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The Canadian Life and Health Insurance Association Inc.'s Submission in Response to Finance Canada's Enhancing Canada's Anti-Money Laundering and Anti-Terrorist Financing Regime consultation:

Submission

To: Diane Lafleur, Director, Financial Sector Division, Department of Finance

From: Canadian Life and Health Insurance Association Inc.

Date: September 22, 2005

Re: Comments regarding the Department of Finance's proposed changes to Canada's Anti-Money Laundering and Anti-Terrorist Financing Regime

The Canadian Life and Health Insurance Association (CLHIA) appreciates this opportunity to provide input as requested by the June 30, 2005 Consultation Paper "Enhancing Canada's Anti-Money Laundering and Anti-Terrorist Financing Regime".

The CLHIA, established in 1894, is a voluntary association with member companies which account for 99 per cent of Canada's life and health insurance business.

The proposed changes to the current anti-money laundering (AML) and anti-terrorist financing (ATF) regime will have an immediate and lasting impact upon the life and health insurance industry both in Canada and on operations of Canadian financial institutions abroad. Life insurers are unique among the financial institutions covered under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). This uniqueness is due in part to the length of their client relationships and the in-depth personal and health information required to obtain their products and services. Insurers are not as transaction-oriented as deposit-taking institutions which must manage frequent deposits and withdrawals. Insurers also have unique distribution networks consisting of sales agents (whether captive or independent), Managing General Agents (MGAs) and Associate General Agents (AGAs) as well as wholesale distribution channels with banks, credit unions, caisses populaires and securities firms. Each of the distribution channels used by insurers have their own obligations under the law. In turn, these obligations work effectively to mitigate the AML/ATF risks to insurers.

Under the proposed changes to the law many of the record-keeping and compliance requirements are being duplicated between distribution channels and the insurer resulting in insurers incurring expenses to duplicate the efforts of their distribution partners. In addition, there is little evidence that such efforts have proven successful in other jurisdictions. In the United Kingdom, for example, the Financial Services Authority (FSA) has begun to revamp its AML/ATF compliance regime to meet industry concerns regarding over-regulation, the high cost of compliance and the impact upon the competitiveness of the financial service industry in general. See Appendix A Anti-Money Laundering Requirements: Costs, Benefits and Perceptions, Corporation of London, June 2005, and Appendix B Reviewing the FSA Handbook, FSA (July 2005).

Moreover, there has been leveling of AML/ATF laws and regulations worldwide in order to meet the international standards set out by the Financial Action Task Force (FATF). As a result, local laws have become similar throughout the global marketplace allowing branches and subsidiaries of financial institutions to rely upon local laws, regulations and guidance in order to meet the substantive obligations of the laws, regulations and guidance of their home jurisdiction.

It is strongly felt by CLHIA member companies that the most effective way for the Department of Finance to address AML/ATF compliance would be to assist financial institutions with their programs by increasing the usefulness of the prescribed terrorists lists, by providing illustrations of AML incidents encountered by Canadian financial institutions and on analysis of current trends by product or lines of business. Canadian authorities would benefit from the wisdom gained in the UK where the emphasis has shifted towards assisting financial institutions with their existing compliance programs rather than increasing the AML/ATF compliance burden.

The proposals that are most relevant to the life and health insurance industry are outlined below together with comments regarding their impact on life insurers, in particular, and the insurance industry in general:

PROPOSAL 1.4 – Suspicious Transactions and Doubtful Client Information:

The Government proposes to amend the PCMLTF Regulations to require reporting entities subject to Part 1 of the Act to take certain measures in the following situations:

  • When there is a suspicion of money laundering or terrorist financing and the identity of the client has not previously been ascertained, the reporting entity should identify and verify the customer's information. In this situation, verification should be undertaken only to the extent that it can be accomplished without "tipping off" the customer about the suspicion.
  • When there is a suspicion of money laundering or terrorist financing, and there are doubts about the veracity or adequacy of previously obtained customer information, the reporting entity should repeat the process of identifying and verifying the customer's information. In this situation, verification should be undertaken only to the extent that it can be accomplished without "tipping off" the customer about the suspicion.

CLHIA Commentary:

It would be difficult to "identify and verify" customer information for individual clients post sale, particularly if insurers have to contact clients directly or obtain the information through advisors. This is even more problematic given the qualification that verification should only be done to the extent that it would not tip off the client. It is not normal procedure for life companies to go back to the client and ask to re-verify ID once the policy has been issued. Therefore the likelihood of tipping off the client is very great. In addition, it is unclear as to what is expected of reporting entities in terms of "verifying" customer information.

