CBA Brief on Bill C-12 measures aimed at reinforcing Canada’s AML Regime

Introduction

Bill C‑12 introduces a range of substantial measures aimed at reinforcing Canada’s anti‑money laundering, anti-terrorist financing, and sanctions evasion regime (AML Regime), including mandatory FINTRAC enrollment for all reporting entities and the expansion of compliance tools with significantly increased penalties. This submission raises several key concerns about the potential for unintended negative consequences that may arise from these changes if not properly addressed. Specifically, there is a risk that the Bill’s broad supervision and compliance powers could lead to over‑reporting and defensive behaviour among reporting entities, diverting resources away from meaningful investigations and prosecutions. To address these concerns, the submission advocates for targeted amendments and the creation of clear, transparent regulatory criteria to ensure that penalties are applied predictably and fairly reserving the harshest penalties for only the most serious or systemic violations. It warns that without these changes, the efficacy of recent AML enhancements could be compromised, and reporting entities may face uncertainty, arbitrary fines, and legal challenges that undermine the integrity and effectiveness of the Canadian AML Regime. As such, the position outlined calls for a risk-based, fit‑for‑purpose approach that supports compliance, provides regulatory clarity, protects Canadians, and strengthens the overall financial system.

Recommended Amendments

• Provide clarity in the application of Bill C‑12’s proposed supervision and compliance powers that will reinforce a risk-based approach that preserves the efficacy of recent enhancements to the AML Regime (e.g., private‑to‑private information sharing) and avoids over‑reporting (generating high‑volumes of low-value reporting that do not drive increased prosecutions):
  
  • Defer the coming into force of the increased administrative monetary penalties (AMPs) until regulatory criteria are established to ensure their transparent and predictable application, reserving the highest AMPs for egregious or systemic issues¹
  • Add a regulation making power to establish and provide certainty on the government’s expectations and its criteria for assessing if a compliance program is reasonably designed, risk-based, and effective, in alignment with fundamental justice expectations under the Canadian Charter of Rights and Freedoms (Charter)²
  • Remove the one-year limit to extending a compliance remediation agreement to prevent the arbitrary application of significant additional fines (e.g., where a delay is outside the control of a reporting entity)³
  • Prohibit the opening of accounts under "obviously fictitious names", based on a clear legislative definition of what constitutes an "obviously fictitious name"⁴
  • Exempt banks from mandatory FINTRAC enrollment due to existing oversight⁵
  • Amend the proposed false information offense to reflect "intent to deceive" (consistent with other similar provisions in the Criminal Code) to avoid triggering the offence when providing information (or non‑provision) is done in good faith⁶
  • Clarify that, like a violation, an offence alleged to have been committed before the coming into force of the proposed new provisions in Bill C‑12 will not be subject to them⁷

Please see the CBA’s proposed amendment language and detailed rationale for the proposed amendments in the Appendix of this submission starting on page 3.

Benefits to Canadians and the Canadian Economy

Adopting these measures will help ensure a fit‑for‑purpose, risk-based AML Regime that more effectively targets risks, provides clarity in the application of Bill C‑12, and focuses resources on tangible outcomes such as investigations, prosecutions, and the protection of Canadians.

Appendix

1. Defer coming into force of new administrative monetary penalties (AMPs) until regulatory criteria are established to ensure transparent and predictable application within the significantly broadened AMP range, reserving the highest AMPs for egregious or systemic issues

Comprehensive penalty criteria must be added to section 6 of the PCMLTF AMP Regulations to ensure AMPs are applied in a transparent and predictable manner and that the highest AMPs are appropriately applied to only systemic and egregious violations. While the Government should consult on these criteria, our initial position is that the following should be included at a minimum:

• The size and sophistication of the RE
• The total volume of transactions / reports of the RE, with attention given to the apparent violations as compared with the total volume
• Remedial responses taken by the RE upon learning of the apparent violation

These criteria align with the purpose of section 73.11 proposed in section 96 of Bill C‑12, which introduces limited criteria to guide the application of AMPs and provides a regulation making power to prescribe additional criteria. This section clearly shows that policy makers understand that legislative and regulatory criteria are needed to guide the application of AMPs. While Bill C-12 introduces an additional criterion of "ability to pay", this alone is insufficient. From a transparency and predictability perspective, the full suite of criteria should be consulted on and introduced with the coming into force of the new AMPs, rather than allowing for the possibility that FINTRAC’s approach to applying AMPs may be adjusted piecemeal.

