Three wads of Canadian $20 bills secured with elastic bands
Anti-Money Laundering

Corruption and financial crime have tarnished Canada’s reputation 

How the country can close its “trust gap” 

Three wads of Canadian $20 bills secured with elastic bandsCanada is not alone among developed countries suffering a reputational blow. In recent years, both Australia and the United Kingdom have also seen their Corruption Perception Index rankings fall (Photograph by Daniel Neuhaus)

Canada is suffering from a serious “trust gap.” Transparency International’s 2019 Corruption Perception Index, released in January 2020, no longer considers Canada one of the top 10 “cleanest” countries in the world. “Canada fell from ninth to 12th,” says Transparency International Canada executive director James Cohen grimly. “It is an unusually large drop, and part of an overall decline since 2012.” The index is compiled from 13 varied data sources measuring business practices, regulations, expert opinion and surveys on the prevalence of corruption and corporate malfeasance worldwide. As a result of these latest findings, Canada is now listed as a “country to watch,” alongside Saudi Arabia and Angola.

Keeping this sort of company likely conflicts with most Canadians’ view of their own country as a snow-white paragon of propriety. And while Canada has a long way to go before it reaches Angolan levels of tolerance for corrupt behaviour, Cohen cites the SNC-Lavalin affair and rampant money laundering in British Columbia’s casino and real estate sectors as key reasons for Canada’s recent fall from grace. “There is a perception out there that governments and institutions don’t listen to the public and that the system is rigged against them,” says Cohen. “That leaves the average person feeling powerless, and we need to overcome that trust gap.”

Canada is not alone among developed countries suffering a reputational blow. In recent years, both Australia and the United Kingdom have also seen their Corruption Perception Index rankings fall as a result of financial concerns—a series of banking inquiries in Australia and an auditing crisis in the U.K. Meanwhile, major firms in Iceland and Sweden have been implicated in international bribery scandals, and the largest bank in Denmark has been tied to money laundering operations emanating from Russia and Estonia. No country appears immune to this sort of bad behaviour, and these revelations are doing significant damage to public confidence in institutions and government regulators. 

To grasp the scale of this growing sense of dissatisfaction, consider another survey from the global communications consultancy Edelman. The firm’s 2020 Trust Barometer, also released this past January, found a majority of respondents across all developed countries no longer believe they’ll be better off in five years; a stunning 56 per cent think capitalism is doing more harm than good. (Canada was one of only five countries in which a majority still support capitalism.) This rising sense of despair curiously coexisted with a rather healthy global economy, long before the COVID-19 pandemic rattled markets. Once, economic growth was sufficient to nurture faith in the future. Today, growing populist anger and a steady supply of crises have eroded that faith and threaten to undermine democracy across the globe. “We are living in a trust paradox,” reads a statement from Edelman. “The battle for trust will be fought on the field of ethical behaviour.”

This global malaise has been a long time coming. And we’ve seen plenty of efforts at correcting course over the years to no apparent effect. The United Nations Convention Against Corruption, which came into force in 2005, claims to be a comprehensive, “legally binding” corruption-fighting tool, yet its signatories cover nearly every egregious case cited in Transparency International’s latest report. The same goes for the OECD’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, which dates back to 1999. Such efforts have clearly had little impact on stemming bad behaviour and financial crimes. Real, tangible progress in fixing the trust gap will not be found in more plenary sessions or high-minded rhetoric, but through granular, detail-focused efforts carried out on a country-by-country basis. And it’s here that accountants have a big role to play, says José R. Hernandez, a Canadian CPA, PhD and principal in the Zurich-based risk consultancy firm Ortus Strategies. “The trust gap is one of the most important subjects facing the accounting profession and democratic institutions,” he says. “Accountants are an integral part of business and markets, serving as important gatekeepers to prevent corruption, bribery and money laundering. And we have a leadership role to perform.”

It may be years before Canada’s reputation is restored, but we are finally making the necessary changes

Fixing what ails Canada requires that we first recognize how we got into this situation. “Canada’s resource-rich and stable economy, as well as our open and perhaps naïve culture, have made our country a haven for bad actors,” says Hernandez. “Dirty money has to find a home somewhere, and a country such as Canada with so many desirable assets is going to attract that sort of activity.” White-collar crime erodes trust and causes substantial damage, as the B.C. money laundering scandals make plain.

In 2008 and again in 2014, the Financial Action Task Force, a little-known but influential international standards-setting body, called out Canada for “a significant set of deficiencies” regarding our ability to determine the true owners of private corporations—what is called beneficial ownership transparency. This is a key factor in cracking down on financial criminal activity and corruption. A 2016 evaluation report again cited the ability of firms to operate in relative anonymity as a major weakness in our defence against money launderers. But it wasn’t until the B.C. money laundering and SNC-Lavalin scandals of the past several years that regulators and politicians began organizing a fulsome response. “There is a heightened sense of urgency in Canada now,” says Hernandez, who is CPA Canada’s representative on the federal government’s Advisory Committee on Money Laundering and Terrorist Financing. “We may be falling behind other developed nations. Some of these laws probably should have been passed five years ago.” 