PROPOSAL 1.5 – Politically Exposed Persons:

The Government proposes to amend the PCMLTFA and related regulations to require that for transactions above a certain threshold, when there are reasonable grounds to suspect that a new or existing customer is a foreign or domestic Politically Exposed Person (PEP), as defined under the regulations, reporting entities would have additional responsibilities. These entities would need to:

  • Have appropriate risk management systems in place to determine whether a customer is a PEP;
  • Take reasonable measures to establish the source of funds;
  • Conduct enhanced ongoing monitoring of the business relationship; and
  • Obtain senior management approval to enact the transaction, open the account or continue the business relationship.

CLHIA Commentary:

Significant modifications to business practices and systems would likely be required to comply with this proposal. The definition of "PEP" would be pivotal in meeting this obligation. Compliance and enforcement would be challenging if the definition is vague. How would insurers know if an individual is PEP? Can the industry expect FINTRAC or OSFI to publish a reliable PEP list with sufficient accompanying detail to facilitate assessment of potential matches? Also, upon what grounds would a life insurance company be able terminate an existing relationship/contract? Does the Finance Department intend to provide a safe harbour for contracts terminated under such conditions? Moreover, the impact of this proposal would be dependent upon the dollar threshold implemented. What would the threshold be and how would it be measured (e.g., initial face value of policy, initial amount invested, first premium received or other measures)? Would the product exemptions apply?

PROPOSAL 1.7 – Exemptions for Lower Risk Situations:

  • Amend the PCMLTF Regulations to exempt the following types of transactions from the client identification and record-keeping requirements:
  • The opening of an income trust reinvestment plan account sponsored by a fund manager for its investors, unless the account is funded in whole or in part by a source other than the fund manager;
  • The opening of a supplemental unemployment benefit plan account or a retirement compensation arrangement plan account unless the account is funded in whole or in part by contributions by a person or entity other than the employer;
  • The opening of an employee disability, dental, medical or benefit plan account governed under the Income Tax Act unless the account is funded in whole or in part by contributions by a person or entity other than the employer; or
  • Accounts established for the holding of securities in trust pursuant to the escrow requirements of Canadian securities regulators.
  • Extend the record-keeping exemptions to the range of transactions that are exempt from the client identification requirements under the current regulations.

CLHIA Commentary:

A risk-based approach is extremely important to managing the implications (and compliance costs) of the client record-keeping/identification and third party/beneficial owner determination requirements. It would be essential that the exemptions apply uniformly across the requirements unless there is valid reason to vary the application of an exemption. (See also comments under Proposal 1.10 – ID of Third Parties and Beneficial Owners).

An expansion of existing exemptions (i.e. Sec. 56(2) and 57(5) of the Regulations) that allow for reliance on client identity verification conducted by another similar organization with respect to the same transaction (or series of transactions) is highly recommended. Currently the exemption is sector-specific. The industry would like to see amendments that would allow a company to rely on the client identification already completed by an affiliate of that company regardless of sector (e.g., bank, credit union, caisse populaire, insurance company and securities firm).

CLHIA members are also concerned that the further exemptions proposed in the Consultation Paper are qualified, i.e. unless the account is funded in whole or in part by contributions by a person or entity other that the [employer] or [fund manager]. This is problematic in that an insurer collects the required information (for client ID, third party determination) through applications forms that are specific to its various products and services. Applications used for products that are otherwise exempt may not contain the necessary questions to collect the required information. An insurer would need to decide whether to revise all of its applications to ask for the client ID/third party determination information regardless of exemptions that apply, or leave the forms as they are and follow-up for missing information if the funding should come into question.

The second sub-bullet mentioned retirement compensation arrangements (RCA) and supplemental unemployment benefit plan accounts. Life insurance policies, especially retail universal life policies, could be used for these purposes, as a funding vehicle but the insurer is often not privy to the plan details. Are insurers now required to verify RCAs and supplemental unemployment plans? Why has a similar exemption not been granted for the reinsurance business?