Further, the addition of the CBA’s proposed criteria explicitly supports the policy goal of AMPs: encouraging compliance amongst reporting entities, rather than to punish. More specifically, the CBA’s suggested criteria link the size of AMPs to the quality of compliance, which will help to encourage reporting entities to invest in their AML programs.

Transparency and predictability will help to ensure the efficient and effective operation of the new AMPs and support FINTRAC in encouraging compliance. This is an acute priority. The greatly increased level of AMPs under Bill C‑12, if unfairly applied, could result in reporting entities applying the PCMLTFA in a "defensive" manner, over‑reporting transactions to FINTRAC in an effort to avoid potential penalties and re‑directing resources away from truly combatting money laundering towards those activities that they feel will avoid regulatory criticism. Also, recently there has been a significant increase in reporting entities appealing to the Federal Court to review FINTRAC’s application of its current AMP framework. Certain of these appeals have resulted in reversals of the FINTRAC’s AMPs as the assessment was incorrect at law (e.g., failure to consider the "harm done" by a violation); other appeals are still working through the legal process. These appeals take time and create uncertainty in the application of the AMP framework for all entities, as FINTRAC may adjust its AMP policies if the Federal Court disagrees with their approach, which may have material impact on the broader AML Regime. Certain experts have suggested that if this level of fluidity exists under the current AMP framework, the changes contained in Bill C‑12 (e.g., increased AMPs and regulatory discretion) may drive even more court challenges.⁸ To avoid this outcome, which would have deleterious impact of the integrity of the Canadian AML Regime, the CBA strongly believes clear regulatory criteria will help support FINTRAC’s efforts to effectively and efficiently encourage compliance across its approximately 35,000 reporting entities.

In addition to providing clear regulatory criteria, we also suggest consideration be given to an alternative application process for AMPs. For example, like the scheme laid out under the Competition Act, it may be advisable to consider the creation of a quasi‑judicial body (e.g., a tribunal) to consider FINTRAC’s suggested AMP amounts, because of the potential for significant AMPs to have prudential and stability impacts on federally regulated financial institutions which are some of the largest companies and employers in Canada. This approach may also help to prevent unpredictable outcomes that increased court challenges may create. As such, we encourage consultation with stakeholders on this point.

2. Add a regulation making power to establish and provide certainty on the criteria for assessing if a compliance program is reasonably designed, risk‑based, and effective

To help ensure this new requirement is applied in a transparent and predictable manner the following amendment should be made to Bill C‑12, s.79:

The Government should consult on these regulatory criteria.

Adding clarity to subsection 9.6(1.1) will also help to avoid potential concerns under section 7 of the Charter. Canadians are protected under the Charter from vague laws. This proposed rule will apply to persons and may expose them to very serious AMPs. Yet it is unclear on plain reading what satisfies or violates it. While the CBA has not yet performed a full Charter analysis in this case, we suggest that greater clarity would help to mitigate future issues with the proposed amendment and help the federal government effectively and efficiently achieve its policy goal of improving reporting entities’ AML programs.

Like our suggested approach, when the Financial Crimes Enforcement Network (FinCEN) proposed a similar rule in the United States in 2024, it provided a lengthy description of its expectations. This approach helped to ensure that reporting entities in the US had the information they needed to comply with law. Adding clear regulations in the Canadian context, where the rule is being proposed in legislation, rather than left to a regulator’s subjective opinion and inclination, would achieve the same result. Failure to provide certainty and clarity around expectations could lead reporting entities to over‑compensate in the design of their compliance programs (sometimes referred to as "gold plating") rather than properly allocate their efforts towards combatting money laundering.

3. Remove the one-year compliance remediation limit to prevent the arbitrary application of significant fines (e.g., where a delay is outside the control of a reporting entity)

The one-year limitation is concerning as reporting entities may face potential delays and the risk of significant fines for various reasons outside of their control (e.g., outages of Government of Canada technical systems). The following amendment to C‑12, s.100, will create the flexibility to mitigate this risk:

Removing the one‑year period and creating flexibility for scenarios that are outside reporting entities’ control will not weaken the incentive for compliance. This is because section 73.16(3) will still require FINTRAC to agree to the extension only if it is satisfied that the person or entity is making substantial progress. Further, it will preserve the Director of FINTRAC’s discretion to apply fairness where it is warranted.

