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Cablegate: Canada Seeks to Amend Money Laundering,

VZCZCXRO7698
PP RUEHGA RUEHHA RUEHQU RUEHVC
DE RUEHOT #3302/01 3061531
ZNR UUUUU ZZH
P 021531Z NOV 06
FM AMEMBASSY OTTAWA
TO RUEHC/SECSTATE WASHDC PRIORITY 4319
INFO RUCNCAN/ALL CANADIAN POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASH DC

UNCLAS SECTION 01 OF 03 OTTAWA 003302

SIPDIS

SIPDIS

DEPARTMENT FOR WHA/CAN, S/CT, EB/ESC - LYNNE LAMBERT, L/EB
- TOM HEINEMANN AND IO/ESC - JOHN SANDAGE

E.O. 12958: N/A
TAGS: ECON EFIN PTER CA
SUBJECT: CANADA SEEKS TO AMEND MONEY LAUNDERING,
ANTI-TERRORISM FINANCING LEGISLATION; UNDERTAKES OTHER
INITIATIVES


1. (U) Summary: The Harper Government has introduced a bill
(C-25) in Parliament to amend the Proceeds of Crime (Money
Laundering) and Terrorist Financing Act to ensure Canada's
global leadership in combating organized crime and terrorist
financing. In his introduction of the bill on October 5,
Finance Minister Flaherty said that "Canada's New Government
will continue to be relentless in its battle against money
laundering and terrorism financing," adding that "One of the
best ways of putting these criminals out of business is to
starve them of the funds they need to finance their
activities. Our proposed amendments will improve our ability
to act decisively." C-25 will make Canada's anti-money
laundering and anti-terrorist financing regime consistent
with new Financial Action Task Force (FATF) standards. They
include enhancing information sharing between the Financial
Transactions and Reports Analysis Centre of Canada (FINTRAC),
law enforcement and other domestic and international
agencies; creating a registration regime for money service
businesses; enabling legislation for enhanced client
identification measures; and creating an administrative and
monetary penalties regime to better enforce compliance with
the act. C-25 was debated in the House of Commons last week
and the Standing Committee on Finance held hearings on
October 31. Minister Flaherty expects the legislation to
pass Parliament by the end of the year. End summary.

2. (U) Since criminals constantly change their tactics and
find new ways to evade the law, Canada's anti-money
laundering and anti-terrorist financing regime must stay
up-to-date. The amendments to the 2001 Proceeds of Crime
(Money Laundering) and Terrorist Financing Act (PCMTFA)
contained in C-25 are designed to ensure Canada's regime
remains consistent with revised international standards while
addressing areas of domestic risk. The new legislation will
provide appropriate tools to law enforcement and meet
international standards, while respecting the personal
privacy of Canadians and minimizing the compliance burden on
financial intermediaries. C-25 proposes to enhance the
provisions of the PCMLTFA by strengthening "know your client"
standards; closing gaps in the regime; increasing compliance,
monitoring and enforcement; and strengthening FINTRAC's
intelligence function.

3. (U) In preparation for the legislation, the Department of
Finance issued a consultation paper entitled Enhancing
Canada's Anti-Money Laundering and Anti-Terrorist Financing
Regime in June 2005. Over 50 submissions from stakeholders
were received, followed by further face-to-face
consultations. As a result, C-25 addresses industry concerns
and minimizes the compliance burden by tailoring, where at
all possible, proposed new requirements to existing business
practices. The legislation also serves to meet Canada's
international commitments to combat money laundering and
terrorist financing while ensuring that its domestic regime
remains robust and up-to-date.

Description of C-25
-------------------

4. (U) The key provisions of C-25 are:

a) Enhanced client identification and record-keeping for
financial institutions and intermedaries

The amendments include requirements for reporting entities to
undertake enhanced monitoring of high-risk situations,
correspondent banking relationships and transactions by
politically exposed persons. Banks, insurance companies,
Qpolitically exposed persons. Banks, insurance companies,
securities dealers and money service businesses would be
required to take measures to identify and monitor the
transactions of foreign nationals and their immediate family
who hold prominent public positions.

b) Reporting attempted suspicious transactions

All reporting entities currently reporting suspicious
transactions would be required to report suspicious attempted
transactions to FINTRAC, in line with the practice in other
G7 countries and consistent with FATF Recommendations.

