State of Financial Crime 2023 Report
Introduction to Anti-Money Laundering in Canada
This synopsis of Canada’s Anti-Money Laundering and Anti-Terrorist Financing (AML/ATF) regime is intended to summarize the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, FATF’s most recent mutual evaluation of Canada’s compliance with its AML/ATF recommendations, Canada’s improvements in response to FATF findings, the current state of AML enforcement in Canada, including administrative monetary penalties and criminal penalties for non-compliance, regulatory expectations for robust compliance programs, and the challenges in AML/ATF compliance.
This summary is intended for informational and educational purposes and every attempt has been made to ensure that the information is reliable, however, there is no warranty or representation expressed or implied as to its accuracy or completeness. Regulations may be subject to different interpretations or opinions and many of the laws and rules discussed are presented as generalized summaries and should not be relied upon as complete statements of all applicable requirements. Federal laws and regulations change from time to time; accordingly, you should consult the federal laws and regulations and self-regulatory association rules and regulations as authoritative sources.
The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC)
What is FINTRAC?
The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), also known by its French name Centre d’analyse des opérations et déclarations financières du Canada (CANAFE), is the national financial intelligence agency of Canada. FINTRAC was established in 2000 under the Proceeds of Crime (Money Laundering) Act and requires financial institutions and other reporting entities to identify and investigate financial crimes. FINTRAC is independent from Canada’s law enforcement agencies, police services, and other government entities, but is authorized to contact them and disclose financial intelligence. The agency reports to the Minister of Finance, who in turn reports to Canada’s Parliament.
In 2001, FINTRAC’s authority was expanded to include the disclosure of financial intelligence related to terrorist financing to other Canadian intelligence and law enforcement agencies. In 2006, FINTRAC’s authority was further expanded to include enhanced client identification, record-keeping and reporting, the establishment of a registry of money services businesses and foreign exchange dealers, and to assess monetary penalties for such entities that fail to register as MSBs in accordance with the anti-money laundering in Canada regulations.
FINTRAC conducts the following activities:
- Enhancing public awareness and understanding of money laundering and terrorist financing;
- Ensuring the compliance of reporting entities (REs) with the legislation and regulations;
- Receiving financial transaction reports and voluntary information in accordance with the legislation and regulations;
- Maintaining a registry of money services businesses in Canada;
- Safeguarding personal information under its control;
- Producing financial intelligence relevant to investigations of money laundering, terrorist activity financing, and threats to the security of Canada; and
- Researching and analyzing data received from a variety of sources to determine trends and patterns in money laundering and terrorist activity financing.
Since 2019, FINTRAC’s national security and intelligence activities have been subject to oversight by Canada’s National Security and Intelligence Review Agency and its National Security and Intelligence Committee of Parliamentarians. FINTRAC is also a member of the Egmont Group of Financial Intelligence Units, an international organization of financial intelligence bodies.
The Proceeds of Crime Money Laundering and Terrorist Financing Act
The Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA or the ACT) was enacted by the government of Canada with the advice and consent of the Senate and House of Commons. The purpose of the ACT is to regulate the prohibition of laundering the proceeds of crime and to combat terrorist financing activities. The ACT also established the Financial Transactions and Reports Analysis Centre of Canada and amended certain additional regulations.
The objectives of the PCMLTFA with regards to anti-money laundering in Canada include:
- Establishing an agency that is responsible for ensuring compliance with the ACT and dealing with reported suspicious activity
- Detecting and deterring money laundering and terrorist financing activities
- Requiring the reporting of suspicious financial transactions and cross-border movement of currency and monetary instruments
- Facilitating the investigation and prosecution of money laundering and terrorist activity offenses
- Establishing recordkeeping and client identification requirements
- Responding to organized crime while ensuring appropriate safeguards for the protection of personal information
- Assisting in fulfilling Canada’s international commitments to participate in the fight against transnational crime, and
- Enhancing Canada’s capacity to implement targeted measures to protect its financial system
The Financial Action Task Force (FATF) on Anti-Money Laundering in Canada
The Financial Action Task Force on Money Laundering (FATF), also known by its French name, Groupe d’action financière (GAFI), is an independent international body that develops and promotes policies to protect the global financial system against money laundering, terrorist financing, and related threats. It currently consists of 39 member countries, 9 FATF-style regional bodies (FSRB), and 209 FSRB countries and jurisdictions.
