Good morning. What does a financial fixer for Russian oligarchs allied with President Vladimir Putin, multiple pump-and-dump scammers and a bank in the Bahamas flagged by regulators over tax-evasion concerns all have in common? They all used U.S. accounts at Canaccord Genuity that were operating right under the company’s nose for years. That’s in focus today, along with the cost of interceptors in the Middle East.
Up first
In the news
Energy: The International Energy Agency’s 32 member countries agreed to release 400 million barrels of oil reserves into the market, the largest-ever move in its history, to prevent shortages as the U.S.-Israeli war with Iran drags on.
Accounting: KPMG had the most deficiencies in audits that were reviewed last year out of Big Four firms, with identified issues in 20 per cent of the files, Canada’s audit regulator finds
Resources: Algoma Steel’s losses ballooned in the fourth quarter as U.S. President Donald Trump’s trade war battered Canada’s last remaining independent steelmaker. It reported a net loss of $364.7-million for the quarter ending Dec. 31, compared to loss of $66.5-million during the same period last year.
The Canadian Press
In focus
Oligarchs, scams and suspicious transactions
Hi, I’m Jameson Berkow, capital markets reporter for The Globe. I’ve been in business journalism for nearly two decades and never in all that time have I ever seen a company admit to having “willfully” broken the law in a settlement with regulators.
That is, until Canaccord Genuity admitted last week to having “willfully” violated the U.S. Bank Secrecy Act over a period of more than three years. It was such a glaring term that I had to look it up. According to Merriam-Webster, it means “done deliberately or knowingly and often in conscious violation or disregard for the law.”
In other words, the U.S. division of the well-known Canadian investment bank knew that by failing to properly supervise trading, it was breaking the law, and yet its compliance failures continued for years. Fundamentally, the investigation found that Canaccord simply wasn’t paying attention. For this, the bank has agreed to pay more than $100-million in fines.
Some context: For at least a decade, Canaccord’s U.S. division was one of the most active market makers in over-the-counter securities priced under $5 per share. Put another way: The Canadian company has long been one of the main facilitators of American penny-stock trading.
That market is infamous for its pump-and-dump scams (see: The Wolf of Wall Street), which is part of the reason regulators have strict requirements for market makers like Canaccord to report any cases of suspicious activity.
Not only did Canaccord fail to report “at least 160″ such cases, according to the result of a years-long investigation, but the company didn’t have the human resources required to catch those red flags and pass them along to the proper authorities even if it wanted to.
Until late 2021, just four Canaccord employees – each of whom maintained responsibilities other than trade surveillance − had the task of reviewing more than 100 unique reports, many of which were daily reports and some of which produced, in some cases, millions of combined line items to review each year.
Finding a needle in a haystack is hard enough but imagine having to do it in addition to your regular job!
According to a U.S. Treasury Department report, “Canaccord had no formal [anti-money-laundering] compliance training in place prior to November, 2021″ (emphasis theirs).
Instead of proper training, the report said, compliance employees were “teaching themselves.”
“In the words of one former Canaccord compliance employee, this was ‘trial-by-fire.’”
Even the company’s former head of trading compliance lacked relevant anti-money-laundering experience and “was only shown the reports he was now responsible for during a two-day period as part of two weeks when he overlapped with his predecessor,” the investigation found. Given all of that, it was hardly a surprise to me when, upon closer inspection, I found Canaccord was allowing some seriously bad actors to use its services.
Those included a notorious “financial fixer” for Vladimir Putin’s billionaire buddies, multiple pump-and-dump scammers (one of whom is currently serving five years in U.S. federal prison) and a Caribbean bank that was already known to law enforcement for its association with suspicious transactions.
Now, Canaccord says it has committed to a “comprehensive transformation of its compliance framework” and that “the underlying conduct is in our past.” But that, of course, is not the same as saying it never happened.
“Willfully” seems like the right word after all.
You can read more details and context in my latest story on this saga, now published here.
Charted
A closely watched metric
One of the clearest indicators of housing market stress is the share of borrowers who miss mortgage payments. In Canada, this is measured by the mortgage arrears rate (the percentage of mortgages that are 90 days or more past due). By this measure, and to the surprise of observers, there are no sign of distress, writes Hanif Bayat. This resilience is especially surprising, given that current mortgage rates are now higher than at any point between 2009 and 2022.
Quoted
The best that Iran can do at this point is try to exploit these asymmetries, put in place as many cheap drones as it can and force the U.S., Israel and the Gulf states to expend enormous sums of money defending against their cheap drones and hope that, over time, that becomes an unsustainable situation.
— Steve Feldstein, senior fellow at the Carnegie Endowment for International Peace in the Democracy, Conflict, and Governance Program
The war in the Middle East is laying bare how bigger doesn’t necessarily mean better in modern warfare defined by cheap munitions and saturation attacks meant to overwhelm the enemy’s defences.
Up next
More files we’re following
Bump: Pay packages for the CEOs of Canada’s biggest banks largely increased in a year when volatile markets drove higher profits.
Boost: Xanadu said it has entered negotiations with Ontario and Ottawa to secure up to $390-million in support as the Toronto company prepares to go public.
Up next: We’re watching for January data coming on Canada’s merchandise trade balance, wholesale trade and building permits.
Morning update
Global markets skidded as surging crude prices stoked inflation worries, which could force central banks to reassess interest-rate moves.
Wall Street futures were in the red as the escalating Middle East conflict dampened risk appetite. TSX futures followed sentiment lower.
Overseas, the pan-European STOXX 600 was down 0.34 per cent in morning trading. Britain’s FTSE 100 declined 0.41 per cent, Germany’s DAX gave back 0.24 per cent and France’s CAC 40 retreated 0.47 per cent.
In Asia, Japan’s Nikkei closed 1.04 per cent lower, while Hong Kong’s Hang Seng slid 0.7 per cent.
The Canadian dollar traded at 73.57 U.S. cents.