December 21, 2011

Consultation Paper: Strengthening Canada’s Anti-Money Laundering and Anti-Terrorist Financing Regime

Consultations Responses: Please note that the Department of Finance publishes consultation responses in PDF format and language of submission only.

 

Note: A consultation is not a poll. Please do not send multiple or duplicate submissions.

Related Documents :

How to Comment

Closing date: All comments are requested by March 1, 2012.

Who may respond:

These consultations are open to anyone.  Comments regarding any element of this paper are invited and can be emailed to: fcs-scf@fin.gc.ca.

Also, written comments can be forwarded to:

Leah Anderson
Director, Financial Sector Division
Department of Finance
L’Esplanade Laurier
20th Floor, East Tower
140 O’Connor Street
Ottawa, Ontario, K1A 0G5

The Department of Finance will post submissions on its website, but only with the consent of the submitting party. This would allow others, including the Parliamentary Committee that will be conducting a review of the legislation early in 2012, access to comments. We ask that, in providing your submission, you:

  • state whether you consent to posting your submission on the Department of Finance website; and
  • indicate whether you would like the Department of Finance to include your name and/or the name of the organization you represent with your submission when posting it on the Department of Finance website.

The Department of Finance will not post submissions that do not clearly provide consent to do so. If you consent to the posting of your submission on the Department of Finance website, please ensure to provide the submission electronically in PDF format or in plain text.

Once received by the Department of Finance, all submissions are subject to the Access to Information Act (ATIA) and may be disclosed in accordance with its provisions.


Strengthening Canada’s Anti‑Money Laundering and Anti‑Terrorist Financing Regime

PDF Version: Strengthening Canada’s Anti-Money Laundering and Anti-Terrorist Financing Regime [270.3 Kb]

Preface

The Government of Canada is committed to a strong and comprehensive regime that is at the forefront of the global fight against money laundering and terrorist financing, contributes to public safety in Canada and around the world, and safeguards the integrity of Canada’s financial system. 

This paper sets out for public consultation and consideration the Government of Canada’s ("the Government") proposals to strengthen Canada’s anti-money laundering (AML) and anti-terrorist financing (ATF) legislative framework, which is administered through the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). Its key objectives include:

  • reviewing Canada’s AML/ATF legislative framework in preparation for the upcoming Parliamentary review of the PCMLTFA asrequired by subsection 72(1) of the Act;
  • addressing the recommendations of an independent consultant included in the Report of the 10-Year Evaluation of Canada’s AML/ATF Regime, released in March 2011;
  • responding to stakeholder concerns, raised by both the private sector and federal regime partners, particularly law enforcement and intelligence agencies;
  • meeting Canada’s international commitments by improving our compliance with the Recommendations of the Financial Action Task Force (FATF), the international standard setter in the area of AML and ATF;
  • responding to the interim report of the Special Senate Committee onAnti‑Terrorism, entitled Security, Freedom and the Complex Terrorist Threat: Positive Steps Ahead
  • responding to the final report of the Commission of Inquiry into the Investigation of the Bombing of Air India Flight 182, Air India Flight 182: A Canadian Tragedy; and
  • responding to the 2009 Privacy Commissioner of Canada’s Audit Report of the Financial Transactions and Reports Analysis Centre of Canada.

The proposals in this paper seek to maintain the balance between the need to deter and detect money laundering and terrorist financing activities while protecting the privacy rights of Canadians. The Government also recognises the need to minimize the compliance burden on the private sector. 

The Government is seeking the views of Canadians to ensure that the implications of the proposals included in this paper are fully considered. The second Parliamentary review of the Act will be undertaken shortly. This will provide an opportunity for additional improvements to the PCMLTFA to be identified.

Proposals Relevant to Various Sectors
Entities Proposal Number
Financial institutions (banks, credit unions and caisses populaires, centrals, and trust and loan companies) 1.1, 1.2, 1.3, 1.4, 1.5, 1.6, 1.7, 1.8, 1.9, 1.10, 2.1, 2.2, 2.3, 2.6, 2.9, 3.3, 3.4, 5.1, 5.2, 6.1, 6.4
Crown corporations that take deposits 1.2, 1.8, 1.9, 1.10, 2.6, 2.9, 3.3, 3.4, 5.1, 5.2, 6.1
Life insurance companies, brokers and agents 1.2, 1.4, 1.5, 1.6, 1.8, 1.9, 1.10, 2.2, 2.3, 2.4, 2.5, 2.6, 2.9, 3.3, 3.4, 5.1, 5.2, 6.1
Securities dealers 1.2, 1.4, 1.5, 1.6, 1.7, 1.8, 1.9, 1.10, 2.6, 2.9, 3.3, 3.4, 5.1, 5.2, 6.1
Money service businesses 1.2, 1.5, 1.6, 1.8, 1.9, 1.10, 2.1, 2.2, 2.3, 2.6, 2.9, 3.1, 3.2, 3.3, 3.4, 5.1, 5.2, 6.1, 6.4
Accountants and accounting firms 1.2, 1.8, 1.9, 1.10, 2.6, 2.8, 2.9, 3.3, 3.4, 5.1, 5.2, 6.1
British Columbia notaries 1.2, 1.8, 1.9, 1.10, 2.6, 2.9, 3.3, 3.4, 5.1, 5.2, 6.1
Real estate brokers, sales representatives or real estate developers 1.2, 1.8, 1.9, 1.10, 2.6, 2.9, 3.3, 3.4, 5.1, 5.2, 6.1
Casinos 1.1, 1.2, 1.4, 1.8, 1.9, 1.10, 2.6, 2.9, 3.3, 3.4, 5.1, 5.2, 6.1
Dealers in precious metals and stones 1.2, 1.8, 1.9, 1.10 2.6, 2.7, 2.9, 3.3, 3.4, 5.1, 5.2, 6.1
Legal counsel and legal firms[1] 1.2, 1.8, 1.9, 2.6, 2.8, 3.3, 3.4, 5.1, 5.2, 6.1
Importers/exporters of currency or monetary instruments 2.3, 3.6
Providers of prepaid access not subject to the PCMLTFA 2.2, 2.3
Administrative provisions (do not affect reporting entities) 3.5, 3.6, 4.1, 4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 6.2, 6.3, 7.1, 7.2, 7.3

Introduction

Money laundering and terrorist financing not only threaten the financial system, they create incentives for crimes that may harm Canadians and threaten our quality of life. The potential business and societal damages of these crimes underscore the need for a clear and effective deterrent.

On November 7, 2011, the Department of Finance issued a “Consultation Paper on Proposed Amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations on Ascertaining Identity”. It proposes measures to enhance customer identification and due diligence (CDD)[2]. These proposals are regulatory in scope and address several deficiencies identified by the FATF in its 2008 evaluation of Canada’s AML\ATF Regime.

This paper presents and seeks views on a number of additional proposed measures that would further strengthen the Regime.

Canada’s Evolving AML/ATF Regime

The core elements of Canada’s AML Regime were originally set out in the Proceeds of Crime (Money Laundering) Act (PCMLA) of 2000. In December 2001, following the passage of the Anti-Terrorism Act, the scope of the PCMLA was expanded to include ATF measures and the PCMLA was renamed the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA).

The overarching objective of the PCMLTFA is to detect and deter money laundering and the financing of terrorist activities, while facilitating the investigation and prosecution of these crimes. These objectives thus place equal emphasis on preventing illicit funds from entering or moving through Canada’s financial system and creating a paper trail to assist law enforcement in detecting and prosecuting these crimes.

Part 1 of the Act requires financial intermediaries to meet customer identification, due diligence and record-keeping obligations and to report suspicious and prescribed transactions relevant to the identification of money laundering, terrorist financing and the possession of terrorist property. Part 2 of the Act is administered by the Canada Border Services Agency (CBSA), and requires the reporting of the importation and exportation of cash or monetary instruments of $10,000 or greater.

Part 3 of the PCMLTFA establishes the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), which became operational in October 2001. Its primary functions are to receive reports under the PCMLTFA from reporting entities[3], to analyze those reports for information relevant to money laundering and terrorist financing, to provide designated information (e.g., account holder, transaction amount and date) to Canadian law enforcement agencies and other agencies such as the CBSA, the Canada Revenue Agency (CRA) and the Canadian Security Intelligence Service (CSIS) in specific circumstances, and to monitor and ensure the compliance of reporting entities with the requirements of the Act.

In 2006, subsequent to a five-year Parliamentary review of the administration and operation of the PCMLTFA, legislative amendments were implemented to enhance the Regime, address stakeholder concerns, and make it more consistent with the FATF standards. For example, measures were implemented to: enhance client identification, record-keeping and reporting measures applicable to financial institutions and intermediaries; allow FINTRAC to disclose additional information to law enforcement and intelligence agencies, and to make disclosures to additional agencies; and establish a registration regime for money services businesses (MSBs).

Part 4.1 of the PCMLTFA, which came into force in December 2008, provided FINTRAC with the legislative authority to issue administrative monetary penalties (AMPs). This tool supports and enhances FINTRAC’s efforts to ensure compliance by reporting entities with the Act by providing the flexibility for a measured and proportionate response to particular instances of non-compliance.

In 2010, Part 1.1 was added to the PCMLTFA.  This enables the Government to impose targeted financial sanctions against jurisdictions, and foreign entities that lack sufficient or effective AML and ATF measures in order to protect the integrity of Canada’s financial system. Part 1.1 is not yet in force pending new regulations to clarify the application of the Minister’s powers. These are proposed in Chapter 5 of this consultation paper.

Scope of the Review

Domestic Considerations

AML/ATF Stakeholders

Discussions with Regime partners have generated proposals that could improve the Regime. The proposals included in this paper are directed chiefly at building on and improving the fundamentals of the Regime and strengthening the contributions of Regime partners to its success. Various proposals would also respond to the concerns of private sector stakeholders including the Public/Private Sector Advisory Committee, which is chaired by the Department of Finance and includes representatives from both the private and public sectors.

10-Year Evaluation of Canada’s AML/ATF Regime

An independent consultant conducted the 10-Year Evaluation of Canada’s AML/ATF Regime, which was released in March 2011 and is posted on the Department of Finance website[4]. The report concluded that the performance of the Regime had improved over the 10 years of its operation and that it continues to support Government priorities. It also concluded that the Regime has created an environment that is hostile to money laundering and terrorist financing, thus making it more difficult and less profitable for criminals to undertake money laundering and terrorist financing activities in Canada. 

The report also identified areas of potential improvement. It recommended that the Department of Finance lead discussions with Regime partners to determine future steps for continuing to improve the Regime’s compliance with international commitments. It was recommended that these discussions should include an examination of legislative barriers that may limit the ability for Regime partners to effectively share information.

Special Senate Committee on Anti‑terrorism

The Special Senate Committee on Anti‑Terrorism was established in 2010. In March 2011, the Senate Committee released an interim report entitled Security, Freedom and the Complex Terrorist Threat: Positive Steps Ahead. 

