Federal officials feared consequences after intelligence unit protected bank that broke law

In the winter of 2016, senior officials within the Office of the Superintendent of Financial Institutions (OSFI), a federal government agency that regulates the banking sector, were scrambling to learn more about a $1.15-million fine levied on one of Canada’s banks for violating a federal money laundering law.

The fine was imposed by a sister agency, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), which tracks suspicious money movements by criminals and terrorists.

Yet the name of the bank has never been revealed to this day, with FINTRAC stubbornly refusing to divulge it. The $1.15-million fine was imposed after the unnamed bank broke money laundering rules by failing to report nearly 1,200 transactions as required from 2012 to 2013, including transactions by one of its customers, who was known to be under criminal investigation.

Now internal emails obtained through an access to information request by National Observer and the Toronto Star, reveal that OSFI found FINTRAC’s rationale for keeping the bank’s name secret counterproductive and that it could lead to future problems.

“As soon as the penalty is published with no name, all the banks will want the same treatment if they are penalized,” wrote Nicolas Burbidge, a senior advisor at OSFI. And Christine Ring, one of the OSFI directors in Toronto, wondered in an email whether FINTRAC’s refusal to name the bank implied “the (administrative monetary penalty) regime is even less effective/dissuasive because public naming is discretionary????”

Burbidge also admitted to knowing which was the offending bank, but the documents don't divulge the name.

This past December, National Observer and the Star published details of the events that triggered the fine, specifically involving a convicted felon named Andrew Strempler. A Winnipeg-based pharmacist, Strempler had for years sold pharmaceuticals to Americans online, claiming the drugs were approved in Canada when, in fact, they were often being imported from countries where quality was not assured.

"Strempler did not disclose to his customers the risks he was taking with their health and safety," noted the U.S. government in one document. Strempler was arrested in Miami in 2012, sentenced the following year and released from prison in 2015. Strempler had a business relationship with a Canadian bank, which failed to report his hundreds of electronic financial transactions in violation of money laundering laws.

Yet FINTRAC kept Strempler’s identity, his banking activities and his bank’s name secret from the public.

When the fine’s existence hit the media in April of 2016, several news reports criticized FINTRAC for not naming the bank. The recent cache of emails National Observer obtained reveals that OSFI officials were closely monitoring the blowback that FINTRAC was receiving. Although heavily redacted, the emails give a glimpse into what OSFI managers were thinking about FINTRAC’s decision. They suggest OFSI found FINTRAC's decision puzzling.

FINTRAC has claimed that by not naming the offending bank, this acts as a deterrent to other banks. But OSFI officials saw that this rationale held little water. In one email, Danny Cooper, a director of OSFI, notes that while the large banks had been forced to publicly deny they'd been fined, Canada’s smaller banks were “under considerable pressure to confirm that they do not have a… fine pending, either verbally or through a formal press release.” Cooper’s email indicates this was causing a problem for the smaller banks.

The emails also reveal that the bank’s crime was no trivial matter and Ring, the Toronto OFSI director, suggested in an email to colleagues that she assumed the bank's name would ultimately be revealed. In December of 2014, Ring mused in an email to colleagues that “the compliance deficiencies (by the bank) are considered to be ‘very serious’ which is the language used in the letter by FINTRAC.” Ring added that FINTRAC was waiting for the bank’s “action plan” and that there would be “no name and shame until the dust settles, ie. the appeal process and has been exercised and completed.”

By last year, however, the bank had already appealed the fine, which FINTRAC lowered from $1.5-million to $1.15-million, and the appeal process ended. And still FINTRAC refuses to name the bank.

FINTRAC protecting the unnamed bank?

Bill Majcher, a former RCMP inspector, feels FINTRAC is protecting the banking industry. Majcher is also the former head of one of the RCMP''s Integrated Market Enforcement Teams in Vancouver and an international expert on money laundering who used to train FINTRAC personnel. “I think there is no other reason other than some incompetent individual at the top who thinks it wouldn’t be politically expedient to (name the bank),” he told National Observer.

“This is not the first time that this has occurred. I can tell you from personal experience any time you have allegations of criminal activity or illicit activity that touches upon members or could affect members of the establishment, particularly public figures, the government will suppress all of that information… It’s a careerist decision, not an operational decision...

“FINTRAC is 100 per cent driven by bureaucrats with the bureaucrats’ mindset,” Majcher added. “It is not about functionality and it’s not about bottom line results. It’s about creating a safe instrument that allows political pressure to be diverted from what is Ottawa doing to combat global terrorism and organized crime. In fact, we are doing very little. The biggest joke is Canada is truly the soft underbelly of global financial crime and money movements. No question.”

In fact, National Observer also learned that after it filed its access to information request to FINTRAC in April of 2016, on two separate occasions FINTRAC consulted with the bank in question regarding the records that would later be censored and released.

