Docket: T-1869-09
Citation: 2014 FC 656
Ottawa, Ontario, July 4, 2014
PRESENT: The Honourable Madam Justice Strickland
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BETWEEN:
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MAX REALTY SOLUTIONS LTD.
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Appellant
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and
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ATTORNEY GENERAL OF CANADA
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Respondent
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JUDGMENT
AND REASONS
[1]
The Appellant, Max Realty Solutions Ltd. (Max
Realty), has appealed a decision of the Deputy Director (Director) of the
Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) dated
October 7, 2009, made pursuant to section 73.15(2) of the Proceeds of Crime
(Money Laundering) and Terrorist Financing Act, SC 2000, c 17 (Act). The
Director found that Max Realty committed four violations of the Act and the Proceeds
of Crime (Money Laundering) and Terrorist Financing Regulations, SOR/2002-184
(Regulations). The appeal is brought pursuant to subsection 73.21 of the Act.
[2]
By Order of Prothonotary Aalto dated September
27, 2010, Mr. Shahin Mirkhan, principal of Max Realty, was granted leave to
represent Max Realty at the hearing of this matter. By Order of Prothonotary
Aalto dated November 16, 2011, the style of cause of this matter was changed
from Homelife Real Estate Solutions Ltd. to Max Realty Solutions Ltd. in order
to reflect a change of corporate name.
[3]
This matter was heard together with Homelife
/ Experience Realty Inc v Canada (Minister of Finance et al), T-27-10.
[4]
Max Realty seeks an order of this Court setting
aside the decision of the Director. For the reasons that follow, the decision
of the Director relating to the commission of the offences was reasonable and
shall not be set aside. However, due to a lack of intelligibility in the
decision and its reasons on the record, it is not possible for the Court to
understand how the amount of the penalty was reached, whether mitigating or
aggravating factors were considered and what principles of sentencing were
applied. As such, that aspect of the decision was unreasonable.
Legislative Background
[5]
The Act is described in its preamble as one
intended to facilitate combating the laundering of proceeds of crime and the
financing of terrorist activities and to establish FINTRAC. Its stated
objectives include the implementation of specific measures to detect and deter
money laundering and the financing of terrorist activities as well as to
facilitate the investigation and prosecution of offences relating to such
activity (subsection 3(a)). This includes establishing record keeping and
client identification requirements for financial services providers and other
persons or entities that engage in businesses, professions or activities that
are susceptible to being used for money laundering or the financing of
terrorist activities (subsection 3(a)(i)). Part 1 of the Act, “Record Keeping,
Verifying Identity, Reporting of Suspicious Transactions and Registration”,
applies to persons and entities engaged in a business, profession or activity
described in regulations made under subsections 73(1)(a) or 73(1)(b) while
carrying out the activities described in the regulations (section 5). The
Governor in Council may make regulations, amongst other things, designating
contraventions of Part 1 as violations under the Act and addressing applicable
penalties (subsection 73.1(1)).
[6]
In that regard, section 37 of the Regulations
states that every real estate broker or sales representative is subject to Part
1 of the Act when they act as an agent in respect of the purchase or sale of
real estate.
[7]
Accordingly, real estate brokers or agents are
required to establish and implement, in accordance with the Regulations, a
program intended to ensure their compliance with Part 1 (subsection 9.6(1)).
This includes the development and application of policies and procedures so
that the person or entity can assess, in the course of their activities, the
risk of a money laundering or a terrorist activity financing offence
(subsection 9.6(2)).
[8]
For the purposes of compliance with subsection
9.6(1) of the Act, the Regulations require the implementation of a compliance
program:
(a) appointing a person who is responsible for the implementation of the
program;
(b) developing and applying written compliance policies and procedures
that are kept up to date and, in the case of an entity, are approved by a
senior officer;
(c) assessing and documenting, in a manner that is appropriate for the
person or entity, the risk referred to in subsection 9.6(2) of the Act, taking
into consideration
i.
the clients and business relationships of the
person or entity;
ii.
the products and delivery channels of the person
or entity;
iii.
the geographic location of the activities of the
person or entity; and
iv.
any other relevant factor.
(d) if the person or entity has employees, agents or other persons
authorized to act on their behalf, developing and maintaining a written ongoing
compliance training program for those employees, agents or persons; and
(e) instituting and documenting a review of the policies and procedures,
the risk assessment and the training program for the purpose of testing their
effectiveness, which review is required to be carried out every two years by an
internal or external auditor of the person or entity, or by the person or
entity if they do not have such an auditor.
Factual Background
[9]
Max Realty is a real estate broker or agent.
[10]
FINTRAC was established pursuant to the Act, as
an independent agency that, amongst other things, collects, analyses, assesses
and discharges information in order to assist with the detection, prevention
and deterrence of money laundering and of the financing of terrorist activities
and compliance with Part I (sections 40 and 41).
[11]
The following factual background is based on the
materials provided in the Appeal Book.