The report recommended that the definition of “monetary instruments” under the PCMLTFA be expanded to recognize prepaid cards and mobile devices, and that consideration be given to reducing the $10,000 threshold that currently applies to cash transactions and international electronic funds transfers that must be reported to FINTRAC. The report also raised concerns that the restrictions on FINTRAC disclosing to national security agencies its own analysis of financial intelligence or written explanations justifying disclosures, requires CSIS to duplicate this analysis.

Air India Report

The Commission of Inquiry into the Investigation of the Bombing of Air India Flight 182 was established in May 2006 to examine the events surrounding the bombings, the subsequent investigation into the bombing, and to identify remaining gaps in national security. The Commission's final report, Air India Flight 182: A Canadian Tragedy, was released in June 2010.

The report raised concerns that restrictions on information sharing, which are intended to protect the privacy of Canadians, have hindered the legitimate need for information to be shared by Regime partners, most notably the inability for FINTRAC to disclose its own analysis of a particular case to another agency. As well, transactions involving the small sums needed to finance terrorist acts are not likely to be discovered through the routine collection and processing of information by FINTRAC and the CRA.

Privacy

The proposals and issues discussed in this paper seek to maintain a balance between the legitimate need to gather intelligence to assist with deterring and detecting money laundering and terrorist financing activities and to facilitate the investigation and prosecution of these offences with, the privacy rights of Canadians under the Canadian Charter of Rights and Freedoms (Charter) and Canada’s privacy legislation. The proposed changes recognize that appropriate safeguards to control the collection, use and disclosure of personal financial information should be maintained, while still providing flexibility for the legislative framework to evolve with the needs of public and private stakeholders and Canadian society in order to address new challenges presented by emerging money laundering and terrorist financing activities and trends.

As well, to assure Canadians that their personal information is being appropriately managed by FINTRAC, there is a legislative requirement for the Office of the Privacy Commissioner (OPC) to perform, every two years, a privacy audit of the measures taken by FINTRAC to protect information it receives or collects under the PCMLTFA. The OPC reports the results of such reviews to Parliament. The most recent final audit report was released in 2009. In this report, the OPC found that FINTRAC had robust security measures in place to protect personal information, and its use and disclosure practices complied with the PCMLTFA and the Privacy Act. However, the report did identify gaps in FINTRAC’s privacy management framework.

International Considerations

The FATF is the key inter-governmental body whose purpose is the development and promotion of policies, both at national and international levels, to combat money laundering and terrorist financing. The FATF has developed international standards in these areas through its Forty Recommendations on Money Laundering and Nine Special Recommendations on Terrorist Financing (40+9 Recommendations), which are regularly reviewed and updated to ensure that they remain timely and relevant to the evolving threat of money laundering and terrorist financing.

FATF member countries, including Canada, have made a political commitment to implement these Recommendations. The Mutual Evaluation process is the primary instrument by which the FATF monitors progress made by member governments to implement the Recommendations and suggests areas for improvement. Canada was last evaluated in February 2008 and its progress in meeting the FATF’s standards in specific areas has subsequently been monitored.   

The Canadian Regime is in the top tier of FATF members in terms of compliance with the FATF standards. However, enhancing Canada’s compliance with the standards remains a priority to ensure that Canada remains a leader in the fight against money laundering and terrorist financing and that our financial system is not vulnerable to abuse.

Outside of the FATF, the G20 has committed to lead by example in implementing the G20’s Anti-Corruption Action Plan. As part of this work, the G20 has emphasized the use of AML tools in the fight against corruption, and has supported updating and implementing the FATF standards calling for, inter alia, due diligence for politically exposed persons. Canada has also made commitments to the United Nations, the IMF and the World Bank, with respect to implementing strong AML and ATF controls.

If implemented, the proposals contained in this paper would contribute to strengthening Canada’s AML / ATF Regime. As such, they would contribute to improving Canada’s overall compliance with the FATF’s 40+9 Recommendations on AML/ATF, thereby helping to safeguard the integrity of the global financial system. It is important to note that money laundering and terrorist financing methods are constantly evolving as criminals develop new ways to exploit the financial system and legitimate businesses for their criminal purposes. As a result, the international standards are also reviewed and updated from time to time. Indeed, the FATF standards are currently being reviewed for the third time since they were first developed following the creation of the FATF in 1989.  While the revised standards are not yet approved, the consultation process will allow for consideration of these in due course.

Objectives of the Review

In this paper, the Government is putting forward a number of proposals that may be considered for future legislative or regulatory amendments. The intention is to provide an opportunity for stakeholders to react to these proposals, including for the benefit of the Parliamentary Committee that will undertake a review of the administration and operation of the PCMLTFA in 2012, as required under the Act.

The proposals in the paper are organized around the following key headings:

  • strengthening CDD standards;
  • closing gaps in Canada’s AML/ATF Regime;
  • improving compliance, monitoring and enforcement;
  • strengthening information sharing in the Regime;
  • introducing a list of potential countermeasures; and
  • other amendments.

The proposals will affect all persons and entities subject to the PCMLTFA (also known as ‘reporting entities’), that is:

  • financial entities (banks, credit unions and caisses populaires, centrals, trust and loan companies);
  • Crown corporations that take deposits;
  • life insurance companies, brokers and agents;
  • securities dealers;
  • money service businesses;
  • accountants and accounting firms;
  • lawyers [5];
  • British Columbia notaries;
  • real estate brokers, sales representatives and developers;
  • dealers in precious metals and stones; and
  • casinos.

Other amendments and issues for future consideration may also be proposed at a later time. For example, it is anticipated that recommendations will be put forward subsequent to the upcoming Parliamentary review of the PCMLTFA.

The Government recognizes that measures to enhance Canada’s AML/ATF legislative framework should not place an undue burden on reporting entities, which are on the front lines of the fight against money laundering and terrorist financing. Full consideration will be given to the input and comments received, including in relation to potential compliance challenges that reporting entities could face as a result of the proposals contained in this paper and the timing of possible implementation.

How to Comment

Closing date: All comments are requested by March 1, 2012.

Who may respond:

These consultations are open to anyone.  Comments regarding any element of this paper are invited and can be emailed to: fcs-scf@fin.gc.ca.

Also, written comments can be forwarded to:

Leah Anderson
Director, Financial Sector Division
Department of Finance
L’Esplanade Laurier
20th Floor, East Tower
140 O’Connor Street
Ottawa, Ontario, K1A 0G5

The Department of Finance will post submissions on its website, but only with the consent of the submitting party. This would allow others, including the Parliamentary Committee that will be conducting a review of the legislation early in 2012, access to comments. We ask that, in providing your submission, you:

  • state whether you consent to posting your submission on the Department of Finance website; and
  • indicate whether you would like the Department of Finance to include your name and/or the name of the organization you represent with your submission when posting it on the Department of Finance website.

The Department of Finance will not post submissions that do not clearly provide consent to do so. If you consent to the posting of your submission on the Department of Finance website, please ensure to provide the submission electronically in PDF format or in plain text.

Once received by the Department of Finance, all submissions are subject to the Access to Information Act (ATIA) and may be disclosed in accordance with its provisions.

Chapter 1 - Strengthening Customer Due Diligence Standards

A cornerstone of Canada’s AML/ATF Regime is the obligation for reporting entities to ascertain the identity of their clients and to keep records of the identification information and the steps taken to acquire such information. Reporting entities who know their clients and their activities are better able to correctly assess the money laundering and terrorist financing risk level of those clients, to identify any transaction conducted by those clients that may be suspicious, and report those suspicions. These measures have a strong prevention element that supports the deterrent objective of the PCMLTFA as criminals and terrorist financiers will find it increasingly difficult to place their funds into the financial system without notice. Similarly, these measures also support the detection objective of the PCMLTFA as records of the client identification information kept by reporting entities can provide valuable information to law enforcement when conducting investigations related to money laundering and terrorist financing.

The FATF’s Recommendation 5, a core Recommendation, states that member countries should implement measures to ensure that financial institutions are adequately able to identify their customers when establishing business relations or carrying out occasional transactions.

As noted, on November 7, 2011, a consultation paper was released by the Department of Finance proposing various regulatory measures, which are being considered to strengthen the CDD provisions of Canada’s AML/ATF Regime and to respond to deficiencies previously identified by the FATF with respect to Canada’s compliance with Recommendation 5. The proposals are intended to improve the capacity of reporting entities to know their customers, increase their ability to identify transactions potentially related to money laundering or terrorist financing, and assist reporting entities to comply with their obligations under Canada’s AML/ATF Regime.

In addition to the measures in the November 7th consultation paper, other issues have been raised by reporting entities and Regime partners related to CDD obligations under the Regime. This Chapter describes proposed measures to address these concerns.

Client Identification Records for Authorized Signers for Business Accounts

Paragraph 54(1)(a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) provides that financial entities are required to ascertain the identity of at least three authorized signers of a business account. A similar requirement applies to casinos under paragraph 60(a). However, there is no related requirement for either financial entities or casinos to keep a record of the identity of those signers or the measures taken to ascertain their identity. Where a suspicious transaction takes place, reporting entities are required to report, where applicable, the name and identification information of both the person conducting the transaction and the party on whose behalf the transaction is conducted. This includes information as to the identity of the authorized signer conducting the transaction.

Proposal 1.1
To ensure that financial entities and casinos have the necessary information available to include in a suspicious transaction report, the Government is giving consideration to amending the PCMLTFR to require financial entities and casinos that ascertain the identity of an authorized signer to also keep a client identification record in respect of that signer.

Enhancing Customer Due Diligence Exemptions for Introduced Business

There are several situations in which one financial business may “introduce” (or refer) a client to another financial business. For example, insurance brokers introduce their clients’ business to insurance companies, and banks frequently introduce their clients to securities dealers.

The PCMLTFR recognizes only two specific “introduced business” scenarios where one reporting entity can rely on the CDD performed by another reporting entity. These are under subsection 56(2) and paragraph 62(1)(b)[6]. In these two cases, the recipient reporting entities are exempt from certain CDD requirements where these are believed to have been performed by the introducer. These exemptions limit the duplication of procedures by reporting entities.

The FATF has recommended that reporting entities under Canada’s AML/ATF Regime be required to take more responsibility for CDD in introduced business scenarios. Canada received a Non-Compliant rating with the FATF’s Recommendation 9, which addresses introduced business.

Canada’s Mutual Evaluation Report (2008)

When [introduced business] scenarios apply, there is no explicit requirement in the Regulations for financial institutions to obtain from the third party the necessary information concerning certain elements of the CDD process and satisfy themselves that copies of identification data are made available from the third party upon request without delay. The Regulations do not set out that the ultimate responsibility for customer identification and verification should remain with the financial institution relying on the third party.

In 2008, amendments were made to the PCMLTFR to allow for agents or mandataries to perform certain CDD obligations on behalf of a reporting entity. This differs from the introduced business exemptions in that it allows non-reporting entities to perform the CDD obligations on behalf of a reporting entity. Unlike the introduced business exemptions, there must also be a contractual agreement in place between the parties for the agency relationship to exist.

