Fraud is alive and well in Canada. It is thriving and fraudsters are innovating. This boom in white-collar crime is partly the result of Canada's lack of a uniform regulatory system and ineffective law enforcement.
On September 22, the U.S. Treasury's Office of Foreign Affairs Assets Control (OFAC) designated Vancouver-based company PacNet Group a significant transnational criminal organization. PacNet is an international payments processor and money services business, with a history of money laundering. OFAC issued a press release, stating that PacNet knowingly processes payments on behalf of a wide range of mail fraud schemes that target victims in various countries across the globe, and it is the third-party payment processor of choice for a breadth of mail fraud ploys. These allegations shine lights on how these types of fraudulent activities can flourish under Canada's current legal landscape.
Canada's lack of cohesive regulation is particularly problematic surrounding the collection of beneficial ownership information on registered companies.
According to information provided by the British Columbia government, between 2006 and 2015, 304,859 companies were incorporated through BC's Ministry of Technology, Innovation and Citizen's Services. Federal incorporations are also on the rise.
Canada has 2.6 million corporations, with an overwhelming majority being incorporated provincially. The formation of companies is an industry onto itself, with Canada allowing a high degree of anonymity about registrants. A report issued by the Financial Action Task Force warned:
Canadian legal entities and arrangements are at a high risk of misuse for [money laundering and terrorism financing] and mitigating measures are insufficient both in terms of scope and effectiveness... The reliability of the information recorded raises concerns because there is no obligation on registrars to confirm the accuracy of the basic company information provided at the time of incorporation.
The Association of Certified Fraud Examiners' (ACFE) 2016 global fraud study notes the increasing ingenuity of white-collar criminals, and the role of technological advances in this trend. Two thirds of all cases reported to the ACFE targeted closely held or public companies. Banking and financial services are among the hardest hit sectors.
The intersection of financial services, technological advances and criminal inventiveness has crystallized in the growth of financial technology, or FinTech. This sphere has evolved at a rapid speed, and legal regulation has been left to play catch up. Financial technology is a prime example of an area of business that is largely unregulated. The rules that do exist have been imported from regulatory models fit for traditional banking and financial services, and do not properly align with the demands of the novel FinTech framework. FinTech companies look at the legal regulatory scheme as it stands and know that they are novel and unique; some of these businesses are operating outside of a legal framework because there is no properly applicable regulation. This allows for innovation and growth, but also renders these types of financial startups vulnerable to fraud.
The Ontario Securities Commission has launched a hub called "LaunchPad", which will assist FinTech companies with navigating and tailoring the regulatory framework to the needs of the individual business. This hub has been created with the recognition that some existing regulatory requirements do not make sense for this new business model.
A report issued by the International Monetary Fund expressed concerns about Canada's ability to combat money laundering and financial crimes, noting that Canada is exposed and vulnerable to high risk money laundering threats. In cases successful before the courts, asset recovery is low. Penalties are also low, and are not significant enough to offer a real deterrence to white-collar criminals.
This proliferation of fraud in Canada highlights the need for a robust and cohesive national regulatory scheme. It further demands a legal framework that can provide significant remedies for victims of fraud, both to serve as a true deterrent as well as to offer actual financial relief to deserving parties.
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