Proposed changes to the Regulations mean greater chance of running into trouble with FINTRAC
The Canadian government is looking to make changes to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR). If these changes go through, it will create further obligations for reporting entities under our anti-money laundering / anti-terrorist financing regime. This, in turn, means greater potential for FINTRAC to find deficiencies during the FINTRAC exam process.
Basically, the government is looking to expand the scope of customer due diligence measures or ‘CDD measures’. The rationale for these changes is to allow reporting entities to better identify customers and understand their business. This, in turn, will enable them to identify transactions and activities that are at greater risk for money laundering and terrorist financing.
The first proposed change: Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) reporting entities have various obligations when opening an account or conducting various prescribed financial transactions above a designated threshold. These obligations relate to record keeping and reporting certain financial transactions to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). The government is looking to expand these obligations to all business relationships – any financial activity or transaction which requires the reporting entity to keep a record under the PCMLTFR. Currently, these obligations only apply to account openings and certain financial transactions.
The second proposed change: Currently, the PCMLTFR requires reporting entities to ascertain customer identity when opening prescribed accounts and conducting financial transactions of a certain monetary limit. There are exceptions to this obligation with respect to certain transactions and activities deemed to be low risk for money laundering and terrorist financing. The regulations also require reporting entities to take reasonable measures to ascertain customer identity when reasonable grounds exist to suspect money laundering or terrorist financing with respect to a financial transaction. The proposed amendment makes it clear that this obligation with respect to suspicious transactions applies regardless of whether the transaction is covered by the exceptions to customer identification, record-keeping, and reporting requirements.
The third proposed change: The PCMLTFA defines a suspicious transaction as either one that occurs or is attempted. However, the regulations do not specifically extend the obligation to ascertain client identity to attempted suspicious transactions. The proposed amendment makes it clear that the obligation to take reasonable measures to ascertain identity applies to both situations where the transaction was completed or attempted.
The fourth proposed change: This change relates to ‘beneficial ownership information’. Currently, under the regulations, when a reporting entity is confirming the existence of a client that is a corporation or entity, it must take reasonable measures to obtain the name and occupation of all directors and the name, address and occupation of all persons who own or control 25% or more of the corporation or entity. The proposed amendment would make it a requirement to obtain such information – a step up from merely taking reasonable steps to obtain such information. Additionally, the entity would have to take reasonable steps to ascertain such information and keep a record of those reasonable steps.
The fifth proposed change: As of now, the regulations require reporting entities to conduct ongoing monitoring of customers’ activities and financial transactions only where they have been identified as high risk for money laundering and terrorist financing. The proposed amendment would extend this ongoing monitoring to all clients and activities to which the PCMLTFA applies – not just those assessed by the reporting entity to be high risk. Moreover, this obligation would have to be carried out in respect of the business relationship as a whole.
The sixth proposed change: Currently the regulations require reporting entities to keep a record of the intended use of an account or purpose of a financial transaction. These requirements would be changed to require reporting entities to keep a record setting out the purpose and intended nature of the relationship between a reporting entity and its customer.
The seventh proposed change: Currently, where a reporting entity determines that a client, transaction or activity is high risk for money laundering or terrorist financing, it must take reasonable measures to conduct what is known as ‘enhanced customer due diligence’. The proposed amendments will beef up these obligations to make them mandatory as opposed to only having to take reasonable steps to carry them out. These obligations will also be expanded to apply to ‘business relationships’. Other specifics of what will qualify as ‘enhanced customer due diligence’ will be spelled out as well.
Bottom line: If these proposed changes go through, your organization will have to become intimately familiar with them and implement them in order to avoid the wrath of FINTRAC.
Please note: This article was written in February, 2012 and may no longer by current. Also, it does not constitute legal advice. If you require legal advice, please contact me directly at 416 410 4838.