[12]
On December 16, 2008, the Regional Compliance
Officer of FINTRAC wrote to Max Realty (at the time Homelife Real Estate
Solutions Ltd.) advising that it had been selected for a compliance examination
in order to verify compliance with the requirements of Part 1 of the Act and
the Regulations (notice of examination). The examination would be conducted on
February 4, 2009. The letter stated that the objective of the examination was
to assess the extent to which Max Realty’s compliance regime, reporting,
maintenance of client records and client identification policies and practices
met the legislative requirements. The letter also requested that FINTRAC be
provided with specific documentation at least one week in advance of the
examination, including copies of Max Realty’s:
-
compliance policies and procedures, including
those that pertain to special measures for high risk;
-
ongoing training program provided to Max
Realty’s staff and/or agents in relation to its obligations under the Act;
-
Max Realty’s documented assessment of risks
related to money laundering and terrorist financing;
-
any documented internal or external review of
Max Realty’s compliance policies and procedures, risk assessment and ongoing
training program that have been completed to date.
[13]
The notice of examination also advised that
there would be an examination of certain records relating to transactions
conducted by Max Realty between July 1, 2008 and December 31, 2008 and other
documents.
[14]
The date on which the examination was ultimately
conducted is not clear from the record but is understood to have been February
20, 2009.
[15]
On March 16, 2009, Max Realty received a letter
from the Regional Compliance Officer listing eight deficiencies identified as a
result of the compliance examination. The letter advised that FINTRAC was
committed to achieving compliance by taking a cooperative approach and,
therefore, requested that Max Realty, within thirty days, provide an action
plan identifying the steps it had taken to rectify the compliance issues, after
which a follow up verification examination might be conducted. The letter
asked that Max Realty note that independent of other compliance actions,
deficiencies such as those cited in the letter could lead to civil or criminal
penalties.
[16]
On June 29, 2009, FINTRAC issued a Notice of
Violation stating that, pursuant to subsection 73.13 of the Act, it had
determined that Max Realty had committed the five violations listed and that it
had therefore imposed an administrative monetary penalty in the amount of
$33,750.00. The listed violations all arose from the first deficiency listed
in FINTRAC’s March 16, 2009 letter. The Notice of Violation stated that Max
Realty had the right to have the violations and the penalty reviewed by making
representations to the Director by July 29, 2009.
[17]
An undated letter from Mr. Ali Mirkhan, bearing
a fax transmission date of July 24, 2009 and addressed to whom it may concern,
described the compliance efforts Max Realty had made including: many attempts
to educate its staff and employees; attending seminars at Homelife’s head
office; having a lawyer come and speak to its agents and staff; and,
utilization of FINTRAC’s website for information. Further, since the compliance
examination, it had implemented the changes required including the appointment
of Mr. Ali Mirkhan as the individual responsible to ensure compliance. The
letter also stated that Mr. Ali Mirkhan developed and added a compliance policy,
including rules and regulations for FINTRAC, had informed all employees and
agents, and, that Max Realty has ongoing training in its office. The letter
requested that the penalty be reviewed and that Max Realty be permitted to
demonstrate that it made the required changes.
Decision Under Appeal
[18]
October 7, 2009, the Director issued a Notice of
Decision to Max Realty concerning the violations described in the Notice of
Violation.
[19]
The Director stated that having reviewed the
Notice of Violation, supporting documentation as well as the representations
made by Max Realty, she had determined, on a balance of probabilities, that it
had committed the following four violations:
- Failure of a person or entity to appoint a person to be
responsible for the implementation of a compliance program, which is
contrary to subsection 9.6(1) of the Proceeds of Crime (Money
Laundering) and Terrorist Financing Act and paragraph 71(1)(a) of the Proceeds
of Crime (Money Laundering) and Terrorist Financing Regulations
(Violation #1);
- Failure of a person or entity to develop and apply written
compliance policies and procedures that are kept up to date and, in the
case of an entity, are approved by a senior officer, which is contrary to
subsection 9.6(1) of the Proceeds of Crime (Money Laundering) and
Terrorist Financing Act and paragraph 71(1)(b) of the Proceeds of
Crime (Money Laundering) and Terrorist Financing Regulations
(Violation #2);
- Failure of a person or entity to assess and document the risk
referred to in subsection 9.6(2) of the Act, taking into consideration
prescribed factors, which is contrary to subsection 9.6(1) of the Proceeds
of Crime (Money Laundering) and Terrorist Financing Act and paragraph
71(1)(c) of the Proceeds of Crime (Money Laundering) and Terrorist
Financing Regulations (Violation #3); and
- Failure of a person or entity that has employees, or agents or
other persons authorized to act on their behalf to develop and maintain a
written ongoing compliance training program for those employees, agents or
persons, which is contrary to subsection 9.6(1) of the Proceeds of
Crime (Money Laundering) and Terrorist Financing Act and paragraph
71(1)(d) of the Proceeds of Crime (Money Laundering) and Terrorist
Financing Regulations (Violation #4).
[20]
The Director determined that the facts did not
support the conclusion that Max Realty committed the fifth violation contained
in the Notice of Violation. Therefore, that violation was withdrawn and,
accordingly, FINTRAC imposed a lesser penalty of $27,000, payable in lieu of
the penalty set out in the Notice of Violation.
Issues
[21]
Max Realty, represented by Mr. Shahin Mirkhan
who is not a lawyer, did not identify any issues on this appeal.
[22]
The Respondent, the Attorney General, identified
the following two issues which I agree are appropriate:
1. What is the proper standard of review of a decision of the Director
made pursuant to subsection 73.15(2) of the Act?
2. Did the Director err in concluding that Max Realty had committed the
four violations set out in her decision of October 7, 2009 and imposing an
administrative monetary penalty of $27,000?
ISSUE 1:
What is the proper standard of review of a decision of the Director made
pursuant to subsection 73.15(2) of the Act?