The process of repairing Canada’s reputation began in earnest with the 2018 federal budget, which included amendments requiring most federally incorporated private companies to maintain an accurate register of all “individuals with significant control”—for example, someone with an interest of 25 per cent or more of the shares of the company. In tandem with these changes were new anti-money laundering rules issued by the Ottawa-based Financial Transactions and Reports Analysis Centre (FINTRAC), along with a suite of related reforms from other oversight and regulatory bodies. The Federation of Law Societies of Canada, for example, last year created a model set of anti-money laundering rules to be implemented by provincial law bodies, including strict client-verification procedures and a ban on lawyers accepting cash payments of more than $7,500. The Investment Industry Regulatory Organization of Canada (IIROC) has similarly established new rules for its members on cash deposits and client risk assessments, which take effect in June 2020. When everything is up and running, Canada will have a more robust and modern system for tracking who moves what money where.

The most significant aspect of this new regulatory regime would be the creation of a registry, or registries, of beneficial ownership. Other components include tighter rules for “money services businesses” engaged in moving funds around the world, and a broader definition of what forms of money must be tracked, including digital currencies, prepaid cards and e-transfers. There are also new rules requiring the reporting of numerous small, suspicious cash transactions as if they were a single transaction.

The changes mean “Canada is mirroring global standards,” observes Daniel Leslie, a lawyer with Norton Rose Fulbright and an expert on anti-money laundering and financial services. But, he points out, we are doing so in a uniquely Canadian way. As with many other aspects of Canadian federalism, creating a new national initiative for anti-money laundering is neither simple nor easy. Most corporate registration is a provincial matter, and the creation of a Canada-wide registry of beneficial ownership requires more than just changing a few federal rules. “It is now the responsibility of the provinces and territories to introduce those requirements,” says Leslie. It’s up to each individual jurisdiction to ensure its own registry integrates seamlessly with those of all other provinces and territories—a process that will inevitably involve complications. Of particular interest to the accounting profession, Leslie adds, due diligence expectations are now embedded in all stages and aspects of these anti-money laundering rules.

“If Canada is open to global money, we need to be open to global scrutiny as well”

While creating a functional registry is crucial to repairing Canada’s international reputation, the actual form and role of this registry also remains uncertain. Leslie expects it to be a closed system, with information about significant owners of a corporation available only to financial regulators, police and businesses with a relevant interest in the firm, such as creditors. 

Cohen, of Transparency International Canada, instead advocates for a publicly accessible registry that anyone can use. He envisions a registry that includes legal name, corporate address and birth month and year—or, better yet, a system of unique national identification numbers that would allow key individuals to be tracked without invading anyone’s privacy. Cohen believes giving access to the public will allow more eyes to review the system and deter those who would abuse the corporate registry. “If Canada is open to global money, we need to be open to global scrutiny as well,” he says. “We think it will help prevent illicit finances from getting in.” 

Such a broadly accessible registry would also offer important advantages for accountants doing their due diligence, notes Hernandez. It would be easier to spot bad actors, thus improving the reputation of the entire business community. “Crime and dirty money hate transparency. But transparency does not come for free: We need to give up some privacy, build adequate infrastructure and educate ourselves to do business with better safeguards,” he says. “Businesses need to know who is behind the money in the organizations they deal with. You don’t want to be involved with dirty money, but finding that out requires a lot of research, time and money.”

However, even a fully public system has drawbacks. Carol Bellringer, an FCPA and the former auditor general of Manitoba and B.C., believes there will be complications in building and maintaining such a massive, publicly available registry across multiple jurisdictions. “You have to weigh the costs and benefits,” she says. While she acknowledges the appeal of making so much information public, “it’s not always practical.”

This tension between balancing privacy with disclosure is similarly reflected in Prime Minister Justin Trudeau’s 2019 mandate letter to Navdeep Bains, an FCPA and the minister of innovation, science and industry. In it, Trudeau calls for “a national approach to beneficial ownership so that law enforcement . . . have the tools to crack down on financial crime in real estate while respecting Canadians’ privacy rights.” A national consultation process took place earlier this year, but there is no timeline for when a registry will be up and running.