c) Registration regime for money service businesses (MSBs)
and foreign exchange dealers

The amendments would create a federal registration system for
individuals and entities engaged in money service businesses
or foreign exchange. FINTRAC would act as registrar and
would maintain a public list of registered MSBs and foreign

OTTAWA 00003302 002 OF 003


exchange dealers. These businesses are already covered by
the PCMLTFA; however, given that this is an unregulated
sector, the registry will assist FINTRAC in ensuring
compliance with the Act.

d) Enhancing the information contained in FINTRAC disclosures

As recommended in the 2004 Auditor General's Report and at
the behest of law enforcement, the amendments enhance the
information FINTRAC can disclose to law enforcement and
security agencies on suspicions of money laundering or
terrorist financing. This will increase the value of FINTRAC
disclosures, ultimately leading to more investigations and
eventual prosecutions.

e) Creating an administrative and monetary penalties regime

Currently the Act only allows for serious criminal penalties
if it is contravened. FINTRAC requires the ability to levy
fines to deal with lesser contraventions in order to take a
more balanced and gradual approach to compliance. The
amendments will create an administrative and monetary
penalties system, whereby fines can be applied for
non-compliance.

f) Reintroducing requirements for legal counsel

The GOC is working with the legal profession, including
notaries in Quebec, to finalize requirements for client
identification, record-keeping and internal compliance
procedures for legal counsel when they act as financial
intermediaries.

The new bill removes the obligation for legal counsel to file
suspicious transaction reports or other prescribed
transaction reports.

g) Expanding information sharing between federal departments
and agencies

Amendments would expand FINTRAC's ability to share
information with the Canada Border Services Agency (CBSA),
the Canada Revenue Agency and the Communications Security
Establishment. In addition, FINTRAC will now be able to
receive terrorist property reports under United Nations Act
regulations.

Internationally, the enforcement of the anti-money laundering
and anti-terrorist financing requirements would be
strengthened by information-sharing provisions on
compliance-related information between FINTRAC and its
foreign counterparts on obligations applicable to the
financial sector, and between the CBSA and its foreign
counterparts on the enforcement of the cross-border currency
reporting regime.

h) Technical Amendments to improve the Act

A number of technical amendments would improve the Act by
addressing inconsistencies between the French and the English
versions and ensuring consistency between the PCMLTFA and
related provisions in other acts, and to clarify existing
provisions and correct section references. These amendments
will help make the Act easier to read and interpret.

Other GOC Initiatives
---------------------

5. (U) In addition to the proposed legislation, the Harper
Government has undertaken other initiatives to bolster its
efforts to combat money laundering and terrorist financing.
In its first budget in May, the Harper Government announced
C$64 million in additional funding over the next two years
for FINTRAC, the RCMP and the Department of Justice. The
funding would:

-- increase the number of RCMP officers working in the
anti-terrorist financing and anti-money laundering units;
-- increase the capabilities of the Canada Border Services
Agency (CBSA) to detect unreported currency at airports and
border crossings;
-- enable Canada's Justice Department to handle the expanding
legal workload that will result from increasing the
Qlegal workload that will result from increasing the
enforcement resources of other government agencies;
-- ensure that FINTRAC can better analyze transactions
reports and monitor the compliance of the unregulated
financial sectors such as money remitters.

OTTAWA 00003302 003 OF 003

6. (U) Canada is setting up its involvement in regional
bodies such as the Asia/Pacific Group on Money Laundering and
the Caribbean Financial Action Task Force. Increased GOC
funding will help the Eastern Caribbean Central Bank improve
its money laundering and terrorist financing system, and to
provide on-the-ground training to improve the effectiveness
of regulation throughout the Caribbean and Asia/Pacific
Regions. Canada will also contribute resources to help the
Asia/Pacific Group in the delivery of technical assistance
and training within that region.

7. (U) In July, Minister Flaherty announced that Toronto has
been selected as the permanent headquarters of the
secretariat of the Egmont Group, an organization of the

SIPDIS
world's financial intelligence units, including FINTRAC. The
Harper Government will contribute C$5 million over the next
five years to help the secretariat get established. For the
first time ever, Canada has assumed the FATF Presidency, the
international body that develops and promotes policies to
combat money laundering and terrorist financing.

Visit Canada's Classified Web Site at
http://www.state.sgov.gov/p/wha/ottawa

WILKINS

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