Canada's financial intelligence agency was warned it could face a lawsuit if it released almost any details about why a major Canadian bank paid a $1.15 million penalty for breaking money-laundering rules, newly released correspondence shows.
The federal agency announced the penalty in April 2016, but kept the bank's identity and details of its violations under wraps as part of a secret deal.
The penalty against Manulife Bank Canada was the first of its kind against a Canadian bank under money-laundering legislation. As part of the secret settlement, Manulife admitted to committing more than 1,200 violations, including its failure to report a series of large money transfers as well as a failure to report a suspicious transaction by a client who it knew was under criminal investigation.
After the bank was unmasked by a CBC report last February, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) defended that deal as a way to enforce rules while avoiding lengthy court proceedings. Manulife has described its violations as "administrative errors" and it has also noted that none of the violations enabled or facilitated money laundering.
But the agency has also admitted that the secret deal interfered with the government's obligations under freedom of information law. That has led critics to question whether it was in the public interest for the agency to enter into the agreement. Others wonder whether such deals are even legally enforceable.
It now appears that not only did Manulife believe its contract was legally binding, it also believed the deal afforded it protection from the release of almost any information about the investigation into the bank's violations that would have been provided through Canada’s access to information legislation.
The bank told the agency that it could sue the agency if much of this information were to have been released — and warned that if this happened, it would seek not only its money back, but also damages for reputational injury.
“Our client’s position is that if FINTRAC discloses any information about this matter beyond what is currently disclosed on the FINTRAC website, it will be in breach of the terms of settlement,” reads a letter sent to the agency’s freedom of information office on May 11, 2016.
“Accordingly...our client would be in a position to seek damages from FINTRAC for breach of the settlement agreement. Those damages could include, in addition to repayment of the [administrative monetary penalty] paid in this matter, damages for injury to our client’s reputation caused by the improper disclosure of information.”
FINTRAC took months to respond to several requests under access to information legislation, but eventually provided new details in some of those responses including information about one of the bank's clients, who also happened to be a convicted felon.
A copy of the Manulife letter, sent to the agency’s access to information co-ordinator John Widdis, was released to National Observer under access to information law. It was responding to an April 26, 2016 letter from Widdis requesting that the bank provide a response to three requests for records under the access law.
The letter was written by someone claiming to represent the bank, but the author’s name has been censored for public release.
National Observer asked Manulife to identify the person or organization claiming to act on behalf of the bank. It also asked the bank to provide evidence as to why it believed its deal with FINTRAC was legally binding to the point that damages could be sought in court, and why it felt that this could go over and above the repayment of the penalty.
In response to all questions, Manulife spokesperson Sean Pasternak referred to the bank's Feb. 27 statement, issued shortly after it was named in media reports. In the statement, the bank claims that the penalty "essentially related to administrative lapses" and that "there is no evidence” of any financial misconduct, before saying it would not be providing further comment.
FINTRAC spokeswoman Renée Bercier also answered questions about the deal’s legality by reiterating that the agency signed the deal in order to conclude court proceedings and still send a “message of deterrence” to other businesses.
FINTRAC should require disclosure when it signs deals with wrongdoers, says Democracy Watch founder
The legislation that the agency operates under, called the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, includes a section empowering FINTRAC to enter into contracts with third parties.
But some legal experts have been skeptical whether such a private contract would be enforceable if it contains clauses that require agencies to change how they approach other laws, like access to information legislation.
The agency's director, Gérald Cossette, for example, has said that while "normally" the agency follows the legislation, this time "the issues were very different."
Democracy Watch founder Duff Conacher said the legal situation the agency found itself in could have been avoided if the rules governing the agency were changed.
“Their whole tactic of settling with secrecy is something that no enforcement agency should ever do, because then there’s really no public accountability for the wrongdoer,” said Conacher, now a visiting professor at the University of Ottawa's Faculty of Social Sciences.
Conacher believes the legislation needs to be changed to include a provision that, in every case where an agreement was reached concerning a violation, the violator’s identity would be disclosed by the agency.
“The discretion should be taken away from FINTRAC to do any kind of deal where the wrongdoer’s identity would not be disclosed,” said Conacher.
“The public always has the right to know the identity of a wrongdoer.”
Prime Minister Justin Trudeau's Liberals promised to make federal information more accessible and "open by default, but after some initial adjustments, have indefinitely postponed major changes to the Access to Information Act.