The Government recognizes that the existing CDD exemptions for introduced business scenarios may not cover all introduced business scenarios in the financial system. To minimize the administrative burden on reporting entities and to level the playing field between different types of reporting entities, existing introduced business exemptions could be considered for other reporting entities receiving business from another reporting entity.

At the same time, the PCMLTFR does not require reporting entities that rely on an introduced business exemption for CDD to obtain details about the information used to ascertain a client’s identity (e.g., a driver’s licence number, if a driver’s licence was used to ascertain identity) or keep a record of this information. This creates a risk that the information will be lost if the relationship between the recipient and introducer is later terminated (e.g., if the introducer goes out of business). These records contain valuable information that is essential to ensuring that CDD and reporting obligations are met and may also be vital to law enforcement in the investigation of a money laundering or terrorist financing offence.

Proposal 1.2
The Government proposes to review the current exemptions from CDD and record-keeping for scenarios involving introduced business, in order to improve the continuity of record-keeping and to clarify how responsibility for the CDD information is divided among the party introducing the business and the party receiving the business. In addition, consideration will be given to expanding the scope of introduced business scenarios that would qualify for an exemption from certain CDD obligations.  

The Government is seeking views from the industry on this issue, including the following elements:

  • examples of “introduced business” scenarios where revising CDD and/or record-keeping requirements would eliminate a duplication of effort by the reporting entities involved;
  • current industry practices that may mitigate the risk of records being lost or destroyed in an “introduced business” scenario where the relationship between the recipient and introducer is terminated;
  • the feasibility of a reporting entity asking for and receiving documentation about the information used to verify a client’s identity from an introducer at the time of the commencement of the “introduced business” relationship; and
  • the feasibility of a reporting entity asking for and receiving documentation about the information used to verify a client’s identity from an introducer at the time when a relationship between the reporting entity and introducer is to be terminated.

Non-Face-to-Face Situations

In consultation with various reporting entities, the Government introduced in 2007, non-face-to-face client identification requirements that apply when a customer is not physically present at the time the client identification requirements are triggered, and identity cannot be ascertained in person by referring to a government-issued identity document. These measures, which allow for the use of third party sources, were intended to ensure that CDD would remain as reliable as in face-to-face situations, consistent with the recommendations of the FATF and of other international core principle standard setters.

There is a rapidly increasing reliance on electronic means for product delivery in the financial services industry, such as through mobile phone payments in the banking sector, as well as in other sectors where services are increasingly being provided on line, such as the emergence in Canada of an on-line casino sector.

The AML/ATF Regime has attempted to accommodate this evolution within the current provisions of the PCMLTFA where possible. For example, it is recognized that a bank statement provided electronically by a financial entity (e.g., downloaded by a client from their online banking account), which includes the individual’s name and supporting deposit account information, may be used to confirm that an individual has a deposit account under the non-face-to-face identification requirements. This could then facilitate the ability for an individual to confirm through an electronic medium that they have a deposit account, which is one of the methods that can be used to ascertain identify in non-face-to-face situations.

New technologies and business models, however, are continually being developed by the financial sector in order to respond to demands for faster, more flexible client services. These services include non-face-to-face transactions and account openings where the customer cannot be physically present at any stage in the process, such as over the Internet or through other interactive computer services, and over the telephone or other electronic data transmissions. Where there are insufficient safeguards in place to properly identify the individuals performing the transactions, these new technologies and business models may give rise to money laundering and terrorist financing risks. At the same time, emerging technology may represent an opportunity to strengthen the application of digital identification and authentication in order to provide a secure means of ascertaining identity without the need for a physical presence.

Advances in digital identification and authentication have been considered by the Task Force for the Payments System Review, which is expected to make final recommendations to the Minister of Finance by the end of the 2011. In reviewing the PCMLTFA, it will be important to consider solutions offered by new technology that can help to mitigate ML /TF risks that may be associated with these service delivery channels.

The Government would like to receive comments from financial institutions regarding the security features that have been included in electronically provided bank statements and that would assist with determining the authenticity of such a statement.

Various reporting entities have identified components of the existing non-face-to-face identification requirements that limit their ability to increasingly use evolving technologies to deliver financial products and services, without requiring an individual or entity to physically submit supporting documentation (e.g., a cleared cheque). This includes limitations with independent data sources that may currently be relied upon by credit card companies and with the requirement that a signature be provided by customers when opening an account.

Proposal 1.3
Non-face-to-face Customer Identification Measures for Credit Card Companies
The Government proposes to review the current non-face-to-face identification requirements for credit card companies in response to concerns that have been raised related to the decreased usefulness of the telecommunications directory as a reliable independent data source to ascertain a client’s identity.

Alternative independent data sources or methods will be considered where consistent with the policy intent of these measures. However, it is not intended that this review will provide reporting entities with access to government databases that are currently restricted under other legislation. The Government is seeking views from the industry on this issue, including the following elements:

  • explanations as to why the credit card industry is unable to use the other non-face-to-face identification methods specified under Part B of Schedule 7 of the PCMLTFR;
  • explanations as to why financial institutions have not established a process to confirm directly to another financial intermediary that a client maintains a deposit account with that institution, where the client has consented to the disclosure of such information; and
  • information on other types of third party sources currently being used by credit card companies to assess account applications and whether these sources could be considered as an alternative to the telecommunications directory.
Proposal 1.4
Record of Signing Authority
The Government proposes to review the requirement that a hand-written signature card, or electronic image of a hand written signature, must be maintained by reporting entities for record-keeping purposes when accounts are opened.

Consistent with the objective of the PCMLTFA, a hand-written signature provides information to law enforcement that may be used in the investigation and prosecution of money laundering and terrorist financing offences. For example, this evidence may be used to assist with the confirmation of an account holder’s identity or the involvement of an individual in the transactions of an account. Any potential changes to this requirement must carefully balance the record-keeping burden that is imposed on reporting entities with the contribution of such information to the successful investigation and prosecution of money laundering and terrorist financing cases in the future.

The Government is seeking views from the industry on this issue, including:

  • clarification as to what kind of technological information reporting entities would propose to maintain where the authority for an account holder to give instructions in respect of an account would be established by electronic means; and
  • the ability for a reporting entity to provide another reporting entity with a copy of a client’s signature card, where a client has consented for that information to be shared.

Politically Exposed Foreign Persons

Politically exposed foreign persons (PEFPs) are defined in the PCMLTFA as persons who are, or have been entrusted with prominent public functions such as heads of state, senior politicians, senior government, judicial or military officials, senior executives of state-owned corporations and important political party officials. As a result of their prominent and influential positions, and their increased possible access to large financial sums, PEFPs are deemed to be at higher risk of money laundering or terrorist financing activities. The PCMLTFA requires certain reporting entities to determine whether a customer is a PEFP when they conduct designated financial transactions or open designated accounts. Reporting entities are required to implement enhanced measures in respect of their customers who are PEFPs.

The G20 has emphasized the use of anti-money laundering tools in the fight against corruption as part of its work to implement the G20 Anti-Corruption Action Plan, and has supported updating and implementing the FATF standards calling for, inter alia, due diligence for politically exposed persons. In particular, FATF Recommendation 6 relating to the treatment of PEFPs provides important guidance.

The Government has identified aspects of Canada’s PEFPs provisions that could be strengthened in order to assist Canada’s important anti-corruption work, provide reporting entities with increased tools to better know their customers and to take appropriate measures based on the risk level of those customers, and to enhance Canada’s compliance with the current[7] FATF Recommendation 6 on foreign politically exposed persons.

FATF Recommendation 6

Financial institutions should, in relation to politically exposed persons, in addition to performing normal due diligence measures:

  1. Have appropriate risk management systems to determine whether a customer is a politically exposed person;
  2. Obtain senior management approval for establishing business relationships with such customers;
  3. Take reasonable measures to establish the source of wealth and the source of funds; and
  4. Conduct enhanced ongoing monitoring of the business relationship.
Proposal 1.5
Amend the Definition of ‘Politically Exposed Foreign Person’ to Include Close Associates
The Government is giving consideration to amending the definition of ‘politically exposed foreign person’ to include close associates of such a person.

 ‘Politically exposed foreign person’ is currently defined in the PCMLTFA as persons holding or having held certain designated high-profile political positions, as well as the immediate family members of those persons. The proposed amendment would provide that, in circumstances in which reporting entities are required to take reasonable measures to determine if a customer is a PEFP, they would also be required to take reasonable measures to determine whether that customer is a close associate of a PEFP.

Proposal 1.6
Require Life Insurance Companies to Determine if Persons are PEFPs when Opening Designated Accounts
The Government is giving consideration to requiring life insurance companies and life insurance brokers and agents to take reasonable measures to determine if persons are PEFPs when opening an investment or loan account for a client, or in respect of existing clients who have investment or loan accounts. Where such persons are determined to be PEFPs, life insurance companies and life insurance brokers and agents would be required to implement all relevant PEFP obligations.

As described later in Proposal 2.4 of this consultation paper, the Government is considering expanding the events that would require life insurance companies and life insurance agents and brokers to perform client identification and record-keeping requirements to include transactions and accounts openings in respect of investment and loan products. The proposed amendment above would follow as a result of Proposal 2.4. Proposal 1.5, if implemented, would also apply to life insurance companies under this Proposal.

Proposal 1.7
Amend Paragraph 54.2(b) and Subsection 57.1(2) of the PCMLTFR
The Government is giving consideration to amending paragraph 54.2(b) and subsection 57.1(2) to clearly provide that reporting entities would be required to assess whether all existing account-holders are PEFPs, where such a determination has not already been made.

Paragraph 54.2(b) and subsection 57.1(2) of the PCMLTFR require financial entities and securities dealers, respectively, to take reasonable measures, based on the level of risk they have assessed, to determine whether persons who are existing account holders are PEFPs. The effect of these provisions is that, where customers have been identified as low risk, reporting entities are not required to determine whether those customers are PEFPs.

Lower Risk Situations

Section 62 of the PCMLTFR exempts reporting entities from conducting customer identification and due diligence measures when they conduct certain transactions or interact with certain types of clients deemed to be at low risk of money laundering or terrorist financing. These exemptions exist primarily in respect of products that are well regulated and structured in such a way to make money laundering difficult (such as structured settlements, registered retirement savings plan accounts or corporate demutualization) or clients who are well-regulated and subject to stringent legislative disclosure obligations (regulated entities such as financial institutions, life insurance companies and pension funds, and public entities such as cities, townships and governments or agencies of the Crown).

Proposal 1.8
Extend Exemptions to Include Listed Corporations
The Government is giving consideration to extending paragraph 62(2)(m) of the PCMLTFR to all corporations whose shares are traded on a Canadian or other foreign stock exchange designated by the Minister under subsection 262(1) of the Income Tax Act.

Under existing requirements, reporting entities are not required to keep records when conducting transactions with public bodies or corporations with a minimum of $75 million net assets whose shares are traded on a Canadian or other designated stock exchange (paragraph 62(2)(m) of the PCMLTFR). Listed corporations are considered to be at lower risk for money laundering and terrorist financing as they are subject to stringent disclosure obligations outside of the PCMLTFA.