PROPOSAL 1.8 - Agents or Introducers:

The Government proposes to amend the PCMLTF Regulations to allow any reporting entity to rely on another person or entity to ascertain the identity of their customer provided that the reporting entity has a contractual arrangement with the person or entity for the purpose of ascertaining customer identity. The agent would be required to ascertain customer identity in person by referring to a government-issued identity document as required under the regulations.

Under this provision, the reporting entity would have to obtain customer information from the person or entity ascertaining customer identity on its behalf and would be required to keep the records specified under the regulations. However, the ultimate responsibility for complying with the requirements would remain with the reporting entity.

CLHIA Commentary

: Agents have their own obligations under the Act and related regulations and we believe that these obligations should continue. The definition of agent was reviewed during the consultation period for OSFI's B-8-Detecting and Deterring Money Laundering Guideline. The term "Agents" was confirmed to exclude insurance agents since they have their own reporting obligations under the PCMLTFA and its regulations. However, if the definition is intended to change and if agents are not to continue to have their own obligations then this proposal may require insurance companies to revisit contractual agreements with advisors and other distribution channels to ensure that explicit provisions are set out. It may even require a right of audit provision to test those processes. Consideration should be given to allow for existing contractual arrangements to be revised at renewal or a reasonable time for endorsement to the existing contracts by appending a schedule regarding this obligation.

PROPOSAL 1.9 - Non-Face-to-Face Customer Identification Measures:

The Government proposes to consult with reporting entities to establish appropriate non-face-to-face client identification requirements for financial entities, securities dealers, money service businesses and foreign exchange dealers. Such requirements would apply when the customer is not physically present at the time the client identification requirements are triggered (i.e. transactions conducted on the Internet, by phone or by mail) and identity cannot be ascertained in person by the reporting entity or an agent by referring to a government-issued identity document.

The appropriate measure or combination of measures would be based on the money laundering or terrorist financing risks associated with different types of financial services, and would ensure that customer identification is as reliable as in face-to-face situations. Baseline criteria have to be established in respect of client identification measures, whether documentary or not. Examples of such measures could include:

  • Confirming that a cheque drawn by the person on an account of a financial entity subject to the PCMLTFA has been cleared;
  • Confirming that the person's identity was ascertained by a financial entity as prescribed by the PCMLTF Regulations in a face-to-face situation; and
  • Verifying the customer's identifying information using an independent source such as a business information services company.

CLHIA Commentary:

This proposal should be extended to include life and health insurers in the list of reporting entities that may establish non face-to-face client identification procedures.

PROPOSAL 1.10 – Identification of Third Parties and Beneficial Owners:

The Government proposes to amend the PCMLTF Regulations to require that, in every situation where customer identification requirements are triggered, reporting entities also obtain third party and beneficial owner information and take reasonable measures to verify this information.

  • This requirement would not apply to situations that are explicitly exempt from the client identification requirements under the regulations.

Third Parties

  • Reporting entities would be required to determine whether the customer is acting on behalf of a third party and obtain, verify and keep records of the name, address and occupation of all third parties, as well as their relationship to the customer.

Beneficial Owners

Corporations and Business Customers

  • When the customer is a business, reporting entities would be required to obtain, verify and keep records of the name, address and occupation of all natural persons who own or control, directly or indirectly (for example through the ownership of a legal entity), more than 10 per cent of a corporation or partnership.

Non-Profit Organizations (NPO)

  • When the customer is an NPO, reporting entities would be required to obtain, verify and keep records of the name, address and occupation of all senior officers and directors.
  • They would also be required to determine whether the NPO is soliciting, as defined under the Canada Not-for-profit Corporations Act, and keep a record of this information.
  • They would also need to take reasonable measures to determine whether the NPO is a charity registered with the Canada Revenue Agency (CRA) and, if so, obtain and keep records of the CRA registration number and confirmation of the registration by referring to the CRA website or other means.

Trusts

  • In respect of a trust, reporting entities would be required to obtain, verify and keep records of the name, address and occupation of all settlers and all living beneficiaries of the trust.
  • Reporting entities would also be required to take reasonable measures to establish the source of funds.

CLHIA Commentary:

The added requirement to verify third-party information is problematic and could be expensive relative to: (i) the acquisition cost of the business and/or (ii) the size of the policy. This is an excessive and unjustified penetration into the business structure and organization of a corporate customer. It may be unwarranted for an insurer to ask the customer, being one of the many subsidiary companies of a large international group or even a local group with a complicated structure to trace through its different levels of parent company one by one. The role of an insurance company is to have control measures to identify and avoid suspicious transactions or customers, within a reasonable risk identification framework, and report them accordingly to the responsible authorities. Insurers should not be placed with the undue burden to investigate their customers and examine their business without proper justification.