FATF implements and updates policies to help bring about legislative and regulatory reforms in its member countries to help them detect and prevent money laundering and terrorist financing. FATF also monitors its members’ progress in implementing its recommendations through reviews of member countries’ policies and practices.
FATF has established international standards regarding beneficial ownership of legal entities and proposes how beneficial ownership should be defined. FATF defines a beneficial owner as a natural person who ultimately owns or controls a legal entity and the natural person on whose behalf a transaction is being conducted. The definition also includes persons who exercise ultimate effective control over an entity or financial arrangement.
Money laundering methods and activities often change in response to countermeasures that are implemented. In recent years, FATF has noted increasingly sophisticated techniques, including the increased use of legal entities to disguise the ownership and control of illegal proceeds and an increased use of professionals to provide advice and assistance in laundering criminal funds.
In response to the changes in criminal practices, FATF has established 40 Recommendations that provide a set of countermeasures against money laundering related to the criminal justice system and law enforcement, the financial system and its regulation, and international cooperation. These recommendations represent best practices for member countries to follow with respect to anti-money laundering, which are supplemented by nine recommendations with respect to anti-terrorist financing. These are known collectively as the 40+9 Recommendations.
In June 2019, FATF issued broad recommendations regarding financial crime compliance applicable to virtual value including stringent requirements to develop risk-based programs that account for the risks in an entity’s type of business, capture and share customer data with related crypto-enabled entities, assess and mitigate the risks associated with virtual asset activities and service providers, conduct risk assessments of customers and businesses for Illegal activities, monitor for unusual activity and file suspicious transaction reports regarding any inconsistency with a customer’s stated business or industry practice. The FATF guidance encourages countries to implement sanctions and other enforcement measures when entities fail to comply with their AML/ATF obligations and emphasizes the importance of international cooperation.
FATF Mutual Anti-Money Laundering in Canada Evaluation Report
In September 2016, the International Monetary Fund conducted a detailed assessment of Canada’s AML/ATF framework. The resulting report was adopted by the FATF as Canada’s 4th mutual evaluation report. The assessment found that Canada has a strong regime to combat money laundering and the financing of terrorism which achieves good results in some areas but requires further improvements to be fully effective.
The report included findings and recommendations for improvement including that:
- AML/ATF measures covered all high-risk areas except legal counsel, legal firms and Quebec notaries. This was deemed to be a significant deficiency in Canada’s AML/ATF framework.
- Law enforcement results are not commensurate with the money laundering risk and asset recovery is low.
- Financial Institutions (FIs), including the six domestic systemically important banks, have a good understanding of their risks and obligations and generally apply adequate mitigating measures. However, this is not true for Designated Non-Financial Business and Professions (DNFBPs). Reporting Entities have gradually increased their reporting of suspicious transactions, but reporting by DNFBPs, other than casinos, is very low.
- FIs and DNFBPs are generally subject to appropriate risk-sensitive AML/ATF supervision, but supervision of real estate businesses and Dealers in Precious Metals and Stones (DPMS) is not entirely commensurate to the risks in those sectors.
- There is a high risk of misuse by legal persons and arrangements and that risk is not mitigated.
Improving Canada’s AML and Anti-Terrorist Financing Regime
In response to the FATF Mutual Evaluation Report of Canada, the Department of Finance Canada (French: Ministère des Finances Canada) issued a discussion paper in 2018, “Reviewing Canada’s Anti-Money Laundering and Anti-Terrorist Financing Regime”, in preparation for enacting Finance Canada’s Parliamentary Review of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA).