Ongoing Due Diligence

Reporting entities have the obligation to confirm the existence of a corporation for which they open an account or conduct a financial transaction. Currently, under the PCMLTFA, the existence of a corporation is confirmed by referring to: a corporation’s certificate of corporate status; a record that is required to be filed by the corporation annually under the applicable provincial securities legislation; or any other record that ascertains its existence as a corporation (such as its published annual report or a letter or notice of assessment from a government). However, the PCMLTFA does not specify how current these documents must be in order to qualify as proof of the existence of a corporation.

Proposal 1.9
The Government is giving consideration to amending the PCMLTFA to specify that any document that is used as proof of the existence of a corporation must be no more than one year old. For greater certainty, it is proposed that acceptable certificates of corporate status could be those that are issued by the competent authority under whose laws the corporation exists.

This proposal would better ensure that corporations do exist at the time they open an account or conduct a financial transaction.  

Identification of Third Parties

The PCMLTFR requires reporting entities to take reasonable measures to collect third party information where a required client information record is created, or where a client conducts large cash transactions or opens an account.

The existing legislative requirement for third party determination is often misunderstood by reporting entities because of conflicting understandings of the term “third party.” For the purposes of the PCMLTFR, it is intended that third parties are those who provide instructions, whereas many reporting entities have interpreted third parties as being those who carry out those instructions.

It is essential to collect information on individuals who are the potential owners of illicit funds, as anonymity of ownership and control can facilitate money laundering and terrorist financing, as well as complicate the seizure of the proceeds of crime during investigations.

Proposal 1.10
The Government is giving consideration to amending the provisions that establish the third party determination requirements, under the PCMLTFR, to replace the term “third party” with “instructing party”.

This amendment would clarify for reporting entities the information that FINTRAC requires. The Government is seeking industry views on whether this change in terminology will provide clearer guidance as to what is required.

Chapter 2 - Closing the Gaps

Eliminating the Electronic Funds Transfers Threshold

Reporting entities are currently required to report to FINTRAC any electronic funds transfer (EFT) of $10,000 or more entering or leaving Canada. These reports are a useful tool to help FINTRAC identify instances of suspected money laundering or terrorist financing.

The $10,000 threshold for reporting EFTs may not be optimal. For example, while money laundering frequently involves large sums of money, cases of terrorist financing may involve smaller amounts of money. The appropriateness of the existing threshold was recently questioned by the Special Senate Committee on Anti-Terrorism in its interim report. The final report ofthe Commission of Inquiry into the Investigation of the Bombing of Air India Flight 182similarly noted the limitations that a $10,000 threshold may present in detecting cases of terrorist financing.

Interim Report of the Special Senate Committee on Anti-Terrorism

The Canadian model for combating terrorist financing is presently based on the approach used for money laundering, which in particular targets cash financial transactions and electronic funds transfers of $10,000 or more. The Committee feels that this threshold, provided for in the PCMLTFA, will result in too many transactions related to terrorist financing going undetected.

Air India Flight 182: A Canadian Tragedy

Terrorist financing can involve much smaller sums than are typically involved in money laundering. The money is processed or transferred in ways that seek, not to disguise its criminal origins, but to disguise its purpose of funding terrorism. Techniques that may work well to identify money laundering, such as a focus on transactions over $10,000, may not work as well to identify those transactions indicative of terrorist financing.

Other jurisdictions are also moving toward lower thresholds. In Australia, all international EFTs must be reported to the Australian Transaction Reports and Analysis Centre. In the United States, the Financial Crimes Enforcement Network has issued a notice of proposed rulemaking, whereby banks would report all international EFTs and money transmitters would report all international EFTs of $1,000 or more.

At the same time, eliminating the $10,000 threshold would require financial entities, casinos and MSBs to increase the number of reports they send to FINTRAC. It would also require an extension of CDD obligations to ensure that financial entities, MSBs and casinos identify all clients remitting or transmitting funds internationally; currently this is only required for transactions in excess of $1,000. The consideration of any change to the existing thresholds would need to balance the privacy rights of individuals and access to financial services for consumers, with the need to combat money laundering and terrorist financing.

Proposal 2.1
The Government is giving consideration to eliminating the threshold at or above which international EFTs must be reported to FINTRAC. This would require financial entities, casinos and MSBs to report all EFTs entering or leaving Canada.

The Government is seeking views on this issue, including the following elements:

  • operational impacts for reporting entities associated with eliminating the threshold;
  • given existing CDD thresholds and other relevant factors, the implications of applying different thresholds for different types of transactions or reporting entities (e.g., a higher threshold for MSBs than for financial entities as per the U.S. model); and
  • examples of any current industry practices, trends, or requirements in other jurisdictions where operations would be relevant to the discussion of an eliminated threshold.

Prepaid Access

Prepaid access encompasses a range of payment technologies, from prepaid cards (such as retail gift cards, or open-loop prepaid cards that could be used to withdraw thousands of dollars from automated teller machines (ATMs) worldwide) to mobile payment devices. A financial product is considered prepaid access if it allows customers to load funds to a product that can then be used for purchases and, in some cases, access to cash or person-to-person transfers. Prepaid access does not include credit or debit products.

Prepaid access is sold by a wide range of businesses, not all of which are subject to reporting requirements under the PCMLTFA. The characteristics of prepaid access could allow for its use in money laundering or terrorist financing schemes. For example, prepaid access devices may offer anonymity, which could make it difficult to trace the origin of funds after a prepaid access device has been purchased. As well, the ability to load significant sums of money onto a single prepaid card could provide a less conspicuous means to transport large monetary amounts than is the case for cash.

There have been increased calls by law enforcement and others to address the potential money laundering and terrorist financing risks posed by prepaid access. Canada’s Special Senate Committee on Anti-Terrorism recommended that the Government examine whether to define prepaid access as monetary instruments under the Cross-border Currency and Monetary Instruments Reporting Regulations. This would result in an obligation for individuals to report the importation or exportation of $10,000 or more in prepaid access products.

Interim Report of the Special Senate Committee on Anti-Terrorism

The Committee recommends that the federal government examine, particularly in anticipation of the statutory review mandated for 2011, the usefulness … to include, in the definition of “monetary instruments,” prepaid cards and mobile communications devices that are used to transfer funds. To that end, the government shall carry out a “cost-benefit” analysis, giving consideration, for example, to costs for the private sector, protection of personal information, and the operational capacity of the Financial Transactions and Reports Analysis Centre of Canada.

The FATF has also made note of the lack of CDD requirements for prepaid access products.

Canada’s Mutual Evaluation Report (2008)

The Royal Canadian Mounted Police (RCMP) acknowledge that such gift cards represent a serious money laundering option, especially in the absence of any money laundering control at retail locations … but there remains nothing in force at the financial institution level that requires them to implement policies and procedures addressing new technologies when face to face identification is not possible.

The United States has recently taken action on prepaid access. In July 2011, the Financial Crimes Enforcement Network passed a final rule requiring providers of certain types of prepaid access to perform CDD, keep customer information and transaction records, have an anti-money laundering program, and report suspicious activities and large cash transactions. In October 2011, the Financial Crimes Enforcement Network formally sought input on making certain prepaid access devices subject to cross-border reporting requirements.

The Government is examining two potential ways to mitigate the possible money laundering and terrorist financing risks posed by prepaid access.

Proposal 2.2
CDD Measures for Providers of Prepaid Access
The Government proposes to review CDD requirements to determine whether to extend these measures to prepaid access devices.

The purpose would be to mitigate potential money laundering and terrorist financing risks associated with the anonymity provided through some of these products. The Government is seeking views on this potential course of action, including the following elements:

  • types of prepaid access devices that should or should not be covered (including the rationale for including or excluding them);
  • who among the several parties involved in providing a prepaid card (e.g., financial institution, payment network, program operator, retailer) should bear the responsibility for the various CDD requirements; and
  • operational impacts for reporting entities associated with potential CDD requirements.
Proposal 2.3
Recognizing Prepaid Access for Cross-Border Currency Reporting Purposes
The Government is examining the issue of expanding the definition of monetary instrument for the purpose of cross-border currency reporting under the Cross-Border Currency and Monetary Instruments Reporting Regulations to include prepaid access.

The Government is seeking views on this issue, including the following elements:

  • types of prepaid access that should or should not be defined as a monetary instrument (including the rationale for including or excluding them);
  • potential obstacles that would prevent, and potential solutions that would allow, border services officers to identify and determine the value of prepaid access products (e.g., ability to recognize or read prepaid cards at the border); and
  • privacy considerations.

Customer Due Diligence and Record-Keeping Requirements for Life Insurance Companies and Life Insurance Agents and Brokers

The PCMLTFR requires life insurance companies and life insurance brokers and agents to identify their customers, keep certain records, and report large cash transactions of $10,000 or more to FINTRAC.

The PCMLTFR specifies that the client identification requirements for life insurance companies, agents and brokers are triggered when a client purchases an immediate or deferred annuity or a life insurance policy for which the client may pay $10,000 or more over the duration of the annuity or policy. This provision was intended to impose requirements on the life insurance industry related to those products that they offered and were considered to be vulnerable to money laundering activities. Certain exemptions to the client identification requirements were implemented to recognize situations that, at the time, were deemed to be low-risk within these product offerings.

The current requirements imposed on life insurance companies and life insurance brokers and agents related to customer identification may fail to adequately address the money laundering risks of the financial products that are now commonly provided in this industry. For example, there is no legislative requirement for life insurance companies, brokers and agents to perform customer identification requirements with respect to loans they offer. These requirements are legislated for other reporting entities. As well, varying practices exist across insurance companies with respect to whether the existing CDD requirements apply to insurance-based investment products, such as segregated funds.

Further, certain life insurance annuities and policies that are currently exempt from client identification requirements are at risk of being abused by criminals and should be subject to these requirements under the PCMLTFR.

Proposal 2.4
The Government is giving consideration to amending the PCMLTFR to expand the client identification and record-keeping requirements applicable to life insurance companies and life insurance brokers and agents beyond the specified purchase of annuities and life insurance policies.
  • Client identification and record-keeping requirements would apply to transactions and accounts openings for investment and loan products offered by life insurance companies, agents and brokers that are not currently captured under the PCMLTFR. The requirements would be comparable to those currently imposed by the PCMLTFA on other financial entities and securities dealers.
  • Eliminating the exemption for income tax purposes and the $10,000 threshold for the cost of an annuity or policy would result in the requirements applying to more annuities and life insurance policies that may provide opportunities for money laundering.

By expanding the client identification requirement to capture more financial products offered by life insurance companies, agents and brokers, the Government would close a gap in the coverage of the current Regime and create a level playing field for entities conducting similar transactions on behalf of clients.

Large Cash Transaction Reports

The introduction of illicit cash into the financial system remains an important means through which criminals can launder funds. Reporting entities are required to report to FINTRAC whenever they receive $10,000 or more in cash. These large cash reporting requirements are a critical tool to assist reporting entities and law enforcement agencies in detecting potential money laundering activities.