Max Realty’s Position
[23]
Max Realty does not make submissions on the appropriate
standard of review.
Attorney General’s Position
[24]
The Attorney General submits that the
appropriate standard of review is reasonableness. When considering whether an
administrative decision-maker is entitled to deference, a reviewing court
should consider factors such as: the existence of a privative clause; a
discrete and special administrative regime in which the decision-maker has
special expertise; and, the nature of the question of law. Further, deference
is generally appropriate where an administrative decision-maker is interpreting
its own home statute or statutes that are closely connected to its function and
with which the decision-maker has particular familiarity (Dunsmuir v New
Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190 at paras 45, 47-49, 55 and 60 [Dunsmuir];
Canada (Citizenship and Immigration) v Khosa, 2009 SCC 12, [2009] 1 SCR
339 [Khosa]; Canada (Canadian Human Rights Commission) v Canada
(Attorney General), 2011 SCC 53, [2011] 3 S.C.R. 471 at paras 15-16).
[25]
FINTRAC is a specialized body that possesses
subject-matter expertise and experience in relation to the prevention of money
laundering and terrorist activity financing. Determining whether a reporting
entity has complied with the Act is an issue that falls within the Director’s
specialized expertise and she should, accordingly, be afforded deference. The
Director has the authority to impose administrative monetary penalties against
reporting entries that fail to comply with the Act. Further, the questions she
was required to determine were primarily questions of fact. That is, whether
on the balance of probabilities, as of the date of the examination, Max Realty
had met the requirements of the Act. Accordingly, deference is owed. This is
also the case if these are viewed as questions of mixed fact and law (Newfoundland
and Labrador Nurses’ Union v Newfoundland and Labrador (Treasury Board),
2011 SCC 62, [2011] 3 S.C.R. 708 [Newfoundland and Labrador Nurses]) and
even where the range of acceptable outcomes available is narrow, being restricted
to either “yes” or “no” answers (HBC Imports v Canada (Border Services
Agency), 2013 FCA 167 at paras 9-10).
[26]
The Director was interpreting her own statute or
statutes closely connected to her function with which she has familiarity.
Determining compliance with the Act falls squarely within her expertise. There
was no privative clause and the right of appeal is not determinative. Further,
these are not questions of central importance to the legal system as a whole
but were specific to Max Realty. All of these factors lead to the standard of
reasonableness.
Analysis
[27]
The first step in determining the appropriate
standard of review is to ascertain whether existing jurisprudence has already
resolved, in a satisfactory manner, the degree of deference to be afforded a
particular category of question. If it has not, then the Court must engage the
second step, which is to determine the appropriate standard having regard to
the nature of the question, the expertise of the tribunal, the presence or
absence of a privative clause, and the purpose of the tribunal (Dunsmuir,
above, at paras 51-64; Agraira v Canada (Minister of Public Safety and
Emergency Preparedness), 2013 SCC 36 at para 48).
[28]
In this case, there is no jurisprudence
resolving the degree of deference to be afforded to the particular question
before this Court, being a decision made pursuant subsection 73.15(2) of the
Act. Indeed, the Respondent confirmed when appearing before me that this and
T-27-10 were the first appeals of this kind to be heard by the Court.
[29]
At the hearing, the Court inquired if there were
other decisions concerning appeals of non-compliance violations and the
imposition of monetary administrative penalties in other administrative
compliance regimes which might assist in determining the appropriate standard
of review. Counsel for the Attorney General referred the Court to Mega
International Commercial Bank (Canada) v Canada (Attorney General), 2012 FC
407 [Mega]. Mega concerned an appeal of the decision of the
Financial Consumer Agency of Canada whereby its commissioner confirmed the
finding of the Deputy Commissioner that Mega had contravened certain of
the provisions of the Cost of Borrowing (Banks) Regulations made under the
Financial Consumer Agency of Canada Act, SC 2001, c 9. It imposed an
administrative monetary penalty of $12,500 as a result of the non-compliance.
[30]
Justice de Montigny stated the following with
respect to the standard of review:
[24] It is by now well-established that
there is often no need to proceed to a contextual analysis and to consider the
factors identified in Dunsmuir v New Brunswick, 2008 SCC 9, [2008] 1 SCR
190 [Dunsmuir]. As recognized by the Supreme Court in Smith v
Alliance Pipeline Ltd, 2011 SCC 7, [2011] 1 S.C.R. 160 [Smith] a
reviewing judge may rely on the broad categories identified by Dunsmuir,
above, to determine the relevant standard of review. As a result, the
reasonableness standard will normally apply to a question related to (1) the
interpretation of the tribunal’s enabling or “home” statute or statutes closely
connected to its function, with which it will have particular familiarity; (2)
issues of fact, discretion or policy; or (3) a question of mixed law and fact (Smith,
above at para 26).
[25] The first substantive issue listed
above – did the Appellant’s information boxes violate the Regulations –
is clearly a question of mixed fact and law, as it requires the interpretation
of the Regulations and their application to the facts of this case. As
such, it is clearly reviewable on the standard of reasonableness. Moreover,
the Regulations are closely connected to the Commissioner’s functions
under the Act, which is to protect the interests of consumers of financial
services. The Regulations are part of a specialized regulatory regime
over which the Commissioner has exclusive jurisdiction, and to that extent are
akin to a “home” statute. Finally, it cannot be said that the interpretation
of what is required under these Regulations is of central importance to
the legal system. For all of these reasons, issue c), as well as issues d), f)
and g), which are all issues of mixed law and fact, will be reviewed against
the standard of reasonableness. Accordingly, this Court will only intervene if
it can be shown that the decision of the Commissioner does not fall within a
range of possible, acceptable outcomes which are defensible in respect of the
facts and law.