The statement in the proposal that reporting entities "take reasonable measures to verify this information" is unclear. Clarification is needed.

The verification of third party information should be limited to information that is publicly readily available; otherwise every insurer will have to incur the expenses of searching and documenting non-public information. Depending on the type of relationship between the third-party and the client, there may be confidentiality and privacy issues preventing the insurer or the agent from verifying such information. The requirements for partnerships and private corporations are even more onerous. Obtaining the information could be challenging to start with and verifying it would likely require subscription to an external service like Equifax or D&B, adding costs. Corporate searches, for example, do not return this information on shareholders and verifying the occupations of the shareholders of any corporation cannot be done through any public channels. The same is generally true for partnerships and NPOs. The only public information source for registered charities is the CRA website. While the site offers some very useful information on registered charities, we are not certain it has everything the proposal asked for.

The Finance Department should also exclude large public companies which by their very nature should require less verification time and effort. Finance should also consider the establishment of a national registry for entities to facilitate the verification of third party identification through a national identification number upon which financial institutions could rely for identification purposes.

There is a need to clarify exemptions that will apply to third party/beneficial owner determination. Currently, the third party determination requirements are tied to exemptions related to client record-keeping vs. client identification (the former provides narrower exemptions and the latter broader exemptions).

PROPOSAL 1.11 – Ongoing Due Diligence:

The Government proposes to amend the PCMLTF Regulations to require that reporting entities:

  • Monitor their business relationships with their customers, including transactions, on an ongoing basis; and
  • Implement procedures to ensure that customer information remains up-to-date.

CLHIA Commentary:

Again, a risk-based approach is very important in legislating ongoing due diligence requirements as proposed. Insurers would need to have very clear and understood exemptions for lower risk products/services and clients.

The proposal is open-ended in terms of keeping client information up-to-date. For example, how often would a life insurance company need to update corporate client information (director/officer changes, beneficial ownership, etc.)? The proposal would require significant business process changes with supporting system changes. This would be costly.

Moreover, insurers would need to understand the expectations for "monitoring" transactions, i.e. automated vs. manual capabilities. Automated monitoring presents significant business challenges in terms of system solutions to be developed and implemented, as well as the need for additional resources to run and analyze reports. The industry wishes to reiterate its view that monitoring requirements must be risk-based.

While CLHIA member companies strive to maintain up-to-date information (especially addresses and contact information) on clients, life insurance is a very long-term business. Updating information with the insurer is not on top of mind of policyholders. There are not many business reasons to verify ID on an on-going basis (peoples IDs don't change over time). The industry would like to know what kind of information the regulators have in mind (Occupation? Net worth?) Clients are typically reluctant to provide too much information, especially financial information, unless there are good reasons for doing so.

PROPOSAL 1.12 - EFT Customer Due Diligence and Record-Keeping Requirements:

The Government proposes to amend the PCMLTF Regulations to require that a financial entity, money service business, foreign exchange dealer, securities dealer or casino initiating a domestic or international electronic funds transfer (EFT) at the request of a client, regardless of the amount, ascertain the identity of the client and keep records of the following information:

  • Name and address of the client;
  • Account number or reference number;
  • Telephone number of the client;
  • Name and address of the person on whose behalf the EFT is made;
  • Type and number of identity document; and
  • Name and address of the beneficiary.

CLHIA Commentary:

N/C

PROPOSAL 1.13 - Client Information Transmission:

The Government proposes to amend the PCMLTFA to require that reporting entities conducting EFTs on behalf of their customers (i.e. financial entities, money service businesses, foreign exchange dealers, securities dealers and casinos) implement the following measures with respect to international EFTs:

  • When initiating outgoing international EFTs, the reporting entity should include, at a minimum, the first two information elements of Proposal 1.12 above in the EFT message;
  • When the reporting entity acts as an intermediary in the EFT payment chain, it should ensure that the above originator information remains with the EFT message; and
  • When the reporting entity is the recipient of an EFT, it should take reasonable measures to ensure the EFT includes the above originator information.

CLHIA Commentary:

This proposal appears to raise the issue of changing the information transmission standards used by banks and money market organizations and will largely be dependent on these entities ensuring that their systems incorporate this data in the wire transmission, CDs, etc.

