Duhaime's Financial Crime & Anti-Money Laundering Law in Canada

Practical and real accountants

Not much is written about the role of practical or real accountants in money laundering, or the compliance of accountants, as reporting entities to FIUs under anti-money laundering law. But it’s an increasingly interesting issue.

At least in Canada, accountants, accounting firms and their employees must report the following to the FIU, which is FINTRAC:

• Suspicious transactions if there are reasonable grounds to suspect that a transaction or an attempted transaction in which the accountant or accounting firm is advising on is related to the commission or attempted commission of a money laundering offence or a terrorist activity financing offence;
• Terrorist property if the accountant or accounting firm has property in his, her or its possession or control that he, she or it knows is owned or controlled by or on behalf of a terrorist or a terrorist group, as well as any information they have about a transaction or proposed transaction in respect of such property; and
• Large cash transactions for cash transactions of $10,000 or more received in connection with a transaction in which they provided advice.

Most unreviewed sector by FIU

I believe it was according to a Freedom of Information Act request made in Canada that showed that accountants were the reporting sector with the lowest per capita number of filings with the FIU and which had the lowest number of compliance reviews conducted by the FIU. In other words, they seem to report the least when adjusted by number of firms and accountants and are reviewed by the FIU the least.

Pursuant to the design of the Recommendations of the FATF, certain sectors that touch the financial system are designated gate-keepers and accountants are one such gate-keeper. No studies have been done on the extent to which that sector complies with its gate-keeping function but anecdotally, there are countless cases in which accountants have been involved in money laundering – wittingly or unwittingly.

Cases with accountants

Lansky

According to the book “The Laundrymen”, money laundering was a business started by a practical accountant (and gangster) named Meyer Lansky, who managed the books and money for many of New York’s most well known national organized crime figures such as Bugsy Siegel and mob boss Lucky Luciano. Lansky became known as the “mob’s accountant” and “the patron saint of money launderers.” He is credited with being the person who convinced organized crime figures to move their proceeds of crime to offshore havens in Switzerland and the Bahamas to avoid detection and forfeiture. All three – Lansky, Siegel and Luciano – were intimately involved in land-based casinos, including building one of the first casinos in Las Vegas. Lansky would wash money through Las Vegas casinos for the mob.

According to an ACAMS article on Lansky, he helped the mob avoid being detected as money launderers by: (a) filing their taxes on time all the time because all money launderers file on time to avoid attention being drawn to them; (b) using offshore tax havens, preferably Switzerland; (c) avoiding lavish spending; and (d) using shell companies.

Probably the most famous accountant in the world, a man named Walter Diamond, now deceased, who was a bank examiner and advisor to the US government, wrote a text book of questionable content called “Tax Havens of the World”, updated annually for 25 years, in which he promoted the use of offshore tax havens to defeat law enforcement and government oversight. In his book, he extolled the virtues of offshore tax havens and wrote that they are useful to cloak bank accounts in secrecy (because of the anonymity of shareholders of private companies incorporated in offshore tax havens); to shift investments offshore without being taxed; to make sure financial dealings and financial assets remain private (to avoid taxes); and to avoid government control. His book provided an analysis of each offshore country and an assessment of the strength of each country’s anti-money laundering law enforcement – the more lax the country and the more secretive its private company structure, the more favourable a location it was, suggested Mr. Diamond. He was one of the harshest critics of the FATF because he felt that the FATF interfered with what he seemed to believe was a right to park money secretly in other countries and to own companies secretly in other jurisdictions to use to open bank accounts.

Colombia

Insight Crime reports that in Colombia, a man known only under the alias el contadorâ (the “accountant”), is believed to be a practical accountant, the chief financier and money launderer for the cartels. He is alleged to have links to the Revolutionary Armed Forces of Colombia (Fuerzas Armadas Revolucionarias de Colombia FARC) and one of the main financial backers of the Oliver Sinisterra Front of the ex-FARC Mafia and the United Guerrillas of the Pacific.

