year Three Evaluation of the Initiative, the RCMP has implemented a compatible tracking system for inputting, maintaining and retrieving NICML intelligence including FINTRAC disclosure data (recommendation no. 4). As well, other partners have also made progress in implementing performance monitoring systems (recommendation no. 6).

Where performance monitoring efforts are less developed, these efforts are hampered by a number of challenges. These include technological issues (connectivity between partner databases, across jurisdictions) and measurement challenges. With respect to the latter, measuring the contribution or value of the Initiative on law enforcement efforts (e.g., on aspects of investigations, prosecutions), the level of ML and TF taking place, and the attribution of impacts in terms of deterrence (e.g., on levels of ML and TF) are major challenges. A need exists for additional research and modelling to address these gaps. As well, the ability to measure the role FINTRAC-supplied information plays in more immediate outcomes such as investigations and prosecutions appears to be limited. The RCMP and CRA are the only organizations able to do so. FINTRAC is working with other members of the law enforcement community to overcome this challenge.

Overall, performance monitoring related to the Initiative is still in the early stages. Indications are that data collection mechanisms and strategies are underway in most partner organizations to contribute to future timely and appropriate performance monitoring. However, it needs to be acknowledged that there are difficulties that must be overcome with regard to a lack of connectivity between partners' data systems, as there are in most horizontal initiatives such as the one being reviewed in this evaluation.

f) Appropriateness of Resources

The focus of this section is on the level and distribution of resources. Financial and human resources as well as technology are considered. Resource pressures being experienced by Initiative partners are outlined.

Regarding human resources, the evidence indicates that Initiative partners have adequate skills to carry out the current tasks assigned to them. This has been achieved by extensive training both in-house and across the partnership. First, there has been extensive training of staff to acquire needed skills. For example, FINTRAC has undertaken extensive training of its staff in particular areas, such as compliance and analysis. CBSA-Customs and CBSA-Immigration have taken great strides in educating and training regional officers, including front-line customs officers, about their responsibilities under the Act and how to carry them out. As well, FINTRAC staff includes former employees of disclosure-recipient organizations, specifically CRA and the RCMP, thus equipping the Centre with the tax and criminal investigative skills that will increase the utility of disclosures to recipients.

Second, there has been skill enhancement through cross-fertilization among partners. Partners have undertaken a number of bilateral efforts to share knowledge and provide training. Examples include: some partners that receive FINTRAC disclosures have provided the Centre' with feedback; some partners also provide FINTRAC with information and training in order to refine crime indicators; and the RCMP and CIC sharing best practices with respect to immigrant and refugee issues.

Some concern was expressed by the CRA and RCMP, however, regarding perceived shortages at FINTRAC in certain skill areas, specifically tax and criminal analytical skills. Some representatives of enforcement agencies suggested that the Centre could profit from enhanced criminal analytical skills to recognize illegal activity. As well, some key informants mentioned a lack of tax expertise among staff at FINTRAC to enable a better understanding of the link between tax evasion and money laundering. To some extent, these perceived skill deficiencies have been addressed, or could be addressed, through workshops. Consideration is currently being given by FINTRAC to secondments from the RCMP and CRA.

Measuring the appropriateness of funding levels by partners had to be based on a qualitative assessment only. A quantitative determination would have required a financial audit, which is beyond the scope of the current evaluation. Moreover, it was not possible to compare the amount expended on similar initiatives in foreign countries, which would have enabled comparative analysis of funding levels as a measure of relative efficiency. As presented in Appendix I, initiatives in other countries were too dissimilar in terms of partners involved, types of reports received, and disclosures made.

Four main funding pressures have been identified, in addition to the need to enhance performance measurement discussed above. These pressures are related to the information technology (IT) needs at FINTRAC, resource challenges within the CBSA and RCMP, and planning for the next full evaluation of the Initiative.

First, it should be pointed out that the large proportion of funds expended on infrastructure at FINTRAC over the initial years of the Initiative was appropriate given that a primary focus at that time was on setting up the organization including a large amount of IT to accommodate the fact that reporting was to be electronically based and there was a great need for analytical capability as well as privacy and security protection. From 2000/01 to 2002/03, infrastructure expenditures (capital costs) accounted for about 40 per cent of total FINTRAC expenditures ($42.8 million out of $104.5 million). In 2003/04, there was no budget for infrastructure renewal given that all the necessary technology and associated infrastructure was expected to be in place. For 2004/05 and going forward, there is currently no infrastructure "evergreening" (renewal) or disaster recovery support budget, with only limited flexibility for IT investment in new tools and approaches.