These requirements should be revisited to address existing gaps and to ensure that reporting entities report to FINTRAC those transactions that involve financial products at risk of being used for criminal purposes.

Proposal 2.5
Extending Large Cash Transactions Reporting Obligations in the Life Insurance Sector
The Government is giving consideration to amending the PCMLTFR to limit the exemptions for large cash transaction reporting by life insurance companies and life insurance agents and brokers to only those transactions where the origin of funds may be easily identified and determined to be of low risk for money laundering, specifically those identified in paragraphs 62(2)(c) to (f) of the PCMLTFR.

Life insurance companies and life insurance broker and agents are provided with exemptions for reporting large cash transactions for specified transactions where the risk of money laundering activities is negligible because they relate to a well regulated product and the origin of funds for these transactions may be traced with certainty to a specific low-risk source. However, life insurance companies and life insurance agents and brokers have also been provided with exemptions where the origin of funds to purchase specified financial products is unknown and, as such, there is a risk that they will be used for criminal purposes.

Proposal 2.6
Expand the Application of Large Cash Transaction Obligations  
The Government is giving consideration to amending the PCMLTFR to provide that reporting entities would be required to record and report large cash transactions of $10,000 or more, even where the cash would be received on behalf of the reporting entity by an agent or affiliated entity.

This amendment would ensure that the chosen delivery channel does not lead to an unintentional exemption for reporting entities from their obligations to submit large cash transaction reports.

Dealers in Precious Metals and Stones and Accountants

Dealers in precious metals and stones (DPMS) and accountants are currently subject to the PCMLTFA when they provide services or undertake activities that are specified in the PCMLTFR. Various activities are also explicitly exempted in the Regulations to provide greater clarity. Certain activities performed by DPMS and accountants currently trigger reporting requirements beyond the original policy intent.

The Government is giving consideration to amending the PCMLTFR to exclude from reporting requirements additional activities undertaken by the DPMS and accountant sectors.

Proposal 2.7
Clarifying Reporting Obligations for the DPMS Sector
The Government is giving consideration to amending the PCMLTFR to exclude from reporting requirements activities undertaken by the DPMS sector related to the sale or purchase of metals and stones that are used in the manufacturing process.

The characteristics of the above activities are similar to those of other activities performed by DPMS that would not trigger reporting requirements. As such, the proposed amendment would ensure a consistent application of requirements for these entities.

Proposal 2.8
Clarifying Reporting Obligations for the Accountant Sector
The Government is giving consideration to amending the PCMLTFR to exclude from reporting requirements activities undertaken by the accountant sector when providing trustee in bankruptcy services.

The characteristics of the above activities are similar to those of other activities performed by accountants that would not trigger reporting requirements. As such, the proposed amendment would ensure a consistent application of requirements for these entities.

Clarifying the 24-Hour Rule

Reporting entities are required to file various reports for certain transactions performed by, or disbursements received by, individuals and entities. The PCMLTFR sets out these single transactions to include both individual transactions above $10,000 as well as multiple transactions each under $10,000 but totalling $10,000 or greater undertaken by an individual within a 24-hour period. There are deficiencies with the current descriptions of a single transaction under the PCMLTFR, which limit the transactions that must be reported to FINTRAC, contrary to the objectives of the Regime.

Proposal 2.9
The Government is giving consideration to amending the description of “single transaction” in the PCMLTFR to include all transactions, regardless of their amount, conducted on behalf of the same person or entity within a 24-hour period where the combination of those transactions would total to at least $10,000.

This amendment would provide greater certainty for reporting entities with respect to reporting multiple transactions.

Chapter 3 - Improving Compliance, Monitoring and Enforcement

Money Services Business Registration

MSBs have been required to register with FINTRAC since June 2008. In order to apply to register, an MSB must provide identifying information and specified business-related details. Once the initial registration has been accepted, the MSB’s registration must be renewed approximately every two years, on a date specified by regulations.

A recent review of the MSB registration and renewal process has identified measures that could simplify the registration requirements, while still ensuring that they remain effective.

Proposal 3.1
Simplifying MSB Renewal and Registration Requirements
The Government is giving consideration to amending the Proceeds of Crime (Money Laundering) and Terrorist Financing Registration Regulations (PCMLTFRR) to reduce the type of information requested from MSBs applying to register with FINTRAC.

This would ensure that only information that supports the goals of the AML/ATF Regime would continue to be collected from MSBs. As well, this amendment would revoke the requirements in the PCMLTFRR specifying the timing of MSB registration renewal. This would simplify the MSB renewal process and provide flexibility as to when within a two-year period an MSB must renew its application.

Proposal 3.2
Updating the Eligibility Requirement for MSB Registration
The Government is giving consideration to amending the PCMLTFA to ensure that individuals who have been convicted under certain repealed acts are also excluded from registering as MSBs. These acts would include the PCMLA, the Narcotic Control Act, and Parts III and IV of the Food and Drug Act.

The PCMLTFA does not allow individuals convicted under specified legislation to register as an MSB.  However, current provisions do not reference convictions under repealed, older versions of relevant legislation.

Updating the Compliance Program

The PCMLTFA establishes a compliance program that provides FINTRAC with the tools to encourage compliance by reporting entities with their obligations under the Act. This includes the capacity to impose appropriate penalties and sanctions on individuals and entities that are non-compliant with the PCMLTFA and its regulations, consistent with FATF Recommendations. The program provides for a graduated approach, which provides FINTRAC with flexibility to consider a range of tools that would be appropriate to ensure compliance.

FATF Recommendation 17

Countries should ensure that effective, proportionate and dissuasive sanctions, whether criminal, civil or administrative, are available to deal with natural or legal persons covered by…[the FATF Forty Recommendations] that fail to comply with anti-money laundering or terrorist financing requirements.

Proposed changes have been identified that could ensure that enforcement efforts and the administrative monetary penalties regime continue to be effective and efficient in promoting compliance with the PCMLTFA and its regulations.

Proposal 3.3
Non-Compliance with Reporting Obligations
The Government is giving consideration to amending the PCMLTFA to provide FINTRAC with an additional tool to ensure that FINTRAC receives the reports that entities are required to submit under the Act.

Reporting entities may be subject to an administrative monetary penalty when failing to comply with a reporting obligation under the PCMLTFA. For example, this could include a failure to submit a suspicious transaction report, a large cash transaction report, an EFT report or a terrorist property report. Currently, proceedings to address non-compliance with a reporting requirement would typically cease upon payment of the penalty.

The proposed change would enable FINTRAC to direct a reporting entity to file a missing report that is required under the Act and that they have failed to report, even where an initial penalty has been imposed. Where the reporting entity subsequently fails to comply with the request for the report to be filed, FINTRAC would be entitled to impose additional penalties until such time as the reporting entity complies with FINTRAC’s request by filing the report.

Requiring the Documentation of Reasonable Measures

Reporting entities may be required to take reasonable measures to obtain particular information or to make a specific determination when performing due diligence. Examples of obligations based on reasonable measures include third party determination at the time of a large cash transaction and account opening, ongoing monitoring of high risk financial transactions, and identification of an individual for an suspicious transaction report. There is no legislative requirement for reporting entities to keep a record of those “reasonable measures” that they have taken, unless they obtain information or make a determination that would then trigger record keeping obligations.

Proposal 3.4
The Government is giving consideration to requiring reporting entities to document and keep a record of any “reasonable measures” they are required to take under the Act.

This would assist FINTRAC with its monitoring and ensure the compliance of reporting entities with the requirements of the PCMLTFA.

Updating Reporting Forms

The PCMLTFA and itsregulations prescribe the specific information that reporting entities are required to provide for various reporting and registration purposes under the Act. This narrowly defines the information that is required to be included on the form templates provided to reporting entities and limits the Government’s ability to customize the forms to the specific or unique needs of individual industries. As well, the time involved to implement proposed changes to these forms, no matter how small or pro forma, may be lengthy as any modifications must go through the regulatory process and receive Governor-in-Council approval before they can be brought into effect.

Proposal 3.5
The Government is giving consideration to amending the PCMLTFA to provide the Minister of Finance with the authority to update the information requirements contained in reporting and registration forms that reporting entities are required to use when registering or submitting reports to FINTRAC.

This would allow these forms to be updated in a timelier manner, to better reflect the needs of both FINTRAC as well as those of reporting entities.

Cross-Border Currency Reporting

Part 2 of the PCMLTFA establishes the rules regarding the cross-border movement of currency and requires individuals or entities to report to a CBSA officer the importation or exportation of currency or monetary instruments over $10,000. The PCMLTFA currently requires individuals who have completed a cross-border currency report to respond truthfully to questions posed by a CBSA officer with respect to the information contained in the report. CBSA officers have indicated that it would be beneficial for them to also be provided with the authority to pose questions to individuals related to their compliance with the obligations of the PCMLTFA, even when a report has not been completed. This would assist CBSA officers in performing their duties and responsibilities as specified under the PCMLTFA.

Proposal 3.6
The Government is giving consideration to amending Part 2 of the PCMLTFA to provide the authority to CBSA officers to question passengers arriving in or departing from Canada with respect to their responsibilities under the Act and to compel passengers to answer these questions truthfully.

This would be similar to the authorities that are already provided to CBSA officers under the Customs Act, which better enables them to perform their duties and responsibilities as specified under that Act.

Chapter 4 - Strengthening Information Sharing in the Regime

The PCMLTFA established FINTRAC to operate independently from law enforcement agencies, and put in place strict controls governing the collection, use and disclosure of personal financial information. These safeguards were intended to provide a balance between implementing an effective regime that is able to uncover criminal activity, while ensuring that the privacy rights of individual Canadians are protected.

FINTRAC may only disclose information in ways specifically permitted in the PCMLTFA. Namely, the information may be disclosed only to Canadian law enforcement agencies, CSIS, other government agencies designated by legislation and foreign partners with which a memorandum of understanding has been established. Information can only be disclosed when established legal thresholds have been met. Further, the type of information that may be disclosed is limited to “designated information”, as specified in the Act.

Since the implementation of Canada’s AML/ATF Regime, these restrictions to information sharing have been revisited various times to respond to stakeholder concerns. However, stakeholders have identified additional types of information that, if disclosed, would increase the usefulness of the financial intelligence they receive from FINTRAC. As such, additional improvements to information sharing could be considered, without jeopardizing the privacy rights of individuals.

The Report of the 10-Year Evaluation of Canada’s AML/ATF Regime

Finance should lead an Interdepartmental Working Group with representation from Regime partners to determine future steps for continuing to improve the Regime’s compliance with international commitments and to examine the following key issues:

  • Regime-related legislation and regulations (PCMLTFA and related enabling legislation of Regime partners) that may be constraining information sharing with the aim of identifying possible solutions that may require either legislative/ regulatory amendments or operational changes to remove barriers to effective and efficient Regime operations.

