In this episode, I will be talking about FINTRAC because FINTRAC released their annual report this week. FINTRAC is the Financial Transactions and Reports Analysis Centre of Canada. So don't let the long name scare you off. We're going to break it down, go through the report, and explore some of the history about FINTRAC and why it exists. 

Starting with the basics, FINTRAC is like the watchdog of Canada's financial system. Its job is to sniff out anything fishy. It's one of 13 federal departments and agencies that play a role in Canada's anti-money laundering and anti-terrorist financing efforts. It's led by the Department of Finance Canada. Its main role is to detect, prevent, and deter money laundering and terrorist financing activities. It ensures the protection of personal information under its control and operates independently from other legal authorities. 

The motivation dates back to around 1989, when a group called the Financial Action Task Force on Money Laundering (FATF) was established. It's an intergovernmental organization with countries within the G7 to develop policies to combat money laundering. FINTRAC was created on July 5, 2000, under the Proceeds of Crime (Money Laundering) Act set up by the federal government. The primary reason was to help with the detection and investigation of money laundering activities. After the September 11 attacks in 2001, the act was amended to include terrorist activity financing, expanding its scope to address threats related to terrorist financing. 

In 2006, under the federal government's Bill C-25, FINTRAC's mandate was expanded to enhance client identification, record keeping, and reporting measures. They also created new offenses for not registering. Over time, FINTRAC has expanded the range of businesses it regulates. These include financial entities like banks, credit unions, trust companies, loan companies, life insurance companies, brokers and agents, money services businesses, currency exchange services, money transfer services, check-cashing businesses, securities dealers, brokers and dealers in securities, real estate brokers, real estate agents, developers, dealers in precious metals and stones, casinos, and gambling establishments. This year, they started regulating armoured cars and mortgage administrators and brokers. They also regulate accountants, accounting firms, notaries, and lawyers who provide services that could be exploited for money laundering and organized crime. 

FINTRAC is a roadblock, and we can expect its regulatory powers to grow and extend into more businesses as they discover ways people can use these businesses for money laundering and anti-terrorism. FINTRAC reports to the Parliament of Canada through the Minister of Finance. Every two years, there is an audit by the Privacy Commissioner of FINTRAC and their activities. Since 2019, the National Security and Intelligence Review Agency and the National Security and Intelligence Committee of Parliamentarians have had oversight into FINTRAC's activities. 

Let's get into the annual report for 2023-2024. It's packed with some good info. Some of the key highlights include a modernization vision. They're going more digital, creating new tools and systems to make compliance easier for us. 

The report starts with FINTRAC's mandate and explains what money laundering is, which is the process used to disguise the source of money or assets derived from criminal activity. It has three recognized stages. One is placement, which means placing the proceeds of crime into the financial system. The second one is layering, which is converting the proceeds of crime into another form and creating complex layers of financial transactions to disguise the trail and the source of ownership of funds. It isn't just washing money. Although in Canada, we can wash our money since it's plastic and will go through the clothes washer on cold, but don't put it in the dryer because our money melts. That's not what money laundering is. It also involves integration, placing the laundered proceeds back into the economy to create the perception of legitimacy. This is a continuous, ongoing process with dirty money constantly being introduced into the financial system. 

They get into what terrorist activity financing is. It's the use of funds, property, or other services to encourage, plan, assist, or engage in acts of terrorism, where the primary motivation is not financial gain. The two main differences between terrorist activity and money laundering are that for terrorist activity, funds can be from legitimate sources, not just criminal acts, and money is the means, not the end. The report says the goal is to use funds to facilitate or implement terrorist activities. 

There's a message from the director and CEO, Sarah Paquette. In her message, she highlights FINTRAC's role in combating money laundering and terrorist financing with all the challenges like evolving technologies and everything happening in the world. She touches on some of the achievements over the past year, such as Operation Hinz, which led to a major cocaine seizure. She also emphasizes the importance of FINTRAC's partnership with federal, provincial, municipal, and international groups to address these threats. She acknowledges the dedication of FINTRAC employees and reiterates the Centre's commitment to safeguarding Canada's financial system while protecting the privacy of Canadians. Balancing protection and privacy is a challenge. 