[31]
In my view, the same considerations apply in
this case. The function of FINTRAC, and the Director, is to assess compliance
with the requirements of the Act and Regulations, to detect and deter money
laundering and the financing of terrorism. It is a specified regime over which
FINTRAC has jurisdiction. The question before the Director was whether Max
Realty complied with the subject provisions of the Regulations which is a
question of mixed fact and law as it required that the Director interpret the
requirements of those provisions and apply the facts of this case to them to
determine whether there had been compliance. Though worded as an appeal, this
is a type of judicial review and attracts the standard of reasonableness (also
see Doyon v Canada (Attorney General), 2009 FCA 152; Rowan v Ontario (Securities Commission), 2012 ONCA 208 provided as a part of the Respondent’s
post hearing submissions).
[32]
Where the standard of reasonableness applies,
the role of the Court is to determine whether the decision “falls within ‘a range of possible, acceptable outcomes which
are defensible in respect of the facts and law’” (Dunsmuir,
above, at para 47). As long as the process and the outcome fit comfortably with
the principles of justification, transparency and intelligibility, it is not
open to a reviewing court to substitute its own view of a preferable outcome (Canada
(Minister of Citizenship and Immigration) v Khosa, 2009 SCC 12, [2009] 1
SCR 339 at para 59). The court should not interfere with the decision unless
this standard is not met.
ISSUE 2: Did the Director err
in concluding that Max Realty had committed the four violations set out in her
decision of October 7, 2009 and imposing an administrative monetary penalty of
$27,000?
Max Realty’s Position
[33]
Max Realty submits, in essence, that it
exercised due diligence in carrying out its obligations to comply with the Act
and Regulations as it took all reasonable steps under the circumstances to
avoid the violations. Further, that the Director failed to consider its letter
of explanation.
[34]
As to Violation #1, Max Realty submits that when
it filed its initial application with FINTRAC it was required to identify a
compliance officer and that its application would not have been accepted had it
not done so. Further, the notice of examination was directed to Mr.
Ghovanloo. Accordingly, FINTRAC knew of the identity and existence of Max
Realty’s compliance officer. Later, Mr. Ali Mirkhan was also added as an
officer.
[35]
As to Violation #2, as a franchisee, Max Realty
was supplied with an Office Compliance Manual and policies by its head office
at Homelife in September 2008.
[36]
As to Violation #3, Max Realty did consult with
a lawyer and had the Canadian Real Estate Association (CREA) Risk Assessment
form.
[37]
As to Violation #4, Max Realty’s compliance
officer trained its agents. As well, Max Realty invited a lawyer to attend at
its offices on two occasions to train its staff.
[38]
Max Realty states that there were no clear and
stated guidelines from FINTRAC to assist brokers and agents in complying with
the law and regulations. The regulatory requirements were new and, at the time
of the compliance examination, real estate brokers and agents were still
struggling to understand their implications and requirements. Further, Max
Realty is a small real estate business and a penalty of this magnitude will put
it out of business.
Attorney General’s Position
[39]
The Attorney General submits that the evidence
before the Director clearly supported her decision and was therefore
reasonable.
[40]
Regarding Violation #1, the Attorney General
submits that, based on the March 16, 2009 letter from FINTRAC, a compliance
officer had not been appointed at the time of the examination on February 20,
2009. That letter afforded Max Realty an opportunity to demonstrate that this
was incorrect but it did not do so. Further, the July 24, 2009 letter from Mr.
Ali Mirkhan did not contest that there was no compliance officer in place prior
to the examination and confirmed that he was appointed only after the
examination.
[41]
As to Violation #2, the Attorney General submits
that at the time of the examination, Max Realty provided FINTRAC with a single
page document entitled “New Office Regulations”, but that this does not
constitute a compliance policy and procedure that meets the legislative
requirements. Further, following FINTRAC’s March 16, 2009 letter, Max Realty
did not make representations about the alleged absence of written compliance
policies and procedures. It was only after the Notice of Violation was issued
that Max Realty provided its July 24, 2009 letter stating that it had developed
and added a compliance policy, however, a copy of that policy was not attached
to the written representations.
[42]
While by Order dated December 19, 2012
Prothonotary Aalto granted leave to include the Office Compliance Manual in the
record on this appeal, he did so without prejudice to the Attorney General’s
right to oppose its admissibility. In that regard, the Attorney General
strenuously opposed the admissibility of the document entitled “Proceeds of
Crime (Money Laundering) and Terrorism Financing Act and Regulations – 2008
Homelife Real Estate Solutions Ltd., Brokerage – Office Compliance Manual”
(Office Compliance Manual) because it was not provided at the compliance
examination nor was it attached to Max Realty’s July 24, 2009 response. There
were no representations as to its existence prior to the examination and no explanation
as to why it had not been provided in response to FINTRAC’s letter of March 16,
2009. The Attorney General submits that it is therefore plain and obvious that
it did not exist on the date of the examination and should not be admitted into
evidence.
