Anti-money laundering watchdog’s secrecy a disservice to Canadian banking industry, advocate says
The federal anti-money laundering watchdog’s secrecy over identifying the first bank ever fined for breaching its standards has smeared the reputation of the entire industry, a financial sector advocate said Thursday.
Janet Ecker, president of the Toronto Financial Services Alliance, is calling on the Financial Transactions and Reports Analysis Centre of Canada (Fintrac) to name the bank recently fined $1.1 million for failing to report a suspicious transaction and various other transfers.
“They should make the name public rather than tarring everyone,” she said.
“Our industry has an excellent reputation globally. So clarity is important to ensure we don’t suffer needless reputation risk.”
The failure to name the offending institution is a disservice to the industry because it paints an unfairly dubious picture of all players, said Ecker, a former Ontario finance minister who’s in China on a trade mission with Mayor John Tory.
Ecker also wants the government agency to release more information about the nature of the breach so the public can judge whether the bank committed a serious infraction or a simple oversight.
Fintrac said it exercised discretion in deciding not to release the name of the bank in Tuesday’s announcement — though it has for many other businesses — in order to send a message of deterrence swiftly rather than wait out a potentially lengthy appeal process before releasing the name.
The decision not to release a name or many details has drawn scrutiny in the compliance community, said Greg Draper, vice-president of valuations, forensics and litigation at MNP.
“You don’t know whether it was large serious breaches or whether it’s a number of small and systemic things by a repeat offender.”
However, he added that Fintrac’s intended message of deterrence has likely been successful without naming names.
“It signals that Fintrac is now looking at larger organizations as well as the smaller ones,” he said.
The Royal Bank of Canada, Bank of Montreal, TD Bank, Scotiabank, CIBC each said they were not the institution implicated earlier this week, when asked Thursday by the Toronto Star. National Bank and Laurentian Bank also said they weren’t the bank.
The staunch denials from Canada’s biggest banks narrows the financial “whodunit” to a list of about 15 smaller domestic players and 36 foreign branches and subsidiaries operating in Canada.
Matthew McGuire, head of financial crime risk management at Securefact and an expert in Fintrac standards, said he had ruled out the big Canadian banks even before their official denials.
The risk to the reputation of one of the Big Five banks is simply too great for lax practices, he said.
“When somebody’s named in one of these things they’ll have all their correspondent relationships shut off,” he said. “You become a pariah in the financial community.”
The big Canadian banks have spent a fortune on “rooms full of consultants” to beef up anti-money laundering controls — much more than the $1.1-million fine issued, he said.
The bank in question was most likely a small subsidiary of a foreign bank, he added.
“The clue that it’s a subsidiary of a big financial institution is that for that penalty to be at its maximum price — and it is — the institution has to have 500 or more employees,” he said.
The Canadian Bankers’ Association declined to comment on the implications of the secret fine for the industry, saying only that the sector has a strong track record of compliance with Fintrac reporting requirements.
RBC’s president and chief executive officer David McKay told shareholders at its annual meeting Wednesday that it was not the offending institution. He also defended the bank’s reputation after its name was “dragged into” a global tax evasion controversy as the only Canadian institution connected to the so-called Panama Papers data leak.
He said the bank would go through 40 years of records to determine the extent of its ties to the Panamanian law firm Mossack Fonseca, which is at the heart of the scandal.
BMO’s CEO Bill Downe struck a similar note at that bank’s annual meeting earlier this week, touting Canadian banks’ dramatic improvement of anti-money-laundering controls in the past decade.