PROPOSAL 2.1 – Attempted Transactions:

The Government proposes to amend the PCMLTFA and related regulations to explicitly include the reporting of suspicious attempted transactions.

  • All reporting entities that are currently obligated to report suspicious transactions under Part 1 of the Act would be required to report suspicious attempted transactions. Guidance would be provided to reporting entities to assist them in determining when to report.
  • The current form and manner of suspicious transaction reporting would remain unchanged except for the addition of information indicating that the transaction was not completed.
  • At a minimum, reasonable efforts should be made to obtain the name and address of the individual undertaking the transaction and the amount of the transaction.
    The same record-keeping requirements in place for suspicious transactions would also apply to attempted suspicious transactions.

CLHIA Commentary:

If partial or incomplete suspicious transaction reports are considered to be of little or no value to law enforcement officers then this requirement is unnecessary. Agents generally do not collect client information before anything else is discussed and trying to collect any information once the client decided not to proceed would be futile. The proposal would mean that FINTRAC would be inundated by partial reports of questionable value which, based upon media reports concerning the ability of law enforcement to act on suspicious transaction reports, would seem like an ineffective way to manage attempted transactions. The Department of Public Safety and Emergency Preparedness should ask for more resources to allow the RCMP/CSIS to follow up on existing filings before the law changes requiring more filings.

PROPOSAL 3.2:

The Government proposes to create an Administrative Monetary Penalties (AMP) regime to deal with individuals and entities that do not comply with the requirements of the PCMLTFA. The key features of this regime would include:

  • A clear description of the violations under the PCMLTFA and related regulations to be dealt with through the use of AMPs. These violations would include failure to:
  • Identify clients and keep appropriate records;
  • Report suspicious transactions, large cash transactions, electronic funds transfers and terrorist property;
  • Implement an appropriate compliance regime, including the appointment of a designated compliance officer and the establishment of appropriate policies, procedures and training programs for employees.
  • Provide accurate, timely and complete reports and information to FINTRAC; and
  • Cooperate with a FINTRAC compliance officer.
  • A clear schedule of graduated penalty amounts would be established following appropriate consultations with reporting entity stakeholders.
  • Penalties would be established in regulations and would be assessed by FINTRAC in accordance with clearly established criteria.
  • A Notice would be issued to entities that do not comply, which identifies the nature of the violation and the amount of the penalty.
  • The Notice would review the range of options available to the offender, including the right to appeal and the recourse to a defence of due diligence; and
  • The name of the offender and details of the violation would be made available on FINTRAC's website.
  • AMPs would be used as a complementary compliance tool to criminal sanctions, which will continue to be available to deal with the most severe violations (e.g., willful non-compliance). The capacity to impose an array of AMPs when persons or entities demonstrate non-compliance with AML/ATF laws will enhance FINTRAC's overall compliance program.

CLHIA Commentary:

This proposal prompts very serious concern, particularly if the proposed customer due diligence and monitoring proposals become legislation. What if FINTRAC is wrong? Presumably there will be an appeal process that will prevent an organization's name from being posted without having been informed of the breach and being given an opportunity to explain and address the problem. As it currently stands, the Privacy Commissioner of Canada does not name the organization in any privacy incident findings. We have no issue with the posting of penalties but the naming of organizations should only take place when the non-compliance is egregious.

PROPOSAL 5.1 – Creating a New AML/ATF Advisory Committee:

To support the management framework of Canada's anti-money laundering and anti-terrorist financing regime, the Government proposes that an AML/ATF advisory committee be established. The committee would have the following key characteristics:

  • The committee's mandate would be to advise the Government on issues of common interest and develop approaches for dealing with emerging issues;
  • The committee would serve as a discussion forum among various public sector and private sector stakeholders in Canada;
  • The committee would comprise about 20-25 senior representatives from the public and private sectors;
  • Private sector representatives would include the Canadian banks and other deposit-taking institutions, insurance companies, securities dealers, money service businesses, and other affected sectors;
  • The committee would meet twice a year (or more frequently if necessary), with the option of using a working group structure to examine selected issues in greater detail; and
  • The committee would be chaired by the Department of Finance.