Canada’s new regulatory regime requires digital currencies, prepaid cards and e-transfers to be tracked

Even if Canada nails down how its beneficial ownership registry will work, a registry alone will not rectify Canada’s sagging reputation on corruption and transparency. More effort needs to be put into enforcing current laws, both to ensure bad actors are put away and to deter others, according to Toronto CPA Jennifer Fiddian-Green, a former member of the RCMP’s financial crimes unit who is now a partner and lead of Grant Thornton’s forensic investigations practice. “We need to have more consequences for this sort of illegal activity,” she states, observing that proceeds-of-crime charges are often bargaining chips that get negotiated away because they’re considered less consequential than other criminal charges. Canada’s relaxed attitude toward prosecuting white-collar crime was another major criticism made by the Financial Action Task Force. “We need to change that story.” 

To bolster its own enforcement story, FINTRAC now publicly discloses all money laundering penalties. And the Criminal Code has been updated to make it easier to prosecute anyone engaged in money laundering activities by adding “recklessness” to the definition. “This is a vast improvement,” says lawyer Leslie. “Previously, in order to criminalize money laundering, you had to prove knowledge and intention. Now it is sufficient to show a person was merely aware there was a risk the funds were derived from criminal activity, and continued to participate” in a “reckless” way.   

It may be years before Canada’s international reputation is fully restored, but Canada is finally making the changes necessary to repair its trust gap and return to the highest global standards for fighting money laundering and corruption. Amid all these repairs, accountants are ideally suited to ensure the new regime functions properly. “As a profession, we are experts in all the areas these new rules touch on,” says Bellringer. “We establish internal controls, make sure they’re working and then verify that information. It will be up to us to make it work.” 

Fiddian-Green goes further in sketching out an opportunity for accountants to play a major role in ensuring Canada is safe from money laundering activity. “Accountants need to go beyond debits and credits and make sure we really know who our clients are, what services they need and how they’re going to use them, because clients potentially carry risk for accountants,” she says. In this way, accountants can become Canada’s first line of defence by helping clients to avoid getting entangled in dirty money and to spot new sources of dirty money as it tries to enter Canada. “No one wants to let illegal activity in the country,” she says. “Accountants need to do more.”


Find out how accountants can help stop the flow of dirty money and aid companies in adapting to the new beneficial ownership rules. Also, go inside the former RCMP deputy commissioner Peter German’s crusade to stop money laundering and learn why whistleblowers need more protection in Canada.


A snapshot of the global campaign against corruption and financial crime
This past February, B.C. Supreme Court judge Austin Cullen launched the Commission of Inquiry into Money Laundering in British Columbia. The Cullen Commission will examine the effect of money laundering on casinos, horse racing, real estate, luxury goods, cryptocurrency and many other sectors. A forthcoming report will make recommendations on how to improve the province’s reputation through better regulation and enforcement.


Following the collapse of infrastructure giant Carillion amid auditing oversights, the British government appointed Sir Donald Brydon to investigate the “quality and effectiveness of audit.” His 2019 report calls for audit to be redefined as a way “to establish and maintain deserved confidence in a company” and recommends the creation of a new corporate auditing profession with its own governing principles, qualifications and standards.


Following widespread outrage over domestic banking practices—including bribery, falsifying documents and charging fees to dead clients—Australia created a Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Last year, the commission’s final report demanded sweeping changes to business and remuneration models across the mortgage, insurance, fund management and financial advice sectors, and chastised regulators for being too close to bank management. The government has promised to implement all recommendations.


It has been called “the biggest scandal in Europe”: Between 2007 and 2015, an estimated US$230 billion in dirty money, much of it from Russia, flowed through a single Danske Bank branch in Tallinn, Estonia. At one point, the tiny office accounted for nearly 10 per cent of Danske Bank’s total annual profit, all without attracting proper scrutiny from regulators or the bank’s headquarters in Denmark. The case has led to numerous criminal investigations, and authorities around the world are expected to issue fines. Last year, the bank was permanently expelled from Estonia.


Between 2009 and 2015, an estimated US$4.5 billion was looted from the sovereign wealth fund 1Malaysia Development Berhad (1MDB) through deliberately complex and deceptive financial transactions and the misuse of American law firm trust accounts. Much of this money was spent on luxury real estate and private art collections. Financier Jho Low, a Malaysian government advisor, is accused of money laundering and bribery by the FBI and remains a fugitive. Goldman Sachs, which raised US$6.5 billion in bonds for 1MDB, is also under investigation for bribery.

Earlier this year, Swedish telecom giant Ericsson agreed to pay a fine of more than US$1 billion to U.S. authorities after admitting it paid bribes in China, Vietnam, Indonesia, Kuwait and Djibouti to win contracts. This is the second largest fine ever imposed under U.S. anti-bribery legislation, and dwarfs the US$62 ­million in total bribes paid out. While firms can have their fine reduced if they cooperate with authorities, Ericsson received only a partial reduction because it failed to disclose all relevant materials, was late in providing key documents and did not adequately discipline certain employee.