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ATB's Submission in Response to Finance Canada's Enhancing Canada's Anti-Money Laundering and Anti-Terrorist Financing Regime consultation:

September 30, 2005

Diane Lafleur
Director, Financial Sector Division
Department of Finance
140 O'Connor Street
Ottawa, ON K1A 0G5

TRANSMITTED VIA E-MAIL TO: fcs-scf@fin.gc.ca

Dear Ms. Lafleur,

RE: Enhancing Canada's Anti-Money Laundering and Anti-Terrorist Financing Regime – Consultation Paper

ATB Financial welcomes the opportunity to comment on the consultation paper "Enhancing Canada's Anti-Money Laundering and Anti-Terrorist Financing Regime" and is pleased to provide the following submission.

Introduction

ATB Financial is a $16.1 billion, full service financial institution operating in Alberta. It is the largest deposit-taking institution headquartered in Alberta and the second largest deposit-taking institution headquartered in western Canada. Our organization operates 150 branches and 131 agencies throughout Alberta, and serves over 600,000 Albertans through 231 ABM machines and a Call Centre in Calgary. At June 30, 2004, ATB Financial's retained earnings were $1.2 billion and outstanding loans stood at $13.6 billion. Our wealth management line of business, Investor Services, has assets under management and administration of approximately $1.6 billion. Key target markets for ATB Financial since inception have been the agriculture and independent business sectors. We are the largest lender to primary producers and independent business in Alberta with about $3 billion in outstanding loans.

ATB Financial is subject to its own legislation and provincial laws of general application. ATB Financial operates independently from the Province of Alberta, subject to the Alberta Treasury Branches Act and policy direction contained in a Memorandum of Understanding ("MOU") with the Minister of Finance. The MOU mirrors certain federal policy and regulatory provisions relating to low-cost retail accounts. In addition, the Minister of Finance has approved five regulatory guidelines closely modelled after OSFI guidelines. As a direct clearer with the Bank of Canada, ATB Financial is also subject to the rules of the Canadian Payments Association.

General Comments

ATB Financial believes that any legislation under review should only be retained or refined if to do so is in the public interest. In determining whether legislation is in the public interest, the potential harm or risk associated with the failure to legislate should first be considered. Thereafter, that harm or risk should be weighed against the benefits of legislation. If the benefits outweigh the harm, a multiple of solutions should be considered. Ultimately, the least intrusive solution ought to be selected. In many instances, industry self-regulation through a self-regulatory organization (SRO) should suffice.

ATB Financial supports the Government's commitment to fight against money laundering and terrorist financing through a regime that also respects the personal privacy of Canadians and minimizes the compliance burden on reporting entities.

The remainder of this submission will focus on the Proposals that have been identified in the Consultation Paper as being relevant to Crown corporations that take deposits, as well as on a number of ancillary Proposals relevant to ATB Financial.

Proposal 1.4

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.

ATB Financial does not support this Proposal. The first situation is incongruous in that it contemplates remedial measures to be taken when a reporting entity has not complied with the existing requirement to ascertain the identity of its clients. In any event, reporting entities should not be required to take these measures pursuant to the PCMLTF Regulations because the assessment of whether these verifications can be accomplished without "tipping off" the customer about the suspicion is inherently subjective and thereby introduces some ambiguity in how the PCMLTF Regulations are applied.

If reporting entities are required to take such measures, there should be some latitude by Government in ascertaining whether reporting entities are in fact adequately taking these measures.

ATB Financial also suggests that any additional requirements be phased-in to permit reporting entities to develop or refine policies, procedures and processes and to train staff in relation to any additional requirements.

Proposal 1.5

The Government proposes to amend the PCMLTFA and 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 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 politically exposed person;
  • 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.

ATB Financial submits that for reporting entities to comply with this Proposal, the PCMLTFA and regulations must clearly define the term "politically exposed person" and clearly set out the steps that reporting entities must take to fulfill these additional responsibilities.

In any event, the assessment of whether there are reasonable grounds to suspect that a new or existing customer is a foreign or domestic politically exposed person is inherently subjective; although it will be less so if there is a definition, if reporting entities are required to fulfill such additional responsibilities, there should be some latitude by Government in ascertaining whether reporting entities are in fact adequately fulfilling these responsibilities. ATB Financial also suggests that any additional responsibilities on reporting entities be phased-in to permit reporting entities to develop or refine risk management systems and processes required to meet these responsibilities.

