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What it takes to clean up dirty money

Canada has a reputation for being a good place to launder money. How can CPAs fix that?

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Genevieve Mottard, Carol Bellinger, Michele Wood-Tweel, Russell GuthriePhotographs, left to right: Geneviève Mottard by Bénédicte Mottard; Carol Bellringer by Denis Ogrinc; Michele Wood-Tweel by Riley Smith; Russell Guthrie by Levi Mandel

Canada has a reputation for being a good place to launder dirty money, and it’s a reputation that often implicates accountants among others. It’s a reputation we need to correct.” That call to action was how Joy Thomas, president and CEO of CPA Canada, kicked off a panel discussion about white-collar crime and anti-money laundering efforts, held this past February in Toronto. The following is an edited excerpt from the panel discussion.

The PANELLISTS

Geneviève Mottard, CPA, president and CEO of the Quebec CPA Order, and chair of CPA Canada’s public trust committee, which oversees ethics standards and self-regulatory processes for the profession

Carol Bellringer, CPA, auditor general of British Columbia, and a past member of the B20 task force on integrity and compliance advising the G20

Michele Wood-Tweel, CPA, vice-president of regulatory affairs at CPA Canada, and a member of two working groups with Finance Canada’s advisory committee on money laundering and terrorist financing

Russell Guthrie, USCPA, executive director of external affairs and CFO at the International Federation of Accountants (IFAC)

THE DISCUSSION

Joy Thomas: Perhaps we can begin by having each panellist give some opening comments. Russell, could you start off with an international perspective on the problem. 

Russell Guthrie: To give some context, the OECD estimates that 5 per cent of global GDP, or about US$2.6 trillion, is lost to fraud and corruption each year. The cost is huge and it impacts public trust. The role of the accounting profession in detecting fraud and combatting corruption is high on the agenda of many international institutions.

It’s important to be seen as part of the solution.

The Financial Action Task Force, or FATF, is an intergovernmental body that’s become the de facto standard-setter for anti-money laundering guidelines. Over the past year or so, FATF has revisited their guidelines as they pertain to the profession. What we found in the FATF’s initial drafts was the portrayal of the accounting profession as gatekeepers and enablers of fraud as opposed to detectors and reporters.

At IFAC, we’ve tried to reverse that narrative so the profession is seen to have a more positive and proactive role. And we’ve been successful, at least in the draft guidance. 

Michele Wood-Tweel: In the 2016 mutual evaluation report that set out the level of effectiveness of Canada’s regime and its compliance with FATF standards, numerous things were identified that Canada needs to work on, including the need for greater transparency on beneficial ownership. The federal government is working on these things as we speak, and CPA Canada has been a part of the consultations. I expect the requirements for accountants will grow wider and deeper.

Carol Bellringer: There’s a lot happening in British Columbia.There’s a report by Peter German, a former RCMP deputy commissioner, on money laundering through casinos—they are particularly vulnerable to criminal infiltration, to the underground economy, and circumventing international currency controls.

Peter German at podiumFormer RCMP Deputy Commissioner Peter German (CP Images)

Geneviève Mottard: We’ve also witnessed the response to money laundering and fraud worldwide through the Non-Compliance with Laws and Regulations pronouncement, or NOCLAR. It’s an international ethics standard and framework for accountants to follow when they see something that might be money laundering or fraud. It advises CPAs first to talk with management, to the board and to the audit committee, and to evaluate the gravity of what they’re potentially witnessing. If nothing happens, NOCLAR says it is then permissible for a professional accountant to consider reporting to the proper external authority.

NOCLAR is a fantastic tool but it’s a challenge to implement. In Quebec, we have the constitutional right to professional secrecy—the right belonging to clients that the information they provide to CPAs is protected. Quebec also brought in Bill 141, meant to reform the financial governance of markets in the province. And it completely ignores NOCLAR. It encourages CPAs to go directly to the securities regulator with anything and everything non-compliant that they see. If they do, they’ll have immunity. If they don’t report, they won’t. We are very concerned about that legislation. 