The primary argument for increased funding for technological renewal at FINTRAC arises out of the need to keep up with, if not to stay ahead of, both criminals and financial institutions. FINTRAC is a technology-dependent organization and technologies become quickly obsolete. Organized crime will always expend the resources to ensure access to the most sophisticated methods to avoid detection and so it is important for FINTRAC to have the resources to keep pace with this element. As well, financial institutions typically have the latest technology and so, again, it is necessary for FINTRAC to adopt the newest technology to avoid problems of connectivity. Beyond this, there is the continuing need to acquire the newest computer security and spam control mechanisms, given FINTRAC's high degree of dependence on information technology and electronic reporting via the Internet and the emergence of a growing number of IT security threats. Moreover, data storage facilities are approaching capacity at FINTRAC, thereby increasing requirements to archive information, which brings with it additional costs of storing the archived information and later retrieving it when needed. There is also the need for FINTRAC to be able to critical IT operations in the event of an incident. Finally, terrorist financing detection is getting increasingly complex, necessitating increasingly sophisticated technology to draw links between multiple small transactions and names with, for example, large numbers of variations in spelling.

Second, the CBSA has identified resource pressures and the need for increased funding. A greater than anticipated number of currency reports, seizures, forfeitures, and subsequent appeals have lead to serious resource gaps in the Agency. The Adjudications Division has not been funded under this initiative but the work created as a result of the large number of appeals of currency seizures and forfeitures is having a significant resourcing impact on its operation. The CBSA Customs Intelligence Division is actively collecting, developing, and coordinating the dissemination of tactical and operational intelligence arising from the large number of cross-border seizures of currency. CBSA intelligence resources are making a significant contribution to the Initiative. Finally, despite funding pressures, the Cross-Border Currency Reporting (CBCR) Teams and Currency Detector Dogs have been very successful, jointly being involved in 450 seizures totalling over $17.6 million, demonstrating the need for expansion of these initiatives.

Third, there are funding pressures being experienced by the RCMP. As noted in previous sections, Initiative funds allocated to the RCMP have been used to fill 34 positions which have had a demonstrated positive impact on detecting and deterring money laundering in Canada. Current funding has enabled the creation of three teams - in Montreal, Toronto, and Vancouver - and a number of one-person units strategically located across the country. The majority of these units conduct investigational assessments, while only the larger teams have limited capacity to conduct investigations. Certain gaps have been identified in relation to the investigational assessment of FINTRAC disclosures, cross-border currency information, voluntary information received from reporting entities and their subsequent investigations. Existing resource levels demand strict prioritization of cases and many FINTRAC disclosures cannot be fully assessed or investigated. Additional resources within the RCMP would result in more positive outcomes for the NICML.

In addition, FINTRAC disclosures related to terrorist financing are creating resource pressures for the RCMP in terms of having to investigate these leads. Public Security and Anti-terrorism (PSAT) initiative funds were allocated for the 17 FTEs devoted to TF investigations at the RCMP, and these funding pressures will need to be considered carefully as part of the PSAT evaluation process.

Furthermore, the strengthening of FINTRAC's compliance work, as well as performance monitoring and awareness raising demands, are expected to have budget implications for the RCMP. As FINTRAC identifies cases of non-compliance, they will be referred to the RCMP ML Units for further investigation and preparation for prosecution purposes. The ML resources increasingly will be asked to serve as an expert witness, adding to pressures on the ML Units. Additional pressures include: the need to maintain and enhance the data collection system at RCMP Headquarters, in order to adequately and efficiently collect and analyze information and intelligence coming in from ML mandated units across the country, produce strategically and tactically sound intelligence end products for distribution to clients (including other law enforcement agencies), and to assess the impact of FINTRAC disclosures on RCMP activities; and to maintain and enhance existing anti-money laundering educational programs designed to increase awareness within the business and financial sectors of the risks of money laundering.

Fourth, for the overall Initiative, there will be future resource pressures associated with the planning (e.g., revision of evaluation framework and logic model) and conduct of the next full evaluation in approximately five years. In addition, consideration should be given to the development of a performance management framework and this may raise funding pressures.

In conclusion, while the current distribution of funding among the partners is appropriate, Initiative partners are experiencing some resource pressures. Some of these pressures can be attributed to the greater than expected number of reporting entities, as well as the greater than expected number of cross border currency reports. Pressures include: the need for technological upgrades and increased storage at FINTRAC; the greater than anticipated number of seizures and consequent appeals, and related pressures on the CBSA; the need to carry out investigations at RCMP and to meet other demands on the Force; and the need to plan for and conduct the next full evaluation of the Initiative.

RECOMMENDATION 2: The Government of Canada should, at a minimum, consider maintaining current funding allocations to the Initiative's partners. In addition, it should consider responding over the short term to certain funding pressures, including:

• funding needed to finance IT renewal needs at FINTRAC;
• funding increases identified by the CBSA to expand the CBCR Teams and Currency Detector Dog Teams; to collect, develop, and to coordinate the dissemination of tactical and operation intelligence (CBSA Intelligence) and to deal with the high volume of appeals of currency seizures (CBSA Adjudication);
• increased funding identified by the RCMP to enhance its capacity for investigation of money laundering and terrorist financing intelligence, leads and tips provided by all sources; capacity to analyse and measure the impact of intelligence received;, and delivery of educational programs for the private sector; and
• future funding pressures associated with the planning and conduct of the next full evaluation of the Initiative.

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