Proposal 1.6

The Government proposes to amend the PCMLTFA and regulations to require financial entities to take the following steps before entering into a correspondent banking relationship:

  1. Obtain all relevant information on the activities and operations of the respondent bank, including its regulation and its anti-money laundering and anti-terrorist financing controls.
  2. Obtain approval from senior management before establishing a new correspondent relationship.
  3. Document the respective responsibilities of each institution.
  4. Ensure that the respondent bank conducts appropriate due diligence and can provide relevant customer identification information for clients using "payable-through accounts."

The Government will also consider measures to prohibit financial entities from entering into or continuing a correspondent banking relationship with a shell bank, that is, a bank that has no physical presence in any country, or a respondent bank that permits its accounts to be used by a shell bank.

ATB Financial supports this Proposal.

Proposal 1.7

  • 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.

ATB Financial agrees that these types of transactions are lower risk transactions. Consistent with the objective of seeking the least intrusive solution and Government's commitment to minimize the compliance burden on reporting entities, ATB Financial supports this Proposal.

Proposal 1.8

When customer identity cannot be ascertained in person by the reporting entity, the Government proposes two options:

  • relying on an agent or introducer; or
  • using specific non-face-to-face customer identification measures.

ATB Financial submits that agents and introducers be defined to include, but not be limited to, real estate brokers, sales representatives, accountants and accounting firms, and lawyers who refer a prospective customer to the reporting entity. As such, they should be required to ascertain the identity of the prospective customer, as they have the first contact with the prospective customer. ATB Financial submits that in order to be effective, Government's fight against money laundering and terrorist financing must be embraced not only by reporting entities, but also by all such agents and introducers. This must occur by requiring agents and introducers to ascertain the identity of prospective customers. Accordingly, FINTRAC Guideline 4 – Implementation of a Compliance Regime, should be enhanced and amended to include client identification and record keeping requirements for agents and introducers.

Proposal 1.9

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.

ATB Financial welcomes the opportunity for consultation and therefore supports this Proposal.

Proposal 1.10

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

  • 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.

ATB Financial supports the requirement to keep records of the identity of third parties, beneficial owners and settlers and living beneficiaries of a trust if the reporting entity is aware that the customer is acting on behalf of a third party, is a beneficial owner or a trustee. However, ATB Financial does not support the requirement to determine whether the customer is acting on behalf of a third party, is a beneficial owner or a trustee, as this is often extremely difficult to determine.

ATB Financial submits that the requirements to take reasonable measures to determine whether the NPO is a charity registered with the Canada Revenue Agency and to take reasonable measures to establish the source of funds of a trust are inherently subjective and thereby introduce some ambiguity in how the PCLMLTF Regulations are applied. If reporting entities must fulfill these requirements, reasonable measures to determine whether the NPO is a charity registered with the Canada Revenue Agency could be stipulated as consisting of checking a list of such registered charities posted on the Canada Revenue Agency website.

In any event, there should be some latitude by Government in ascertaining whether in fact the reporting entities are adequately meeting these requirements. ATB Financial suggests that any additional requirements be phased-in to permit reporting entities to develop or refine policies, procedures and processes and to train staff in relation to any additional requirements.

Proposal 1.11

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.

ATB Financial suggests that the onus should be on the reporting entities, not the Government, to develop the processes and procedures by which to monitor their business relationships with their customers and to ensure that customer information remains up-to-date. Therefore, new regulations are not required.

Proposal 1.12

The Government proposes to amend the PCMLTFA Regulations to require that a financial entity, money service business, foreign exchange dealer, security dealer or casino initiating a domestic or international 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.

ATB Financial suggests that any additional EFT customer due diligence and record keeping requirements be phased-in to permit reporting entities to develop or realign policies, procedures and processes and to train staff in relation to any additional requirements.

Proposal 1.13

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

  • When initiating outgoing international EFT's, the reporting entity should include, at a minimum, the first two information elements above the EFT message:
  • When 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.

ATB Financial supports this Proposal and suggests that any additional requirements be phased-in to permit reporting entities to develop or refine policies, procedures and processes and to train staff in relation to any additional requirements.

Proposal 2.1

The Government proposes to amend the PCMLTFA and its 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 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.