[43]
Alternatively, even if the Office Compliance
Manual did exist on the date of the examination, it is not a compliance policy
within the meaning of the Act, but is simply a reiteration of the obligations
imposed by the Act and Regulations. It does not refer to Max Realty, other
than in the header, nor does it explain how it will meet those obligations.
There is also no evidence that the manual is up to date and approved by a
senior officer as required by the Regulations.
[44]
On Violation #3, the Attorney General states
that Max Realty had not conducted, in the course of its activities, an
assessment of the risk of money laundering or terrorist financing offences
occurring in the course of its business. While Max Realty asserts in its factum
that the CREA Risk Assessment for Brokerage Form has been duly accomplished,
there is no evidence to support this position. While Max Realty sought leave
to add this document to the appeal record, this was denied as Prothonotary
Aalto stated that it “…came into existence after the
issue in this proceeding arose and is therefore not probative or relevant to
any facts relating to the issues in dispute.”
[45]
On Violation #4, the Attorney General states
that Max Realty failed to develop and maintain an ongoing written compliance
training program for its employees, agents and other persons authorized to act
on their behalf. Max Realty was asked to provide this information in advance of
the compliance examination. It advised FINTRAC that staff had attended a
training session concerning “the importance of Fintrac
and PCMLTFA” and provided a hand-out titled “FINTRAC Requirements
Simplified Seminar.” The Attorney General submits that this document was
similar to the Office Compliance Manual as it simply reiterates obligations
arising pursuant to the Act and Regulations with no direct guidance on how Max
Realty will meet those obligations in the context of its business operations
and its own compliance policy and procedures. Accordingly, it does not meet
the requirements of the Act.
[46]
The Attorney General states that Max Realty did
not specifically raise a due diligence defence in the written representations
to the Director and, therefore, it should not be permitted to challenge the
decision on this ground. However, even if this Court decides to entertain the
defence of due diligence, the evidence on the record does not demonstrate that
the defence has been met.
[47]
In R v Sault Ste Marie (City), [1978] 2
SCR 1299 at 1326 [Sault Ste Marie], the Supreme Court of Canada stated
that the due diligence defence would be “available if the
accused reasonably believed in a mistakenly set of facts which, if true, would
render the act or omission innocent, or if he took all reasonable steps to
avoid the particular event.” Here, Max Realty has not asserted a belief
in a mistaken set of facts so the defence is limited to it being able to
establish that it took all reasonable steps to avoid the violations. Further,
in Canada (Superintendent of Bankruptcy) v MacLeod, 2011 FCA 4 at
para 33, the Federal Court of Appeal confirmed that where a defence of due
diligence is asserted, evidence must be presented to support it and must relate
to the specific offences at issue. Therefore, Max Realty must establish the
defence for each of the four violations, which it has not done.
[48]
Regarding Violation #1, there is no evidence to
suggest that Max Realty took any reasonable steps to appoint Mr. Ali Mirkhan as
its compliance officer prior to the examination. On Violation #2, the only
evidence which existed at the time of the examination, the New Office
Regulation, does not contain specific guidance on how compliance will be
achieved. This does not constitute “taking all reasonable steps to avoid the
violation”. On Violation #3, the FINTRAC Requirements Simplified Seminar conducted
by a lawyer contained a blank CREA Risk Assessment Form. This demonstrates
that Max Realty was aware of the requirement to conduct a risk assessment yet
there is no evidence of any attempt to complete the risk assessment prior to
the examination. On Violation #4, the only evidence is that Max Realty sent
some employees to a seminar but there is no evidence that it took steps to
‘develop’ or ‘maintain’ its own compliance training program. For these
reasons, due diligence has not been established.
Analysis
[49]
As a preliminary point, the Attorney General
states that Max Realty did not specifically raise a due diligence defence in
its written representations to the Director and, therefore, it should not be
permitted to challenge the decision on a ground that was not raised before the
Director.
[50]
In my view, some context is required to address
this submission. Part 4.1 of the Act addresses notices of violation,
compliance agreements and penalties. Notices of Violation must set out: the
violations; the proposed penalty; the right to pay the penalty or to make
representations to the Director with respect to the violations and the proposed
penalty within thirty days of service of the notice; and, that if neither
action is taken then the person or entity will be deemed to have committed the
offence (Act, subsection 73.14(1)). If representations are made, the Director
shall decide, on a balance of probabilities, whether the person or entity
committed the violation and, if so, may, subject to any regulations made under
subsection 73.1(1)(c), impose the penalty proposed, a lesser penalty or no
penalty. If no payment or representations are made then the person or entity
is deemed to have committed the violation, the proposed penalty will be imposed
and the Director will issue a notice of decision (Act, subsection 73.15) which,
in the event of a serious or very serious violation, will include a notice of
the right to appeal. The right to appeal to this Court is contained in
subsection 73.21 of the Act which also states that on appeal, the Court may
confirm, set aside or, subject to any regulations made under subsection
73.1(1)(c), vary the decision of the Director.
[51]
Following this is subsection 73.24 which states:
73.24(1) Due diligence is a defence in a
proceeding in relation to a violation.
(2) Every rule and principle of the common law
that renders any circumstance a justification or an excuse in relation to a
charge for an offence applies in respect of a violation to the extent that it
is not inconsistent with this Act.