The paper asked for views from stakeholders on how to improve the Canadian Anti-Money Laundering (AML) and Anti-Terrorist Financing regime. Finance Canada also requested input on “corporate ownership transparency and mechanisms” that would “improve timely access to beneficial ownership information by authorities while maintaining the ease of doing business in Canada.”
The resulting November 2018 report of the Standing Committee on Finance recommended the creation of a “pan-Canadian beneficial ownership registry” of all legal persons and entities, including trusts, who have significant control. Significant Control is defined as having at least 25% share ownership or voting rights. The proposed registry would include details such as names, addresses, dates of birth and nationalities of individuals with significant control. The proposal suggested that the registry would not be publicly accessible, but could be accessed by certain law enforcement authorities, the Canada Revenue Agency, Canadian Border Services Agency, FINTRAC, and authorized reporting entities and other public authorities.
The Innovation, Science and Economic Development Canada issued a report on February 13, 2020, titled “Strengthening Corporate Beneficial Ownership Transparency in Canada”, acknowledging the “scale and ease of use of corporations and other legal entities to evade or avoid taxes and facilitate criminal activities such as money laundering, terrorist financing, and corruption.” Because corporate structures may be multi-layered and registered across several jurisdictions, the beneficial ownership can be easily obscured to prevent law enforcement officials from detecting such activity.
The Organisation for Economic Co-operation and Development (OECD), also known by its French name Organisation de Coopération et de Développement Économiques (OCDE), an intergovernmental economic organization, concluded that “regardless of the reasons why the cloak of anonymity is made available, if it is provided it will also assist those who may wish to remain hidden because they engage in illegal or criminal activities, including terrorists.”
Changes to the PCMLTFA
The Canadian parliament and regulatory authorities implemented amendments to the PCMLTFA and its Regulations in June 2018 to bring Canada’s anti-money laundering and anti-terrorist financing regime in line with Financial Action Task Force (FATF) standards. These were revised after rounds of consultations. The new regulations make a number of amendments to prior amendments to the existing regulations under the PCMLTFA that were published on February 15, 2020. The final version of the PCMLTFA amendments was published on June 10, 2020.
Certain changes were effective June 25, 2019 including:
- Allowing the use of scanned or photocopied documents.
- A criminal code change to prohibit moving money on behalf of another person if you are aware that there is a risk that the funds could be from money laundering activities.
- An alert memorandum to help casinos identify and report suspicious transactions related to the casino business.
- A requirement for FINTRAC to make all monetary penalties public.
Additional changes were effective June 1, 2020, including:
- The requirement for Cryptocurrency dealers to register as money services businesses and comply with legislative obligations required of financial institutions.
- New rules for cross-border currency and monetary instruments reporting.
- Virtual currency obligations for all REs, including submitting Large Virtual Currency Transaction Reports (LVCTRs) to FINTRAC
Other amendments are effective June 1, 2021 including:
- New and revised definitions including that the definition of “business relationship” applies to the real estate sector, requiring real estate developers, real estate brokers and sales representatives to comply with the client identification requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its associated regulations; the intent is to continue exempting low-risk accounts from the formation of a business relationship and exceptions which were previously included in the definition of business relationship have been restated for clarification.
- Customer due diligence requirements and beneficial ownership requirements apply to all REs including accountants and accounting firms, British Columbia notaries, casinos, departments and agents or mandataries of Her Majesty, dealers in precious metals and stones, and real estate brokers, sales representatives and developers;
- The time for submitting a suspicious transaction report (STR) has been substantially reduced, from “within 30 days” of determining that the activity is suspicious to “as soon as practicable”; additional information is also required in the STR.
- A terrorist property report is required to be filed “immediately.”