Cartels

Other international gangsters seem to like accountants to move money as well. The DEA lists another practical accountant, aka “el contador” from Mexico, who is believed to be the accountant for the Gulf Cartel and part of that cartel’s leadership, whose real name is Jose Alfredo Cardenas-Martinez. Martinez was arrested a few months ago in Mexico and is the nephew of Gulf Cartel Leader, Osiel Cardenas. As the el contador, he is believed to have been the material money mover and washer for the Gulf Cartel.

Bitcoin

Not to be left out, Bitcoin people have accountants too that have used their financial talent for inappropriate purposes. An accountant, Renwick Haddow, was indicted in the US for operating a fake Bitcoin trading platform and taking US$38 million from consumers in several countries. He subsequently pleaded guilty. Among other things, Haddow opened bank accounts for the Bitcoin exchange and acted as its authorized representative with the banks, and managed what amounted to a Ponzi scheme.

Cautionary case of wrongful investigation and arrest of accountant

But here is an interesting case from Canada that is a cautionary one for investigations and arrests of professionals for alleged money laundering.

In Canada, Jocelyn Therrien, an accountant, was investigated, arrested and charged by the police for allegedly being tied to criminality (specifically the Hells Angels) and laundering money for them. At the criminal trial, the Judge dismissed all the claims against her, before it even went to the jury, saying that there was no evidence to substantiate the charges. The accountant is now suing the police, the attorney general and the prosecutors in respect of the investigation and the charges laid against her for abuse of process and negligence. In her lawsuit, she says that the police investigation cost her all of her clients.

The case is concerning for professionals, especially accountants. Most government agencies and banks have teams of accountants and auditors who, based on this case, are at risk of criminal prosecution in the same way, or more, as Ms. Therrien was, if their organizations are unwittingly used for financial crimes. That’s because, as the Court held, Ms. Therrien had no connection to the proceeds of crime moved by the Hells Angels through the financial system and yet she was charged and prosecuted, whereas accountants do have such connections, however indirect, because financial institutions and government agencies are often unwittingly used and abused by organized crime to move proceeds of crime.

The discovery of the trial will be interesting as it will require disclosure of what forensic financial transactional evidence existed to tie the accountant’s financial transactions to the Hells Angels. If there was no tracing of financial transactions from them to her, or no evidence of financial transactions from bank records, which appears to be the case, there were then no grounds to commence the investigation, lay charges, arrest the accountant or continue the criminal trial against her. In money laundering charges, you need evidence and that evidence must be financial evidence from a qualified forensic expert, which ironically is usually a forensic accountant.

The money laundering offences are purely about moving property knowingly to obfuscate its criminal origin and therefore, the police, AG and prosecutors would have to have had evidence not only of the movement of property derived from crime through bank accounts between the Hells Angels and the accountant, but also evidence that even if the accountant moved property derived from crime, she did it knowingly. The DPP in Canada has testified to Parliament on the high standard of evidence and proof required to bring a money laundering charge in Canada. That’s why, they have testified in Parliament, there are so few charges and prosecutions in Canada. Since the time of the prosecution of Al Capone in 1931, the standard to lay a charge has been evidence of financial transactions establishing the requisite crime from qualified forensic accountants.

Vancouver has a famous case, never prosecuted, where over $500,000 in Bitcoin was paid to the Hells Angels to murder people, which is traceable on the Blockchain (read here), and the province of Quebec housed the world’s largest money laundering operation tied closely to Russian organized crime (read here), also never prosecuted in Canada, which is also traceable on the Blockchain – so why the case against the accountant was pursued vigorously or at all, is unknown when more solid cases are on the shelf.

One more important aspect to keep in mind is that Courts have ruled that money laundering reports produced by bank or other AML consultants are not a protected communication and are compellable. This applies irrespective of if the bank or other entity made a filing with a FIU. So in a litigation involving wrongful filing of police reports or of other information that leads to a wrongful investigation and an arrest of a professional, the litigant can compel AML-related documents from banks and other parties to litigate or to defend wrongful charges, and the banks and other entities are not entitled to redact such reports.

If you want to learn more about accountants, the FATF has guidance in respect of the role and obligations of accountants here, which is an interesting read of the expectations of accountants in anti-money laundering law.