The head of Canada's financial crime watchdog agency is second-guessing his decision last year to withhold the name of a bank — which CBC Investigates has identified as Manulife Bank of Canada — fined $1.15 million for not reporting hundreds of transactions it was obligated to report under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) received an earful from angry Canadians upset that it wouldn't share the name of the bank — the first in Canada to be penalized under the country's expanded money laundering rules, which were amended in 2002 to include terrorist financing.

Gérald Cossette, director of the Financial Transactions and Reports Analysis Centre of Canada, says he understands the bank's punishment 'may not have met public expectations in relation to openness and transparency.' (Fintrac) "In exercising my discretion to withhold the name of the bank, I understand that it may not have met public expectations in relation to openness and transparency," FINTRAC director G érald Cossette told CBC News in a written statement last week. érald Cossette told CBC News in a written statement last week.

He's now promising a review of FINTRAC's penalty policies.

CBC News sources confirmed the case involves Manulife Bank and its failure to report 1,174 international electronic money transfers, 45 cash transactions involving at least $10,000 each, as well as one suspicious transaction.

Manulife Bank is a wholly owned subsidiary of Manulife Financial Corporation, a $47-billion insurance and financial services company. The bank doesn't have physical branches and sells its products primarily through financial advisors.

Manulife Financial issued a brief written statement Monday afternoon calling the infractions "administrative lapses."

"Although we operate at the highest ethical standard, we are capable of administrative errors," wrote Manulife media spokesperson Sean Pasternak.

"They were remedied in the first half of 2014. There is no evidence to suggest that the administrative reporting violations were connected to any financial misconduct. Manulife did not enable or facilitate money laundering."

Secrecy deal?

FINTRAC was first alerted to the problems after auditing the bank's records in 2014 and determining it failed to report a suspicious transaction in 2012 involving Andrew Strempler, who'd run into serious — and high-profile — legal troubles in the U.S.

Originally from Winnipeg, Strempler made headlines that year when he was arrested and imprisoned in the U.S. for running a mail-order pharmacy, contrary to U.S. laws protecting patented drugs.

During the audit, FINTRAC discovered a wide range of other violations at Manulife Bank, including its failure to report 1,174 international wire transfers of $10,000 or more involving other clients, as well as a general lack of anti-money-laundering safeguards and policies.

Manulife Financial CEO Donald Guloien says the violations the company's banking arm was fined for were a matter of misinterpreting the regulations and not trying to skirt them. 'There’s no suggestion whatsoever of any financial misconduct,' he said Monday. (Aaron Vincent Elkaim/Canadian Press)

Manulife Financial CEO Donald Guloien said Monday that the failure to report the transactions resulted from the bank interpreting the rules on what type of transactions have to be reported differently from what the regulator intended.

We took an interpretation [of the regulations] that was clearly wrong … or certainly not the one that FINTRAC wanted us to hold. - Donald Guloien, Manulife Financial CEO

"We took an interpretation that was clearly wrong … or certainly not the one that FINTRAC wanted us to hold, and it was repeated a number of times, which led to this large number [violations], but again these are strictly administrative errors. There's no suggestion whatsoever of any financial misconduct," he said when asked about the violations while attending an event at the Canadian Club in Toronto.

Cossette told CBC News in a written statement he first agreed to keep the bank's name secret because he believed simply announcing the fine would serve as a deterrent to other banks. He also said he approved the secrecy in part because of the bank's co-operation with police in the Strempler case.

Despite promising a policy review, Cossette and FINTRAC still refuse to identify the bank publicly because of "legal constraints." The agency said it "cannot comment" when CBC News asked whether it had signed a secrecy agreement in exchange for Manulife settling the $1.15-million fine without contesting or appealing it.

​Cossette declined CBC's request for an on-air interview but did answer questions by email.

'Mickey Mouse' watchdog

Several financial crimes investigators and experts told CBC News that FINTRAC's secrecy and poor enforcement record are giving Canada a reputation as an international laggard.

"I'm in the United States, and they are saying, 'What kind of Mickey Mouse system do you have? We name our large institutions!'" said Garry Clement, a retired 30-year RCMP veteran who now specializes as a financial crimes investigator, trainer and policy adviser.

Anti-money-laundering expert Garry Clement, a former RCMP officer, says a $1.15-million fine isn't enough to punish a major bank, especially if its name is protected. (CBC)

"I think they [FINTRAC] made a fatal mistake in my own view."

Clement said the secrecy afforded Manulife Bank is especially unusual given that FINTRAC routinely names smaller businesses caught breaking the rules.

"What does that say about our regulator? Like whose pocket are they in? They need to be objective and make sure we treat everybody the same and every business the same," he said.

Clement says a $1.15-million fine isn't substantial enough to injure a major bank, especially if its name is protected.

The Americans actually take a view that financial crime is a serious issue. They are not scared to put people into jail. - Bill Majcher, former Mountie who advises banks in Hong Kong

Bill Majcher, who spent 22 years with the RCMP and now heads a Hong Kong-based firm that advises investment banks on risk and protection against money laundering, bribery and corruption, says Canada is a "poor, poor, poor country cousin in the global fight on financial crime and money laundering."

He called Canadian regulators — at FINTRAC and the Department of Justice — bureaucrats who lack policing or enforcement expertise.

According to FINTRAC's website, Cossette was a career public servant who began as a diplomat and served in Foreign Affairs, the Privy Council Office and the Treasury Board. It lists no experience in enforcement or any work in the financial industries.

"The Americans actually take a view that financial crime is a serious issue," said Majcher. "They are not scared to put people into jail."

Majcher says U.S. bank regulators frequently issue orders and levy huge fines and always publicly name institutions caught breaking the law — including Canadian firms:

In November 2015, the U.S. Federal Reserve and New York State Department of State publicly sanctioned Bank of Nova Scotia and ordered it to clean up its internal anti-money-laundering controls.

In September 2013, U.S. authorities fined TD Bank $37.5 million for failing to report suspicious transactions tied to a Ponzi scheme, even though the bank's internal systems had flagged the transactions.

In April 2013, Chicago-based BMO subsidiary, BMO Harris Bank, was publicly sanctioned and ordered to beef up its anti-money-laundering controls.

Lack of progress

A September 2016 report from the Financial Action Task Force (FATF), a 37-member inter-governmental body including Canada, the U.S. and most major financial centres in Europe and Asia, was highly critical of Canada's efforts to fight money laundering.

Canada amended its money laundering legislation in the wake of the 9/11 terrorist attacks in the U.S. to include terrorist financing. The overhaul included the expansion of the reporting obligations of banks and other financial entities and greater powers for FINTRAC to collect information and to share it with other government agencies.

But while FATF noted the improvements made in the past decade, it concluded that Canadian police lack expertise and resources to conduct complex financial investigations and that there are gaping holes in the country's anti-money-laundering regime.

FATF's findings echoed those of a 2013 Canadian Senate committee report entitled, "Follow the Money: Is Canada making progress in combating money laundering and terrorist financing? Not really."

That report called for stronger leadership, supervision and expertise for police and regulators.

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