- Domestic and foreign businesses that deal in virtual currency need to fulfill certain AML/ATF obligations, including registering with FINTRAC, implementing a full compliance program. There are limited exceptions, for example for businesses that deal only in virtual currencies that are not convertible to traditional currencies (“closed-loop” virtual currencies).
- Foreign MSBs that do not have a physical presence in Canada but which service Canadian customers via internet or fintech transactions are now regulated by Canadian regulations and are required to comply with the PCMLTFA and its Regulations.
- The travel rule requires REs (financial entities, MSBs and casinos) to obtain and record the name, account number and address of the client requesting international EFTs, and to take “reasonable measures” to ensure that incoming international EFTs also include that information. The amended rule extends those requirements to the beneficiary of international transfers, which may be different from the recipient.
- REs are also required to take “reasonable measures” to ensure that any transfer that is received by the RE includes information regarding the requester and the beneficiary.
- Securities dealers have to keep records of no more than three persons, as opposed to all persons, authorized to access a business account, consistent with the requirement for financial entities.
- Prepaid payment products and accounts obligations for financial entities
- Identity verification is required once a credit card is activated, instead of when it is issued, to match the requirements for prepaid payment product accounts.
- Casinos must comply with customer due diligence requirements that meet FATF standards;
- REs do not have to conduct a PEP determination for certain low-risk entities and accounts (such as a corporation or trust that has minimum net assets of $75 million and whose shares or units are traded on a Canadian stock exchange, which is unlikely to be a PEP).
- A PEP review must be conducted for all persons who send or receive CAD 100,000 or more via EFT or virtual currency, or who make a payment or transfer of CAD 100,000 or more to a prepaid account, such as a prepaid card.
- REs are required to determine a PEP’s “source of wealth” rather than only determining the source of funds deposited into the account.
- Life insurance businesses that provide loans against the cash surrender value of policies or issue pre-paid products are required to comply with PCMLTFA and the enacted Regulations.
Strengthening AML/ATF Regulations in Canada
In an effort to improve money-laundering regulations in Canada, the federal government introduced new beneficial ownership regulations effective June 13, 2019 under the Canada Business Corporations Act (CBCA). The CBCA now requires that private federally-registered corporations collect information on “Individuals with Significant Control” (ISC). This change does not affect public or provincially-formed corporations. The obligation specified in the CBCA is designed to provide greater transparency as to who owns and controls Canadian businesses and to assist law enforcement agencies in detecting and prosecuting money laundering and tax evasion.
The Canadian Federal Corporation database includes the following types of federal corporations:
- A business corporation created under the Canada Business Corporations Act (CBCA)
- A not-for-profit corporation created under the Canada Corporations Act, Part II (CCA II)
- A not-for-profit corporation created under the Canada Not-for-profit Corporations Act (NFP)
- A Cooperative created under the Canada Cooperatives Act (COOP)
- A Board of trade created under the Boards of Trade Act (BOTA)
- Any other corporation regulated by Corporations Canada (e.g., a special act corporation)
The Federal database does not include corporations created under financial legislation (such as financial institutions, insurance companies or loan and trust companies) or those created under provincial/territorial legislation or corporate legislation from another jurisdiction. Corporations created under provincial/territorial legislation are listed in Canada’s Business Registries.
Enhancing Investigations and Law Enforcement Effectiveness
While amending AML laws to keep pace with criminal trends and FATF updates, Canada has also given investigators larger budgets to provide more resources. Canada’s top governmental officials have detailed their efforts to strengthen AML regulation, give more resources to investigators, and enhance law enforcement effectiveness, including:
- Improving beneficial ownership transparency. Participating provinces and territories will initiate open consultations towards a beneficial ownership public registry. These consultations will examine the benefits of a public registry and prioritize business competition, individual privacy, and respect of jurisdictional responsibility.
- Helping governments investigate and prosecute financial criminals. The federal government will provide up to $10 million to the Royal Canadian Mounted Police to help it invest in information management, IT infrastructure, and digital tools to pursue complex financial crimes.
