Exchange Bank of Canada Fined $2.45M for Failing Anti-Money Laundering Measures
| 2024-12-11
Exchange Bank of Canada fined $2.45M
FINTRAC imposes $2.45 million penalty on Exchange Bank of Canada for serious anti-money laundering compliance violations, including failure to report suspicious transactions.
Canada’s financial watchdog, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), has levied a penalty of CAD 2,457,750 against Exchange Bank of Canada. The enforcement action, announced on 11 December 2024, follows a comprehensive compliance examination conducted over 16 months from December 2022 to April 2024.
The examination found that the bank failed to report suspicious transactions, did not adequately monitor high-risk clients, and missed required reports of large cash transactions. These breaches contravened the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its associated regulations.
Suspicious Transaction Failures
FINTRAC’s investigation revealed that the bank failed to file five suspicious transaction reports (STRs) out of 26 case files examined. These omissions involved transactions with indicators commonly associated with money laundering or terrorist financing.
In one instance, a client moved millions of US dollars through holding accounts at the bank and transferred the funds abroad, bypassing due diligence measures despite red flags. In another, a high-risk client’s transaction volume was ten times higher than expected, yet the bank closed the case without deeper scrutiny.
FINTRAC attributed these lapses to weaknesses in the bank’s transaction monitoring systems and internal investigation procedures. “The bank’s automated alerts were largely ineffective and frequently flagged false positives,” the agency said.
This violation was deemed “very serious” and represents a significant intelligence gap, with implications for Canada’s ability to detect and investigate financial crimes.
Gaps in Ongoing Monitoring
The regulator also found that Exchange Bank of Canada did not properly monitor high-risk client relationships. Eight of the 26 case files reviewed showed failures in conducting required follow-up reviews. In some cases, the bank did not use available client due diligence data when reassessing risks.
In addition, FINTRAC reported that the bank’s automated monitoring systems lacked comprehensive coverage, failing to detect deviations in client activity. These shortcomings, it said, reduced the bank’s ability to identify unusual behaviour or update client risk profiles.
While classified as a “minor” violation, the ongoing monitoring failures were considered systemic and contributed directly to the failure to report suspicious transactions.
Unreported Cash Transactions
In a third violation, the bank failed to report three large cash transactions exceeding CAD 10,000, as required under Canadian regulations. FINTRAC said the transactions had been incorrectly categorised and that the bank’s internal responses about the handling of US banknotes raised further concerns.
Reporting such transactions is critical, FINTRAC explained, as these reports help identify potential money laundering patterns and support intelligence sharing with law enforcement agencies.
This failure was also classified as a “minor” violation, but underscored broader weaknesses in the bank’s understanding of its reporting obligations.
Context
Exchange Bank of Canada operates internationally and provides foreign exchange and financial services to clients across multiple jurisdictions. FINTRAC said the bank’s compliance programme had not evolved in line with the complexity and scale of its operations.
The enforcement action is part of Canada’s broader commitment to uphold anti-money laundering standards set by the Financial Action Task Force (FATF), a global intergovernmental body. Canadian financial institutions are required by law to implement risk-based compliance programmes, report suspicious activities, and conduct enhanced due diligence on high-risk clients.
While the bank has filed a Notice of Appeal, the case highlights the growing regulatory pressure on institutions to demonstrate effectiveness in their anti-money laundering measures, particularly when operating across borders.
FINTRAC stated that its penalty considered both the severity of the violations and the bank’s cooperation during the review. It added that the failures “compromised the agency’s ability to produce actionable financial intelligence,” which could hinder law enforcement efforts to combat illicit financial activity.
The examination found that the bank failed to report suspicious transactions, did not adequately monitor high-risk clients, and missed required reports of large cash transactions. These breaches contravened the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its associated regulations.
Suspicious Transaction Failures
FINTRAC’s investigation revealed that the bank failed to file five suspicious transaction reports (STRs) out of 26 case files examined. These omissions involved transactions with indicators commonly associated with money laundering or terrorist financing.
In one instance, a client moved millions of US dollars through holding accounts at the bank and transferred the funds abroad, bypassing due diligence measures despite red flags. In another, a high-risk client’s transaction volume was ten times higher than expected, yet the bank closed the case without deeper scrutiny.
FINTRAC attributed these lapses to weaknesses in the bank’s transaction monitoring systems and internal investigation procedures. “The bank’s automated alerts were largely ineffective and frequently flagged false positives,” the agency said.
This violation was deemed “very serious” and represents a significant intelligence gap, with implications for Canada’s ability to detect and investigate financial crimes.
Gaps in Ongoing Monitoring
The regulator also found that Exchange Bank of Canada did not properly monitor high-risk client relationships. Eight of the 26 case files reviewed showed failures in conducting required follow-up reviews. In some cases, the bank did not use available client due diligence data when reassessing risks.
In addition, FINTRAC reported that the bank’s automated monitoring systems lacked comprehensive coverage, failing to detect deviations in client activity. These shortcomings, it said, reduced the bank’s ability to identify unusual behaviour or update client risk profiles.
While classified as a “minor” violation, the ongoing monitoring failures were considered systemic and contributed directly to the failure to report suspicious transactions.
Unreported Cash Transactions
In a third violation, the bank failed to report three large cash transactions exceeding CAD 10,000, as required under Canadian regulations. FINTRAC said the transactions had been incorrectly categorised and that the bank’s internal responses about the handling of US banknotes raised further concerns.
Reporting such transactions is critical, FINTRAC explained, as these reports help identify potential money laundering patterns and support intelligence sharing with law enforcement agencies.
This failure was also classified as a “minor” violation, but underscored broader weaknesses in the bank’s understanding of its reporting obligations.
Context
Exchange Bank of Canada operates internationally and provides foreign exchange and financial services to clients across multiple jurisdictions. FINTRAC said the bank’s compliance programme had not evolved in line with the complexity and scale of its operations.
The enforcement action is part of Canada’s broader commitment to uphold anti-money laundering standards set by the Financial Action Task Force (FATF), a global intergovernmental body. Canadian financial institutions are required by law to implement risk-based compliance programmes, report suspicious activities, and conduct enhanced due diligence on high-risk clients.
While the bank has filed a Notice of Appeal, the case highlights the growing regulatory pressure on institutions to demonstrate effectiveness in their anti-money laundering measures, particularly when operating across borders.
FINTRAC stated that its penalty considered both the severity of the violations and the bank’s cooperation during the review. It added that the failures “compromised the agency’s ability to produce actionable financial intelligence,” which could hinder law enforcement efforts to combat illicit financial activity.
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