On February 7, 2019, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) issued the following documents relating to its approach to compliance:
- FINTRAC's Compliance Framework - This is a chart summarizing FINTRAC's compliance framework
- New FINTRAC Assessment Manual - This is a relatively detailed manual setting out the approach and methods FINTRAC uses in conducting examinations
- Revised Administrative Monetary Penalties (AMPs) policy
- Sample penalty calculation
- Notice on Voluntary Self-Declaration of Non-Compliance
These documents are intended to increase transparency regarding FINTRAC's compliance regime, particularly in relation to AMPs, and provide helpful information and guidance to reporting entities. Of particular note are the revised Administrative Monetary Penalties (AMPs) policy (the AMPs Policy) and the notice on Voluntary Self-Declaration of Non-Compliance, each of which is discussed below.
Revised AMPs Policy
The revised AMPs Policy follows a comprehensive review of FINTRAC's administrative monetary penalties program. This review was aimed at addressing decisions of the Federal Courts in 2016, such as the decisions of the Federal Court and the Federal Court of Appeal in the case of Kabul Farms Inc. v. Her Majesty the Queen (Kabul Farms).
Kabul Farms involved an appeal under section 73.21 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the Act) of a decision made by the Director of FINTRAC to impose $6,000 in administrative penalties on Kabul Farms Inc. for violations of the Act. One of the issues to be decided was whether the administrative penalties imposed were reasonable. The Federal Court held that they were not, and that it was "impossible to assess whether an intelligible, transparent and justifiable decision-making process preceded the imposition of the penalties".
The Crown appealed the decision of the Federal Court, arguing that the Director's reasons were adequate and that therefore the administrative penalties imposed were reasonable. On May 5, 2016, the Federal Court of Appeal delivered its judgment, ultimately reaching the same conclusion as the Federal Court that the Director's assessment of penalties was unreasonable. In its judgment, the Federal Court of Appeal stated that it must be satisfied that the sorts of figures chosen by the Director are underpinned or justified by some reasoning or evidence in the record, and that in this case it was not so satisfied. The court also issued a reminder to the Director about his obligations of procedural fairness, and that in conducting his reassessment, "[a]mong other things, he must ensure that the respondent is made aware of the case to meet, including any formulas, guidelines and analyses he intends to rely upon, and he must give the respondent an opportunity to address that case".
In response to this, the AMPs Policy has been revised to provide significantly more detail regarding how FINTRAC calculates the amount of AMPs.
The policy describes a two-step process in determining the amount of an AMP. The first step involves an assessment of the harm done, with harm being defined as the degree to which a violation interferes with achieving the objectives of the Act or with FINTRAC's ability to carry out its mandate (e.g., the degree to which a reporting entity has failed to meet a requirement).
The second step looks at the reporting entity's compliance history and takes into account that the purpose of the AMP is to encourage compliance, not to punish. The policy states that for a first-time violation the penalty is typically reduced by two-thirds. For a violation occurring a second time, the penalty is typically reduced by one-third. For violations occurring a third time or more, the full base penalty amount will typically be applied.
The sample penalty calculation sets out examples of how FINTRAC determines the amount of an AMP based on the AMPs Policy.
Notice on Voluntary Self-Declaration of Non-Compliance
This notice encourages reporting entities to voluntarily declare instances of non-compliance. The document provides an email address for submission of voluntary self-disclosures and outlines the type of information that should be included.
Of particular note, this notice states that the ultimate goal of the regulatory regime is to enhance compliance, not to impose penalties. Accordingly, when the voluntarily declared non-compliance issue is not a repeated instance of a previously voluntarily disclosed issue, and when this declaration has not been made after a reporting entity has been notified of an upcoming examination, FINTRAC will work with the entity to resolve the issue and will not propose an administrative monetary penalty.
 Kabul Farms Inc v Her Majesty the Queen, 2015 FC 628 at para 1.
 Kabul Farms Inc v Her Majesty the Queen, 2015 FC 628 at para 22.
 Kabul Farms Inc v Her Majesty the Queen, 2015 FC 628 at para 51.
 Kabul Farms Inc v Her Majesty the Queen, 2016 FCA 143 at para 4.
 Kabul Farms Inc v Her Majesty the Queen, 2016 FCA 143 at para 8.
 Kabul Farms Inc v Her Majesty the Queen, 2016 FCA 143 at para 26-27.
 Kabul Farms Inc v Her Majesty the Queen, 2016 FCA 143 at para 55.
Special thanks to Caitlin Sabetti for her contributions to this article.