Guthrie: NOCLAR is, in many ways, a great response from the profession. But NOCLAR is just one half of the regime. We must have the appropriate whistle-blower protections in place. It’s not appropriate to put professional accountants at risk. And in some jurisdictions it can be a matter of life or death.

Thomas: What sort of impact will the collision between professional secrecy and whistle-blowing have on the profession?

Mottard: We don’t have the answer because Quebec’s constitutional right to professional secrecy is not exactly reproduced across the country. But our profession is very mobile. What if, for example, you’re an Ontario CPA doing some work in Quebec or a CPA from Quebec working in a Quebec firm’s Winnipeg office. Does Bill 141 apply to you? What about the U.S.? We exchange professionals across the border.

Thomas: Beneficial ownership has been a central topic in this discussion. How could it impact professional accountants?

Wood-Tweel: Beneficial ownership is about who really owns and controls corporations and trusts. A corporation may have a nominee lawyer who is the person on record associated with the corporation. That does not mean that they are the mind and management of the corporation’s assets. If you don’t have transparency, it’s the perfect tool to hide money or assets and to transfer them without authorities being able to see them.enou

Worldwide, there is an increasing move to transparency. The most dramatic example is the United Kingdom, which now has a publicly accessible registry of beneficial ownership of all corporate entities. That is huge. It applies to companies that might be very private. It might be someone’s holding company, someone’s incorporated dental practice. It is all publicly accessible data now.

Canada is behind with respect to beneficial ownership transparency. The federal government is changing that, starting with the Canada Business Corporation Act, requiring that there be a recording of beneficial ownership that will need to be kept up to date, effective June 2019. Provincial finance ministers have agreed they’ll introduce similar legislation for companies incorporated under provincial statutes.

This matters because in many cases, CPAs are the people who actually hold the entire picture of what a corporate structure—a complicated one—might look like, including trusts, partnerships and corporate vehicles. Also, if you’re the comptroller or the CFO or the corporate secretary in a private company, you now are subject to requirements under this legislation.

Next, the government’s attention will turn beyond recording to reporting. Who will have access to beneficial ownership reporting? Will it be accessible only to competent authorities? Or will it be completely public, as in the U.K.?

Thomas: Carol, as a board member for IFAC, you worked with the B20 task force on anti-corruption. I’m curious about what parts of the international response to white-collar crime we can bring back to Canada.

Carol Bellringer: I sat at the table when the Transparency International report came out that spoke to the frameworks for beneficial ownership and where we ranked. In 2015, Canada was one of six countries with a weak framework. In 2017, we retained that standing—we still had a weak framework.

In 2017, when Germany was leading the G20 arrangements, there was a real emphasis on beneficial ownership. Many countries that were making progress, the U.K. in particular, were pushing for it. But a number of European countries wanted nothing to do with it. They argued that if an individual is named as an owner, then that would expose that they were wealthy, and put them at risk. To which some of us said: “They didn’t notice the Rolls Royce riding up the hill to the mansion?”

When Argentina led the G20 process in 2018, beneficial ownership was not in the first draft of the recommendations. But Argentina welcomed input from everybody. IFAC had a strong role in the discussion, pushed for progress on beneficial ownership and we got it back in. It was one of the three recommendations from the B20 in 2018 to the G20.

Guthrie: One thing to keep in mind is the complexity of the B20 or the G20. In the end, the B20 can only make recommendations to the G20 and, of course, they’re competing with a lot of other groups. There’s a C20 for the civil society. There’s a Y20 for youth groups, and so it’s a very crowded space. And the recommendations are not binding. It’s up to the political will of the individual countries to make any of these policy recommendations travel. So it’s a very indirect route to try to get movement. But we do think it’s important to be there. 

Landscape of VancouverMoney-laundering has been blamed for driving up real estate prices in Vancouver

Thomas: In terms of money-laundering, is it surprising that Canada is considered safe place for such practices?

Mottard: Canada has such a top-notch reputation worldwide for our governance and our regulation. But I do think it’s because we are a safe place—we have safe banking, we largely avoided the financial crisis—that we sometimes attract people we just don’t want to attract.