- Creating a new working group with the Federation of Law Societies of Canada to address the inherent risks of money laundering and other prohibited activity that may arise in the practice of law.
- Working with other governments on anti-money laundering best practices and reporting back to the Ministers.
The Canadian government has also created a financial crime compliance and an investigations task force to broaden investigative resources, effectiveness, and outcomes to detect and halt large money laundering networks. This new tactic by the federal government is just one of the ways that Canada is attempting to improve its regulatory, compliance, and investigative track record for countering large-scale, complex, and international money laundering operations.
Ultimate Beneficial Ownership
The legal owner (i.e., the owner of record) of an entity is the registered owner and, if that individual is not the beneficial owner, they may be described as a nominee. Beneficial owners are “natural persons” who ultimately own or control a legal entity or arrangement, such as a company, trust, or foundation. An Ultimate Beneficial Owner (or UBO) is the person that is the beneficiary who ultimately own or control a legal entity or arrangement. The definition of a UBO varies by jurisdiction but is generally defined as an individual who holds a minimum of 10 – 25% (dependent on the jurisdiction) of capital or voting rights in the underlying entity or otherwise controls the entity. The terms ‘ultimately owns or controls’ and ‘ultimate effective control’ refer to situations in which ownership/control is exercised through a chain of ownership or by indirect means of control.
- According to Trulioo, a Vancouver BC-based company, the process of identifying the Ultimate Beneficial Ownership includes:
- acquiring and verifying a company’s accurate company information including register number and company name, address, status, and key management personnel;
- analyzing ownership structure and percentages;
- determining the entities or natural-persons who have an ownership stake, either through direct ownership or through another party;
- identifying beneficial owners;
- calculating the total ownership stake, or management control, of any natural person to determine if it crosses the threshold for UBO reporting; and
- and performing AML/KYC checks on all individuals that meet the definition of UBO.
Individuals with Significant Control
The CBCA defines Individuals with Significant Control as, “anyone with direct or indirect ownership or control over a significant number of shares of a corporation (i.e., 25% of the voting rights or fair market value of the outstanding shares), or who has any direct or indirect influence that, if exercised, would result in control in fact of the corporation, among other circumstances”. This definition corresponds with the standards adopted by FATF.
An ISC is someone who owns or controls a corporation. This individual may:
- own, control or direct a significant number of shares, or
- have significant influence over the corporation without owning any shares; or
- have a combination of these factors.
A significant number of shares is:
- 25% of the voting shares or
- 25% of all the shares based on the fair market value of the shares.
An individual can also be an ISC if they own or control a significant number of shares in concert with one or more individuals. For example, an individual may individually own less than 25% of a corporation’s shares but have an agreement with one of more family members or other shareholders to vote the shares together in the same manner. If this group collectively owns 25% or more of a corporation’s shares, each member of the group is considered an ISC and needs to be recorded in the company register.
Register of Individuals with Significant Control
The register of individuals with significant control is a log, database, or spreadsheet that contains information about each ISC.
For each ISC, the register must include:
- their name, date of birth and address (residential or address for service)
- their jurisdiction of residence for tax purposes
- date when control started having significant control
- date when significant control ended
- a description of the reason that the ISC has significant control
- any other prescribed information
Corporations are required to keep this register with the corporate records, such as bylaws and articles of incorporation.
People who own their own business are typically the only ISC if they own 100% of the business. For larger businesses, there may be multiple shareholders and/or business owners. In this case, the business would list all those who own or control a significant number of shares or have a major influence on the business but do not own shares of the entity.
When a request for ISC information is made, individuals have an obligation to provide accurate and complete information and respond as soon as possible.
Updating Information in the ISC Register
New regulations require REs to maintain the accuracy of the ISC information throughout the relationship with the customer. Businesses are required to maintain a register of individuals with significant control based on the information provided by shareholders or other persons with significant control. This includes taking reasonable steps to find out:
if any of the information contained in the register has changed, and if additional individuals need to be added.