By requiring the mandatory reporting of such transactions, FINTRAC will be better able to comprehensively integrate this information into its analysis and improve the quality of its disclosures.

ATB Financial does not support this Proposal because it is not operationally feasible. Suspicious attempted transactions, by virtue of them not being completed, would not give rise to the information that is required to be reported to FINTRAC.

Proposal 3.2

The Government proposes to create an 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 associated 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. wilful 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.

ATB Financial submits that many of the requirements of the PCMLTFA are inherently subjective; therefore, if such an administrative monetary penalties regime is created, Government should apply it very judiciously.

Proposal 5.1

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 otherdeposit 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.

Consistent with the recommendation of the Auditor General, the Government believes that the creation of such an advisory committee would lead to effective coordination of AML/ATF efforts at the federal level.

ATB Financial submits that any such advisory committee should be established and led by industry, not Government. As industry is responsible for operationalizing the management framework of Canada's anti-money-laundering and anti terrorist financing regime, it must have a primary voice in determining which requirements are, and are not, feasible.

6.1 Bundled electronic funds transferred

Clarify the reporting requirements in respect of bundled EFTs

Consistent with the objective of seeking the least intrusive solution and Government's commitment to minimize the compliance burden on reporting entities, ATB Financial supports this Proposal.

6.2 Beneficiary Information in EFTs

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

ATB Financial submits that any additional reporting requirements be phased-in to permit reporting entities to develop or refine policies, procedures and processes and to train staff in relation to any additional reporting requirements.

Proposal 6.5 Canada Revenue Agency-Issued Business Numbers

Require reporting entities to obtain and report business numbers.

ATB Financial submits that any additional reporting requirements be phased-in to permit reporting entities to develop or refine policies, procedures and processes and to train staff in relation to any additional reporting requirements.

Proposal 6.7 Third Party Determination Requirement for Business Account

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.

Consistent with the objective of seeking the least intrusive solution and Government's commitment to minimize the compliance burden on reporting entities, ATB Financial supports this Proposal.

Proposal 6.8 Terrorist Property Reports

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

ATB Financial submits that any additional reporting requirements be phased-in to permit reporting entities to develop or refine policies, procedures and processes and to train staff in relation to any additional reporting requirements.

Proposal 6.12 Compliance Regime

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

ATB Financial submits that any additional requirements be phased-in to permit reporting entities to develop or refine policies, procedures and processes and to train staff in relation to any additional requirements.

Proposal 6.13 Providing Documents to Compliance Officers

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

ATB Financial submits that when a FINTRAC compliance officer requests documents, they should be produced at a site that is agreed upon by both the reporting entity producing the documents and FINTRAC, having regard to the reasonableness of the request and business efficacy.

Proposal 6.14 Compliance Questionnaires

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

ATB Financial is concerned that the completion of compliance questionnaires by reporting entities may not fulfill the stated purpose of facilitating risk assessment by FINTRAC and that being required to do so will serve to divert resources away from the more valuable identification, recording and reporting requirements. Moreover, compliance and risk assessments are already being conducted through other means by FINTRAC.

Consistent with the objective of seeking the least intrusive solution and Government's commitment to minimize the compliance burden on reporting entities, ATB Financial does not support this Proposal.

Proposal 6.15 Statute of Limitations for Non-Compliance Infractions

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

ATB Financial does not object to this Proposal.

Proposal 6.16 Reporting Entities Going Out of Business

Transfer the obligations under the Act of a company that is no longer in business to its directors.

ATB Financial submits that this Proposal is consistent with current prevailing business practices of holding directors and officers liable for the actions of the company in respect of which they hold such positions.

ATB Financial is pleased to grant permission for the posting of this submission on the Department of Finance website. In granting this permission, as requested the following information is being provided:

Cheryl Prior
ATB Financial
14th Floor
Corporate Offices
9888 Jasper Avenue NW
Edmonton, AB, T5J 1P1
Ph: 780-408-7242
Fax: 780-408-7262
cprior@atb.com

Sincerely,
Cheryl Prior
Manager, Operational Risk Management, Anti money Laundering, Fraud and Loss ATB Financial

c.c. Robert L. Ascah, Vice-President, Government Relations, Research & Analysis 
Judy Henderson, Compliance Manager, Legal and Regulatory Compliance