The Globe and Mail has learned that, unlike many other jurisdictions, Ontario has no way to stop a person who has already received money from someone who has not, nor can anyone legally freeze a person’s bank account to prevent money laundering.
The Ontario government has no formal mechanism to stop money laundering in the province.
In fact, there is no specific law or law enforcement authority that has any power to freeze someone’s bank accounts, said Brian T. Smith, executive director of the Ontario Association of Banks.
The law governing money laundering and related crimes is complex, and the lack of a formal mechanism can be a source of confusion.
Smith said there is also no specific definition of a bank account, which makes it difficult to know exactly how to identify someone who is in the same situation as someone who might have been victims of a financial crime.
The government is considering whether to amend the Financial Transactions Act to create a bank freeze registry, which could also require a bank to store personal information of individuals who are at risk of financial crime or money laundering, said John Gorman, minister of justice.
If the registry is created, the information would be accessible on the website of the Canadian Bankers Association, a trade association representing the country’s financial institutions.
The association is working with the finance ministry to develop the registry, and Smith said it could be as soon as the end of the year.
“It could be a few months,” Smith said.
Trevor Phillips, executive vice-president of the Bank of Canada, said that, even if the government were to create an account freeze registry in Ontario, the legislation doesn’t specify how the registry would work.
“There’s no set rules or rules about what happens to someone’s account once they have money,” he said.
“They can withdraw it.
They can spend it.”
But he added that a bank can freeze a customer’s account if they have reasonable grounds to suspect that the customer has engaged in money laundering or is involved in criminal activity.
“In the past we have found that we can freeze accounts without a warrant because the information is irrelevant,” Phillips said.
The lack of an official mechanism for money laundering is a problem for a number of reasons, said Robert M. Clark, a Toronto-based professor of international law and finance.
The fact that money laundering has been going on for decades and there are no formal mechanisms to stop it is an obstacle to action, Clark said.
In a financial crisis, the public loses confidence in the banks, he said, and it becomes difficult for them to collect on deposits.
“People think that if they lose their savings, they can’t get them back.”
In the absence of a proper bank freeze, there’s not much the bank can do to stop someone from using money from an account that they already have.
“You can’t force a person to keep the account, but you can compel them to take a bank holiday or take some other action,” said Smith.
“But they can never get back the money.”
Clark said it’s important for governments to work with banks to develop their own regulations.
“If they want to do it, they should,” he added.
The problem with a bank-free Ontario is that banks aren’t the only entities that are subject to anti-money laundering legislation.
Governments must also have the powers to freeze accounts of individuals, corporations, non-financial institutions, foreign entities and organizations.
The Bank of England, the United Nations and many other countries also have laws that provide a mechanism for such an action.
In the meantime, some businesses are finding it easier to avoid having their accounts frozen.
In January, Bank of Nova Scotia reported that it has stopped processing money transfers from individuals in the U.K. and Ireland who had been accused of involvement in criminal activities.
The bank said that its anti-corruption unit was investigating reports that people had been involved in drug trafficking, money laundering for money or extortion.
Bank of Montreal said it was also halting payments to individuals who had already been charged with money laundering offences in Canada.
In a statement to The Globe, a Bank of Toronto spokesperson said the bank was “working with its anti‑money laundering unit to examine the reports and to provide appropriate guidance to ensure that it does not have a role in the provision of banking services to individuals.”
The Bank of Ireland said it had stopped sending funds to individuals in England after a British court found that it had acted unlawfully in an investigation.