The business must update the information in the register at least once a year. If changes affecting the register occur at other times in the year, the business needs to record the change within 15 days of becoming aware of the new information.
Who Can Access the ISC Register
The business is not required to disclose its register of individuals with significant control to the public. Upon request, however, the business is required to disclose the register to:
- its shareholders and creditors (the inquirer must provide an affidavit stating that the information obtained will only be used for matters related to the business, for example to influence voting or to acquire shares);
- investigative bodies; and
- Corporations Canada.
The corporation’s bank or financial institution could also ask for information about who controls the corporation.
Ultimate Beneficial Owner Regulation Promotes Greater Transparency
The vast majority of Canadian businesses are honorable and law-abiding. They are supported by a robust governance framework that prioritizes ease of doing business and promotes economic growth. However, some businesses are vulnerable to exploitation by individuals seeking to conceal ownership and control for illegal purposes, including money laundering, terrorist financing and tax evasion. Hence the need for Canada’s anti-money laundering regulations.
Recent international and domestic events have emphasized how enhanced transparency of the ownership and control of businesses and arrangements can strengthen law enforcement efforts to prevent the misuse of legal entities. For example, the Panama Papers highlighted the ease of use of corporations and other legal entities to evade or avoid taxes, facilitate criminal activities, and conduct corrupt activities.
Advances in Canada’s AML/ATF Regulations
The federal government, provinces and territories share responsibility for corporate governance on anti-money laundering in Canada. In December 2017, federal, provincial, and territorial finance ministers agreed in principle to pursue legislative amendments to their respective statutes to require all corporations within their jurisdictions to hold accurate and up-to-date beneficial ownership information that would be available to law enforcement, tax and other competent authorities.
In fall 2018, the Government of Canada amended the Canada Business Corporations Act (CBCA) to require privately-held, federally-incorporated corporations to create and maintain a register with certain information about their “individuals with significant control” (ISCs).
In 2019, to enhance the availability of beneficial ownership information to certain authorities, the CBCA was further amended to require these same corporations make their registers of ISCs available to certain investigative bodies upon request (subject to certain conditions). British Columbia and Manitoba have passed similar legislation improving the availability of beneficial ownership information within their jurisdictions, and the Saskatchewan legislature recently introduced a beneficial ownership bill. The remaining provinces and territories continue to work on the implementation of their own respective legislation.
In June 2019, federal, provincial and territorial governments participated in a special joint meeting on anti-money laundering in Canada. They reaffirmed their commitment to action on beneficial ownership transparency. They agreed to cooperate on initiating consultations to examine how to make beneficial ownership information more transparent through initiatives such as providing access through public registries to combat financial crimes while prioritizing business and individual privacy.
Several other countries have added transparency requirements that require corporations to collect and record beneficial ownership information and to report some or all of that information to a central registry available to appropriate authorities. Some countries also make the beneficial ownership information held in those registries accessible to the public.
The primary goal of requiring a central registry is to provide authorities with direct access to accurate information on companies that incorporate in a given jurisdiction, allowing for more efficient investigations involving corporations and minimizing the risk of tipping off parties to the investigation. Public registries could also be used by financial and non-financial businesses to conduct customer due diligence. However, requiring a public registry has the potential of introducing risks to the misuse of the information contained in the registry.
In Canada, the issues and relevant considerations regarding the establishment of a public registry of beneficial ownership have been the subject of recent review. In its 2018 review of Canada’s anti-money laundering regime, the House of Commons’ Standing Committee on Finance recommended that the Government of Canada work with the provinces and territories to create a pan-Canadian beneficial ownership registry for all legal persons and entities, accessible specifically to appropriate authorities and reporting entities with customer due diligence obligations.
