Dramatic increase in Fintrac fines coming, but their effectiveness is less clear

Money seized by police during a bust is displayed In Surrey, B.C., on Dec. 7, 2022. Photo by JONATHAN HAYWARD /THE CANADIAN PRESS

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TORONTO — The cost of doing business is set to go up, dramatically, for companies that don’t keep a close eye on anti-money laundering obligations.

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A broad range of firms that handle large transactions, from jewellers to big banks, face potential penalties 40 times higher than existing rates. The changes are part of Bill C-12, which passed in the House of Commons on Dec. 11 and is waiting for a final stamp of approval from the Senate.

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“That legislation, if enacted, will significantly transform the enforcement framework,” said Vladimir Shatiryan, a partner at Blakes who focuses on financial regulations.

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The changes would mean that, for example, if TD Bank Group were to again be fined for failing to report 20 suspicious transactions, as it was in 2024, it could face $400 million in penalties rather than the $9.2 million it paid last year.

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The notable increase comes as part of wider efforts in Canada to step up anti-money laundering measures, including a significant ramp up in penalties using existing rules, but experts are skeptical the higher fines themselves will do much to fix the gaps in the system.

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The size of the potential penalties mean that firms will likely submit many more transactions for review, even ones they don’t necessarily think are suspicious, said Shatiryan.

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“Someone told me ‘Smile and file,’ rather than, you know, be more judicious and deliberate in identifying suspicious transactions when reporting,” he said.

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“Because overreporting doesn’t result in penalties, but under-reporting certainly does.”

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It’s a concern shared by Jeffrey Simser, a former legal director with Ontario’s Ministry of the Attorney General who wrote a book about anti-money laundering laws.

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“There’s going to be more noise and less signal in the system as a direct consequence of what they’re doing.”

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The measures, however, should help empower compliance staff to convince companies to spend on oversight, said Simser.

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“The good part of the fines is you can then say to your boss, yeah, I know it costs money, but guess what? If we don’t do this, we’re going to get a fine.”

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Fintrac said in a statement that it has the modern systems and processes needed to fulfil its mandate, even with higher submissions, while chief executive Sarah Paquet has said the agency is also leaning more into artificial intelligence to sift through submissions.

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The significant increase in potential penalties will also likely lead to many more court challenges, said Shatiryan, as the fines would justify the costs of litigation.

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Fintrac has seen numerous court challenges in the past, including one that led to a 2016 Supreme Court ruling that forced the agency to halt penalties for years as it reviewed its policies and made more transparent how it calculates penalties.