CLHIA Commentary:

The creation of an advisory committee is viewed as a positive development. However, the amount of weight that legislators and regulators would give to this committee's insights and recommendations would be a determining factor of effectiveness. The industry strongly feels that such a committee should also serve as a means to (a) escalate concerns about the applicable legislative regime, costs/benefits, improvement needs, and (b) recommend alternative means to achieve objectives when increased regulation is under consideration.

PROPOSAL 6.1 - Bundled Electronic Funds Transfers

Reference: PCMLTF Regulations, section 3

Amendment

Clarify the reporting requirements in respect of bundled electronic funds transfers (EFT)

Explanation

Under the regulations, two or more EFTs sent on behalf of the same customer in a 24-hour period and that total $10,000 or more must be reported to FINTRAC. Currently, when an EFT message contains instructions in respect of a transfer from a single customer to several beneficiaries (bundled EFT), it would be reportable as a single transaction if the aggregate amount exceeds $10,000. The proposed amendment would clarify that such EFTs are not reportable as one transaction, but rather any EFT in the bundle is reportable on an individual basis if it exceeds $10,000. The provision would apply in respect of institutional and commercial transactions such as salary and pension payments.

CLHIA Commentary:

This proposal would help "financial entities" reduce the number of false reports that obviously have no PCMLTF impact.

PROPOSAL 6.2 - Beneficiary Information in EFTs

Reference: PCMLTF Regulations, section 28

Amendment

Establish a provision ensuring the reporting of beneficiary information in EFTs.

Explanation

EFTs entering Canada may be handled by one or more reporting entities before they reach the ultimate beneficiary. Under the current regulations, an incoming international EFT must be reported by the first reporting entity to process it as it enters Canada. As such, that entity may not have all the information on the customer who is the ultimate beneficiary. Under the proposed amendment, if the name and address of the beneficiary is not provided in the EFT message, the reporting entity that is the ultimate recipient of an international EFT would be required to report the EFT even if it is not the first reporting entity to handle the EFT as it enters Canada. The proposed amendment, which mirrors a similar provision on outgoing EFTs, would ensure that FINTRAC receives the beneficiary information.

CLHIA Commentary:

N/C

PROPOSAL 6.5 - Canada Revenue Agency-Issued Business Numbers

Reference: PCMLTF Regulations, schedules 1 to 6

Amendment

Require reporting entities to obtain and report business numbers.

Explanation

When ascertaining the identity of a customer that is a business, the proposed amendments would require reporting entities to obtain its CRA-issued business number. It would also require the business number to be reported to FINTRAC on a suspicious or prescribed transaction report.

CLHIA Commentary:

Since insurers are already required to verify existence of entities, this would be redundant. If the CRA business number is considered a better piece of information, why not drop the requirement for verifying existence? In fact, most small businesses recognize their business number more than their legal corporate name or incorporation number.

PROPOSAL 6.7 - Third Party Determination Requirement for Business Account

Reference: PCMLTF Regulations, section 7

Amendment

Clarify that the exemption from the third party determination requirement when an employee deposits cash in their employer's account applies only in respect of a business account.

Explanation

Under the regulations, an employee depositing cash in an employer's account is exempt from third party determination requirements. The proposed amendment would clarify that the exemption applies only in respect of cash deposited in the employer's business account and not an employer's personal account.

CLHIA Commentary:

N/C

PROPOSAL 6.8 - Terrorist Property Reports

Reference: PCMLTFA, section 7.1

Amendment

Require reporting entities to report to FINTRAC terrorist assets frozen under the United Nations Suppression of Terrorism Regulations and other related statutes.

Explanation

Currently, reporting entities are required, in addition to reporting to the RCMP and CSIS, to report to FINTRAC when they are in the possession of assets of a terrorist entity listed under the Criminal Code. The proposed amendment would require them to report to FINTRAC in respect of the assets of terrorists listed under the United Nations Suppression of Terrorism Regulations and other related statutes.

CLHIA Commentary:

Many institutions notify the RCMP and CSIS about possible suspected terrorist matches in an effort to determine whether they have an actual match requiring the freezing of assets. Is it the intent of this proposal that all terrorist notifications to the RCMP and CSIS, even if only a possibility, be copied to FINTRAC? If so, will FINTRAC expect that those assets under suspicion be frozen then requiring ministerial intervention to unfreeze the assets of the wrongly suspected and will the safe harbour under the PCMLTFA be extended to protect FRFIs against lawsuits arising from such filings? Finally, it is worth considering that in the USA FINCEN implemented a similar regime early in its mandate only to drop it because of the number of false leads it had to deal with. It is reasonable to anticipate that FINTRAC's experience will be similar to that of FINCEN.

