A critical reporting tool used by Canada’s anti-money-laundering watchdog has been offline for three months creating an intelligence gap that experts say could hamper criminal or national security investigations.
A cyber incident, identified on March 2, forced the Financial Transactions and Reports Analysis Centre of Canada, also known as Fintrac, to shut down its web reporting system, which collects data on millions of suspicious or large cash transaction reports.
While Fintrac says it’s created a work-around to collect reports from larger companies, anti-money laundering and national security experts say despite that the watchdog is potentially missing out on thousands of pieces of financial intelligence used to fight money laundering, terrorist financing and organized crime.
Some of these reports, which could help detect money being sent to conflict zones or identify criminal networks, are not currently being filed, experts say.
“Canada’s financial intelligence capabilities seem to be falling apart, and our allies are paying attention to this,” said Kim Manchester, founder of ManchesterCF, an online financial intelligence training company based in Toronto.
“Our national security is at risk.”
Fintrac works to combat the billions in illicit cash laundered through the country, an estimated $45 billion to $113 billion annually, according to Criminal Intelligence Service Canada.
More than 36 million financial transaction reports were sent to Fintrac last year from banks, casinos, real estate companies, mortgage brokers, and other businesses legally required to submit transactions deemed suspicious or large sums of cash over $10,000.
Multiple sources with knowledge of the March cyber attack said that Fintrac discovered an unauthorized party in its systems, forcing the agency offline. The sources were granted anonymity as they were not permitted to speak publicly.
“Following extensive forensic analysis and due diligence, FINTRAC found no evidence that information was lost or that data was removed through a cyber incident on March 2, 2024,” the agency told Global News in a statement.
Financial news and insights
delivered to your email every Saturday.
The watchdog said it has worked closely with the Canadian Centre for Cyber Security and other agencies to contain, investigate and “mitigate the impact of the incident.”
The agency said major reporters — including the big banks — have been able to report suspicious and large cash transactions through an online portal since early April.
Out of the 24,000 companies required by law to report, only around 525 businesses are submitting transactions through the portal, Fintrac said. This includes larger companies, which account for about 96 per cent of the annual reporting.
However, experts say smaller and medium companies, such as money service businesses, real estate companies, or even smaller banks, aren’t connected to the new portal and haven’t filed suspicious reports since March.
“Some of the best financial intelligence for law enforcement and the national security apparatus can come from the quietest places,” Manchester said.
Canadian law requires Canadian banks, real-estate companies, mortgage brokers, casinos and thousands of other businesses to report all large financial transactions or any money they suspect may be linked to terrorism or laundering the proceeds of crime.
Fintrac disseminates these reports to police agencies across the country, which use them in criminal investigations targeting human trafficking, fentanyl dealers, and car theft networks. Last year, the agency said it sent over 2,000 reports to law enforcement and national security agencies.
“Law enforcement use [these reports] to trace the funds, to follow the money, to look for who are the people perpetrating these crimes,” said Matt McGuire, an internationally recognized anti-money laundering expert.
“This is an incredibly serious issue.”
The agency also sends hundreds of reports annually to its Five Eyes partners, an alliance composed of Australia, Canada, New Zealand, the United Kingdom and the United States.
Aaron Shull, managing director at the Centre for International Governance and Innovation, a non-partisan think tank, said any delays in getting information to our international partners could create a “blind spot.”
“What we’re trying to do here is prevent terrorist networks from getting access to financing and to prevent criminal organizations from laundering their money,” Shull said.
“This is not just about accountants counting beans. This is about keeping Canadians safe and secure.”
According to a 2023 report by Finance Canada, some business sectors, such as money services businesses or precious metals dealers, have been deemed by Canada to be at a higher risk for money laundering or accessory to terrorist financing.
McGuire said that these companies haven’t been able to file “tens of thousands” of reports for months.
“It’s a huge gap in intelligence,” he said. “It’s going to take us a long time to catch up.”
In response to criticism that intelligence isn’t being sent to police, the watchdog said it’s still “actively disclosing financial intelligence to support money laundering and terrorist financing investigations by Canada’s law enforcement and national security agencies.”
The agency didn’t directly respond to a question about how many reports it may be missing.
Asked when the main reporting system might be back online, Fintrac wouldn’t give a firm deadline, stating that “between April and June 2024” the agency has been working on the “Web Reporting System” as “a priority.”
The delay in fully reviving Fintrac’s capabilities, experts say, is hurting our ability to aid domestic criminal investigations and makes our country “less safe.”
“It might seem like money laundering is a very academic issue, but it really impacts the day-to-day lives of Canadians,” McGuire said. “This is the grease that keeps the criminal machinery working.”
