Canada Announces Significantly Increased Penalties for Money Laundering Failures

January 03, 2025

Written By Lincoln Caylor and Nathan Shaheen

The recent Fall Economic Statement announced the intention of the current Canadian federal government to materially increase the financial (and other) penalties faced by designated individuals and entities doing business in Canada (known as “reporting entities”¹) that fail to meet the requirements of Canada’s anti-money laundering (AML) regime. While the duration of the current government’s remaining time in power is uncertain, the approach to AML of any future government is unlikely to be less demanding. This is particularly true given the upcoming Mutual Evaluation of Canada by the Financial Action Task Force (FATF), which will assess the effectiveness of Canada’s AML regime regardless of the political party in power.

Reporting entities doing business in Canada therefore have additional reasons to understand the current and anticipated requirements of Canada’s AML regime, and to proactively take the required steps to ensure compliance with the applicable laws and regulations under that regime.

Background

In Canada, the “centerpiece” of the federal AML regime is the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the PCMLTFA) and its regulations (the Regulations). The regime is Canada’s legislative and regulatory attempt to adhere to the standards set by FATF, which is the preeminent international standard setting body with respect to AML. FATF’s standards are set out in its regularly updated 40 Recommendations, which outline a comprehensive AML framework that FATF expects countries to implement.

Importantly, FATF also periodically evaluates countries and their compliance (or lack thereof) with its 40 Recommendations, the results of which are published in FATF’s Mutual Evaluation reports. Poor Mutual Evaluation results can have far-reaching impacts for countries and their financial systems. Studies have shown, for example, that being placed on FATF’s “Grey List” of “jurisdictions under increased monitoring” can have a notable reduction in the ratio of foreign direct investment to GDP and leads to an overall reduction in capital inflows to those countries.

FATF’s most recent Mutual Evaluation of Canada was undertaken in 2016. While the results fell short of landing Canada on the Grey List, they were broadly unimpressive. FATF concluded that Canada was “compliant” or “largely compliant” with 27 Recommendations, but only “partially compliant” with six Recommendations and “non-compliant” with three Recommendations. Consistent with these conclusions, FATF observed that the efforts of Canadian authorities to combat money laundering “are not entirely in line with the money laundering risks that Canada faces, and overall, the recovery of the proceeds of crime appears to be relatively low.”

Since the release of FATF’s 2016 Mutual Evaluation of Canada, the current government has regularly amended the PCMLTFA and the Regulations. In doing so, the government has cited the need to keep pace with FATF’s 40 Recommendations. However, recent years have seen widespread critiques of Canada’s AML regime. Such critiques have included the consistent view that Canada’s financial intelligence unit—the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC)—continues to lack the resources and authority necessary to effectively detect and deter money laundering despite technical amendments to the PCMLTFA and its Regulations.

The critiques of Canada’s AML regime have added importance given that FATF will soon conduct its next Mutual Evaluation of Canada, with onsite evaluation scheduled to take place in November 2025 and results expected to be reported in mid-2026. As the current government acknowledged earlier this year, if Canada does not effectively implement FATF’s 40 Recommendations, “Canada could be at risk of being grey listed, which could have negative economic consequences as well as reputational damage.”

2024 Fall Economic Statement

On December 16, 2024, the federal government released its Fall Economic Statement. The Fall Economic Statement announces the government’s intention to strengthen Canada’s AML regime for the express purpose of preparing for FATF’s upcoming Mutual Evaluation in 2025-2026.

Most notable for reporting entities doing business in Canada is the government’s intention to materially increase the financial (and other) penalties to be imposed for failures to meet the requirements of the PCMLTFA and the Regulation, including by:

1. Increasing all administrative monetary penalty (AMP) amounts that FINTRAC can issue to reporting entities by 40 times the current amount.
2. Establishing an aggregate penalty limit for all AMPs contained in one Notice of Violation issued to a reporting entity by FINTRAC to the greater of:
   
   (a) $4 million for an individual and $20 million for an entity; and
   
   (b) 3 percent of the reporting entity’s worldwide gross revenue.
3. Introducing a criminal offence for the provision of false, misleading or incomplete information by a reporting entity to FINTRAC.
4. Requiring reporting entities and FINTRAC to enter into a compliance agreement following the issuance of any AMP that obligations reporting entities to undertake specific actions to address the conduct that resulted in the AMP, with failure to adhere to the agreement resulting in FINTRAC issuing a further AMP in the greater of up to:
   
   (a) $5 million for an individual and $30 million for an entity; and
   
   (b) 3 percent of the reporting entity’s worldwide gross revenue.

The foregoing financial consequences would materially heighten the risk faced by reporting entities that fail to comply with the PCMLTFA and the Regulation. At present, the maximum penalty for the most serious category of violation is $100,000 for an individual and $500,000 for an entity. While there is currently no aggregate penalty limit for all AMPs contained in one Notice of Violation issued by FINTRAC, the highest reported aggregate penalty issued by FINTRAC under the current regime was only just over $9 million, covering a total of five violations.

In the Fall Economic Statement, the current government indicates its intention to implement various other amendments to Canada’s AML regime, including:

1. Amending the PCMLTFA and the Regulations to apply to individuals and entities that participate in the creation, administration and management of companies that can be used to facilitate money laundering (commonly referred to as “company service providers”), and to clearly prohibit the opening of anonymous accounts.
2. Requiring mandatory enrollment with FINTRAC for all reporting entities.
3. Developing a task force tailored to Canada’s legal context for law enforcement and the financial sector to exchange and analyze information about “high-end money laundering schemes, including related to fentanyl trafficking”.
4. Launching “interdepartmental dialogues with non-profit organizations to deepen awareness, enhance communication, and better combat money laundering”.

Overall, it is clear that the amended AML regime proposed by the current federal government would be more demanding on reporting entities than the current regime, including with materially harsher penalties for compliance failures. It is equally likely that any future government would seek to avoid the negative impacts on the already weak Canadian economy that could result from a poor assessment by FATF in the upcoming Mutual Evaluation. This makes the implementation of a materially harsher regime along the lines proposed in the current Fall Economic Statement likely no matter the political party in power after the next election.

Conclusion

The foregoing developments are among the many reasons that reporting entities doing business in Canada are well served to understand the current and anticipated requirements of Canada’s AML regime, and to proactively take the required steps to ensure compliance with that regime.

The Bennett Jones Anti-Money Laundering team stands ready to assist with all aspects of compliance with Canada’s AML regime and responding to any alleged compliance failures.

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