PROPOSAL 6.10 - Application to Foreign Branches

Reference: PCMLTFA, section 5

Amendment

Clarify that Part 1 of the Act applies to branches of financial entities and insurance companies located outside Canada.

Explanation

Reporting entities such as banks and insurance companies have branches outside Canada. The amendment would clarify that reporting requirements under Part 1 apply to the extent that local laws and regulations permit, while client identification, record-keeping and compliance requirements apply in all cases.

CLHIA Commentary:

Although the PCMLTFA refers to "branches", in practice, regulators appear to have interpreted "branches" to include "subsidiaries" of Canadian financial institutions. Will the revised law clearly exclude subsidiaries?

Because of the application of Canadian statutory obligations on a foreign branch, arguably the "branch" would be required to freeze assets of a suspected terrorist that is on the Canadian terrorist list but not also on a local list. What protection would be afforded to the Canadian financial institution if it were to be sued for such action because legislation in the foreign jurisdiction would not extend its safe harbour in those circumstances? Moreover what ability would FINTRAC have to investigate a customer in a foreign jurisdiction?

Is it not reasonable therefore to allow local laws to govern the reporting, identification, record-keeping and compliance requirements of branch operations as well as subsidiaries especially when all such laws are converging to the FATF framework and therefore local laws and guidance are in large part similar to those of Canada? That said, in certain jurisdictions the insistence upon the Canadian standards may also have a negative impact on the competitiveness of the Canadian branch or subsidiary.

PROPOSAL 6.12 - Compliance Regime

Reference: PCMLTFA, Part 3

Amendment

Include an explicit requirement in the PCMLTFA for reporting entities to implement a compliance regime.

Explanation

The requirement for reporting entities to establish a compliance regime is linked to their obligations under Part 1 of the Act. This requirement is prescribed in the regulations, but not in the Act. The proposed amendment would add clarity and certainty by adding an explicit corresponding requirement under the Act.

CLHIA Commentary:

N/C

PROPOSAL 6.13 - Providing Documents to Compliance Officers

Reference: PCMLTFA, section 5

Amendment

Require that documents requested by a FINTRAC compliance officer be produced at a site determined by FINTRAC.

Explanation

The amendment would allow FINTRAC to conduct examinations in its own offices and avoid having to request a search warrant for reporting entities that operate in dwelling houses that deny FINTRAC access to their premises.

CLHIA Commentary:

We are not aware of CLHIA members operating in dwelling houses.

PROPOSAL 6.14 - Compliance Questionnaires

Reference: PCMLTFA, section 62

Amendment

Require that reporting entities complete and return compliance questionnaires sent by FINTRAC.

Explanation

Currently, reporting entities are not compelled to complete compliance questionnaires. The amendment would allow FINTRAC to require that these questionnaires be completed and returned for risk-assessment purposes.

CLHIA Commentary:

Are we right to assume that these will be "privileged" and offered protection from public information access, etc.?

PROPOSAL 6.15 - Statute of Limitations for Non-Compliance Infractions

Reference: PCMLTFA, Part 5

Amendment

Extend to five years the one-year limit in respect of non-compliance infractions proceeding by summary conviction.

Explanation

Currently, the statute of limitations for non-compliance infractions is one year in the event that the Crown elects to proceed by summary conviction. Extending to five years the statute of limitations for non-compliance infractions proceeding by summary conviction would provide the Crown greater flexibility to determine if it wishes to prosecute a non-compliance infraction.

CLHIA Commentary:

N/C

CONCLUSION

CLHIA member companies very much appreciate this opportunity to provide comments on proposals of concern to life and health insurers regarding changes to the existing AML/ATF regime. The industry stands ready to assist the Department of Finance, in any way it can, as the consultation process moves forward. Please do not hesitate to contact J-P Bernier, Vice President and General Counsel, CLHIA, if clarification or further information is needed. Once the CLHIA comments have been considered by the Finance Department it is felt that a meeting with finance officials would greatly benefit industry participants.


(This document, which is not a Government of Canada paper, is available only in PDF format)

Appendix A: Anti-Money Laundering Requirements: Costs, Benefits and Perceptions, Corporation of London, June 2005.

Appendix B: Reviewing the FSA Handbook, FSA (July 2005).