This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 05 OTTAWA 003671 
 
SIPDIS 
 
STATE FOR INL, EB/ESC/TFS AND WHA/CAN 
JUSTICE FOR OIA AND AFMLS 
TREASURY FOR FINCEN 
 
E.O. 12958: N/A 
TAGS: EFIN KCRM KTFN PTER SNAR CA
SUBJECT: CANADA:  2005-2006 INTERNATIONAL NARCOTICS CONTROL 
STRAGY REPORT (INCSR) PART II:  FINANCIAL CRIMES AND MONEY 
LAUNDERING 
 
REF: (A) OTTAWA 3636 (INCSR PART I) 
 
     (B) STATE  210324 
 
¶1.  Canada is strengthening measures to reduce its 
vulnerability to money laundering and terrorist financing. 
Financial institutions remain susceptible to transactions 
involving international narcotics proceeds, including 
significant amounts of funds in U.S. currency derived from 
illegal drug sales in the United States. The long U.S.- 
Canada border and closely integrated financial sector make 
Canada attractive to criminals interested in cross-border 
crime.  With over $1 billion a day in legitimate bilateral 
trade, both the U.S. and Canadian governments are 
particularly concerned about the criminal abuse of cross- 
border movements of currency.  Canada has no offshore 
financial centers or free trade zones. 
 
Laws and Regulation to Prevent Money Laundering 
 
¶2.  Canada's financial intelligence unit (FIU), the 
Financial Transactions and Reports Analysis Centre of Canada 
(FINTRAC), was created under the Proceeds of Crime (Money 
Laundering) Act in 2000 and started accepting Suspicious 
Transaction Reports (STRs) in November, 2001.  The Act was 
amended in December 2001 to become the Proceeds of Crime 
(Money Laundering) and Terrorist Financing Act (PCMLTF Act). 
FINTRAC is an independent agency under the authority of the 
Minister of Finance and acts at arm's length from the law 
enforcement and other agencies that receive its disclosures. 
FINTRAC and regulators such as the Office of the Supervisor 
of Financial Institutions (OSFI) oversee compliance with 
anti-money laundering and anti-terrorist finance regimes. 
 
¶3.  The PCMLTF Act creates a mandatory reporting system for 
suspicious financial transactions, large cash transactions, 
large international electronic funds transfers and cross- 
border movements of currency and monetary instruments of 
C$10,000 (about US$8,500) or greater.  Failure to report 
cross-border movements of currency and monetary instruments 
could result in seizure of funds or penalties ranging from 
C$250 to C$5,000 (about US$200 to US$4,000).  In addition to 
receiving suspicious transaction reports, FINTRAC collects 
financial intelligence from other sources on suspected cases 
of money laundering, terrorist financing or threats to the 
security of Canada.  The list of predicate money laundering 
offenses was expanded and now covers all indictable 
offenses, including terrorism and the trafficking of 
persons. 
 
¶4.  Detection of financial crime is improving as FINTRAC 
gains experience and compiles data.  FINTRAC does not 
perform criminal investigations, but analyzes data and 
discloses suspicious cases to Canadian law enforcement, 
intelligence, other regulators and foreign FIUs.  FINTRAC 
has signed 20 memoranda of understanding with foreign FIUs 
(including FINCEN), 13 of them in the past year. Others are 
being negotiated. 
 
Financial Intelligence Unit/Investigations 
 
¶5.  In 2004-05, FINTRAC made 142 case disclosures, of which 
110 were for suspected money laundering, 24 were for 
suspected terrorist financing and/or threats to the security 
of Canada, and 8 involved both.  Of the total disclosed, 115 
were new cases while 27 were follow-ups to disclosures made 
previously.  The total dollar value of the disclosures was 
just over C$2 billion (about US$1.7 billion), almost triple 
the value last year.  FINTRAC has not disclosed the number 
of STRs that were filed in 2003-04, but has compiled data on 
over 23 million transaction records since commencing 
business in 2001.  FINTRAC's case disclosures have not yet 
resulted in prosecutions. 
 
¶6.  Most financial crime investigations in Canada involve 
narcotics proceeds, although other crimes, such as tobacco 
smuggling and prostitution, are associated with the unlawful 
movement of financial instruments.  A Canadian law 
enforcement official notes that the prevalence of narcotics- 
related cases is due in part to the fact that investigations 
focus on narcotics.  The growth in Chinese and Colombian 
criminal organizations is being reflected in increased 
narcotics-related crime and higher levels of seizures. 
 