Expanding the Information Contained in FINTRAC Disclosures

The designated information that FINTRAC is able to disclose to law enforcement and other agencies with respect to specific cases has been expanded since the implementation of the AML/ATF Regime. This expansion has recognized the value of information collected by FINTRAC to law enforcement and CSIS in pursuing investigations, by providing new facts or leads for investigators in ongoing investigations.

However, Regime partners have identified additional types of information that could further improve the utility of FINTRAC disclosures in pursuing investigations. This issue was raised in the final report of the Commission of Inquiry into the Investigation of the Bombing of Air India Flight 182 and by the Special Senate Committee on Anti-Terrorism.

Air India Flight 182: A Canadian Tragedy

The lack of authority in the PCMLTFA for FINTRAC to disclose information beyond designated information, including its own analysis of the basic financial data, is a significant deficiency. If FINTRAC’s analysis were automatically included in its disclosures of designated information, recipients could make better and more timely use of the disclosure, and the links between FINTRAC and its counterterrorism partners would be strengthened.

Interim Report of the Special Senate Committee on Anti-Terrorism

FINTRAC‘s work against terrorist financing must be more integrated with that of the other agencies so as to provide them with the most useful financial intelligence and to avoid duplication of effort. Under the PCMLTFA, FINTRAC cannot currently, of its own accord, disclose its own analyses of financial intelligence in specific cases, or written explanations justifying disclosure, to national security agencies. As a result, law enforcement agencies and CSIS must re-analyse the intelligence received and essentially repeat any analysis that FINTRAC has already done.

Proposal 4.1
Expanding Designated Information
The Government is giving consideration to expanding the current list of designated information that FINTRAC can disclose to law enforcement and intelligence agencies to also include:
  • an individual’s gender and occupation; 
  • the grounds for suspicion developed by international partner Financial Intelligence Units;
  • information contained in the narrative section of cross-border seizure reports;
  • a description of the actions taken by reporting entities when making a suspicious transaction report; and
  • information setting out the “reasonable grounds to suspect” that FINTRAC has determined would enable it to make a disclosure.

The objective of expanding the information available in FINTRAC disclosures is to enhance the critical identifiers and investigative links that law enforcement and intelligence agencies can use to further money laundering and terrorist financing investigations while respecting the privacy and Charter rights of Canadians.

Proposal 4.2
Expanding Information in Intelligence Products
The Government is giving consideration to allowing FINTRAC to identify foreign individuals and entities in the intelligence products it provides under section 58 of the PCMLTFA to law enforcement, government institutions, or a foreign agency that has similar powers and duties, in those cases where the identification of the individual or entity would be important to the context of the financial intelligence.

Under section 58, FINTRAC may provide intelligence products to broadly inform stakeholders on the areas of money laundering and terrorist financing (rather than disclosures related to a specific individual or case). Expanding the information available in these intelligence products would improve the value of these products by providing additional information to better understand the context of broad developments in this area. This could assist partners in linking the financial intelligence provided by FINTRAC to other intelligence they have in their possession.

Providing the authority for FINTRAC to identify foreign individuals and entities in these intelligence products would be an extension to an existing disclosure authority in Part 1.1 of the Act, which is not yet in force. Specifically, under Part 1.1, FINTRAC may, at the request of the Minister, disclose information, including information that identifies a foreign entity, to authorities specified by the Minister for the purpose of carrying out ministerial powers and duties under Part 1.1 of the Act.

Information Sharing to Detect and Deter the Funding of Terrorism Through Registered Charities

The CRA Charities Directorate administers the scheme for the registration of charities under the Income Tax Act. The Charities Directorate contributes to the Government’s efforts to combat terrorist financing by undertaking activities aimed at preventing organizations with ties to terrorism from obtaining registration and detecting and revoking the registration of already registered charities with ties to terrorism.

The Charities Directorate receives information from various government institutions, where appropriate, to assist it with its responsibilities for preventing the exploitation of registered Canadian charities to finance terrorist activities, including from CSIS, the RCMP and FINTRAC.  

The PCMLTFA specifies the specific circumstances that would require FINTRAC to disclose to the CRA information suspected to be relevant to money laundering or terrorist financing offences. It is intended that, in general, disclosures would be permitted where they would be of assistance to the CRA’s decision-making process regarding whether to grant or revoke a charitable registration.

The CRA Charities Directorate has cited the importance of these tactical disclosures by FINTRAC in identifying previously unknown or suspect targets.  However, the CRA has also identified limitations in the existing PCMLTFA disclosure provisions which, if amended, would better assist the Directorate with its responsibilities of administering and enforcing the charities registration system. The Report of the 10-Year Evaluation of Canada’s AML/ATF Regime echoed this concern.

The Report of the 10-Year Evaluation of Canada’s AML/ATF Regime

Improved information sharing, as noted by the Auditor General in 2004 and still cited by the Regime partners in 2010 as needing further effort, has the potential to improve the efficiency and effectiveness of Regime operations. Some Regime partners have highlighted a number of areas where information sharing among the partners could be more open, in their view, without jeopardizing privacy or national security. Those areas follow: ...

  • The PCMLTFA does not contain provisions that permit CBSA to share information with CRA-Charities.
Proposal 4.3 
Disclosures of Charities Information by the CBSA
The Government is giving consideration to amending Part 2 of the PCMLTFA to allow the CBSA to disclose to the CRA Charities Directorate cross-border seizure reports related to forfeited currency or monetary instruments suspected to be linked to the activities of a charity.

The proposed amendment would allow the CBSA to proactively disclose directly to the CRA information obtained at the border that could assist with the determination of a charity’s registration status.

Proposal 4.4
Disclosure of Information on Charities by FINTRAC
The Government proposes to review the provision that enables FINTRAC to disclose to the CRA information related to registered charities in order to facilitate its ability to provide proactive disclosures.

The PCMLTFA requires FINTRAC to disclose information to the CRA to assist with its responsibilities to administer and enforce both the tax system and the registration system for charities under the Income Tax Act. With respect to the latter, the PCMLTFA generally requires FINTRAC to disclose designated information to the CRA where, in addition to suspicions of money laundering and terrorist financing, there are reasonable grounds to suspect that the information is relevant to determining whether a registered charity has ceased to comply with its registration requirements or whether a person or entity, which FINTRAC has reasonable grounds to suspect has applied to be a registered charity, is eligible to be registered as such.

The proposed amendment would seek to clarify the conditions under which FINTRAC would disclose to the CRA related to the activities of a charity in order to facilitate its ability to provide proactive disclosures.

Disclosures to Support Border Services

The PCMLTFA currently requires that FINTRAC disclose information to the CBSA when, in addition to a suspicion of money laundering or terrorist activity financing, it also determines that the information would be relevant to supporting the CBSA to perform its specified responsibilities related to administering immigration and customs programs.   

The CBSA has identified situations where FINTRAC disclosures could provide more information that would improve the efficiency of its investigations related to border services that support the Government’s national security priorities.

Proposal 4.5  
Disclosures of Customs Information
The Government is giving consideration to amending paragraph 55(3)(e) of the PCMLTFA to require FINTRAC to disclose information relevant to a money laundering or terrorist financing offence to the CBSA where it would also be relevant to an offence related to illegal exportations.

This would address a gap in the current provisions by ensuring that disclosures made by FINTRAC would be consistent with the CBSA’s responsibilities related to administering programs for both the importation and exportation of goods that are prohibited, controlled or otherwise regulated.

Proposal 4.6  
Disclosures to Support National Security Initiatives
The Government is giving consideration to amending the PCMLTFA to require FINTRAC to disclose designated information to the CBSA where there would be reasonable grounds to suspect that it would be relevant for the purpose of managing the access of people and goods to and from Canada that pose a threat to national security.

This amendment would increase the utility of FINTRAC’s disclosures to the CBSA by providing financial information in a timely manner that could assist the CBSA with its responsibilities for detecting and preventing potential threats to national security. This would recognize that where a threat to national security is suspected at the border, the potentially lengthy process involved in first establishing reasonable grounds for suspecting money laundering or terrorist financing may delay the receipt of relevant information from FINTRAC and, as a result, decrease its usefulness to the CBSA for protecting Canadians.

Disclosures of Information by FINTRAC

The PCMLTFA currently requires that FINTRAC disclose information to an appropriate police force where there are reasonable grounds to suspect that designated information would be relevant to investigating or prosecuting a money laundering or terrorist financing offence.

It is possible that information collected by FINTRAC could also assist with investigations where an individual’s life is in danger. Precedents exist in other government legislation, whereby it is recognized that exceptions to very strict disclosure conditions should be permitted where it is related to the imminent danger of physical injury or death of an individual.

Proposal 4.7
The Government is giving consideration to allowing FINTRAC to disclose to a police force information that would assist with an investigation for the purpose of preventing the death of, or imminent physical injury to, an individual.

Chapter 5 - Countermeasures

Countermeasures

Amendments to the PCMLTFA were introduced as part of Budget 2010. These amendments introduced two new authorities for the Minister of Finance:

  • the authority to issue directives that require reporting entities to take countermeasures in respect of transactions originating from or destined to designated foreign jurisdictions and foreign entities; and
  • the authority to recommend that the Governor-in-Council issue regulations limiting or prohibiting reporting entities from entering into transactions originating from or destined to designated foreign jurisdictions and foreign entities.

Both the directive and the regulation making authorities allow the Minister to take steps to protect the integrity of Canada’s financial system from foreign jurisdictions and foreign entities that are deemed to be high risk for facilitating money laundering and terrorist financing.

The two new authorities for the Minister have not yet been brought into force. The new Ministerial authorities would be brought into force in conjunction with the regulatory amendments detailed in this paper.

In order to clarify the application of the Minister’s new authorities, the Government proposes to implement regulations that will provide greater detail and certainty to reporting entities and other stakeholders as to how the use of these powers will be undertaken. These regulatory amendments would:

  • prescribe a list of specific countermeasures that the Minister, when issuing a directive, can require reporting entities to take in respect of a designated foreign jurisdiction or foreign entity;
  • define the term ‘foreign entity’, in order to provide further guidance to reporting persons and entities as to the types of entities that may form the subject of a directive or a regulation limiting or prohibiting business; and
  • update the existing Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalty Regulations (PCMLTFAMPR) to allow for administrative monetary penalties to be issued to reporting entities that are in violation of a directive or a regulation.
Application of Countermeasures

One new Ministerial authority permits the Minister of Finance to issue directives to reporting entities subject to the PCMLTFA. A directive permits the Minister to deem that a foreign jurisdiction or foreign entity is at heightened risk for facilitating money laundering and terrorist financing in the following circumstances:

  • an international body or organization has called on its members to take measures on the grounds that the foreign jurisdiction or entity’s AML/ATF measures are ineffective or insufficient, or
  • the Minister is of the opinion that the ineffectiveness or insufficiency of the jurisdiction or entity’s AML/ATF measures could cause an adverse impact or reputational risk to the integrity of Canada’s financial system.  

When a directive is issued, the Minister may require that a reporting entity implement designated countermeasures when conducting financial transactions originating from or destined to that designated jurisdiction or entity.