[emphasis added]
[52]
Given this, it is not apparent to me that when a
person or entity is issued a Notice of Violation and elects to make
representations to the Director “with respect to the violation”, that they are
required to explicitly reference a due diligence defence within those
representations. In that regard, I note that in Cactus Cafe Turner Road Ltd
v British Columbia (Liquor Control and Licensing Branch), 2010 BCSC 1691 at
paras 79-81, Justice Cullen determined that a liquor inspector had erred by
failing to properly consider a due diligence defence and thereby breached
procedural fairness. Further, the Nova Scotia Court of Appeal, in a case where
the Minister argued a due diligence defence was only available on the offence,
and not where the offence was “deemed” to have occurred through non response of
a party, found that a failure to consider this was a breach of procedural
fairness (Guild Contracting Specialties (2005) Inc v Nova Scotia
(Occupational Health and Safety Appeal Panel), 2012 NSCA 94 at paras 2,
49-54). Given this, in my view, because the Director is aware that a due
diligence defence is available, it is incumbent upon him or her, even in the
absence of an explicit reference to that defence, to consider whether the
submissions established the defence.
[53]
Given this, and because this is a proceeding in
relation to the violation, I am doubtful that, as I understood to be suggested
by the Attorney General, the due diligence defence is lost on appeal if not
explicitly plead in the submissions to the Director. However, this question
need not be decided in this case. That is because, as set out below, the
evidence simply did not establish that due diligence had been exercised.
[54]
As to the substance of the issue before the
Court, FINTRAC wrote to Max Realty on December 16, 2008 advising of the
compliance examination and requested copies of its compliance policies and
procedures, ongoing training program and assessment of risks. The record
before me contains no response to that request. On March 16, 2009, FINTRAC
wrote to Max Realty advising of the results of the compliance examination. It
listed the deficiencies it had identified and requested that Max Realty provide
an action plan identifying which steps it had undertaken to rectify the
compliance issues within thirty days, which would have been by April 16, 2009.
The record contains no response to that request. The Notice of Violation was
issued on June 29, 2009 and provided thirty days within which the Applicant
could make representations pertaining to the violations and the fine.
[55]
On July 24, 2009, Mr. Ali Mirkhan responded.
This reply was not substantive nor did it provide any supporting
documentation. It stated that the office had made many attempts to educate its
staff and employees, there was attendance at seminars at the Homelife head
office, that a lawyer had spoken in Max Realty’s office to agents and staff,
and, Max Realty had used the FINTRAC website for information. Further:
“Unfortunately, after meeting with her [FINTRAC]
we had to come to realize there we had missed some requirements. We have been
notified and have since then implemented the changes that is required for your
needs. Yet we are still charged with a fine, we have after the interview
with FINTRAC representative, appointed a person to be responsible, Ali Mirkhan
who is also the person that developed and added a compliance policy including
rules and regulations for FINTRAC into our office policies. We have informed
our employees and agents, and have ongoing training programs in our office.
We were informed that these needed to be
implemented to our company rules, and we have tried to oblige at every request
that is made of our company. Please review the penalty that is made to the
office and allow us to show you that we have made changes that is required.”
[emphasis added]
[56]
Violation #1 concerned the failure to appoint a
person to be responsible for the implementation of a compliance program. Max
Realty submits that it had appointed Mr. Hootan Ghovanloo at the time of the
examination and that, subsequently, it was Mr. Ali Mirkhan who was responsible
for the compliance program. It submits that Mr. Ghovanloo’s appointment is
demonstrated by the fact that FINTRAC’s letter advising of the examination was
directed to him. Therefore, FINTRAC knew, at that time, who held the compliance
officer position. Further, Max Realty contends that its FINTRAC application
would not have been accepted if a compliance officer had not been identified
when the application was submitted. The Attorney General points out that the
December 16, 2008 letter states that it was a follow up to a telephone
conversation of the previous day. Accordingly, the fact that the letter was
directed to Mr. Ghovanloo is not evidence that he was previously known to
FINTRAC as Max Realty’s compliance officer.
[57]
The Appeal Book contains copies of the documents
described as having been obtained by FINTRAC during the compliance
examination. These do not include any document appointing Mr. Ghovanloo or any
other person as Max Realty’s compliance officer. However, it should also be
noted that the December 16, 2008 FINTRAC letter, while requesting various
documents, did not request written confirmation of the appointment.
[58]
Max Realty submitted that Mr. Ghovanloo’s name
was included in the original FINTRAC application, however, a copy of that
application was not contained in the Appeal Book. Max Realty submitted that it
could not locate a copy of the application, but that it had requested that
FINTRAC provide a copy. The Appeal Book did not include a certified tribunal
record, or similar, by which FINTRAC would have disclosed all relevant
documents in its possession. Thus, while it is a requirement that a compliance
officer be appointed (Act, subsection.9.6(1); Regulations, subsection.71(1)(a))
and it appears that this information and any updates or clarifications to it
are to be registered with FINTRAC (Proceeds of Crime (Money Laundering) and
Terrorist Financing Registration Regulations, SOR/2007-121, sections 4, 5,
7), it is unknown if FINTRAC received an application from Max Realty and if that
application named a compliance officer. Although Max Realty submitted that Mr.
Shahin Mirkhan filed an affidavit relating to the registration of Mr. Ghovanloo
as the compliance officer, there is no such affidavit or similar evidence
contained in the Appeal Book concerning this issue. The Appeal Book contains
an agreement as to its content and a certification of completeness signed by
Mr. Shahin Mirkhan as the representative of Max Realty.