FINTRAC took more than eight months to release the documents requested through access to information legislation. An investigation by the office of Canada's information commissioner concluded that this delay was "unreasonable," putting FINTRAC in a state of "deemed refusal" under the Access to Information Act — a violation of the legislation.

When asked about the delay, FINTRAC told National Observer and the Star in a statement that there were several factors that affected its response to the access to information request, "including the fact that the matter involved litigation, the complex nature of the requested information, the volume of requests received on this matter and the large number of records involved."

Meanwhile, FINTRAC was closely monitoring the reaction to its decision not to publish the bank's name. Among the documents that the Observer obtained was an internal FINTRAC analysis of the public and media responses.

The analysis noted that by April 6, 2016, “the tone of the media coverage became increasingly negative and critical of FINTRAC’s decision to withhold the name of the financial institution.” The analysis noted a high volume of media calls, the response by the prime minister and other ministers, and critical comments by the media and the public. One member of the public who contacted FINTRAC noted: “I would want to know if the bank where I do my daily banking transactions is involved in criminal activities. If it is involved, I would close my accounts and go elsewhere. FINTRAC should be held accountable in disclosing all of the facts of this investigation and penalty.”

Overall, this report shows FINTRAC was being pilloried for refusing to name the bank. FINTRAC’s website page that logs penalties drew 548 views on the day of the announcement – a 243 per cent increase over a normal day.

Experts critical of FINTRAC's decision

The condemnation continues, according to various experts interviewed by National Observer and the Star. “It’s unconscionable,” says Kenneth Rijock, a financial crime consultant in the U.S. who regularly investigates cases in Canada and trains law enforcement agencies here. “There’s no reason we shouldn’t know. It’s not just about Canadian banks. It’s about the financial industry everywhere needing this information if they’re conducting business in Canada. We need to know this.” An “overemphasis” on privacy “pervades” Canadian regulatory systems and draws a stark difference between Canada and the U.S., he remarked.

“Canadians are always more enlightened and less brutal,” Rijock said. “But that doesn’t mean you have to give criminals a pass. In the U.S. this exact set of facts would have resulted in tens of millions in fines and the bank itself would have been required to sign a deferred prosecution agreement, meaning if you don’t clean up your act you’re going to be charged with a felony or a number of felonies.”

Richard Leblanc, a professor of corporate governance at York and Harvard Universities, said that “nowhere in the emails was the public interest discussed… Naming of the institution would cause media scrutiny, but the procedural rights of the bank would remain intact. If a person or firm is charged civilly or criminally, the name of the person or firm is almost always disclosed, as a matter of public interest and transparency, at the time the person or firm is charged, not after the sentence or appeal rights have been exhausted.”

Christine Duhaime, a Vancouver-based lawyer who specializes in counter-terrorist financing and anti-money laundering law, also said the fine of $1.2-million is woefully low given the seriousness of the offense. “The conduct was egregious,” Duhaime told the Star. “I suspect that there will never be another case for many years to come with such an egregious compliance record by a bank... It boggles the mind and suggests a systemic problem of either not understanding or complying with, or a complete disregard for, Canadian law.”

“I'm sure that FINTRAC debated the issue for quite some time and perhaps the decision was a difficult one,” she continued, “but the reality is that a fine of just over $1-million... sends a message to financial institutions, reporting entities and indeed all Canadians that anti-money laundering compliance in Canada is not important. If it were important, Canada would impose substantial fines that harm reporting entities.”

When asked for comment on the internal emails obtained by Observer, OSFI refused to clarify, except noting that: “While discussions occur between OSFI and FINTRAC officials, OSFI is prevented by legislation from discussing the nature of those discussions publicly. OSFI does not comment on the actions taken by other organizations.”

FINTRAC also remains unwavering in its decision not to publish the bank’s name, sticking to the claim that it serves as a deterrent. And in a statement to the Observer, FINTRAC noted: “In determining a penalty amount, FINTRAC assesses harm in relation to the degree to which the violation limits FINTRAC, and more broadly Canada's anti-money laundering and counter terrorist financing regime, from detecting and deterring money laundering and terrorist financing.” Whether FINTRAC was protecting the bank from embarrassment, it responded that “this did not factor into FINTRAC’s decision-making in any way.”

Nevertheless, Duhaime, the Vancouver lawyer, remains frustrated by FINTRAC’s position. “I think… us average people, have a right to know what bank it is,” she said. “Centuries ago we did away with secret and favourable legal proceedings and opted instead for a constitutional democracy where the rule of law prevails… My view is that the greater need for the rule of law to prevail should dictate that FINTRAC release the name of the bank, come what may. ...it's the right and legal thing to do.”

Editor's note: This story was updated on Feb. 19, 2017 to correct that the amount of the financial penalty was $1.15 million.

It was updated again on March 1, 2017 to correct details regarding some of the violations and clarify that not all were related to one individual client. This correction was made following comments made by the bank which publicly identified itself on Feb. 27 and provided additional information about the case.