These countermeasures, which reporting entities may be required to implement, would fall into any of the following six categories:

  • verification of client identity;
  • exercise of CDD, including ascertaining the source of funds of a transaction, the purpose of a transaction, or the beneficial ownership or control of any entity;
  • monitoring of financial transactions or accounts;
  • record keeping and retention;
  • financial transaction reporting; and
  • compliance.

The application of the Minister’s directive authority will be clarified through regulations that would aim to provide greater detail and certainty as to what types of countermeasures may be implemented. These regulations would prescribe a list of specific proposed countermeasures that the Minister may require reporting persons and entities to undertake when a directive is issued. The list of proposed countermeasures is provided later in this chapter.

The prescribed list of proposed countermeasures is not exhaustive, but it is designed to cover the majority of circumstances that could arise when intervention in the form of a directive is deemed necessary.

As noted earlier, the prescribed list of proposed countermeasures does not constitute the entirety of the Minister’s new powers. In the most serious cases, the Minister may recommend that the Governor-in-Council issue regulations limiting or prohibiting transactions with designated foreign jurisdictions or foreign entities. Regulations made under these circumstances will not be further discussed in this Chapter as they would only be made on a case-by-case basis, and only when necessary.

Scope of Countermeasures

Countermeasures are designed to be enhancements of reporting entities’ existing obligations under the PCMLTFA. They would apply to the same range of activities to which reporting entities’ legislative obligations already apply; namely, prescribed financial transactions, account openings, signing of signature cards and any other relevant legislated or regulated activity.   

The terms of each directive would set out in detail exactly what countermeasures reporting entities would be required to undertake and the circumstances in which those new obligations would become applicable. For instance, a directive would clearly state the frequency at which countermeasures would be required to be undertaken, the threshold at which such countermeasures would apply and any other relevant information necessary to assist reporting entities to comply with their obligations.

Countermeasures are not designed to apply beyond the scope of the transactions and activities that are regulated under the PCMLTFA. Notwithstanding the use of such terms as ‘all transactions’ or ‘any transaction’, any individual directive or countermeasure issued by the Minister would be intended only to apply to those classes or types of transactions that are subject to the PCMLTFA. Reporting entities would not be required to apply countermeasures to classes or types of transactions that are not already covered by legislation or regulation, such as cheque cashing.

Similarly, reporting sectors would not be required to apply countermeasures beyond the scope of the products and activities that are already covered by existing legislation. If the provisions of the PCMLTFA do not provide that a reporting sector should comply with certain classes of obligations, that reporting sector would likewise not be required to implement a countermeasure that applies to those same obligations.

For instance, the PCMLTFR does not require certain reporting sectors (such as accountants, dealers in precious metals and stones, and real estate brokers and developers) to report international EFTs. Consequently, a directive would not require these sectors to comply with a countermeasure setting out an enhanced EFT reporting requirement.

Depending on the context in which it is issued, not every directive would necessarily apply to all reporting sectors uniformly. For example, if the circumstances so require, a given directive could apply only to financial entities, money services businesses and securities dealers, but would not apply to casinos and dealers in precious metals and stones. In order to avoid any uncertainty, the text of each directive would specify which transactions, activities and reporting sectors are covered. A list of proposed countermeasures is set out in Annex A of this paper.

Proposal 5.1
The Government proposes to implement regulations that will list specific countermeasures that the Minister, when issuing a directive, could require reporting entities to take in respect of a designated foreign jurisdiction or foreign entity, as set out in Annex A.

Definition of ‘Foreign Entity’

The Minister’s new authorities are designed to protect the integrity of Canada’s financial system from foreign jurisdictions and foreign entities that are deemed to be at high risk for facilitating money laundering and terrorist financing. Reporting entities may be required to take specified countermeasures in respect of transactions originating from or destined to a particular foreign jurisdiction or foreign entity.

A definition of ‘foreign jurisdiction’ was part of the amendments to the PCMLTFA that were introduced through Budget 2010. These legislative amendments also provide that the definition of ‘foreign entity’ is to be prescribed by regulation. A proposed definition of ‘foreign entity’ is provided in Annex B.

The prescribed definition would limit the scope of a ‘foreign entity’ to the same range of sectors and professions as those domestic sectors that are subject to the PCMLTFA pursuant to section 5 of the Act. These are the sectors that have been identified as being at highest risk for money laundering and terrorist financing, and as a result, if misused for these purposes, could pose a risk to the stability of Canada’s financial system.

The regulatory definition does not include branches and subsidiaries of Canadian entities or Canadian entities operating overseas, as these entities are already required to develop and apply policies and procedures consistent with the record-keeping, client identification and compliance program obligations of the PCMLTFA under sections 9.7 and 9.8.

Proposal 5.2
The Government proposes to define the term ‘foreign entity’ as set out in Annex B.

Chapter 6 - Other Proposals

In addition to the proposals outlined in the preceding chapters, the Government is giving consideration to a number of other related amendments to the PCMLTFA and the PCMLTFR.

Proposal 6.1
Broadening the Requirement to Report Suspicious Transactions

Reference: PCMLTFA, section 7

The Government is giving consideration to broadening the requirement to report suspicious transactions to encompass activities conducted for the purpose of a financial transaction.

The legislation currently requires reporting entities to report suspicious transactions. The PCMLTFA provides that a suspicious transaction is any financial transaction that occurs or is attempted in the course of a reporting entity’s activities that gives rise to a suspicion of money laundering or terrorist financing.

Under this proposal, the PCMLTFA would be amended to set out that a suspicious transaction is any financial transaction that occurs or is attempted, including an activity undertaken for the purpose of a financial transaction, in the course of a reporting entity’s activities that gives rise to a suspicion of money laundering or terrorist financing. This would clarify that reporting entities would be required to submit a suspicious transaction report if, for example, an account application were considered suspicious.

Proposal 6.2
Submitting Reports to FINTRAC

Reference: PCMLTFA, subsection 12(5)

The Government is giving consideration to requiring the CBSA to submit cross-border currency reports to FINTRAC both physically and electronically.

The legislation currently requires the CBSA to submit to FINTRAC completed and incomplete cross-border currency reports they receive from individuals. Though it is not a legislative requirement, in practice, the CBSA has been providing FINTRAC with both the paper copies of these reports and the electronic transmission of the information included in these reports. This facilitates FINTRAC’s data collection by providing reportable information in a format that may be queried. This proposal would formalize this existing operational arrangement.

Proposal 6.3
Amending the Threshold for Non-compliance Disclosures  

Reference: PCMLTFA, subsection 65(1)

The Government is giving consideration to replacing the term “ is evidence of” with “would be relevant to” in order to clarify the threshold that would enable FINTRAC to disclose compliance-related information to law enforcement by more broadly referencing information that it suspects on reasonable grounds would be relevant to investigating or prosecuting specified compliance-related offences.

The existing threshold for disclosing compliance information to law enforcement is inconsistent with the scope of FINTRAC’s mandate; it is not responsible for investigating or prosecuting contraventions of the provisions of the PCMLTFA. As a result, while FINTRAC may make a determination on the relevance of information it collects to investigating and prosecuting certain offences, it is unable to determine whether that information could be used as evidence.

Proposal 6.4
Amending Obligations Related to Client Credit Files

Reference: PCMLTFR, paragraphs 14(i) and 30(a)

The Government is giving consideration to amending CDD and record-keeping requirements to clarify that financial entities are required to create a client credit file when they enter into a credit arrangement with a client, and to repeal the obligation for MSBs to maintain a client credit file.

Currently, financial entities are required to keep a client credit file, as defined by the Act, where it is created in the normal course of business.  Certain reporting entities have interpreted this requirement as providing unintended exemptions for creating client credit files and for maintaining records of these files. For greater clarity, this amendment would clarify that financial entities are required to both create, and keep records of, a client credit file when entering into a credit arrangement with a client.

As well, this amendment would recognize that MSBs do not conduct credit arrangements and, therefore, should be excluded from this record-keeping requirement.

Chapter 7 - Technical Amendments

The Government is also proposing a number of technical amendments.

Legislative Amendments

Proposal 7.1
Subsection 36(1.1) and paragraph 55(3)(d)
Add a reference to immigration related offences described under section 91 of the Immigration and Refugee Protection Act (IRPA).

The legislation currently allows FINTRAC to disclose information to the CBSA, and enables the CBSA to share cross-border reporting information internally, when it would be relevant in the administration of immigration legislation. This proposal would ensure that immigration offences recently recognized under an amended IRPA would also be recognized under the PCMLTFA for the purpose of information sharing.

Proposal 7.2
Paragraph 40(d)
Add a reference to “the financing of terrorist activities” with respect to FINTRAC’s responsibilities to enhance public awareness and understanding of specified matters.

This amendment would ensure that FINTRAC’s responsibilities with regard to enhancing public awareness and understanding shares the same scope as other aspects of FINTRAC’s mandate.

Regulatory Amendments (PCMLTFR)

Proposal 7.3
Paragraphs 14(n) and 14.1(g)
Amend paragraphs 14(n) and 14.1(g) by replacing any reference to paragraph 67.1(b) with paragraph 67.1(1)(b).

This amendment would clarify the reference to the relevant paragraph.

Annex A - List of Proposed Countermeasures

A. Enhanced Verification of the Identity of any Person or Entity

Frequency of Customer ID

1. Require any person or entity to whom section 5 of the PCMLTFA applies to:

  1. Ascertain the identity of every person opening such an account or conducting such a transaction  in accordance with paragraph 64(1)(a) of the PCMLTFR;
  2. Confirm the existence of and ascertain the name and address of every corporation for which an account is opened or that conducts such a transaction in accordance with section 65 of the PCMLTFR, including ascertaining the names of the corporation’s directors; or
  3. Confirm the existence of every entity, other than a corporation, for which an account is opened or that conducts such a transaction, in accordance with section 66 of the PCMLTFR

on the first occasion of the transaction after the directive or at any time thereafter as specified by the Minister.

2. Require any person or entity who confirms the existence of a corporation or entity in accordance with sections 65 and 66 of the PCMLTFR to refer to a specified number or type of records issued within a specified time from the date of verification, that demonstrate the continued existence and active operation of the corporation or entity.

Methods of Ascertaining Customer ID

3. Require any person or entity who ascertains the identity of a person in accordance with paragraph 64(1)(a) of the PCMLTFR to refer to a specified number or type of documents used to ascertain the identity of a person.

4. Require that any person or entity who ascertains the identity of a person to do so only in accordance with paragraph 64(1)(a) of the PCMLTFR.

Information on Directors or Beneficial Ownership

5. Require any person or entity to whom section 11.1 of the PCMLTFR applies to:

  1. obtain and take reasonable measures to ascertain the name, address and occupation of all persons who own or control, directly or indirectly,
    1. 10 per cent or more of the shares of the corporation; or
    2. 10 per cent or more of the entity;
  2. obtain and take reasonable measures to ascertain the name, address and occupation of all persons who own or control, directly or indirectly,
    1. 5 per cent or more of the shares of the corporation; or
    2. 5 per cent or more of the entity; or
  3. ascertain the name and address and obtain the occupation of every director of the corporation and ascertain the identity of all persons who own or control, directly or indirectly, the corporation or entity;

and keep a record of such information and the measures taken to acquire it.