[59]
The rather unsatisfactory result is that the
only evidence is the July 24, 2009 letter from Max Realty which indicates that
Mr. Ali Mirkhan was appointed after the compliance examination and makes no
reference to a prior officer. Given this, the Director’s finding, on a balance
of probabilities, that a compliance officer had not been appointed at the time
of the examination is reasonable as it was within the range of reasonable and
possible outcomes based on the facts and the law (Act, subsections 73.13(2),
73.15(2)).
[60]
As to due diligence, in Sault Ste Marie,
above, the Supreme Court of Canada articulated the defence of due diligence as “…being available if the accused reasonably believed in a
mistaken set of facts which, if true, would render the act or omission
innocent, or if he took all reasonable steps to avoid the particular event”.
[61]
In that regard, it must also be recalled that:
The due diligence defence relates to the doing
of the prohibited act with which the defendant is charged and not to the
defendant's conduct in a larger sense. The defendant must show he took
reasonable steps to avoid committing the offence charged, not that he or she
was acting lawfully in a broader sense (Macleod, above, quoting from R
v Raham, 2010 ONCA 206 at para 48).
[62]
In the context of Violation #1, the FINTRAC
Requirements Simplified Seminar, which was prepared by a lawyer, points out
that real estate brokerage companies must appoint someone in their office,
usually the manager or the broker, as a compliance officer and lists the duties
of that position. Thus, Max Realty was aware of this requirement. It has not,
however, provided satisfactory evidence that it took reasonable steps to avoid
committing the violation by appointing an officer prior to the examination
date. Accordingly, the due diligence defence was not established.
[63]
Violation #2 pertained to Max Realty’s failure
to develop and apply written compliance policies and procedures that are kept
up to date and are approved by a senior officer. The December 16, 2008 letter
from FINTRAC specifically requested that it be provided, in advance of the
examination, with a copy of Max Realty’s compliance policies and procedures
including those that pertain to special measures for high risk. There is no evidence
that such a policy was provided as requested. The documents contained in the
Appeal Book did not include a compliance policy and procedure manual. And, the
July 24, 2009 letter from Mr. Ali Mirkhan responding to the notice of violation
indicated that he had developed and added a compliance policy but did not
provide a copy.
[64]
The examination was for compliance and that an
advance copy of the compliance policy had been specifically requested by
FINTRAC but was not provided; its absence was listed as a deficiency in
FINTRAC’s March 16, 2009 letter which also requested that within thirty days it
be provided with an action plan for bringing Max Realty into compliance; and,
Mr. Ali Mirkhan’s subsequent response to the Notice of Violation indicated that
he had developed and added the policy after the examination but did not provide
a copy of that document. It can, therefore, reasonably be inferred that, even
if the compliance policy existed at the time of the examination (apparently
having been generated by Homelife’s head office), it was not then in Max
Realty’s possession. Accordingly, in my view, the document is not admissible. Even
if it were, I agree with the Respondent that it is not a compliance policy
within the meaning of the Act but simply reiterates the obligations imposed by
the Act and Regulations without explanation as to how Max Realty will comply
with them.
[65]
As to the one page “New Office Regulations”,
this document concerns the administration of real estate transactions. In that
regard, it makes only two brief references to FINTRAC both listing only
“FINTRAC, Individual Identification” as one of the forms to be completed and
signed as part of the transaction. It is not a FINTRAC compliance policy.
[66]
Given this, the Director’s decision that there
was a violation of this requirement was reasonable. And, in the absence of any
evidence that reasonable steps were taken by Max Realty to implement a policy
in its office before the examination date, the due diligence defence was not
made out.
[67]
Violation #3 concerned the failure to assess and
document the risk referred to in subsection 9.6(2) of the Act, taking into
consideration the prescribed factors set out in subsection 71(1)(c) of the
Regulations. The only evidence on the record before me concerning the risk
assessment is the CREA Risk Assessment Form which was contained in the
documents obtained by FINTRAC during the compliance examination. This is a
blank form with no information entered onto it. While Max Realty submitted
that a completed “Risk Assessment for Brokerage Form” had been duly
accomplished, that document was ruled inadmissible as it was dated after the
compliance examination.
[68]
Given these facts, the Director’s decision, on
the balance of probabilities, that there had been a violation was reasonable.
Further, in the absence of any evidence that reasonable steps were taken to
effect a risk assessment before the examination date, the due diligence defence
was not made out.
[69]
Violation #4 concerned the failure to develop
and maintain a written ongoing compliance training program for employees,
agents or persons. The Appeal Book contains a document obtained by FINTRAC
during the compliance examination entitled “Training Program”. This states that
a lawyer provided training at the Homelife Real Estate head office in August
where the Deal Secretary, Mariam Kottab, was trained on the importance of
FINTRAC and PCMLTFA. A second training session by the same lawyer occurred in
Max Realty’s office in September 2008 which was attended by agents. A copy of
the FINTRAC Requirement Simplified Seminar prepared by the lawyer is also
contained in the Appeal Book. This describes FINTRAC and its requirements,
suspicious transactions, the penalties for failure to comply and provides
various forms for reference. In my view, the seminar would comprise an aspect
of compliance training. However, it is not a written, ongoing compliance
training program and is merely an element of what might be included in the
implementation of such a program.