Financial Sector 
 
¶7.  The banking and financial community cooperates with 
enforcement efforts to trace funds and freeze bank accounts 
and supports efforts to strengthen anti-money laundering and 
anti-terrorist financing regimes.  Charities are regulated 
by Revenue Canada under the Income Tax Act.  Financial 
transactions involving charities are subject to the same 
reporting requirements as other financial transactions. 
 
 
¶8.  Money laundering is a criminal offense, regardless of 
the source of the funds or size of the transaction. 
Financial institutions are required to know, record, and 
report the identity of customers engaging in significant 
transactions, including all cash transactions over C$10,000 
(about US$8,500).   Financial institutions must file STRs 
and/or be able to produce other records for FINTRAC within 
30 days of request.  Financial institutions must maintain 
account records for five years starting from the closing of 
the account; the last transaction; or the date of creation 
of the document (depending on the type of record).  FINTRAC 
must maintain records of STRs for at least five years, with 
an eight-year minimum in some cases. 
 
¶9.  Reporting requirements apply to a wide range of entities 
including banks and credit unions; life insurance companies; 
brokers and agents; securities dealers; portfolio managers; 
provincially-authorized investment counsellors; foreign 
exchange dealers; money services businesses (including 
alternative remittance systems such as Hawala); crown agents 
accepting deposit liabilities and/or selling money orders; 
accountants and accounting firms; real estate brokers or 
sales representatives in certain client-related activities; 
casinos (except for some temporary charity casinos); and 
individuals transporting large sums across borders. 
 
¶10.  Reporting entities must also report the existence of 
terrorist property in their possession or control, or 
information about a transaction or proposed transaction in 
respect to such property.  All cash transactions over 
C$10,000 (about US$8,500), as well as international 
electronic funds transfers and cross-border movement of 
currency or monetary instruments must also be reported. 
Failure to file a suspicious transaction report could lead 
to up to five years' imprisonment, a fine of C$2,000,000, or 
both. 
 
¶11.  The Canadian government is negotiating with the 
Canadian bar association on ways to include lawyers under 
the reporting regime, and is exploring a regulatory 
oversight system for money services businesses (MSBs). 
Although MSBs legally must report suspicious or large-value 
transactions to FINTRAC, there is currently no regulatory 
system to ensure that they comply.  Reporting individuals 
have immunity from civil or criminal prosecution for reports 
filed in good faith.  Information that identifies reporting 
individuals cannot be disclosed except as specified in 
legislation.  Information can, however, be released in 
limited circumstances such as parliamentary or legal 
proceedings.  FINTRAC is not subject to search warrants. 
 
¶12.  In a November 2004 report to Parliament, Canada's 
Auditor General stated that "privacy concerns restrict 
FINTRAC's ability to disclose intelligence to the Police, 
and as a result, law enforcement and security agencies 
usually find that the information they receive is too 
limited to justify launching investigations."  Parliamentary 
reviews of the Proceeds of Crime (Money Laundering) and 
Terrorist Financing Act and the Anti-Terrorism Act scheduled 
for 2006 should address these issues. 
 
Cash Smuggling 
 
¶13.  U.S. law enforcement officials have echoed concerns 
that strict Canadian privacy laws and the high standard of 
proof required by Canadian courts inhibit the full sharing 
of timely and meaningful intelligence on suspicious 
financial transactions. Such intelligence may be critical to 
investigating and prosecuting international terrorist 
financing or major money laundering investigations. 
 
¶14.  International transport of large values of currency or 
monetary instruments must be reported.  In the case of 
currency or monetary instruments transported by courier or 
mail, the exporter or importer in Canada is responsible for 
filing the report.  Currency and monetary instruments that 
are not reported appropriately are subject to forfeiture. 
 
 
¶15.  Cash smuggling reports are sent to FINTRAC, law 
enforcement, intelligence, customs, tax, and immigration 
officials as appropriate.  Records for all cash transactions 
amounting to $3000 or more must be kept for five years. 
Last year's concern about the inability of U.S. and Canadian 
law enforcement officers to exchange promptly information 
concerning suspect funds found in the possession of 
individuals attempting to cross the U.S.-Canadian border has 
been addressed by a 2005 Memorandum of Understanding on 
exchange of Currency and Monetary Instrument Report data. 
Although this should expand the extremely narrow disclosure 
policy and provide a provision for sharing financial 
information akin to the Customs Mutual Assistance Agreement, 
more work needs to be done. 
 
