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Meriak Consulting's Submission in Response to Finance Canada's Enhancing Canada's Anti-Money Laundering and Anti-Terrorist Financing Regime consultation:

24thSeptember 2005

Ms. Diane Lafleur,
Director, Financial Sector Division,
Department of Finance
140 O'Connor Street
Ottawa, ON, K1A 0G5

Dear Ms. Lafleur,

Ref: Enhancing Canada's Anti-Money Laundering and Anti-Terrorist Financing Regime Consultation Paper

Meriak Consulting is a niche consulting firm specializing in Anti-Money Laundering and Anti-Terrorist Financing (AML-ATF). Our clients comprise a diverse group of entities that include: banks; securities and investment firms; regulatory agencies; law enforcement and other government agencies and other consulting firms.

Outlined below are a few comments and suggestions for your consideration.

1. Regulated Registered Entities

When the Act was drafted only a comparatively few countries had comprehensive AML-ATF legislation and even fewer effective enforcement in place. Today we better understand which countries have sound AML-ATF legislation and effective enforcement.

Our current Act provides for some documentation, identification and other exceptions where an accountholder is another "Financial Entity" or "Securities Dealer". However, the Act's definition of "Financial Entity" or "Securities Dealer" limits such exceptions only to those entities that are domiciled in Canada. While Canada's financial community is international in scope, the current Sections of the Act do not accommodate that international dimension.

There are a number of countries where the AML-ATF legislation and effective enforcement is equal to that of Canada and in which the general regulatory enforcement of the financial entities and securities dealers is considered to be sound.

I would like to propose that the exceptions for "Financial Entities" or "Securities Dealers" under the current Act be extended to include financial entities and securities dealers that are domiciled and registered and regulated in those countries that are deemed meet or exceed Canada's own AML-ATF legislative and enforcement standards. Clearly the question of which countries should be included must be addressed and I suggest the following two options.

a. Add appropriate wording to the current definitions or add a clause/section that would empower FINTRAC, at its discretion, to decide which countries are worthy of the exceptions.

or

b. Insert a risk based clause that permits each institution to decide the eligibility of a country, based on a documented risk assessment of the country. This would clearly require guidance and monitoring from our regulators.

I should stress that it is implicit that the wording must also include a reminder that the onus for meeting KYC and verification requirements remains unchanged.

Given our cross border activity the United States of America is an obvious candidate for the exceptions and its inclusion would resolve many currently outstanding documentation/compliance issues.

I am aware that the Consultation Paper proposes contractual agency arrangements, which will prove to be expensive in practice and does not provide a full solution for non-resident accounts. While I can not immediately offer a better universal option, the above does at least propose some relief for intra institutional business at minimal increased risk.

2. FAFT Member Countries

The Sections of the Regulations covering "Third Party Determination" and "Exception to Ascertaining Identity" provide certain exceptions for some accountholders that are domiciled or operating in a country that is a member of the Financial Action Task Force (FATF).

While the FATF list of members generally reflects countries with good standards of AML-ATF prevention regimes, it is however more important to note that the list also includes a few countries whose corruption problems and lack of AML-ATF enforcement are universally known. It is also important to note that to qualify as a member of FATF a country is not required to have any particular level of enforcement of the FATF Recommendations.

It therefore does not make good regulatory or preventative sense to use the unedited FAFT country member list as a basis for providing any exemptions.

3. FIINTRAC's Ability to Share Information

I understand that the current limitation placed on FINTRAC does not permit them to share such key information as the narrative from a Suspicious Transaction Report (STR) describing the suspicious circumstances that caused the report to be generated in the first instance. I also understand that, unlike other countries, the RCMP, our intelligence agencies or other law enforcement agencies do not have access to FINTRAC's STR database. I find the logic of this difficult to understand and it should be changed.

Every effort, including legislative accommodation, should be made to improve the net effectiveness of the enforcement of the Act and Regulations. Law enforcement executives will naturally place resources where results can be achieved and avoid areas where cooperation and support is complicated. As long as our process for pursuing money launderers and terrorists continues with such impediments we can only expect minimal or no net results.

During the course of my work I regularly hear complaints about the lack of tangible results from the tremendous cost involved. (This typically translates into no-one appears to be getting caught and prosecuted). Furthermore, there are still sizable segments of our financial services industry that continue feel no pressing need to conform and do not take compliance seriously. To change these perceptions well publicized results through visible enforcement and penalties is essential.

The Consultation Paper was comprehensive, relevant and well prepared and I look forward to seeing the majority of the proposals in the revised Act next summer.

Sincerely

 

Martin Kossowski
Managing Partner