British Columbia and Quebec have taken steps by adopting the Land Ownership Transparency Act and proposing a provincial public registry. The provinces are expected to enact similar requirements for corporations formed under provincial statutes in the future based on joint federal-provincial agreements. On April 2, 2019, British Columbia was the first province to introduce its own legislation to require registers of beneficial ownership information for provincially incorporated companies with an effective date of May 1, 2020. The BC government also launched a public consultation on whether to implement a central registry of beneficial ownership for BC companies in a government database.
There are a number of issues that are not yet addressed by Canadian law or regulation. These include Canadian anti-money laundering and anti-terrorist financing compliance by alternative mortgage providers, mortgage insurers and providers of white-label automated teller machines, and a national registry of beneficial ownership. Regulations addressing these areas are likely to be implemented in the near future.
In addition, most Canadian AML/ATF laws do not apply to attorneys and law firms. A Canadian Supreme Court decision in 2015 found that AML/ATF reporting requirements could violate attorney/client privilege, effectively excluding lawyers and law firms from the need to comply with these requirements with respect to their clients. To date, no legislation has been passed that would address this issue.
Beneficial Ownership Consultation Paper
By way of a consultation paper, the government is seeking to build on measures already put in place to track the beneficial ownership of Canadian corporations. The overarching objective is to seek feedback on potential measures to further increase beneficial ownership transparency via a public registry (or registries) to reduce the misuse of corporations by individuals to hide or launder money, or evade taxes, without deterring the vast majority of good corporate citizens from conducting their business activities.
The Government of Canada requested feedback to help assess:
- whether Canada should establish a public registry (or registries) of beneficial ownership information;
- potential ways to mitigate compliance costs for corporations;
- how best to protect the privacy of personal information while permitting access to beneficial ownership information;
- considerations for verification and monitoring; and
- the potential impact on investment, economic growth and competition, among other factors.
Enforcement of FINTRACs Regulations
Since December 30, 2008, FINTRAC has had legislative authority to issue an administrative monetary penalty (AMP) to reporting entities that are not in compliance with Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act. Non-compliance with Parts 1 and 1.1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act may result in criminal or administrative penalties.
FINTRAC has faced challenges in the past due to a 2016 appeals court ruling that FINTRAC’s method of calculating fines was not clear, which resulted in organizations being unable to challenge the amount of the fines due to the lack of uniformity in calculating them. A Federal Court of Appeals ruling repealed six violation notices. This resulted in FINTRAC not assessing any fines on financial institutions for AML violations for a period beginning May 2016 through February 2020.
Partly as a result of the above, in 2019, FINTRAC conducted a comprehensive multi-year review of its policies regarding administrative monetary penalties and in June 2020, the final version of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act was amended. There were significant changes including the timing of Suspicious Transaction Reports, tighter restrictions on pre-paid products, handling of Virtual Currency transactions.
The revised AML framework also provides a thorough description of the tools and services available to financial institutions to help comply with the regulatory requirements. FINTRAC published a series of guides explaining the criteria that it uses to evaluate whether a reporting entity has violated a provision of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act or the designated rules under the Act. The Harm Done Assessment Guides published by FINTRAC explains the levels of severity of AML violations and the base amount of the administrative monetary penalties for each level.
The changes implemented by FINTRAC reinforced its power to impose administrative monetary penalties and FINTRAC now announces the assessment of all administrative monetary penalties. However, both criminal and administrative monetary penalties cannot be issued for the same instances of non-compliance.
FINTRAC’s penalty review has resulted in five documents for use in compliance enforcement matters:
- The Compliance Framework;
- The Assessment Manual;
- The Administrative Monetary Penalty (AMP) policy;
- Sample penalty calculations; and
- A voluntary declaration of non-compliance policy.
The AMP policy includes a two-step process for calculating AMP amounts for violations of the PCMLTFA when FINTRAC determines, in its discretion, to issue an AMP:
- First, FINTRAC will classify the violation and assess the harm done. Harm is defined as the degree to which a violation interferes with achieving the objectives of the PCMLTFA or FINTRAC’s ability to carry out its mandate.