¶16.  The Royal Canadian Mounted Police (RCMP) and Canadian 
Security Intelligence Service (CSIS) are responsible for 
investigating cases of money laundering and financial crime. 
Canada has the police powers and resources to trace, freeze 
and require the forfeit of assets. 
 
¶17.  All asset forfeiture proceedings in Canada are overseen 
by the Department of Justice Canada, with seized assets 
going to the General Fund.  Canada has provisions for asset 
sharing with other governments involved in joint 
investigations, and exercises them regularly.  However, 
there is no provision that allows for the placement of 
seized assets into specific law enforcement channels (such 
as the Treasury forfeiture fund in the U.S.). 
 
¶18.  Until November 2005, the Canadian Criminal Code 
provided for the forfeiture of proceeds of crime only upon 
application by the Crown after a conviction for an 
indictable offense.  A new "Proceeds of Crime" program (not 
to be confused with the Proceeds of Crime (Money Laundering) 
and Terrorist Financing Act) amends the Criminal Code, the 
Controlled Drugs and Substances Act, the Customs Act, the 
Excise Act, the Proceeds of Crime (Money Laundering) and 
Terrorist Financing Act, and the Seized Property Management 
Act.  The new amendments make the following changes to 
facilitate asset forfeiture: 
 
--   once an offender has been convicted of either a 
criminal organization offense, or certain offenses under the 
Controlled Drugs and Substances Act, the court is directed 
to order the forfeiture of property of the offender 
identified by the Crown unless the offender proves (reverse 
onus) on a balance of probabilities, that the property is 
not the proceeds of crime; 
 
--   in order for the reverse onus to apply, the Crown would 
first be required to prove, on a balance of probabilities, 
either that the offender engaged in a pattern of criminal 
activity for the purpose of receiving material benefit or 
that the legitimate income of the offender cannot reasonably 
account for all of the offender's property; 
 
¶19.  The new amendments apply to all criminal organization 
offenses where the offense is punishable by five or more 
years of imprisonment or after conviction, on indictment, 
for offenses under the Controlled Drugs and Substances Act 
(trafficking, importing, exporting, and production of 
drugs). 
 
¶20.  However, the legislative amendments do not contain 
"structuring" provisions.  Therefore, although criminal 
proceeds can be seized, the structured deposit of funds in 
amounts just below the reporting requirement is not subject 
to prosecution under current money laundering provisions. 
 
Terrorist Financing 
 
¶21.  The 2001 Anti-Terrorism Act created measures to 
identify, deter, disable and prosecute those engaged in 
terrorist activities or those who support these activities. 
The legislation makes it an offense to knowingly support 
terrorist organizations, whether through overt violence or 
through material support. The Anti-Terrorism Act requires 
the publication of a list of groups deemed to constitute a 
threat to the security of Canada and to Canadians. 
 
¶22.  Names of designated individuals and entities are 
circulated by the Office of the Supervisor of Financial 
Institutions to all regulated financial institutions. 
Assets of designated entities or individuals that are frozen 
under provisions of the Anti-Terrorism Act or UN resolutions 
cannot be seized by the Canadian government.  The Anti- 
Terrorism Act is scheduled for review in 2006 to ensure 
consistent compliance with international standards and 
proposals in the Auditor General's report mentioned above. 
International Cooperation 
 
¶23.  There is a web of longstanding agreements with the 
United States on law enforcement cooperation, including 
treaties on extradition and mutual legal assistance (MLAT); 
MOUs such as those with customs and FIUs described above; 
and Ministerial Directives. Canada has provisions for asset 
sharing, and exercises them regularly. 
 
¶24.  The U.S. and Canada work together closely in fighting 
narcotics and financial crime.  Following are a sample of 
successful cases in 2005: 
 
Case A:  In July 2005, U.S. and Canadian officials shut down 
a 120-yard tunnel from British Columbia to Washington state 
that was intended to transport marijuana into the U.S. 
Three Canadians were arrested, and the tunnel was destroyed 
to prevent its use for other crime. 
 
Case B:  In August, 2005, police in Alberta made the largest 
Ecstasy bust in the province's history and seized US$3.7 
million worth of street drugs including 213,000 tablets of 
MDMA/Ecstasy laced with methamphetamine.  This followed a 
seven-month RCMP drug and organized crime investigation that 
saw 35 people arrested in February in Edmonton for 
trafficking in a controlled substance, possession of a 
controlled substance, possession of the proceeds of crime, 
and firearms offenses. 
 