Some highlights of this report include modernization efforts, like rolling out new tools and systems to make compliance easier. Being able to file reports and get feedback in real-time helps guide us through the regulatory maze. They're upgrading their system to allow businesses to report financial transactions, which means quicker analysis and response times. They've developed a new API (Application Programming Interface) for secure system-to-system submissions of financial transaction reports, streamlining the reporting process and making it easier for businesses to fulfill their legal obligations. They're also aiming for more public-private partnerships, teaming up with businesses and law enforcement to tackle bigger issues. 

They've modernized their reporting forms for large cash transactions and virtual currency transactions, with new fields and better automation to improve data quality and analysis. FINTRAC is also starting to use generative AI to create AI-powered tools that assist with tasks like document creation, text translation, and inquiry responses. They're expanding their cloud presence for a more flexible, secure, and scalable infrastructure to manage the high volume of information they receive more effectively. AI's strength is in quickly going through large amounts of data and identifying patterns, which can highlight potential issues better than humans. 

FINTRAC is also speeding up processes to ensure reports are processed quickly, which is reassuring for those who file reports and wonder if anything happens. Public-private partnerships focus on specific areas like human trafficking, child sexual exploitation, romance fraud, trafficking of illicit substances including fentanyl, illicit cannabis activities, and the illegal wildlife trade. 

One of the projects is Project Protect, which targets human trafficking for sexual exploitation. This project was launched in 2016, focusing on the financial aspects of these crimes. Its goal is to help businesses recognize and report suspicious financial transactions related to the laundering of proceeds from human trafficking. In 2023-2024, Project Protect expanded to include labour trafficking, aligning with Canada's updated assessment of inherent risks of money laundering and terrorist financing. Project Protect led to nearly 2,000 disclosures, key in rescuing victims and preventing new cases of exploitation. Project Protect was inspired by Tamia Nagy Payne, an advocate for victims, and joined by banks and law enforcement groups. It generated 147 financial intelligence disclosures last year, 43 percent of which were proactive, assisting with 24 investigations. 

FINTRAC has also been involved with Project Guardian, countering the trafficking of fentanyl. Last year, they disclosed 93 unique suspicious transactions, supporting 53 law enforcement investigations. In August 2023, with the Alberta law enforcement response team on Project Carlos, they arrested seven individuals involved in a multi-million-dollar drug trafficking operation. Thirty-three charges were laid, and more than $4.5 million worth of drugs, including fentanyl, were seized, along with a million dollars in cash. 

Another project of FINTRAC is Project Chameleon, which tackles romance fraud and emergency grandparent scams. Romance fraud involves persuading someone in a vulnerable position to send money, while emergency grandparent scams involve a child messaging a parent for money, claiming to be in trouble. In Ontario, FINTRAC helped investigate a case where someone lost $27,000 through an online relationship. Charges were laid for fraud over $5,000 and possession of property obtained by crime over $5,000. 

In July 2023, FINTRAC helped the Peel Police in Ontario with Project Big Rig, disrupting a criminal ring and leading to the arrest of several people involved in stealing tractor trailers and cargo. They arrested 15 people with 73 charges laid and recovered $6,990,000 in stolen cargo and $2,250,000 in stolen tractor trailers. 

Project Shadow targets online child sexual exploitation. It's co-led by Scotiabank and the Canadian Centre for Child Protection. This project targets funds laundered associated with online child sexual abuse. It generated 45 financial intelligence disclosures, 91 percent of which were proactive based on suspicious transaction reporting, and 127 unique suspicious transaction reports on 320 subjects of interest, but no direct arrest stats were given. 