- Second, FINTRAC will assess the reporting entity’s compliance history. Penalties for first-time violations will generally be reduced by two-thirds of the base amount. Penalties for second-time violations of the same type will generally be reduced by one-third of the base amount. Penalties for third-time violations will be assessed at the full base amount.
The voluntary declaration of non-compliance policy provides that where the declared non-compliance issue is not a repeated instance of a previously voluntarily disclosed issue; and the declaration has not been made after the reporting entity has been notified of an upcoming examination, FINTRAC will not issue an AMP.
FINTRAC published guides that explain the harm done criteria and the base penalty amount for violations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its regulations. These guides are available on its website at the links below:
- Guide on harm done assessment for compliance program violations
- Guide on harm done assessment for large cash transaction reports, electronic funds transfer reports, and casino disbursement reports violations
- Guide on harm done assessment for suspicious transaction reports violations
- Guide on harm done assessment for “Know your client” requirements violations
- Guide on harm done assessment for record keeping violations
- Guide on harm done assessment for money services businesses registration violations
- Guide on harm done assessment for violations of other compliance measures
Criminal Penalties for Non-Compliance with FINTRACs Regulations
FINTRAC may disclose cases of non-compliance to law enforcement for prosecution when there is extensive non-compliance or little expectation of immediate or future compliance. Criminal penalties may include the following:
- Failure to report suspicious transactions: up to $2 million and/or 5 years imprisonment.
- Failure to report a large cash transaction or an electronic funds transfer: up to $500,000 for the first offence, $1 million for subsequent offences.
- Failure to meet record keeping requirements: up to $500,000 and/or 5 years imprisonment.
- Failure to provide assistance or provide information during compliance examination: up to $500,000 and/or 5 years imprisonment.
- Disclosing the fact that a suspicious transaction report was made, or disclosing the contents of such a report, with the intent to prejudice a criminal investigation: up to 2 years imprisonment.
Expectations for Robust Compliance Programs
Financial institutions, including Canada’s six domestic systemically important banks, generally apply adequate measures to mitigate the money laundering and terrorist financing risks. Canada has addressed the priority actions from the previous mutual evaluation report and has implemented advances in AML Regulation that it expects will help it receive an improved review by the FATF in its next mutual evaluation report.
Canada’s Budget 2021 proposes additional measures to further strengthen Canada’s AML and anti-terrorist financing regime and enhance the stability, security, and integrity of the financial system in advance of the next legislative review. Budget 2021 will provide FINTRAC with $4.6 million over four years, starting in 2022, and $0.6 million annually thereafter, to help enable it to increase its expertise related to virtual currency; supervise the armored car sector and other designated non-financial businesses and professions; and develop and administer a cost-recovery scheme for its compliance activities.
Nada Semaan, FINTRAC’S Director, and Chief Executive Officer stated in her message in the 2020–21 Departmental Plan, “These are challenging times, as we strive to stay ahead of criminals and hostile actors who aim to exploit our financial system to launder their proceeds from large-scale fraud, trafficking and corruption. At the same time, both FINTRAC and Canada’s broader AML/ATF Regime must address the continual pressures of global technological change which affect our society generally and the financial sector specifically. To deliver our intended results, we will harness digital renewal to enhance our capabilities. We will collaborate with our many stakeholders — regulatory partners, thousands of Canadian businesses, Canada’s police, law enforcement, and national security agencies, and our international allies — to share information and best practices.”
Canada’s regulatory agencies have taken and are continuing to take significant steps to enhance the country’s anti-money laundering regime. With the overarching pillars of promoting a culture of accountability; preparing FINTRAC for the future; and collaborating to strengthen results, FINTRAC’s Strategic Plan articulates six priorities, along with key strategic actions. The government has addressed the critical areas and financial institutions and designated non-financial businesses and professions are expected to implement these changes to enable Canada to reach its goals of detecting, preventing, and disrupting criminal activity.
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