Canadian Regulator Asks Banking Sector To Sever Ties With Offshore Shell Banks

by Mike Godfrey, Tax-News.com, Washington

01 March 2002

The Canadian Office of the Superintendent of Financial Institutions (OSFI) has asked all banks in the country to sever any ties with offshore 'shell banks' as part of the continuing international effort to clamp down on money laundering and terrorist financing.

In a letter last week, the financial services watchdog encouraged Canadian banks to close any correspondent accounts with overseas banks which lack a physical presence and employees in the country in which they are based. This echoes recent moves by the United States, which has also passed legislation prohibiting this type of banking relationship.

Nicolas Burbidge, the Senior Director of the OSFI's Compliance Division explained that because Canadian banks would have little or no idea of their customers' identities when managing correspondent accounts for foreign shell banking organisations, there is a greatly increased risk of becoming vulnerable to money laundering activities.

Mr Burbidge announced that the OSFI intends to publish guidelines on the subject by the end of this year, and will be holding talks with the Investment Dealers Association of Canada (IDA), and the provincial securities commissions. 'I think it would be in everybody's best interest to have a seamless approach,' he explained.

However, the Vice-President of Banking Operations for the Canadian Bankers Association, Kelly Shaughnessy, denied that the scenario envisioned by the OSFI is a problem within the Canadian banking sector, observing that he is unaware of any relationships between Canadian and foreign shell banks.

'As far as I'm aware, all of Canada's large banks have governance guidelines in place internally to meet the Basel standard,' he told the Canadian Financial Post, adding that the OSFI initiative should be seen as a routine process designed to ensure that all of the country's banks are adhering to the same set of standards.

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