Another project combats illegal drug trafficking and wildlife trade. This is considered a first-of-its-kind international public-private partnership to increase awareness of illegal wildlife trading. It's led by Scotiabank and various other groups. It generated more than 25 disclosures of actionable financial intelligence. Part of that project co-authored a document with the Royal Foundation's United for Wildlife Network, founded by Prince William, on the critical role of financial intelligence and international collaboration in combating the wildlife trade. 

Project Athena combats money laundering in British Columbia and across Canada. This project works closely with Five Eyes, an intelligence alliance with five English-speaking countries: Canada, Australia, New Zealand, the United Kingdom, and the United States. It was established in 1946 to share intelligence among these countries, and over time, its scope has expanded to include a wide variety of intelligence and security matters, including counterterrorism, cyber threats, and global surveillance. 

FINTRAC's also involved with Project Legion, which combats the laundering of proceeds from illegal cannabis activities. This is led by TD Bank and various law enforcement agencies. Illicit cannabis results in a significant loss of tax revenue and can help fund other illegal activities by organized crime groups. It generated over 60 financial intelligence disclosures last year. In January 2024, FINTRAC helped the Sûreté du Québec with an investigation to break up a network of producers and traffickers illegally selling cannabis online. They carried out 70,000 transactions worth about $15 million, and people were charged with money laundering, production, possession, trafficking, and sale of cannabis. 

In July 2023, FINTRAC helped the London Police Service with an operation focused on gun violence across London, Ontario. They executed 26 search warrants, seizing 26 guns and $8.5 million worth of drugs, including fentanyl, crack cocaine, cocaine, methamphetamine, and OxyContin. Seventy people were charged with a combined 550 criminal offenses. 

Throughout the report, there are various sections about investigations that FINTRAC has been involved with, alongside police and crime-fighting groups. You can download the report and read through it on your own. If you ever have the opportunity and want examples, you can find a representative from FINTRAC going through their case studies and cases, which can be quite fascinating. If you contact FINTRAC directly, you can get a speaker for a group to talk about these issues. 

FINTRAC has the authority to issue administrative monetary penalties for businesses not in compliance with the Act. They're required to publicly name all persons and entities that receive an administrative monetary penalty. Essentially, they can fine businesses that don't follow the rules, and that information must be made public. While this can be a form of public shaming, especially if the business made an honest mistake, a fine doesn't necessarily mean wrongdoing. It means the company didn't have a good procedure in place to show compliance, which becomes a violation. 

Last year, FINTRAC issued the largest administrative monetary penalty, with 12 notices of violation totaling more than $26 million. They've imposed 140 penalties across most business sectors since they received legislative authority in 2008. FINTRAC also works globally with various partners. They've run training sessions related to virtual assets for Pakistan's security, Trinidad and Tobago, and the Cayman Islands, and led a session on anti-money laundering and anti-terrorist financing for Nigeria. They've worked with IFAST, the International Financial Action Strike Team, along with their Five Eyes partners, and with the U.N. Office on Drugs and Crime. They helped the RCMP run training in the Seychelles. 

FINTRAC also works on global tax enforcement with authorities from Australia, the Netherlands, the U.K., and the United States to increase collaboration in the fight against drug trafficking, tax crime, and money laundering. In 2023, they had a cyber challenge with equivalent departments from each country, focusing on crypto assets. They helped with a summit in the Netherlands, leading to the development of project plans to combat offshore tax evasion, trade fraud, and identity-based crime. 

FINTRAC is heavily involved with cryptocurrency. They note in the report that the increase in prices and volumes has made cryptocurrencies a more tempting vehicle for fraud and a means to transfer ransomware proceeds. You're probably familiar with ransomware: you go to your computer one day, everything's frozen, and you get a message demanding Bitcoin to unlock your data. This is something FINTRAC is battling. 

They state that with international trade and financial transactions recovering from pandemic lows, money launderers are seeking to avoid sanctions placed on Russia and are using trade and service-based money laundering schemes to hide transnational financial flows. Bitcoin is the main virtual currency due to its accessibility and name recognition, but FINTRAC has noted an increase in transactions related to the Ethereum blockchain and stablecoins. They state that decentralized finance is one of the fastest-growing and most innovative sectors of the cryptocurrency economy in Canada and might require greater due diligence. FINTRAC will focus more on cyber currency. 