6. Require any person or entity to whom section 11.1 of the PCMLTFR applies, where the confirmation is in respect of a trust, to

  1. ascertain the name and address and obtain the occupation of every beneficiary and settlor of the trust funds; and
  2. ascertain the name and address and obtain the occupation of every trustee of the trust

and keep a record of such information.

Third Party Identification

7. Require any person or entity to whom section 8, 9 or 10 or paragraph 14(m), 30(e) or 43(f) or subsection 44(1) of the PCMLTFR applies to:

  1. Determine whether the individual or entity conducting the transaction or opening the account is acting on behalf of a third party; and
    1. If the individual or entity conducting the transaction or opening the account is acting on behalf of a third party, take reasonable measures to ascertain the identity of the third party or confirm its existence; or
    2. If the individual or entity conducting the transaction or opening the account is acting on behalf of a third party, ascertain the identity of the third party or confirm its existence; and
  2. Keep a record of the measures taken to ascertain or confirm such information.
Correspondent Banking Relationships

8. Require any financial entity that enters into a correspondent banking relationship where the customer of the foreign financial institution has direct access to services provided under the correspondent banking relationship, to: 

  1. Ascertain whether the foreign financial institution has, in respect of those of its customers that have direct access to accounts of the financial entity, met requirements that are consistent with requirements of the Act with respect to ascertaining identity and measures for ascertaining identity; and
    1. Obtain the relevant customer identification data; or
    2. Take reasonable measures to ascertain the customer identification data for those customers of the foreign financial institution that will have direct access to its accounts; and
  2. keep a record of the measures taken to obtain or ascertain that customer information data.

B. Exercise of Customer Due Diligence

Special Attention

1. Require any person or entity who is required to perform a risk assessment in accordance with subsection 9.6(2) of the PCMLTFA to:

  1. take into account any FATF advisory issued in respect of a specified foreign jurisdiction as part of its risk assessment;

2. Require any person or entity who is required to establish and implement a compliance program in accordance with section 9.6 of the PCMLTFA to:

  1. treat transactions originating from or destined to a specified foreign entity or foreign jurisdiction, or accounts held by a specified entity or a person in a specified foreign jurisdiction as high risk for the purposes of subsection 9.6(3) of the PCMLTFA;
  2. implement the special measures prescribed in section 71.1 of the PCMLTFR; and
  3. keep a record of the measures taken to implement the prescribed special measures.

3. Require any person or entity to whom section 5 of the PCMLTFA applies to:

  1. have senior management review and approve any specified transaction for the purposes of detecting reportable transactions under section 7 of the PCMLTFA; and
  2. keep a record of the name of the member of senior management who has approved the transaction and the date of the review and approval.
Transaction Information

4. Require any person or entity to whom section 5 of the PCMLTFA applies to:

  1. take reasonable measures to determine the purpose of any specified transaction; and
  2. keep a record of the information obtained and the measures taken to obtain such specified information

5. Require any person or entity to whom section 5 of the PCMLTFA applies to:

  1. determine the purpose of any specified transaction; and
  2. keep a record of the information obtained and the measures taken to obtain such specified information

6. Require any person or entity to whom section 5 of the PCMLTFA applies to:

  1. take reasonable measures to determine the source of funds of any specified transaction; and
  2. keep a record of the information obtained and the measures taken to obtain such specified information

7. Require any person or entity to whom section 5 of the PCMLTFA applies to:

  1. determine the source of funds of any specified transaction; and
  2. keep a record of the information obtained and the measures taken to obtain such information
Correspondent Banking Relationships

8. Require any financial entity that enters into a correspondent banking relationship with foreign financial institutions located in a specified foreign jurisdiction or with a specified entity to:

  1. Conduct enhanced ongoing monitoring of all specified transactions conducted in the context of the correspondent banking relationship for the purpose of detecting suspicious transactions;
  2. Ascertain from the financial regulator in the foreign financial institution’s jurisdiction whether there are any criminal, civil or administrative penalties that have been imposed on the foreign financial institution in respect of AML/ATF requirements, and if so, consider terminating the relationship; or
  3. Obtain senior management approval to establish a new correspondent relationship;

And keep a record of the measures taken to meet these obligations.

Third Party Identification

9. Require any person who has determined, in accordance with sections 8, 9 or 10 of the PCMLTFR, that any person or entity undertaking any transaction is acting on behalf of a third party, or any person keeping a record under paragraph 14(m), 30(e) or 43(f) or subsection 44(1) to: 

  1. Have senior management review, or review and approve the transaction for purposes of detecting suspicious transactions and keep a record of the name of the member of senior management who has reviewed or approved the transaction and the date of the review or approval;
  2. Take reasonable measures to obtain information as to the purpose of the transaction; or
  3. Take reasonable measures to obtain information as to the source of transaction funds for the transaction;

And keep a record of the measures taken to meet these obligations.

C. Monitoring of any Financial Transaction or Account

1. Require any person or entity to whom section 5 of the PCMLTFA applies to:

  1. conduct enhanced ongoing monitoring of any designated transactions; and
  2. keep a record of the measures undertaken to conduct such ongoing monitoring.

2. Require any person or entity to whom section 8, 9 or 10 of the PCMLTFR applies and who has determined that an individual or entity conducting a transaction or opening an account is acting on behalf of a third party, to:

  1. conduct enhanced ongoing monitoring of the activities in respect of the account for purposes of detecting suspicious transactions; and

keep a record of the measures undertaken to conduct such ongoing monitoring.

D. Record-Keeping 

1. Any person or entity to whom section 5 of the PCMLTFA applies shall keep a record of any specified transaction originating from or destined to a specified jurisdiction or entity.

E. Reporting

1. Any person or entity to which section 9 of the Act applies shall report to the Centre any transaction, as specified by the Minister.

Note:  The type of information to be reported would be specified in the directive itself.

Annex B - Proposed Definition of Foreign Entity

The Minister of Finance may issue directives or recommend that the Governor-in-Council issue regulations in respect of transactions originating from or destined to foreign jurisdictions and foreign entities. The Government is proposing to define ‘foreign entity’ for the purposes of these powers. A foreign entity would be one that meets the following three criteria:

1. engaged in the business, or carrying on the activity of any of the following:

  • providing financial services including lending money and accepting deposits;
  • insuring risks, such as a life insurance company or life insurance broker or agent;
  • providing trust and loan services including acting as a formation agent of legal persons or acting as a trustee, executor, administrator, liquidator or guardian of property;
  • a dealer in securities or other financial instruments, or supplier of portfolio management services or investment advisory services;
  • foreign exchange dealing, of remitting funds or transmitting funds by any means or through any person, entity or electronic funds transfer network, or of issuing or redeeming money orders, traveller’s cheques or other similar negotiable instruments;
  • providing legal services to the public;
  • providing accounting services to the public;
  • selling or purchasing of real estate; 
  • buying or selling precious metals, precious stones or jewellery; or
  • a casino, or an on-line casino,

2. incorporated or formed or operating in a country other than Canada, including any branch or subsidiary of that entity; and

3. not otherwise subject to the Act.

List of Abbreviations

AML - Anti-money laundering
ATF - Anti-terrorist financing
ATI Act - Access to Information Act
ATM - Automated teller machines
CBSA - Canada Border Services Agency
CDD - Customer due diligence
Charter - Canadian Charter of Rights and Freedoms
CRA - Canada Revenue Agency
CSIS - Canadian Security Intelligence Service
DPMS - Dealers in precious metals and stones
EFT - Electronic funds transfer
FATF - Financial Action Task Force
FINTRAC - Financial Transactions and Reports Analysis Centre of Canada
IRPA - Immigration and Refugee Protection Act
MSB - Money services businesses               
OPC - Office of the Privacy Commissioner
PCMLA - Proceeds of Crime (Money Laundering) Act
PCMLTFA - Proceeds of Crime (Money Laundering) and Terrorist Financing Act
PCMLTFAMPR - Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalty Regulations
PCMLTFRR - Proceeds of Crime (Money Laundering) and Terrorist Financing Registration Regulations
PCMLTFR - Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations
PEFP - Politically exposed foreign person
RCMP - Royal Canadian Mounted Police

Links to Important Documents

10-Year Evaluation of Canada’s Anti-Money Laundering and Anti-Terrorist Financing Regime

2009 Audit Report of the Financial Transactions and Reports Analysis Centre of Canada (Privacy Commissioner of Canada)

Air India Flight 182: A Canadian Tragedy (Final Report of the Commission of Inquiry into the Investigation of the Bombing of Air India Flight 182)

Financial Transactions and Report Analysis Centre Annual Report 2011

Financial Action Task Force Recommendations

Proceeds of Crime (Money Laundering) and Terrorist Financing Act

Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations

Security, Freedom and the Complex Terrorist Threat: Positive Steps Ahead (Interim Report of the Special Senate Committee on Anti terrorism)


[1] With respect to lawyers, the provisions of the PCMLTFA that apply to lawyers are in force but are inoperative as a result of a court ruling and related injunctions. This ruling has been appealed. Accordingly, if any proposals are implemented, they could apply to lawyers if future court decisions result in the legislation becoming operative in respect of the legal profession.

[2] The Department of Finance accepted comments for this consultation until December 16, 2011.

[3] Reporting entities include banks, credit unions and caisses populaires, centrals, trust and loan companies, securities dealers, life insurance companies, brokers or agents, real estate brokers or sales representatives, real estate developers, accountants and/or accounting firms, British Columbia notaries, money services businesses, casinos, dealers in precious metals and stones, and agents of the Crown that accept deposit liabilities or sell money orders.

[4] Report of the 10-Year Evaluation of Canada’s AML/ATF Regime

[5] The provisions of the PCMLTFA that apply to lawyers are in force but are inoperative as a result of a court ruling and related injunctions. This ruling has been appealed. Accordingly, if any proposals are implemented, they could apply to lawyers if future court decisions result in the legislation becoming operative in respect of the legal profession.

[6] Subsection 56(2) exempts a life insurance company or life insurance broker or agent from ascertaining the identity of a person where there are reasonable grounds to believe that the person’s identity has been ascertained by another life insurance company or life insurance broker or agent in respect of the same transaction or of a transaction that is part of a series of transactions that includes the original transaction. Paragraph 62(1)(b) exempts reporting entities from ascertaining the identity of a client for the opening of an account for the sale of mutual funds where there are reasonable grounds to believe that identity has been ascertained by a securities dealer in respect of either the sale of mutual funds for which the account has been opened, or a transaction that is part of a series of transactions that includes that sale.

[7] Current FATF Recommendations refers to the FATF’s 40 Recommendations on Money Laundering and 9 Special Recommendations on Terrorist Financing that were revised and adopted in June 2003 and used during the FATF’s third round of mutual evaluations. The FATF’s evaluation of Canada’s compliance with these standards was reported on by the FATF in February 2008.