4. Prohibit the opening of accounts under "obviously fictitious names", based on a clear legislative definition of what constitutes an "obviously fictitious name"

As drafted in Bill C‑12, even if a reporting entity verified the identity of a client in accordance with the regulations, it could still be considered in violation if the client’s name is "obviously" fictitious. It is not clear how a name would be determined to be "obviously fictitious" despite being verified and would seem to leave this to the regulator’s subjective analysis. This may create interpretive uncertainty for reporting entities.

To create greater certainty within the Regime we suggest section 9.2 should be amended as follows:

This approach would also align with the guidance of the Financial Action Task Force (FATF), which notes that, "financial institutions should be prohibited from keeping anonymous accounts or accounts in obviously fictitious names."⁹

5. Exempt banks from mandatory FINTRAC enrollment due to existing oversight

FINTRAC already has access to all of the information it needs to effectively identify the banks it oversees, which is the policy intent of the mandatory enrollment framework. The Office of the Superintendent of Financial Institutions (OSFI) regulates banks from a prudential perspective, and FINTRAC issues cost recovery invoices directly to banks based on information that it already has access to. To avoid creating unnecessary “red tape” through duplication and overlap, and the potential conflict of this enrollment regime with other regimes, such as OSFI’s, which could cause significant operational challenges (e.g., it is unclear how the revocation of FINTRAC enrollment, which is a possibility under the proposed framework, would impact a bank’s standing with OSFI, which may have safety and soundness concerns), the following amendment should be made to s.82 of Bill C-12:

6. Amend the proposed false information offense to reflect "intent to deceive" (consistent with other similar provisions in the Criminal Code) to avoid triggering the offence when providing information (or non‑provision) occurs in good faith

As currently structured, the offense may unintentionally capture scenarios where a reporting entity’s employee makes a good faith and reasonable determination that information or a statement is not captured within the scope of 77.1(1)(a)-(c). More specifically, an employee could face exposure to a criminal investigation for reasonably concluding, without any intent to deceive FINTRAC, that information was not material; that providing (or omitting) information was not false; or misleading or that making a statement (or failing to) was not false or misleading. This insufficiently constrained potential application of criminal law may negatively impact reporting entities’ ability to attract and retain top AML talent at a time when this talent is needed to meet complex and evolving risks.

To avoid this outcome, the following amendment should be made:

This proposed change should also be made because it is aligned with similar legislative provisions. More specifically, the explicit inclusion of an “intent to deceive” threshold is consistent with similar provisions in the Criminal Code (e.g., ss 386, 389 and 898) that deal with fraudulent information. This approach helps to ensure individuals are not convicted for mistakes or misunderstandings. In the highly subjective context to which subsection 77.1(1) will apply if it is passed, this type of protection is appropriate and necessary. Therefore, clear and aligned statutory language is critical to ensuring predictable, fair and proportionate application and enforcement.

7. Clarify that, like a violation, an offence alleged to have been committed before the coming into force of the proposed new provisions will not be subject to them

To enhance consistency between the treatment of violations and offences in the transitional clauses in s.121-123 of Bill C-12, we suggest the following changes:

¹ Bill C-12 Part 9, Sec. 116
² Bill C-12 Part 9, Sec. 79, PCMLTFA Sec 9.6 (1.1)
³ Bill C-12 Part 9, Sec. 100, PCMLTFA Sec 73.16(3)
⁴ Bill C-12 Part 9, Sec. 78, PCMLTFA Sec 9.2 (1) & (2)
⁵ Bill C-12 Part 9, Sec. 82, PCMLTFA Sec 11.4001 (1) & 2
⁶ Bill C-12 Part 9, Sec. 108, PCMLTFA Sec 77.1 (1)
⁷ Bill C-12 Part 9, Sec.121-123
⁸ Blakes, Cassels & Graydon, "Strong Borders Act: A Landmark Shift in Canada’s AML Penalties" (available online: Strong Borders Act: A Landmark Shift in Canada’s AML Penalties | Blakes)
⁹ Financial Action Task Force, "FATF Recommendation 10, Customer Due Diligence" (available online: FATF Recommendations 2012.pdf.coredownload.inline.pdf)