Case C:  Operation Sweet Tooth, a 24-month investigation 
that targeted international MDMA/Ecstasy and marijuana 
trafficking rings whose drug smuggling and money laundering 
operations ranged from the Far East to Canada and the U.S., 
resulted in the arrest of 291 individuals and the execution 
of 98 search warrants in both the U.S. and Canada.  The 
seizures totaled 931,300 MDMA tablets; 1,777 pounds of 
marijuana; and $7.75 million in U.S. assets.  DEA, with 
assistance from the RCMP and the Canada Border Services 
Agency, dismantled two major drug transportation rings with 
ties to 61 separate domestic investigations.  The Operation 
Sweet Tooth organizations were responsible for distributing 
1.5 million tablets of MDMA per month. The drug trafficking 
syndicates laundered millions of dollars in drug proceeds 
through the use of bulk courier transport, money remitters 
and the Vietnamese underground banking system. 
 
¶25.  Canada is a leader in international efforts to combat 
financial crime, adheres to international money laundering 
standards, and was instrumental in drafting the FATF 
(Financial Action Task Force's) 40 points on money 
laundering.  In July 2006, Canada assumes the chair of the 
Financial Action Task Force (FATF). 
 
 
¶26.  It is a member of the Egmont Group and the OAS Inter- 
American Drug Abuse Control Commission Experts Group to 
Control Money Laundering (OAS/CICAD).  Canada also 
participates with the Caribbean Financial Action Task Force 
(CFATF) as a Cooperating and Supporting Nation, and as an 
observer jurisdiction to the Asia/Pacific Group on Money 
Laundering (APG).  Canada is a party to the OAS Inter- 
American Convention on Mutual Assistance in Criminal 
Matters. 
 
¶27.  Canada has signed and ratified all 12 United Nations 
Conventions pertaining to terrorism and has listed all 
terrorist entities designated by the UN.  Canada is a party 
to the UN International Convention against Illicit Traffic 
in Narcotic Drugs and Psychotropic Substances (Vienna 
Convention), the 1988 UN Drug Convention, the UN 
International Convention for the Suppression of the 
Financing of Terrorism, and the UN Convention Against 
Transnational Organized Crime.  It signed the UN Convention 
Against Corruption in May, 2004, but has not yet ratified 
it. 
 
¶28.  The Canadian government is constantly evaluating ways 
in which to strengthen its anti-money laundering and anti- 
terrorist financing regime, working with the Egmont Group, 
the Financial Action Task Force and in other international 
fora to develop best practices.  As part of this process the 
government is evaluating the need to expand the reach of 
anti-money laundering and anti-terrorist financing reporting 
requirements (to include, for example, the legal profession 
and prohibitions on "structured" deposits).  Parliamentary 
review in 2006 of the Proceeds of Crime (Money Laundering) 
and Terrorist Financing Act and of the Anti-Terrorism Act 
should further improve the Canadian government's ability to 
fight financial crime. 
 
Links to legislation and regulations 
------------------------------------ 
 
November, 2005 amendments to the Criminal Code and the 
Controlled Drugs and Substances Act 
http://www.parl.gc.ca/LEGISINFO/index.asp?Lan g=E&Chamber=C&S 
tartList=2&EndList=200&Session=13&Type=0&Scop e=I&query=4506& 
List=toc-1 
 
     Highlights of the November, 2005 amendments: 
 
http://canada.justice.gc.ca/en/news/nr/2005/d oc_31540.html 
 
2001 Anti-Terrorism Act 
http://laws.justice.gc.ca/en/A-11.7/index.htm l 
 
2001 UN Suppression of Terrorism Regulations 
http://laws.justice.gc.ca/en/u-2/sor-2001-360 /186571.html 
 
2000 Proceeds of Crime (Money Laundering) and Terrorist 
Financing Act 
http://laws.justice.gc.ca/en/P-24.501/index.h tml 
 
OSFI list of designated entities and individuals (terrorist 
financing) 
http://www.osfi-bsif.gc.ca/osfi/index_e.aspx? DetailID=525 
 
1985 Criminal Code 
http://laws.justice.gc.ca/en/C-46/index.html 
 
1985 Income Tax Act 
http://laws.justice.gc.ca/en/I-3.3/index.html 
 
1982 Charter of Rights and Freedoms 
http://laws.justice.gc.ca/en/charter/index.ht ml#libertes 
 
 
 
 
WILKINS