[70]
Accordingly, the Director’s decision that, on
the balance of probabilities, there had been a violation was reasonable. While
there is evidence that Max Realty took some steps to train its staff, these do
no amount to reasonable steps to effect an ongoing compliance training program
and, accordingly, the due diligence defence was not established.
[71]
The Respondent asserts that Max Realty may not
rely on the first branch of the due diligence test because it has not claimed
that it reasonably believed in a mistaken set of facts which, if true, would
render the act or omission innocent. I would note that, in any event, to
succeed on this branch, a defendant must have a reasonable belief. Here, Max
Realty was aware of the FINTRAC requirements but, by its own admission, did not
take them as seriously as it should have. In my view, Max Realty failed to
fully inform itself of the compliance measures required of it. Therefore, it
did not reasonably believe its compliance efforts met the legislative
requirements.
[72]
Max Realty also submits that the Director failed
to consider the letter of explanation that it provided in response to the
Notice of Violation. However, the Director recognized those submissions at the
outset of the decision:
Further to the observations you have submitted
to the Director of the Financial Transaction and Reports Analysis Centre of
Canada (FINTRAC) concerning the Notice of Violation issued to Homelife
Experience Realty on June 29, 2009, we are hereby providing you with this
Notice of Decision.
[73]
In Newfoundland and Labrador Nurses,
above, the Supreme Court of Canada held that under the reasonableness standard
of review reasons need not be perfect nor follow a particular form as long as
they allow the parties and the reviewing court to understand why a decision was
made. In this case, while the decision does not state why the Director did not
accept the reasons provided in the letter of explanation, it confirms having
considered those submissions. And, significantly, the information that was
before the Director supports her findings.
[74]
Given all of the foregoing, in my view, the
Director’s decision with respect to the commission of the violations falls
within “a range of possible, acceptable outcomes which
are defensible in respect of the facts and law” (Dunsmuir, above).
[75]
As to the penalty, Mr. Ali Mirkhan’s letter of
July 29, 2009 did ask that the penalty be reviewed. The Act stipulates that
the amount of the penalty shall in each case be determined by considering that
the purpose of the penalty is to encourage compliance with the Act, rather than
to punish, and taking into account the harm done by the violation, which could
be an aggravating or mitigating factor (ss. 73.11). Further, classification
and amounts of penalties may be prescribed by regulation (s.73.1). This is affected
by the Proceeds from Crime (Money Laundering) and Terrorist Financing
Administrative Monetary Penalties Regulations, SOR/2007-292 (Penalties
Regulations). These state that violations are classified as minor, serious or
very serious (subsection 4(1)) and that the range of penalties for violations
is $1-$1,000 for a minor violation, $1-$100,000 for a serious violation and
$1-$500,000 for a very serious violation (section 5). Compliance history is
also to be taken into account (section 6). The Schedule to the Penalties
Regulations classifies violations of section 9.6(1) of the Act and subsections
71(1)(a), (b), (c), and (d) of the Regulations as being serious offences.
[76]
Here, while the Director found that the facts
did not support a finding that the fifth violation had been committed and,
therefore, withdrew that violation and accordingly imposed a lesser penalty of
$27,000, rather than the $37,500 stated in the Notice of Violation, there is no
evidence that the Director considered Max Realty’s request that the penalty be
revisited. There is also no explanation as to why this penalty was chosen,
what factors were considered in sentencing, whether the use of a compliance
agreement was considered, nor whether the exercise of the discretion afforded
to the Director to impose the penalty proposed, a lesser penalty or no penalty
was considered (subsection 73.15(2)).
[77]
The Attorney General acknowledges that this is
the first appeal of this kind and that the Penalties Regulations did not come
into force until December 30, 2008. Further, that subsequent notices of
violations issued in other matters have provided a more fulsome fine analysis.
Also, that there is an internal fine policy which was not provided to Max
Realty, but which has subsequently been distributed to other violators. The
policy apparently contains guidance for fines imposed based on the amount of
harm caused, compliance history, as well as the size of the entity and its
ability to pay.
[78]
In Lemire v Canadian Human Rights Commission,
2014 FCA 18, the Federal Court of Appeal stated at paragraph 102 that, “In truth, the considerations relevant to sentencing may
overlap with those governing the imposition of an administrative penalty since
both are designed to prevent statutorily prohibited conduct.” The
difficulty here is that Max Realty in part, and although not explicitly, is
contesting the amount of the fine. Without any reasons, or even reference to
fines imposed in comparable circumstances, the Court cannot determine if the
fine imposed on the Appellant is reasonable or not.
[79]
For that reason, while the decision as to the
commission of the violations is confirmed, the fine is set aside, and the
question of the amount of the fine is remitted back to the Director and reasons
for the amount of any fine subsequently imposed are to be provided to Max
Realty.
JUDGMENT
THIS COURT’S JUDGMENT is that
1.
The application for judicial review of the October
7, 2009 decision of the Director of FINTRAC that Max Realty Solutions Ltd has
committed four violations of the Proceeds of Crime (Money Laundering) and
Terrorist Financing Act, SC 2000, c 17 and the Proceeds of Crime (Money
Laundering) and Terrorist Financing Regulations, SOR/2002-184 is denied
with respect to those convictions;
2.
The decision will be returned to the Director
for a redetermination of the quantum of the fine imposed; and
3.
Given the mixed outcome, there shall be no order
as to costs.
"Cecily Y. Strickland"
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