Wood-Tweel: It’s counterintuitive in a way. People who are interested in money laundering like safe societies, and they like strong financial systems. It’s worth the effort to get money in because they want to be in an environment where the money that they’ve earned through selling drugs, or human trafficking, or what have you, won’t be taken away from them. What they try to do is capitalize on gaps within our system.

That said, we’re about to see a lot of potential changes coming through. One change, for example, could concern white-label banking machines—machines that are not operated by financial institutions but are privately owned. They can be used to launder money and consideration has been occurring that they may become subject to the legislation. 

Bellringer: There’s still no requirement for any reporting on a cash transaction. For example you can pay cash for luxury goods—a car or diamonds. And a lot of real estate transactions in British Columbia are being made both on a cash basis and without disclosure of beneficial ownership. In 2015, Transparency International looked at the 100 highest-priced transactions going through the real estate market, and over 50 per cent of them couldn’t be traced back to the actual owner who was transacting. British Columbia has put in a speculation tax now to try to curb some of that. It’s working to a certain degree, but it’s not the full answer.

Thomas: Given Canada’s federated model of governance, how can we have a common anti-money laundering framework?

Mottard: I chair the CPA profession’s public trust committee, which is now looking at adopting the International ethics code’s NOCLAR standard—it would provide a framework of consistency for anti-money laundering across the country. In Canada, each province has its own code of ethics. And, it’s a largely harmonized code, but it is not a complete copy-and-paste of the international code.

Where the rubber’s going to hit the road is having separate jurisdictions with their own whistle-blowing legislation. I can name six or seven different pieces of legislation that have appeared in the last two years in Quebec, whether it’s about abuse of the elderly, or about a company dealing with the state—in each of these instances, legislation has been put in place, piecemeal, to address whistle-blowing. That will be a huge challenge to harmonize.

Wood-Tweel: It is becoming increasingly complex in Canada for CPAs to try to do the right thing if they don’t know where to report, how to report and what protection will be available, especially when there are so many different pieces of legislation speaking to the issue of reporting.

There needs to be a go-to framework—or, in fact, a national whistle-blowing policy. The policy would apply to many other areas, whether it is environmental whistle-blowing or occupational health and safety. In a federated model like Canada’s, it’s all over the place, and it’s growing with each piece of legislation that is introduced.

Thomas: There’s still much to be done, certainly.  CPA Canada has been very active when it comes to combatting money-laundering. The federal government asked us to participatein working groups on beneficial ownership information and regulations, as well as to help educate our members on how to properly maintain new corporate registers on beneficial ownership information. Thank you to all the participants for the informative and lively discussion.

Money laundering costs the global economy an estimated US$2.6 trillion per year, and it erodes trust in institutions and in accountants. For more on what the profession can do, and for video commentary from our roundtable participants, go to cpacanada.ca/dirtymoney.

Combatting Money Laundering

It may not have made big headlines, but money laundering was a focus in this year’s federal budget. Among other measures, Ottawa announced over $90 million in new funding, over five years, to aid enforcement, improve intelligence gathering and create a new multi-agency task force to fight money laundering.

The federal government has also proposed further amendments to the Canada Business Corporations Act (CBCA) to allow tax authorities and law enforcement the ability to see who maintains beneficial ownership in federally incorporated private companies when they have reasonable grounds to suspect that certain offences have been committed.
This proposal comes three months after the CBCA was amended to require those companies, as of June 13, 2019, to record in a company register any individual who has a “significant control” over the corporation.

The provinces are expected to have different timelines for when they may amend legislation applicable to provincially-incorporated private corporations, which make up the majority of Canadian private companies. In early April, B.C. introduced legislation to establish a public registry of beneficial owners of property in the province and to amend its Business Corporations Act regarding new “transparency register” requirements and changes respecting bearer shares. “Shining light on transparency is one of the best things you can do when you talk about money laundering,” said Carole James, the province’s finance minister.

—Bryan Borzykowski