There's also concern about crowdfunding, where funds are sourced from a network of people on various platforms. These can be used by violent extremist groups, with small donations or subscriptions forming a financial base. Terrorist groups use international events and conflicts to raise funds. For example, following Hamas's attacks on Israel on October 7, 2023, terrorist organizations, including those operating outside Israel in Gaza and the West Bank, attempted to raise funds using social media. 

FINTRAC supports a talented and dedicated workforce. They're helping supervisors and managers adapt to a hybrid work environment and use best practices. They have an ombuds for workplace wellness and have partnered with "With You With Me" to identify and grow talent from underrepresented groups within FINTRAC's existing workforce. They're collaborating with Specialist Stern on a neurodiversity initiative to help recruit and retain people on the autism spectrum or with similar neurodiversities. They've hired 83 new students and 132 returning students. 

FINTRAC has implemented a new employment, equity, diversity, and inclusion strategy and action plan. The goal is talent acquisition and retention, professional growth, leadership and accountability, and employee management. They have rigorous, mandatory employment equity, diversity, and inclusion training programs, including unconscious bias and reconciliation-related training. They have partnerships with the Coalition of Innovation Leaders Against Racism, Knowledge Circle for Indigenous Inclusion, and the Federal Youth Network. 

They include their demographics in the report: 513 employees, with 55.2 percent women, 21.1 percent visible minorities, 64.7 percent whose first official language is English, 30 percent whose first official language is French, 6.8 percent persons with disabilities, and 0.8 percent Indigenous. 

They wrap up with their budget, providing numbers for 2021-22, 2022-23, and 2023-24. Salaries, employee benefit plans, operations, and maintenance, and the total approved budget are detailed. In 2021-22, salaries were $47.5 million with a total budget of $90.3 million. Last year, salaries were $65 million, with operations and maintenance at $45.7 million, giving FINTRAC a budget of $120 million. 

They include a case study on Project Protect in an annex, along with financial transaction reports. Large cash transaction reports are submitted to FINTRAC when a business receives $10,000 or more in cash in a single transaction, or two or more totaling $10,000 within 24 hours, by or on behalf of the same individual or entity. In 2023-24, there were 6,203,220 large cash transaction reports. Electronic funds transfer reports, relating to $10,000 or more being sent out of the country in single or multiple transactions, totaled 41,587,294. Suspicious transaction reports, familiar to many in the real estate industry and others, are submitted for financial transactions that occur or are attempted, with reasonable grounds to suspect a connection to money laundering or terrorist activity financing. Last year, 631,137 suspicious transaction reports were received. 

Finally, here are some indicators or red flags to watch for in a business. One is unusual transaction patterns, like frequent cash deposits or withdrawals that don't align with a customer's profile or business activity. Large volumes of transactions inconsistent with the customer's known income or business operations can also be a sign. Multiple bank accounts used by one individual, often with frequent transfers between them or to/from accounts in different geographic areas without a clear rationale, are suspicious. Third-party transactions by individuals on behalf of others, especially when the relationship between the parties isn't clear, are another red flag. Payments made by others for services or goods not consistent with typical business practices should raise concerns. Employment and residency indicators, like payments to individuals listed as unemployed or without clear income sources, or transactions involving high-risk areas known for human trafficking, are also red flags. Lifestyle and spending discrepancies, such as luxury purchases by someone with low income, and a preference for cash over traceable methods like bank transfers or credit card payments, are suspicious activities. 

That's my summary of the FINTRAC annual report. I'll put a link to this report in the show notes and a link to the FINTRAC website. That wraps up my summary of the FINTRAC annual report for last year. This was not meant as a heavy critique or criticism, just the facts. You can probably find it easier listening to this than reading a 44-page report.  

And that's a wrap.

Link to the FINTRAC Annual Report 2023-2024: Safe Canadians, Secure Economy.